1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from ____________ to __________
Commission File No. 2-27018.
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
(exact name of registrant as specified in its charter)
New Jersey 22-1697095
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 Main Street, P.O. BOX 667
Hackensack, New Jersey 07602
(Address of principal executive offices) (Zip Code)
Registrant's telephone no., including area code: 201-488-6400
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check made whether the registrant:
(1) Has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or shorter
period that the registrant was required to file such reports); and
(2) Has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark, if disclosure of delinquent filers pursuant to Item 405
of Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in this Form 10-K or any amendment to this Form 10-K.
[ X ]
Aggregate market value of the voting stock held by nonaffiliates
of the Registrant as of December 31,1996 - $20,413,000
Number of Shares of Common Stock outstanding as of
December 31, 1996 - 1,559,788
DOCUMENTS INCORPORATED BY REFERENCE
(To the Extent Indicated Herein)
<PAGE>
TABLE OF CONTENTS
PART I
ITEM 1 GENERAL DEVELOPMENT OF BUSINESS
(A) Organization and Background
(B) Financial Information about Industry Segments
(C) Narrative Description of Business
(1) Principal Activity
(2) Investment Portfolio
(3) Sources of Capital Funds
(4) Patents, Trademarks
(5) Seasonability of Business
(6) Inventory
(7) Dependence on Single Tenant (Customer)
(8) Backlog
(9) Government Contracts
(10) Competitive Conditions
(11) Research and Development Activities
(12) Impact of Governmental Laws and Regulations on
Registrant's Business
(13) Employees
(D) Financial Information about Foreign and Domestic
Operations and Export Sales
ITEM 2 DESCRIPTION OF THE PROPERTY
(A) Portfolios of Investments
APARTMENT PROJECTS
SHOPPING CENTERS
VACANT LAND
COMMERCIAL PROPERTY
(B) Description of Mortgage Liens filed as against
Registrant's Investment Properties
(a) Properties owned by Registrant which secure real
property mortgages
(i) Spring Lake Heights, New Jersey
(ii) Westwood, New Jersey
(iii) Frederick, Maryland
(b) Registrant's Line of Credit
(c) Westwood Hills, LLC
ITEM 3 LEGAL PROCEEDINGS
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
ITEM 6 SELECTED FINANCIAL DATA
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(A) Liquidity and Capital Resources
(a) Overview
(b) Results of Operations
(c) Liquidity and Capital Resources
(d) Capital Strategy
(e) Economic Conditions
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9 CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
(A) Identification of Trustees
(B) Identification of Executive Officers
(C) Identification of Certain Significant Employees
(D) Identification of Certain Significant Family
Relationships
(E) Business Experience
(F) Involvement in Certain Legal Proceedings
ITEM 11 EXECUTIVE COMPENSATION
(A) OFFICERS
(B) TRUSTEES
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(D) Security Ownership of Certain Beneficial Owners and
Management
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) Transactions with Management and others
(B) Certain Business Relationships
(C) Indebtedness of Management
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(D) Transactions with Promoters
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
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<PAGE>
PART I
ITEM 1 GENERAL DEVELOPMENT OF BUSINESS
(A) Organization and Background
Registrant, First Real Estate Investment Trust of New Jersey, is an
unincorporated business trust organized in New Jersey pursuant to a Trust
Agreement dated November 1, 1961, as amended and restated as of November 7, 1983
(the "Declaration of Trust"). Registrant is an equity real estate investment
trust engaged in the business of acquiring and holding real estate including
shopping centers, apartment complexes and commercial properties. In addition,
the Registrant has purchased vacant land for future development. It is the
policy of Registrant to purchase real property for investment and not for resale
or turnover. The Registrant has operated in accordance with the above stated
general policy since its inception. In the future, the Registrant may purchase
additional properties on a joint venture basis in those situations where it can
maintain appropriate management control. In addition, Registrant may in the
future seek to purchase properties and to develop properties utilizing more
financing from third party institutional sources than it has in the past.
The Registrant has elected and conducts its operations in a manner
intended to comply with the requirements for qualification as a real estate
investment trust ("REIT") pursuant to the Real Estate Investment Act of 1960.
(Sections 856-860 of the Internal Revenue Code of 1986, hereinafter referred to
as the "Code"). Under the Code, a REIT which meets certain requirements is not
subject to federal income tax on that portion of its taxable income which is
distributed to its shareholder provided at least 95% of its REIT taxable income,
excluding any net capital gain, is so distributed.
Under its Declaration of Trust, the Registrant is permitted to invest
in a broad range of real estate investments and non-real estate investments,
including full or participating interest in securities, whether or not secured
by mortgages, rents and lease payments and the ownership of any other interests,
including equity interest, related to real property. The investment power
permits the Registrant to generate income of the types permitted to be received
by REITs under Section 856 of the Code. Registrant's Declaration of Trust
permits it to conduct its business operations without qualifying as a REIT.
Nevertheless, it is the Registrant's intention to continue to qualify as a REIT.
All of the Registrant's properties are managed by Hekemian & Co., Inc.
under a management and brokerage agreement dated December 20, 1961, as amended
by an Amendment dated May 8, 1963 (the "Management Contract").
(B) Financial Information about Industry Segments
The Registrant is engaged in one industry segment, the investment and
management of real property. The revenue and profits from the Registrant's
operations are as set forth in the Financial Statements annexed hereto.
(C) Narrative Description of Business
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(1) Principal Activity. The principal activity of the Registrant is to
purchase real property, improved and unimproved, primarily for investment and
not for resale. The Registrant is formed as a REIT under the Code which provides
investors in the Registrant's shares the opportunity to participate in
diversified properties consisting, primarily, of income producing apartment
complexes and shopping centers. The Registrant does own vacant property which
yields no income.
(2) Investment Portfolio. The Registrant's real estate assets as of
October 31, 1996, consisted of 15 properties all of which are wholly owned by
the Registrant. In addition, the Registrant holds a 40% percent interest in
Westwood Hills, a New Jersey Limited Liability Company (sometimes hereinafter
referred to as the "Westwood Hills, LLC" or the "LLC") which owns a 210 unit
apartment complex in Westwood, New Jersey (the "Westwood Hills Apartments").
(a) Real Property Investments. The following table sets forth certain
information concerning Registrant's real estate held as of October 31, 1996:
<TABLE>
<CAPTION>
Depreciated
Square Feet, Cost of
Apartment Units Buildings &
Real Estate No. of or Acreage Equipment
Investments Properties of Vacant Land (000's)
- ----------- ---------- -------------- -------
<S> <C> <C> <C>
Apartment
Properties ............ 8(1) 639 Units $ 5,594
Commercial
Property .............. 1 4,800 sq. ft. $ 25
Shopping
Centers ............... 3 461,448 sq. ft.(2) $38,931
Unimproved
Land .................. 3 62.39 Acres(3) $ 2,472
- --------
1 Exclusive of Westwood Hills, LLC described in Item 1 C (2) hereof.
2 Includes 33,320 square feet of leasable space at the present Franklin Lakes
Shopping Center, Franklin Lakes, New Jersey (the "Franklin Lakes Shopping
Center") which is presently being demolished; does not include the 88,000
square feet of leasable space at the new center to be constructed at
Franklin Lakes, New Jersey as described in Item (C)(d)(ii) hereof at Page
8; does not include the approximately 63,932 square feet of leasable space
which the Registrant anticipates it will complete the purchase of located
in Patchogue, New York as described in Item 1 (C)(d)(i) hereof at Pages 7 -
8.
3 Includes unimproved land contiguous to Franklin Lakes Shopping Center.
</TABLE>
The Registrant's mortgage indebtedness relating to the real property
investments described above were approximately $23,609,000 as of October 31,
1996 consisting of three mortgages as described in Item 2 (B)(a) hereof at Pages
20 and 21.
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<PAGE>
(b) Investment in LLC. The following table sets forth certain
information concerning the Registrant's interest in the Westwood Hills, LLC.
<TABLE>
<CAPTION>
Depreciated
Investments Number of Cost of
Other Number of held by Apartment Buildings &
Investments Properties Registrant Units Equipment
----------- ---------- ---------- ----- ---------
(000's)
<S> <C> <C> <C> <C>
Westwood Hills,
New Jersey
Limited Liability
Company 1 40% 210 $14,928,000.00
</TABLE>
Registrant purchased a forty (40%) percent interest in Westwood Hills,
LLC in June, 1994.
The LLC is subject to a mortgage in the amount of $10,500,000 having a
current principal balance, as of October 31, 1996, of approximately $10,346,000
as described in Item 2 (B)(c) at Pages 21 and 22 hereof.
The Registrant is the managing member of Westwood Hills, LLC.
(c) Other Investments. The Registrant does not hold any mortgage note
receivables.
The Registrant is engaged in no business other than as herein
described.
(d) New Investment and Development of Present Property.
(i) Contract to Purchase Shopping Center
The Registrant has entered into a Contract to purchase 8.775 acres of
land located in the Hamlet of Patchogue, Township of Brookhaven, Suffolk County,
New York (the "Land") for the purchase price of $10.4 million (the "Patchogue
Shopping Center"). Registrant estimates that closing costs will be $600,000. As
a result, the total costs of the new center will be approximately $11 million.
There is presently being constructed on the land a food supermarket consisting
of approximately 63,932 square feet of space (the "Store") which has been leased
to a major food supermarket operator.
It is anticipated that the Store will be constructed and open for
operations in the Spring of 1997. The Registrant will complete the purchase only
after the Store is ready to open to the public.
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<PAGE>
At the time of the closing for the Patchogue Shopping Center, the
Registrant expects to borrow approximately seventy-five (75%) percent of the
purchase price or $8,250,000. Registrant anticipates that any such financing
shall be secured by a first mortgage. The mortgage may, however, be secured by
either the Patchogue Shopping Center or other properties owned by the Registrant
subject to securing a release or other compliance with the terms of the Line of
Credit (See Item 1(C)(3) hereof at page 8 and Item 1(C)(10)(f) at page 12. The
balance of the funds required for closing will be secured through the
Registrant's line of credit with Summit Bank (hereinafter described in Item
1(C)(3) at Page 8).
(ii) Development of Present Property
In addition to the acquisition of the Patchogue Shopping Center the
Registrant has closed the Franklin Lakes Shopping Center as of November 1, 1996.
The present shopping center, consisting of approximately 33,320 square feet was
in the process of being demolished as of December 1, 1996.
The Registrant has secured all governmental approvals required to
construct a new center at its Franklin Lakes, New Jersey property. The new
center will consist of approximately 88,000 square feet of leasable space.
The Registrant has leased approximately 42,000 square feet of the
proposed new center to a major food supermarket operator. No other space at the
new center has been leased as of January 1, 1997.
Construction of the new center will begin during January or February
1997, weather permitting. It is expected that the new center will be open to the
public sometime during the Fall of 1997. Registrant anticipates that
construction will take approximately six (6) months to complete once
construction begins.
The Registrant anticipates that the new center will cost approximately
$10.0 million to construct including all site improvements. It is the intention
of the Registrant to secure a mortgage representing approximately 75% of the
fair market value of the new center with the balance of the required funds being
secured by drawing down on its credit line with Summit Bank. Registrant
anticipates that it will apply for a $10 million mortgage to fund the costs of
the new center. Any such mortgage will be subject to the terms of the credit
line (hereinafter described in Item 1(C)(3) at Page 8 hereof).
(3) Sources of Capital Funds
The Registrant relies upon its line of credit with Summit Bank, the
successor to United Jersey Bank ("UJB"), in the amount of $20 million as a
primary source of funds to meet operational and investment needs (the "Line of
Credit").
The Line of Credit was originally negotiated with UJB in July of 1994.
The Line of Credit will expire by its terms on February 10, 1997. The Registrant
anticipates, however, that Summit Bank will extend the Line of Credit for an
additional period of time on terms similar to those presently in place.
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<PAGE>
In accordance with the provisions of Section 2.03 of the Line of Credit
and subject to a $20 million limitation on all advances, Summit Bank will make
available to the Registrant 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
Registrant's acquisition of real estate and capital improvements. The real
estate acquisition advances are subject to certain limitations and requirements.
In accordance with Section 2.02(b) and Section 6.09 of the Line of
Credit, the Registrant 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 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 Line of Credit prohibits the Registrant from incurring any additional
secured or unsecured indebtedness (other than trade payables), except for the
refinancing of existing mortgages, 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 Registrant currently meets all of the standards set forth in the
Line of Credit and anticipates that it will continue to meet all such standards
in the future.
