As filed with the
Securities and Exchange Registration No.
Commission on
February 10,1995 33-89406
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
(Exact name of Registrant as specified in Declaration of Trust)
New Jersey I.D. 22-1697095
- ------------------------------- ------------------------------------
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
505 Main Street, P.O. Box 667
Hackensack, New Jersey 07602
Telephone Number 201-488-6400
(Address, including zip code and telephone number, including
area code, or registrant's executive offices)
Robert S. Hekemian, Copy to
Chairman of the Board Leonard A. Peduto, Jr.
First Real Estate Investment CHAPMAN, HENKOFF, KESSLER,
Trust of New Jersey PEDUTO & SAFFER
505 Main Street, P.O. Box 667 425 Eagle Rock Avenue - P.O. Box F
Hackensack, New Jersey 07602 Roseland, New Jersey 07068
Telephone Number 201-488-6400 Telephone Number 201-403-8800
- --------------------------------------- -----------------------------------
(Name, address, including zip code, and (Name and address, including zip
telephone number, including area code, code, of counsel for the Trust)
of agent for service)
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration
Statement becomes effective and after the record date
for the first payment of dividends following the effective date
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, check the following box. [X]
If any of the securities being registered under this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Title of each Class Amount Proposed Proposed
of Securities to Be To Be Maximum (1) Maximum Amount of
Registered Registered Offering Price Aggregate Registration Fee
Offering Price
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of beneficial
interest, no par
value 750,000 $23.00 $17,250,000 $5,947.80
</TABLE>
(1) Estimated pursuant to Rule 457(c) under the Securities Act of 1933 solely
for purposes of calculating the registration fee, based upon the average of the
bid and asked prices for the Shares during the period from January 1, 1995 to
March 1, 1995.
<PAGE>
PRELIMINARY PROSPECTUS DATED MARCH 29, 1995
PROSPECTUS
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
Dividend Reinvestment and Share Purchase Plan
Shares of No Par Value
The Dividend Reinvestment and Share Purchase Plan (the "Plan") described
herein, of the First Real Estate Investment Trust of New Jersey (the "Trust"), a
real estate investment trust operating under the Internal Revenue Code of 1986,
as amended (the "Code"), provides to all holders of record of the Trust's Shares
of beneficial interest, no par value (the "Shares"), the opportunity to purchase
additional shares, through automatic reinvestment of dividends or additional
voluntary cash investments, without paying any service fees, brokerage
commissions or other charges. Any owner of record of at least one hundred (100)
Shares is eligible to participate in the Plan. Investment options offered under
the Plan are:
Full Dividend Reinvestment -- Reinvest cash dividends on all Shares held.
Partial Dividend Reinvestment -- Reinvest cash dividends on a specific,
designated number of Shares registered in the holder's name and all Shares
purchased under the Plan, and continue to receive cash dividends on the balance
of the holder's Shares.
Voluntary Cash Investment -- Participants may also make voluntary cash
payments up to an aggregate of $5,000 during the three-month period immediately
preceding any quarterly dividend payment ("dividend payment cycle").
The Plan will be administered by Registrar and Transfer Company (the
"Agent" and the "Plan Administrator") which will act as Agent for Participants.
Participants in the Plan shall have dividends on all or a designated portion of
their Shares automatically reinvested. Participants may also make voluntary cash
investments of not less than $250 per payment and not more than $5,000 per
quarter. Voluntary cash payments must be received by the Agent no earlier than
thirty (30) calendar days prior to the applicable dividend payment date and no
later than the second business day prior to the applicable dividend payment date
and, if so received, will be invested in Shares on such dividend payment date.
Voluntary cash payments received prior to the thirtieth calendar day or after
the second business day preceding the applicable dividend payment date will be
returned.
The price of the Trust's Shares purchased with reinvested dividends will be
98% of the fair market value of the Trust's Shares, determined as of the
applicable dividend payment date. The fair market value of the Shares will be
the average of the bid and asked prices per Share in transactions occurring
during the fifteen (15) trading days preceding the relevant dividend payment
date, as reported by the brokerage firm or firms then making a market in the
Trust's Shares. At present, only one firm makes a market in the Trust's Shares
and the Shares are traded on a sporadic basis.
In the event that there are no trades, or an insufficient number of trades
upon which to form a basis to determine fair market value, within fifteen (15)
trading days prior to the relevant dividend payment date, the fair market value
of the Shares shall be determined by reference to other factors deemed by the
Plan Administrator and the Trust to be appropriate. Such other factors may
include, but are not limited to: (a) bid and asked quotes reported by the market
maker or market makers on dates that are recent but are prior to the fifteen
(15) trading day period immediately preceding the dividend payment dates; (b)
prices at which the Shares are known to have been traded in recent transactions;
(c) a multiple of the Trust's book value per share, which multiple is deemed
consistent with the multiple of the trading prices of real estate investment
trusts and/or companies deemed similar to the Trust but whose stock is more
readily traded and quoted in the public markets; and (d) a price to earnings
ratio, based upon the net income of the Trust, which is deemed consistent with
the price to earnings ratios reflected by the trading prices of real estate
investment trusts and/or companies deemed similar to the Trust, but whose stock
is more readily traded and quoted in the public markets. The price of Shares
purchased with voluntary cash investments will be 100% of the fair market value,
determined as described above.
The Trust reserves the right to amend or modify the pricing of Shares
purchased through the Plan (including the elimination of the discount for Shares
purchased with reinvested dividends), or any other provisions of the Plan at any
time.
If you hold at least 100 Shares and are not a member of the Plan, you may
join the Plan by delivering a signed Enrollment Form to the Agent. An Enrollment
Form can be obtained from the Agent upon request. Upon receipt of the Enrollment
Form by the Agent, your enrollment will be processed and the Agent will send you
a confirmation. Participation in the Plan is strictly voluntary. At any time,
you may terminate your account and withdraw your Shares, subject to the terms
outlined in this Prospectus. Shareholders who do not wish to participate in the
Plan will continue to receive cash dividends by check, as declared and paid.
This Prospectus pertains to up to 750,000 authorized and unissued Shares
registered for purchase under the Plan. We suggest that you read the Prospectus
carefully and retain it for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE ATTORNEYS GENERAL OF THE STATES OF NEW JERSEY AND NEW YORK HAVE NOT
PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
The date of this Prospectus is March __, 1995.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to qualification under the securities laws of any such state.
AVAILABLE INFORMATION
The Trust is voluntarily complying with the annual and quarterly
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and intends to so comply in the future. In accordance
therewith, the Trust files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports and other information filed with
the Commission in accordance with the Exchange Act can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1204,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional office, 7 World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N. W., Washington, D.C.
20549. Copies can also be inspected at the Trust's Offices at 505 Main Street,
Hackensack, New Jersey 07602.
The Trust has filed with the Commission a Registration Statement on Form
S-3 (including all amendments thereto, the "Registration Statement") with
respect to the securities offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information about the Trust and the securities
offered hereby, reference is made to the Registration Statement and the exhibits
thereto, which may be examined without charge at the public reference facilities
maintained by the Commission at Room 1204, Judiciary Plaza, 450 Fifth Street, N.
W., Washington, D.C. 20549, and copies of which may be obtained from the
Commission upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Trust with the Commission are
incorporated herein by reference and shall be deemed to be a part hereof:
(a) Annual Report on Form 10-K for the fiscal year ended October 31, 1994,
filed with the Commission on January 26, 1995, as amended on Form
10-K/A, filed with the Commission on February 21, 1995.
(b) Quarterly Report on Form 10-Q for the quarter ended January 31, 1995,
filed with the Commission on March 8, 1995, as amended on Form 10-Q/A,
filed with the Commission on March 20, 1995
(c) Current Report on Form 8-K, dated June 15, 1994, filed with the
Commission on June 14, 1994.
(d) Current Report on Form 8-K dated February 17, 1995, filed with the
Commission on February 21, 1995
(e) All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of the Company's fiscal year ended October
31, 1994.
All documents filed by the Trust pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the securities offered hereby shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is
or is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
A copy of any or all of the documents incorporated herein by reference
(other than exhibits unless such exhibits are specifically incorporated by
reference in any such documents) will be provided without charge to any person
to whom a copy of this Prospectus is delivered, including beneficial owners of
the Trust's Shares, upon written or oral request. Requests for such copies
should be addressed to the Executive Secretary of the Trust, William R.
DeLorenzo, Jr., at 505 Main Street, P.O. Box 667, Hackensack, New Jersey 07602
(Telephone Number (201) 488-6400).
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY
The Trust
Investment Policies
Recent Events
DESCRIPTION OF THE PLAN
Introduction
Purposes, Advantages and Disadvantages
Costs
Administration
Voluntary Cash Payments
Purchases of Shares
Custodial Service
Sale of Plan Shares
Issuance of Stock Certificates
Termination of Plan Participation
Federal Income Tax Consequences
Plan Administration
Additional Information
USE OF PROCEEDS
PLAN OF DISTRIBUTION
THE TRUST
SELECTED FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Results of Operations
Liquidity and Capital Resources
Capital Strategy
Economic Conditions
RECENT DEVELOPMENTS
Bank Credit Facility
Acquisition of Interest in Westwood Hills, L.L.C.;
Acquisition of Westwood Hills Apartments
RISK FACTORS
Risk of Equity Real Estate Investments
Possible Liability Relating to Environmental Matters
Failure to Qualify as a REIT; Reduction in Distributions from Failure to
Qualify as a REIT; REIT Taxes
Distributions to Shareholders; Potential Requirement To Borrow; Possible
Return of Capital
Restrictions on Transfer and Limitation on Ownership of Shares Necessary To
Maintain REIT Status
Restrictions on and Risks of Expansion and Development Activities
Possibility that Changes in Investment and Financing Policies May Adversely
Affect Financial Condition or Results of Operations
NoEstablished Public Trading Market for the Trust's Shares; Risk of Changes
in Stock Price
Possible Adverse Effects on Share Prices Arising from Shares Available for
Future Sale
Uninsured Loss
Costs of Compliance with Americans with Disabilities Act
Heating Costs; Increase in Fuel Prices and Availability of Supplies
USE OF PROCEEDS
TRADING AND MARKET PRICES OF THE SHARES;
DISTRIBUTIONS AND DISTRIBUTION POLICY
Trading and Market Prices
Distributions and Distribution Policy
Impact of the Plan on Future Distributions
CAPITALIZATION
DESCRIPTION OF SHARES AND VOTING RIGHTS
General
Shareholders' Liability to Third Parties and Indemnification by Trust
Repurchase and Transferability of Shares
BUSINESS
General
Description of Certain Properties
Apartment Projects
Retail/Commercial Property: Glen Rock, New Jersey
Shopping Center/Retail Properties
Shopping Center Leases
Vacant Land
Portfolio Distribution by Location
Property Management
Competition
Management and Employees
Legal Proceedings
General Real Estate Conditions
Environmental Matters
Insurance
SCHEDULE OF REAL ESTATE INVESTMENTS
STATEMENT OF INVESTMENT AND OTHER POLICIES
Investment Policies
Operating Policies and Practices
Policies on Distribution and Tax Provisions
MANAGEMENT
PRINCIPAL SHAREHOLDERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FEDERAL INCOME TAX CONSIDERATIONS
Taxation of the Trust
Taxation of Shareholders
Other Tax Consequences
LIMITATION OF LIABILITY AND INDEMNIFICATION
LITIGATION
LEGAL MATTERS
EXPERTS
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements incorporated by reference in this
Prospectus. Unless otherwise specified herein, any reference to acquisitions or
purchases of properties includes the purchase of a beneficial ownership interest
in such properties.
THE TRUST
The First Real Estate Investment Trust of New Jersey (the "Trust") is a
real estate investment trust (a "REIT"). The Trust is organized as an
unincorporated business trust under the laws of the State of New Jersey pursuant
to a Trust Agreement dated November 1, 1961, as amended and restated as of
November 7, 1983 and as amended on May 31, 1994. The Trust has its principal
executive office at 505 Main Street, Hackensack, New Jersey (07602) (telephone
number (201) 488-6400). The Trust commenced operations in 1961.
The Trust is an equity-oriented REIT. The Trust has investments in
apartment complexes, apartment buildings, retail/commercial properties and
vacant land. All of the Trust's investments are in properties located in New
Jersey, with the exception of a shopping center property located in Frederick,
Maryland. The Trust's business objective is to continue to increase its funds
from both residential and retail/commercial operations, and the value of such
properties, through the acquisition and/or development of additional properties,
the collection of contractual rent increases and/or percentage rents paid by
retail/commercial tenants, the collection of allowable rent increases on
residential units, the reletting of existing residential and retail/commercial
space at higher rents and the expansion or renovation of existing
retail/commercial properties. The Trust has elected to be taxed as a REIT for
federal income tax purposes since 1961. The Trust expects to continue to elect
such status.
The Trust's current investment in real estate assets (including an
apartment complex owned by a limited liability company in which the Trust has a
40% interest) is $63.176 million (net of accumulated depreciation) at October
31, 1994. The following table (derived from information in the financial
statements incorporated by reference in this Prospectus) summarizes the Trust's
current investment in its properties at October 31, 1994 and the income from
rental operations for the various properties for the fiscal year ended October
31, 1994:
<TABLE>
<CAPTION>
Current Income From Income From
Investment(1) Percentage Rental Operations Rental Operations
Property Description (000) of Portfolio (F/Y/E 10/31/94) (F/Y/E 10/31/94)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Apartment Buildings $20,450 32.36% $2,240,796 76.55%
- -----------------------------------------------------------------------------------------------------------------
Camden 460 0.73% $ 44,415 1.52%
Hasbrouck Heights 116 0.18% 69,711 2.38%
Lakewood 142 0.22% 84,299 2.88%
Maywood 1,025 1.62% 317,295 10.84%
Palisades Park 74 0.12% 36,042 1.23%
River Edge 1,439 2.28% 451,972 15.44%
Spring Lake Heights 658 1.04% 221,978 7.58%
Wayne 1,241 1.96% 887,476 30.32%
Westwood Hills 15,295(2) 24.21% 127,608(3) 4.36%
- -----------------------------------------------------------------------------------------------------------------
Commercial Building 27 0.04% $ 39,818 1.36%
- -----------------------------------------------------------------------------------------------------------------
Glen Rock 27 0.04% $ 39,818 1.36%
- -----------------------------------------------------------------------------------------------------------------
Shopping Centers 40,240 63.70% $ 646,781 22.09%
- -----------------------------------------------------------------------------------------------------------------
Franklin Lakes 1,080(4) 1.71% $ 166,380 5.68%
Westridge 26,937 42.64% 85,112 2.91%
Westwood 12,223 19.35% 395,289 13.50%
- -----------------------------------------------------------------------------------------------------------------
Unimproved Land 2,459 3.90% -- --
- -----------------------------------------------------------------------------------------------------------------
Franklin Lakes 232 0.37% -- --
Rockaway 2,058 3.26% -- --
South Brunswick 169 0.27% -- --
- -----------------------------------------------------------------------------------------------------------------
TOTALS $63,176 100.00% $2,927,395 100.00%
=================================================================================================================
</TABLE>
(1) Current investment reflects the acquisition costs of the land and building,
together with capital improvements, and is net of accumulated depreciation
charged through October 31, 1994. Current investment does not include the
value of equipment, which totalled $214,000 (net of accumulated
depreciation), at October 31, 1994 or a deduction for mortgages payable,
which amounted to $34.019 million at October 31, 1994 and for secured
indebtedness of $5,428,000 due on a line of credit.
(2) The current investment for Westwood Hills includes the cost of all of the
real estate assets (net of accumulated depreciation) held by Westwood Hills,
L.L.C., a limited liability company in which the Trust has a forty percent
(40%) interest.
(3) The income from rental operations for Westwood Hills is limited to the
period from the date of acquisition (June 2, 1994) until the end of the
Trust's fiscal year (October 31, 1994) and includes the income attributable
to the interests of all members of the limited liability company.
(4) Includes $737,000 in capitalized costs, classified under construction in
progress, for a redevelopment project for the Franklin Lakes Shopping
Center.
At October 31, 1994, the Trust had total mortgage indebtedness, secured by
liens on specific properties, of $34.019 million, representing an increase of
$9.056 million from October 31, 1993. The increase in mortgage indebtedness is
due solely to a new obligation undertaken by Westwood Hills, L.L.C., to finance
a portion of the purchase price of the Westwood Hills Apartments (See, "Recent
Developments"). In addition, at October 31, 1994, the Trust owed $5.428 million
to United Jersey Bank on a $20 million revolving line of credit obtained in
February of 1994. Outstanding borrowings under the line of credit are secured by
mortgage liens on all of the Trust's properties, with the exception of the
Westwood and Westridge shopping centers, the Westwood Hills Apartments and the
Trust's vacant lands (See - "Recent Developments").
The following table provides operating data, balance sheet data and per
share data for the Trust's four most recent fiscal years.
<TABLE>
<CAPTION>
As of or for the Year Ended October 31,
- --------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
(In Thousands of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Operating data:
Rental revenue $11,162 $ 9,948 $ 8,465 $ 6,360
Rental expenses 8,235 7,268 5,899 3,888
- --------------------------------------------------------------------------------------------------------------
Income from rental operations 2,927 2,680 2,566 2,472
Other income 5 4 136 526
- --------------------------------------------------------------------------------------------------------------
2,932 2,684 2,702 2,998
Other expenses (473) (389) (264) (242)
Minority interest (76) -- -- --
- --------------------------------------------------------------------------------------------------------------
Net Income $ 2,383 $ 2,295 $ 2,438 $ 2,756
==============================================================================================================
Balance sheet data:
Total assets $65,613 $51,356 $50,064 $29,096
==============================================================================================================
Long-term obligations $34,019 $24,963 $25,341 $ 6,412
==============================================================================================================
Per share data:
Earnings per share $ 1.53 $ 1.47 $ 1.56 $ 1.77
==============================================================================================================
Dividends per share $ 1.62 $ 1.56 $ 1.765 $ 1.92
==============================================================================================================
</TABLE>
INVESTMENT POLICIES
The Trust seeks to generate stable and increasing cash flow and
distributions through a portfolio management program that allows the Trust to
maintain diversity and expand the Trust's properties portfolio. The Trust's
investment objectives are to (i) generate current income for shareholders, (ii)
provide increased returns to investors through the acquisition of additional
properties, which may require the use of additional debt and/or equity
financing, (iii) provide increased returns to investors through additional rent
provisions in the Trust's Leases (and, if the Trust acquires or makes mortgage
loans, through additional interest provisions), (iv) provide the opportunity to
realize capital growth resulting from appreciation, if any, in the residual
values of properties acquired and (v) preserve and protect shareholders'
capital. There can be no assurance that any of these objectives will be
realized. See "Risk Factors" and "Investment and Other Policies."
RECENT EVENTS
On February 10, 1994, the Trust entered into an agreement with United
Jersey Bank for a $20 million line of credit (the "Bank Credit Facility"). The
Bank Credit Facility expires on February 10, 1997, unless extended by the
parties or unless sooner terminated upon the occurrence of a default or as
otherwise provided in the agreement.
In May of 1994, the Trust acquired a forty percent (40%) interest in
Westwood Hills, L.L.C. ("LLC"), a limited liability company organized under the
laws of the State of New Jersey, for $2.440 million, with funds drawn on the
Bank Credit Facility. The Trust was designated Managing Member of the LLC. On
June 2, 1994, the LLC acquired a 210 unit apartment complex in Westwood, New
Jersey, for $15,419,000. A portion of the purchase price was financed with the
proceeds of a $10.5 million mortgage loan from United Jersey Bank, of which
$9.52 million was advanced to the LLC at the closing.
DESCRIPTION OF THE PLAN
Introduction
The Trust has reserved 750,000 Shares for issuance under the Plan in order
to provide to the holders of at least one hundred (100) of its Shares the
opportunity to have their cash dividends automatically reinvested in, and to
make voluntary cash payments for, the purchase of additional Shares.
Participants who elect to reinvest all or a portion of their cash dividends will
be able to purchase Shares at a 2% discount from the fair market value of the
Trust's Shares. There is no maximum amount of cash dividends that may be
reinvested. Shareholders may also make voluntary cash payments, up to an
aggregate of $5,000 in any dividend payment cycle, to purchase additional Shares
at no discount from the fair market value. The Trust does not intend to waive
this limit on voluntary cash payments. Those holders of the Trust's Shares who
do not participate in the Plan will receive cash dividends, as declared and
paid.
Set forth below, in question and answer format, is a description of the
provisions of the Plan.
Purpose, Advantages and Disadvantages
1. What is the purpose of the Plan?
The purpose of the Plan is to provide owners of record of at least 100 of
the Trust's Shares with a simple and convenient method for investing cash
dividends and cash payments for the purchase of additional Shares to be issued
under the Plan and held in a Participant's account ("Plan Shares").
2. What are the advantages and disadvantages of the Plan?
The primary advantages of the Plan are:
Plan Shares may be purchased quarterly with reinvested cash dividends on
all or less than all of the Shares registered in a Participant's name. A
Participant may also purchase Plan Shares with voluntary cash payments, up to an
aggregate of $5,000 per dividend payment cycle.
No brokerage commission or service charges are paid by Participants in
connection with purchases made under the Plan. Full investment of funds is
possible because the Plan permits fractions of the Plan Shares, as well as full
Plan Shares, to be credited to a Participant's account. In addition, dividends
in respect of such fractions, as well as full Plan Shares, will be credited to a
Participant's account. Dividends on the Plan Shares held in a Participant's
account are automatically reinvested in additional Plan Shares.
Safekeeping of Plan Shares is assured because certificates for such Shares
are not issued unless required by the Participant. This safekeeping feature is
also available for any Share certificates a Plan Participant holds. Regular
statements of account provide simplified record keeping.
The primary disadvantages of the Plan are:
The date by which decisions to reinvest dividends must be made for a
dividend payment cycle is the record date. The record date will generally be
between ten (10) to fifteen (15) calendar days prior to the applicable dividend
reinvestment date. The date by which to make voluntary cash payments for the
purchase of additional Shares is no sooner than thirty (30) calendar days and no
later than the second business day prior to the applicable dividend reinvestment
date. During the period between a record date or voluntary cash payment date and
the dividend reinvestment date, the Participant's funds will be exposed to
changes in market conditions.
If the market price of the Trust's Shares declines between a record date or
the date a voluntary cash payment is made and the dividend reinvestment date,
the fair market value of the Trust's Shares (see Question No. 22) and/or cost of
acquiring Shares in the open market may be less than the cost of acquiring Plan
Shares. Further, no interest will be paid, accrued or credited on voluntary cash
payments for the period of time between the making of the payment by a
Participant until the next applicable dividend reinvestment date or between the
date when an early payment or a late payment is made and the payment is returned
to the Participant.
Participants will not be able to determine the actual number of Plan Shares
purchased on their behalf until after the applicable dividend reinvestment date.
Costs
3. Are there any expenses to participants in connection with purchases under
the Plan?
No. Participants will incur no fees, brokerage commissions or service
charges for purchases made under the Plan. All costs of administration of the
Plan will be paid by the Trust.
4. Are there any costs associated with selling Shares held in the Plan?
The Agent will charge a brokerage commission, transfer taxes (if any) and a
$15.00 service fee for each authorization to sell Shares held in the Plan.
Brokerage commissions will be paid to the brokerage firm which executes the sale
transaction. The Agent will receive and retain the service fees. The Agent also
serves as the Trust's transfer agent and registrar and has no other affiliation
with the Trust.
Administration
5. Who administers the Plan for participants?
Registrar and Transfer Company, or a successor selected by the Trust, has
been designated as Plan Administrator and Agent for Plan Participants. The Agent
will administer the Plan for Participants, keep records, send statements of
account to Participants, answer Participant's questions and perform other duties
relating to the Plan. The Agent also serves as the Trust's transfer agent or
registrar. The addresses and telephone numbers for information about the Plan
are:
FOR INFORMATION ABOUT THE PLAN
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Telephone: (908) 272-8511
Telecopier: (908) 272-1006
or
First Real Estate Investment Trust
of New Jersey
505 Main Street
P.O. Box 667
Hackensack, New Jersey 07602
Telephone: (201) 488-6400
Telecopier: (201) 487-7881
All written notices and requests concerning the Plan should be mailed to
the above addresses.
Please include a telephone number in your letter where you can be reached
during business hours.
6. Who is eligible to enroll in the Plan?
Any stockholder with at least one hundred (100) Shares of beneficial
interest of the Trust, registered in his or her name on the records of the
Trust's agent (the "Agent"), may enroll in the Plan. If a shareholder has Shares
registered in the name of someone else (for example, with a bank, broker or
trustee), the holder may arrange for that entity to handle the reinvestment of
distributions. Stockholders should consult directly with the entity holding
their Shares to determine if they can enroll in the Plan. If not, the
stockholder should request his or her bank, broker or trustee to have some or
all of their Shares registered in the stockholder's own name in order to
participate directly.
Stockholders who are citizens or residents of a country other than the
United States, its territories and possessions should make certain that their
participation does not violate local laws governing taxes, currency and exchange
controls, stock registration, foreign investments and related matters.
7. How does an eligible stockholder participate?
An eligible stockholder may enroll in the Plan by signing the Enrollment
Form and mailing it to the Agent. If the Shares are registered in more than one
name (such as joint tenants, trustees, etc.), all registered holders must sign.
You may obtain an Enrollment Form and return envelope at any time by contacting
the Agent at the following address:
Registrar and Transfer Company
10 Commerce Court
Cranford, New Jersey 07016
Telephone: (908) 272-8511
Telecopier: (908) 272-1006
8. What does the Enrollment Form provide?
The Enrollment Form provides for the purchase of Plan Shares through the
following investment options offered under the Plan:
Full Dividend Reinvestment -- Reinvest dividends on all Shares held by a
Participant. Additional voluntary cash payments may also be invested up to a
maximum of $5,000 per dividend payment cycle.
Partial Dividend Reinvestment -- Reinvest dividends on less than all of the
Shares held by a Participant by electing to apply all cash dividends received on
a specified number of Shares toward the purchase of additional Shares.
Additional voluntary cash payments may also be invested up to a maximum of
$5,000 per dividend payment cycle.
Voluntary Cash Payments Only -- Voluntary cash payments of not less than
$250 and not more than $5,000 in total per dividend payment cycle may be
invested without reinvestment of dividends.
Cash dividends paid on all Plan Shares purchased with reinvested dividends
and/or voluntary cash payments are automatically reinvested to purchase
additional Plan Shares regardless of which investment option is selected.
Any shares for which a Participant elects reinvestment of dividends, as
well as new Plan Shares purchased with reinvested dividends or voluntary cash
payments, will be included in the participant's account under the Plan.
The Enrollment Form also may be used to change an investment option.
9. When may an eligible shareholder join the Plan?
As an eligible shareholder, you may join the Plan at any time.
Participation by way of reinvestment of dividends will begin with the first
dividend payment after receipt of the Enrollment Form by the Agent, designating
and authorizing the reinvestment of dividends, provided that the Enrollment Form
is received by the Agent no later than the record date for payment of the
dividend. The record dates for purposes of the Trust's payment of dividends are,
generally, during the first two weeks of the months of March, June, September
and December. It is expected that dividends will be paid approximately ten (10)
to fifteen (15) calendar days after the record dates. The Agent will provide
Plan participants with notice of the next record date for payment of dividends
in the quarterly statements to be sent by the Agent to all Plan participants.
