UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended
October 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission File No. 2-27018
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FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
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(Exact name of registrant as specified in its charter)
New Jersey 22-1697095
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
505 Main Street, P.O. Box 667
Hackensack, New Jersey 07602
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 201-488-6400
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Shares of Beneficial Interest
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(Title of class)
Indicate by check mark 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 Regulation 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 ]
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The registrant is an equity real estate investment trust and beneficial
interests in the registrant are represented by shares without par value. At
January 15,1999, the aggregate market value of the registrant's shares of
beneficial interest held by nonaffiliates of the registrant was approximately
$34,859,130. Excluded from this calculation are shares of the registrant owned
or deemed to be beneficially owned by the trustees and executive officers of the
registrant, including shares with respect to which the trustees and executive
officers disclaim beneficial ownership. At January 15, 1999 1,559,788 shares of
beneficial interest were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Registrant's 1999 Annual
Meeting of Shareholders to be held in April 1999 are incorporated by reference
in Part III of this Annual Report.
FORWARD-LOOKING STATEMENTS
Certain information included in this Annual Report contains or may
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
registrant cautions readers that forward-looking statements, including, without
limitation, those relating to the registrant's investment policies and
objectives; the financial performance of the registrant; the ability of the
registrant to service its debt; the competitive conditions which affect the
registrant's business; the impact of environmental conditions affecting the
registrant's properties; the registrant's liquidity and capital resources, and
the impact of the Year 2000 issue and the registrant's state of readiness with
respect to the Year 2000 issue, are subject to certain risks and uncertainties.
Actual results or outcomes may differ materially from those described in the
forward-looking statements and will be affected by a variety of risks and
factors, including, without limitation, the registrant's future financial
performance; the availability of capital; general market conditions; national
and local economic conditions, particularly long-term interest rates; federal,
state and local governmental regulations that affect the registrant; and the
competitive environment in which the registrant operates, including, the
availability of retail space and residential apartment units in the areas where
the registrant's properties are located. In addition, the registrant's continued
qualification as a real estate investment trust involves the application of
highly technical and complex rules of the Internal Revenue Code. The
forward-looking statements are made as of the date of this Annual Report and the
registrant assumes no obligation to update the forward-looking statements or to
update the reasons actual results could differ from those projected in such
forward-looking statements.
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PART I
ITEM 1 BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
First Real Estate Investment Trust of New Jersey (the "Registrant") is
an unincorporated business trust which was organized in New Jersey in 1961
pursuant to a Trust Agreement, dated as of November 1, 1961; amended and
restated as of November 7, 1983; and amended on May 31, 1994 and September 10,
1998 (the "Declaration of Trust"). The Registrant acquires, develops and holds
for investment income producing real estate properties, including apartment
buildings and complexes and retail properties. At December 31, 1998, the
Registrant's real estate portfolio consisted of (i) eight (8) apartment
buildings or complexes containing 639 units, (ii) a forty percent (40%) equity
interest in Westwood Hills, LLC, a limited liability company which owns a 210
unit apartment complex ("Westwood Hills"), (iii) five (5) retail properties
comprised of an aggregate of approximately 588,000 square feet of leasable
space, including three (3) shopping centers and two (2) single tenant locations,
and (iv) three (3) undeveloped parcels of land consisting of an aggregate of
approximately 56.5 acres. See "Investment in Affiliate" and "Item 2 Properties -
Portfolio of Investments." All of the Registrant's properties are currently
managed by Hekemian & Co., Inc., a real estate brokerage and management company
("Hekemian & Co."). See "Management Agreement."
From its inception, the Registrant's general investment policy has been
to acquire, develop and hold income producing properties for long-term
investment and not for resale. The Registrant's long-range investment policy is
to continue to review and evaluate potential real estate investment
opportunities with the objective of making, from time to time, certain strategic
acquisitions of properties which the Registrant believes will (i) complement its
existing investment portfolio, (ii) generate income and increase the
Registrant's earnings and its distributions to shareholders, and (iii) increase
the overall value of the Registrant's investment portfolio. The decision to
acquire or develop a particular property is made on a case by case basis by the
Registrant's Board of Trustees which determines whether in its judgment such an
investment is in the best interests of the Registrant and its shareholders.
Except for its equity investment in Westwood Hills, the Registrant has invested
only in retail properties since 1988. Although the Registrant's portfolio of
developed properties consists only of residential apartment and retail
properties, the Registrant does and will continue to evaluate potential
investment properties in other sectors of the real estate market.
All but two of the Registrant's properties are located in New Jersey.
The Registrant's largest retail shopping center, the 256,600 square foot
Westridge Square shopping center which the Registrant acquired in 1992, is
located in Frederick, Maryland (Western Maryland). The Registrant's most recent
property acquisition, which occurred in December 1997, was a 63,900 square foot
retail property located in Patchogue (Long Island), New York, on which Pathmark
operates a supermarket super store. The Company has reviewed and evaluated and
will continue to review and evaluate potential real estate investment
opportunities in New Jersey as well as in locations outside of New Jersey.
<PAGE>
Although the Registrant's general policy is to hold and maintain its
properties as long-term income producing investments, the Registrant has sold
and in the future could sell, from time to time, certain properties in its
portfolio. Factors which are considered by the Registrant's Board of Trustees in
evaluating the disposition of a property include (i) whether the property
continues to satisfy the Registrant's investment objectives for its real estate
portfolio, and (ii) whether the proceeds from a sale could be reinvested into
another property or other properties which may offer greater growth potential
and a higher rate of return to the Registrant.
Except for the Registrant's equity investment in Westwood Hills, each
of the properties in the Registrant's real estate portfolio is wholly-owned in
fee by the Registrant. In the future, if the circumstances warrant, the
Registrant could acquire interests in other real estate properties on a joint
venture basis with another party or parties; provided, that the Registrant would
be able to maintain appropriate control over the management and operation of any
such property.
The Registrant is a real estate investment trust ("REIT") under
Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code").
The Registrant was the first REIT organized in New Jersey. As a result of its
election to be treated as a REIT, the Registrant will not be subject to federal
income tax on that portion of its REIT taxable income which is currently
distributed to the Registrant's shareholders, assuming it satisfies the various
REIT requirements under the Code. REITs are subject to a number of highly
technical and complex organizational and operational requirements. One of the
REIT requirements under the Code is that at least 95% of the Registrant's REIT
taxable income shall be distributed to the shareholders. REIT taxable income is
computed in accordance with normal corporate rules subject to several
adjustments. If the Registrant fails to qualify as a REIT, its taxable income
may be subject to federal income tax at the applicable regular corporate tax
rates. For the foreseeable future, it is the Registrant's intention to continue
to conduct its operations in a manner intended to qualify as a REIT for tax
purposes. However, no assurance can be given that the Registrant's operations
for any one taxable year will satisfy such requirements, and no assurance can be
given that the Internal Revenue Service would not be able to successfully
challenge the Registrant's eligibility for taxation as a REIT.
Fiscal Year 1998 Developments
(i) Purchase of Supermarket in Patchogue, New York
On December 22, 1997, the Registrant completed its purchase of a 63,900
square foot single tenant retail property located in Patchogue, New York. The
purchase price was $10.9 million, of which $7.5 million was financed with the
property serving as collateral for the mortgage loan. Pathmark operates a
supermarket super store on the property pursuant to a twenty-five (25) year
lease with options to extend for up to a maximum of twenty-four (24) years. The
supermarket is located on approximately 8.775 acres of land.
(ii) Completion of New Development of Franklin Crossing Shopping Center
During the summer of 1997, the Registrant completed the construction of
a new shopping center, named "Franklin Crossing," containing approximately
87,000 square feet of leasable space in Franklin Lakes, New Jersey. Franklin
Crossing replaced an old shopping center which the Registrant had owned since
1964 and which contained approximately 33,000 square feet of leasable space. The
old shopping center was closed and completely demolished in December 1996 to
<PAGE>
allow for the construction of Franklin Crossing. Grand Union has leased a total
of approximately 41,000 square feet of the available space and is operating a
supermarket in the shopping center. Grand Union took possession of its space for
tenant fit-up in August, 1997 and commenced payment of rent on October 12, 1997
when it opened for business. Grand Union has a twenty (20) year lease with
options to extend for up to a maximum of twenty (20) additional years.
Approximately 13,600 square feet of satellite space at Franklin Crossing has
been leased to seven (7) other tenants. At December 31, 1998, there was
approximately 32,300 square feet of vacant leasable space at Franklin Crossing.
The Registrant is actively pursuing tenants to fill the remaining available
space.
(iii) Mortgage Financings and Amendment and Extension of Credit
Facility
During fiscal 1998 and the first quarter of fiscal 1999, the Registrant
took advantage of the appreciated values of certain real estate properties in
its investment portfolio and a favorable interest rate environment to complete a
number of mortgage financings which yielded approximately $28.8 million in net
proceeds to the Registrant. In addition, Westwood Hills completed a refinancing
of its outstanding mortgage debt in December 1998, yielding net proceeds of
approximately $4.9 million. Pursuant to its 40% equity investment in Westwood
Hills, the Registrant received a $2 million distribution out of such proceeds.