Advances under the Line of Credit up to and including $10 million in
the aggregate bear interest, at the election of the Registrant at either (a)
Summit Bank's variable Base Lending Rate, as announced from time to time; or (b)
(i) the average if 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 proceeding the advance date (round upward to the near whole
multiple of 1/16 of 1% per annum) divided by (ii) a percentage equal to 100%
less than 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 $10,000,000.00
will bear interest at Summit Bank's Base Lending Rate plus one half of one
percent (1/2%) or at the LIBOR Based plus 250 basis points (2.5%). At the
closing, the registrant 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 Line of Credit, as of October 31, 1996, was $5,662,000 with an
applicable interest rate of 7.875%. The interest rate, as of December 31, 1996,
remained at 7.875%.
(4) Patents, Trademarks
The Registrant holds no patents, trademarks, licenses, franchises or
concessions, none of which are material to the business of the Registrant.
(5) Seasonability of Business
Registrant's business is not seasonal.
(6) Inventory
Registrant's business does not require the maintenance of inventory.
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<PAGE>
(7) Dependence on Single Tenant (Customer)
The Registrant's business is not materially dependent upon a single
tenant or a few tenants. No single tenant occupies more than 10% percent of the
Registrant's total holdings. Registrant does own a single Tenant building
located in Glen Rock, New Jersey consisting of 4,800 square feet of leasable
space which is presently leased through January 31, 2000. Registrant does not
consider the Glen Rock holding to be significant in terms of its total
investment portfolio.
(8) Backlog
Information concerning backlog is not material nor relevant to an
understanding of the Registrant's business.
(9) Government Contracts
None of the registrant's holdings are leased to either the Federal or
any State Governments or to any subdivision thereof.
(10) Competitive Conditions
The Registrant is subject to normal competition with other investors to
acquire real property and to profitably manage such property.
Numerous other REIT(s), banks, insurance companies and pension funds,
as well as corporate and individual developers and owners of real estate,
compete with the Registrant in seeking properties for acquisition, tenants and
properties, together with land for development. During the past several years,
the Registrant 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 Registrant had historically sought to
include in its portfolio. As a result, the Registrant has encountered increasing
competition for investment grade real estate from other entities and persons
which have investment objectives similar to those of the Registrant. Such
competitors may have significantly greater financial resources, 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 Registrant's shopping centers face
increasing competition from discount shopping centers, outlet malls, catalogues,
discount shopping clubs, marketing through cable and computer sources and
telemarketing. In many markets, the trade areas of the Registrant's shopping
center properties overlap with the trade areas of other centers. Renovations and
expansions at those competing malls could negatively affect the Registrant's
shopping center properties by encouraging shoppers to make their purchases at
the expanded or renovated competing center. Increased competition could
adversely affect the Registrant's revenues. New retail real estate competition
could be developed in the future in trade areas that could adversely affect the
revenues of the Registrant's shopping center properties.
(a) General Factors Affecting Investment in Shopping Centers
and Apartment Complex Properties; Effect on Economic and
Real Estate Conditions
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<PAGE>
The revenues and value of shopping centers and apartment complex
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 closing, 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 the number of competing shopping 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 government regulations, such as
limitations on hours of operation, changes in tax laws or rates and potential
environmental or other legal liabilities.
(b) Shopping Center Properties Dependence on Anchors Stores
and Satellite Tenants
The Registrant's income and funds available for distribution would be
adversely affected if space in the Registrant's shopping center properties could
not be leased or if anchor store tenants or satellite tenants failed to meet
their lease obligations. The success of the Registrant's investment in the
shopping center properties is dependent upon the success 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 Registrant's investments in the shopping center properties . If
the sales of stores operating in the Registrant's shopping center properties
were to decline due to deteriorating economic conditions, tenants may be unable
to pay their base rents or meet other lease charges and fees due Registrant. In
the event of default by a tenant, the Registrant might suffer a loss of rent and
experience extraordinary delays while incurring additional costs in enforcing
its rights as landlord.
(c) Renewal of Leases and Reletting of Space
(i) There is no assurance that the Registrant will be able to retain
tenants in its shopping centers upon expiration of their leases. The Registrant
will be subject to the risks that, upon expiration of leases for space located
in the Registrant'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. If the Registrant were unable to
promptly relet all or a substantial portion of this space or if the rental rates
upon such reletting were significantly lower than expected rates, the
Registrant's net income and ability to make expected distribution to
shareholders may be adversely affected.
(ii) There are no leases which Registrant considers material or
significant in terms of any single property or Registrant's portfolio which
expire during fiscal year 1997.
(d) Illiquidity of Real Estate Investments; Possibility that
Value of the Registrant's Interests may be less than its
Investment
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<PAGE>
Equity real estate investments are relatively illiquid. Therefore, the
ability of the Registrant to vary its portfolio in response to changed economic,
market or other conditions is limited. Beyond general illiquidity, the
Registrant's interest in Westwood Hills, LLC is also subject to transfer
constraints imposed by the Operating Agreement for the Limited Liability Company
and by the fact there is a limited market for the Registrant's interest in the
Limited Liability Company. Transfer of Registrant's interest in the Westwood
Hills, LLC is further restricted by the fact that the interest in the Limited
Liability Company was not registered pursuant to any applicable Federal or State
Securities Laws.
If the Registrant were compelled to liquidate its real estate and its
holding in Westwood Hills, LLC, the value of such assets would also likely be
diminished if a sale of all or substantially all of the assets of the Registrant
was required in a limited time frame. The proceeds to the Registrant from the
sale of such assets might be less than the Registrant's current investment in
those assets.
(e) Inability to Obtain Financing
The Registrant may or may not be able to obtain financing for
improvements, capital expenditures, acquisitions, development of its properties
or expansion thereof on terms which are acceptable to the Registrant. In such
event, Registrant might elect to defer such projects rather than to proceed on
terms which are unfavorable.
(f) Leverage; No Limitation on Debt; Possible Inability to
Refinance Balloon Payments on Mortgage Debt
The Registrant has incurred and may continue to incur, indebtedness
(secured and unsecured) in furtherance of its activities. Except for
Registrant's vacant lands together with and the shopping centers located in
Westwood, New Jersey and Frederick, Maryland, there is a blanket mortgage lien
covering all of the Registrant's apartment properties and retail/commercial
properties as a result of the Line of Credit. (See Item 2(B)(b) at Page 21
hereof). Neither the Declaration of Trust or 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 Registrant) which may be incurred. The Board of Trustees of the
Registrant has decided to increase the level of debt which the Registrant will
sustain over the level of indebtedness in the past. As described in Item 1(C)(d)
(i) and (d) (ii) at Page 7 hereof, the Registrant intends to purchase the
Patchogue Shopping Center and to construct a new shopping center at its Franklin
Lakes, New Jersey property utilizing mortgage funding which will be equal to
approximately seventy-five (75%) of the market value of the properties as
determined by the lending institution or institutions subject to certain
restrictions set forth in the Line of Credit (see Item 1(C) (3) at Page 8
hereof) which mortgage for the Patchogue Shopping Center may not necessarily be
filed against the Patchogue New York property all as described in Item
1(C)(d)(i) at page 7 hereof. As a result, the Registrant will be more highly
leveraged, than it has been in, at least, the past two (2) years, resulting in
an increased risk of default on the obligations of the Registrant and in an
increase in debt service requirements that could adversely affect the financial
condition and results of the operations of the Registrant.
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<PAGE>
The Registrant 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 Line of Credit could negatively affect the Registrant's
cash available for distribution. If the Registrant defaults on any loan secured
by a mortgage or mortgages on its property or properties, the lenders may
exercise their remedies, including foreclosure on such property or properties.
In that event, the Registrant 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 Registrant's properties
declines. If any such decline occurs, the Registrant's income and funds
available for distribution would be adversely affected.
As discussed in Item 2 B at Pages 20 - 22, the Registrant has not
established a cash reserve sinking fund and does not expect to have sufficient
funds from operations to make the balloon payments when due under the terms of
the mortgages for its shopping centers located in Frederick, Maryland and
Westwood, New Jersey. Both of the mortgages for said shopping centers are
significant and are described in Item 2 (B) Pages 20 and 21 hereof. In addition,
Registrant holds a 40% percent interest in the Westwood Hills, LLC which owns
the Westwood Hills Apartment Complex. The LLC has, similarly, made no provision
to reserve funds to pay the USG Mortgage when its balloon payment is due in
2002. The Registrant and the LLC intend to refinance such debt at or before
maturity.
There can be no assurance, however, that the Registrant or the Westwood
Hills, LLC will be able to refinance such indebtedness or to refinance the
properties on terms which are as favorable as the current mortgages. An
inability to make such balloon payments when due would permit the mortgage
lender to foreclose on such properties, which could have a material adverse
effect on the Registrant. Registrant is confident, however, based upon the
Registrant's financial resources and assets and the present market conditions,
that it will be able to refinance such indebtedness on terms which are
satisfactory. 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.
In addition, the Line of Credit which the Registrant depends upon to
provide financing expires by its terms on February 10, 1997. Registrant is
confident that the Line of Credit will be extended. In the event, however, the
Line of Credit was not extended, the Registrant could not meet its present
obligation to purchase the Patchogue Shopping Center and complete the
construction of the new center at its Franklin Lakes, New Jersey property
without: (a) securing an alternate Line of Credit; (b) securing a substantial
amount of capital through private or institution sources whether secured or
unsecured; or (c) secure additional capital through a stock offering.
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Realization of any of the foregoing contingencies could have a material
adverse effect on the Registrant's net income and/or financial condition. The
Registrant believes that a risk of mortgage default to be minimal, however,
since it could draw upon its Line of Credit, issue additional shares of stock
and mortgage other properties which are currently mortgage free to cover any
refinance difficulties for the specific properties provided, however, Summit
Bank agreed to: (a) release of such property from its Line of Credit or (b)
subordinate its Line of Credit to any such refinancing.
(11) Research and Development Activities
Registrant conducts no research activities relating to the development
of new products.
(12) Impact of Governmental Laws and Regulations on Registrant's
Business
In recent years, both federal and state governments have become
increasingly concerned with the impact of real estate construction and
development programs upon the environment. Environmental legislation affects the
cost of selling real estate, the cost to develop real estate and the risks
associated with purchasing real estate.
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 owners knew of, or were responsible
for, the presence or disposal of such substances. Such liability may be imposed
on the owner in connection with the activities of any 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 therefore 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 Registrant's revenues and ability to make distributions.
A property can also be negatively impacted by either 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 full impact of these environmental laws on the Registrant's
operations cannot be fully assessed at this time. Nevertheless, the Registrant
is aware of the following environmental matters affecting its properties:
(a) Vacant Land Located in Rockaway Township, N.J.
- 14 -
<PAGE>
The property located in Rockaway Township contains wetlands and
associated transition areas. Pursuant to New Jersey law, transition areas may
not be developed. The registrant has not formally determined the full impact
that the wetlands and associated transition areas will have on the development
of the property, pursuant to applicable laws and regulations of New Jersey.
However, it is believed that future development of the property will not be
substantially restricted as a result of the presence of wetlands and the
associated transition areas.
Under the current zoning ordinances, the property can be developed for
residential use only. Registrant has no present plan to develop the property.
Any development would be subject to all then applicable governmental rules and
regulations.
(b) Vacant Land Located in South Brunswick, N.J.
The Registrant owns thirty-three (33) acres of land located in South
Brunswick, New Jersey which is presently leased to third parties for farm
purposes (the "South Brunswick Property").
The South Brunswick Property is situated adjacent to the J.I.S.
Landfill (the "Landfill") which is listed on the National Priority List for
cleanup activities under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980. The Landfill has been the subject of both State and
Federal environmental cleanup efforts. Registrant has verified that there is no
present evidence that the South Brunswick Property has been negatively impacted
by the migration of contaminants from the Landfill. The groundwater below the
South Brunswick Property is, however, the subject of State supervised cleanup
efforts.
The Registrant does not believe that future development of the South
Brunswick Property will be limited by the cleanup effort since the groundwater
is not the source of drinking water at the site. Any development would, however,
be subject to an environmental audit which would include an inquiry into the
level of pesticides present because of its current farm use. No such
environmental audit has been conducted.
(c) Westwood Plaza Shopping Center, Westwood, N.J.