Participation by way of voluntary cash payments will commence with the next
dividend payment date after receipt of the signed Enrollment Form and voluntary
cash payment by the Agent. The Enrollment Form and voluntary cash payment must
be received by the Agent no sooner than thirty (30) calendar days prior to the
dividend payment date and no later than the second business day prior to the
dividend payment date.
10. How may a Participant change options under the Plan?
A Participant may change an investment option at any time by signing a new
Enrollment Form and returning it to the Agent. An Enrollment Form and envelope
may be obtained at any time by contacting the Agent or the Trust. Any change in
option with respect to reinvestment of dividends must be received by the Agent
no later than the record date for the next dividend payment in order to make a
change with respect to that dividend.
11. When will dividends be reinvested toward the purchase of additional shares?
The dividends on the Trust's Shares are expected to be paid in March, June,
September and December. The reinvestment of dividends will take place on the
dividend payment date.
12. May I reinvest less than the full amount of my dividend?
By selecting the "Partial Reinvestment" option on your Enrollment Form, you
may elect to reinvest the dividends on a specified number of your Shares, and to
receive cash dividends on the balance of your Shares. Cash dividends paid on
Plan Shares will be automatically reinvested in the purchase of Plan Shares.
13. How and when can a Participant change the amount of dividends to be
reinvested?
A Participant may change the dividend reinvestment option at any time by
submitting a newly executed Enrollment Form to the Agent or by writing to the
Agent. An Enrollment Form may be obtained by contacting the Agent or the Trust.
Any change in the number of Shares with respect to which the Agent is authorized
to reinvest dividends must be received by the Agent prior to the record date for
the next dividend payment to permit the new number to apply to that dividend.
The record dates for purposes of the Trust's payment of dividends are,
generally, during the first two weeks of the months of March, June, September
and December. Dividend payments are generally made between ten (10) to fifteen
(15) calendar days after the record date.
Voluntary Cash Payments
14. How and when may voluntary cash payment be made?
A voluntary cash payment may be made when a Participant enrolls in the
Plan, and thereafter, as long as a Participant is enrolled in the Plan. Each
voluntary cash payment must be accompanied by a properly executed Cash
Remittance Form which is attached to each account statement. The Participant may
purchase additional Shares by sending to the Agent a Cash Remittance Form and a
check or money order (payable to Registrar and Transfer Company in United States
dollars and drawn against a United States bank) directly to the Agent at: 10
Commerce Drive, Cranford, New Jersey 07016. Voluntary cash payments must be
received by the Agent no sooner than thirty (30) calendar days prior to the
applicable dividend payment date and no later than the second business day prior
to the applicable dividend payment date.
15. When will voluntary cash payments be invested toward the purchase of
additional Shares?
A voluntary cash payment, if received by the Agent no earlier than thirty
(30) calendar days prior to the applicable dividend payment date and no later
than the second business day prior to the applicable dividend payment date, will
be invested in the purchase of Shares on the dividend payment date.
16. What happens if a voluntary cash payment is received by the Agent too early
or too late with reference to a dividend payment date?
The purchase of Shares as a result of a voluntary cash payment received by
the Agent will occur on the dividend payment date. The Plan provides that funds
received by the Agent before the date which is thirty (30) calendar days prior
to an applicable dividend payment date or on a date which is after the second
business day preceding the applicable dividend payment date will be returned to
Participants within three (3) business days from the date of receipt of such
payment by the Agent. No interest will be paid on funds being held by the Agent
for investment or on funds to be returned to Participants. Participants are,
therefore, strongly urged to submit their voluntary cash payments so that the
payment is received between thirty (30) calendar days and the second business
day prior to the dividend payment date.
17. In what amounts may voluntary cash payments be made?
Voluntary cash payments may not be less than $250. The total of all such
payments may not exceed $5,000 per dividend payment cycle. Any amount received
which is less than $250 per payment or in excess of $5,000 per dividend payment
cycle will be returned to the Participant, without interest, within three (3)
business days from the date of receipt of such payment by the Agent. For
example, if the next dividend payment date is June 15 and if the Agent received
voluntary cash payments of $3,500 on May 30 and $3,000 on June 5, the $6,500
received for the dividend payment cycle exceeds the $5,000 limit. Therefore,
$1,500 would be refunded to the Participant, without interest. There is no
obligation to make a voluntary cash payment at any regular or specific time or
times, or in any regular or specific amount or amounts, except in accordance
with the limitations discussed herein and above (Questions No. 15 and 16). A
Participant may vary the amount of voluntary cash payments from dividend payment
cycle to dividend payment cycle.
In the event that any check for a voluntary cash payment is returned unpaid
for any reason,the Agent will consider the request for investment of such
voluntary cash payment null and void and shall immediately remove from the
Participant's account the Plan Shares, if any, purchased upon the prior credit
of such voluntary cash payment. The Agent shall thereupon be entitled to sell
these Plan Shares to satisfy any uncollected amounts. If the net proceeds of the
sale of such Shares are insufficient to satisfy the balance of such uncollected
amounts, the Agent shall be entitled to sell additional Plan Shares from the
Participant's account to satisfy the uncollected balance.
18. How does a Participant request a refund of a voluntary cash payment?
A Participant may obtain a refund of any voluntary cash payment not yet
invested upon written request to the Agent. Such request must be received by the
Agent not later than five (5) business days prior to the dividend payment date
on which such voluntary cash payment is to be invested for the purchase of
Shares.
19. Where should voluntary cash payments be mailed?
Voluntary cash payments, made by check or money order, in United States
currency, and payable to "Registrar and Transfer Company" should be mailed to:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Purchases of Shares
Purchase of Shares
20. What is the source of the Shares to be purchased under the Plan?
Plan Shares purchased with reinvested dividends or voluntary cash payments
will be, at the Trust's discretion, either newly issued Shares, treasury Shares
or shares purchased in open market transactions.
21. When will purchases of Shares under the Plan be made?
Cash dividends on Shares and voluntary cash payments will be applied by the
Agent to the purchase of Plan Shares as of the close of business on the
applicable dividend payment date.
22. What will be the price of Shares purchased under the Plan?
The price of Plan Shares purchased with reinvested dividends will be 98% of
the fair market value of the Trust's Shares, determined as of the applicable
dividend payment date.
The fair market value of the Shares will be the average of the bid and
asked prices per share for the fifteen (15) trading days preceding the relevant
dividend payment date, as reported by the brokerage firm or firms then making a
market in the Trust's Shares. At present, the firm of Janney, Montgomery Scott,
Inc. is the only brokerage firm which makes a market in the Trust's Shares. The
Trust's shares are traded on a sporadic basis.
In the event that there are no trades, or an insufficient number of trades
upon which to form a basis to determine fair market value, within the fifteen
(15) trading days prior to the relevant dividend payment date, the fair market
value of the Shares will be determined by reference to other factors deemed by
the Trust to be appropriate. Pursuant to the Plan, the Trust has appointed a
committee consisting of the Chairman of the Board of Trustees, the President of
the Trust and one other Trustee to determine the fair market value of the Shares
under such circumstances. The other factors may include, but are not limited to:
(a) bid and asked quotes reported by the market maker or market makers on dates
that are recent but are prior to the fifteen (15) trading day period immediately
preceding the dividend payment date; (b) prices at which the Shares are known to
have been traded in recent transactions; (c) a multiple of the Trust's book
value per share, which multiple is deemed consistent with the multiple of
trading prices of real estate investment trusts and/or companies deemed similar
to the Trust but whose stock is more readily traded and quoted in the public
markets; and (d) a price to earnings ratio, based upon the net income of the
Trust, which ratio is deemed consistent with the price to earnings ratios
reflected by the trading prices of real estate investment trusts and/or
companies deemed similar to the Trust, but whose stock is more readily traded
and quoted in the public markets.
The Trust will have and exercise significant discretion in determining the
fair market value of the Shares in accordance with the foregoing and other
factors.
The Registration Statement filed by the Trust includes all Shares to be
issued under the Plan, including Shares purchased in the open market.
The price of Shares purchased with voluntary cash payments will be 100% of
the fair market value, determined as described above.
No Participant shall have any authority or power to direct the time or
price at which Plan Shares may be purchased.
23. How many shares will be purchased for Participants?
The number of shares to be purchased for a Participant will depend on the
amount of the Participant's dividend or voluntary cash payment or both, and the
price (fair market value) of the Plan Shares. Each Participant's account will be
credited with the number of Plan Shares, including fractions calculated to four
decimal places, equal to the total of a Participant's funds available for
investment divided by the applicable purchase price per Plan Share. The number
of Plan Shares purchased cannot be determined until the day of purchase.
Custodial Service
24. How does the custodial service work?
All Plan Shares that are purchased by Participants on the reinvestment of
their dividends and/or with voluntary cash payments are held in the name of the
Agent or its nominee. The Plan Shares are added to the Participant's account in
the Plan.
25. What Shares are included in a Participant's account under the Plan?
A Participant's account under the Plan includes all Plan Shares, including
fractional Plan Shares, as well as new Shares purchased with reinvested
dividends or voluntary cash payments.
26. Will Participants be credited with dividends on Shares held in their
accounts under the Plan?
Yes. As the record holder for the Shares held in Participant's accounts
under the Plan, the Agent will receive distributions (less any applicable tax
withholding requirements imposed on the Trust) for all Plan Shares held on the
applicable record date, will credit such dividends to the Participant's account
on the basis of Shares held in those accounts, and will automatically reinvest
such dividends in additional Shares or pay such dividends in cash, according to
the directions in each Participant's Enrollment Form. A Participant's account
will also be credited with dividends on fractions of Plan Shares held in the
account.
Sale of Plan Shares
27. Can the Shares held in the Plan be sold through the Agent?
A Participant can instruct the Agent to sell any or all of the whole Shares
held in the Plan. The written notification to the Agent should include the
number of Shares that are to be sold. This Notice should be addressed to the
Agent as follows: Registrar and Transfer Company, 10 Commerce Drive, Cranford,
New Jersey 07016. A withdrawal/termination form is provided on the reverse side
of the account statement for purposes of notifying the Agent regarding
instructions for the sale or sales of the Participant's Plan Shares. The
Participant must include with the notice a check for the Agent's $15.00 service
fee.
The Agent will make the sale as soon as practicable after receipt of a
Participant's request, provided such requests are received prior to the record
date for the payment of dividends and are to be effected prior to the applicable
dividend payment date. A check for the proceeds, less brokerage commission and
transfer taxes (if any), will usually be sent to the Agent on the settlement
date, which, at present, is five (5) business days from the date of sale. The
maximum period of time between the receipt of a Participant's request and
transmittal of the proceeds of the sale less brokerage commissions and transfer
taxes (if any) will be fifteen (15) days, generally, unless market conditions
then prevailing require a longer time period for a sale of the Shares.
No Participant shall have the authority or power to direct the date or
sales price at which Shares may be sold. The Agent will place an order to sell
shares with a brokerage firm designated by the Agent without regard to any
minimum price per Share. If a Participant wishes to establish a minimum price
per Share for a sale, the Shares must be withdrawn from the Plan in certificate
form and sold by a broker selected by the shareholder on terms agreed to by the
shareholder and the broker.
Issuance of Stock Certificates
28. Will stock certificates be issued for Plan Shares purchased?
Plan Shares will be registered in the name of the Agent, as agent for
Participants in the Plan. Certificates for Plan Shares will not be issued to
Participants unless requested. This protects against loss, theft or destruction
of stock certificates.
The number of Plan Shares held in an account under the Plan will be shown
on the Participant's quarterly statement of account.
Certificates for all or any number of whole Plan Shares held for you in the
Plan will be issued promptly after receipt of a written request signed by the
Participant (or Participants if a joint registration). A form is provided on the
reverse side of the statement of account for this purpose. This request must be
mailed to the Agent. Any remaining full Plan Shares and fraction of a Plan Share
will continue to be held by the Agent, as agent, in the Participant's account.
Certificates for a fractional Share will not be issued under any
circumstance.
Plan Shares may not be pledged. A Participant who wishes to pledge such
Plan Shares must obtain certificates for such Plan Shares issued in the
Participant's name.
29. In whose name will certificates be registered when issued?
Accounts under the Plan are maintained in the names in which certificates
of the Participants were registered at the time they entered the Plan.
Certificates for whole Plan Shares will be similarly registered when issued.
30. Can a Participant withdraw certificates for some or all of the Plan Shares
held under the Plan and continue to participate with respect to those
Shares?
Yes. Certificates for all or any number of whole Plan Shares held by you
will be issued, without charge, promptly after receipt of a written request
signed by the Participant (or Participants if a joint registration) who wishes
to continue to participate with respect to those Shares. This request must be
mailed to the Agent. Any remaining full Plan Shares and fraction of a Plan Share
will continue to be held by the Agent, as agent, in the Participant's account.
Certificates for a fractional Plan Share will not be issued under any
circumstances.
Termination of Plan Participation
31. When may participation in the Plan be terminated?
Participation in the Plan may be terminated at any time.
32. How is participation in the Plan terminated?
In order to terminate participation in the Plan, a Participant (or
Participants, if a joint registration) must notify the Agent by sending a
written request to the Agent. A withdrawal/termination form for this purpose is
provided on the reverse side of the statement of account.
33. When will a termination notice be effective?
A request to terminate participation in the Plan must be received by the
Agent prior to the next upcoming record date for a dividend payment. If so
received, all dividends thereafter will be paid in cash to the Participant. If
the request to terminate participation in the Plan is received on or after the
record date for a dividend, any cash dividend paid on the dividend payment date
following such record date will be reinvested and credited to the Participant's
account in accordance with the Participant's previous instructions under the
Plan. The request to terminate will then be processed as promptly as possible
following such dividend payment date and, thereafter, all dividends will be paid
in cash to the Participant. Any voluntary cash payment sent to the Agent prior
to the request to terminate will be invested in Plan Shares unless the
Participant's termination request expressly requests the return of the voluntary
cash payment and such request is received no later than the five (5) business
days prior to the applicable dividend payment date.
34. How are Shares distributed upon termination?
When participation in the Plan is terminated, certificates for whole Plan
Shares will be issued, a cash payment will be made for any fraction of a Plan
Share, and the dividend reinvestment account will be closed. The value of a
fraction of a Plan Share will be based upon the fair market value of the Trust's
Shares as of the date of receipt by the Agent of the request to withdraw from
the Plan.
Federal Income Tax Consequences
35. What are the federal income tax consequences of participation in the Plan?
The reinvestment of dividends does not relieve the Plan Participant of any
income tax which may be payable on such dividends.
In the opinion of counsel to the Trust, the federal income tax consequences
for Plan Participants are as follows.
A Participant in the Plan will have somewhat different federal income tax
obligations for dividends reinvested under the Plan than for dividends received
in cash. A Participant will be treated as having received a dividend
distribution equal to the fair market value of the Plan Shares purchased on the
dividend payment date. Therefore, because Plan Shares purchased with reinvested
dividends will be purchased for 98% of their fair market value, the resulting
taxable income will be greater than the taxable income that would have resulted
from the receipt of the dividend in cash. A Participant's tax basis in the
dividend Plan Shares will be equal to the fair market value of the dividend Plan
Shares credited to the Participant's account, and the holding period for such
Share will begin the day after the dividend payment date. Likewise, the tax
basis per Plan Share purchased with voluntary cash payments is equal to the
Participant's purchase price per Plan Share.
Example. The Trust makes a quarterly dividend distribution which would
amount to $100 if the shareholder received it in cash. The shareholder is,
instead, a Participant in the Plan. The fair market value of the Trust's Shares
on the dividend payment date is $25 per Share. The $100 dividend is reinvested
for the Participant in Plan Shares at $24.50 per share (98% of $25), with 4.0816
Shares ($100 divided by $24.50) being credited to the Participant's account. The
fair market value of these 4.0816 Shares is $25 each, or $102.04. For federal
income tax purposes, the Trust is deemed to have distributed to the Participant,
and the Participant to have received, $102.04. This amount will be the tax basis
for the 4.0816 dividend Plan Shares. If the full amount of the distribution paid
by the Trust is a distribution of the current or accumulated earnings and
profits of the Trust, then the Participant is deemed to have a taxable dividend
of $102.04; if only 50% of such distribution is determined to be from the
earnings and profits of the Trust, then $51.02 will be taxable as a dividend to
the Participant and the remaining $51.02 treated as return of capital or capital
gains distribution, or as gain from the sale or exchange of such Participant's
Plan Shares, as appropriate.
So long as the Trust continues to qualify as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"), the distribution will be taxable
under the provisions of the Code applicable to REITs and their shareholders,
pursuant to which (i) distributions will be taxable to shareholders as ordinary
income to the extent of the current or accumulated earnings and profits of the
Trust, (ii) distributions which are designated as capital gain distributions by
the Trust will be taxed as long-term capital gains to shareholders to the extent
they do not exceed the Trust's net capital gain for the taxable year, (iii)
distributions which are not designated as capital gains distributions and which
are in excess of the Trust's current or accumulated earnings and profits will be
treated as a return of capital to the shareholders and reduce the adjusted tax
basis of a shareholder's Shares (but not below zero), and (iv) such
distributions in excess of a shareholder's adjusted tax basis in its Shares will
be treated as gain from the sale or exchange of such Shares.
A Participant will not realize any taxable income when the Participant
receives certificates for whole Plan Shares, either upon the Participant's
request for certain of those Shares or upon termination of participation in, or
termination of, the Plan.
A Participant will realize gain or loss when Plan Shares are sold or
exchanged, whether pursuant to the Participant's request upon termination of
participation in the Plan or by the Participant after receipt of Plan Shares
from the Plan, and, in the case of a fractional Plan Share, when the Participant
receives a cash adjustment for a fraction of a Plan Share upon termination of
participation in, or termination of, the Plan. The amount of such gain or loss
will be the difference between the amount which the participant receives for the
Plan Shares or fraction of a Plan Share and the tax basis for the Plan Shares or
fraction of a Plan Share.
The Trust will comply with all applicable Internal Revenue Service ("IRS")
requirements concerning the filing of information returns, and such information
will be provided to the Participant by a duplicate of that form or in a final
statement of account for each calendar year. With respect to Participants whose
dividends are subject to United States income tax withholding, the Trust will
comply with all applicable IRS requirements concerning the withholding of such
tax, and the amount of any dividend reinvested will, in each case, be after any
reduction necessary to comply with the applicable withholding requirements.
Under Code Section 3406(a)(1), the Trust is required to withhold for United
States income tax purposes 31% of all dividend payments to a shareholder if (i)
such shareholder has failed to furnish his or her taxpayer identification
number, which, for an individual, is his or her social security number, (ii) the
IRS has notified the Trust that the shareholder has failed to properly report
interest or dividends, or (iii) the shareholder has failed to certify, under
penalties of perjury, that he or she is not subject to back-up withholding.
Shareholders have previously been requested by the Trust or their broker to
submit all information and certifications required in order to exempt them from
back-up withholding if such exemption is available to them.
The Internal Revenue Service has ruled in connection with similar plans
that a dividend reinvestment plan will not adversely affect the qualification of
a real estate investment trust. In addition, a real estate investment trust
should be able to include amounts deemed distributed as dividends under such a
plan for purposes of its dividends-paid deduction.
The foregoing summary of material Federal income tax considerations
regarding the Plan is based on current law. This discussion does not purport to
deal with all aspects of taxation that may be relevant to particular investors
in light of their personal investment circumstances, or certain types of
investors (including insurance companies, tax-exempt organizations, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) subject to special treatment under
the Federal income tax laws. Those considering participation in the Plan are
urged to consult with their own tax advisors regarding the specific tax
consequences (including the Federal, state, local and foreign tax consequences)
that may result from their participation in the Plan and of potential changes in
applicable tax laws.
The income tax consequences for Participants who do not reside in the
United States may vary from jurisdiction to jurisdiction.
Plan Administration
36. Who should Participants contact for answers to questions regarding the
Plan?
All inquiries regarding the Plan should be sent to:
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Telephone: (908) 272-8511
Telecopier: (908) 272-1006
37. What reports will be sent to Participants in the Plan?
As soon as practicable after each purchase under the Plan, each Participant
in the Plan will receive a statement of account showing amounts invested,
purchase price, Plan Shares purchased and other information for the year to
date. The Trust suggests that Participants retain all statements for tax
reporting and other purposes. The Agent may charge a fee to supply past account
history. In addition, each Participant will receive all communications sent to
all owners of Shares, including the Trust's quarterly reports, annual reports
and notices of shareholders' meetings and proxy statements. Participants will
receive all information needed for federal income tax return purposes.
38. What are the responsibilities of the Agent and the Trust under the Plan?
In administering the Plan, neither the Agent, the Trust nor any agent for
either of them will be liable for any act done in good faith or for any good
faith omission to act, including, without limitation, any claim or liability
arising out of: (i) failure to terminate a Participant's account upon such
Participant's death prior to receipt of notice in writing of such death; or (ii)
fluctuations in the market value of the Shares. Neither the Agent, the Trust nor
any agent for either shall have any duties, responsibilities except such as are
expressly set forth in the Plan. Since the Trust has delegated all
responsibility for administering the Plan to the Agent (except for questions of
interpretation arising under the Plan which shall be determined by the Trust),
the Trust specifically disclaims any responsibility for any of the Agent's
actions or inactions in connection with the administration of the Plan. This
limitation of liability shall not constitute a waiver by any Participant of his
or her rights under federal or state securities law.
Additional Information
39. Can shares held in the Plan be pledged or assigned?
Shares held in the Plan may not be pledged or assigned. Any such purported
pledge or assignment of Plan Shares shall be void. If you wish to pledge or
assign Plan Shares, you must request that a certificate for such Plan Shares be
issued in your name. Stock certificates for fractional Shares will not be issued
under any circumstances.
40. How will a Participant's Shares be voted at stockholders' meetings?
All whole Plan Shares will be voted as the Participant directs. If, on the
record date for a meeting of shareholders, there are whole Plan Shares credited
to the Participant's account under the Plan, the Participant will be sent a
proxy card representing both the Plan Shares held in the Participant's Plan
account and all other Shares held by the Participant. If the Participant returns
the proxy card in a timely fashion, properly signed and marked for voting, all
Shares (including whole Plan Shares) will be voted as indicated by the
Participant on the proxy card with respect to all whole Shares either held by or
credited to the Participant. All such Shares also may be voted in person at
shareholders' meetings. Fractional Plan Shares will not be voted.
If the proxy card is returned signed and no voting instructions are given
with respect to any item thereon, all of the Participant's Shares (including
whole Plan Shares) will be voted in accordance with the recommendations of the
Trust's management. This is the same procedure that is followed for all
shareholders who return proxies and do not provide instructions. If the proxy
card or instruction card is not returned or if it is returned unsigned by the
registered owner(s), none of the Participant's Shares covered by such proxy card
will be voted; a Participant or his or her duly appointed representative could,
however, vote Shares registered in the Participant's name in person at the
meeting.
41. What happens if the Trust has a rights offering, issues a stock
distribution or declares a stock split?
Participation in any rights offering will be based upon both the Shares
registered in the Participant's name and the Shares credited to a Participant's
Plan account. Rights applicable to Shares credited to a Participant's account
under the Plan will be sold by the Agent and proceeds will be credited to the
Participant's account under the Plan and applied to the purchase of Shares on
the next dividend payment date. Any Participant who wishes to exercise, transfer
or sell the rights applicable to the Shares credited to the Participant's
account under the Plan must request, prior to the record date of the issuance of
any such rights, that the Shares credited to the Participant's account be
transferred from the Participant's account and registered in the Participant's
name.
Any shares distributed as a result of a stock dividend or stock split by
the Trust on Plan Shares will be added to the Participant's account. Stock
dividends or split Shares distributed on Shares registered in the name of the
Participant will be mailed directly to the shareholder in the same manner as to
shareholders who are not participating in the Plan.
42. What happens when a Participant who is reinvesting the cash dividends on
all or part of the Shares registered in the Participant's name sells or
transfers a portion of such Shares?
If a Participant who is reinvesting the cash dividends on all of the Shares
registered in the Participant's name disposes of a portion of such Shares, the
Agent will continue to reinvest the dividends on the remainder of the Shares.
If a Participant who is reinvesting the cash dividends on part of the
Shares registered in the Participant's name disposes of a portion of such
Shares, the Trust will continue to pay the dividends on the remainder of the
Shares up to the number of Shares originally authorized. For example, if a
Participant directed the Trust to reinvest cash dividends on 50 Shares out of a
total 100 Shares registered in the Participant's name, the Trust would continue
paying such cash dividends on 50 Shares. If the Participant then disposed of 25
Shares, the Trust would continue to pay cash dividends on 50 of the remaining 75
Shares. If instead the participant disposed of 75 Shares, the Trust would
continue to pay cash dividends on all of the remaining 25 Shares.
43. What happens when a Participant sells or transfers all of the Shares
registered in the Participant's name?
If a Participant disposes of all Shares registered in the Participant's
name, the Agent will continue to reinvest the dividends on the Plan Shares held
by the Agent in the Participant's account under the Plan until otherwise
notified.
44. What happens if reinvestment of a Participant's distributions or an
voluntary cash payment would cause the Participant or any other person to
exceed the Ownership Limit set forth in the Trust's Amended and Restated
Declaration of Trust (the "Declaration of Trust"), or otherwise violate the
Trust's Declaration of Trust?
The Trust's Declaration of Trust places certain restrictions upon the
ownership, directly or constructively, of Shares, including the limitation of
ownership of the Shares by any one person, so as to maintain the Trust's
qualification as a REIT under the Code (the "Ownership Limit"). To the extent
any reinvestment of dividends or voluntary cash payment elected by a stockholder
would cause such stockholder or any other person to exceed the Ownership Limit
or otherwise violate the Trust's Declaration of Trust, the Trustees may refuse
to sell or transfer Shares in accordance with such dividend reinvestment or
voluntary cash payment. Such stockholder will be entitled to receive cash
dividends (without interest) in lieu of such reinvestment and a refund of the
uninvested portion of such voluntary cash payment within three (3) business days
of the Agent's receipt of written notification from the Trust that a particular
stockholder's acquisition of Shares through dividend reinvestment or a voluntary
cash payment will result in that person's holdings being in excess of the
Ownership Limit or otherwise in violation of the Declaration of Trust.
45. May the Plan be changed or discontinued?
The Trust reserves the right to amend, modify, suspend, or terminate the
Plan at any time, but such action shall have no retroactive effect that would
prejudice the interests of the Participants. All Participants will receive
written notice of any such amendments, modifications, suspensions or
terminations from the Agent. In the event of termination, certificates for whole
Shares held by each Participant in the Plan will be delivered to such
Participant, together with a check for the proceeds of the value of any
fractional Shares.
The Trust may also terminate the Plan when shareholder participation in the
Plan is below a minimum level of reinvestment that the Trust may, from time to
time, establish as being uneconomical or inefficient to administer.
46. What law governs the Plan?
The terms, provisions and conditions of the Plan and its operation shall be
governed by the laws of the State of New Jersey.
47. How is the Plan to be interpreted?
Any question of interpretation arising under the Plan will be determined by
the Trust and any such determination will be final.
USE OF PROCEEDS
Proceeds will go to the Trust to the extent the Shares are either newly
issued Shares or treasury Shares which are acquired directly from the Trust. The
Trust is unable to estimate the amount of proceeds from the sale of such Shares
under the Plan. The Trust intends to use proceeds from the sale of such Shares
for general business purposes, including the reduction of the Trust's current
indebtedness, and as working capital.