Part of the net proceeds from the financings which were completed in the first
quarter of fiscal 1998 were used to acquire the Patchogue, Long Island property
on which the Pathmark supermarket super store is located and to pay off the
Registrant's outstanding balance under its credit facility with Summit Bank. The
remaining proceeds from these financings provides the Registrant with an
immediately available source of capital for future property acquisitions and
development. See "Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
As a result of these mortgage financings, the Registrant is more highly
leveraged than it has been in the past. The increase in the Registrant's debt
service requirements could have an adverse effect on the financial condition and
results of operations. Although the Registrant believes that it will generate
sufficient funds from its operations to service the Registrant's debt
requirements, a default by the Registrant with respect to any of its mortgage
indebtedness could have a material adverse effect on the Registrant. See "Real
Estate Financing" and "Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
The Registrant's line of credit with Summit Bank, which was scheduled
to expire on April 30, 1998, was renegotiated, amended and extended through May
31, 1999. Prior to such extension, the Registrant paid off the outstanding
balance under the credit facility with a portion of the proceeds received by the
Registrant from the mortgage financings which the Registrant closed during the
first quarter of fiscal 1998. In connection with and in anticipation of the
above described mortgage financings, the maximum amount which the Registrant can
borrow under this credit facility has been reduced from approximately $12.3
million to $8 million effective as of November 30, 1998. At December 31, 1998,
the Registrant did not have any outstanding borrowings under the Summit Bank
credit facility. See "Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
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(iv) Year 2000 Issue
The Year 2000 ("Y2K") issue results from computer programs being
written using two (2) rather than four (4) digits to define the applicable year.
As the year 2000 approaches, systems using such programs may be unable to
accurately process certain date based information. As disclosed elsewhere in
this Annual Report, Hekemian & Co. currently manages the Registrant's
properties, and the Registrant does not own any computer systems. The business
managed by Hekemian & Co. is dependent on computer hardware, software, systems
and processes, including financial and accounting systems, relating to
information technology ("IT Systems") and non-information technology systems
such as HVAC systems, boilers, alarms, elevators, escalators, building security
systems, backup lighting and generators, sprinkler systems, fire/smoke detection
and suppression systems, parking garage systems and other equipment containing
embedded microprocessor technology ("Non-IT Systems").
The Registrant is participating with Hekemian & Co. in a comprehensive
assessment of the Registrant's business exposure relative to the Y2K issue. The
Registrant and Hekemian & Co. have assessed all systems for Y2K readiness.
Hekemian & Co. has advised the Registrant that it has utilized or is utilizing
the resources necessary to replace, upgrade or modify all significant systems
affected by the Y2K issue. All major Non-IT Systems critical to the Registrant's
business operations are Y2K compliant. IT Systems were assessed for Y2K
compliance and in most cases new hardware was purchased and is operating. All
personal computer and network server software has been upgraded for Y2K
compliance. The accounting system is now substantially compliant and is expected
to be fully Y2K compliant by the end of the first quarter of fiscal 1999. It is
expected that all IT Systems will be tested for Y2K compliance by June, 1999 and
that all such systems will be Y2K compliant before the end of 1999.
In addition to the remediation efforts outlined above, Hekemian & Co.
has identified and mailed Y2K information requests to all retail tenants of the
Registrant and all critical external entities (product suppliers, service
providers, and those with which Hekemian & Co. or the Registrant exchange
information) to determine whether they will be able to continue normal business
operations at the turn of the century. Approximately 19% of such tenants and
entities, including most of the Registrant's major tenants and suppliers, have
responded. The third parties responding to the request have indicated that the
Y2K issue does not and will not significantly impact their businesses, or that
they either will be Y2K compliant or will have an adequate contingency plan
ready and active before the year 2000.
Neither Hekemian & Co. nor the Registrant has yet established any
contingency plans for possible Y2K interruptions. Based upon the continuing
assessment of possible risks, the Registrant could establish contingency plans
in the future to address the Registrant's exposure to potential Y2K problems.
The failure of critical systems of the Registrant, its management service
company, or its significant retail tenants and external entities to be Y2K
compliant could disrupt or interrupt the business of the Registrant, which could
have a material adverse effect on the results of operations or financial
condition of the Registrant.
The Registrant anticipates that any costs incurred by it in assessing
the Y2K issue and remediating any Y2K problems will not have a significant
adverse effect on the Registrant's operating results or financial condition.
<PAGE>
(b) Financial Information about Industry Segments
All revenues, operating profits or losses, and assets of the Registrant
are attributable to one line of business, the acquisition, development and
ownership of real property for investment. The revenue and profits from, and the
assets which are part of, the Registrant's operations are as set forth in the
Financial Statements of the Registrant and of Westwood Hills beginning on page
F-1 of this Annual Report.
(c) Narrative Description of Business
The Registrant was founded and organized for the principal purpose of
acquiring, developing and owning a portfolio of diverse income producing real
estate properties. The Registrant's developed properties include residential
apartment and retail properties. The Registrant's properties are located
principally in New Jersey, with the Westridge Square Shopping Center located in
Frederick, Maryland and the Pathmark supermarket super store located on Long
Island. The Registrant also currently owns approximately 56.5 acres of
unimproved land in New Jersey. See "Item 2 Properties - Portfolio of
Investments."
The Registrant elected to be taxed as a REIT under the Code. The
Registrant operates in such a manner as to qualify for taxation as a REIT in
order to take advantage of certain favorable tax aspects of the REIT structure.
Generally, a REIT will not be subject to federal income taxes on that portion of
its ordinary income or capital gain that is currently distributed to its equity
holders.
As an equity REIT, the Registrant generally acquires interests in
income producing properties to be held by the Registrant as long-term
investments. The Registrant's return on such investments is based on the income
generated by such properties mainly in the form of rents.
From time to time, the Registrant has sold, and may sell again in the
future, certain of its properties in order to (i) obtain capital used or to be
used to purchase, develop or renovate other properties which the Registrant
believes will provide a higher rate of return and increase the value of the
Registrant's investment portfolio, and (ii) divest properties which the
Registrant has determined or determines are no longer compatible with the
Registrant's growth strategies and investment objectives for its real estate
portfolio.
The Registrant does not hold any patents, trademarks or licenses.
Portfolio of Real Estate Investments
At December 31, 1998, the Registrant's real estate holdings included
(i) eight (8) apartment buildings or complexes containing 639 rentable units,
(ii) five (5) retail properties containing approximately 588,000 square feet of
leasable space, including two (2) single tenant stores, and (iii) three (3)
parcels of undeveloped land consisting of approximately 56.5 acres. All such
property is wholly-owned in fee by the Registrant. See "Item 2 Properties -
Portfolio of Investments" of this Annual Report for a description of the
Registrant's separate investment properties and certain other pertinent
information with respect to such properties which is relevant to the
Registrant's business. In addition, the Registrant holds a 40% membership
interest in Westwood Hills which owns an apartment complex containing 210
rentable units. See "Investment in Affiliate."
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Investment in Affiliate
In May 1994, the Registrant acquired a forty percent (40%) membership
interest in Westwood Hills, a New Jersey limited liability company. In June
1994, Westwood Hills consummated the purchase of Westwood Properties, a
residential apartment complex containing 210 units, located in Westwood, New
Jersey, for a total purchase price of approximately $15.4 million. Approximately
$9.5 million of the purchase price was financed by the proceeds of a mortgage
loan which was refinanced in December 1998. See "Fiscal Year 1998 Developments -
Mortgage Financings and Amendment and Extension of Credit Facility." The
Registrant is the managing member of Westwood Hills, and Hekemian & Co.
currently is the managing agent of the property. See "Management Agreement." In
connection with the refinancing, Robert S. Hekemian, Chairman of the Board of
the Registrant and a member of Westwood Hills, provided a personal guarantee in
certain limited circumstances. The Registrant has agreed to indemnify Mr.
Hekemian with respect to this guaranty.
Employees
The Registrant does not have any full-time employees. Except for Mr.
Hekemian, Chairman of the Board, who devotes approximately twenty-five percent
(25%) of his business activities to the Registrant's business, none of the other
executive officers of the Registrant (who are identified in "Item 4A Executive
Officers of the Registrant" of this Annual Report), devotes more than ten
percent (10%) of his business activities to the business of the Registrant.
Hekemian & Co. has been retained by the Registrant to manage the Registrant's
developed properties and is responsible for providing the personnel required to
perform all services related to the management and operation of the Registrant's
properties. See "Management Agreement." For the foreseeable future, the
Registrant intends to maintain its present form of management arrangement and
does not anticipate hiring employees.
Management Agreement
Pursuant to the terms of a Management Agreement, dated December 20,
1961, by and between the Registrant and Hekemian & Co., as amended (the
"Management Agreement"), Hekemian & Co., a real estate brokerage and management
company, manages all of the Registrant's properties. In connection with its
management services, Hekemian & Co. employs the superintendents and other
personnel who perform the functions required to operate and maintain the
Registrant's properties. Pursuant to the terms of the Management Agreement, the
Registrant pays Hekemian & Co. certain fees and commissions as compensation for
its services. The Registrant also reimburses Hekemian & Co. for the salaries,
payroll taxes, insurance costs and certain other costs of persons employed at
the Registrant's properties by Hekemian & Co. on behalf of the Registrant. From
time to time, the Registrant engages Hekemian & Co. to provide certain
additional services, such as consulting services related to development and
financing activities of the Registrant. Separate fee arrangements are negotiated
between Hekemian & Co. and the Registrant with respect to such services. See
"First Real Estate Investment Trust of New Jersey Notes to Financial Statements
- - Note 7."
Mr. Hekemian, Chairman of the Board and a Trustee of the Registrant, is
currently the Chairman of the Board and Chief Executive Officer of Hekemian &
Co. Mr. Hekemian, his brother and two sisters currently own all of the issued
and outstanding shares of Hekemian & Co. A dispute between the shareholders of
Hekemian & Co. has developed which will lead to the dissolution of the company.
The Registrant is confident that any such dissolution will not have a material
adverse effect on its business operations.