This property is in a HUD Flood Hazard Zone and serves as a local flood
retention basin for part of Westwood. The Registrant does not maintain flood
insurance for the subject property. Any reconstruction of that portion of the
property situated in the flood hazard zone is subject to regulations promulgated
by the New Jersey Department of Environmental Protection ("NJDEP") which may
require extraordinary construction methods.
(d) Franklin Lakes Shopping Center, Franklin Lakes, N.J.
This property contains wetlands and associated transition areas.
However, the location of all such areas has been determined by the Registrant
and NJDEP and will not impair the development of the property as described in
Item 1 C (d)(ii) at Page 7 hereof.
(e) Other
- 15 -
<PAGE>
The State of New Jersey has adopted an underground fuel storage tank
law and various regulations which impact upon the Registrant's responsibilities
with respect to underground storage tanks maintained on its properties. The
Registrant does have underground storage tanks located on two (2) of its
properties used in connection with heating of apartment units.
The Registrant periodically visually inspects the location of each
underground storage tank for evidence of any spills or discharges. Based upon
the foregoing, the Registrant knows of no underground storage tanks which are
discharging material into the soil at the present time. Current state law does
not require the Registrant to submit its underground storage tanks to tightness
testing. The Registrant has conducted no such tests.
The Registrant has not conducted environmental audits for any of its
properties except for its shopping center located in Frederick, Maryland.
Westwood Hills, LLC did conduct a full environmental audit prior to its purchase
of the Westwood Hills Apartment Complex. A full environmental audit has been
conducted in connection with the contemplated purchase of the Patchogue Shopping
Center.
(13) Employees
Registrant, as of October 31, 1996, has no full-time employees. The
Registrant has eight (8) Trustees and one (1) Executive Secretary/Treasurer who
are not full-time employees.
- 16 -
<PAGE>
Hekemian & Co., Inc. ("Hekemian & Co.") is employed by the Registrant
as its managing agent, pursuant to the Management Contract. A number of Hekemian
& Co. employees are actively engaged in the management of Registrant's
properties pursuant to Hekemian & Co., Inc.'s duties as managing agent. In
addition, Hekemian & Co. employs various superintendents and other personnel who
perform various services at the Registrant's properties. Pursuant to the
Management Contract the Registrant reimburses Hekemian & Co. for salaries,
hospitalization, workmen's compensation insurance and payroll taxes for
superintendents and other staff, including secretarial staff, for work
associated with its properties.
(D) Financial Information about Foreign and Domestic Operations and
Export Sales
Registrant does not engage in operations in foreign countries and it
does not derive any portion of its sales or revenues from customers in foreign
countries.
ITEM 2 DESCRIPTION OF THE PROPERTY
(A) Portfolios of Investments
The following chart sets certain information relating to each of the
Registrant's investments. In addition to the specific mortgages which may be
indicated below, the Registrant's property, except all vacant land together with
the shopping centers located in Westwood, New Jersey and Frederick, Maryland and
the Registrant's 40% interest in Westwood Hills, LLC are subject to a lien from
Summit Bank for the Line of Credit in the face amount of $20 million.
<TABLE>
<CAPTION>
APARTMENT PROJECTS
Mortgage
Occupancy Balance or
Property and Year No. of Rate as of Bank Loan
Location Acquired Units 10/31/96 (000's)
- -------- -------- ----- -------- -------
<S> <C> <C> <C> <C>
Lakewood Apts.
Lakewood, N.J. 1962 40 96.1% None
Palisades Manor
Palisades Pk., N.J. 1962 12 94.7% None
Grandview Apts.
Hasbrouck Heights,
N.J. 1964 20 94.1% None
Heights Manor
Spring Lake Heights,
N.J. 1971 79 97.6% $222
Hammel Gardens 1972 80 95.5% None
Maywood, N.J.
Sheridan Apts.
Camden, N.J. 1964 132 91% None
- 17 -
<PAGE>
<CAPTION>
Mortgage
Occupancy Balance or
Property and Year No. of Rate as of Bank Loan
Location Acquired Units 10/31/96 (000's)
- -------- -------- ----- -------- -------
<S> <C> <C> <C> <C>
Steuben Arms
River Edge, N.J. 1975 100 97.1% None
Berdan Court
Wayne, N.J. 1965 176 94.4% None
Westwood Hills,
LLC(4) 1994 210 97.2% $10,346
(4) Registrant holds a forty (40%) percent interest in the Westwood Hills, LLC.
</TABLE>
The above listed apartment properties are subject to various rent
control ordinances summarized as follows:
Rent Control Ordinance Summary
Wayne: (Berdan Court)
Renewals based on CPI figures given monthly by Township. Full
vacancy decontrol.
Hasbrouck Heights: (Grandview Apartments)
Renewals based on five (5%) percent annual increase. Full
vacancy decontrol.
Maywood: (Hammel Gardens)
Renewals based on 4.25% annual increase. Partial decontrol based
on highest rent for similar type apartment.
Spring Lake Heights: (Heights Manor)
Renewals based on a 3.5% annual increase until September 1,
1997, thereafter a 4.5% annual increase is permitted. Full
vacancy decontrol.
Lakewood: (Lakewood Apartments)
Renewals based on a 6.5% annual increase.
Palisades Park: (Palisades Manor)
All leases which are renewed may be increased by four (4%)
percent on an annual basis. In addition, Registrant may lease
any unit which is vacated to a new tenant at the higher of (a)
the then current rent received for a similar unit; or (b) an
increased rent based upon four (4%) above the last rent charged
for such unit.
- 18 -
<PAGE>
Camden: (Sheridan Apartments)
Renewals based on Consumer Price Index with a maximum six (6%)
percent annual increase. In the event of a vacancy, the Landlord
is permitted to increase the rent of the vacant unit to the
highest rent then being charged in the apartment complex.
River Edge: (Steuben Arms)
Renewals based on a four (4%) percent annual increase. Full
vacancy decontrol.
Westwood: No rent control is in effect.
<TABLE>
<CAPTION>
SHOPPING CENTERS
Mortgage
Occupancy Balance or
Property and Year Square Rate as of Bank Loan
Location Acquired Feet 10/31/96 (000's)
- -------- -------- ---- -------- -------
<S> <C> <C> <C> <C>
Franklin Lakes,
N.J. 1966 33,320 14.1%(5) None
Westwood, N.J. 1988 173,854 99.2% $ 5,319
Frederick,
Maryland 1992 254,274 98.7% $18,068
Patchogue,
New York 1997(6) N/A N/A N/A
- --------
5 The Franklin Lakes Shopping Center was effectively closed for operations on
or about November 1, 1996. The demolition of the present center commenced
in December 1996. Construction of the new center is scheduled to commence
during January or February, 1997 weather permitting with a projected
completion date of during the Fall of 1997, all as more particularly
described in Item 1(C)(d)(ii) at Page 8.
6 The Registrant intends to complete the purchase of 63,932 square feet food
supermarket on a 8.775 acre parcel of land located in Patchogue, New York
during the Spring of 1997 all as more particularly described in Item
1(C)(d)(i) at Page 7.
</TABLE>
- 19 -
<PAGE>
<TABLE>
<CAPTION>
VACANT LAND
Mortgage
Acreage Balance or
Property and Current for Bank Loan
Location Acquired Use Parcel (000's)
- -------- -------- --- ------ -------
<S> <C> <C> <C> <C>
Franklin Lakes 1966 Contiguous
to Franklin
Lakes Shop-
ping Center
(Planned for
future
develop-
ment) 15.76 None
Rockaway 1964/1963 None 22.00 None
South Brunswick 1964 Leased as
farmland
qualifying
for state
farmland
assessment
tax
treatment 33 None
<CAPTION>
COMMERCIAL PROPERTY
Mortgage
Balance or
Commercial Year Square Bank Loan
Location Acquired Feet Tenant (000's)
- -------- -------- ---- ------ -------
<S> <C> <C> <C> <C>
Glen Rock 1962 4800 1 Tenant, None
100% of
Property
</TABLE>
(B) Description of Mortgage Liens filed as against Registrant's
Investment Properties
The Registrant has borrowed funds from various third party
institutional lenders which are secured by its investment properties, as
follows:
(a) Properties owned by Registrant which secure real property
mortgages.
The Registrant, as of October 31, 1996, owed a total of $23,609,000.00
which indebtedness was secured by the following described mortgages:
- 20 -
<PAGE>
(i) Spring Lake Heights, New Jersey. Spring Lake Heights is a
seventy-nine (79) unit apartment complex which secures a first mortgage
having a principal due as of October 31, 1996 of $222,000. The mortgage
is held by Summit Bank, the successor in interest to UJB. The mortgage
is self-liquidating and shall be paid, in full, as of April 1999. The
mortgage bears interest at the rate of 7 5/8% until April 1997 when the
interest will be reduced to 7.0% pursuant to the terms of the Mortgage
Note.
(ii) Westwood, New Jersey. The Westwood, New Jersey property is a
shopping center with approximately 173,854 square feet of leasable
space. The shopping center secures a first mortgage having a principal
balance due as of October 31, 1996 of $5,319,000. The mortgage is held
by Travelers Ins. Co., as successor to Aetna Life Insurance Company,
and bears interest at the rate of 10% per annum. The Mortgage Note
secured by the Mortgage is due February 1, 2003. At that time, there
will be a balloon payment due of $4,203,885. The Registrant has made no
provision to reserve cash to pay this indebtedness when it matures.
(See Item 1(C)(10)(f), Page 12).
(iii) Frederick, Maryland. The Frederick, Maryland property is a
shopping center with approximately 254,274 square feet of leasable
space. The shopping center secure a first mortgage having a principal
balance due as of October 31, 1996 of $18,068,000. The mortgage is held
by State Mutual Life Insurance Company ("State Mutual") and bears
interest at the rate of 9% per annum. The Mortgage Note secured by the
mortgage is due August 1, 1997. The Registrant has made no provision to
reserve cash to pay this indebtedness when it matures. The Registrant
has been advised that State Mutual has withdrawn from the mortgage
market and is not, therefore, willing to renew the mortgage. Registrant
is in the process of securing alternate financing sources for the
amount of the mortgage balance. Registrant is confident that a new
mortgage source will be identified prior to August 1, 1997.
(b) Registrant's Line of Credit
The Registrant has a $20 million Line of Credit with Summit Bank (See
Item 1 C (3) at Page 8 hereof). The Line of Credit is secured by a blanket
mortgage lien filed as against all of the Registrant's developed properties
except the Spring Lake Heights, Westwood, New Jersey and Frederick, Maryland
properties which support individual mortgages described above. In addition,
Summit Bank's mortgage lien has not been filed as against any of the vacant
property held by the Registrant in Rockaway, New Jersey and South Brunswick, New
Jersey.
(c) Westwood Hills, LLC
The Registrant holds a forty (40%) percent interest in Westwood Hills,
a New Jersey Limited Liability Company (the "LLC") which owns a 210 unit
apartment complex located in Westwood, New Jersey.
The Westwood Hills, LLC purchased the Westwood Hills Apartment Complex
in 1994 for a purchase price of $15,389,000.00 including closing costs. At the
time of the purchase, the LLC secured a short term mortgage in the amount of
$9,520,000.00 from United Jersey Bank.
- 21 -
<PAGE>
In September 1995 Westwood Hills, LLC refinanced Westwood Hills
Apartment Complex. A new mortgage in the amount of $10,500,000.00 was secured
from USG Annuity (the "USG Mortgage"). The USG Mortgage is for a term of seven
(7) years with a twenty- five (25) year payment, the interest rate is 7.80% per
annum. The principal balance of the mortgage is $10,346,000, as of October 31,
1996.
At the end of the seven (7) year term of the USG Mortgage, a
substantial balloon payment will be due in the amount of $9,230,965.00. The LLC
has made no provision to reserve cash to meet this balloon payment obligation.
(See, Liquidity and Capital Reserves). Westwood Hills, LLC intends to refinance
the apartment complex prior to the time the balloon payment is due on the then
prevailing terms and conditions which could be less than favorable than the
present mortgage terms and conditions.
ITEM 3 LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Registrant
is a party of which any of its properties is the subject. There are, however,
ordinary and routine litigation involving the Registrant's business including
various tenancy and related matters.
There are no legal proceedings concerning environmental issues with
respect to any property owned by the Registrant.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the Registrant's fourth quarter of fiscal year 1996.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS.