PLAN OF DISTRIBUTION
The Shares sold under the Plan are being distributed directly by the Trust
rather than through an underwriter, broker or dealer. There will be no brokerage
commissions or other fees charged to Participants in connection with the
purchase of Plan Shares.
Broker-dealers and other financial intermediaries may engage in positioning
and other transactions that will allow them to acquire Shares prior to the
record date for dividends, reinvest in Plan Shares at the discounted purchase
price and resell the Plan Shares to capture the discount. The Trust does not
expect that financial intermediaries will engage in such transactions to any
significant extent, if at all. The Trust's Amended and Restated Declaration of
Trust limits share ownership by any person so as to maintain the Trust's
qualification as a REIT under the Code. Moreover, the Plan limits optional
payments to $5,000 per dividend payment cycle and Plan Shares purchased with
optional payments are not purchased at a discount. To the extent that financial
intermediaries do participate in such trading activities, they may be deemed
underwriters within the meaning of Section 2(11) of the Securities Act of 1933.
The Trust has not entered into any formal or informal arrangement with any
financial intermediary to engage in such transactions and does not intend to do
so.
The Shares may not be available under the Plan in all states. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, any Shares or other securities in any state or any jurisdiction to any
person to whom it is unlawful to make such offer in such jurisdiction.
<PAGE>
THE TRUST
First Real Estate Investment Trust of New Jersey (the "Trust") is an
equity-oriented, real estate investment trust (a "REIT"). The Trust is an
unincorporated business trust organized under the laws of the State of New
Jersey pursuant to a Trust Agreement dated November 1, 1961, as amended and
restated as of November 7, 1983 and as amended on May 3, 1994 (the "Declaration
of Trust"). The purpose of the Trust is to provide investors with the
opportunity to participate in a diversified portfolio of income-producing real
estate through ownership of the Trust's transferable shares.
The Trust commenced operations in 1961. The Trust has paid cash
distributions to its Shareholders every year since 1963. The distribution for
the fiscal year ended on October 31, 1994 was $1.62 per share.
The Trust is engaged in the business of acquiring and holding real estate,
including apartment complexes, apartment buildings and shopping center/retail
properties. The Trust has also purchased vacant land for future development as
retail/commercial or apartment properties. The Trust recently acquired an
interest in a limited liability company which was organized under the laws of
New Jersey to purchase an apartment complex situated in Westwood, New Jersey. In
the future, the Trust may purchase additional properties with others on a joint
venture, partnership or similar ownership basis where the Trust is able to
maintain appropriate controls over the management of the property. It is the
policy of the Trust to purchase real property for investment and not for resale
or turnover. The Trust has operated in accordance with such policies since its
inception.
As of January 31, 1995, the Trust's real estate holdings consisted of 16
properties, with a net book value of $62.930 million (including the full
investment value of Westwood Hills, L.L.C., a limited liability company in which
the Trust has a 40% interest). The Trust's holdings, other than its interest in
Westwood Hills, L.L.C., consisted of eight (8) apartment buildings or complexes
with 639 apartment units, four (4) shopping center/retail properties with a
total of 466,248 square feet of gross leasable area and three (3) parcels of
unimproved land aggregating approximately 68.02 acres. During the fiscal year
ended October 31, 1994, the Trust (including Westwood Hills, L.L.C., its
Affiliate) had rental income (exclusive of real estate taxes and common area
maintenance charges reimbursed by tenants and sundry income) of $9.890 million,
with 58.46% of such income derived from the apartment properties and 41.54% from
the shopping center/retail properties. Income from rental operations for the
same period was $2,927,395, with $2,240,796 derived from the apartment
properties and $686,599 from the shopping center/retail properties.
All of the Trust's properties are managed by Hekemian & Co., Inc., of
Hackensack, New Jersey, under a management and brokerage agreement dated
December 20, 1961 as amended May 8, 1963 (the "Management Agreement"). The
Management Agreement, as amended, is subject to automatic renewal, for terms of
two (2) years each, unless terminated by either party upon written notice given
at least one (1) year prior to the expiration date. Under the terms of the
Management Agreement, Hekemian & Co., Inc. also acts as an advisor to the Trust
with respect to real estate investments, without separate or additional
compensation for such services.
As of January 31, 1995, the Trust had outstanding mortgage indebtedness
secured by liens on specific properties (exclusive of the mortgage indebtedness
on Westwood Hills) in the principal amount of $24,454,000. The liens are on the
following properties:
<TABLE>
<CAPTION>
Year Mortgage Interest Maturity
Property Acquired Mortgagee Balance Rate Date
(000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Westridge Square 1992 State Mutual $18,560 9.000% Aug. 1, 1997
Shopping Center, Life Insurance
Frederick, Maryland Co. of America
Heights Manor, 1971 United Jersey $ 364 7.625% March 1, 1999
Spring Lake, Bank
Heights, N.J.
Westwood Plaza, 1988 Aetna Life $ 5,530 10.000% Sept. 1, 2001
Shopping Center, Insurance Co.
Westwood, N.J.
</TABLE>
In addition to the foregoing mortgages, the Westwood Hills property is
encumbered by a $10.5 million mortgage lien in favor of United Jersey Bank
("UJB"), on which obligation the sum of $9.416 million was outstanding at
January 31, 1995.
All of the Trust's properties, except for Westwood Plaza, Westridge Square,
Westwood Hills and the vacant or unimproved lands, are subject to a mortgage
lien in favor of UJB. The Trust granted UJB a blanket mortgage lien on February
10, 1994, to secure a $20 million credit line extended to the Trust by UJB (the
"Bank Credit Facility"). The Trust had an outstanding balance, in the sum of
$5.932 million, due to UJB on the Bank Credit Facility at January 31, 1995.
The Trust's business objectives are to continue to enhance its revenues
from both residential and retail/commercial operations and to increase the value
of its properties. Revenue enhancement can be achieved through a variety of
methods, including the acquisition or development of new real estate assets; the
collection of contractual rent increases and/or percentage rents from
retail/commercial tenants; the collection of permissible rent increases upon
lease renewals with existing residential tenants; the reletting of existing
retail/commercial space and apartment units at higher rents; and the charging of
higher rents for space in older, existing retail/commercial properties which
have been expanded, improved, renovated, remodeled and/or reconstructed.
During the past several years, the Trust has concentrated its expansion
efforts upon the acquisition of multi-family residential and shopping center
properties which are substantially larger than those real estate assets the
Trust had historically sought to include in its portfolio. In addition, while
the Trust had formerly confined its activities and investments to New Jersey,
the Trust enlarged the scope of its operations in 1992 with the purchase of the
Westridge Square Shopping Center in Frederick, Maryland.
The Trust Declaration permits the Trust to conduct business without
qualifying as a REIT. Nevertheless, since November of 1961, the Trust has
elected to conduct, and conducts, its operations in a manner intended to comply
with the requirements of Sections 856 to 860 of the Internal Revenue Code of
1986 (the "Code"). The Trust has elected to be taxed as a REIT for Federal
income tax purposes continuously since 1961 and expects to continue to elect
such status. Under the Code, a REIT which meets certain requirements is not
subject to federal income tax on the portion of its taxable income distributed
to its shareholders, if at least 95% of its real estate investment trust taxable
ordinary income is so distributed.
Under the Trust Declaration, the Trust is permitted to invest in a broad
range of real estate investments and non-real estate investments, including full
or participating interests in securities (whether or not secured by mortgages,
rents and lease payments) and the ownership of any other interests, including
equity interests, related to real property. The investment power permits the
Trust to generate income of the types permitted to be received by REITs under
Section 856 of the Code.
SELECTED FINANCIAL INFORMATION
The following tables set forth, in a summary manner, selected financial
information for the Trust which is derived from the combined financial
statements of the Trust incorporated by reference in this Prospectus. The
information in the tables should be read in conjunction with the aforesaid
combined financial statements and the notes thereto.
<PAGE>
INCOME AND UNDISTRIBUTED EARNINGS
<TABLE>
<CAPTION>
Quarters Ended
Years Ended October 31 January 31*
------------------------------------------------------------
1994 1993 1992 1991 1995 1994
------------------------------------------------------------
(In Thousands of Dollars Except per Share Amounts)
<S> <C> <C> <C> <C> <C> <C>
INCOME
Rental revenue:
Rental income $ 9,890 $ 8,804 $ 7,758 $ 5,960 $2,905 $2,234
Real estate taxes reimbursed 642 611 417 274 174 168
Common area maintenance reimbursed 472 384 221 54 104 79
Sundry income 158 149 69 72 41 70
------- ------- ------- ------- ------ ------
Totals 11,162 9,948 8,465 6,360 3,224 2,551
------- ------- ------- ------- ------ ------
Rental expenses:
Operating expenses 2,482 2,106 1,901 1,615 703 593
Management fees 479 443 324 303 136 109
Real estate taxes 1,375 1,231 942 790 384 301
Interest 2,582 2,316 1,774 633 767 574
Depreciation 1,317 1,172 958 547 375 294
------- ------- ------- ------- ------ ------
Totals 8,235 7,268 5,899 3,888 2,365 1,871
------- ------- ------- ------- ------ ------
Income from rental operations 2,927 2,680 2,566 2,472 859 680
------- ------- ------- ------- ------ ------
Other income (expense):
Interest income 5 4 136 526 2 2
Interest expense (279) (194) (84) -- (91) (62)
General and administrative (185) (187) (171) (232) (60) (46)
------- ------- ------- ------- ------ ------
Totals (459) (377) (119) 294 (149) (106)
------- ------- ------- ------- ------ ------
Income before state income taxes 2,468 2,303 2,447 2,766 -- --
Provision for state income taxes 9 8 9 10 -- --
------- ------- ------- ------- ------ ------
Income before minority interest 2,459 2,295 2,438 2,756 710 574
Minority interest 76 -- -- -- (24) --
------- ------- ------- ------- ------ ------
Net Income $ 2,383 $ 2,295 $ 2,438 $ 2,756 $ 686 $ 574
======= ======= ======= ======= ====== ======
Earnings per share $1.53 $1.47 $1.56 $1.77 $.44 $.37
===== ===== ===== ===== ==== ====
UNDISTRIBUTED EARNINGS
Balance, beginning of period $ 1,978 $ 2,116 $ 2,431 $ 2,670 $1,834 $1,978
Net income 2,383 2,295 2,438 2,756 686 574
Less dividends paid (2,527) (2,433) (2,753) (2,995) (1,154) (1,029)
------- ------- ------- ------- ------ ------
Balance, end of period $ 1,834 $ 1,978 $ 2,116 $ 2,431 $1,366 $1,523
======= ======= ======= ======= ====== ======
Dividends paid per share $1.62 $1.56 $1.765 $1.92 $.74 $.66
===== ===== ====== ===== ==== ====
</TABLE>
*Unaudited
<PAGE>
BALANCE SHEETS
<TABLE>
<CAPTION>
October 31 January 31*
------------------------------------------------------------
1994 1993 1992 1991 1995 1994
------------------------------------------------------------
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Real estate, at cost, net of accumulated depreciation $63,176 $48,647 $47,721 $19,518 $62,930 $48,415
Equipment, at cost, net of accumulated depreciation 214 210 226 247 212 208
Cash 238 928 432 8,224 405 530
Restricted cash -- -- 138 -- -- --
Tenants' security accounts 867 674 642 583 882 698
Sundry receivables 325 212 57 165 299 267
Prepaid expenses and other assets 601 485 520 175 508 395
Deferred charges, net 192 200 225 67 234 196
Deposits -- -- 103 117 -- --
------- ------- ------- ------- ------- -------
Totals $65,613 $51,356 $50,064 $29,096 $65,470 $50,709
======= ======= ======= ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages payable $34,019 $24,963 $25,341 $ 6,412 $33,870 $24,879
Note payable - bank 5,428 3,920 2,220 -- 5,932 3,920
Accounts payable and accrued expenses 344 243 217 235 267 154
Tenants' security deposits 964 767 717 672 985 796
Other liabilities 77 42 24 32 94 42
Deferred revenue 137 129 115 -- 122 81
------- ------- ------- ------- ------- -------
Total liabilities 40,969 30,064 28,634 7,351 41,270 29,872
------- ------- ------- ------- ------- -------
Minority Interest 3,496 -- -- -- 3,520 --
------- ------- ------- ------- ------- -------
Shareholders' equity:
Shares of beneficial interest without par value;
l,560,000 shares authorized;
l,559,788 shares issued and outstanding 19,314 19,314 19,314 19,314 19,314 19,314
Undistributed Earnings 1,834 1,978 2,116 2,431 1,366 1,523
------- ------- ------- ------- ------- -------
Total shareholders' equity 21,148 21,292 21,430 21,745 20,680 20,837
------- ------- ------- ------- ------- -------
Totals $65,613 $51,356 $50,064 $29,096 $65,470 $50,709
======= ======= ======= ======= ======= =======
</TABLE>
*Unaudited
(1) The combined financial statements for the fiscal year ended October 31, 1994
include the accounts of the Trust and Westwood Hills, L.L.C. ("Westwood Hills"),
which have been combined on the basis of common control. The combined financial
statements include 100% of the assets, liabilities, operations and cash flows,
with the 60% interest held by the Limited Members of Westwood Hills reflected as
"minority interest".
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion should be read in conjunction with the Trust's
Combined Financial Statements and Notes thereto appearing elsewhere in this
Prospectus. Such combined financial statements and information have been
prepared to reflect the historical operations and financial condition of the
Trust, prior to the implementation of the Dividend Reinvestment and Share
Purchase Plan. See "The Trust" and the Notes to the Trust's Combined Financial
Statements.
Results of Operations
Rental revenue for the fiscal year ended October 31, 1994 increased by
12.2% to $11,162,000, as compared to $9,948,000 for the same period in 1993. At
the same time rental expenses increased by 13.3% to $8,235,000 in 1994 as
compared to $7,268,000 in 1993. Rental revenue for the fiscal quarter ended
January 31, 1995 increased by 26.38% to $3,224,000 as compared to $2,551,000 for
the quarterly period ended January 31, 1994. At the same time, rental expense
increased from $1,871,000 for the quarter ended January 31, 1994 to $2,365,000
during the quarter ended January 31, 1995.
An examination of the rental expense reveals that a substantial portion of
the year to year increase in rental expenses is due to the additional
depreciation, interest expense and real estate taxes resulting from the
acquisition of Westridge in 1992 and, to a lesser extent, the acquisition of the
additional property in Rockaway, New Jersey, during 1993 and the acquisition of
Westwood Hills in June of 1994.
In addition, interest income continued to decline reflecting both the fact
that the Trust has not accumulated significant amounts of cash on hand and
reduced interest rates being paid by depositories on such cash deposits.
Net income for the fiscal year 1994 was $2,383,930 or $1.53 per Share, as
against $2,295,000, or $1.47 per Share for the same period in fiscal year 1993.
Net income for the first quarter of fiscal year 1995 was $686,000 or $0.44 per
share, as against $574,000, or $0.37 per share for the same period in fiscal
year 1994. The annual and quarterly increases are primarily attributable to the
income derived from the leasing of previously vacant shopping center space,
particularly at the Trust's center in Frederick, Maryland, and a positive cash
contribution from the recently acquired Westwood Hills Apartments. In addition,
various operational costs have continued to moderate. In the first quarter of
fiscal year 1995, the northeastern portion of the United States had a mild
winter, resulting in diminished costs for heating and snow removal when compared
to the severe winter with significant snowfalls which was experienced during the
first quarter of fiscal year 1994. The results of the third and fourth quarters
of 1994 include income from the Trust's interest in Westwood Hills, which was
purchased in June, 1994.
Liquidity and Capital Resources
Cash flows from operations, debt financing and the sale of Trust Shares
have been the principal sources of capital used to fund the Trust's property
acquisitions and expansion.
The Trust has a $20 million line of credit from UJB that may be used to
finance the acquisition or development of additional properties and for general
business purposes (the "Bank Credit Facility"). Borrowings under the Bank Credit
Facility bear interest: (i) at a variable fluctuating rate equal to UJB's Base
Lending Rate or at the LIBOR Base plus 200 basis points (2.0%), on all
borrowings up to $10,000,000; and, (ii) at UJB's Base Lending Rate plus one half
of one percent (1/2%), or at the LIBOR Base, plus 250 basis points (2.5%), on
all borrowings in excess of $10,000,000. At January 31, 1995, the sum of $5.932
million was outstanding under the Bank Credit Facility.
The Trust may seek, under certain circumstances, to obtain funds through
additional equity offerings and/or debt financing (other than the Bank Credit
Facility), such as purchase money financing from the sellers of real estate or
mortgage loans from institutions. Such funds may be used in connection with the
acquisition of additional properties, the renovation or expansion of existing
properties or, as necessary, to meet the distribution requirements for REITs
under the Code. The availability and terms of any such equity offering will
depend upon market and other conditions. There can be no assurance that such
additional equity capital will be available on terms acceptable to the Trust.
Economic conditions and prevailing banking standards have generally restricted
the availability of debt financing, particularly in connection with mortgage
loans for real estate acquisitions. The Trust is unable to project in a
definitive manner what impact such economic conditions and prevailing banking
standards will have on the Trust's ability to finance new acquisitions.
The Trust has an ongoing program to make various capital improvements for
certain apartment properties, including new roofs, windows and kitchens. The
short term impact of these capital outlays will be to depress the Trust's
current cash flow. Nevertheless, the Trust expects to benefit from these
expenditures by preserving the physical integrity of its properties and reducing
future maintenance costs. In addition, the Trust anticipates that the renovated
apartment units will command higher rentals.
Other than the apartment rehabilitation program, the Trust has made no
commitments, and has no understandings, for additional capital expenditures,
except with respect to the redevelopment of the Franklin Lakes Shopping Center
which will be renamed "Greentree Shopping Plaza." The Trust intends to demolish
the present center, consisting of approximately 33,320 square feet of leasable
space, and to construct a new center with approximately 88,000 square feet of
leasable space.
Grand Union occupies a total of 15,960 square feet of leasehold space at
the present center. Grand Union has filed for reorganization under Chapter 11 of
the United States Bankruptcy code. The Grand Union lease expires on August 31,
1995. As a result, the Trust anticipates that it will commence construction of
the new shopping center in September or October 1995. Construction will take
approximately nine (9) months. During the construction period, the property will
generate no income. The Trust realized approximately $166,000 in income from the
shopping center during fiscal year 1994. The loss of income for the construction
period will be approximately $0.11 per share on an annual basis. The
construction of the new shopping center will not be commenced until the Trust
has secured all necessary governmental approvals, has executed acceptable leases
with one or more anchor tenants and has obtained suitable financing for the
project. The Trust anticipates that it will secure a mortgage from a third party
lender, in the amount of approximately $6.0 million, to provide the necessary
funding for the construction.
Under the terms of the Leases relating to the shopping center/retail
properties, the tenants are responsible for various operating expenses and real
estate taxes. See "Business -- Properties" and "Business -- Shopping Center
Leases". As a result of these arrangements, the Trust does not believe it will
be responsible for any major expenses in connection with such properties during
the lease term of any tenant. The Trust anticipates entering into similar Leases
with respect to its properties in the future. After the Lease term, or in the
event a tenant is unable to meet its obligations, the Trust anticipates that any
expenditures it might become responsible for in maintaining the properties will
be funded by cash from operations and, in the case of major expenditures,
possibly by borrowings. To the extent that expenditures or significant
borrowings are required, the Trust's cash available for distribution and
liquidity may be adversely affected.
The Trust anticipates that adequate cash will be available to fund its
operating and administrative expenses, continuing debt service obligations and
the payment of distributions in accordance with REIT requirements.
Capital Strategy
Since its inception in 1961, the Trust has elected to be treated as a REIT
for Federal income tax purposes. The Trust anticipates making distributions to
its stockholders from operating cash flows, which are expected to increase from
future growth in rental revenues and other sources. Although cash used to make
distributions reduces amounts available for capital investment, the Trust
generally intends to distribute not less than 95% of funds from operations,
reserving such amounts as it considers necessary for the expansion and
renovation of its properties or the acquisition of new properties as suitable
opportunities arise.
Although the Trust receives most of its rental payments on a monthly basis,
it intends to make regular quarterly distributions. Amounts accumulated for
distributions will be invested by the Trust in short-term marketable
instruments.
Economic Conditions
As of January 1, 1995, the Registrant has observed that the economic
climate in the Mid-Atlantic states has shown some improvement over what was
experienced in 1990-1994. Nevertheless, a continued rise in interest rates may
have the effect of again depressing the economic conditions which could result
in the inability of some existing tenants of the Trust to meet their lease
obligations and could otherwise adversely affect the Trust's ability to attract
or retain tenants.
Management believes that inflation will have a positive impact for the
long-term potential appreciation of the Trust's shopping centers and apartment
complexes. The majority of the Trust's shopping center leases contain provisions
designed to mitigate the short-term adverse impact of inflation. Such provisions
include clauses enabling the Trust to receive percentage rents which generally
increase as prices rise and/or escalation clauses which are typically related to
increases in the consumer price index or similar inflation indices. Most of the
Trust's leases require the tenant to pay its pro rata share of costs and
expenses associated with the ongoing operation of the property, including, but
not limited to, real property taxes and assessments, repairs and maintenance,
and insurance, thereby reducing the Trust's exposure to increases in operating
costs and expenses resulting from inflation.
However, inflation may have a negative impact on some of the Trust's other
operating items. Interest and general and administrative expenses may be
adversely affected by inflation as these specified costs could increase at a
rate higher than rents. Also, for tenant leases with stated rent increases
inflation may have a negative effect as the stated increases in these leases
could be lower than the increase in inflation at any given time.
Inflation may have a materially adverse effect upon the net income of the
Trust's apartment complexes, particularly those located in municipalities which
have enacted rent control or rent levelling ordinances. Such ordinances
typically limit the amount of the annual rental increase a tenant will be
obligated to pay upon renewal of the tenant's lease. To the extent that an
ordinance does not provide a mechanism for the recovery of all operating cost
increases or only allows such recoupment pursuant to an application and approval
process (with consequent regulatory and implementation delays), the Trust's net
income from the operation of its apartment complexes could be eroded by
inflation.
RECENT DEVELOPMENTS
Bank Credit Facility
On February 10, 1994, the Trust obtained a new credit line, in the
principal amount of $20 million, from United Jersey Bank ("UJB") (the "Bank
Credit Facility"). The Bank Credit Facility replaced the credit line previously
provided to the Trust by National Community Bank of New Jersey ("NCB"), and its
successor, the Bank of New York, National Community Division ("BNY"). At the
closing, the Trust repaid the principal balance of $3.92 million then due and
owing to BNY on the credit line, and paid accrued interest of $26,733, with the
proceeds of an advance under the Bank Credit Facility.
In accordance with the provisions of Section 2.03 of the Credit Agreement
between UJB and the Trust, dated February 10, 1994, and subject to a $20 million
limitation on all advances, UJB will make available to the Trust up to a maximum
of $7.5 million for general business purposes and up to a maximum of $15
million, on an offering basis, for the Trust's acquisition of real estate and
capital improvements. The real estate acquisition advances are subject to
certain limitations and requirements.
The Bank Credit Facility expires on February 10, 1997, unless extended by
agreement of the parties or unless sooner terminated upon the occurrence of an
event of default or in accordance with the provisions of Sections 2.02(b) and
6.09 of the Credit Agreement. Pursuant to those sections, the Trust must satisfy
certain financial requirements. Such tests include the maintenance of: (1)
shareholders' equity at a level of at least $18 million as of the end of each
fiscal quarter; (2) a debt to worth ratio of not less than 4.0; (3) cash flow
(net income plus depreciation) in excess of $2.5 million for the preceding
twelve months, as determined at the end of each fiscal quarter; (4) a debt
service coverage ratio of 1.4 or greater. Section 6.09(e) of the Credit
Agreement prohibits the Trust from incurring any additional secured or unsecured
indebtedness (other than trade payables), except for the refinancing of existing
mortgages, for the acquisition of new income-producing property (but only where
such debt is on a non-recourse basis other than liability under environmental,
fraud and representation and warranty clauses) and for the expansion and/or
renovation of existing income-producing property. The Trust's obligations under
the Bank Credit Facility are secured by mortgage liens on all of the Trust's
properties except the Westwood Plaza Shopping Center, the Westridge Square
Shopping Center, the Westwood Hills Apartments and the vacant or unimproved
lands.
Advances under the Bank Credit Facility up to and including $10 million in
the aggregate bear interest, at the election of the Trust, at either: (A) UJB's
variable Base Lending Rate, as announced from time to time; or (B) (i) the
average of LIBOR (the annual rate of interest at which United States Dollars
deposits are offered to prime banks in the London interbank market) on contracts
ending 1, 2, 3 or 6 months from the advance date, for the two (2) business days
preceding the advance date (rounded upward to the nearest whole multiple of 1/16
of 1% per annum) divided by (ii) a percentage equal to 100% less the stated
maximum rate of all reserves required to be maintained against "LIBOR Rate
Liabilities" as specified in Regulation D, (the "LIBOR Base"), plus (iii) 200
basis points (2%). Advances in excess of $10,000,000 will bear interest at the
UJB Base Lending Rate plus one half of one percent (1/2%) or at the LIBOR Base
plus 250 basis points (2.5%). At closing, the Trust elected to use the LIBOR
Base, plus 200 basis points, which then produced an interest rate of 5.88% per
annum. The principal balance due on the Bank Credit Facility (as of January 31,
1995) was $5.932 million and the applicable interest rate was 7.875%. During the
fiscal year ended October 31, 1994, the highest interest rate charged to the
Trust on funds borrowed under the Bank Credit Facility was 6.63%.
Acquisition of Interest in Westwood Hills, L.L.C.;
Acquisition of Westwood Hills Apartments
During May, 1994, the Trust acquired a 40% interest in Westwood Hills,
L.L.C., a limited liability company organized under the laws of the State of New
Jersey ("Westwood Hills"). The Trust paid a cash consideration of $2,440,000 for
its interest in the limited liability company. The funds for the acquisition of
the interest were obtained by drawing against the Bank Credit Facility. The
Trust was designated as the Managing Member of Westwood Hills in a certain
Operating Agreement dated as of May 31, 1994 by and among the Trust and the
Limited Members of Westwood Hills.
On June 2, 1994, Westwood Hills closed on the purchase of a 210 unit
apartment complex located in the Borough of Westwood, County of Bergen, State of
New Jersey, known as the "Westwood Hills Apartments". Westwood Hills paid
$15,419,000 for the property including closing costs, closing adjustments and
brokerage commissions of $225,000 to a third party broker and $500,000 paid to
Hekemian & Co., Inc., a related party. A portion of the purchase price was
financed with the proceeds of a $10.5 million mortgage loan from United Jersey
Bank ("UJB"), secured by a first lien on the Westwood Hills property in favor of
UJB. At the closing of the mortgage loan, UJB advanced $9.52 million for the
purchase of the Westwood Hills property. Westwood Hills has the right to request
disbursement of the remainder of the mortgage loan upon compliance with certain
conditions in the loan documents.
The Trust and two Limited Members of Westwood Hills, jointly and severally,
guaranteed repayment to UJB of up to $2 million of the outstanding mortgage
indebtedness upon the occurrence of a default under the loan documents. In
addition, the Trust and certain Limited Members have indemnified UJB against,
and held UJB harmless from, any losses or damages sustained by reason of: (i)
any fraudulent misrepresentations by Westwood Hills or its Members; (ii)
intentional waste of the collateral for the mortgage; and (iii) any
environmental liabilities, claims and expenses related to the property.