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Real Estate Financing
The Registrant funds acquisition opportunities and the development of
its real estate properties largely through debt financing, including mortgage
loans against certain of the Registrant's properties, and an $8 million line of
credit with Summit Bank. At December 31, 1998, the Registrant's aggregate
outstanding mortgage debt was $60.69 million with an average interest cost on a
weighted average basis of 7.518%. The Registrant has mortgage loans against the
following properties which serve as collateral for such loans: (i) Westridge
Square shopping enter in Frederick, Maryland, (ii) Westwood Plaza shopping
center in Westwood, New Jersey, (iii) Pathmark supermarket super store property
in Patchogue, New York, (iv) Berdan Court Apartments in Wayne, New Jersey, (v)
Steuben Arms Apartments in River Edge, New Jersey,(vi) Hammel Gardens Apartments
in Maywood, New Jersey, and (vii) Heights Manor Apartments in Spring Lake
Heights, New Jersey. See the tables in "Item 2 Properties - Portfolio of
Investments" for the outstanding mortgage balance at December 31, 1998 with
respect to each of these properties.
At December 31, 1998, there was no outstanding balance under the Summit
Bank line of credit. Any borrowings under the credit facility would bear
interest at a variable fluctuating rate which is based at the Registrant's
election on (i) Summit Bank's floating base rate plus one-quarter of one percent
(0.25%) or (ii) the London Interbank Offered Rate (LIBOR) plus 175 basis points
(1.75%). The Franklin Crossing shopping center and each of the Registrant's
residential apartment properties in Lakewood, Palisades Park and Hasbrouck
Heights, New Jersey, serve as collateral for the Summit Bank line of credit.
In fiscal 1998, the Registrant consummated a series of mortgage
financings in order to take advantage of the appreciated values of certain of
the Registrant's real estate properties and a favorable interest rate
environment. In addition, Westwood Hills, in which the Registrant has a 40%
equity interest, also refinanced its existing mortgage during the first quarter
of fiscal 1999. See "Fiscal Year 1998 Developments - Mortgage Financings and
Amendment and Extension of Credit Facility." As a result of these mortgage
financings and as a result of the Registrant's purchase of the Pathmark
supermarket super store property in Patchogue, New York, which was largely
financed by a $7.5 million mortgage loan, the Registrant is currently, and will
continue to be for the foreseeable future, more highly leveraged than it has
been in the past. This increased level of indebtedness also presents an
increased risk of default on the obligations of the Registrant and an increase
in debt service requirements that could adversely affect the financial condition
and results of operations of the Registrant. A number of the Registrant's
mortgage loans, including several of the recent loans, are being amortized over
a period that is greater than the terms of such loans; thereby requiring balloon
payments at the expiration of the terms of such loans. The Registrant has not
established a cash reserve sinking fund with respect to such obligations and at
this time does not expect to have sufficient funds from operations to make such
balloon payments when due under the terms of such loans.
<PAGE>
The Registrant is subject to the normal risks associated with debt
financing, including the risk that the Registrant's cash flow will be
insufficient to meet required payments of principal and interest; the risk that
indebtedness on its properties will not be able to be renewed, repaid or
refinanced when due; or that the terms of any renewal or refinancing will not be
as favorable as the terms of the indebtedness being replaced. If the Registrant
were unable to refinance its indebtedness on acceptable terms, or at all, the
Registrant might be forced to dispose of one or more of its properties on
disadvantageous terms which might result in losses to the Registrant. These
losses could have a material adverse effect on the Registrant and its ability to
make distributions to shareholders and to pay amounts due on its debt. If a
property is mortgaged to secure payment of indebtedness and the Registrant is
unable to meet mortgage payments, the mortgagee could foreclose upon the
property, appoint a receiver and receive an assignment of rents and leases or
pursue other remedies, all with a consequent loss of revenues and asset value to
the Registrant. Further, payment obligations on the Registrant's mortgage loans
will not be reduced if there is a decline in the economic performance of any of
the Registrant's properties. If any such decline in economic performance occurs,
the Registrant's revenues, earnings and funds available for distribution to
shareholders would be adversely affected.
Neither the Declaration of Trust nor any policy statement formally
adopted by the Registrant's 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 by the Registrant.
Accordingly, the Registrant may incur in the future additional secured or
unsecured indebtedness in furtherance of its business activities, including, if
or when necessary, to refinance its existing debt. Future debt incurred by the
Registrant could bear interest at rates which are higher than the rates on the
Registrant's existing debt. Future debt incurred by the Registrant could also
bear interest at a variable rate. Increases in interest rates would increase the
Registrant's variable interest costs (to the extent that the related
indebtedness was not protected by interest rate protection arrangements), which
could have a material adverse effect on the Registrant and its ability to make
distributions to shareholders and to pay amounts due on its debt or cause the
Registrant to be in default under its debt. Further, in the future, the
Registrant may not be able to, or may determine that it is not able to, obtain
financing for property acquisitions or for capital expenditures to develop or
improve its properties on terms which are acceptable to the Registrant. In such
event, the Registrant might elect to defer certain projects unless alternative
sources of capital were available, such as through an equity or debt offering by
the Registrant.
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 and for
tenants. During the 1990s, the Registrant has concentrated upon the acquisition
and development of multi-family residential and retail shopping center
properties which are substantially larger than those real estate assets the
Registrant had historically sought to include in its investment 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 than the Registrant, may derive
funding from foreign and domestic sources, and may have larger staffs than the
Registrant to find, evaluate and secure new properties.
<PAGE>
In addition, retailers at the Registrant's properties face increasing
competition from discount shopping centers, outlet malls, sales through
catalogue offerings, discount shopping clubs, marketing and shopping through
cable and computer sources, particularly over the Internet, and telemarketing.
In many markets, the trade areas of the Registrant's retail properties overlap
with the trade areas of other shopping centers. Renovations and expansions at
those competing shopping centers and malls could negatively affect the
Registrant's retail properties by encouraging shoppers to make their purchases
at such new, expanded or renovated shopping centers and malls. Increased
competition through these various sources could adversely affect the viability
of the Registrant's tenants, and any new retail real estate competition
developed in the future could potentially have an adverse effect on the revenues
of and earnings from the Registrant's retail properties.
(A) General Factors Affecting Investment in Retail and Apartment
Complex Properties; Effect on Economic and Real Estate Conditions
The revenues and value of the Registrant's retail and residential
apartment properties may be adversely affected by a number of factors,
including, without limitation, the national economic climate; the regional
economic climate (which may be adversely affected by plant closings, industry
slow downs and other local business 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 a
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 fair market value of a retail property or
apartment building or complex without necessarily affecting the revenues,
including changes in government regulations (such as limitations on development
or on hours of operation) changes in tax laws or rates, and potential
environmental or other legal liabilities.
(B) Retail Shopping Center Properties' Dependence on Anchor Stores
and Satellite Tenants
The Registrant believes that its revenues and earnings; its ability to
meet its debt obligations; and its funds available for distribution to
shareholders would be adversely affected if space in the Registrant's
multi-store 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 its shopping center properties is largely
dependent upon the success of its tenants. Unfavorable economic, demographic or
competitive conditions may adversely affect the financial condition of tenants
and consequently the lease revenues from and the value of the Registrant's
investments in its shopping center properties. If the sales of stores operating
in the Registrant's shopping center properties were to decline due to
deteriorating economic conditions, the tenants may be unable to pay their base
rents or meet other lease charges and fees due to the Registrant. In addition,
any lease provisions providing for rent based on a percentage of sales,
particularly with respect to the Registrant's food supermarket tenants, could be
rendered moot. In the event of default by a tenant, the Registrant could suffer
a loss of rent and experience extraordinary delays while incurring additional
costs in enforcing its rights under the lease which may or may not be recaptured
by the Registrant.
<PAGE>
(C) Renewal of Leases and Reletting of Space
There is no assurance that the Registrant will be able to retain
tenants at its retail properties upon expiration of their leases. Upon
expiration or termination of leases for space located in the Registrant's retail
properties, the premises may not be relet or the terms of reletting (including
the cost of concessions to tenants) may not be as favorable as lease terms for
the terminated lease. 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 current or expected rates, the Registrant's
revenues and earnings; the Registrant's ability to service its debt; and the
Registrant's ability to make expected distributions to its shareholders, could
be adversely affected. There are no leases which the Registrant considers
material or significant in terms of any single property in the Registrant's real
estate portfolio which expired during the fiscal year 1998 or which are
scheduled to expire in the fiscal year 1999.
(D) Illiquidity of Real Estate Investments; Possibility that Value of
the Registrant's Interests may be less than its Investment
Equity real estate investments are relatively illiquid. Accordingly,
the ability of the Registrant to vary its portfolio in response to changed
economic, market or other conditions is limited. Also, the Registrant's interest
in Westwood Hills is subject to transfer constraints imposed by the operating
agreement which governs the Registrant's investment in Westwood Hills. Even
without such restrictions on the transfer of its interest, the Registrant
believes that there would be a limited market for its interest in Westwood
Hills.
If the Registrant had to liquidate all or substantially all of its real
estate holdings, the value of such assets would likely be diminished if a sale
was required to be completed in a limited time frame. The proceeds to the
Registrant from any such sale of the assets in the Registrant's real estate
portfolio might be less than the fair market value of those assets.
Impact of Governmental Laws and Regulations on Registrant's
Business
The Registrant's properties are subject to various Federal, state and
local laws, ordinances and regulations, including those relating to the
environment and local rent control and zoning ordinances.
(A) Environmental Matters
Both Federal and state governments are 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
<PAGE>
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 therefor could exceed the value of
the property and/or the aggregate assets of the owner. In addition, the presence
of such substances, or the failure to properly dispose of or remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. If the Registrant
incurred any such liability, it could reduce the Registrant's revenues and
ability to make distributions to its shareholders.
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.
At this time, the Registrant is aware of the following environmental
matters affecting its properties:
(i) Vacant Land Located in Rockaway Township, N.J.
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 the 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. The Registrant has no present plan to develop the
property. Any development would be subject to all of the then applicable
governmental rules and regulations. However, if the Registrant chose to develop
this property, it does not believe that this environmental condition would
prevent it from developing a material portion of the property.