(A) The following tables set forth, for the periods indicated, are the
highest and lowest bid and asked quotations in the over-the-counter market
NASDAQ Bulletin Board. It should be noted that over-the-counter quotations
reflect inter-dealer prices, without retail markup, markdown or commission and
may not necessarily represent actual transactions. There is no established
public trading market, the trading is sporadic and in small volumes, all as set
forth below.
<TABLE>
<CAPTION>
Number of
Calendar Bid Prices Asked Prices Shares
Quarter High Low High Low Sold
- ------- ---- --- ---- --- ----
<S> <C> <C> <C> <C> <C>
1995
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 24 1/2 2,050
4th Quarter 23 22 24 23 5,169
- 22 -
<PAGE>
<CAPTION>
Number of
Calendar Bid Prices Asked Prices Shares
Quarter High Low High Low Sold
- ------- ---- --- ---- --- ----
1996
<S> <C> <C> <C> <C> <C>
1st Quarter 22 22 23 22 3/4 4,400
2nd Quarter 22 21 1/2 23 22 1/2 600
3rd Quarter 21 1/2 19 22 1/2 22 2,400
4th Quarter 21 7/8 21 1/2 22 1/2 22 6,200
</TABLE>
The source of the foregoing is Janney Montgomery Scott, Inc., members
of New York and other principal exchanges, 505 Main Street, Hackensack, New
Jersey.
(B) There is one class of stock of beneficial interest with no par
value. A total of 1,559,788. shares of beneficial interest outstanding at the
close of Registrant's last fiscal year ended October 31, 1996. As of December
31, 1996, the Registrant's shares where held by 393 Shareholders.
The computation of the number of holders of Registrant's shares of
beneficial interest was based upon a report of shareholders which was prepared
by the Registrant's transfer agent as of December 13, 1996 and has been updated
through December 31, 1996.
ITEM 6 SELECTED FINANCIAL DATA
As of or for the Year Ended October 31, 1996.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating data:
Rental revenue .... $ 13,678 $ 13,250 $ 11,162 $ 9,948 $ 8,465
Rental expenses ... 10,218 9,592 8,235 7,268 5,899
-------- -------- -------- -------- --------
Income from
rental operations . 3,460 3,658 2,927 2,680 2,566
Other Income ...... 7 5 5 4 136
-------- -------- -------- -------- --------
3,467 3,663 2,932 2,684 2,702
Other expenses .... (667) (754) (473) (389) (264)
Minority interest . (138) (123) (76)
Net income ........ $ 2,662 $ 2,786 $ 2,383 $ 2,295 $ 2,438
======== ======== ======== ======== ========
Total assets ...... $ 65,222 $ 65,535 $ 65,613 $ 51,356 $ 50,064
======== ======== ======== ======== ========
- 23 -
<PAGE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Long term
obligations ....... $ 33,955 $ 34,598 $ 34,019 $ 24,963 $ 25,341
======== ======== ======== ======== ========
Per share data
Earnings per share $ 1.71 $ 1.79 $ 1.53 $ 1.47 $ 1.56
======== ======== ======== ======== ========
Dividends per share $ 1.71* $ 2.53 $ 1.62 $ 1.56 $ 1.765
======== ======== ======== ======== ========
</TABLE>
* The dividend shown for 1996 includes the dividend paid in December 1996 of
$0.66 per share. This dividend was related to the earnings for fiscal year
1996 but was not paid out to Registrant's shareholders until December 1996.
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
(A) Liquidity and Capital Resources.
(a) Overview. The following discussion should be read in conjunction
with the Registrant's Financial Statements and Notes thereto appearing elsewhere
in this Form 10-K. Such financial statements and information have been prepared
to reflect the historical operations and financial condition of the Registrant.
(b) Results of Operations. Rental revenues for the fiscal year ended
October 31, 1996, were $13,678,000.00 as compared to $13,250,000.00 for the same
period in 1995. The rental expenses increased to $10,218,000.00 for 1996 as
compared to $9,592,000.00 for 1995.
The Registrant's net income for the fiscal year 1996 was $2,662,000.00
or $1.71 per share as compared to a net income of $2,786,000.00 for fiscal year
1995 or $1.79 per share.
The Registrant has continued to raise rents whenever possible
consistent with market conditions while maintaining its vacancy factors at
acceptable levels.
Operating expenses increased during fiscal year 1996 due, primarily, to
the cost for heating and snow removal. The Northeast endured a severe winter
during calendar year 1995-1996 with record snow falls. As a result, both heating
and snow removal costs were substantially increased over the same costs for
fiscal year 1995.
Registrant also took various writeoffs in fiscal year 1996 for accrued
rent together with other matters.
- 24 -
<PAGE>
In addition to the foregoing, the Registrant has been in the process of
closing the existing Franklin Lakes Shopping Center. As a result, during the
past several quarters, leases were not renewed and leasable space was left
vacant. The existing center has been closed as of November 1, 1996. The income
for the center was $29,635 for fiscal year 1996 as compared to $91,300 for
fiscal year 1995.
During the demolition and construction of the new Franklin Lakes
Shopping Center the costs of construction, including all interest on any
construction loan and real property taxes, will be incurred by the Registrant.
In accordance with generally accepted accounting principles, the costs will be
capitalized. As a result, Registrant's expenses during fiscal year 1997 will,
except for the period of time after October 31, 1996 (the last day of fiscal
year 1996) to the first day of construction (sometime during January or
February, 1997 weather permitting) will not be reflected in its expenses for
fiscal year 1997. The affect of the forgoing is that while expenses are being
incurred from a cash point of view, the items which would ordinarily be expenses
will be capitalized for fiscal year 1997.
(c) Liquidity and Capital Resources. Cash flows from operations, debt
financing and the sale of Registrant's Shares have been the principal sources of
capital used to fund the Registrant's property acquisitions and expansion.
The Registrant has a $20 million line of credit from Summit Bank that
may be used to finance the acquisition or development of additional properties
and for general business purposes. Borrowings under the Line of Credit bear
interest: (i) at a variable fluctuating rate equal to Summit Bank's Base Lending
Rate or at the LIBOR Based, plus 200 basis points (2.0%) on all borrowings up to
$10,000,000; and (ii) at Summit'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 October 31, 1996, the sum of
$5,662,000.00 was outstanding under the Line of Credit.
The Registrant may seek, under certain circumstances, to obtain funds
through additional equity offerings and/or debt financing (other than the Line
of Credit), 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
Registrant. 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 Registrant is unable to project
in a definitive manner what impact such economic conditions and prevailing
banking standards will have on the Registrant's ability to finance new
acquisitions.
The Registrant continues to make capital improvements to, primarily,
its apartment properties as it determines to be appropriate, including new
roofs, windows and kitchens. The short term impact of such capital outlays will
be to depress the Registrant's then current cash flow. The Registrant is now
experiencing the benefits of these expenditures by preserving the physical
integrity of its properties and securing increased rentals.
- 25 -
<PAGE>
Other than the apartment rehabilitation program described above, the
Registrant has made no commitments, and has no understandings for additional
capital expenditures except with respect to the re-development of the Franklin
Lakes Shopping Center and the purchase of the Patchogue Shopping Center
described in detail at Item 1(C)(d)(i) and (ii) at Pages 7 and 8 hereof.
i. Short Term Liquidity. The cash flow from operations has been
sufficient to meet all current operational needs of the Registrant.
Nevertheless, the commitment made by the Registrant to demolish and
erect the new Franklin Lakes Shopping Center and to purchase the
Patchogue Shopping Center will require the Registrant to secure a
permanent mortgage for each of the properties representing
approximately seventy-five (75%) of the costs to purchase the Patchogue
Shopping Center and to construct the new Franklin Lakes Shopping
Center. The balance of the funds required will be secured from the Line
of Credit. The cash flow from operations will not be sufficient to fund
the purchase of the Patchogue Shopping Center or to meet the cash
requirements for the construction of the new Franklin Lakes Shopping
Center.
ii. Long Term Liquidity. The Registrant anticipates that the cash flow
from operations after the purchase of the Patchogue Shopping Center and
construction of the new Franklin Lakes Shopping Center will be more
than sufficient to meet the new mortgagee obligations for each project.
Registrant also expects that the cash flow from operations will permit
the Registrant to pay down the Line of Credit over a period of time.
iii. 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. As a result of these
arrangements, the Registrant does not believe it will be responsible
for any major expenses in connection with such properties during the
lease term of any tenant. The Registrant anticipates entering into
similar leases with respect to the properties. After the lease term or
in the event a tenant is unable to meet its obligations, the Registrant
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
Registrant's cash available for distribution and liquidity may be
adversely affected.
iv. Registrant may also seek purchase money financing or institutional
financing, other than the Line of Credit, to finance any new
acquisitions in addition to the Patchogue Shopping Center and the
renovation of the Franklin Lakes Shopping Center as described in Item
1(c)(d)(i)(ii) at pages 7 and 8 hereof. As of December 31, 1996,
institutional money is available at relatively reasonable rates. The
Registrant may, as a result, seek to raise additional monies for
investment purposes, subject to the restrictions of the Line of Credit,
by securing mortgage financing on one or more of its properties. In
addition, Registrant may seek to refinance one or more of its
properties where mortgage financing is currently in place.
(d) Capital Strategy
- 26 -
<PAGE>
Since its inception in 1961, the Registrant has elected to be treated
as a REIT for Federal income tax purposes. The Registrant 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 Registrant generally intends to distribute not less than 95% of
net income.
Although the Registrant receives most of its rental payments on a
monthly basis, it intends to make regular quarterly dividend payment
distributions. The funds accumulated for dividend distributions may be invested
by the Registrant in short-term marketable instruments.
(e) Economic Conditions
The Registrant anticipates that the U.S. Mid-Atlantic states will
continue to experience moderate growth with limited inflation. Continued
economic strength in the employment market should allow the Registrant to
realize its current occupancy rates for its apartments with a sound support base
for its shopping center operations.
Any sustained inflation may, however, negatively impact Registrant in
at least two areas: (a) its Line of Credit is based upon a floating rate of
interest which would, if increased over the 7.875% interest rate as of December
31, 1996, result in increased costs of operations; and (b) Registrant will be
seeking two permanent mortgages to finance the purchase of the Patchogue
Shopping Center and to replace the present mortgage for its Frederick, Maryland
Shopping Center which is due as of August 1, 1997. In addition, Registrant will
also seek a construction and then a permanent mortgage for the new Franklin
Lakes Shopping Center. Any increase in mortgage interest rates would necessarily
increase the costs of operations during fiscal 1997.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements in accordance with the provisions of Regulation
S-K are annexed hereto.
ITEM 9 CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
There are no matters of disagreement on accounting and financial
disclosures as between the Registrant and J.H. Cohn, LLP required to be reported
pursuant to Regulation S-K. There has not been in either of the past two years
an adverse opinion or disclaimer of opinion, nor was any opinion qualified or
modified as to uncertainty, audit scope or accounting principles.
J.H. Cohn, LLP has acted as the Registrant's principal accountants and
auditors since December of 1991.
- 27 -
<PAGE>
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
(A) Identification of Trustees
<TABLE>
<CAPTION>
Expiration
Name Served Since Date of Term Age
- ---- ------------ ------------ ---
<S> <C> <C> <C>
Robert S. Hekemian 1980 May, 1999 65
Donald W. Barney 1981 May, 1998 55
John B. Voskian, MD 1968 May, 1999 72
Herbert C. Klein 1961 May, 1997 66
Nicholas A. Laganella 1969 May, 1997 78
Charles J. Dodge 1990 May, 1999 53
Alan L. Aufzien 1992 May, 1998 67
Ronald J. Artinian 1992 May, 1998 48
</TABLE>
(B) Identification of Executive Officers
<TABLE>
<CAPTION>
Name Served Since Position
- ---- ------------ --------
<S> <C> <C>
Robert S. Hekemian 1991 Chairman of the Board
John B. Voskian, MD 1968 Secretary
Donald W. Barney 1993 President
William R. DeLorenzo, Jr. 1974 Executive Secty./Treasurer
</TABLE>
All of the Officers of the Registrant serve at the pleasure of the
Board of Trustees.