The interests sold by Westwood Hills to third parties, including the Trust,
were not registered pursuant to the Securities Act of 1933 or with the New
Jersey Bureau of Securities. The Operating Agreement for Westwood Hills also
imposes restrictions on the transfer of the Trust's interest and the interests
of the Limited Members. As a result, the Trust's interest in Westwood Hills
cannot be freely or readily transferred. There is no current market for the
Trust's interest in the limited liability company. The Trust does not anticipate
that a market for its interest will develop in the future.
RISK FACTORS
An investment in the Trust's Shares involves various risks. In addition to
general investment risks and those factors set forth elsewhere in this
Prospectus, prospective investors should carefully consider the following
information in conjunction with other information contained in this Prospectus
before making a decision to enroll in the Dividend Reinvestment and Share
Purchase Plan and to purchase Shares. Each factor could adversely affect the
price of the Shares and the Trust's ability to make distributions to
shareholders.
Risks of Equity Real Estate Investments
Competition
Numerous other real estate investment trusts, banks, insurance companies
and pension funds, as well as corporate and individual developers and owners of
real estate, compete with the Trust in seeking properties for acquisition,
tenants for properties, leasing revenues and land for development. During the
past several years, the Trust has concentrated its expansion efforts upon the
acquisition of multi-family residential and shopping center properties which are
substantially larger than those real estate assets the Trust had historically
sought to include in its portfolio. As a result, the Trust has encountered
increasing competition for investment grade real estate from other entities and
persons which have investment objectives similar to those of the Trust. Such
competitors may have significantly greater resources and financial revenues, may
derive funding from foreign and domestic sources and may have larger staffs to
find, evaluate and secure new properties.
In addition, retailers at the Trust's shopping centers face increasing
competition from discount shopping centers, outlet malls, catalogues, discount
shopping clubs and telemarketing. In many markets, the trade areas of the Trust
shopping center properties overlap with the trade areas of other centers.
Renovations and expansions at those competing malls could negatively affect the
Trust's shopping center properties by encouraging shoppers to make their
purchases at the expanded or renovated competing center. Increased competition
could adversely affect the Trust's revenues. New retail real estate competition
could be developed in the future in trade areas that could adversely affect the
revenues of the Trust's shopping center properties.
The Trust has experienced competition in the rental of apartment units in
its residential properties, particularly from those multi-family properties
which have been converted to condominiums. However, the overall impact of
condominium conversions upon vacancy rates for the Trust's residential
properties has not been material.
General Factors Affecting Investment in Shopping Centers and
Residential Properties; Effect of Economic and Real Estate Conditions
The revenues and value of shopping centers and residential properties may
be adversely affected by a number of factors, including: the national economic
climate; the regional economic climate (which may be adversely affected by plant
closings, industry slowdowns and other local factors); local real estate
conditions (such as an oversupply of retail space or apartment units);
perceptions by retailers or shoppers of the security, safety, convenience and
attractiveness of the shopping center; perception by residential tenants of the
safety, convenience and attractiveness of an apartment building or complex; the
proximity and quality of competing centers and apartment complexes; the
availability of recreational and other amenities and the willingness and ability
of the owner to provide capable management and adequate maintenance. In
addition, other factors may adversely affect the value of a shopping center or
apartment complex without necessarily affecting its current revenues, including
changes in governmental regulations, such as limitations on hours of operations,
changes in tax laws or rates and potential environmental or other legal
liabilities.
Shopping Center Properties; Dependence on Anchor Stores and Satellite Tenants
The Trust's income and funds available for distribution would be adversely
affected if space in the Trust's shopping center properties could not be leased
or if anchor store tenants or satellite tenants failed to meet their contractual
obligations. The success of the Trust's investment in the shopping center
properties is dependent upon the success of the business of the tenants leasing
space therein and, to the extent that a tenant's performance under its lease has
been guaranteed, on the guarantor of such lease. Unfavorable economic,
demographic or competitive conditions may adversely affect the financial
condition of tenants and/or guarantors, and, consequently, the lease revenues
and the value of the Trust's investments in the shopping center properties. If
the sales of stores operating in the Trust's shopping center properties were to
decline due to economic conditions, the closing of anchors or for other reasons,
tenants may be unable to pay their minimum rents or expense recovery charges. In
the event of default by a tenant or anchor, the Trust might experience delays
and costs in enforcing its rights as landlord.
Renewal of Leases and Reletting of Space
There is no assurance that the Trust will be able to retain tenants in its
shopping centers upon expiration of their leases. The Trust will be subject to
the risks that, upon expiration of leases for space located in the Trust's
shopping center properties, the premises may not be relet or the terms of
reletting (including the cost of concessions to tenants) may be less favorable
than current lease terms. Leases for a total of approximately 1.9% and 5.7% of
the gross leasable area in the Trust's shopping centers have expired or will
expire in 1994 and during 1995, respectively. If the Trust were unable promptly
to relet all or a substantial portion of this space or if the rental rates upon
such reletting were significantly lower than expected rates, the Trust's net
income and ability to make expected distributions to shareholders may be
adversely affected.
Illiquidity of Real Estate Investments; Possibility that Value
of the Trust's Interests May be Less than its Investment
Equity real estate investments are relatively illiquid. Therefore, the
ability of the Trust to vary its portfolio in response to changed economic,
market or other conditions will be limited. Beyond general illiquidity, the
Trust's interest in Westwood Hills is also subject to transfer constraints
imposed by the Operating Agreement and by the fact that there is no market for
the Trust's interest.
If the Trust were compelled to liquidate its holdings in the current real
estate market, the proceeds to the Trust from the sale of certain assets might
be less than the Trust's current investment in those assets.
Inability to Obtain Financing
The Trust may or may not be able to obtain financing for improvements,
capital expenditures, acquisitions, development or expansions. If the Trust is
not able to obtain such financing, it will not be able to proceed with
contemplated projects.
Leverage; No Limitation on Debt; Possible Inability to Refinance
Balloon Payments on Mortgage Debt
The Trust has incurred, and may continue to incur, indebtedness (secured
and unsecured) in furtherance of its activities. There are mortgage liens
covering all of the Trust's apartment properties and retail/commercial
properties. Neither the Trust Declaration nor any policy statement formally
adopted by the Board of Trustees limits either the total amount of indebtedness
or the specified percentage of indebtedness (based on the total capitalization
of the Trust) which may be incurred. Accordingly, the Board of Trustees of the
Trust could change the current policies of the Trust regarding indebtedness,
subject only to certain restrictions imposed by the Bank Credit Facility. If
these policies were changed, the Trust could become more highly leveraged,
resulting in an increased risk of default on the obligations of the Trust and in
an increase in debt service requirements that could adversely affect the
financial condition and results of the operations of the Trust.
The Trust may be required to borrow money and mortgage its properties to
fund any short fall of cash necessary to meet the Code's distribution
requirements for the maintenance of REIT status. The resulting interest expense
and debt amortization with respect to any borrowings, including borrowings under
the Bank Credit Facility, could negatively affect the Trust's cash available for
distribution. If the Trust defaults on any loan secured by a mortgage or
mortgages on its property or properties, the lender may exercise their remedies,
including foreclosure on such property or properties. In that event, the Trust
could lose its investment in such property or properties.
Payment obligations on mortgages and other indebtedness generally are not
reduced if the economic performance of any of the Trust's properties declines.
If any such decline occurs, the Trust's income and funds available for
distribution would be adversely affected.
The Trust does not expect to have sufficient funds from operations to make
a final payment of principal when due under the mortgages on the Trust's
Westwood Plaza and Westridge Square Shopping Centers and the Westwood Hills
Apartments. The Trust intends to refinance such debt at or before maturity.
However, there can be no assurance that the Trust will be able to refinance such
indebtedness or otherwise obtain funds by selling assets or by raising equity.
An inability to make such balloon payments when due would permit the mortgage
lender to foreclose on such properties, which would have a material adverse
effect on the Trust. In addition, interest rates on any debt issued to refinance
such mortgage debt may be higher than the rates on the current mortgages, which
could adversely affect funds from operations available for distribution.
Realization of any of the foregoing contingencies could have a material adverse
effect on the Trust's net income and/or financial condition.
Possible Liability Relating to Environmental Matters
Under various federal, state and local environmental laws, statutes,
ordinances, rules and regulations, an owner of real property may be liable for
the costs of removal or remediation of certain hazardous or toxic substances at,
on, in or under such property, as well as certain other potential costs relating
to hazardous or toxic substances (including government fines and penalties and
damages for injuries to persons and adjacent property). Such laws often impose
such liability without regard to whether the owner knew of, or was responsible
for, the presence or disposal of such substances. Such liability may be imposed
on the owner in connection with the activities of an operator of, or tenant at,
the property. The cost of any required remediation, removal, fines or personal
or property damages and the owner's liability therefor could exceed the value of
the property and/or the aggregate assets of the owner. In addition, the presence
of such substances, or the failure to properly dispose of or remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral, which, in turn, would
reduce the Trust's revenues and ability to make distributions.
A property can also be negatively impacted either through physical
contamination or by virtue of an adverse effect upon value attributable to the
migration of hazardous or toxic substances, or other contaminants that have or
may have emanated from other properties.
The Trust has previously authorized the New Jersey Department of
Environmental Protection ("NJDEP") to install monitoring wells on its vacant
property located in South Brunswick, New Jersey. NJDEP advised the Trust that
its investigation relates to whether the Trust's property has been contaminated
as a result of the migration of environmentally sensitive materials from the
J.I.S. Landfill located next to the Trust's property. The J.I.S. Landfill has
been placed on the National Priority List published pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("Superfund Law").
NJDEP supplied the Trust with preliminary data indicating that the
groundwater located below the Trust's property is contaminated. The Trust asked
the NJDEP to supply additional data with respect to the site. In addition, the
Trust retained J.H. Crow Company ("Crow"), an environmental consultant, to (a)
review all data supplied by NJDEP; and (b) recommend such further environmental
studies as may be required to determine whether the site has sustained damage
beyond groundwater contamination.
The Trust's environmental consultant conducted a soil sampling program at
the Trust's property. Based upon these studies, Crow has concluded that there is
no evidence, at the present time, of soil contamination on the Trust's property
at levels which require remedial action. The NJDEP has supplied the Trust with a
report which concludes that there was no evidence of any migration of hazardous
substances or materials from the J.I.S. Landfill to the Trust's property.
Consequently, the Trust's property has not been included in any remediation
plans. The Trust's environmental consultant recommended that the Trust consider
either the construction of an earth berm or the restoration of a borrow pit on
the Trust's property in order to prevent the overland flow of stormwater
runoff(and potentially, hazardous substances) from the J.I.S. Landfill onto the
Trust's property. Following the recommendation of its consultant, the Trust
determined to construct the earth berm. Work on the earth berm has been
completed under the supervision of Crow.
The Trust's environmental consultant has also reported the NJDEP's finding
that the groundwater in the entire region, including the groundwater below the
Trust's property, has been contaminated as a result of the activities at the
J.I.S. Landfill. The affected groundwater is, or will be, the subject of
remediation activities to be conducted by NJDEP and/or the responsible parties
identified in connection with the J.I.S. Landfill cleanup. The Trust is not a
responsible party with any liability for the groundwater cleanup. Since the
Trust's property is not dependent upon groundwater as a source of supply for
drinking water and cleanup activities will be conducted under NJDEP supervision,
the Trust does not believe the groundwater contamination has, or will have, any
negative impact on the value or use of the property. Nevertheless, the Trust's
environmental consultant has recommended that a damaged test well on the Trust's
property, installed by the NJDEP, be formally and properly closed, to prevent
the infiltration of any contaminants from the Trust's property into the Old
Bridge aquifer.
The Trust has never conducted any activities on the property other than to
lease the land for farming purposes to various third parties. As a result, the
Trust has not been named as a potentially responsible party under the Superfund
Law through the date hereof. The Trust expects that any required cleanup
activity will be undertaken by responsible third parties at no cost to the
Trust.
Other federal, state and local laws, statutes, ordinances, rules and
regulations specifically require abatement or removal of certain
asbestos-containing materials in the event of demolition or the making of
certain renovations or remodeling and govern emissions of, and exposure to,
asbestos fibers in the air.
Certain apartment properties owned by the Trust may contain non-friable
asbestos-containing materials. Other properties may contain friable and
non-friable asbestos-containing materials. The Trust has conducted no tests to
determine whether these materials are present. In connection with these
properties, the Trust could be held liable for the costs of remediation with
respect to such asbestos-containing materials or related claims.
The operation and subsequent removal of underground fuel storage tanks also
are regulated by federal and state law. The State of New Jersey has enacted a
law (P.L. 1986, c.102, N.J.S.A. 58:10A-21 et seq.) regulating underground fuel
storage tanks and requiring the registration of such tanks. The NJDEP adopted
various rules and regulations effective as of December 21, 1987 implementing the
law and mandating registration of underground tanks by September 4, 1990. The
law and the rules and regulations impact upon the Trust's responsibilities with
respect to underground storage tanks on its properties. The Trust has
underground storage tanks located on two (2) of its properties. These tanks are
used for the storage of fuel oil consumed to heat apartment units. The Trust
registered these tanks in conformity with the law and the rules and regulations
of the NJDEP. The Trust visually inspects the location of each underground
storage tank for any evidence of spills or discharges. Based upon such
inspections, the Trust knows of no underground storage tanks which are
discharging material into the ground or groundwater at the present time. Current
State law does not require the Trust to submit its underground storage tanks to
special tightness testing under such circumstances. The Trust has conducted no
such tests.
Failure to Qualify as a REIT; Reduction in Distributions from Failure to
Qualify as a REIT; REIT Taxes
The Trust intends at all times to elect to operate so as to qualify as a
REIT under the Code. Although the Trust believes that it will be organized and
will operate in such a manner, no assurance can be given that the Trust will
qualify or remain qualified as a REIT. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there are
only limited judicial or administrative interpretations. The complexity of these
provisions and of the applicable income tax regulations that have been
promulgated under the Code (the "Treasury Regulations") is greater in the case
of a REIT that holds its assets in partnership form. The determination of
various factual matters and circumstances not entirely within the Trust's
control may affect its ability to qualify as a REIT. In addition, no assurance
can be given that legislation, new regulations, administrative interpretations
or court decisions will not significantly change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. The Trust is relying on the opinion of Chapman, Henkoff, Kessler,
Peduto & Saffer, counsel to the Trust, regarding various issues affecting the
Trust's ability to qualify as a REIT. Such legal opinion is not binding on the
Internal Revenue Service (the "IRS"). See "Federal Income Tax Considerations."
If in any taxable year the Trust were to fail to qualify as a REIT, the
Trust would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. Unless entitled to relief under
certain statutory provisions, the Trust would also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost. As a result, the funds available for distribution to the
Trust's shareholders and the distributions to shareholders would be dramatically
reduced for each of the years involved. Although the Trust currently intends to
operate in a manner designed to qualify as a REIT, it is possible that future
economic, market, legal, tax or other considerations may cause the Board of
Trustees, without the consent of the Trust's shareholders, to revoke the REIT
election. See "Federal Income Tax Considerations".
Although qualified to be taxed as a REIT, certain transactions or other
events could lead to the Trust being taxed at rates ranging from 4% to 100% on
certain income or gains.
Distributions to Shareholders; Potential Requirement to Borrow;
Possible Return of Capital
To obtain the favorable tax treatment associated with REIT qualification
under the Code, the Trust generally will be required each year to distribute to
its shareholders at least 95% of its net taxable income. In addition, the Trust
will be subject to tax on its undistributed net taxable income and net capital
gain, and a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the sum
of (i) 85% of its taxable ordinary income, (ii) 95% of its capital gain net
income for the calendar year; and (iii) any undistributed taxable income from
prior years.
The Trust intends to make distributions to its shareholders to comply with
the distribution requirements of the Code and to avoid income taxes and the
nondeductible excise tax. The Trust's income will consist almost entirely of
rental income derived from leasing of the Trust's properties. Possible timing
differences between the receipt of income and the payment of expenses, the
inclusion and deduction of such amounts in determining taxable income of the
Trust and the effect of required debt amortization payments could require the
Trust to borrow funds on a short-term basis to meet the distribution
requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT. In such instances, the Trust may need to borrow funds in
order to avoid adverse tax consequences even if management believed that then
prevailing market conditions were not generally favorable for such borrowings or
that such borrowings would not be advisable in the absence of such tax
considerations. For Federal income tax purposes, distributions paid to
shareholders may consist of ordinary income, capital gains, nontaxable return of
capital or a combination thereof. The Trust will provide its shareholders with
an annual statement indicating the tax character of the distributions.
Distributions by the Trust will be determined by the Board of Trustees and
will be dependent on a number of factors, including the amount of funds from
operations available for distribution, the Trust's financial condition, any
decision by the Board of Trustee to reinvest funds rather than to distribute
such funds, the Trust's capital expenditures, the annual distribution
requirements under the REIT provisions of the Code (see "Federal Income Tax
Considerations -Requirements for Qualification -- Annual Distribution
Requirements") and such other factors as the Board of Trustees deems relevant.
Accordingly, there is no assurance that the Trust will be able to maintain its
distribution rate.
Restrictions on Transfer and Limitation on Ownership of Shares Necessary To
Maintain REIT Status
For the Trust to qualify as a REIT in any taxable year, no more than 50% in
value of its outstanding capital stock may be owned directly, or indirectly by
attribution, by five or fewer individuals (which for this purpose includes
domestic pension funds and certain other tax exempt entities) at any time during
the second half of the Trust's taxable year. In addition the outstanding stock
must be owned by 100 or more persons during at least 335 days of a taxable year
of 12 months or during a proportional part of a short taxable year. (See
"Federal Income Tax Considerations").
Because of the share ownership requirements applicable to REITs, Section
6.10 of the Trust Declaration contains restrictions on the sale, transfer and
issuance of its stock. Such restrictions authorize the Trustees to refuse to
sell or issue stock to any person, if such sale, transfer or issuance would
endanger the qualification of the Trust as a REIT. Such provisions may inhibit
market activity and the resulting opportunity for shareholders to realize a
premium for their Shares that might otherwise exist if a shareholder were
attempting to assemble a substantial block of stock. Also, there can be no
assurance that such provisions will in fact enable the Trust to meet such
concentration of ownership requirements. Such provisions would also make the
Shares an unsuitable investment for any person or entity seeking to obtain
ownership of a significant portion of outstanding stock of the Trust.
Restrictions on and Risks of Expansion and Development Activities
The Trust intends to pursue expansion and development activities on a
selective basis as opportunities arise. In connection with any expansion or
development, the Trust will incur risks associated with any such activities.
These risks include the risk that expansion or development opportunities
explored by the Trust may be abandoned and any pre-expansion or pre-development
costs expended in pursuit of those opportunities would be lost; the risk that
construction costs of a project may exceed original estimates, possibly making
the project uneconomic; the risk that financing may not be available; and the
risk that occupancy rates and rents at a completed project will not be
sufficient to make the project profitable. Also, there are competitors seeking
properties for development which could compete with the Trust for development
opportunities. Some of these competitors may have greater resources than those
of the Trust.
Possibility that Changes in Investment and Financing Policies May Adversely
Affect Financial Condition or Results of Operations
The Board of Trustees determines the investment and financing policies of
the Trust. The Board of Trustees has no present intention to amend or revise
these policies. However, the Board of Trustees may do so at any time without a
vote of the Trusts' shareholders. A change in these policies could adversely
affect the Trust's financial condition or results of operations. See "Statement
of Investment and Other Policies".
No Established Public Trading Market for the Trust's Shares;
Risk of Changes in Stock Price
The Trust's Shares are listed on the NASDAQ Bulletin Board and traded on a
sporadic basis. There is no established public trading market for the Trust's
Shares. There can be no assurance that such a market will develop. Accordingly,
shareholders of the Trust may be unable to sell their Shares in open market
transactions.
The market value of the Shares could be substantially affected by general
market conditions, including changes in interest rates. An increase in market
interest rates may lead purchasers of the Shares to demand a higher annual yield
on the price paid for Shares from dividend distributions made by the Trust,
which could adversely affect the market price of the Shares. Moreover, numerous
other factors, such as government regulatory action and modification of tax
laws, could have significant effect on the future market price of the Shares.
Possible Adverse Effects on Share Prices Arising from
Shares Available for Future Sale
No prediction can be made as to the effect, if any, that future sales of
Shares, or the availability of Shares for future sale will have on the market
price of the Shares. Sales of substantial amounts of Shares, or the perception
that such sales could occur, could adversely affect prevailing market prices for
the Shares. The Trust may finance all or a portion of the costs of acquisitions,
expansions, improvements, renovations, remodeling and reconstruction through
public or private offerings of debt or other equity securities. In addition, in
order to maintain a certain debt to total market capitalization ratio, while at
the same time implementing an acquisition strategy, the Trust may issue
additional Shares rather than incur debt.
The Board of Trustees has the authority, without shareholder approval, to
issue additional Shares or other capital stock of the Trust in any manner (and
on such terms and for such consideration) it deems appropriate, including in
exchange for property. Existing shareholders would not have any preemptive right
to purchase shares issued in any offering and any such offering might cause a
dilution of a shareholder's investment in the Trust.
Uninsured Loss
The Trust carries comprehensive liability, fire, extended coverage and
rental loss insurance covering all of its properties, with policy specifications
and insured limits customarily carried for similar properties. There are,
however, certain types of losses (such as from wars or acts of God) that
generally are not insured because they are either uninsurable or not
economically insurable. Should an uninsured loss or a loss in excess of insured
limits occur, the Trust could lose capital invested in a property, as well as
the anticipated future revenues from a property, while remaining obligated for
any mortgage indebtedness or other financial obligations related to the
property. Any such loss would adversely affect the financial condition of the
Trust. The Trustees believe that the Trust's properties are adequately insured
in accordance with industry standards.
The Trust maintains no insurance coverage on its properties for those
losses which are, or may be, due to environmental conditions, risks and/or
hazards, including, but not limited to, the degradation, pollution and/or
contamination of air, soil, surface water or ground water by the spillage,
discharge and/or emission of hazardous, toxic and/or other prohibited
substances. The Trust also maintains no flood hazard insurance on the Westwood
Plaza Shopping Center in Westwood, New Jersey. A substantial portion of the
Westwood Plaza Shopping Center is located in a floodway and a flood hazard zone,
as delineated on maps published by federal and state government agencies.
Costs of Compliance With Americans with Disabilities Act
Under the Americans with Disabilities Act (the "ADA"), "public
accommodations" such as retail shopping centers are required to meet certain
federal requirements related to access and use by persons with disabilities.
Compliance with the ADA requirements could require both structural and
non-structural changes to the Trust's properties. Noncompliance could result in
imposition of fines by the United States government or an award of damages to
private litigants. Because the ADA became effective in 1992, the extent of its
application to and its impact on the Trust properties is uncertain. The Trust
has made no studies as to what improvements are, or may be, necessary to comply
with the ADA. The Trust will take such action as may be required to bring all
common areas at each of the Trust's properties into compliance with the ADA. The
Trust believes that the costs of compliance will not have a material adverse
effect on the Trust's financial condition or results of operations.
Nevertheless, it is possible that the Trust will incur additional costs of
complying with the ADA. If required changes involve a greater expenditure by the
Trust, or must be made on a more accelerated basis than the Trust currently
anticipates, its ability to make expected distributions could be adversely
affected.
Heating Costs: Increases in Fuel Prices and Availability of Supplies
The Trust provides oil or gas heat to tenants of its apartment units,
except for the properties located in Camden and Spring Lake Heights. Any
increased demands for fuel oil or natural gas, such as those resulting from
unusually cold weather, will result in an increase in the Trust's operating
expenses for those properties and a reduction in net income. Similar effects may
arise during normal usage conditions from increases in the price of fuel oil due
to market conditions, including, for example, supply shortages, delivery
interruptions or lack of sufficient refinery capacity for adequate fuel oil
production.
USE OF PROCEEDS
The Trust is unable to estimate the amount of proceeds from the Shares to
be sold under the Plan. The Trust intends to use any proceeds from the sale of
such Shares for general business purposes, including the reduction of the
Trust's current indebtedness, and as working capital.
TRADING AND MARKET PRICES OF THE SHARES;
DISTRIBUTIONS AND DISTRIBUTION POLICY
Trading and Market Prices
The following table sets forth, for the periods indicated, the highest and
lowest bid and asked quotations in the over-the-counter market (according to
National Quotation Bureau, Inc.). It should be noted that over-the-counter
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions. There is no
established public trading market for the Trust's shares, such trading as occurs
is sporadic and in small volumes, and in some quarters there were no sales.
<TABLE>
<CAPTION>
Number of
Calendar Bid Prices Asked Prices Shares
Quarter High Low High Low Sold
- -------- ---- --- ---- --- ---------
<S> <C> <C> <C> <C> <C>
1993
1st quarter 25 24 25-1/2 25-1/4 3,560
2nd quarter 24-7/8 24 25-1/2 25-1/8 12,720
3rd quarter 24-7/8 24 25-1/8 25 7,705
4th quarter 24-1/2 23-1/2 25 23-3/4 10,274
1994
1st quarter 23-1/2 23-1/2 24-1/2 24-1/8 2,545
2nd quarter 23 23 24 23-7/8 3,812
3rd quarter 23 23 24 23-1/2 2,050
4th quarter 23 22 24 23 5,169
1995
1st quarter* 22-1/2 22-1/2 24-1/2 24 2,900
</TABLE>
*Through March 1, 1995
The source of the foregoing information is Janney Montgomery Scott, Inc.,
members of the New York and other principal exchanges, whose principal office is
located at 1801 Market Street, Philadelphia, Pennsylvania.
Historical share prices are provided for information purposes only. Such
information is nor necessarily indicative of, and is not intended to be
indicative of, future share prices.
There is one class of stock of beneficial interest with no par value. The
number of record holders of the Trust's shares, as of December 9, 1994, was
approximately 424. The holders have a total of 1,559,788 shares of beneficial
interest which were outstanding at the close of the Trust's fiscal year ended
October 31, 1994.
Distributions and Distribution Policy
The Trust has paid cash distributions to its shareholders every year since
1963. The distributions per Share declared by the Trust for the last five fiscal
years, together with the character of such distributions for tax purposes (based
upon the tax returns filed by the Trust), are as set forth below:
<TABLE>
<CAPTION>
Taxable as
For Fiscal Total ---------------------------------
Year Ended Per Share Ordinary Capital
October 31 Distributions Income Gain
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1990 $2.52 $2.12 0.40
1991 $1.92 $1.92 --
1992 $1.765 $1.765 --
1993 $1.56 $1.56 --
1994 $1.62 $1.62 --
</TABLE>
No assurance can be given that, in the future, anticipated levels of cash
available for distribution will be sufficient to continue paying the same level
of dividend/distributions.
The Board of Trustees declares dividends on a quarterly basis and makes
payment of such distributions to the shareholders on a quarterly basis.
The Board's present policy is to distribute to the shareholders at least
95% of the Trust's taxable ordinary income. The Board may, however, elect to pay
more or less than such amounts. In any event, the Trust expects to pay an amount
at least sufficient to satisfy the distribution requirements of a REIT in order
to enable the Trust to continue to qualify as a REIT for Federal income tax
purposes. So long as the Trust continues to qualify as a REIT, shareholders
will, therefore, receive in the form of dividends at least 95% of the otherwise
taxable ordinary income of the Trust. Payment of dividends, however, will be at
the discretion of the Board of Trustees at all times and will depend upon
various factors. Such factors, include, without limitation, the Trust's
financial condition, the revenues received from its properties, operating
expenses for the properties, the actual cash flow from the properties, interest
expense incurred on borrowings, the ability of tenants to meet their obligations
on a current basis, the general condition of the economy in the United States
and in the geographic areas where the Trust's properties are located, interest
earned on working capital reserves, anticipated investments, capital
requirements and unanticipated capital expenditures.