(ii) 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, New Jersey. The Registrant maintains flood
insurance in the amount of $500,000 for the subject property which is the
maximum available under the HUD Flood Program for the 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 could require extraordinary
construction methods.
(iii) Franklin Crossing, Franklin Lakes, N.J.
The new Franklin Crossing shopping center was completed during the
summer of 1997. Also in 1997, a historical discharge of hazardous materials was
discovered at Franklin Crossing. The discharge was reported to the NJDEP in
accordance with applicable regulations. The Registrant is engaged in completing
a remediation process under the supervision of the NJDEP. The Registrant
anticipates that: (a) the historical discharge will have no significant impact
upon the operations at Franklin Crossing; (b) the discharge materials appear to
be isolated and have been excavated; (c) it will be required to monitor the
discharge; and
<PAGE>
(d) that the cost of the investigation and monitoring will not be material. The
Registrant is in the process of securing a Classification Exception Area for
groundwater use restriction from the NJDEP pursuant to its Memorandum of
Agreement Program.
(iv) Other
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 the 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
these inspections, 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 conducted environmental audits for all of its
properties except for its undeveloped land; retail properties in Franklin Lakes
(Franklin Crossing) and Glen Rock, New Jersey; and residential apartment
properties located in Lakewood, Camden, Palisades Park and Hasbrouck Heights,
New Jersey. Except as noted in subparagraph (iii) above, the environmental
reports secured by the Registrant have not revealed any environmental conditions
on its properties which require remediation pursuant to any applicable Federal
or state law or regulation.
The Registrant does not believe that the environmental conditions
described in subparagraphs(i) - (iv) above will have a materially adverse effect
upon the capital expenditures, revenues, earnings, financial condition or
competitive position of the Registrant.
(B) Rent Control Ordinances
Each of the apartment buildings or complexes owned by the Registrant is
subject to some form of rent control ordinance which limits the amount by which
the Registrant can increase the rent for renewed leases, and in some cases,
limits the amount of rent which the Registrant can charge for vacated units.
Westwood Hills is not subject to any rent control law or regulation.
(C) Zoning Ordinances
Local zoning ordinances may prevent the Registrant from developing its
unimproved properties, or renovating, expanding or converting its existing
properties, for their highest and best use as determined by the Registrant's
Board of Trustees, which could diminish the values of such properties.
(d) Financial Information about Foreign and Domestic
Operations and Export Sales
The Registrant does not engage in operations in foreign countries and
it does not derive any portion of its revenues from customers in foreign
countries.
<PAGE>
ITEM 2. PROPERTIES
Portfolio of Investments
The following charts set forth certain information relating to each of
the Registrant's real estate investments. In addition to the specific mortgages
which may be indicated below, the following Registrant properties: Franklin
Crossing and the residential apartment properties located in Lakewood, Palisades
Park and Hasbrouck Heights, New Jersey, are subject to a lien from Summit Bank
pursuant to the line of credit in the face amount of $8 million.
Apartment Properties as of December 31, 1998:
- ---------------------------------------------
<TABLE>
<CAPTION>
Depreciated
Cost of
Occupancy Buildings
Rate (% of Mortgage and
Property and Year No. of No. of Balance Equipment
Location Acquired Units Units) (000's) (000's)
- -------- -------- ----- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Lakewood Apts.
Lakewood, NJ 1962 40 91.0% None $ 181
Palisades Manor
Palisades Park, NJ 1962 12 93.6% None $ 66
Grandview Apts.
Hasbrouck Heights, NJ 1964 20 94.2% None $ 151
Heights Manor
Spring Lake
Heights, NJ 1971 79 96.3% $3,697 $ 551
Hammel Gardens
Maywood, NJ 1972 80 97.4% $3,896 $ 939
Sheridan Apts.
Camden, NJ 1964 132 91.1% None $ 647
Steuben Arms
River Edge, NJ 1975 100 96.7% $5,370 $ 1,359
Berdan Court
Wayne, NJ 1965 176 97.4% $10,993 $ 1,628
Westwood Hills
Westwood, NJ (1) 1994 210 97.9% $15,500 $14,374
</TABLE>
(1) The Registrant owns a 40% equity interest in Westwood Hills. See "Item 1(c)
Narrative Description of Business - Investment in Affiliate."
<PAGE>
Retail Properties as of December 31, 1998:
- ------------------------------------------
<TABLE>
<CAPTION>
Depreciated
Mortgage Cost of
Leasable Occupancy Balance Buildings
Space - Rate (% of or Bank and
Property and Year Approximate Square Loan Equipment
Location Acquired Square Feet Feet) (000's) (000's)
- -------- -------- ----------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Franklin Crossing
Franklin Lakes, NJ 1966(1) 87,041 68.6% None $10,064
Westwood Plaza
Westwood, NJ 1988 173,854 96.5% $10,505 $11,471
Westridge Square
Frederick, Maryland 1992 256,620 99.8% $18,833 $24,405
Pathmark Super
Store
Patchogue, New York 1997 63,932 100% $ 7,392 $10,663
<CAPTION>
Property has
been vacant
since
February 28,
Glen Rock, NJ 1962 4,800 1998 None $ 24
</TABLE>
(1) See "Item 1(a) General Development of Business - Fiscal Year 1998
Developments; Completion of New Development of Franklin Crossing Shopping
Center."
Vacant Land as of December 31, 1998:
- ------------------------------------
<TABLE>
<CAPTION>
Permitted
Use per Mortgage
Local Acreage Balance or
Current Zoning per Bank Loan
Location Acquired Use Laws Parcel (000's)
- -------- -------- --- ---- ------ -------
<S> <C> <C> <C> <C> <C>
Franklin Lakes, NJ 1966 None Limited 4.27 None
Office
Rockaway, NJ 1964/1963 None Residential 19.26 None
South Brunswick, NJ 1964 Leased as Commercial 33 None
farmland
qualifying
for state
farmland
assessment
tax
treatment
</TABLE>
<PAGE>
The Registrant believes that it has a diversified portfolio of
residential and retail properties. The Registrant's business is not materially
dependent upon any single tenant or any one of its properties. Several of the
Registrant's properties have contributed 15% or more of the Registrant's total
revenue in one or more of the last three (3) fiscal years. For the fiscal years
ended October 31, 1996, 1997 and 1998, (i) the Westridge Square Shopping Center
in Frederick, Maryland contributed 29.8%, 30.2% and 26.2%, respectively, of the
Registrant's total revenues; (ii) the Westwood Plaza Shopping Center in
Westwood, New Jersey contributed 20.4%, 18.9% and 15.3%, respectively, of the
Registrant's total revenues; and (iii) the Berdan Court apartment complex in
Wayne, New Jersey contributed 17.4%, 17% and 14.3%, respectively, of the
Registrant's total revenues.
Although the Registrant's general investment policy is to hold
properties as long-term investments, the Registrant could selectively sell
certain properties if it determines that any such sale is in the Registrant's
and its shareholders best interests. With respect to the Registrant's future
acquisition and development activities, the Registrant will evaluate various
real estate opportunities which the Registrant believes would increase the
Registrant's revenues and earnings as well as compliment and increase the
overall value of the Registrant's existing investment portfolio.
Except for the Pathmark supermarket super store located in Patchogue,
Long Island, and the single tenant store located in Glen Rock, New Jersey, all
of the Registrant's retail properties have multiple tenants. The sole tenant in
the Glen Rock store location terminated its lease effective as of February 28,
1998. The Registrant is actively engaged in efforts to secure a replacement
tenant. However, the Registrant does not believe that the absence of a tenant
for this property for any period of time will have a material effect on the
Registrant's operating results as the property is not a significant part of the
Registrant's real estate portfolio.
The Registrant's retail shopping center properties have anchor tenants
which occupy a significant amount of the leasable space in each such property.
The Westwood Plaza shopping center in Westwood, New Jersey is anchored by a
Kmart Store and a Grand Union supermarket and has eighteen (18) satellite
stores. A Giant Supermarket and Burlington Coat Factory store anchor the
Westridge Square shopping center in Frederick, Maryland, which also has
twenty-six(26) satellite stores and a six (6) screen movie theater complex. In
the newly constructed and expanded Franklin Crossing shopping center in Franklin
Lakes, New Jersey, the anchor tenant is a Grand Union supermarket which occupies
approximately 41,000 square feet of the approximately 87,000 square feet
available for lease. Franklin Crossing also has seven (7) satellite stores and
there is approximately 32,300 square feet of available leasable space.
With respect to most of the Registrant's retail properties, lease terms
range from five (5) years to twenty-five (25) years with options which if
exercised would extend the terms of such leases. The lease agreements generally
contain clauses for reimbursement of real estate taxes, maintenance, insurance
and certain other operating expenses of the properties. During the last three
(3) completed fiscal years, the Registrant's retail properties have averaged a
98.5% occupancy rate with respect to the Registrant's available leasable space.
This excludes Franklin Crossing since the old shopping center was closed and
demolished in December 1996 and the new and expanded shopping center was not
reopened for business until October 1997.
<PAGE>
Leases for the Registrant's apartment buildings and complexes are
usually one (1) year in duration. Even though the residential units are leased
on a short term basis, the Registrant has averaged, during the last three (3)
completed fiscal years, a 94.9% occupancy rate with respect to the Registrant's
available apartment units.
The Registrant does not believe that any seasonal factors materially
affect the Registrant's business operations and the leasing of its retail and
apartment properties. The Registrant does not lease space to any Federal, state
or local government entity.
The Registrant believes that its properties are covered by adequate
fire and property insurance provided by reputable companies and with
commercially reasonable deductibles and limits.