The Officers devote the following proximate portions of their business
activities to the Trust:
<TABLE>
<CAPTION>
<S> <C>
Mr. Hekemian.........................10%
Mr. Barney...........................5%
Dr. Voskian..........................Less than 5%
Mr. DeLorenzo........................5%
</TABLE>
(C) Identification of Certain Significant Employees
Registrant has no employees. Hekemian & Co. serves as the managing
agent for the Registrant and manages all of its properties. Hekemian & Co.
retains the services of a number of individuals who work on a full or part time
basis in connection with Registrant's properties. The Registrant reimburses
Hekemian & Co. for certain expenses related to such employees. (See Item 1,
(C)(13) at pp. 16-17 hereof).
- 28 -
<PAGE>
(D) Identification of Certain Significant Family Relationships
Mr. Hekemian is the brother-in-law of Dr. Voskian. Mr. Barney was
formerly the brother-in-law of Mr. DeLorenzo. There are no other family
relationships between any other Trustees or Executive Officers.
(E) Business Experience
(1) Robert S. Hekemian - Mr. Hekemian is the Chief Executive Officer
and Chairman of the Board of Hekemian & Co. a real estate brokerage firm. He is
a director of Summit Bank. Summit Bank is a banking institution with principal
offices in Princeton, 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-two (42) years.
(2) Donald W. Barney - Mr. Barney is Vice President and Treasurer of
Union Camp Corporation, a Virginia corporation with executive offices in Wayne,
New Jersey; director of Ramapo Financial Corp. a New Jersey financial
institution located in Wayne, New Jersey and successor to Ramapo Bank. Mr.
Barney is also a partner and director of several real estate investment
companies, partnerships and corporations.
(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) Herbert C. Klein - Mr. Klein is a director of the law firm of
Hannoch Weisman located in Roseland, New Jersey and Washington, D.C. Mr. Klein's
practice is devoted to real estate, corporate matters and government relations.
Mr. Klein is a former member of the United States House of Representatives for
the 8th Congressional District of New Jersey. Mr. Klein was formerly a member of
the law firm of Klein Chapman. Mr. Klein is also a former member of the New
Jersey legislature. He is 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.
Mr. Klein is also a director and partner in a number of private real
estate companies.
(5) Nicholas A. Laganella - Mr. Laganella is the President of P.T. & L.
Construction Company and a real estate investor on his own account.
(6) 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.
(7) Alan L. Aufzien - Mr. Aufzien is a principal partner, Meadowlands
Basketball Association, t/a New Jersey Nets (Member of the National Basketball
Association), Chairman of New York Harbour 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.
(8) Ronald J. Artinian - Mr. Artinian is the Managing Director,
National Sales Manager at Smith Barney, Inc.
- 29 -
<PAGE>
(9) William R. DeLorenzo, Jr. - Mr. DeLorenzo is an attorney in private
practice as of counsel to the firm of Nowell Amoroso, P.A. His law office is
located in Hackensack, New Jersey. Mr. DeLorenzo is the former Chairman of the
New Jersey Commission on Capital Budget and Planning.
Directorships - Messrs. Klein, Hekemian, Laganella, Barney, Aufzien and
Artinian are Directors of closely held corporations and partnerships that own
real estate.
(F) Involvement in Certain Legal Proceedings
No Trustee or Officer of the Registrant has been the subject of a
petition in bankruptcy, criminal proceeding or order of a Court or governmental
agency barring him from participating in any commodities trading, security
transactions, type of business practice or any other practice set forth in
Section 229.401 subparagraph (f) of Regulation S-K.
ITEM 11 EXECUTIVE COMPENSATION.
Set forth below is a Summary Compensation Table for each of the
Registrant's Officers and Trustees for the past three fiscal years:
<TABLE>
<CAPTION>
Name and Executive (7)
Office Held Year Fees Committee Fee
- ----------- ---- ---- -------------
<S> <C> <C> <C>
A) OFFICERS
Robert S. Hekemian, 1996 5,000 None
Chairman 1995 5,000 None
President 1994 3,800 None
1993 3,800 None
1992 3,800 None
Donald W. Barney, 1996 5,000 None
President 1995 5,000 None
1994 3,800 None
1993 1,900 None
Herbert C. Klein, 1996 5,000 None
President 1995 None None
1994 None None
1993 None None
1992 3,800 None
John B. Voskian, 1996 5,000 None
Secretary 1995 None None
1994 None None
1993 None None
1992 None None
- 30 -
<PAGE>
<CAPTION>
Name and Executive (7)
Office Held Year Fees Committee Fee
- ----------- ---- ---- -------------
<S> <C> <C> <C>
William R. 1996 10,500 2,800
DeLorenzo, Jr., 1995 10,500 1,600
Executive Secretary 1994 9,300 None
and Treasurer 1993 9,300 400
1992 9,300 None
- ------------------
(7) Mr. DeLorenzo is not a Trustee. As the Executive Secretary and Treasurer,
he is a non-voting member of the Executive Committee and received fees as
set forth. The Trustee fees appear under the Trustee listing, subparagraph
B hereof.
</TABLE>
The Registrant has determined to compensate all Trustees for fiscal
1997 at the same base rate as in 1996. Each of the Trustees or the Executive
Secretary who attends regular or special meetings of the Board of Trustees shall
receive an additional sum of $400 for each meeting attended. Registrant will
continue to pay to each Trustee or the Executive Secretary who attends a site
visit to inspect a property being reviewed for purchase, a fee of $400 together
with actual and reasonable out-of-pocket expenses.
<TABLE>
<CAPTION>
Name and Executive
Office Held Year Fees Committee Fee
- ----------- ---- ---- -------------
<S> <C> <C> <C>
B) TRUSTEES
Robert S. Hekemian 1996 5,500 3,200
1995 5,500 1,600
1994 5,500 None
1993 5,500 400
1992 5,500 None
Donald W. Barney 1996 5,500 2,800
1995 5,500 1,600
1994 5,500 None
1993 5,500 400
1992 5,500 None
John B. Voskian 1996 5,500 2,400
1995 5,500 1,200
1994 5,500 None
1993 5,500 None
1992 5,500 None
Herbert C. Klein 1996 5,500 3,200
1995 4,583.33 1,600
1994 None None
1993 None None
1992 5,500 None
- 31 -
<PAGE>
<CAPTION>
Name and Executive
Office Held Year Fees Committee Fee
- ----------- ---- ---- -------------
<S> <C> <C> <C>
Nicholas A. Laganella 1996 5,500 2,000
1995 5,500 1,200
1994 5,500 None
1993 5,500 None
1992 5,500 None
Charles J. Dodge 1996 5,500 2,800
1995 5,500 1,200
1994 5,500 None
1993 5,500 None
1992 5,500 None
Ronald J. Artinian 1996 5,500 2,800
1995 5,500 2,400
1994 5,500 None
1993 5,500 400
1992 2,750 None
Alan L. Aufzien 1996 5,500 2,800
1995 5,500 1,200
1994 5,500 400
1993 5,500 None
1992 2,750 None
</TABLE>
The fee to be paid to the Chairman, President and Treasurer will
continue at the rate of $5,000.00 for fiscal year 1997.
No Officer or Trustee of the Registrant:
a) has any stock options to purchase stock of the
Registrant;
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 Registrant.
Registrant maintains an executive committee which includes a majority
of the Trustees and the Executive Secretary as a non-voting attendee. Members of
the executive committee and the Executive Secretary receive $400 for each
meeting attended.
Robert S. Hekemian was elected Chairman of the Board in 1991. Prior to
that time, he had served the Registrant as President.
- 32 -
<PAGE>
Herbert C. Klein was elected President of the Registrant in 1991. Prior
to that time, he had not served the Registrant as an Officer. Mr. Klein had,
however, served as a Trustee prior to 1991. Mr. Klein had resigned as President
of the Registrant effective December 31, 1992 upon election to the United States
House of Representatives for the term ending January 4, 1995. Mr. Klein did not
receive any compensation from the Registrant for his service as a Trustee during
his two-year term as a U.S. Congressman.
Messrs. Artinian and Aufzien were elected to the Board of Trustees in
May, 1992. They were paid a partial fee for their services in that position by
the Registrant based upon the standard annual fee paid to all Trustees of
$5,500.
Donald W. Barney was elected President of the Registrant on May 24,
1993.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(A) No single person owns of record or beneficially five (5) percent or
more of the shares of beneficial interest of the Registrant.
(B) Title of Class Amount Beneficially Owned % of Class
------------------ ------------------------- ----------
Shares of beneficial 631,919 40.5%
interest no par. All
Trustees and Officers
and their families as
a group(8) of record
and beneficial
- --------------
(8) No single person owns five percent of the shares. Includes spouses,
parents, children, siblings, mothers and fathers-in-law, sons and
daughters-in-law, and brothers and sisters-in-law.
(C) Registrant knows of no pledge of securities of the Registrant, the
operation of the terms of which may at a subsequent date result in a change in
control of the Registrant.
- 33 -
<PAGE>
(D) Security Ownership of Certain Beneficial Owners and Management
<TABLE>
<CAPTION>
Name of Nature of
Beneficial Beneficial % of Amount of
Title of Class Owner Owner Class
-------------- ----- ----- -----
<S> <C> <C> <C>
Shares of beneficial
interest no par Robert S. Hekemian 208,182 13.35
Shares of beneficial
interest no par Donald W. Barney 122,235 7.84
Shares of beneficial
interest no par John B. Voskian 109,536 7.02
Shares of beneficial
interest no par Herbert C. Klein 62,332 4.0
Shares of beneficial
interest no par Nicholas A. Laganella 3,625 0.23
Shares of beneficial
interest no par Charles J. Dodge 500 0.03
Shares of beneficial
interest no par Ronald J. Artinian 108,239 6.94
Shares of beneficial
interest no par Alan L. Aufzien 1,500 0.09
Shares of beneficial
interest no par Wm. R. DeLorenzo, Jr. 15,770 1.01
</TABLE>
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(A) Transactions with Management and others
(i) Hekemian & Co. serves as the managing agent for the Registrant's
properties and as a consultant to the Registrant. Robert S. Hekemian
serves as Chairman of the Board of Hekemian & Co., Inc. and is also a
shareholder. The following family members of Mr. Hekemian are Officers
of Hekemian in the position set forth opposite their names.
Samuel P. Hekemian - President
Robert S. Hekemian, Jr. - Executive Vice President
Bryan S. Hekemian - Vice-President and Secretary
David B. Hekemian - Vice-President and Treasurer
Serge Krikorian - Vice-President Insurance Department
- 34 -
<PAGE>
Samuel Hekemian is the brother of Robert S. Hekemian. Robert S.
Hekemian, Jr., Bryan S. Hekemian and David B. Hekemian are the sons of Robert S.
Hekemian. Serge Krikorian is the brother-in-law of Robert S. Hekemian and Samuel
Hekemian.
Mr. Hekemian also serves on the Board of Directors of Summit Bank,
which holds a first mortgage on the Registrant's property located in Spring Lake
Heights as more fully described in Item 2 (B) (i) at Page 20 hereof and has
issued the Line of Credit described in Item 1 (C) (3) at Pages 8 - 9 hereof.
(B) Certain Business Relationships
(i) On June 2, 1994, the Registrant purchased a forty (40%) percent
interest in Westwood Hills, LLC which is the owner of Westwood Hills
Apartments.
The Westwood Hills, LLC purchased the apartment complex on June 2,
1994, pursuant to a Contract of Sale dated February 9, 1994, as amended,
immediately prior to the Registrant's purchase of its interest in the LLC. The
LLC does not own any property other than Westwood Hills Apartments.
Pursuant to the terms of an operating agreement, the Registrant is the
managing member of the LLC. The Registrant has retained Hekemian & Co. who is
currently serving as the managing agent for Westwood Hills, LLC.
The interests sold by the LLC to third parties, including the
Registrant, were not registered pursuant to either the Securities Exchange Act
of 1933 or with the New Jersey Bureau of Securities. As a result, the
Registrant's interest cannot be freely transferred. There is no current market
for the Registrant's interest in the LLC; the Registrant does not anticipate
that a market will exist for its interest in the future.
The interest of each of the members of the LLC which includes certain
Trustees, their families and employees of Hekemian & Co. are as follows:
<TABLE>
<CAPTION>
Position Percentage Relationship Initial
With of With A Capital
Name Trust Interest Trustee Contribution
- ---- ----- -------- ------- ------------
<S> <C> <C> <C> <C>
Ronald J. Artinian Trustee 2.0% N/A $ 122,000.00
Nicholas J. Aynilian & None 0.75% Son-in-law $ 45,750.00
Elizabeth Ann Aynilian and daughter
Trustees for the Elizabeth of Serge
Ann Aynilian Irrevocable Krikorian,
Trust, Dated 1/1/91 Vice-President
Hekemian & Co.,
and niece of
Robert S.