As noted above, in order to maintain its qualification as a REIT, the Trust
must, among other things, make an annual distribution to stockholders of a least
95% of its REIT taxable income (which does not include capital gains). Under
certain circumstances, the Trust may be required to make distributions in excess
of cash available for distribution in order to meet the distribution
requirements of the Code. See "Federal Income Tax Considerations." In such
situations, it may be necessary for the Trust to borrow or to liquidate
investments in order to satisfy the distribution requirements for a REIT. The
Trust presently anticipates that cash flow available for distribution will
exceed earnings and profits, due to non-cash expenses, primarily depreciation
and amortization. Distributions by the Trust to the extent of its current and
accumulated earnings and profits for Federal income tax purposes will be taxable
to the stockholders as ordinary income. Distributions in excess of earnings and
profits will be treated as a non-taxable reduction of the stockholder's basis in
the Shares to the extent thereof, and thereafter, as taxable gain. Distributions
that are treated as a reduction of the holder's basis in the Share will have the
effect of deferring taxation until the sale of the Shares. See "Federal Income
Tax Considerations."
Impact of the Plan on Future Distributions
The effect of the Plan will be to increase the number of Shares of the
Trust. The funds generated by the purchase of Plan Shares, either through
reinvestment of dividends or voluntary cash payments, will be invested and
expended as described in "Use of Proceeds." However, the total revenue earned
and net income earned by the Trust may remain constant or may decrease. In
either instance, the result will be a reduction in the amount of cash available
for distribution on a per Share basis. In addition, should a shareholder not
enroll in the Plan and reinvest dividends in the purchase of Shares, the extent
of such shareholder's ownership interest in the Trust will be diminished.
CAPITALIZATION
The following table sets forth the capitalization of the Trust at October
31, 1994.
A. Indebtedness Outstanding (1):
Mortgage Loans Payable $34,019,000
Secured Bank Credit Facility 5,428,000
-----------
Total Indebtedness $39,447,000
-----------
B. Shareholders' Equity:
Shares of Beneficial Interest
Without Par Value:
Shares authorized, 1,560,000
issued and outstanding,
1,559,788 $19,314,000
Undistributed Earnings 1,834,000
-----------
Total Shareholders Equity $21,148,000
-----------
C. Total Capitalization $60,595,000
===========
(1) Includes entirety of the mortgage indebtedness on Westwood Hills.
For further information regarding borrowings, mortgage loans payable,
the Bank Credit Facility and shareholders equity, see the combined
financial statements incorporated by reference therein.
DESCRIPTION OF SHARES AND VOTING RIGHTS
General
The shares of beneficial interest are the Trust's only class of authorized
securities. Holders of shares are entitled to vote for the selection of Trustees
and on no other matter. They have no right to vote on changes in investment
policies or other policies of the Trust. Shareholders are entitled to one vote
per share for each Trustee to be elected. Trustees are elected for staggered
terms of three years each. Shareholders may not cumulate their votes in the
election of Trustees. This means that the holders of more than 50% of the shares
voting for election of Trustees can elect all of the Trustees if they choose to
do so and, in such event, the holders of the remaining shares, voting for
election of Trustees, will not be able to elect any person as a Trustee.
Shareholders are entitled to receive such distributions as may be declared by
the Trustees. (See "Trading and Market Prices of the Shares; Distributions and
Distribution Policy.") The Shares have no par value. There are no conversion,
redemption, exchange, sinking fund, or similar provisions regarding the Shares.
The shareholders have no pre-emptive rights. The Declaration of Trust provides
that shareholders shall not be liable for any calls or assessments and the
Trustees shall not have the power to bind shareholders personally; and all
contracts and similar agreements shall state that the shareholders are not
personally liable thereunder. The Declaration of Trust may not be amended to
increase shareholder liability without the unanimous written consent of all
shareholders but otherwise may be amended or altered by a two-thirds vote of all
Trustees, without notice to, or consent of, shareholders.
The transfer agent and registrar for the Shares is Registrar and Transfer
Company, 10 Commerce Drive, Cranford, New Jersey 07016.
Shareholders have the right to inspect the balance sheets, income and
earned surplus statements of the Trust and records of meetings of shareholders.
The outstanding Shares are, and the additional authorized Shares offered
hereby will be when issued as contemplated herein, fully paid and
non-assessable.
The Declaration of Trust does not require a surety bond from any Trustee.
There is no provision with respect to the bonding of any officer, employee, or
agent of the Trust or of the Managing Agent or any of its officers, contractors
or employees.
Shareholders' Liability to Third Parties and Indemnification by Trust
The Declaration of Trust (Article VII) provides that shareholders shall not
be personally liable in connection with Trust property or affairs of the Trust.
The Trust's Declaration of Trust further provides the Trust shall indemnify and
hold each shareholder harmless from all claims and liabilities to which the
shareholder may become subject by reason of his being or having been a
shareholder, and that the Trust shall reimburse each shareholder for all legal
and other expenses reasonably incurred by him in connection with any such claim
or liability. In addition, the Trust is required to, and as a matter of practice
does, insert a recital in every written instrument creating any obligation of
the Trust that such obligation is not binding upon any of the Trustees or
shareholders personally. However, with respect to tort claims and contractual
claims where shareholder liability is not disavowed as provided above, claims
for taxes and certain statutory liabilities, the shareholders may, in some
jurisdictions, be personally liable to the extent that such claims are not
satisfied by the Trust. The Declaration of Trust provides that upon payment of
any such claim, the shareholder will be entitled to reimbursement by the Trust.
Inasmuch as the Trust carries public liability insurance which it considers
adequate, any risk of personal liability to shareholders is limited to
situations in which the Trust's assets plus its insurance coverage would be
insufficient to satisfy the claims against the Trust and its shareholders.
The Trust will continue to explore the question of shareholder liability in
particular jurisdictions in connection with proposed investments in such
jurisdictions. The Trust intends, as a matter of policy, to make investments
with a view to avoiding, as far as possible, liability of the shareholders for
obligations of the Trust by making such investments based on advice of counsel,
or in connection with indemnification or insurance arrangements, or otherwise.
Repurchase and Transferability of Shares
In order for the Trust to qualify as a REIT under the Internal Revenue
Code, not more than 50% in value of its outstanding shares of beneficial
interest, including the Shares, may be owned, directly or indirectly, by five or
fewer individuals during the last half of the taxable year, and the Shares must
be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable
year.
Under the Declaration of Trust, if, in the good faith opinion of the
Trustees, ownership of Shares of the Trust has or may become concentrated to an
extent which may prevent the Trust from qualifying as a REIT, the Trustees have
the power, by lot or other means deemed equitable by them, to prevent the
transfer of, and/or to call for redemption, a number of Trust Shares sufficient,
in the opinion of the Trustees, to maintain or bring the direct or indirect
ownership thereof into conformity with the requirements for such qualification
as a REIT. The Trustees may refuse to sell or transfer Shares if, in their
judgment, such sale or transfer may endanger the qualification of the Trust as
REIT under the Internal Revenue Code.
BUSINESS
General
The Trust invests in equity-oriented ownership of income producing real
estate and other interests in real estate. The Trust has as its current
objective the acquisition of real estate equity investments through the purchase
of fee interests. The following table sets forth, for the Trust's last four
fiscal years, the amount of rental income (in thousands of dollars) and
percentage of total rental income contributed by properties owned by the Trust,
each of which accounted for 10% or more of total rental revenues in the
particular fiscal year.
<TABLE>
<CAPTION>
Years Ended October 31,
---------------------------------------------------------------------------------
1994 1993 1992 1991
---------------------------------------------------------------------------------
Property $ % $ % $ % $ %
- -------- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wayne, New Jersey, garden
apartment 1,772 17.14 1,712 18.86 1,670 20.75 1,599 26.17
River Edge, New Jersey,
garden apartment 908 8.78 862 9.49 839 10.42 825 13.50
Westwood, New Jersey,
shopping center 1,396 13.50 1,294 14.25 1,253 15.57 1,325 21.69
Frederick, Maryland,(1)
shopping center 2,632 25.46 2,608 28.73 1,794 22.29 -- --
Maywood, New Jersey,
garden apartment 738 7.14 712 7.84 682 8.47 656 10.74
</TABLE>
(1) Property purchased on March 4, 1992.
With the exception of the Westwood Plaza and Westridge Square shopping
center properties, a schedule of lease expirations for each of the subsequent
ten years is not material. Substantially all of the leases pertaining to the
units in the garden apartment projects are for a one year period. No tenant in
any of the Trust's properties, with the exception of the anchor tenants at
Westwood Plaza, Westridge Square and Franklin Lakes and the single tenant in the
Glen Rock property occupies ten percent or more of the gross leasable area at a
particular property.
Description of Certain Properties
The following is more particular information on the Trust's major garden
apartment and shopping center properties.
Garden Apartment, Wayne, New Jersey:
The Wayne property is a group of two-story, brick and frame, garden-type
apartments, air conditioned, containing 176 units located on Berdan Avenue. It
was constructed in 1961. Sixty-two of the units contain 2 bedrooms, a kitchen,
living room, bathroom and dining room, totalling approximately 1,101 sq. ft. The
monthly rents for these apartments range from $746.81 to $1,065. One hundred
fourteen (114) of the units contain one bedroom, kitchen, bath, living room and
dining room, totaling approximately 805 sq. ft. and monthly rents range from
$583 to $875. The present total monthly rent roll is $149,267. There are also 88
garages which rent at $40 to $60 per month each. There is off-street parking
available for 220 cars at no extra cost. The realty tax rate per hundred dollars
for 1994 is $2.28. Realty taxes for 1994 are $210,074.
Wayne Township is located in northern New Jersey, approximately 15 miles
from New York City. Three major highways presently pass through the town. The
site is close to public grade schools and one block from public transportation.
It is approximately one (1) mile from the National Headquarters of American
Cyanamid Co.
Garden Apartment, River Edge, New Jersey:
The River Edge property is a group of two-story, brick and frame,
garden-type apartments, air-conditioned, containing 100 units, located on
Hackensack Avenue and Main Street. It was constructed in 1966. All units contain
31/2 rooms, with a bedroom, living room, dining area and bathroom, totaling
approximately 637 sq. ft. The monthly rents for these apartments range from
$491.96 to $875. The present total monthly rent roll is $76,962. There are no
garages, however, there is off-street parking available for 120 cars at no extra
cost. The realty tax rate per hundred dollars for 1994 is $2.29.
Realty taxes for 1994 are $94,622.
River Edge is located in Bergen County, New Jersey, approximately 5 miles
from New York City. The property is in close proximity to New Jersey Highway
Route 4, the Garden State Parkway and Interstate Route 80. The site is close to
public grade schools. Public transportation and rail service to local areas and
New York City are located within one-half mile from the property.
The property is within walking distance of the Riverside Mall, a regional
shopping center, and a large office building complex.
Garden Apartment, Maywood, New Jersey:
The Maywood property is a group of two story brick and frame garden type
apartments containing 80 units located on Maybrook Drive. It was constructed
between 1946 and 1949. Forty of the units contain two bedrooms, a kitchen,
living room and dining room totaling approximately 899 square feet. Monthly
rents for these apartments range from $599.22 to $885.00. Forty of the units
contain one bedroom, a kitchen, bathroom, living room and dining room totalling
728 square feet. Monthly rents on these units range from $584 to $760. The
present monthly total rent roll is $62,337. There are also 52 garages which rent
at $27.17 to $54.35 per month each. There is off-street parking available for 62
cars at no extra cost. The realty tax rate per hundred dollars for 1994 is
$2.57. Realty taxes for 1994 are $89,436.
Maywood is located in northern New Jersey approximately 10 miles from New
York City. Four major highways are within two miles of the town. The site is
close to public grade schools and shopping areas and is one block from
transportation.
Westwood Plaza, Westwood, New Jersey
The Westwood Plaza property is a 173,854 square foot shopping center,
constructed in 1981, with 22 tenants. It is located on 21.74 acres in Bergen
County, New Jersey. Rents range from $1,248 to $28,060 per month, exclusive of
percentage rents. Monthly rent revenue, based on tenant leases, is $118,493.41
or $8.178 per square foot of gross leasable area ("GLA"). The present occupancy
rate is 100% calculated according to gross leasable area .
The properties surrounding the site are developed either for residential or
commercial use. Properties to the south and west of the site, across a brook,
consist of residential homes.
A branch of the Conrail commuter line runs along the eastern boundary of
the site.
Tenants include restaurants, retail merchandise stores, a bank, a
supermarket, a dentist and a hair salon. Grand Union, a supermarket, and K-Mart,
a general merchandiser, each account for 10% or more of the property's gross
leasable area. The annual rent for Grand Union and K-Mart are $134,400 and
$336,720 respectively, exclusive of percentage rents.
The property was purchased on August 22, 1988 from unaffiliated persons for
the sum of $13,348,381, inclusive of the broker's commission. The purchase price
was paid by way of: (A) $6,943,911.00 in cash, consisting of $3,793,911.00 from
the Trust's cash reserves and a $3,150,000.00 draw down on a credit line then
provided by the Bank of New York, National Community Division and (B) the
assumption of an existing first mortgage with Aetna Casualty and Surety Company
("Aetna"), dated September 4, 1981, bearing interest at 10%, on which there was
then outstanding the principal sum of $6,056,089.49. At closing, the Seller paid
into an escrow account advance rent of $260,000 which represented guaranteed
rent on the lease of an out parcel. The rent was released from escrow at the
rate of $65,000 per year. The lease expired on June 30, 1992.
The Trust is required to make monthly payments of $55,287 on the Aetna
mortgage for interest and principal amortization. The principal balance due to
Aetna was $5,557,000 as of October 31, 1994 and $5,530,000 at January 31, 1995.
The mortgage matures on September 4, 2001. The balance due at maturity, assuming
no pre-payments of principal in advance of the due date, is $4,506,109. The
Trust has made no provision to reserve cash to pay this indebtedness when due.
The Trust anticipates refinancing the mortgage obligation at maturity. However,
there can be no assurance that such mortgage financing will be available at the
time, or that the refinancing will be in an amount sufficient to repay the
outstanding indebtedness in full or that the interest rate on such refinancing
will be as favorable as the rate presently being paid on the mortgage loan.
Realization of any of the foregoing contingencies could have a material adverse
effect on the Trust's net income and/or financial condition.
The Aetna mortgage provides that the mortgage may be prepaid at any time on
or after October 1, 1991. There are prepayment penalties applicable in 1994,
1995 and thereafter. In the event of a prepayment, the amount thereof (including
the penalty) will be equal to 102% (during 1994) and 101% (during 1995 and
thereafter) of the principal amount prepaid. Partial prepayments are permitted
and would be applied to payments due on the Note in the inverse order of their
maturity.
The anchor tenants at Westwood Plaza are K-Mart and Grand Union. In
addition to those anchor tenants, American Woman Figure Salon, a health
club/exercise facility, Mandee Shop-Westwood, a womens' and juniors' clothing
retailer, and Allpet Distributors, a distributor of pets, pet food, equipment
and supplies, each account for more than five percent (5%) of gross leasable
area (GLA) or the gross annual base rental at Westwood (based upon the rent roll
as of October 31, 1994). The following table presents selected information
concerning the anchor or major tenants and the other tenants, as a group.
Westwood Plaza Shopping Center
<TABLE>
<CAPTION>
Gross Leasable % of Total Gross Annual % of Total (1994) Rental Paid
Tenant Area Utilized Leasable Area Rental (1994) Gross Annual Rental Per Square Foot
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1. Anchor or Major
K-Mart 84,256 48.46% $ 336,720 23.68% $ 4.00
Grand Union 28,000 16.10% $ 134,400 9.45% $ 4.80
American Woman 8,000 4.60% $ 104,000 7.30% $13.00
Mandee-Shop 7,060 4.06% $ 81,190 5.71% $11.50
Allpet Distributors 3,060 2.07% $ 75,600 5.32% $21.00
------- ------ ---------- ------ ------
Subtotal 130,914 75.29% $ 731,910 51.46% $ 5.59(1)
------- ------ ---------- ------ ------
2. All Other Tenants (17) 42,940 24.71% $ 690,011 48.54% $16.07(1)
3. Totals 173,854 100.00% $1,421,921 100.00% $ 8.18(1)
======= ====== ========== ====== ======
</TABLE>
(1) Average per square foot for all tenants in category or for all tenants.
The table below sets forth pertinent information with regards to the
expiration of tenant leases at Westwood Plaza for the period through the year
2003, identifying, by name, those tenants which account for more than five
percent (5%) of the gross leasable area or the gross annual base rental at
Westwood (based upon the rent roll as of October 31, 1994).
WESTWOOD PLAZA SHOPPING CENTER
TABLE OF LEASE EXPIRATIONS
<TABLE>
<CAPTION>
Expiring Leases Gross Leasable % of Total Base % of Total Leases with Gross Leasable
(Number or Area Gross Annual Rental Base Gross Renewal Area Subject to
Year Tenant Name) Utilized Leasable Area (1994) Annual Rental Option to Renewal Option
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 None -- -- -- -- -- --
1995 None -- -- -- -- -- --
1996 3 5,330 3.06% $ 96,120 6.76% 0 0
1997 3 6,750 3.88% $ 95,180 6.69% 1 3000
1998 5 12,080 6.90% $185,645 13.06% 2 4900
1999
K-Mart 84,256 48.46% $336,720 23.68% (1) --
Grand Union 28,000 16.10% $134,440 9.45% (2) --
American Woman 8,000 4.60% $104,000 7.30% -- --
Mandee-Shop 7,060 4.06% $ 81,190 5.71% (3) --
Allpet
Distributors 3,060 2.07% $ 75,600 5.32% -- --
1 3,780 2.17% $ 52,920 3.71% -- --
2000 None -- -- -- -- -- --
2000 1 3,100 1.78% $ 68,460 4.81% -- --
2002 2 6,400 3.68% $ 85,800 6.03% 1 4400
2003 2 5,500 3.16% $105,886 7.45% -- --
</TABLE>
(1) K-Mart's lease expires on December 31, 1999. K-Mart has renewal options for
six (6) terms of five (5) years each.
(2) Grand Union's lease expires of September 30, 1999. Grand Union has renewal
options for six (6) terms of five (5) year each.
(3) The lease of Mandee Shop - Westwood expires on January 31, 1999, with two
renewal options of five (5) years each.
On January 25, 1995, Grand Union Co., a tenant at the Trust's Westwood
Plaza Shopping Center, filed a petition for reorganization under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware. As of the filing date, Grand Union was current on its lease
obligations to the Trust. The Trust has received all lease payments due from
Grand Union through March of 1995. The commencement of the Chapter 11
proceedings constitutes a default under Grand Union's lease agreement with the
Trust. Grand Union has not indicated whether it intends to continue operations
at Westwood Plaza or to close. Grand Union could seek to terminate its lease.
Management believes that, due to the large volume at this location, Grand Union
will continue its operations there. The cessation of operations at Westwood
Plaza could have a material adverse effect upon that center and the Trust. The
Grand Union supermarket there produces substantial rental income. In the event
that the lease with Grand Union was terminated, the Trust estimates that its
income for fiscal year 1995 would be reduced by approximately $.08 per share.
The Grand Union supermarket also serves as an anchor tenant attracting customer
traffic. Grand Union has announced that it will be seeking Bankruptcy Court
approval for $150 million in financing in order to make full payments to its
trade creditors and that it expects to emerge from bankruptcy in 90 to 120 days
as a fully operating and viable business.
The Trust has received a request from the owner of an adjacent property for
permission to enter upon a portion of the Westwood Plaza Shopping Center for
purposes of performing certain tests or investigations there to verify that no
petroleum materials or products have migrated from underground storage tanks on
such adjacent property onto or under the Trust's property. There is no obvious
evidence of any contamination at the center. Furthermore, it is the opinion of
the Trust that, if any hazardous substances have migrated onto or under Westwood
Plaza Shopping Center, any remediation would be undertaken at the sole cost of
the adjacent property owner and any remediation activity would not materially
interfere with the operations of the center.
Westridge Square Shopping Center, Frederick, Maryland
The West Ridge property is a 254,274 square foot shopping center,
constructed in 1987, with 26 tenants. It is located on 20.51 acres in Frederick,
Maryland. Rents range from $1,544 to $50,162 per month, exclusive of percentage
rents. Monthly rent revenue, based on tenant leases, is $209,984 or $9.91 per
square foot of gross leasable area. The present occupancy rate is 99.58%,
calculated according to gross leasable area.
Westridge Square is a regional shopping center serving Frederick and part
of Carroll and Montgomery Counties in Maryland as well as Adams County,
Pennsylvania, and eastern West Virginia.
The Center is situated in the center of a section of U.S. Route 40, known
as the "Golden Mile". This is the shopping destination for the region. It is
constructed of brick on block with two (2) grade levels, one facing Route 40 and
the back facing Key Parkway.
Tenants include restaurants, retail merchandise stores, a bank, a
supermarket, a cinema, a gym and a hair salon. Giant Food, a supermarket, and
Hechinger Company, which subleases to Burlington Coat Factory, a general
clothing merchandiser, each account for 10% or more of the property's gross
leasable area and annual base rental (based upon the rent roll at September 1,
1994). Giant Food occupies 55,330 square feet, or 21.76% of Gross Leasable Area,
paying an annual rental of $482,364 ($8.717/square foot) which is 19.14% of
annual base rental (based on the rent roll at September 1, 1994). Hechinger's
subtenant has 85,992 square feet, amounting to 33.82% of Gross Leasable Area.
Hechinger pays annual rent of $601,944, or $7.00/square feet, which accounts for
23.89% of the annual base rental for Westridge (based on the rent roll at
September 1, 1994). The remaining tenants occupy 112,952 square feet of Gross
Leasable Area (44.42% of total Gross Leasable Area), at an annual base rent of
$1,435,500 ($12.65 square foot) or 56.97% of annual base rental (based on the
rent roll at October 31, 1994.
Giant Food's lease expires on October 31, 2011 with six 5-year options to
renew. Hechinger's lease expires on November 3, 2006 with six 5-year options to
renew.
The following table sets forth pertinent information with respect to the
expiration of the tenant leases at Westridge Square other than the leases with
Giant Foods and Hechinger's.
Westridge Square Shopping Center
Table of Lease Expirations
1994 - 2004
<TABLE>
<CAPTION>
Gross Leasable % of Total Base % of Leases with Gross Leasable
Expiring Area Gross Annual Rental Total Base Renewal Area Subject to
Year Leases Utilized Leasable Area Total (1994) Annual Rental Option to Renewal Options
---- -------- -------------- ------------- ------------- ------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 2 6,493 2.53% $ 85,099 3.49% 1 4013
1995 2 4,975 1.94% $134,555 5.52% 2 4975
1996 5 13,097 5.10% $218,613 8.97% 3 8976
1997 4 34,131 13.30% $366,060 15.03% 3 32429
1998 2 9,914 3.86% $ 97,989 4.02% 2 9914
1999 6 27,100 10.56% $222,318 9.13% 4 19328
2000 None -- -- -- -- -- --
2001 1 4,846 1.89% $110,000 4.52% 1 4846
2002 None -- -- -- -- -- --
2003 1 6,000 2.34% $ 82,400 3.38% 1 6000
2004 1 3,487 1.36% $ 34,800 1.43% 0 0
</TABLE>
The Trust purchased the shopping center in Frederick,Maryland on March 4,
1992. The purchase price for Westridge was $28,294,000 which was paid as
follows: (1) assumption of an existing mortgage in the amount of $19,227,000
with State Mutual Life Assurance Company of America; (2) borrowed funds of
$1,653,000 on the Trust's line of credit then provided by National Community
Bank; and, (3) an adjusted amount of $7,414,000 from cash on hand. The Trust is
required to make monthly payments of $160,925 to State Mutual Life for interest
at the annual rate of 9% and principal amortization. The outstanding principal
amount of the mortgage obligation to State Mutual was $18.624 million at October
31, 1994 and $18.560 million at January 31, 1995. The mortgage matures on August
1, 1997. The balance due on maturity, assuming no payments will be made on
principal in advance of its due date, is $17,859,167. The Trust has made no
provision to reserve cash to pay this indebtedness when it matures. The Trust
anticipates refinancing the mortgage obligation at maturity. However, there can
be no assurance that such mortgage financing will be available at the time, or
that the refinancing will be in an amount sufficient to repay the outstanding
indebtedness in full or that the interest rate on such refinancing will be as
favorable as the rate presently being paid on the mortgage loan. Realization of
any of the foregoing contingencies could have a material adverse effect on the
Trust's net income and/or financial condition.
Apartment Projects
The following table sets forth for each of the Trust's apartment properties
or investments, their location, year of acquisition, number of units and average
occupancy rate for the Trust's four most recent fiscal years.
<TABLE>
<CAPTION>
Property and Year No. of Average Occupancy Rate for F/Y/E October 31
Location Acquired Units 1991 1992 1993 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Lakewood Apts. 1962 40 97.72 97.80 98.78 97.50
Lakewood, N.J.
Palisades Manor 1962 12 97.59 96.47 96.55 100.00
Palisades Pk., N.J.
Sheridan Apts. 1964 132 95.29 94.70 97.00 94.70
Camden, N.J.
Grandview Apts. 1964 20 97.16 94.74 88.68 100.00
Hasbrouck Heights, N.J.
Berdan Court 1965 176 96.12 97.31 97.84 98.86
Wayne, N.J.
Heights Manor 1971 79 92.67 94.45 95.59 98.73
Spring Lake Hgts.,
N.J.
Hammel Gardens 1972 80 93.60 96.63 96.49 97.50
Maywood, N.J.
Steuben Arms 1975 100 96.12 95.11 95.94 98.00
River Edge, N.J.
Westwood Hills(1) 1994 210 N/A N/A N/A 98.10
Westwood, N.J.
</TABLE>
(1) The Trust has a 40% interest in Westwood Hills, L.L.C., a limited liability
company which holds legal title to the Westwood Hills apartment complex. The
apartment complex was acquired on June 2, 1994.
All of the Trust's apartment properties, are subject to some form of rent
control or rent levelling under municipal ordinances, rules and regulations
except for Westwood Hills, which has no rent control or rent levelling. Those
ordinances are summarized as follows:
Lakewood: (Lakewood Apartments)
Renewals based on a 6.5% yearly increase.
Palisades Park: (Palisades Manor)
Renewals based on a 4% yearly increase. The Trust may lease a vacant
unit to a new tenant at a rent equal to the greater of: (a) the then current
rent received for a similar unit; or (b) an increased rent based upon the last
rent charged for such unit plus 4% of the last rent.
Hasbrouck Heights: (Grandview Apartments)
Renewals based on a 5% yearly increase. Full vacancy decontrol.
Camden: (Sheridan Apartments)
Renewals based on a 6% yearly increase. Full vacancy decontrol.
Wayne: (Berdan Court)
Renewals based on CPI figures given monthly by Township. Full vacancy
decontrol.
Spring Lake Heights: (Heights Manor)
Renewals based on a 3.5% yearly increase. Full vacancy decontrol.
River Edge: (Steuben Arms)
Renewals based on a 4% yearly increase. Full vacancy decontrol.