ITEM 3 LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Registrant
is a party or of which any of its properties is the subject. There is, however,
ordinary and routine litigation involving the Registrant's business including
various tenancy and related matters. Notwithstanding the environmental
conditions disclosed in "Item 1(c) Description of Business - Impact of
Governmental Laws and Regulations on Registrant's Business; Environmental
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 fourth quarter of the Registrant's 1998 fiscal year.
ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant as of January 15, 1999 are
listed below. Brief summaries of their business experience and certain other
information with respect to each of them is set forth in the following table and
in the information which follows the table.
As a result of Hekemian & Co. being responsible for managing the day to
day operations of the Registrant's properties and providing personnel to manage
the Registrant's properties, the executive officers are not required to devote a
significant part of their business activities to their duties as executive
officers of the Registrant. No executive officer of the Registrant directly
devotes more than ten percent (10%) of his business activities to the
Registrant's business, except for Mr. Hekemian, Chairman of the Board, who
devotes approximately twenty-five percent (25%) of his business activities to
the Registrant. See "Item 1(c) Narrative Description of Business - Management
Agreement." Except for Mr. DeLorenzo, Executive Secretary and Treasurer of the
Registrant, each of the executive officers is also a Trustee of the Registrant.
<PAGE>
The executive officers of the Registrant are as follows:
Name Age Position
- ---- --- --------
Robert S. Hekemian 67 Chairman of the Board
and Chief Executive
Officer
Donald W. Barney 58 President
John B. Voskian, M.D. 74 Secretary
William R. DeLorenzo, Jr., Esq. 54 Executive Secretary and
Treasurer
ROBERT S. HEKEMIAN has been active in the real estate industry for more
than forty-five(45) years. Mr. Hekemian has served as Chairman of the Board and
Chief Executive Officer of the Registrant since 1991, and as a Trustee since
1980. From 1981 to 1991, Mr. Hekemian was President of the Registrant. Mr.
Hekemian directly devotes approximately twenty-five percent (25%) of his time to
execute his duties as an executive officer of the Registrant. Mr. Hekemian is
also the Chairman of the Board and Chief Executive Officer of Hekemian & Co. See
"Item 1(c) Narrative Description of Business - Management Agreement." Mr.
Hekemian is a director of Summit Bancorp. Mr. Hekemian is also a director,
partner and officer in numerous private real estate corporations and
partnerships. Mr. Hekemian is the brother-in-law of Dr. Voskian.
DONALD W. BARNEY has served as President of the Registrant since 1993,
and as a Trustee since 1981. Mr. Barney devotes approximately five percent (5%)
of his time to execute his duties as an executive officer of the Registrant. Mr.
Barney has been associated with Union Camp Corporation, a diversified
manufacturer of paper, packaging products, chemicals and wood products, since
1969, most recently, and until December 31, 1998, as Vice President and
Treasurer. Mr. Barney is also a director of Ramapo Financial Corporation and a
partner and director in several other private real estate investment companies.
Mr. Barney was formerly the brother-in-law of Mr. DeLorenzo.
DR. JOHN B. VOSKIAN has served as Secretary and a Trustee of the
Registrant since 1968. Dr. Voskian spends less than five percent (5%) of his
time with respect to his duties as an executive officer of the Registrant. A
physician, Dr. Voskian has retired from the practice of medicine. Dr. Voskian is
also a director and an officer in a number of private real estate companies. Dr.
Voskian is the brother-in-law of Mr. Hekemian.
WILLIAM R. DELORENZO, JR., an attorney, has served as the Treasurer and
Executive Secretary of the Registrant since 1974. Mr. DeLorenzo devotes
approximately five percent (5%) of his time to his activities as an executive
officer of the Registrant. Since 1996, Mr. DeLorenzo has been in private
practice with the law firm of Nowell Amoroso, P.A., with offices in Hackensack,
New Jersey and New York City. From 1990 to 1994, Mr. DeLorenzo was the Chairman
of the New Jersey Commission on Capital Budget and Planning. Mr. DeLorenzo was
formerly the brother-in-law of Mr. Barney.
<PAGE>
PART II
-------
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SECURITY HOLDER MATTERS
Shares of Beneficial Interest
Beneficial interests in the Registrant are represented by shares
without par value (the "Shares"). The Shares represent the Registrant's only
authorized, issued and outstanding class of equity. As of January 15, 1999,
there were 429 holders of record of the Shares.
The Shares are traded in the over-the-counter market through use of the
OTC Bulletin Board(R) Service (the "OTC Bulletin Board") provided by NASD, Inc.
The Registrant does not believe that an active United States public trading
market exists for the Shares since historically only small volumes of the Shares
are traded on a sporadic basis. The following table sets forth, for the periods
indicated, the high and low bid quotations for the Shares on the OTC Bulletin
Board.
High Low
---- ---
Fiscal Year Ended October 31, 1998
- ----------------------------------
First Quarter 25-1/2 25
Second Quarter 26 25-1/2
Third Quarter 28 26
Fourth Quarter 30 27
Fiscal Year Ended October 31, 1997
- ----------------------------------
First Quarter 21-7/8 21-1/2
Second Quarter 22-3/4 22-1/4
Third Quarter 24-1/2 24
Fourth Quarter 25-1/8 25-1/8
The bid quotations set forth above for the Shares reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions. The source of the bid quotations is Janney
Montgomery Scott, Inc., members of the New York Stock Exchange and other
national securities exchanges.
Dividends
The holders of Shares are entitled to receive distributions as may be
declared by the Registrant's Board of Trustees. Dividends may be declared from
time to time by the Board of Trustees and may be paid in cash, property or
Shares. The Board of Trustees' present policy is to distribute annually at least
<PAGE>
ninety-five percent (95%) of the Registrant's REIT taxable income as dividends
to the holders of Shares in order to qualify as a REIT for Federal income tax
purposes. Distributions are made on a quarterly basis. In fiscal 1997 and fiscal
1998, the Registrant paid aggregate total dividends of $1.90 and $2.12 per
share, respectively, to the holders of Shares. See "Item 7 Management's
Discussion and Analysis of Financial Condition and Results of Operations - REIT
Distributions to Shareholders."
ITEM 6 SELECTED FINANCIAL DATA
The selected consolidated financial data for the Registrant for each of
the five (5) fiscal years in the period ended October 31, 1998 are derived from
financial statements that have been audited and reported upon by J.H. Cohn LLP,
independent public accountants for the Registrant. This data should be read in
conjunction with "Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations" of this Annual Report and with the
Registrant's financial statements and related notes included in this Annual
Report.
Income Statement Data:
<TABLE>
<CAPTION>
Years Ended October 31:
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Equity in
Income of
Affiliate (1) ............... $ 213 $ 139 $ 92 $ 81 $ 51
======= ======= ======= ======= =======
Total Revenue ............... $14,432 $11,698 $11,417 $11,124 $10,335
======= ======= ======= ======= =======
Total Expenses............... $10,747 $ 8,735 $ 8,755 $ 8,338 $ 7,952
======= ======= ======= ======= =======
Net Income .................. $ 3,685 $ 2,963 $ 2,662 $ 2,786 $ 2,383
======= ======= ======= ======= =======
</TABLE>
<PAGE>
Balance Sheet Data:
<TABLE>
<CAPTION>
As of October 31:
-----------------
(in thousands, except per share data)
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total Assets $71,275 $59,233 $51,674 $51,838 $52,398
======= ======= ======= ======= =======
Long-Term
Obligations $47,853 $24,429 $23,609 $24,110 $24,564
======= ======= ======= ======= =======
Shareholders'
Equity $20,362 $19,984 $19,984 $19,989 $21,148
======= ======= ======= ======= =======
Per Share
Data:
Basic Earnings
Per Share $ 2.36 $ 1.90 $ 1.71 $ 1.79 $ 1.53
======= ======= ======= ======= =======
Dividends
Per Share $ 2.12 $ 1.90 $ 1.71 $ 2.53 $ 1.62
======= ======= ======= ======= ========
Weighted
Average
Number of
Shares
Outstanding 1,559 1,559 1,559 1,559 1,559
======= ======= ======= ======= ========
</TABLE>
(1) All of the financial data set forth above has been stated for the
fiscal years ended October 31, 1998 and 1997 and restated for each of
the fiscal years ended October 31, 1994 through 1996 using the equity
method of accounting for Westwood Hills. See "First Real Estate
Investment Trust Of New Jersey Notes to Financial Statements - Notes 1
and 2."
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Registrant is an equity REIT which owns a portfolio of residential
apartment and retail properties. The Registrant's revenues consist primarily of
fixed rental income and additional rent in the form of expense reimbursements
derived from its income producing retail properties. The Registrant also
receives income from its 40% owned affiliate, Westwood Hills, which owns a
residential apartment property. The Registrant's policy has been to acquire real
property for long-term investment.
During the period covering fiscal 1996 through the first quarter of
fiscal 1999, the events which had the most significant impact on the
Registrant's operations were (i) the closing and demolition of the old Franklin
Lakes shopping center in December 1996 and the completion of construction of the
new and expanded (approximately 87,000 square feet) Franklin Crossing shopping
center in the fourth quarter of fiscal 1997; (ii) the acquisition in December
1997 of the Patchogue, New York single tenant retail property which has a large
Pathmark supermarket super store (63,900 square feet) as its tenant; and (iii)
the series of mortgage financings which the Registrant closed during fiscal 1998
and the first quarter of fiscal 1999.
The following discussion should be read in conjunction with the
Registrant's financial statements and related notes included elsewhere in this
Annual Report. Certain statements in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations" may constitute forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Although the Registrant believes that the expectations
reflected in such forward-looking statements are based on reasonable
assumptions, such statements are subject to risks and uncertainties, including
those discussed elsewhere in this Annual Report, that could cause actual results
to differ materially from those projected.