Hekemian, Trustee
Donald W. Barney Trustee 4.0% N/A $ 244,000.00
- 35 -
<PAGE>
<CAPTION>
Position Percentage Relationship Initial
With of With A Capital
Name Trust Interest Trustee Contribution
- ---- ----- -------- ------- ------------
<S> <C> <C> <C> <C>
Katherine A. Gambino None 1.0% Daughter of $ 61,000.00
John Voskian,
Trustee, and
niece of Robert
S. Hekemian, Trustee
Bryan S. Hekemian None 7.0% Son of Robert $ 427,000.00
S. Hekemian,
Trustee and Vice-
President of
Hekemian & Co.
Lisa Jann Hekemian None 5.0% Daughter of $ 305,000.00
Robert S.
Hekemian, Trustee
David B. Hekemian None 7.0% Son of Robert $ 427,000.00
S. Hekemian,
Trustee and Vice-
President of
Hekemian & Co.
Robert S. Hekemian Trustee 0.8% N/A $ 48,800.00
Robert S. Hekemian, Jr. None 7.0% Son of Robert $ 427,000.00
S. Hekemian,
Trustee and Vice-
President of
Hekemian & Co.
Robert Hekemian None 1.5% Beneficiary of $ 91,500.00
& Ann Krikorian, Trust is son of
Trustees f/b/o Samuel Hekemian,
Jeffrey John Hekemian President of
U.A.D. 1/24/78 Hekemian & Co.
and nephew of
Robert S. Hekemian,
Trustee
Robert Hekemian None 1.5% Beneficiary of $ 91,500.00
& Ann Krikorian, Trust is son of
Trustees f/b/o Samuel Hekemian,
Mark Steven Hekemian President of
U.A.D. 12/10/85 Hekemian & Co.
and nephew of
Robert S. Hekemian,
Trustee
- 36 -
<PAGE>
<CAPTION>
Position Percentage Relationship Initial
With of With A Capital
Name Trust Interest Trustee Contribution
- ---- ----- -------- ------- ------------
<S> <C> <C> <C> <C>
Robert Hekemian None 1.5% Beneficiary of $ 91,500.00
& Ann Krikorian, Trust is son of
Trustees f/b/o Samuel Hekemian,
Peter Samuel Hekemian President of
U.A.D. 11/24/76 Hekemian & Co.
and nephew of
Robert S. Hekemian,
Trustee
Robert Hekemian None 1.5% Beneficiary of $ 91,500.00
& Ann Krikorian, Trust is son of
Trustees f/b/o Samuel Hekemian,
Richard Edward Hekemian President of
U.A.D. 9/1/83 Hekemian & Co.
and nephew of
Robert S. Hekemian,
Trustee
Samuel P. Hekemian None 0.7% President of $ 42,700.00
Hekemian & Co.
and brother of
Robert S. Hekemian,
Trustee
Albert A. Kapigian None 1.0% None $ 61,000.00
Shirlee Kerbeykian None 1.5% Wife of Edward $ 91,500.00
Kerbeykian, Senior
Vice-President of
Hekemian & Co.
Ronald F. Kistner None 0.5% Employee of $ 30,500.00
Hekemian & Co.
Herbert C. Klein Trustee 1.5% N/A $ 91,500.00
Krieger Family Trust None 1.5% Jacqueline Klein $ 91,500.00
Jacqueline Klein, Trustee is the wife of
Herbert C. Klein,
Trustee
Aimee Nicole Krikorian & None 0.75% Daughter of Serge $ 45,750.00
Elizabeth Ann Krikorian Krikorian, Vice-
Trustees for the Aimee Nicole President of
Krikorian Irrevocable Trust Hekemian & Co. and
Dated 1/1/92 niece of Robert S.
Hekemian, Trustee
- 37 -
<PAGE>
<CAPTION>
Position Percentage Relationship Initial
With of With A Capital
Name Trust Interest Trustee Contribution
- ---- ----- -------- ------- ------------
<S> <C> <C> <C> <C>
Douglas Diran Krikorian None 0.75% Son of Serge $ 45,750.00
& Elizabeth Ann Aynilian Krikorian, Vice-
Trustees for the Douglas President of
Diran Krikorian Irrevocable Hekemian & Co. and
Trust Dated 1/1/92 nephew of Robert S.
Hekemian, Trustee
Gregory Serge Krikorian None 0.75% Son of Serge $ 45,750.00
& Elizabeth Ann Aynilian Krikorian, Vice-
Trustees for the Gregory President of
Serge Krikorian Irrevoc- Hekemian & Co. and
able Trust Dated 1/1/92 nephew of Robert S.
Hekemian, Trustee
Henri & Leonara Nazarian None 5.0% None $ 305,000.00
Ave. Mostinck 76
Thomas A. Newton None 0.5% Former Controller $ 30,500.00
of Hekemian & Co.
Stephanie H. Reckler None 2.0% None $ 122,000.00
Michael J. Voskian None 1.0% Son of John $ 61,000.00
Voskian, Trustee
and nephew of
Robert S. Hekemian,
Trustee
Victoria A. Voskian None 1.0% Daughter of John $ 61,000.00
Voskian, Trustee
and niece of
Robert S. Hekemian,
Trustee
TOTAL 60.0% $3,660,000.00
</TABLE>
- 38 -
<PAGE>
WESTWOOD HILLS, LLC
MANAGING MEMBER
<TABLE>
<CAPTION>
INITIAL CAPITAL
NAME PERCENTAGE OF INTEREST CONTRIBUTION
- ---- ---------------------- ------------
<S> <C> <C>
First Real Estate 40% $2,440,000.00
Investment Trust of
New Jersey, c/o
Hekemian & Co., Inc.
505 Main Street
P.O. Box 667
Hackensack, NJ 07602
</TABLE>
(ii) Hekemian & Co. has provided various services to the Registrant in
connection with the purchase of the Patchogue Shopping Center. At the time of
the closing of title for the Patchogue Shopping Center, the Registrant will pay
to Hekemian & Co, a fee of approximately $390,000 for services rendered in
connection with the purchase and monitoring of the construction of the food
supermarket store.
Hekemian & Co. has provided various services to the Registrant in
connection with the demolishment of the present Franklin Lakes Shopping Center
and the design and construction of the new center. A fee will be paid to
Hekemian & Co. for its services. No fee amount has been established as of
December 31, 1996. In addition, Hekemian & Co. will be paid a fee for securing
the leases for the new center, which fee has not been determined as of December
31, 1996.
(iii) The law firm of Hannoch Weisman was retained by the Registrant
during the fiscal year to furnish legal services. Herbert C. Klein, a Trustee,
is a director of the law firm. The total fees paid to Hannoch Weisman in fiscal
year 1996 was $35,000.00.
(iv) The law firm of Nowell Amoroso, P.A. was not retained by the
Registrant during the fiscal year to furnish legal services, except to prepare
the 10-K for fiscal year 1996. William R. DeLorenzo, Jr., the Executive
Secretary and Treasurer, is Of Counsel to the law firm. A fee of $2,000 will be
paid to Nowell Amoroso, P.A. in connection with the preparation of the 10-K for
fiscal year 1996.
(v) Robert S. Hekemian and his brother Samuel P. Hekemian hold 95% of
the stock in Hekemian & Co., Marilyn Voskian and Ann Krikorian each hold 2-1/2%
of the stock in Hekemian & Co., which is the remaining 5%. A dispute has arisen
between Robert S. Hekemian and Samuel P. Hekemian concerning their succession in
Hekemian & Co. Litigation has been undertaken concerning various issues between
Robert S. Hekemian and Samuel P. Hekemian which has not been resolved as of
December 31, 1996. Registrant believes that Hekemian & Co. or, its successor, in
the event this dispute is not resolved amicably, will appropriately service all
of its management needs without interruption.
- 39 -
<PAGE>
(vi) Hannoch Weisman has been retained by the Registrant as counsel, in
connection with the purchase of the Patchogue Shopping Center property and the
renovation of the Franklin Lakes Shopping Center. Herbert C. Klein, Esq. is a
director of Hannoch Weisman and a Trustee of the Registrant. No fee has been
established for either property as of December 31, 1996.
(C) Indebtedness of Management
Registrant has not loaned any monies to any Trustee, Officer, nominee
for Trustee or any members of the immediate family of any Trustee, nominee or
officer.
(D) Transactions with Promoters
Not applicable.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM
8-K
(A) List of all documents to be filed as a part of this 10-K Report:
1. Financial Statements.
(i) Report of Independent Public Accountant for Registrant,
J.H. Cohn, LLP
(ii) Combined Balance Sheets as of October 31, 1996 and 1995
(iii) Combined Statements of Income and Undistributed
Earnings Years ended October 31, 1996, 1995 and 1994
(iv) Combined Statements for Cash Flows Years ended October
31, 1996, 1995 and 1994
(v) Notes to Combined Financial Statements
2. Financial Statement Schedules.
(i) Short-Term Borrowings.
(ii) Supplementing Income Statement Information.
(iii) Real Estate and Accumulated Depreciation.
(B) Reports on Form 8-K:
No report on Form 8-K was filed by the Registrant during the last
quarter of the fiscal year ending October 31, 1996.
- 40 -
<PAGE>
(C) Exhibits required pursuant to Item 601 of Regulation S-K:
Exhibit 3 - Amended and Restated Declaration of Trust, dated November
7, 1983 which was submitted as part of the Registrant's 10-K for 1991,
as amended which Exhibit is incorporated by reference; amendment dated
May 31, 1994 to paragraphs 3.5 and 7.5, which was submitted as part of
Registrant's 10-K for 1994 is incorporated by reference.
Exhibit 10 - Material Contracts:
(i) December 20, 1961 Management Agreement between the Registrant and
Hekemian & Co. (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.
Exhibit 24 - Report of J.H. Cohn, LLP as the Independent Public
Accountants of the Registrant is included in the Financial Statements,
attached hereto.
- 41 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dated: January , 1997 First Real Estate Investment
Trust of New Jersey
By:/s/Robert S. Hekemian
---------------------
Robert S. Hekemian,
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert S. Hekemian his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Annual Report, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/Robert S. Hekemian DATED: January 23, 1997
- ---------------------
Robert S. Hekemian, Chairman of
the Board, Chief Executive
Officer and Trustee
(Principal Executive Officer)
/s/Donald W. Barney DATED: January 23, 1997
- -------------------
Donald W. Barney, Trustee and
President
- 42 -
<PAGE>
/s/John B. Voskian DATED: January 23, 1997
- ------------------
John B. Voskian, Trustee and
Secretary
/s/Herbert C. Klein DATED: January 23, 1997
- -------------------
Herbert C. Klein, Trustee
/s/Charles J. Dodge DATED: January 23, 1997
- -------------------
Charles J. Dodge, Trustee
/s/Nicholas A. Laganella DATED: January 23, 1997
- ------------------------
Nicholas A. Laganella, Trustee
/s/William R. DeLorenzo, Jr. DATED: January 23, 1997
- ----------------------------
William R. DeLorenzo, Jr.
Executive Secretary and
Treasurer (Principal Financial
and Accounting Officer)
- 43 -
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
INDEX TO COMBINED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES (ITEMS 8 AND 14(a))
(A) COMBINED FINANCIAL STATEMENTS:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
BALANCE SHEETS
OCTOBER 31, 1996 AND 1995
STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
NOTES TO FINANCIAL STATEMENTS
(B) FINANCIAL STATEMENT SCHEDULES:
IX - SHORT-TERM BORROWINGS
X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in
the combined financial statements or notes thereto.
* * *
- 44 -
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders
First Real Estate Investment
Trust of New Jersey
We have audited the accompanying combined balance sheets of FIRST REAL ESTATE
INVESTMENT TRUST OF NEW JERSEY AND AFFILIATE as of October 31, 1996 and 1995,
and the related combined statements of income and undistributed earnings and
cash flows for each of the three years in the period ended October 31, 1996.
These financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of First Real Estate
Investment Trust of New Jersey and Affiliate as of October 31, 1996 and 1995,
and their results of operations and cash flows for each of the three years in
the period ended October 31, 1996, in conformity with generally accepted
accounting principles.