Maywood: (Hammel Gardens)
Renewals based on a 4.25% yearly increase. Parity decontrol based on
highest rent for similar type apartment.
Westwood: (Westwood Hills)
No rent control.
All of the apartment properties are subject to mortgage liens securing the
$20 million Bank Credit Facility extended to the Trust by United Jersey Bank
("UJB"). In addition, UJB holds a first mortgage on the Spring Lake Heights
property.
The Spring Lake Heights obligation had a principal balance of $383,000 due
to UJB as of October 31, 1994 and matures on March 1, 1999. The Trust makes
monthly installment payments of $8,555 on account of this mortgage, for
principal amortization and for interest charges (at the annual rate of 7.625%).
The Westwood Hills property is subject to a first mortgage in favor of UJB,
in the principal amount of up to $10.5 million. The mortgage loan closed on June
2, 1994 and matures on June 1, 2000. The mortgage bears interest at a
fluctuating rate equal to UJB's floating "Base Rate" for a period of not more
than eighteen (18) months ending December 1, 1995 (the "Floating Rate Period").
Westwood Hills may elect, during the Floating Rate Period, to have the interest
charge converted from a floating rate to a fixed rate. If Westwood Hills so
elects, the fixed interest rate will be equal to one hundred seventy-five basis
points (1.75%) over the weekly average yield on the five (5) year United States
Treasury Securities, in effect five (5) days prior to the effective date for the
fixing of the interest rate, rounded up to the nearest one-eighth of one percent
(.0125%) (the "Fixed Rate"). In the event no election is made prior to December
1, 1995, the Fixed Rate will become effective as of that date. In addition to
interest, Westwood Hills makes principal payments based upon a 25 year
amortization schedule and an assumed constant of eight percent (8%) per annum.
At maturity, assuming no prepayments, the sum of $8,598,805 will be due and
owing to UJB. Westwood Hills has made no provision to reserve cash to pay this
indebtedness when it comes due. Westwood Hills and the Trust anticipate
refinancing the UJB mortgage at maturity. However there can be no assurance that
such mortgage financing will be available at the time, or that the refinancing
will be in an amount sufficient to repay the outstanding obligation in full or
that the interest rate on such refinancing will be as favorable as the rate
presently being paid on the mortgage loan. Realization of any of the foregoing
contingencies could have a material adverse effect on the Trust's net income
and/or financial condition.
The Trust and two of the Limited Members of Westwood, jointly and
severally, guaranteed repayment to UJB of up to $2 million of the outstanding
mortgage indebtedness upon the occurrence of a default under the loan documents.
In addition, the Trust and certain limited members have indemnified UJB against,
and held UJB harmless from, any losses or damages sustained by reason of: (i)
any misrepresentation by Westwood Hills or its members; (ii) intentional waste
of the collateral for the loan; and (iii) any environmental liabilities, claims
and expenses related to the property. All of the Limited Members, individually,
have agreed to indemnify the Trust against, and hold the Trust harmless from,
any liabilities the Trust may have as a result of the enforcement of the limited
guarantee and indemnity given by the Trust to UJB, up to such Limited Member's
pro rata share of the liability. In the event that Westwood Hills defaults on
its obligations to UJB under the mortgage loan documents and the Trust is
required to make payment under the guaranty, of if the Trust is required to
indemnify UJB pursuant to the indemnity agreement, the Trust will be exposed to
potential losses, in addition to the loss of its investment, if one or more of
the Limited Members is insolvent or bankrupt and fails to pay the pro rata share
of the liability for which such Limited Member is, or Limited Members are,
responsible.
The interest sold by Westwood Hills to third parties, including the Trust,
were not registered pursuant to the Securities Act of l933 or with the New
Jersey Bureau of Securities. In addition, the Operating Agreement for Westwood
Hills imposes certain restrictions on the transfer of the Trust's interests and
the interests of the Limited Members. Pursuant to the Operating Agreement, the
Trust is required to offer its interest in the limited liability company to the
Limited Members of Westwood Hills prior to consummating any transaction with a
third party. The Limited Members have a period of sixty (60) days from receipt
of the notice of intent to sell within which to elect whether they will buy the
offered interest at the fair market value of the interest, determined in
accordance with an appraisal procedure described in the Operating Agreement. To
the extent that the Limited Members do not buy all or a portion of the Trust's
interest, the Trust may then sell all or the remaining portion of its interest
to a third party or third parties upon compliance with approval and
documentation requirements set forth in the Operating Agreement. As a result,
the Trust's interest in Westwood Hills cannot be freely transferred to third
parties. There is no current market for the Trust's interest in the limited
liability company. The Trust does not anticipate that a market for its interest
will exist in the future.
Pursuant to the terms of the Operating Agreement for Westwood Hills, the
Trust serves as Managing Member for the limited liability company, with general
supervisory responsibility for the project. The day-to-day operations of
Westwood Hills property are managed by Hekemian & Co., Inc. ("Hekemian")
pursuant to a separate agreement between the Trust, as Managing Member, and
Hekemian.
Retail/Commercial Property:Glen Rock, New Jersey
The Trust also owns a retail/commercial property located in Glen Rock, New
Jersey, which the Trust acquired in 1962. The property is improved by a building
with 4,800 square feet of gross leasable space. The building is occupied by a
single tenant, Big M, Inc., trading as Mandee's, a retailer of womens' and
girls' apparel. The lease with Mandee's expired on January 31, 1995, with no
renewal options. Mandee's paid annual rent of $44,400, or $9.25 per square foot,
for the premises under the lease. The tenant was also responsible for increases
in real estate taxes and assessments, repairs and maintenance, operating costs
and insurance. The Glen Rock property is encumbered by the lien of the $20
million Bank Credit Facility extended to the Trust by United Jersey Bank.
The Trust has currently negotiated and signed a Lease Modification and
Extension Agreement with Mandee's. The Trust and Mandee's have agreed to extend
the lease for a term of five (5) years at base annual rent of $48,000. In
addition, Mandee's will pay all real estate taxes and assessments and the
premiums for hazard, liability and applicable umbrella insurance policies
covering the premises. The Lease Modification and Extension Agreement is
currently being held in escrow pending execution and delivery by UJB of a
non-disturbance and attornment agreement.
Shopping Center/Retail Properties
The following table sets forth the Trust's shopping center/retail
properties, their location, year of acquisition, gross leasable area, average
occupancy rates and average effective annual rental (per square foot) for the
Trust's four most recent fiscal years.
<TABLE>
<CAPTION>
Average Annual Occupancy Rate and Rental
Property and Year Square Per Square Foot for Fiscal Year Ended October 31
Location Acquired Feet 1991 1992 1993 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Glen Rock, N.J. 1962 4,800 100.00% 100.00% 100.00% 100.00%
$9.25 $9.25 $9.25 $9.25
Franklin Lakes, 1966 33,320 100.00% 95.10% 97.37% 95.20%
N.J. $8.52 $8.68 $9.25 $8.52
Westwood, N.J. 1988 173,854 100.00% 99.04% 98.22% 100.00%
$7.21 $7.21 $7.44 $8.18
Frederick, 1992 254,274 -- 94.43% 96.51% 99.92%
Maryland -- $8.92 $9.04 $9.91
</TABLE>
The Franklin Lakes shopping center and the Glen Rock property are
encumbered by the lien of the mortgage given to UJB to secure the $20 million
Bank Credit Facility.
The Westwood Plaza Shopping Center is encumbered by the mortgage in favor
of Aetna Life Insurance Company ("Aetna"), which was assumed by the Trust when
it acquired the property (See "Description of Certain Properties - Westwood
Plaza Shopping Center"). The Westridge Square Shopping Center is subject to the
lien of the mortgage in favor of State Mutual Life Insurance Company of America
("State Mutual"), which the Trust assumed upon taking title to the property in
1992. (See, "Description of Certain Properties - Westridge Square Shopping
Center").
Shopping Center Leases
General. The majority of leases with the Trust's shopping center anchor
tenants provide for initial lease terms of between ten and twenty years, with
multiple renewal options. The leases held by the Trust's smaller shopping center
tenants typically provide for lease terms of between five and ten years. The
Trust typically seeks to structure the leases on its properties as triple net
leases. Such an arrangement imposes on the tenant pro rata obligations for real
property taxes and assessments, repairs and maintenance, operating costs and
insurance. Through the use of triple net leases, the Trust seeks to reduce
operational costs and risks and the demands upon managerial time typically
associated with investment in real estate. Triple net leases may also provide
opportunities for income growth from contractual rent increases without
corresponding increases in operational costs. The Trust's leases generally
provide for contractual rent increases over the life of the lease based on a
fixed amount or consumer price indices, and/or percentage rent, calculated as a
percentage of a tenant's gross sales above a predetermined threshold. In
calculating percentage rent, a few tenants have certain offsets relating to the
reimbursement of property taxes and the cost of tenant improvements. Although
the Trust's properties are primarily subject to triple net leases, for certain
of its properties the Trust has agreed to retain the responsibility for some of
the obligations that would be the responsibility of the tenant under a triple
net lease.
Vacant Land
The following table describes the Trust's holdings of vacant land, the
acquisition date, acreage and current usage.
<TABLE>
<CAPTION>
Year
Property Acquired Acreage Current Usage
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Franklin Lakes, N.J. 1962 15.76 Contiguous to Franklin Lakes
1991 Shopping Center; planned
for future development
Rockaway, N.J. 1964 19.26 Future development
1993
South Brunswick, N.J. 1964 33.0 Leased as farmland, qualifying
</TABLE>
Except for a few acres reserved for a future residential project, the
vacant land adjacent to the existing Franklin Lakes shopping center will be
incorporated into a redevelopment project for the property. Grand Union occupies
a total of 15,960 square feet of space at the existing center under a lease
agreement which expires on August 31, 1995. On January 25, 1995, Grand Union
filed a petition for reorganization under Chapter 11 of the Bankruptcy Code in
the United States Bankruptcy Court for the District of Delaware. As of the
filing date, Grand Union was current on its lease obligations to the Trust. The
commencement of the Chapter 11 proceeding constitutes a default under Grand
Union's lease agreement with the Trust. Grand Union has already ceased its
supermarket operations at Franklin Lakes Shopping Center but continues to pay
rent.
The Trust has obtained all local and county governmental approvals
necessary for the construction of the new center which will be called Greentree
Shopping Center. The Trust must still secure from the State of New Jersey
Department of Environmental Protection, certain approvals and permits for the
construction of the center, including approval for the construction of a private
sewage treatment plan, stream encroachment permits and approval to construct the
proposed center in an area adjacent to certain designated wetlands. The Trust
expects to secure all necessary state approvals and permits for construction of
the proposed center within the next 60 (sixty) to ninety (90) days. Upon
expiration of the Grand Union lease and the obtaining of all required federal,
state, county and municipal development approvals, including a delineation of
protected freshwater wetlands on the site, the Trust plans to commence the
demolition of the existing center, consisting of approximately 33,320 square
feet of gross leasable area (GLA). The Trust anticipates that it will commence
construction of a new shopping center, with approximately 88,000 square feet
(GLA), during September or October 1995. Construction will take approximately
nine (9) months. During the period of construction, the property will generate
no income. The Trust realized approximately $166,000 in income from the shopping
center during fiscal year 1994. The loss of income for the construction period
will be approximately $0.11 per share on an annualized basis.
The construction of the new shopping center will not be commenced until the
Trust has secured all necessary governmental approvals, executed acceptable
leases with one or more anchor tenants and obtained suitable financing for the
project. The Trust is currently negotiating with Grand Union for the lease of a
new 40,000 square foot supermarket to be constructed at the center. The Trust
presently anticipates completion of the new center during 1996. The Trust
reasonably expects that the tenants in the new shopping center will be able to
compete more effectively for retail customers in the northwestern Bergen County
market, where the property is situated, because of the presence of a new
supermarket as an anchor tenant to attract traffic.
In 1994, the Trust applied for a zoning change for its property in
Rockaway, New Jersey to permit the development of the property as a shopping
center or a commercial use. That application was denied. As a result, under the
current zoning, the property can only be developed for residential use.
All three vacant parcels are subject to certain environmental constraints.
See, "Risk Factors - Possible Liability Relating To Environmental Matters".
Portfolio Distribution by Location
All of the real estate investments are located in the State of New Jersey,
except for the Westridge Square Shopping Center, which is located in Frederick,
Maryland.
Property Management
Under the Internal Revenue Code, in order to qualify as a REIT, the Trust
may furnish or render services to the tenants of the Trust properties, or manage
or operate its real estate interests and properties without using an independent
contractor, provided the services would not qualify as "unrelated business
taxable income" under the Code provisions dealing with exempt organizations.
Otherwise, the services must be performed through an independent contractor.
The Trustees are responsible for the over-all management of the Trust.
Hekemian & Co., Inc. ("Hekemian") has been employed by the Trust under a real
estate, management and brokerage agreement, dated December 20, 1961, as amended
May 8, 1963 (the "Management Agreement"). The Management Agreement is subject to
automatic renewal, for terms of two (2) years each, unless terminated by either
party by written notice given at least one (1) year prior to the expiration
date. Pursuant to the Management Agreement, Hekemian serves as the exclusive
agent for the management of the real estate interests owned by the Trust, as
investment advisors to the Trust, and as the Trust's exclusive agent for the
acquisition, rental and disposition of real estate interests. The Management
Agreement may not be assigned or cancelled by Hekemian.
The officers of Hekemian are as follows:
<TABLE>
<S> <C>
Robert S. Hekemian Chairman of the Board, Chief Executive Officer
Samuel Hekemian President
Robert S. Hekemian, Jr. Executive Vice President
Edward Kerbekian Senior Vice President, Commercial Division
Serge Krikorian Vice President, Insurance Division
Bryan S. Hekemian Vice President, Secretary
Robert Hajinlian Vice President, Management Division
David B. Hekemian Vice President, Treasurer
Craig Kerbekian Vice President, Commercial Division
</TABLE>
Hekemian has its offices at 505 Main Street, Hackensack, New Jersey. The
Trust uses a portion of these offices, and pays Hekemian $5,500 per month for
rent, overhead and secretarial services.
Hekemian is engaged in all phases of real estate management, brokerage,
appraisals, insurance, sales and acquisitions. Hekemian was organized by Samuel
Hekemian, Sr. in 1934. Mr. Hekemian served as President of the Company from its
inception until October 31, 1961, when he resigned and severed all connection
with the Company as officer, director or stockholder, or otherwise. Thereafter,
Mr. Hekemian served as Chairman of the Trust until his death on November 24,
1968.
Hekemian performs its various services for fees and commissions and on
other terms and conditions at least as advantageous to the Trust as those
available in arms-length transactions. Property management fees have ranged
between 31/2% and 5% of gross collected rent; sales commissions on improved
property have ranged between 21/2% and 4%, and on vacant land between 4% and 7%;
and leasing commissions have ranged between 2% and 5%.
Hekemian receives no compensation from the Trust for its advisory services.
In connection with insurance, Hekemian may and does receive commissions from
insurance companies on the placing of insurance for the Trust properties.
Hekemian or its affiliated company, Hekemian Mortgage Corp., may receive and
retain compensation from the placement of mortgages. Hekemian also may receive,
and has received, brokerage commissions for properties acquired by the Trust.
The following is a table showing remuneration received by Hekemian in
connection with transactions involving the Trust, for the five fiscal years
ending October 31, 1994:
<TABLE>
<CAPTION>
Type of Remuneration 1994 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Management fees $ 479,290 $443,000 $ 324,000 $303,000 $277,000 $266,000
Insurance Commission Received
from Insurance Companies 43,007* 35,981 32,967 27,247 27,969 28,413
Leasing Commissions 16,942 22,368 1,632 21,840 17,512 34,005
Commissions Received on
Sales of Property or
Purchases by Trust 500,000* 63,125 850,000 -- -- --
Total $1,039,239 $564,474 $1,208,599 $352,087 $322,481 $328,418
</TABLE>
*Including Westwood Hills, L.L.C.
During 1994, Hekemian received a brokerage commission of $500,000 from
Westwood Hills, L.L.C., in connection with the purchase of Westwood Hills
Apartments. The Trust has a 40% interest in the limited liability company.
The Management Agreement provides that the Trust will indemnify and save
harmless Hekemian from contractual or other liability claims, or other damages
in the performance of its duties thereunder, to the extent that such liability,
claims, or other damages in the performance of its duties thereunder is not
covered by insurance, and to the extent that it does not arise by reason of
Hekemian's gross negligence, willful misconduct or actions committed by it in
violation of, or beyond the scope of the Management Agreement. The Management
Agreement further provides that Hekemian will indemnify and hold the Trust
harmless from any claims or liability to the extent that such liability is not
covered by insurance and was incurred by reason of Hekemian's gross negligence,
willful misconduct or actions committed by it in violation of or beyond the
scope of the Agreement.
Competition
Numerous other real estate investment trusts, banks, insurance companies
and pension funds, as well as corporate and individual developers and owners of
real estate, compete with the Trust in seeking properties for acquisition,
tenants for properties, leasing revenues and land for development. During the
past several years, the Trust has concentrated its expansion efforts upon the
acquisition of multi-family residential and shopping center properties which are
substantially larger than those real estate assets the Trust had historically
sought to include in its portfolio. As a result, the Trust has encountered
increasing competition from such other entities and persons which have
investment objectives similar to those of the Trust in seeking investment grade
real estate. Such competitors may have significantly greater resources and
financial revenues, may derive funding from foreign and domestic sources and may
have larger staffs to find, evaluate and secure new properties.
In addition, retailers at the Trust's shopping centers face increasing
competition from discount shipping centers, outlet malls, catalogues, discount
shopping clubs and telemarketing. In many markets, the trade areas of the Trust
shopping center properties overlap with the trade areas of other centers.
Renovations and expansions at those competing malls could negatively affect the
Trust's shopping center properties by encouraging shoppers to make their
purchases at the expanded or renovated competing center. Increased competition
could adversely affect the Trust's revenues. New retail real estate competition
could be developed in the future in trade areas that could adversely affect the
revenues of the Trust's shopping center properties.
The Trust has experienced competition in the rental of apartment units in
its residential properties, particularly from those multi-family properties
which have been converted to condominiums. However, the overall impact of
condominium conversions upon vacancy rates for the Trust's residential
properties has not been material.
The Trust competes for tenants in its shopping centers primarily on the
basis of the customer traffic generated by its retail anchor tenants. The Trust
also attracts smaller tenants by offering desirable locations, competitive lease
terms and high occupancy rates. The closing or relocation of any anchor tenant
could have a material adverse effect on the operations of a Trust shopping
center.
Management and Employees
The Trust has one full-time employee who performs administrative duties.
The Trust has eight (8) trustees and one Executive Secretary who are not
full-time employees. Hekemian & Co., serves as managing agent for the Trust in
the operation of its properties. Legal Proceedings Other than litigation
discussed hereinafter (see "LITIGATION") and litigation arising out of the
ordinary course of business which the Trust believes is covered by the Trust's
liability insurance, the Trust is not presently involved in any litigation nor,
to its knowledge, is any material litigation threatened against the Trust or its
properties. General Real Estate Conditions Economic Performance and Value of
Shopping Centers and Multi-Family Residential Properties Dependent on Many
Factors. Real property investments are subject to varying degrees of risk. The
economic performance and value of real estate can be affected by changes in the
national, regional and local economic climate, local conditions such as an
oversupply of space or a reduction in demand for real estate in the area, the
attractiveness of the properties to tenants, competition from other available
space, the ability of the owner to provide adequate maintenance and insurance,
and increased operating costs. Owners of shopping centers must monitor the
conditions of their properties and continually evaluate the need to remodel or
upgrade their properties. In addition, real estate values can be affected by
such factors as government regulations and changes in real estate, zoning and
tax laws, interest rate levels, availability of financing and potential
liability under environmental and other laws. Dependence on Rental Income from
Real Property. As substantially all of the Trust's income is derived from rental
income from real property, the Trust's income and funds for distribution would
be adversely affected if a significant number of the Trust's shopping center
tenants were unable to meet their obligations to the Trust or if the Trust were
unable to lease a significant amount of space in its shopping centers on
economically favorable lease terms. In the event of default by a lessee, the
Trust would experience delays in enforcing its rights as lessor and may incur
substantial costs in protecting its investment. The bankruptcy or insolvency of
a major tenant may have an adverse effect on the shopping centers affected and
the income produced by such properties. To the Trust's knowledge, none of its
major tenants are currently in bankruptcy or are insolvent. Illiquidity of Real
Estate Investments. Equity real estate investments are relatively illiquid and,
therefore, tend to limit the ability of the Trust to vary its portfolio promptly
in response to changes in economic or other conditions. In addition, certain
significant expenditures associated with each equity investment (such as
mortgage payments, real estate taxes and maintenance costs) are generally not
reduced when circumstances cause a reduction in income from the investment.
Should such events occur, the Trust's income and funds for distribution would be
adversely affected. Economic conditions. Most of the Trust's shopping center
leases are triple net leases which require tenants to pay their pro rata share
of operating expenses, including common area maintenance, real estate taxes and
assessments and insurance, thereby reducing exposure to increases in costs and
operating expenses resulting from inflation. Many of the Trust's smaller tenants
have leases of less than ten years, permitting the Trust to seek to increase
rents upon re-rental at market rates. Many regions of the United States,
including New Jersey (where a significant portion of the Trust's properties are
located), are experiencing an economic recession. In spite of the economic
recession, the Trust has not faced any significant delinquencies with respect to
its tenants' lease obligations and the Trust continues to attract and retain
tenants. The Trust will seek to reduce operating and leasing risks by developing
a portfolio of properties with tenants which the Trust believes will perform
well in a variety of economic climates. Environmental Matters The Trust seeks to
protect itself from environmental liabilities in a number of ways. As part of
its internal due diligence process, the Trust obtains preliminary environmental
site assessments prior to purchasing a property. In the event these preliminary
assessments reveal potential environmental liabilities, the Trust evaluates the
risks, attempts to quantify the potential costs associated with such liabilities
and then makes a determination of whether to acquire the property. If the Trust
chooses to acquire the property, it is the Trust's policy to seek a reduction in
the purchase price to provide a reserve for remediation costs or to require the
prospective seller to agree to remediate any environmental problems and obtain a
letter of credit or other security to provide adequate assurance to the Trust
that sufficient funds will be available to complete the work. Alternatively, the
Trust may require the seller to reserve cash out of the closing proceeds and
deposit such funds in escrow to pay for remediation costs. Moreover, to protect
itself against environmental liabilities that were not discovered during its
pre-purchase investigations as well as those that were disclosed, the Trust, in
the purchase agreement, will typically seek to require the seller to indemnify
the Trust against environmental liabilities caused by the seller in connection
with the property acquired. Sellers have generally been adverse to the inclusion
of covenants regarding cash escrows to pay remediation costs and the assumption
of a continuing responsibility for environmental liabilities which will survive
the closing and transfer of ownership to the Trust. While the Trust regularly
attempts to obtain appropriate contractual protections against environmental
liabilities, sellers of real estate to the Trust have refused to extend any
covenants or indemnities to the period after the Trust has closed and acquired
title. Moreover, if such agreements were to be made, there can be no assurances
that a seller will be able to fulfill its indemnification obligations in the
future or that the purchase agreement provisions regarding environmental
liabilities would fully protect the Trust. With respect to leases of Trust
properties, the Lease agreements negotiated by previous owners of properties now
held by the Trust and earlier forms of Trust Leases did not specifically
encompass, or provide protection against, environmental liabilities. The Trust
now typically seeks to include therein representations, warranties and covenants
by the lessee that the operations of the lessee do not, and, in the future, will
not, violate any applicable environmental laws, statutes, ordinances, rules
and/or regulations. Such provisions are supported by an agreement on the part of
the lessee to indemnify the Trust against any losses, damages, costs or expenses
arising out of a misrepresentation, breach of warranty, or failure to observe or
perform a covenant, concerning environmental matters. The terms of the leases do
not give the Trust control over the operational activities of the leasees nor
does the Trust regularly monitor lessees with respect to compliance with
environmental requirements. Moreover, no assurance can be given that the lease
provisions regarding indemnification, if agreed to by the lessee, will be
performed in the future by the lessee, or will fully protect the Trust, or that
any past, present or future lessee of a property did not, and will not, create
an environmental condition not known to the Trust. Under various federal, state
and local environmental laws, statutes, ordinances, rules and regulations, an
owner of real property (such as the Trust) may be liable for the costs of
removal or remediation of certain hazardous or toxic substances at, on, in,
under or disposed of in connection with such property, as well as certain other
potential costs relating to hazardous or toxic substances (including
governmental fines and penalties and damages for injuries to persons and
adjacent property). The operation and removal of underground storage tanks also
are regulated by federal and state law. The State of New Jersey has enacted a
law regulating underground fuel storage tanks and various rules and regulations
which impact upon the Trust's responsibilities with respect to underground
storage tanks on its properties. The application of such laws regarding
hazardous or toxic substances and underground storage tanks, with respect to the
Trust's properties, is discussed in "Risk Factors-Possible Liability Relating to
Environmental Matters." In addition to the restrictions generally imposed under
environmental laws, statutes, ordinances, rules and regulations relating to
hazardous and toxic substances, there are environmentally based land use
controls affecting certain of the Trust's properties. A substantial portion of
the Westwood Plaza Shopping Center property is located in a flood hazard zone,
as delineated on maps published by the Federal Emergency Management Agency, the
Department of Housing and Urban Development and/or the New Jersey Department of
Environmental Protection ("NJDEP"). A portion of the property is also located in
a floodway and serves as a local flood detention basin for the municipality. The
Trust maintains no flood hazard insurance for the shopping center, including
ancillary facilities. In the event of the destruction of, or significant damage
to, that portion of the property situated in the flood hazard zone, any
reconstruction of the affected improvements will be subject to the prior
approval of the NJDEP, which may require extraordinary construction methods and
techniques, at increased cost to the Trust. Furthermore, should flooding damage
or adversely affect premises leased to tenants, rental income from the shopping
center may be materially impaired. Two of the Trust's properties in New Jersey
are subject to development restrictions imposed under the provisions of the
"Freshwater Wetlands Protection Act" (L. 1987, c.156), N.J.S.A. 13:9B-1 et. seq.
and the implementing rules and regulations promulgated by NJDEP. The Trust's
vacant land located in Rockaway Township contains wetlands and associated
"transition areas". Pursuant to New Jersey law, wetlands and transition areas
may not be developed. The Trust has not secured a Letter of Interpretation
("LOI") from the NJDEP, fixing the location of wetlands and transition areas on
the property in accordance with the applicable rules and regulations of the
NJDEP. Until the LOI is obtained, the Trust will not be able to determine the
full impact that the wetlands and associated transition areas will have on the
development of the property. However, the Trust believes that future development
of the property will not be substantially curtailed as a result of the presence
of wetlands and the associated transition areas. The Trust secured both Federal
and State approvals to allow it to fill slightly less than one (1) acre of
wetlands. The filling of the wetlands pursuant to the permit was completed
during January, 1993. The vacant land adjacent to the Franklin Lakes shopping
center property contains wetlands and associated transition areas located on its
perimeter. The Trust has developed plans for the expansion and reconstruction of
the shopping center, taking into account both wetlands and associated transition
areas. The Trust has not yet secured a LOI for delineation of the wetlands and
transition areas. The Trust reasonably believes that the planned expansion of
the shopping center will not be materially affected by the presence of the
wetlands or associated transition areas. Insurance Under their leases, the
Trust's shopping center tenants are generally responsible for providing adequate
insurance on the properties they lease. The Trust believes that its residential
and shopping center properties are covered by adequate fire, extended coverage
property and liability insurance provided by reputable companies. However, some
of the properties are not covered by disaster insurance with respect to certain
hazards for which coverage is not available or available only at rates which, in
the opinion of the Trust, are prohibitive. All insurance for the Trust's
properties has been placed by Hekemian & Co. with insurance companies rated at
A+ by A.M. Best Company.