<PAGE>
Results of Operations
Fiscal Years ended October 31, 1998 and October 31, 1997
Revenues
For the fiscal year ended October 31, 1998, total revenue increased
$2,734,000(23.4%) from $11,698,000 in fiscal 1997 to $14,432,000. $2,313,000 of
the increase in revenues is due, primarily, to the December 1997 acquisition of
the property in Patchogue, New York and the reopening of the new and expanded
Franklin Crossing shopping center in the fourth quarter of fiscal 1997. Grand
Union which leases approximately 47% of the available leasable space and
operates a supermarket at Franklin Crossing commenced paying rent in October
1997. At October 31, 1998, Franklin Crossing was 60% occupied and 65% leased.
The balance of the revenue increase is attributable to increased revenues at the
Registrant's other properties and its 40% equity in the earnings of Westwood
Hills.
Expenses
For the year ended October 31, 1998, total expenses increased
$2,012,000 (23.0%) from $8,735,000 in fiscal 1997 to $10,747,000 in fiscal 1998.
$1,133,000 of this increase is attributable to an increase in financing costs
(including a one-time debt retirement charge of $130,000) resulting from the
Registrant's increased debt level. See "Item 1(a) General Development of
Business - Fiscal 1998 Developments; Mortgage Financings and Amendment and
Extension of Credit Facility." Real estate operating expenses increased $528,000
(11.7%) from $4,498,000 in fiscal 1997 to $5,026,000 in fiscal 1998, primarily
due to $470,000 attributable to the operations at Patchogue and Franklin
Crossing. Depreciation increased $331,000 (25.1%) from $1,319,000 in fiscal 1997
to $1,650,000 in fiscal 1998 primarily due to additional depreciation taken on
the Patchogue and Franklin Crossing properties. In fiscal 1999, the Registrant
expects its rental revenues to continue to grow at a faster rate than its
expenses. Under the terms of their leases, retail tenants reimburse the
Registrant for the majority of the operating expenses and real estate taxes
incurred at the retail properties. Varying occupancy rates affect the amount of
reimbursements received by the Registrant. For the past three fiscal years,
average occupancy at the retail properties has been 98.5%.
Net Income and Funds from Operations
For the fiscal year ended October 31, 1998, the Registrant's net income
increased $722,000 (24.4%) from $2,963,000 in fiscal 1997 to $3,685,000.
Earnings per share increased from $1.90 per share in fiscal 1997 to $2.36 per
share in fiscal 1998. Earnings at operating properties increased $1,801,000
(31.5%) to $7,538,000 from $5,733,000 for the prior year. Earnings at same
properties increased 5.9% as a result of high, stable occupancy levels, and
revenue increases (3.7%) outpacing expense increases (1.4%). Earnings from the
Registrant's new retail property in Patchogue, New York and the reopened
Franklin Crossing shopping center accounted for the majority of the earnings
increases. Funds from Operations ("FFO") increased $900,000 (20.5%) from
$4,399,000 ($2.82 per share) in fiscal 1997 to $5,299,000 ($3.40 per share) in
fiscal 1998.
The Registrant believes that in fiscal 1999 the continued economic
strength in the employment markets in which its properties are located should
allow the Registrant to realize its current occupancy rates for its apartment
properties with a sound support base for its retail properties. The Registrant
expects that continued increasing occupancy at Franklin Crossing should generate
increased earnings and FFO in fiscal 1999.
<PAGE>
FFO is a standard measurement of a REIT's performance. It is an
indication of a REIT's financial results and its ability to pay dividends. FFO
is defined by the Registrant as net income, excluding (i) deferred rents and
gains and losses from property sales and (ii) real estate related depreciation
and amortization. FFO does not represent cash generated from operating
activities in accordance with generally accepted accounting principles ("GAAP"),
and therefore should not be considered a substitute for net income as a measure
of results of operations or for cash flow from operations as a measure of
liquidity. Additionally, the application and calculation of FFO by certain other
REITs may vary materially from that of the Registrant, and therefore the
Registrant's FFO and the FFO of other REITs may not be directly comparable. As
an example, the definition of FFO adopted by the National Association of Real
Estate Investment Trusts ("NAREIT") encourages including the "straight lining"
of rents. The Registrant does not incorporate straight line rents in determining
FFO which results in lesser amounts of FFO reported by the Registrant than if it
used the method of calculation adopted by NAREIT.
Fiscal Years ended October 31, 1997 and October 31, 1996
Revenues
The Registrant's total revenue increased $281,000 (2.5%) from
$11,417,000 in fiscal 1996 to $11,698,000 in fiscal 1997. The Registrant's
shopping center in Franklin Lakes, New Jersey was closed and demolished in
December 1996. As a practical matter, the shopping center was really closed for
the last quarter of fiscal 1996, since the Registrant did not renew leases as
they expired. Construction on the new and expanded Franklin Crossing was not
completed until August 1997 and did not reopen until the end of fiscal 1997.
Rental income would have been greater in fiscal 1996 and fiscal 1997 if the
Franklin Lakes shopping center had not been closed. However, the Registrant
expects that the new and expanded Franklin Crossing shopping center will provide
a more significant contribution to the Registrant's revenues and income than was
provided by the previous shopping center.
Expenses
For the fiscal year ended October 31, 1997, the Registrant's total
expenses decreased by $20,000 from $8,743,000 in fiscal 1996 to $8,723,000. The
decrease in expenses in fiscal 1997 was mainly a result of certain increased
costs in fiscal 1996 incurred during the harsh winter of 1996 such as snow
removal costs and utility costs that were not incurred during fiscal 1997.
Property taxes are a major component of operating expenses. The Registrant
continues to vigorously appeal real estate assessments where appropriate in an
effort to assure that its properties are fairly assessed for real estate tax
purposes.
During the demolition and the construction of the new Franklin Crossing
shopping center, various costs were incurred by the Registrant. In accordance
with GAAP, the costs relating to construction were capitalized during the period
of construction. The effect of capitalizing construction costs is that while the
Registrant is experiencing cash outflows with respect to such costs, there is an
immaterial effect on the Registrant's fiscal 1997 Statement of Income and
Undistributed Earnings with respect to such capitalized costs.
<PAGE>
Net Income and Funds from Operations
For the fiscal year ended October 31, 1997, the Registrant's net income
increased $301,000 (11.3%) from $2,662,000 in fiscal 1996 to $2,963,000.
Earnings per share for fiscal 1997 was $1.90 as compared to $1.71 for fiscal
1996. FFO increased $231,000 (5.5%) in fiscal 1997 from $4,158,000 ($2.67 per
share) in fiscal 1996 to $4,399,000 ($2.82 per share). Earnings at operating
properties increased 4.3%.
Liquidity and Capital Resources
At October 31, 1998, the Registrant's cash and cash equivalents totaled
$793,000 as compared to $228,000 at October 31, 1997. At December 31, 1998, cash
and cash equivalents totaled $14,942,000. Net cash inflows from the Registrant's
operations amounted to $5.1 million in fiscal 1998 as compared to $3.7 million
in fiscal 1997 and $3.3 million in fiscal 1996. In fiscal 1997, the Registrant
recognized the declining cost trend of fixed rate, long-term financing, and
developed a plan to replace its reliance on its short-term, variable rate
financing with long-term, fixed rate financing.
During fiscal 1998, the Registrant mortgaged a previously debt free
property for $11,100,000, and refinanced an existing $5,157,000 mortgage for
$10,600,000. The net proceeds from these financings of approximately $16,065,000
were used to repay the then outstanding balance under the Summit Bank line of
credit, fund construction costs at Franklin Crossing, and pay the cash portion
of the Patchogue acquisition. See "Item 1(a) General Development of Business -
Fiscal Year 1998 Developments." In the first quarter of fiscal 1999, the
Registrant closed on a series of mortgage financings which yielded net cash
proceeds of $12,706,000 to the Registrant. In addition, the Registrant's 40%
owned affiliate, Westwood Hills, also completed a mortgage financing in the
first quarter of fiscal 1999 which yielded approximately $4,900,000 in net cash
proceeds. Approximately $2 million of these proceeds was distributed to the
Registrant in accordance with its equity ownership.
As a result of the various mortgage financings, and reflecting the
reduced collateral available, the Registrant's line of credit from Summit Bank
was reduced from $20 million at October 31, 1997, to $12.3 million at October
31, 1998, and to $8 million at November 30, 1998. The Registrant may use this
line of credit to finance the acquisition or development of additional
properties and for general business purposes. At October 31, 1998 and December
31, 1998, there were no outstanding borrowings under the line of credit as
compared to $11.4 million which was outstanding at October 31, 1997.
At October 31, 1998, the Registrant's aggregate outstanding mortgage
debt was approximately $47.9 million as compared to approximately $24.4 million
at October 31, 1997 and approximately $34 million at October 31, 1996. At
December 31, 1998, the Registrant's aggregate outstanding mortgage debt was
$60.69 million. Cash flow from operations has been sufficient to meet all
operational needs of the Registrant. The Registrant anticipates that the cash
flow from operations will be more than sufficient to meet the Registrant's
increased mortgage obligations. However, to the extent the proceeds from the
various financings cannot be redeployed to earn more than the stated interest
costs, there will be a negative impact on earnings and cash flow available to
pay dividends.
<PAGE>
The Registrant continues to make capital improvements to, primarily,
its apartment properties when it deems such improvements to be necessary or
appropriate. The short term impact of such capital outlays will be to depress
the Registrant's 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. Other than the apartment
rehabilitation program described above, the Registrant has made no commitments
and has no understandings for any material capital expenditures during fiscal
1999 other than in the ordinary course of business.