Our audits referred to above included the information in Schedules IX, X and XI
which present fairly, when read in conjunction with the combined financial
statements, the information required to be set forth therein.
/s/J. H. Cohn LLP
-----------------
J. H. COHN LLP
Roseland, New Jersey
December 3, 1996
- 45 -
<PAGE>
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
COMBINED BALANCE SHEETS
OCTOBER 31, 1996 AND 1995
ASSETS 1996 1995
------- -------
(In Thousands
of Dollars)
<S> <C> <C>
Real estate, at cost, net of accumulated
depreciation ................................... $61,693 $62,324
Equipment, at cost, net of accumulated
depreciation of $618,000 and $553,000 .......... 257 224
Cash ............................................... 243 533
Tenants' security accounts ......................... 999 947
Sundry receivables ................................. 555 248
Prepaid expenses and other assets .................. 1,209 911
Deferred charges, net .............................. 266 348
------- -------
Totals ................................... $65,222 $65,535
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages payable .............................. $33,955 $34,598
Note payable - bank ............................ 5,662 5,169
Accounts payable and accrued expenses .......... 347 361
Dividends payable .............................. 1,029 1,154
Tenants' security deposits ..................... 1,098 1,048
Deferred revenue ............................... 259 257
------- -------
Total liabilities ........................ 42,350 42,587
------- -------
Minority interest .................................. 2,888 2,959
------- -------
COMMITMENTS AND CONTINGENCIES
Shareholders' equity:
Shares of beneficial interest without par
value; 1,560,000 shares authorized;
1,559,788 shares issued and outstanding ........ 19,314 19,314
Undistributed earnings ......................... 670 675
------- -------
Total shareholders' equity ............... 19,984 19,989
------- -------
Totals ................................... $65,222 $65,535
======= =======
See Notes to Combined Financial Statements.
</TABLE>
- 46 -
<PAGE>
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
COMBINED STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
INCOME 1996 1995 1994
------ ---- ---- ----
(In Thousands of Dollars,
Except per Share Amounts)
<S> <C> <C> <C>
Rental revenue:
Rental income .................... $ 11,932 $ 11,700 $ 9,890
Real estate taxes reimbursed ..... 1,126 914 642
Common area maintenance reimbursed 442 466 472
Sundry income .................... 178 170 158
-------- -------- --------
Totals ....................... 13,678 13,250 11,162
-------- -------- --------
Rental expenses:
Operating expenses ............... 2,925 2,636 2,482
Management fees .................. 581 556 479
Real estate taxes ................ 2,089 1,790 1,375
Interest ......................... 3,013 3,074 2,582
Depreciation ..................... 1,610 1,536 1,317
-------- -------- --------
Totals ....................... 10,218 9,592 8,235
-------- -------- --------
Income from rental operations ........ 3,460 3,658 2,927
-------- -------- --------
Other income (expense):
Interest income .................. 7 5 5
Interest expense ................. (465) (503) (279)
General and administrative ....... (190) (245) (185)
-------- -------- --------
Totals ....................... (648) (743) (459)
-------- -------- --------
Income before minority interest ...... 2,812 2,915 2,468
Minority interest .................... 138 123 76
-------- -------- --------
Income before state income taxes ..... 2,674 2,792 2,392
Provision for state income taxes ..... 12 6 9
-------- -------- --------
Net income ........................... $ 2,662 $ 2,786 $ 2,383
======== ======== ========
Earnings per share ................... $ 1.71 $ 1.79 $ 1.53
======== ======== ========
</TABLE>
- 47 -
<PAGE>
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
COMBINED STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
(continued)
INCOME 1996 1995 1994
------ ---- ---- ----
(In Thousands of Dollars,
Except per Share Amounts)
<S> <C> <C> <C>
UNDISTRIBUTED EARNINGS
Balance, beginning of year ........... $ 675 $ 1,834 $ 1,978
Net income ........................... 2,662 2,786 2,383
Less dividends ....................... (2,667) (3,945) (2,527)
-------- -------- --------
Balance, end of year ................. $ 670 $ 675 $ 1,834
======== ======== ========
Dividends paid per share ............. $ 1.71 $ 2.53 $ 1.62
======== ======== ========
See Notes to Combined Financial Statements.
</TABLE>
- 48 -
<PAGE>
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
1996 1995 1994
(In Thousands of Dollars)
<S> <C> <C> <C>
Operating activities:
Net income ..................................... $ 2,662 $ 2,786 $ 2,383
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization .............. 1,682 1,608 1,362
Deferred revenue ........................... 2 43 85
Minority interest .......................... 138 123 76
Changes in operating assets and liabilities:
Tenants' security accounts .............. (52) (80) (193)
Sundry receivables, prepaid expenses
and other assets ...................... (596) (461) (229)
Accounts payable and accrued expenses ... (14) 17 101
Tenants' security deposits .............. 50 84 197
Other liabilities ....................... (42)
------- -------- --------
Net cash provided by operating
activities ........................ 3,872 4,120 3,740
------- -------- --------
Investing activities - capital expenditures ........ (1,011) (694) (6,330)
------- -------- --------
Financing activities:
Dividends paid ................................. (2,792) (2,791) (2,527)
Minority interest contribution ................. 3,660
Minority interest distribution ................. (209) (660) (240)
Deferred charges ............................... (37)
Proceeds from note payable - bank .............. 3,339 2,791 7,884
Repayment of note payable - bank ............... (2,846) (3,050) (6,376)
Mortgage proceeds .............................. 1,175
Repayment of mortgages ......................... (643) (596) (464)
------- -------- --------
Net cash provided by (used in)
financing activities .............. (3,151) (3,131) 1,900
------- -------- --------
Net increase (decrease) in cash .................... (290) 295 (690)
Cash, beginning of year ............................ 533 238 928
------- -------- --------
Cash, end of year .................................. $ 243 $ 533 $ 238
======= ======= =======
Supplemental disclosure of cash flow data:
Interest paid .................................. $ 3,696 $ 3,360 $ 2,872
======= ======= =======
Income taxes paid .............................. $ 8 $ 7 $ 7
======= ======= =======
</TABLE>
- 49 -
<PAGE>
Supplemental schedule of noncash investing and financing activities:
During fiscal 1994, the Affiliate financed the purchase of real estate with
mortgage proceeds of $9,520,000 (see Note 2). During fiscal 1995, the
outstanding mortgage balance of approximately $9,325,000 was repaid using
proceeds of a new mortgage. Dividends declared but not paid amounted to
$1,029,000 and $1,154,000 at October 31, 1996 and 1995, respectively.
See Notes to Combined Financial Statements.
- 50 -
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting policies:
Organization:
First Real Estate Investment Trust of New Jersey (the
"Trust") was organized November 1, 1961 as a New Jersey
Business Trust. The Trust is engaged in owning
residential and commercial income producing properties
located primarily in New Jersey.
The Trust has elected to be taxed as a Real Estate
Investment Trust under the provisions of Sections 856-860
of the Internal Revenue Code, as amended. Accordingly,
the Trust does not pay Federal income tax on income
whenever income distributed to shareholders is equal to
at least 95% of real estate investment trust taxable
income. Further, the Trust pays no Federal income tax on
capital gains distributed to shareholders.
The Trust is subject to Federal income tax on
undistributed taxable income and capital gains. The Trust
may make an annual election under Section 858 of the
Internal Revenue Code to apply part of the regular
dividends paid in each respective subsequent year as a
distribution for the immediately preceding year. For
fiscal 1996, 1995 and 1994, the Trust made such an
election.
Principles of combination:
The combined financial statements include the accounts of
the Trust and Westwood Hills, LLC (the "Affiliate"),
which have been combined on the basis of common control.
The Affiliate is a limited liability company that is
40%-owned by the Trust and managed by Hekemian & Co.,
Inc. ("Hekemian"), a company which manages all of the
Trust's properties and in which one of the trustees of
the Trust is the chairman of the board. Certain other
members of the Affiliate are either trustees of the Trust
or their families or officers of Hekemian. The combined
financial statements include 100% of the Affiliate's
assets, liabilities, operations and cash flows with the
60% interest owned by the other members of the Affiliate
reflected as "minority interest." All significant
intercompany accounts and transactions have been
eliminated in combination.
Use of estimates:
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
- 51 -
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting policies (continued):
Cash:
The Trust and its Affiliate maintain their cash in bank
deposit accounts which, at times, may exceed Federally
insured limits. The Trust considers all highly liquid
debt instruments purchased with a maturity of three
months or less to be cash equivalents. At October 31,
1996 and 1995, the Trust had no cash equivalents.
Depreciation:
Real estate and equipment are depreciated on the
straight-line method by annual charges to operations
calculated to absorb costs of assets over their estimated
useful lives.
Revenue recognition:
Income from leases is recognized on a straight-line basis
regardless of when payment is due. Lease agreements
between the Trust and commercial tenants generally
provide for additional rentals based on such factors as
percentage of tenants' sales in excess of specified
volumes, increases in real estate taxes, Consumer Price
Indices and common area maintenance charges. These
additional rentals are generally included in income when
reported to the Trust, when billed to tenants or ratably
over the appropriate period.
Deferred charges:
Deferred charges consist of mortgage costs and leasing
commissions. Deferred mortgage costs are amortized on the
straight-line method by annual charges to operations over
the terms of the mortgages. Deferred leasing commissions
are amortized on the straight-line method over the terms
of the applicable leases.
Advertising:
The Trust expenses the cost of advertising and promotions
as incurred. Advertising costs charged to operations
amounted to approximately $55,000, $31,000 and $21,000 in
1996, 1995 and 1994, respectively.
Income taxes:
The Affiliate, with the consent of its members, elected
to be treated as a limited liability company under the
applicable sections of the Internal Revenue Code. Under
these sections, income or loss, in general, is allocated
to the members for inclusion in their individual income
tax returns. Accordingly, there is no provision for
income taxes applicable to the operations of the
Affiliate in the accompanying combined financial
statements.
- 52 -
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting policies (concluded):
Earnings per share:
Earnings per share are computed based on the weighted
average number of shares outstanding. The weighted
average number of shares outstanding was 1,559,788 for
each of the three years in the period ended October 31,
1996.
Note 2 - Acquisition:
During May 1994, the Trust became a 40% member of the
Affiliate, a newly formed limited liability company.
On June 2, 1994, the Affiliate consummated the purchase of
Westwood Properties, a residential apartment complex located
in Westwood, New Jersey (the "Apartment Complex"). The cost
of the Apartment Complex was approximately $15,389,000 of
which $5,869,000 was paid in cash and $9,520,000 was
financed by the proceeds of a mortgage.
The acquisition was accounted for as a purchase and,
accordingly, the Apartment Complex's operations have been
included in the accompanying combined statements of income
since the date of acquisition. Of the total cost of the
acquisition (including related acquisition expenses),
$3,849,000 was allocated to land and $11,540,000 to
buildings and improvements. In connection with the
acquisition, the Affiliate paid Hekemian a $500,000 real
estate commission, which amount is included in the cost of
the Apartment Complex.
The following unaudited proforma information (in thousands
of dollars, except per share amounts) shows the results of
operations for the year ended October 31, 1994 as though the
Apartment Complex had been acquired at the beginning of
fiscal 1994:
<TABLE>
<CAPTION>
<S> <C>
Rental revenue $12,398
Rental expenses (9,293)
-------
Income from rental operations 3,105
Other expenses, net (542)
Minority interest (180)
Provision for income taxes (8)
-------
Net income $ 2,375
=======
Earnings per share $1.52
=====
</TABLE>
- 53 -
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 2 - Acquisition (concluded):
In addition to combining the historical results of
operations of the Apartment Complex and the Trust, the
unaudited proforma results include adjustments for
depreciation based on the Affiliate's purchase price,
reduced interest income and increased interest expense
related to cash paid and obligations incurred to complete
the transaction.
The unaudited proforma results of operations set forth above
are based on information furnished by the Trust's
management. Such proforma information is not necessarily
indicative of the results that would have occurred had the
acquisition been made at the beginning of fiscal 1994 or of
future results of operations of the combined properties.