<PAGE>
SCHEDULE OF REAL ESTATE INVESTMENTS
The following table summarizes certain information concerning all of the
Trust's real estate investments as of October 31, 1994.
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
REAL ESTATE AND EQUIPMENT AND MORTGAGES PAYABLE
OCTOBER 31, 1994
(In Thousands of Dollars)
(Audited)
REAL ESTATE
<TABLE>
<CAPTION>
Date Buildings and Development Accumulated
Property Description Acquired Land Improvements Costs Depreciation Net
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Apartment buildings:
Camden 1964 $ 76 $ 657 $ 363 $ 370
Camden-Annex 1964 41 212 163 90
Hasbrouck Heights 1964 22 285 191 116
Lakewood 1962 11 501 370 142
Maywood 1972 313 1,292 580 1,025
Palisades Park 1962 12 153 91 74
River Edge 1975 364 2,007 932 1,439
Spring Lake Heights 1971 109 1,238 689 658
Wayne 1965 250 2,834 1,843 1,241
Westwood Hills 1994 3,849 11,570 124 15,295
------- ------- ---- ------ -------
Totals 5,047 20,749 5,346 20,450
------- ------- ---- ------ -------
Commercial buildings:
Glen Rock 1962 12 58 43 27
Shopping Centers:
Franklin Lakes 1966 29 620 $737 306 1,080
Westridge 1992 9,135 19,437 1,635 26,937
Westwood 1988 6,889 6,712 1,378 12,223
------- ------- ---- ------ -------
Totals 16,053 26,769 737 3,319 40,240
------- ------- ---- ------ -------
Unimproved land:
Franklin Lakes 1966/93 232 232
Rockaway 1964/ 2,058 2,058
1992/93
South Brunswick 1964 169 169
------- ------- ---- ------ -------
Totals 2,459 2,459
------- ------- ---- ------ -------
Totals $23,571 $47,576 $737 $8,708 $63,176
======= ======= ==== ====== =======
</TABLE>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
REAL ESTATE AND EQUIPMENT AND MORTGAGES PAYABLE (CONTINUED)
OCTOBER 31, 1994
(In Thousands of Dollars)
(Audited)
<TABLE>
<CAPTION>
MORTGAGES
EQUIPMENT PAYABLE
----------------------------------- ------------------
Total Real
Accumulated Estate and Current
Property Description Equipment Depreciation Net Equipment Portion Total
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Apartment buildings:
Camden $ 73 $ 53 $ 20 $ 390
Camden-Annex 90
Hasbrouck Heights 17 13 4 120
Lakewood 23 13 10 152
Maywood 88 63 25 1,050
Palisades Park 14 9 5 79
River Edge 132 91 41 1,480
Spring Lake Heights 112 71 41 699 $ 76 $ 383
Wayne 221 169 52 1,293
Westwood Hills 15 1 14 15,309 156 9,455
------ ---- ---- ------- ---- -------
Totals 695 483 212 20,662 232 9,838
------ ---- ---- ------- ---- -------
Commercial buildings:
Glen Rock 27
------
Shopping Centers:
Franklin Lakes 5 4 1 1,081
Westridge 26,937 266 18,624
Westwood 5 4 1 12,224 113 5,557
------ ---- ---- ------- ---- -------
Totals 10 8 2 40,242 379 24,181
Unimproved land:
Franklin Lakes 232
Rockaway 2,058
South Brunswick 169
-------
Totals 2,459
-------
Totals $ 705 $491 $214 $63,390 $611 $34,019
====== ==== ==== ======= ==== =======
</TABLE>
<PAGE>
STATEMENT OF INVESTMENT AND OTHER POLICIES
Investment Policies
It has been the policy of the Trustees to purchase real estate, improved or
unimproved, primarily for investment and not for resale or turnover. Without
restricting its investments as herein described, the Trustees will continue to
seek investments in apartment houses, shopping centers, and chain store
properties, and may seek investments in office buildings, industrial properties,
motels, hotels and other properties as the Trustees may determine, exclusive of
one-family residential properties.
The Trust may invest in short-term first and second mortgages at relatively
high yields, on the same type of properties. It intends, however, to continue to
place its primary investment emphasis upon equity investments in real estate. It
has been the policy of the Trust to acquire assets primarily for income.
Although the Trust has, since its inception, made most of its investments
in New Jersey, it has from time to time, investigated the suitability of, and
acquired, specific investments in other states, such as the Westridge Square
Shopping Center. The Trust shall continue to seek out investments both inside
and outside of the State of New Jersey and shall make suitable investments
wherever the Trust deems appropriate.
The Trust intends to continue to invest mainly in real property; it may
also invest in mortgages, and, although it does not contemplate doing so, it may
from time to time also invest in long-term leases and personal property. There
is no limitation on the amount or percentage of assets it may invest in any one
property or type of property, or as to the number or amount of mortgages which
may be placed on any one property or which may have been placed on any property
so purchased. There is no limitation on the amount of debt which may be placed
by the Trust by mortgage or otherwise. Similarly, there is no limitation as to
the nature and priority of any mortgage the Trust may invest in or as to the
percentage of the value of the property which such mortgage may represent. The
Trust does not intend to engage in the "warehousing" and servicing of mortgages.
The Trust has no present intention to invest in single-tenant buildings not
rented by tenants of substantial credit standing. However, the Trust may make
such investments in the event that a particular situation is deemed by the
Trustees to be advantageous to the Trust.
The following are among the factors which will be deemed favorable in the
selection of real estate investments:
A. Prospects for appreciation in value and growth, but it is not the policy
to purchase real estate primarily with the intention to realize profits from
resale;
B. Ability to mortgage a property for comparatively long terms, and for
high amounts in relation to the total cost of acquisition and improvements;
C. Potential for increased income.
The following are among the factors which will be deemed favorable in the
selection of mortgage investments:
A. Soundness of the underlying real estate as security for the mortgage
loan;
B. The maturity of the loan within a relatively short period of time;
C. Relatively high yield or interest rate returned on the loan.
The principal method of financing the Trust's real estate is the
$20,000,000 revolving line of credit with United Jersey Bank, permanent
institutional mortgages on particular properties to fund a portion of the
acquisition costs, and equity capital from shareholders.
The Trust is engaged primarily in the business of investing in interests in
real estate and not in the securities of other companies. The Trustees intend to
operate the Trust so that it will not be an investment company under the
provisions of the Investment Company Act of 1940.
It is the policy of the Trust to acquire assets primarily for income
although the Trust does acquire assets with a view toward possible capital gain.
Investment policies of the Trust are set by the Trustees. These policies
may be subject to review by the Trustees in light of future circumstances and
may be changed from time to time without the vote of the Trust's Shareholder.
Operating Policies and Practices
Under the Declaration of Trust (Article V), the Trustees are given control
and management over the business affairs and policies of the Trust. The Trustees
have the power to change policies as they may see fit to promote the best
interests of the Trust, without the vote of the shareholders.
The Trust does not presently propose or intend to borrow additional funds
other than amounts to pay the costs of permitting, approvals, demolition and
construction in connection with the redevelopment project for the Franklin Lakes
Shopping Center. The Trust has borrowed monies to pay dividends to its
Shareholders but only as part of a cash management strategy in which surplus
funds from operations (which would be used, in whole or in part, to fund
dividend distributions) are first utilized to reduce the balance due on the bank
credit line and the resulting interest expense. The Trust has borrowed monies
within the last three years by drawdowns against the Bank Credit Facility to
acquire its interest in Westwood Hills, and by drawdowns on the prior credit
line with National Community Bank to purchase vacant land in Rockaway, New
Jersey, to purchase additional land in Franklin Lakes, New Jersey, to pay a
portion of the purchase price for Westridge Square and to pay dividends to its
Shareholders (as described above). In addition, the Trust assumed the mortgage
obligation due to State Mutual Life Assurance Company of America with respect to
the acquisition of Westridge Square. Westwood Hills, L.L.C., in which the Trust
has a forty percent (40%) interest, borrowed funds from UJB to finance the
purchase of the Westwood Hills apartment project.
It is the policy of the Trust not to issue senior securities or preferred
shares. However, the Trust has secured its indebtedness to UJB with mortgage
liens on all its properties and interests except for the Westwood Shopping
Center, the Westridge Square Shopping Center, the Westwood Hills apartment
complex and the Trust's vacant or unimproved lands. The Trust has secured debts
confined to particular properties, which are senior to the shares issued
hereunder. The Trustees have the power under the Declaration of Trust to incur
long-term debts secured by general assets. The Trustees may and will incur
short-term debts when necessary. As a general rule, properties will be purchased
subject to mortgage and may be mortgaged for further financing where deemed
advisable.
It is the policy of the Trust not to make loans to other persons except
that the Trust may invest in real estate mortgages.
The Trust may offer shares in exchange for investment properties where such
exchange is found to be feasible and offers tax or investment advantages. The
Trust has the right to reacquire its own shares when deemed necessary for the
protection of its interests.
During the past three years, the Trust has not: (a) issued senior
securities; (b) made loans to other persons; (c) underwritten securities of
other issuers; (d) offered securities in exchange for property; or (e)
repurchased or acquired its shares or other securities.
The Trust will continue, as in the past, to make and issue annual reports
to shareholders, within 90 days after the end of each year, containing a balance
sheet, a statement of income, distribution from income, capital gain and
depreciation, and other pertinent data, duly certified by an independent public
accountant.
Policies on Distribution and Tax Provisions
The Trust has made, and intends in the future to make, annual distribution
of at least 95% of any ordinary income, and it may also distribute cash
generated by its investments, including capital gains which may be realized
therefrom.
MANAGEMENT
The Trustees and officers of the Trust, their ages as of October 31, 1994
their length of service, the expiration date of their terms and their positions
and offices are as follows:
<TABLE>
<CAPTION>
Trustee or
Officer Term
Age Since as Trustee Positions Held
---- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Robert S. Hekemian 63 1977 May, 1996 Trustee, Chairman of
the Board
John B. Voskian, M.D. 70 1968 May, 1996 Trustee, Secretary
Nicholas A. Laganella 76 1969 May, 1997 Trustee
Herbert C. Klein 64 1961 May, 1997 Trustee
Donald W. Barney 53 1981 May, 1995 Trustee, President
Charles J. Dodge 51 1990 May, 1996 Trustee
Alan L. Aufzien 65 1992 May, 1995 Trustee
Ronald J. Artinian 46 1992 May, 1995 Trustee
William R. DeLorenzo, Jr. 50 1974 -- Executive Secretary
</TABLE>
The Trustees serve for terms of three (3) years. Trustees are elected by
vote of the Trust's shareholders at the annual meeting in May. A Trustee holds
office until a successor is elected and qualified. Trustees meet on a regular
basis to review the results of the Trust's business operations. The Trustees
also meet, as needed, to consider all proposed acquisitions or other
investments.
Under the terms of Section 4.4(b) of the Declaration of Trust, the
compensation of the Trustees is fixed and determined by them, subject to the
limitation that the annual compensation paid to all of the Trustees may not
exceed 1/2 of 1 percent of the Trust's net worth, calculated as of the
commencement of the period for which the compensation is paid.
All of the officers of the Trust are elected or appointed by, and serve at
the pleasure, the Board of Trustees. The Trustees are required to elect annually
one of their members as the President and Principal Executive Officer of the
Trust. The officers of the Trust devote only a portion of their time spent on
all business activities to the affairs of the Trust, as described in the
following table.
Approximate Percentage of
Officer Time Devoted to Trust Business
------- ------------------------------
Robert S. Hekemian 10%
Donald W. Barney 5%
John B. Voskian, M.D. Less than 5%
William R. DeLorenzo, Jr. 10%
The following Summary Compensation Table sets forth, for each of the
Trust's last four fiscal years, the amounts paid to the Officers and Trustees.
Summary Compensation Table(1)
<TABLE>
<CAPTION>
Fees of
Name and Officers Executive
Office Held Year Or Trustees Committee Fee(2)
- ----------- ---- ----------- ----------------
<S> <C> <C> <C>
(A) Officers
Robert S. Hekemian, 1994 $3,800 None
Chairman 1993 3,800 None
President 1992(3) 3,800 None
1991 1,900 None
- ----------------------------------------------------------------------------------------------------
Donald W. Barney, 1994 3,800 None
President 1993(6) 1,900 None
- ----------------------------------------------------------------------------------------------------
Herbert C. Klein, 1994 None None
President 1993 None None
1992(4) 3,800 None
- ----------------------------------------------------------------------------------------------------
John B. Voskian, 1994 None None
Secretary 1993 None None
1992 None None
1991 None None
- ----------------------------------------------------------------------------------------------------
William R. DeLorenzo, Jr. 1994 9,300 None
Executive Secretary 1993 9,300 400
Treasurer 1992 9,300 None
1991 9,300 400
-------------------------------------
(B) Trustees
Robert S. Hekemian 1994 5,500 None
1993 5,500 400
1992 5,500 None
1991 5,500 None
- ----------------------------------------------------------------------------------------------------
Herbert C. Klein 1994 None None
1993 None None
1992 5,500 None
1991 5,500 None
- ----------------------------------------------------------------------------------------------------
John B. Voskian 1994 5,500 None
1993 5,500 None
1992 5,500 None
1991 5,500 None
- ----------------------------------------------------------------------------------------------------
Nicholas A. Laganella 1994 5,500 None
1993 5,500 None
1992 5,500 None
1991 5,500 None
- ----------------------------------------------------------------------------------------------------
Donald W. Barney 1994 5,500 None
1993 5,500 400
1992 5,500 None
1991 5,500 400
- ----------------------------------------------------------------------------------------------------
Charles J. Dodge 1994 5,500 None
1993 5,500 None
1992 5,500 None
1991 5,500 400
- ----------------------------------------------------------------------------------------------------
Ronald J. Artinian 1994 5,500 None
1993 5,500 400
1992 2,750(5) None
- ----------------------------------------------------------------------------------------------------
Alan L. Aufzien 1994 5,500 400
1993 5,500 None
1992 2,750(5) None
1991 None None
- ----------------------------------------------------------------------------------------------------
</TABLE>
1. No Officer or Trustee of the Trust:
a) has any stock options to purchase stock of the Trust;
b) receives any perquisites or other personal benefits, security or property;
and,
c) is entitled to any long-term compensation of any kind from the Trust.
2. The Trust maintains an Investment Committee which includes a majority of the
Trustees and the Executive Secretary as a non-voting attendee. Members of the
Investment Committee and the Executive Secretary received $400 for each
meeting attended.
There was one meeting of the Investment Committee during fiscal 1993.
3. Mr. Robert S. Hekemian was elected Chairman of the Board in 1991. Prior to
that time, he had served the Trust as President.
4. Mr. Herbert C. Klein was elected President of the Trust in 1991. Prior to
that time, he had not served the Trust as an officer. Mr. Klein had, however,
served as a Trustee prior to 1991. Mr. Klein resigned as President of the
Trust, effective December 31, 1992, upon election to the United States House
of Representatives. Mr. Klein, since his election, has not received any
compensation from the Trust.
5. Messrs. Artinian and Aufzien were elected to the Board of Trustees in May,
1992 and have been paid a partial fee for their services in that position by
the Trust based upon the standard annual fee paid to all Trustees of $5,500.
6. Mr. Barney was elected President of the Trust on May 24, 1993.
The Trust intends to compensate all Trustees in fiscal 1995 at the same
base rate as in fiscal 1994 except that a Trustee or the Executive Secretary who
attends a total of at least four (4) meetings of the Board of Trustees will
receive an additional sum of $400.00 for each meeting up to a maximum of
$1,600.00. The fee to be paid to each of the officers of the Trust (Chairman,
President, Secretary), other than the Executive Secretary, will be increased
from $3,800 to $5,000.
The following is a summary of the business experience of the Offices of
Trustees of the Trust.
(1) Robert S. Hekemian - Mr. Hekemian is Chairman of the Board of Hekemian
& Co., Inc., a real estate brokerage firm. He is a director of United Jersey
Bank, a New Jersey financial institution with principal headquarters located in
Hackensack, New Jersey. He is also a director, partner and/or officer of
numerous private real estate corporations and partnerships. He has been active
in real estate for over forty one (41) years.
(2) Herbert C. Klein - Mr. Klein served in the United States House of
Representatives, as the Representative for the 8th Congressional District of New
Jersey, for a two (2) year term which ended January 4, 1995. Mr. Klein was
formerly a member of the law firm of Klein Chapman. He is a director of Security
Indemnity Insurance Company (a New Jersey financial institution), a former
member of the New Jersey Legislature, a member of the Bars of New Jersey and the
District of Columbia, an attorney since 1956, and a member of the Board of
Trustees of Rutgers University. A considerable amount of Mr. Klein's law
practice was devoted to real estate matters.
(3) Dr. John B. Voskian - Dr. Voskian is a physician. He is also a director
and an officer of a number of private real estate companies. Dr. Voskian is not
currently practicing medicine.
(4) Donald W. Barney - Mr. Barney is Vice President and Treasurer of Union
Camp Corporation, a Virginia corporation with executive offices in Wayne, New
Jersey and a Director of Ramapo Bank, a New Jersey financial institution located
in Wayne, New Jersey. Mr. Barney is also a partner or director of several real
estate investment companies, partnerships, and corporations.
(5) William R. DeLorenzo, Jr. - Mr. DeLorenzo is the Executive Secretary
and Treasurer of the Trust. He is an attorney in private practice as a principal
of the firm of Wiss & Cooke, P.C., with offices located in Hackensack, New
Jersey. In January 1983, Mr. DeLorenzo was appointed by New Jersey Governor Kean
as a member of the New Jersey Commission on Capital Budgeting and Planning (the
"Commission"). On March 1, 1990, Mr. DeLorenzo was appointed Chairman of the
Commission by Governor James Florio.
(6) Nicholas A. Laganella - Mr. Laganella is the President of P.T.& L.
Construction Company and a real estate investor for his own account.
(7) Charles J. Dodge - Mr. Dodge is the Chief Executive Officer of Cronheim
Mortgage Co. Mr. Dodge is also a partner in a real property development company
and is a real estate investor on his own account.
(8) Alan L. Aufzien - Mr. Aufzien is the Chairman and Chief Executive
Officer, Meadowlands Basketball Association, t/a New Jersey Nets (Member of the
National Basketball Association), Director of the First New York Bank for
Business, Chairman of New York Harbor Associates which is a real estate
developer, Treasurer and Partner of Capital Formation Associates, a group of
venture capital investors and operators, Chairman of RAL International, Ltd. and
is active in various civic and business organizations.
(9) Ronald J. Artinian - Mr. Artinian is the Senior Managing Director,
National Sales Office, at Smith, Barney, investment advisors and is also a
member of the Board of Directors of Smith, Barney.
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of October 31, 1994 regarding
the beneficial ownership of the Trust's Shares of beneficial interest (no par
value) by the Trust's Officers and Trustees as a group, and by each person known
by the Trust to be the beneficial owner of more than 5.0% of the Trust's
outstanding Shares of beneficial interest (no par value). Each person identified
in the table has sole voting and investment power with respect to all Shares
shown as beneficially owned by such person, except as otherwise set forth in the
notes to the table.
<TABLE>
<CAPTION>
Name
----
Directors and Officers Number of Shares Percent of Total
- ---------------------- ---------------- ----------------
<S> <C> <C>
Robert S. Hekemian 208,182 13.35%
Chairman of the Board,
Trustee (1)
Donald W. Barney 122,235 7.84%
President, Trustee (2)
Wm. R. DeLorenzo, Jr. 15,770 1.01%
Executive Secretary,
Treasurer
John B. Voskian 109,536 7.02%
Secretary, Trustee (3)
Herbert C. Klein 62,332 4.00%
Trustee
Charles J. Dodge 500 0.03%
Trustee
Nicholas A. Laganella 3,625 0.23%
Trustee
Ronald J. Artinian 108,239 6.94%
Trustee (4)
Alan L. Aufzien 1,500 0.09%
Trustee
Officers and Trustees 631,919 40.5 %
As a Group (9 Persons)(5)
Other Beneficial Owners
None
</TABLE>
(1) Mr. Hekemian, individually, owns 5,095 shares. The balance of the shares are
owned by members of Mr. Hekemian's family, by trusts for the benefit of Mr.
Hekemian and his family members and by general partnerships in which Mr.
Hekemian has an interest.
(2) Mr. Barney, individually, owns 40,981 shares. The remaining shares are held
by members of Mr. Barney's family or by Mr. Barney as custodian for his
children.
(3) Dr. Voskian, individually, owns 7,754 shares. The other shares are
registered to members of his family, or are held by trusts for the benefit
of the family members or by general partnerships in which Dr. Voskian has an
interest.
(4) Mr. Artinian is the owner of 63,541 shares. The balance of the shares are
held by family members or a trust for the benefit of Mr. Artinian and family
members.
(5) No single person owns of record or beneficially five percent (5%) or more of
the shares of beneficial interest of the Trust.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Hekemian & Co., Inc. serves as the managing agent for the Trust's
properties and as a consultant to the Trust. Robert S. Hekemian serves as
Chairman of the Board of Hekemian & Co., Inc. and is also a shareholder. Certain
family members of Mr. Hekemian are officers of Hekemian holding the positions
provisions set forth below:
Samuel Hekemian -- President
Robert S. Hekemian, Jr. -- Executive Vice President
Bryan S. Hekemian -- Vice President, Secretary
David B. Hekemian -- Vice President, Treasurer
Serge Krikorian -- Vice President, Insurance
Mr. Hekemian also serves on the Board of Directors of United Jersey Bank
("UJB"). UJB holds a first mortgage on the Trust's property located in Spring
Lake Heights and holds a first mortgage on the Westwood Hills apartment complex.
UJB also holds mortgage liens on all other Trust properties, except for the
Westwood Plaza and Westridge Square Shopping Centers and the Trust's vacant
unimproved lands, to secure the $20,000,000 Bank Credit Facility extended to the
Trust. Finally, UJB provided mortgage financing in the principal sum of $10.5
million to Westwood Hills, L.L.C., a limited liability company, to fund a
portion of the purchase price of that apartment complex. The Trust has a 40%
interest in Westwood Hills and serves as the Managing Member.
Hekemian & Co., received a fee of $850,000 in fiscal 1992 in connection
with the purchase of Westridge Square and for other services performed from 1988
through 1992. In 1993, Hekemian & Co., was paid a brokerage commission of
$63,125 in connection with the Trust's purchase of additional property located
in Rockaway, New Jersey. In 1994, Hekemian & Co. received a brokerage commission
of $500,000 from Westwood Hills, L.L.C. in connection with the purchase of the
Westwood Hills apartment complex by Westwood Hills, L.L.C., a limited liability
company in which the Trust has a 40% interest and for which the Trust serves as
Managing Member. Hekemian & Co. will act as managing agent for the Westwood
Hills project under a written management agreement with the Trust, as Managing
Member.
Various Trustees acquired interests as Limited Members of Westwood Hills,
L.L.C., including Mr. Hekemian, Mr. Barney, Mr. Klein and Mr. Artinian. Member
of the families of Trustees and trusts for the benefit of family members also
purchased interests as Limited Members. The purchase price paid for such
interests by the Trustees and related parties was the same, proportionately, as
the purchase price paid by the Trust for its 40% interest. The Trust, together
with Mr. Hekemian and his brother, Samuel, gave limited guarantees to UJB in
connection with the $10.5 million mortgage loan provided by UJB to finance a
portion of the purchase price. Messrs. Hekemian and the Trust, jointly and
severally, thereby guaranteed repayment of the indebtedness to UJB up to the sum
of $2 million. In addition, Messrs. Hekemian and the Trust have indemnified UJB,
and held UJB harmless from, any losses or damages sustained by reason of: (i)
any fraudulent misrepresentations by Westwood Hills, L.L.C., or its members;
(ii) the intentional waste of collateral for the mortgage; and (iii) any
environmental liabilities, claims and expenses related to the property. Each of
the Limited Members, including the Trustees who acquired interests in Westwood
Hills, L.L.C., has agreed to indemnify Messrs. Hekemian and the Trust against,
and hold them harmless from, any liabilities they may have as a result of their
limited guaranty or the indemnity agreement, to the extent of the Limited
Member's respective proportional interest in Westwood Hills.
As a result of the investment made by the Trustees, counsel for the Trust
advised the Board of Trustees to adopt, and the Board of Trustees did adopt, a
revised Section 7.5 of the Declaration of Trust. Section 7.5, as originally
framed, did not deal with the Trust's participation in a partnership, joint
venture, limited liability company or other form of business entity or
organization in which a Trustee has a direct or indirect interest. Pursuant to
the revised Section 7.5, a Trustee with a direct or indirect interest in the
business entity or organization in which the Trust proposes to invest or acquire
an interest may vote on the resolution proposing the investment or acquisition
of the interest. However, the Trustee is required to make prior disclosure to
the other Trustees concerning the nature and extent of the Trustee's interest.
In determining whether to proceed with the investment or acquisition, the Board
of Trustees must consider various criteria designed to assure that the proposed
transaction is fair and reasonable to the Trust. Moreover, the Board of Trustees
must approve the transaction by a majority vote of all the Trustees present and
voting, including a majority vote of all disinterested Trustees present and
voting. The Board of Trustees approved the Westwood acquisition transaction,
after full disclosure had been made concerning the interests of the Trustees who
were acquiring individual interests and after independent counsel had reviewed
and approved of the Operating Agreement for Westwood Hills.
The law firm of Chapman, Henkoff, Kessler, Peduto & Saffer was retained by
the Trust during fiscal year 1993 and 1994 to furnish legal services. Herbert C.
Klein, a member of the predecessor law firm of Klein Chapman, and was a member
of the Board of Trustees and former President during fiscal year 1992.
The law firm of Wiss & Cooke was retained by the Registrant during fiscal
year 1993 and 1994 to furnish legal services. William R. DeLorenzo, Jr., the
Trust's Executive Secretary and Treasurer, is a principal of the law firm.
Mr. Robert S. Hekemian is the brother-in-law of Dr. John A. Voskian. Mr.
Donald A. Barney was formerly the brother-in-law of Mr. DeLorenzo. There are no
family relationships between the other Trustees and/or Executive Officers.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material Federal income tax considerations
regarding the Dividend Reinvestment and Share Purchase Plan is based on current
law, is for general information only and is not tax advice. This discussion does
not purport to deal with all aspects of taxation that may be relevant to
particular stockholders in light of their personal investment or tax
circumstances, or to certain types of stockholders (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) subject to special treatment under the Federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS/HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM/HER OF THE PURCHASE, OWNERSHIP
AND SALE OF THE SHARES AND OF THE TRUST'S ELECTION TO BE TAXED AS A REAL ESTATE
INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
Taxation of the Trust
General. The Trust has elected to be taxed as a REIT, under Section 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). The
Trust believes it is organized in such a manner as to qualify for taxation as a
REIT under the Code. The Trust intends to continue to operate in such a manner,
but no assurance can be given that it will operate in a manner so as to remain
qualified.