REIT Distributions to Shareholders
Since its inception in 1961, the Registrant has elected to be treated
as a REIT for Federal income tax purposes. In order to qualify as a REIT, the
Registrant must satisfy a number of highly technical and complex operational
requirements including, that it must distribute to its shareholders at least 95%
of its REIT taxable income. The Registrant anticipates making distributions to
shareholders from operating cash flows, which are expected to increase from
future growth in rental revenues. Although cash used to make distributions
reduces amounts available for capital investment, the Registrant generally
intends to distribute not less than 95% of the Registrant's REIT taxable income
in order to satisfy the applicable REIT requirement as set forth in the Code.
Cash dividends are paid to shareholders on a quarterly basis. Dividends
per share were $2.12, $1.90 and $1.71 in the fiscal years ended October 31,
1998, 1997 and 1996, respectively. Total dividends paid to shareholders during
these three fiscal years were $3,306,750, $2,963,597 and $2,667,237,
respectively, representing 104.3%, 105.4% and 99.3% of the Registrant's REIT
taxable income of $3,171,000, $2,813,000, and $2,686,000, respectively, for each
such fiscal year. Although the Registrant receives most of its rental payments
on a monthly basis, it has and intends to continue to make regular quarterly
dividend payment distributions. The funds accumulated for dividend distributions
may be invested by the Registrant in short-term marketable instruments.
Inflation
The Registrant anticipates that the U.S. Mid-Atlantic states will
continue to experience moderate growth with limited inflation. Any sustained
inflation may, however, negatively impact the Registrant in at least two areas:
(i) the interest costs of any new mortgage financing or the use of the Summit
Bank line of credit may be higher than rates currently in effect; and (ii)
higher real estate operating costs, especially in those areas where such costs
are not chargeable to commercial tenants.
Year 2000 Issue
The Registrant and Hekemian & Co., which manages the Registrant's
developed properties and provides other services to the Registrant, have
undertaken a comprehensive assessment of the Registrant's business exposure
relative to the Y2K issue. While the Registrant does not own or use any computer
systems, the business managed by Hekemian & Co. is dependent on computer
hardware, software, systems and processes. Hekemian & Co. has advised the
Registrant that all of its major Non-IT systems are Y2K compliant and that it
expects that all major IT systems will be compliant before the end of 1999. The
Registrant expects that any costs incurred by it to assess the Y2K issue and to
remediate any Y2K problems will not have a significant adverse effect on the
Registrant's operating results or financial condition. Hekemian & Co. has also
<PAGE>
contacted the Registrant's tenants and all other critical external entities to
determine their exposure to the Y2K issue and how and if such exposure may
impact the Registrant's business. To date, no party responding to this inquiry
has indicated that it expects its business operations to be significantly
affected by the Y2K issue. At this time, the Registrant does not expect that the
Y2K issue will have a material adverse effect on its properties, business,
operating results, or financial condition. See "Item 1(a) General Development of
Business - Fiscal Year 1998 Developments; Year 2000 Issue."
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
As a result of the Registrant having replaced short-term, variable rate
financing with long-term fixed rate financing during fiscal 1998 and the first
quarter of fiscal 1999, the Registrant believes that its exposure to market risk
relating to interest rate risk is not material. The Registrant's only variable
rate financing is the Summit Bank line of credit under which there was no
outstanding balance as of December 31, 1998. The Registrant believes that its
business operations are not exposed to market risk relating to foreign currency
exchange risk, commodity price risk or equity price risk.
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data of the Registrant and
of its affiliate, Westwood Hills, are submitted as a separate section of this
Annual Report. See "Index to Financial Statements" on page F-1 of this Annual
Report.
ITEM 9 CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable.
<PAGE>
PART III
- --------
Certain information required by Part III is incorporated by reference
to the Registrant's definitive proxy statement (the "Proxy Statement") to be
filed with the Securities and Exchange Commission no later than 120 days after
the end of the Registrant's fiscal year covered by this Annual Report. Only
those sections of the Proxy Statement which specifically address the items set
forth in this Annual Report are incorporated by reference from the Proxy
Statement into this Annual Report.
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information concerning the Registrant's trustees required by this
item is incorporated herein by reference to the sections titled "Election of
Trustees" and "Compliance with Section 16(a) of the Securities Exchange Act" in
the Registrant's Proxy Statement for its Annual Meeting to be held in April
1999.
The information concerning the Registrant's executive officers required
by this item is set forth in Item 4A of Part I of this Annual Report under the
caption "Executive Officers of the Registrant."
ITEM 11 EXECUTIVE COMPENSATION
The information pertaining to executive compensation required by this
item is incorporated herein by reference to the section titled "Election of
Trustees - Executive Compensation" in the Registrant's Proxy Statement for its
Annual Meeting to be held in April 1999.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated herein by
reference to the section titled "Security Ownership of Certain Beneficial Owners
and Management" in the Registrant's Proxy Statement for its Annual Meeting to be
held in April 1999.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the section titled "Certain Relationships and Related Transactions"
in the Registrant's Proxy Statement for its Annual Meeting to be held in April
1999.
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Financial Statements of Registrant and of Registrant's
Affiliate, Westwood Hills:
(i) Reports of Independent Public Accountants for
Registrant, J.H. Cohn LLP
(ii) Balance Sheets as of October 31, 1998 and 1997
(iii) Statements of Income and Undistributed Earnings for
the years ended October 31, 1998, 1997 and 1996 for
Registrant and Statements of Income and Members'
Equity for the years ended October 31, 1998, 1997 and
1996 for Westwood Hills
(iv) Statements of Cash Flows for the years ended October
31, 1998, 1997 and 1996
(v) Notes to Financial Statements
Financial Statement Schedules:
(i) Short-Term Borrowings.
(ii) Supplementary Income Statement Information.
(iii) Real Estate and Accumulated Depreciation.
Exhibits:
See Index to Exhibits immediately following the Financial
Statements.
(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 ended October 31, 1998.
(c) Exhibits:
See Index to Exhibits.
(d) Financial Statement Schedules:
See Index to Financial Statements and Financial Statement
Schedules.
<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 report to be signed on
its behalf by the undersigned, thereunto duly authorized.
First Real Estate Investment
Trust of New Jersey
Dated: January 28, 999 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 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:
Signature Title Date
--------- ----- ----
/s/Robert S. Hekemian Chairman of the Board, Chief January 28, 1999
- --------------------- Executive Officer and
Robert S. Hekemian Trustee (Principal Executive
Officer)
/s/Donald W. Barney Trustee January 28, 1999
- -------------------
Donald W. Barney
/s/John B. Voskian Trustee January 28, 1999
- ------------------
John B. Voskian
/s/Herbert C. Klein Trustee January 28, 1999
- -------------------
Herbert C. Klein
<PAGE>
Signature Title Date
--------- ----- ----
Trustee January , 1999
- -------------------
Charles J. Dodge
Trustee January , 1999
- -------------------------
Nicholas A. Laganella
/s/Ronald J. Artinian Trustee January 28, 1999
- ---------------------
Ronald J. Artinian
/s/Alan L. Aufzien Trustee January 28, 1999
- -------------------
Alan L. Aufzien
/s/William R. DeLorenzo, Jr. Executive Secretary and January 28, 1999
- ---------------------------- Treasurer (Principal
William R. DeLorenzo, Jr. Financial and Accounting
Officer)
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES (ITEMS 8 AND 14(a))
PAGE
----
(A) FINANCIAL STATEMENTS OF REGISTRANT:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
BALANCE SHEETS
OCTOBER 31, 1998 AND 1997 F-3
STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 F-4/5
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 F-6/7
NOTES TO FINANCIAL STATEMENTS F-8/16
(B) FINANCIAL STATEMENTS OF AFFILIATE:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-17
BALANCE SHEETS
OCTOBER 31, 1998 AND 1997 F-18
STATEMENTS OF INCOME AND MEMBERS' EQUITY
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 F-19
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 F-20
NOTES TO FINANCIAL STATEMENTS F-21/23
(C) FINANCIAL STATEMENT SCHEDULES:
IX - SHORT-TERM BORROWINGS S-1
X - SUPPLEMENTARY INCOME STATEMENT INFORMATION S-1
XI - REAL ESTATE AND ACCUMULATED DEPRECIATION S-2/4
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the financial
statements or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders
First Real Estate Investment Trust of New Jersey
We have audited the accompanying balance sheets of FIRST REAL ESTATE INVESTMENT
TRUST OF NEW JERSEY as of October 31, 1998 and 1997, and the related statements
of income and undistributed earnings and cash flows for each of the three years
in the period ended October 31, 1998. 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 financial statements referred to above present fairly, in
all material respects, the financial position of First Real Estate Investment
Trust of New Jersey as of October 31, 1998 and 1997, and its results of
operations and cash flows for each of the three years in the period ended
October 31, 1998, 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 financial statements,
the information required to be set forth therein.