Note 3 - Real estate:
Real estate consists of the following:
<TABLE>
<CAPTION>
Range
of Estimated
Useful Lives 1996 1995
------------ ---- ----
(In Thousands
of Dollars)
<S> <C> <C> <C>
Land $21,112 $21,112
Unimproved land 2,472 2,452
Apartment buildings 7-40 years 21,909 21,333
Commercial buildings 25-31.5 years 58 58
Shopping centers 15-50 years 26,947 26,859
Construction in progress 969 714
------- -------
73,467 72,528
Less accumulated de-
preciation 11,774 10,204
------- -------
Totals $61,693 $62,324
======= =======
</TABLE>
- 54 -
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 4 - Mortgages payable:
Mortgages payable consist of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
(In Thousands
of Dollars)
<S> <C> <C>
State Mutual Life Insurance Co. (A) $18,068 $18,359
Travelers Insurance (B) 5,319 5,444
USG Annuity (C) 10,346 10,488
Summit Bank (D) 222 307
------- -------
Totals $33,955 $34,598
======= =======
</TABLE>
(A) Payable in monthly installments of $160,925
including interest at 9% through August 1997 at
which time the outstanding balance is due. The
mortgage is secured by a shopping center in
Frederick, Maryland having a net book value of
approximately $25,755,000.
(B) Payable in monthly installments of $55,287
including interest at 10% through September 2001
at which time the outstanding balance is due. The
mortgage is secured by a shopping center in
Westwood, New Jersey having a net book value of
approximately $11,890,000.
(C) Payable in monthly installments of $79,655
including interest at 7.8% through October 2002 at
which time the outstanding balance is due. The
mortgage is secured by an apartment complex in
Westwood, New Jersey having a net book value of
approximately $14,928,000.
(D) Payable in monthly installments of $8,555
including interest at 7.625% through March 1999 at
which time the outstanding balance is due. The
mortgage is secured by an apartment building in
Spring Lake, New Jersey having a net book value of
approximately $627,000. One of the directors of
the bank is a trustee of the Trust.
- 55 -
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 4 - Mortgages payable (concluded):
Principal amounts (in thousands of dollars) due under the
above obligations in each of the five years subsequent to
October 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year Ending
October 31, Amount
----------- ------
<S> <C>
1997 $18,448
1998 414
1999 387
2000 379
2001 4,885
</TABLE>
The carrying amount of mortgages payable approximates fair
value at October 31, 1996.
Note 5 - Note payable - bank:
Note payable - bank consists of borrowings under a
$20,000,000 revolving line of credit agreement with Summit
Bank which expires on February 10, 1997. The first
$10,000,000 of borrowings under the line of credit bear
interest at either the prime rate or the LIBOR rate plus 200
basis points. Any excess borrowings bear interest at either
the prime rate plus 1/2% or the LIBOR rate plus 250 basis
points. Outstanding borrowings are secured by all of the
Trust's properties except the shopping centers located in
Frederick, Maryland and Westwood, New Jersey, the Apartment
Complex in Westwood, New Jersey, and any vacant land owned
by the Trust.
Note 6 - Commitments and contingencies:
Leases:
Commercial tenants:
The Trust leases commercial space having a net book
value of approximately $38,956,000 at October 31,
1996 to tenants for periods of up to twenty years.
Most of the leases contain clauses for reimbursement
of real estate taxes, maintenance, insurance and
certain other operating expenses of the properties.
Minimum rental income (in thousands of dollars) to be
received from noncancelable operating leases in years
subsequent to October 31, 1996 are as follows:
- 56 -
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 6 - Commitments and contingencies (concluded):
<TABLE>
<CAPTION>
Year Ending
October 31, Amount
----------- ------
<S> <C>
1997 $ 3,598
1998 3,274
1999 2,961
2000 2,448
2001 2,269
Thereafter 10,892
-------
Total $25,442
=======
</TABLE>
The above amounts assume that all leases which expire
are not renewed and, accordingly, neither minimal
rentals nor rentals from replacement tenants are
included. In addition, the above amounts do not
include any future minimum rentals to be received for
the shopping center in Franklin Lakes, New Jersey
having a net book value of approximately $1,286,000
at October 31, 1996. Management closed the shopping
center on September 1, 1995 except for one tenant who
vacated the premises on November 1, 1996.
Commencement of a complete refurbishing of the
premises is scheduled to begin during January or
February 1997 and it is expected to be open for
operations in the Fall of 1997. The cost of the
refurbishing, which has been put out for bid, is
currently anticipated to approximate $10,000,000.
Rental revenue derived from the shopping center was
approximately $140,000, $207,000 and $310,000 in
fiscal 1996, 1995 and 1994, respectively, and income
from rental operations was approximately $30,000,
$91,000 and $166,000, respectively.
Minimum future rentals do not include contingent
rentals which may be received under certain leases on
the basis of percentage of reported tenants' sales
volume or increases in Consumer Price Indices.
Contingent rentals included in income for each of the
three years in the period ended October 31, 1996 were
not material.
- 57 -
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 6 - Commitments and contingencies (concluded):
Leases (concluded):
Residential tenants:
Lease terms for residential tenants are usually one
year or less.
Acquisition:
The Trust has entered into a contract to purchase a
64,000 square foot shopping center to be constructed in
Patchogue, New York for approximately $11,000,000
including commissions and estimated professional fees.
The contract to purchase the Patchogue center is
contingent upon the construction being completed during
January 1997.
Note 7 - Management agreement:
The properties owned by the Trust and the Affiliate are
currently managed by Hekemian. The management agreement
requires fees equal to a percentage of rents collected. Such
fees were approximately $581,000, $556,000 and $479,000 in
1996, 1995 and 1994, respectively.
Note 8 - Earnings per share:
Earnings per share, based on the weighted average number of
shares outstanding during each period, are comprised of
ordinary income.
* * *
- 58 -
<PAGE>
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
SCHEDULE IX - SHORT-TERM BORROWINGS
(In Thousands of Dollars)
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Maximum Average
Amount Amount Weighted
Out- Out- Average
Category of Balance Weighted standing standing Interest
Aggregate at Average During During Rate
Short-Term End of Interest the the During the
Borrowings (A) Period Rate Period Period Period (B)
- -------------- ------ ---- ------ ------ ----------
<S> <C> <C> <C> <C> <C>
1996:
Note payable -
bank .............. $5,662 7.98% $6,362 $5,683 8.2%
====== ==== ====== ====== ===
1995:
Note payable -
bank .............. $5,169 8.09% $6,582 $5,585 7.9%
====== ==== ====== ====== ===
1994:
Note payable -
bank .............. $5,428 5.97% $5,728 $4,505 6.2%
====== ==== ====== ====== ===
</TABLE>
(A) See Note 5 of notes to combined financial statements.
(B) Calculated using average monthly loan balances and actual interest expense.
<TABLE>
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In Thousands of Dollars)
Column A Column B
-------- --------
Charged to Costs
Item (A) and Expenses
-------- ------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs ........... $ 268 $ 243 $ 345
====== ====== ======
Real estate taxes ................. $2,090 $1,790 $1,375
====== ====== ======
</TABLE>
(A) Amounts for other items were less than 1% of revenue in all years.
<PAGE>
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
OCTOBER 31, 1996
(In Thousands of Dollars)
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Costs Capitalized
Initial Cost Subsequent Gross Amount at Which
to Company to Acquisition Carried at Close of Period
Buildings Buildings
Encum- and Carrying and
Description brances Land Improvements Improvements Costs Land Improvements Total(1)
----------- ------- ---- ------------ ------------ ----- ---- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Garden apartments:
Sheridan Apts.,
Camden, NJ ......................... $ 117 $ 360 $ 849 $ 117 $ 1,209 $ 1,326
Grandview Apts., Has-
brouck Heights, NJ ................. 22 180 175 22 355 377
Lakewood Apts., Lake-
wood, NJ ........................... 11 396 155 11 551 562
Hammel Gardens, May-
wood, NJ ........................... 313 728 622 313 1,350 1,663
Palisades Manor,
Palisades Park, NJ ................. 12 81 80 12 161 173
Steuben Arms, River
Edge, NJ ........................... 364 1,773 329 364 2,102 2,466
Heights Manor, Spring
Lake Heights, NJ ................... $ 222 109 974 301 109 1,275 1,384
Berdan Court, Wayne
NJ ................................. 250 2,206 961 250 3,167 3,417
Westwood Hills,
Westwood, NJ ....................... 10,346 3,849 11,540 199 3,849 11,739 15,588
Commercial property:
Glen Rock, NJ .......................... 12 36 22 12 58 70
Shopping centers:
Franklin Lakes
Shopping Center,
Franklin Lakes, NJ ................. 29 380 1,214 29 1,594 1,623
Westridge Shopping
Center, Frederick,
MD ................................... 18,068 9,135 19,159 336 9,135 19,495 28,630
Westwood Shopping
Center, Westwood,
NJ ................................. 5,319 6,889 6,416 411 6,889 6,827 13,716
Vacant land:
Franklin Lakes, NJ ....................... 224 $ 8 232 232
Rockaway, NJ ........................... 1,683 384 2,067 2,067
South Brunswick, NJ .................... 80 93 173 173
------- ------- ------- ------- ------- ------- ------- -------
Totals .......................... $33,955 $23,099 $44,229 $ 5,654 $ 485 $23,584 $49,883 $73,467
======= ======= ======= ======= ======= ======= ======= =======
<PAGE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
OCTOBER 31, 1996
(In Thousands of Dollars)
(continued)
Column F Column G Column H Column I
-------- -------- -------- --------
Which
Accumulated Date of Date Depreciation
Description Depreciation Construction Acquired is Computed
----------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Garden apartments:
Sheridan Apts.,
Camden, NJ .............. $ 629 1950 1964 7-40 years
Grandview Apts., Has-
brouck Heights, NJ ...... 218 1925 1964 7-40 years
Lakewood Apts., Lake-
wood, NJ ................ 405 1960 1962 7-40 years
Hammel Gardens, May-
wood, NJ ................ 676 1949 1972 7-40 years
Palisades Manor,
Palisades Park, NJ ...... 104 1935/70 1962 7-40 years
Steuben Arms, River
Edge, NJ ................ 1,065 1966 1975 7-40 years
Heights Manor, Spring
Lake Heights, NJ ........ 791 1967 1971 7-40 years
Berdan Court, Wayne
NJ ...................... 2,072 1964 1965 7-40 years
Westwood Hills,
Westwood, NJ ............ 731 1966 1994 7-40 years
Commercial property:
Glen Rock, NJ ............... 45 1940 1962 10-31.5 years
Shopping centers:
Franklin Lakes
Shopping Center,
Franklin Lakes, NJ ...... 337 1963/75 1966 10-50 years
Westridge Shopping
Center, Frederick,
MD ...................... 2,875 1986 1992 15-31.5 years
Westwood Shopping
Center, Westwood,
NJ ...................... 1,826 1981 1988 15-31.5 years
Vacant land:
Franklin Lakes, NJ .......... 1966/93
Rockaway, NJ ................ 1964/92/93
South Brunswick, NJ ......... 1964
-------
Totals ............... $11,774
=======
(1) Aggregate cost is the same for Federal income tax purposes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY AND AFFILIATE
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
(In Thousands of Dollars)
Reconciliation of real estate and accumulated depreciation:
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Real estate:
Balance, beginning of year .............. $ 72,528 $ 71,884 $ 56,080
Additions:
Land ................................ 3,849
Building and improvements ........... 959 691 11,927
Carrying costs ...................... 20 (7) 28
Deductions - write-off of fully depre-
ciated assets ....................... (40) (40)
-------- -------- --------
Balance, end of year .................... $ 73,467 $ 72,528 $ 71,884
======== ======== ========
Accumulated depreciation:
Balance, beginning of year .............. $ 10,204 $ 8,708 $ 7,433
Additions - charged to operating expenses 1,610 1,536 1,275
Deductions - write-off of fully depre-
ciated assets ....................... (40) (40)
-------- -------- --------
Balance, end of year .................... $ 11,774 $ 10,204 $ 8,708
======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 243,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 74,085,000
<DEPRECIATION> 12,392,000
<TOTAL-ASSETS> 65,222,000
<CURRENT-LIABILITIES> 0
<BONDS> 39,617,000
0
0
<COMMON> 19,314,000
<OTHER-SE> 670,000
<TOTAL-LIABILITY-AND-EQUITY> 65,222,000
<SALES> 0
<TOTAL-REVENUES> 13,678,000
<CGS> 0
<TOTAL-COSTS> 10,218,000
<OTHER-EXPENSES> 786,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,674,000
<INCOME-TAX> 12,000
<INCOME-CONTINUING> 2,662,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,662,000
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71
</TABLE>