The REIT provisions of the Code are highly technical and complex. The
following sets forth the material aspects of the sections that govern the
Federal income tax treatment of a REIT and its stockholders. This summary is
qualified in its entirety by the applicable Code provisions, rules and
regulations promulgated thereunder, and administrative and judicial
interpretations thereof. It should be noted that the Code, rules, regulations
and administrative and judicial interpretations are all subject to change
(possibly on a retroactive basis). In the opinion of Chapman, Henkoff, Kessler,
Peduto & Saffer, the Trust is organized in conformity with the requirements for
qualification as a REIT, and its method of operation will enable it to meet the
requirements for continued qualification and taxation as a REIT under the Code.
It must be emphasized that this opinion is based on various assumptions and is
conditioned upon certain representations made by the Trust as to factual
matters. Such factual assumptions and representations are set forth below in
this discussion of "Federal Income Tax Considerations." This opinion is based
upon the factual representations of the Trust concerning its business and
properties as set forth in this Prospectus. Moreover, such qualification and
taxation as a REIT depends upon the Trust's ability to meet, through actual
annual operating results, distribution levels and diversity of stock ownership,
the various qualification tests imposed under the Code discussed below, the
results of which will not be reviewed by Chapman, Henkoff, Kessler, Peduto &
Saffer. Accordingly, no assurance can be given that the actual results of the
Trust's operation for any particular taxable year will satisfy such
requirements.
So long as the Trust qualifies for taxation as a REIT, it generally will
not be subject to Federal corporate income taxes on its net income that is
currently distributed to stockholders. This treatment substantially eliminates
the "double taxation" (at the corporate and stockholder levels) that generally
results from investment in a corporation. However, the Trust will be subject to
Federal income tax as follows: First, the Trust will be taxed at regular
corporate rates on any undistributed real estate investment trust taxable
income, including undistributed net capital gains. Second, under certain
circumstances, the Trust may be subject to the "alternative minimum tax" on its
items of tax preference. Third, if the Trust has (i) net income from the sale or
other disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business, or (ii) other non-qualifying
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income. Fourth, if the Trust has net income from
prohibited transactions (which are, in general, certain sales or other
dispositions of property held primarily for sale to customers in the ordinary
course of business other than foreclosure property), such income will be subject
to a 100% tax. Fifth, if the Trust should fail to satisfy the 75% gross income
test or the 95% gross income test (as discussed below), but has nonetheless
maintained its qualification as a REIT because certain other requirements have
been met, it will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which the Trust fails the
75% or 95% test multiplied by (b) a fraction intended to reflect the Trust's
profitability. Sixth, if the Trust should fail to distribute during each
calendar year at least the sum of (i) 85% of its real estate investment trust
ordinary income for such year, (ii) 95% of its real estate investment trust
capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, the Trust would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
Seventh, with respect to an asset (a "Built-In Gain Asset") acquired by the
Trust from a corporation which is or has been a C corporation (i.e., generally a
corporation subject to full corporate-level tax) in a transaction in which the
basis of the Built-In Gain Asset in the hands of the Trust is determined by
reference to the basis of the asset in the hands of the C-corporation, if the
Trust recognizes gain on the disposition of each asset during the ten year
period (the "Recognition Period") beginning on the date on which such asset was
acquired by the Trust, then, to the extent of the Built-In Gain (i.e., the
excess of (a) the fair market value of such asset over (b) the Trust's adjusted
basis in such asset, determined as of the beginning of the Recognition Period),
such gain will be subject to tax at the highest regular corporate tax pursuant
to the Internal Revenue Service ("IRS") regulations that have not yet been
promulgated. The results described above with respect to the recognition of
Built-In Gain assume that the Trust will make an election pursuant to IRS Notice
88-19.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Section 856 through 859 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or constructively, by
five or fewer individuals (as defined in the Code to include certain entities);
and (7) which meets certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (5) and
(6) do not apply until after the first taxable year for which an election is
made to be taxed as a REIT.
The Trust has issued sufficient shares to allow it to satisfy conditions
(5) and (6). In addition, the Declaration of Trust provides for restrictions
regarding transfer of shares, which restrictions are intended to assist the
Trust in continuing to satisfy the share ownership requirements described in (5)
and (6) above.
Income Tests. In order to maintain qualification as REIT, the Trust
annually must satisfy three gross income requirements. First, at least 75% of
the Trust's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property", and, in certain circumstances, interest) or from certain types
of temporary investments. Second, at least 95% of the Trust's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from the sale or disposition of stock or securities (or for any combination of
the foregoing). Third, short-term gain from the sale or other disposition of
stock or securities, gain from prohibited transactions and gain on the sale or
other disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Trust's gross income (including gross income from prohibited
transactions) for each taxable year.
Rents received by the Trust will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
or receipts or sales. (If a REIT receives or accrues rent from a tenant that
derives substantially all of its income with respect to the property from the
subleasing of substantially all such property, and a portion of the tenant's
sublease income would be treated as qualified rents if it were received by the
REIT, then the amounts received or accrued by the REIT from the tenant will be
treated as qualified rents to the same extent that the amounts so received or
accrued are attributable to qualified rents received by the tenant). Second, the
Code provides that rents received from a tenant will not qualify as "rents from
real property" in satisfying the gross income tests if the REIT, or an owner of
the 10% or more of the REIT, directly or constructively owns 10% or more of such
tenant (a "Related Party Tenant"). For purposes of this test, the holdings of
certain family members are aggregated. Third, if rent attributable to personal
property, leased in connection with a lease of real property, is greater than
10% of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property". Finally, for rents received to qualify as "rents from real property",
the REIT generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the REIT derives no revenue. The REIT may, however,
directly perform certain services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" of the property. The Trust does not and
will not (i) charge rent for any property that is based in whole or in part on
the income or profits of any person (except by reason of being based on a
percentage of receipts or sales, as described above), (ii) rent any property to
a Related Party Tenant, (iii) derive rental income attributable to personal
property (other than personal property leased in connection with the lease of
real property, the amount of which is less than 15% of the total rent received
under the lease), or (iv) perform services considered to be rendered to the
occupant of the property, other than through an independent contractor from whom
the Trust derives no revenue.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on the fixed percentage or percentages of
receipts or sales.
Management, leasing and similar fees and other income from services do not
count toward satisfaction of either the 95% or the 75% gross income tests.
If the Trust fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. Those relief
provisions will be generally available if the Trust's failure to meet such tests
was due to reasonable cause and not due to willful neglect, the Trust attaches a
schedule of the sources of its income to its return, and any incorrect
information on the schedule was not due to fraud with intent to evade tax. It is
not possible, however, to state whether in all circumstances the Trust would be
entitled to the benefit of these relief provisions. As discussed above in
"Federal Income Tax Considerations - Taxation of the Trust - General", even if
these relief provisions apply, a tax would be imposed with respect to the excess
net income.
Asset Tests. The Trust, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Trust's total assets must be represented by real
estate assets (including (i) its allocable share of real estate assets held by
partnerships in which the Company owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Trust,
cash, cash items and government securities. Second, not more than 25% of the
Trust's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Trust may not exceed 5% of the
value of the Trust's total assets and the Trust may not own more than 10% of any
one issuer's outstanding voting securities.
Annual Distribution Requirements. The Trust, in order to qualify as a REIT,
is required to distribute dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's "real estate investment trust taxable income" (computed without regard
to the dividends paid deduction and the Company's net capital gain) and (ii) 95%
of the net income (after tax), if any, from foreclosure property, minus (B) the
sum of certain items of noncash income. In addition, if the Trust disposes of
any Built-In Gain asset during its Recognition Period, the Trust will be
required, pursuant to IRS regulations which have not yet been promulgated, to
distribute at least 95% of the Built-In Gain (after tax), if any, recognized on
the disposition of such asset. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
the Trust timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. To the extent that the
Trust does not distribute all of its net capital gain or distribute at least
95%, but less than 100%, of its "real estate investment trust taxable income",
as adjusted, it will be subject to tax thereon at regular ordinary and capital
gain corporate tax rates. Furthermore, if the Trust should fail to distribute
during each calendar year at least the sum of (i) 85% of its Trust ordinary
income for such year, (ii) 95% of its real estate investment trust capital gain
income for such year, and (iii) any undistributed taxable income from prior
periods, the Trust would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. The Trust intends
to make timely distributions sufficient to satisfy this annual distribution
requirement.
It is possible that the Trust, from time to time, may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and the deduction
of such expenses in arriving at taxable income of the Trust. The problem of
inadequate cash to make required distributions could also occur as a result of
the repayment in cash of principal amounts due on the Trust's outstanding debt,
particularly in the case of a "balloon" repayments, or as a result of capital
losses on short-term investments of working capital. In such events, in order to
meet the 95% distribution requirement, the Trust may find it necessary to
arrange for short-term, or possibly long-term, borrowings, or to arrange for new
equity financing, or to pay dividends in the form of taxable stock dividends, or
to liquidate real estate assets to raise cash needed for divided payments to
maintain REIT status.
Under certain circumstances, the Trust may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividend" to
stockholders in a later year, which may be included in the Trust's deduction for
dividends paid for the earlier year. Thus, the Trust may be able to avoid being
taxed on amounts distributed as deficiency dividends, however, the Trust will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
Failure to Qualify. If the Trust fails to qualify for taxation as a REIT in
any taxable year, and the relief provisions do not apply, the Trust will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to stockholders in any year in
which the Trust fails to qualify will not be deductible by the Trust nor will
they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations of the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Trust will
also be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Trust would be entitled to such statutory
relief. Failure to qualify for even one year could result in the Trust incurring
substantial indebtedness (to the extent that borrowings are feasible) or
liquidating substantial investments in order to pay the resulting taxes.
Taxation of Shareholders
Taxation of Taxable Domestic Stockholders. As long as the Trust qualifies
as a REIT, distributions made to the Trust's taxable domestic stockholders out
of current or accumulated earnings and profits (and not designated as capital
gain dividends) will be taken into account by them as ordinary income and will
not be eligible for the dividends received deduction for corporations.
Distributions that are designated as capital gain dividends will be taxed as
long-term capital gains (to the extent they do not exceed the Trust's actual net
capital gain for the taxable year) without regard to the period for which the
stockholder has held the stock. However, corporate stockholders may be required
to treat up to 20% of certain capital gain dividends as ordinary income.
Distributions in excess of current and accumulated earnings and profits will not
be taxable to a stockholder to the extent that they do not exceed the adjusted
basis of the stockholder's shares, but rather will reduce the adjusted basis of
such shares. To the extent that such distributions exceed the adjusted basis of
the stockholders shares they will be included in income as long-term capital
gain (or short-term capital gain) if the shares have been held for one year or
less) assuming the shares are a capital asset in the hands of the stockholder.
In addition, any dividend declared by the Trust in November or December of any
year payable to a stockholder of record on a specified date in any such month
shall be treated as both paid by the Trust and received by the stockholder on
December 31 of such year, provided that the dividend is actually paid by the
Trust during January of the following calendar year. Stockholders may not
include in their individual income tax returns any net operating losses or
capital losses of the Trust.
In general, any loss upon a sale or exchange of shares by a stockholder who
has held such shares for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Trust required to be treated by such stockholder as
long-term capital gain.
Taxation of Tax-Exempt Stockholders. In Revenue Ruling 66-106, 1966-1. C.B.
151, the IRS ruled that amounts distributed by a REIT to a tax-exempt employees'
pension trust did not constitute "unrelated business taxable income" ("UBTI").
Revenue rulings are interpretive in nature and subject to revocation or
modification by the IRS. However, based upon Revenue Ruling 66-106 and the
analysis therein, distributions by the Company to a stockholder that is a
tax-exempt entity should also not constitute UBTI, provided that the tax-exempt
entity has not financed the acquisition of its shares with "acquisition
indebtedness" within the meaning of the Code and the shares are not otherwise
used in an unrelated trade or business of the tax-exempt entity.
Taxation of Foreign Stockholders. The rules governing United States Federal
income taxation of nonresidential alien individuals, foreign corporations,
foreign partnerships and other foreign stockholders (collectively, "Non-U.S.
Stockholders") are complex, and no attempt will be made herein to provide more
than a summary of such rules. Prospective Non-U.S. Stockholders should consult
with their own tax advisors to determine the impact of federal, state and local
income tax laws with regard to an investment in shares, including say reporting
requirements.
Distributions by the Trust that are not attributable to gain from sales or
exchanges by the Trust of United States real property interests and not
designated by the Trust as capital gain dividends will be treated as dividends
of ordinary income to the extent that they are made our of current or
accumulated earnings and profits of the Trust. Such distributions, ordinarily,
will be subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces or eliminates that tax.
However, if income from the investment in the shares is treated as effectively
connected with the conduct by the Non-U.S. Stockholder of a United States trade
or business, the Non-U.S. Stockholder generally will be subject to a tax ar
graduated rates, in the same manner as U.S. Stockholders are taxed with respect
to such dividends (and may also be subject to the 30% branch profits tax in the
case of a stockholder that is a foreign corporation). The Trust withholds United
States income tax at the rate of 30% on the gross amount of any such dividends
made to a Non-U.S. Stockholder unless (i) a lower treaty rate applies or (ii)
the Non-U.S. Stockholder files an IRS Form 4224 with the Company certifying that
the investment to which the distribution relates is effectively connected to a
United State trade or business of such Non-U.S. Stockholder. Lower treaty rates
applicable to dividend income may not necessarily apply to dividends from a REIT
such s the Trust, however. Distributions in excess of current and accumulated
earnings and profits of the Trust will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's shares,
but rather will reduce the adjusted basis of such shares. To the extent that
such distributions exceed the adjusted basis of a Non-U.S. Stockholder's shares,
they will give rise to tax liability if the Non-U.S. Stockholder otherwise is
subject to tax on any gain from the sale or disposition of his shares in the
Trust (as described below). If it cannot be determined at the time a
distribution is made whether or not such distribution will be in excess of
current and accumulated earnings and profits, the distributions will be subject
to withholding at the same rate applicable to dividends. However, amounts thus
withheld are refundable it is subsequently determined that such distributions
was, in fact, in excess of current and accumulated earnings and profits of the
Trust.
Distributions that are designated by the Trust at the time of distribution
as capital gain dividends [other than those arising from the disposition of a
United States real property interest) generally will not be subject to taxation,
unless (i) investment in the shares is effectively connected with the Non-U.S.
Stockholder's United States trade or business, in which case the Non-U.S.
Stockholder will be subject to the same treatment as U.S. Stockholders with
respect to such gain (except that a stockholder that is a foreign corporation
may also be subject to the 30% branch profit tax), or (ii) the Non-U.S.
Stockholder is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States, in which case the nonresident alien individual will be subject to
a 30% tax on the individual's capital gains.
For any year in which the Trust qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by the Trust of United States real
property interest will be taxed to a Non-U.S. Stockholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, these distributions are taxed to a Non-U.S. Stockholder as if such gain
were effectively connected with a United States trade or business. Non-U.S.
Stockholders would thus be taxed at the same capital gain rates applicable to
U.S. Stockholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresidential alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30% branch profits tax in
the hands of a foreign corporate stockholder not entitled to treaty exemption.
The Trust is required by applicable IRS regulations to withhold 34% of any
distribution that could be designated to the Trust as a capital gain dividend.
This amount is creditable against the Non-U.S. Stockholder's FIRPTA tax
liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of shares generally
will not be taxed under FIRPTA if the Trust is a "domestically-controlled REIT",
defined generally as a REIT in which at all times during a specified testing
period less than 50% in value of the stock was held directly or indirectly by
foreign persons. The Trust currently is a "domestically-controlled REIT" and
anticipates continuing to be so classified, and therefore the sale of shares
should not be subject to taxation under FIRPTA. In addition, FIRPTA does not
apply to gain recognized upon a sale of shares of a class of the Trust's stock
regularly traded on an established market by a Non-U.S. Stockholder will be
subject to the same treatment as U.S. Stockholders with respect to such gain (a
stockholder that is a foreign corporation may also be subject to the 30% branch
profits tax), or (ii) the Non-U.S. Stockholder is a non residential alien
individual who was present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States, in which case the
nonresident alien individual will be subject to taxation under FIRPTA, the
Non-U.S. Stockholder will be subject to the same treatment as U.S. Stockholders
with respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals
and, in the case of foreign corporations, subject to the possible application of
the 30% branch profits tax).
Backup Withholding. The Trust will report to its domestic stockholders and
the IRS the amount of dividends paid during each calendar year, and the amount
of tax withheld, if any. Under the backup withholding rules, a stockholder may
be subject to backup withholding at the rate of 31% with respect to dividends
paid unless such holder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A stockholder that does not provide the Trust with his/her
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be credited against the
stockholder's income tax liability. In addition, the Trust may be required to
withhold a portion of capital gain distributions to any stockholders who fail to
certify their non-foreign status to the Company. See "-- Taxation of Foreign
Stockholders."
Other Tax Consequences
The Trust and its shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Trust and
its stockholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Trust.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION
The Trustees and Officers of the Trust have a fiduciary relationship to the
Trust's shareholders. Section 7.3 of the Declaration of Trust provides that no
Trustee, officer or agent of the Trust shall be personally liable to the Trust,
any shareholder, Trustee, officer or agent of the Trust "...on account of his
own acts, neglects and defaults..." except for such acts, neglects or defaults
as constitute "a willful breach of trust knowingly and intentionally committed
in bad faith." Section 7.4 of the Declaration of Trust requires that the Trust
indemnify its Trustees, officers, employees and agents against all liabilities
and expenses, including amounts paid in satisfaction of judgments, or in
compromise in the disposition of any action, suit or proceeding, whether civil
or criminal, actual or threatened, in which such person is involved. The
indemnity is subject to the condition that person sued, or threatened with suit,
be then acting as a Trustee, officer, employee or agent of the Trust, or,
thereafter, by reason of being or having been a Trustee, officer, employee or
agent of the Trust. The indemnity is also subject to two limiting exceptions.
First, no indemnification will be available to any person who has been
adjudicated to have acted: (i) in bad faith; or (ii) with willful misconduct; or
(iii) with reckless disregard of his duties; or (iv) in a grossly negligent
manner; or (v) not in good faith in the reasonable belief that his/her action
was in the best interests of the Trust. Second, as to any matter disposed of by
compromise, whether pursuant to a consent decree or otherwise, the Trust will
not provide indemnification for the compromise payment or any expenses unless
either: (i) the compromise shall be approved as being in the best interests of
the Trust by a majority of the disinterested Trustees; or (ii) the Trust shall
have received a written opinion of independent legal counsel to the effect that
the Trustee, officer, employee or agent appears to have acted in good faith in
the reasonable belief that his action was in the best interests of the Trust.
Such indemnification may be subject to certain limitations where claims under
securities laws violations are involved. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to the Trustees
and officers pursuant to the foregoing provisions or otherwise, the Trust has
been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In addition, indemnification may be limited by state securities
laws.
LITIGATION
Except as discussed below, no legal proceedings are pending against the
Trust other than actions for damages for personal injuries which are covered by
insurance.
In connection with the construction of Interstate Highway Route 287, the
State of New Jersey, by the Commissioner of the Department of Transportation,
initiated condemnation proceedings in the Superior Court of New Jersey, Law
Division. The State took possession of approximately 0.6 of an acre of the
Trust's Franklin Lakes Shopping Center property in Franklin Lakes, New Jersey.
Prior to the filing of the State's Complaint and the Declaration of Taking, the
State had offered the Trust the sum of $82,000 as just compensation for the
property actually taken for the highway project and as damages for the loss of
value of the remainder of the property. The Trust rejected the State's offer.
The State deposited the amount of the offer ($82,000) with the Court upon
commencement of the case. In accordance with New Jersey statutory procedure, the
Superior Court then appointed three (3) Condemnation Commissioners to fix the
compensation to be paid to the Trust for the lands taken. While proceedings
before the Commissioners were pending, the Trust was granted permission to
withdraw the $82,000 deposit, with accumulated interest. Subsequently, the Trust
received leave to withdraw an additional $58,000, with accumulated interest,
which had also been deposited by the State. Following hearings, the Condemnation
Commissioners rendered their Report on December 22, 1993. The Commissioners
found and concluded that the total sum of $200,000 should be paid to the Trust
as compensation. Both the Trust and the State appealed from the Commissioners'
Report. Prior to the trial of the case in the Superior Court of New Jersey, on
the appeals from the Commissioners' Report, the Trust and the State reached a
settlement on October 17, 1994. Pursuant to the settlement, the State agreed to
pay the Trust an additional $260,000 (for a total of $400,000) and to release a
filed utility easement encumbering lands with eight (8) potential parking
spaces. The Trust anticipates receiving payment during the first half of fiscal
1995. The Trust is responsible for the payment of fees for legal services
rendered and disbursements incurred in connection with the condemnation
proceedings. The amount of those fees has not yet been determined.
LEGAL MATTERS
Certain legal matters, including the legality of the Shares offered by this
Prospectus, will be passed on for the Trust by Chapman, Henkoff, Kessler, Peduto
& Saffer, Roseland, New Jersey. In addition, the description of Federal income
tax consequences contained in this Prospectus entitled "Federal Income Tax
Considerations" is based upon the opinion of Chapman, Henkoff, Kessler, Peduto &
Saffer.
EXPERTS
The combined financial statements of the Trust and Westwood Hills, L.L.C.,
as of October 31, 1994 and 1993 and for the years ended October 31, 1994, 1993
and 1992 and the related schedules incorporated by reference in this Prospectus
and in the Registration Statement have been audited by J.H. Cohn & Company,
independent public accountants, as set forth in their report also incorporated
by reference in this Prospectus and in the Registration Statement, and are
included in reliance upon such report given upon the authority of said firm as
experts in accounting and auditing.
The historical summaries of rental income and direct rental expenses of
Westwood properties, A Residential Apartment Complex, Westwood, New Jersey for
the years ended December 31, 1993 and 1992, incorporated by reference in this
Prospectus and in the Registration Statement, have been audited by J.H. Cohn &
Company, independent public accountants, as set forth in their report also
incorporated by reference in this Prospectus and in the Registration Statement,
and are incorporated in reliance upon such report given upon the authority of
said firm as experts in accounting and auditing.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distributions
Set forth below is an estimate of the fees and expenses to be incurred
in connection with the issuance and distribution of the Shares of beneficial
interest offered hereby.
Securities and Exchange Commission Registration Fee.................... $ 5,948
Blue Sky Fees and Expenses (including fees of counsel)................. 8,000
Legal Fees and Expenses................................................ 15,000
Accounting Fee......................................................... 3,500
Printing Costs......................................................... 10,000
Transfer Agent and Registrant Fees Miscellaneous Expenses.............. 2,500
-------
Total......................................................... $44,948
=======
Item 15. Indemnification of Directors and Officers.
Section 7.3 of the Declaration of Trust provides that no Trustee,
officer or agent of the Trust shall be personally liable to the Trust, any
shareholder, Trustee, officer or agent of the Trust "... on account of his own
acts, neglects and defaults..." except for such acts, neglects or defaults as
constitute a willful breach of trust knowingly and intentionally committed in
bad faith. Section 7.4 of the Declaration of Trust requires that the Trust
indemnify its Trustees, officers, employees and agents against all liabilities
and expenses, including amounts paid in satisfaction of judgments, or in
compromise in the disposition of any action, suit or proceeding, whether civil
or criminal, actual or threatened, in which such person is involved. The
indemnity is subject to the condition that person sued, or threatened with suit,
be then acting as a Trustee, officer, employee or agent of the Trust, or,
thereafter, by reason of being or having been a Trustee, officer, employee or
agent of the Trust. The indemnity is also subject to two limiting exceptions.
First, no indemnification will be available to any person who has been
adjudicated to have acted: (i) in bad faith; or (ii) with willful misconduct; or
(iii) with reckless disregard of his duties; or (iv) in a grossly negligent
manner; or (v) not in good faith in the reasonable belief that his/her action
was in the best interest of the Trust. Second, as to any matter disposed of by
compromise, whether pursuant to a consent decree or otherwise, the Trust will
not provide indemnification for the compromise payment or any expenses unless
either: (i) the compromise shall be approved as being in the best interests of
the Trust by a majority of the disinterested Trustees; or (ii) the Trust shall
have received a written opinion of independent legal counsel to the effect that
the Trustee, officer, employee or agent appears to have acted in good faith in
the reasonable belief that his action was in the best interests of the Trust.
Such indemnification may be subject to certain limitations where claims under
securities laws violations are involved. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to the Trustees
and officers pursuant to the foregoing provisions or otherwise, the Trust has
been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In addition, indemnification may be limited by state securities
laws.
Indemnification under the provisions of the Declaration of Trust is not
deemed exclusive of any rights, by indemnification or otherwise, to which a
Trustee or officer may be entitled under a resolution of shareholders or
Trustees, contract or otherwise.
<PAGE>
Item 16. Exhibits:
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Declaration
of Trust
3.2 Amendment #1 to the Amended and
Restated Declaration of Trust
5.1 Opinion of Chapman, Henkoff, Kessler,
Peduto & Saffer regarding legality of
securities being registered
8.1 Opinion of Chapman, Henkoff, Kessler,
Peduto & Saffer regarding tax
matters
10.1 Certificate of Formation of Westwood
Hills, L.L.C., dated May 3, 1994
10.2 Westwood Hills, L.L.C., Operating
Agreement dated as of May 31. 1994
10.3 Mortgage Note from Westwood Hill, L.L.C.,
to United Jersey Bank ($10.5 million)
dated June 2, 1994)
10.4 Agreement of Guaranty #1 by Robert S.
Hekemian and Samuel Hekemian in favor
of United Jersey Bank, dated June 2, 1994
($2 million)
10.5 Agreement of Guaranty #2 by First Real
Estate Investment Trust of New Jersey
in favor of United Jersey Bank, dated
June 2, 1994 ($2 million)
10.6 Credit Agreement between United Jersey
Bank and First Real Estate Investment
Trust of New Jersey ($20 million) dated
February 10, 1994
10.7 Revolving Credit Loan Note ($20 million to
United Jersey Bank) dated February 10,
1994
10.8 December 20, 1961 Management Agreement
between the Registrant and Hekemian & Co.,
Inc. (formerly known as S. Hekemian & Co.,
Inc.), a copy of which was filed as Exhibit
10 with Registration Statement - 2-19609,
which Exhibit is incorporated by reference
10.9 Amendment to Management Agreement dated May 8,
1963 which was filed as Exhibit 20 with
Registration Statement 2-48728, which Exhibit
is hereby incorporated by reference
23.1 Consent of J.H. Cohn & Company
23.2 Consent of Chapman, Henkoff, Kessler,
Peduto & Saffer (included in Exhibits
5.1 and 6.1)
24.1 Power of Attorney (included in Page
II-4)
99.1 Dividend Reinvestment and Share Purchase
Plan
99.2 Specimen Enrollment Form
<PAGE>
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted against
such Trustee, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement: provided however, that paragraph 1(i)
does not apply if the Registration Statement is on Form S-3
and the information required to be included in a
post-effective amendment by that paragraph is contained in
periodic reports filed by the Registrant pursuant to Section
13 or Section 15(d) of the Securities Exchange Act that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona- fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
<PAGE>
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual
report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated in the Registration
Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable ground to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hackensack, State of New Jersey, on the 31st day of
March, 1995.
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY
By:___________________________________
ROBERT S. HEKEMIAN, SR.
Chairman of the Board
By:___________________________________
WILLIAM R. DE LORENZO, JR.
Executive Secretary and
Treasurer