/S/J.H. COHN LLP
----------------
J.H. COHN LLP
Roseland, New Jersey
November 20, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
BALANCE SHEETS
OCTOBER 31, 1998 AND 1997
ASSETS 1998 1997
------- -------
(In Thousands
of Dollars)
<S> <C> <C>
Real estate, at cost, net of accumulated depreciation ................ $64,432 $53,737
Equipment, at cost, net of accumulated depreciation of
$703,000 and $657,000 ............................................ 190 184
Investment in affiliate .............................................. 1,918 1,905
Cash and cash equivalents ............................................ 793 228
Tenants' security accounts ........................................... 752 719
Note receivable - affiliate .......................................... 100
Sundry receivables ................................................... 728 280
Prepaid expenses and other assets .................................... 1,172 1,470
Deferred charges, net ................................................ 1,190 710
------- -------
Totals .................................................... $71,275 $59,233
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages payable ................................................ $47,853 $24,429
Note payable - bank .............................................. 11,429
Accounts payable and accrued expenses ............................ 401 409
Construction liabilities ......................................... 496
Dividends payable ................................................ 1,435 1,326
Tenants' security deposits ....................................... 969 905
Deferred revenue ................................................. 255 255
------- -------
Total liabilities ......................................... 50,913 39,249
------- -------
Commitments and contingencies
Shareholders' equity:
Shares of beneficial interest without par value; 1,790,000 and
1,560,000 shares authorized; 1,559,788 shares issued and
outstanding .................................................. 19,314 19,314
Undistributed earnings ........................................... 1,048 670
------- -------
Total shareholders' equity ................................ 20,362 19,984
------- -------
Totals .................................................... $71,275 $59,233
======= =======
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
INCOME 1998 1997 1996
----------- ----------- -----------
(In Thousands of Dollars,
Except per Share Amounts)
<S> <C> <C> <C>
Revenue:
Rental income .................................. $ 12,450 $ 9,982 $ 9,589
Reimbursements ................................. 1,576 1,433 1,568
Equity in income of affiliate .................. 213 139 92
Sundry income .................................. 193 144 168
----------- ----------- -----------
Totals ..................................... 14,432 11,698 11,417
----------- ----------- -----------
Expenses:
Operating expenses ............................. 2,989 2,588 2,483
Management fees ................................ 576 495 476
Real estate taxes .............................. 1,758 1,692 1,739
Interest ....................................... 3,762 2,629 2,750
Depreciation ................................... 1,650 1,319 1,295
----------- ----------- -----------
Totals ..................................... 10,735 8,723 8,743
----------- ----------- -----------
Income before state income taxes ................... 3,697 2,975 2,674
Provision for state income taxes ................... 12 12 12
----------- ----------- -----------
Net income ......................................... $ 3,685 $ 2,963 $ 2,662
=========== =========== ===========
Basic earnings per share ........................... $ 2.36 $ 1.90 $ 1.71
=========== =========== ===========
Basic weighted average shares outstanding .......... 1,559,788 1,559,788 1,559,788
=========== =========== ===========
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
(continued)
1998 1997 1996
----------- ----------- -----------
(In Thousands of Dollars,
Except per Share Amounts)
<S> <C> <C> <C>
UNDISTRIBUTED EARNINGS
Balance, beginning of year ......................... $ 670 $ 670 $ 675
Net income ......................................... 3,685 2,963 2,662
Less dividends ..................................... (3,307) (2,963) (2,667)
----------- ----------- -----------
Balance, end of year ............................... $ 1,048 $ 670 $ 670
=========== =========== ===========
Dividends per share ................................ $ 2.12 $ 1.90 $ 1.71
=========== =========== ===========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
1998 1997 1996
-------- -------- --------
(In Thousands of Dollars)
<S> <C> <C> <C>
Operating activities:
Net income ................................................... $ 3,685 $ 2,963 $ 2,662
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ............................ 1,777 1,356 1,333
Equity in income of affiliate ............................ (213) (139) (92)
Deferred revenue ......................................... (4) 2
Changes in operating assets and liabilities:
Tenants' security accounts ............................ (33) 35 (28)
Sundry receivables, prepaid expenses and other assets . (150) (712) (585)
Accounts payable and accrued expenses ................. (8) 131 (54)
Tenants' security deposits ............................ 64 52 26
-------- -------- --------
Net cash provided by operating activities ......... 5,122 3,682 3,264
-------- -------- --------
Investing activities:
Capital expenditures ......................................... (5,347) (7,723) (880)
Distributions from affiliate ................................. 200 160 140
Loan to affiliate ............................................ (100)
-------- -------- --------
Net cash used in investing activities ............. (5,247) (7,563) (740)
-------- -------- --------
Financing activities:
Dividends paid ............................................... (3,198) (2,667) (2,792)
Proceeds (repayments) of note payable - bank ................. (11,429) 5,767 493
Net proceeds from mortgage refinancing ....................... 5,443 1,314
Proceeds from mortgage borrowings ............................ 11,100
Repayment of mortgages ....................................... (619) (494) (501)
Deferred mortgage costs ...................................... (607)
-------- -------- --------
Net cash provided by (used in) financing activities 690 3,920 (2,800)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ............. 565 39 (276)
Cash and cash equivalents, beginning of year ..................... 228 189 465
-------- -------- --------
Cash and cash equivalents, end of year ........................... $ 793 $ 228 $ 189
======== ======== ========
Supplemental disclosure of cash flow data:
Interest paid, net of capitalized interest of $68,000 in 1998
and $158,000 in 1997 ..................................... $ 3,763 $ 2,589 $ 2,883
======== ======== ========
Income taxes paid ............................................ $ 12 $ 12 $ 8
======== ======== ========
</TABLE>
F-6
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
Supplemental schedule of noncash investing and financing activities:
During 1998, the Trust completed its acquisition of a 64,000 square foot
commercial property in Patchogue, New York for approximately $11,000,000,
in part, with the proceeds of a $7,500,000 mortgage.
Dividends declared but not paid amounted to $1,435,000, $1,326,000 and
$1,029,000 in 1998, 1997 and 1996, respectively.
Capital expenditures incurred but not paid amounted to $496,000 in 1997.
See Notes to Financial Statements.
F-7
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO 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, Maryland and New York.
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 1998, 1997 and 1996,
the Trust made such an election.
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.
Investment in affiliate:
The Trust's 40% investment in Westwood Hills, LLC (the
"Affiliate") is accounted for using the equity method.
Cash and cash equivalents:
The Trust maintains its cash in bank deposit accounts which,
at times, may exceed Federally insured limits. The Trust
considers all highly liquid investments purchased with a
maturity of three months or less to be 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.
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. Amortization of such costs is
included in interest expense and approximated $67,000,
$40,000 and $85,000 in 1998, 1997 and 1996, respectively.
Deferred leasing commissions are amortized on the
straight-line method over the terms of the applicable
leases.
F-8
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting policies (concluded):
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.
Advertising:
The Trust expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations amounted
to approximately $73,000, $33,000 and $49,000 in 1998, 1997
and 1996, respectively.
Earnings per share:
The Trust has presented "basic" earnings per share in the
accompanying statements of income in accordance with the
provisions of Statement of Financial Accounting Standards
No. 128, Earnings per Share ("SFAS 128"). SFAS 128 also
requires the presentation of "diluted" earnings per share if
the amount differs from basic earnings per share. Basic
earnings per share is calculated by dividing net income by
the weighted average number of common shares outstanding
during each period. The calculation of diluted earnings per
share is similar to that of basic earnings per share, except
that the denominator is increased to include the number of
additional common shares that would have been outstanding if
all potentially dilutive common shares, such as those
issuable upon the exercise of stock options and warrants,
were issued during the period. For each of the three years
in the period ended October 31, 1998, the Trust had no
potentially dilutive common shares.
Other recent accounting pronouncements:
The Financial Accounting Standards Board has issued certain
other pronouncements as of October 31, 1998 that will
become effective in subsequent periods; however, management
does not believe that any of those pronouncements will
effect any financial accounting measurements or disclosures
the Trust will be required to make.
Reclassifications:
Certain amounts in the 1997 and 1996 financial statements
have been reclassified to conform with the current
presentation.
F-9
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 2 - Investment in affiliate:
The Trust is a 40% member of the Affiliate, a limited liability
company that is 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
Affiliate owns a residential apartment complex located in
Westwood, New Jersey.
Summarized financial information of the Affiliate as of October
31, 1998 and 1997 and for each of the three years in the period
ended October 31, 1998 is as follows:
1998 1997
------- -------
(In Thousands
of Dollars)
Balance sheet data:
Assets:
Real estate and equipment, net ... $14,416 $14,696
Other ............................ 976 551
------- -------
Total assets ............... $15,392 $15,247
======= =======
Liabilities and equity:
Liabilities:
Mortgage payable .............. $10,025 $10,192
Other ......................... 576 295
------- -------
Totals ..................... 10,601 10,487
------- -------
Members' equity:
Trust ......................... 1,918 1,905
Others ........................ 2,873 2,855
------- -------
Totals ..................... 4,791 4,760
------- -------
Total liabilities and equity $15,392 $15,247
======= =======
1998 1997 1996
------ ------ ------
(In Thousands of Dollars)
Income statement data:
Rental revenue ... $2,617 $2,497 $2,360
Rental expenses .. 2,086 2,149 2,130
------ ------ ------
Net income ....... $ 531 $ 348 $ 230
====== ====== ======
F-10
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 2 - Investment in affiliate (concluded):
At October 31, 1998, the Trust had a $100,000 note receivable
from the Affiliate that is due on demand and bears interest at
7%. Interest income was not material for the year ended October
31, 1998.
Note 3 - Real estate:
Real estate consists of the following:
<TABLE>
<CAPTION>
Range of
Estimated
Useful Lives 1998 1997
------------ ------- -------
(In Thousands
of Dollars)
<S> <C> <C> <C>
Land $22,773 $20,244
Unimproved land 2,305 2,310
Apartment buildings 7-40 years 11,013 10,711
Commercial buildings and shopping
centers 15-50 years 39,931 30,328
Construction in progress 2,053 2,126
------- -------
78,075 65,719
Less accumulated depreciation 13,643 11,982
------- -------
Totals $64,432 $53,737
======= =======
</TABLE>
Note 4 - Mortgages payable:
Mortgages payable consist of the following:
1998 1997
------- -------
(In Thousands
of Dollars)
Northern Life Insurance Cos. - Frederick, MD (A) ..... $18,876 $19,123
Travelers Insurance - Westwood, NJ (B) ............... 5,181
National Realty Funding L.C. - Westwood, NJ (B) ...... 10,526
Summit Bank - Springlake, NJ (C) ..................... 29 125
Summit Bank - Patchogue, NY (D) ..................... 7,410
Federal Home Loan Mortgage Corporation - Wayne, NJ (E) 11,012
------- -------
Totals ...................................... $47,853 $24,429
======= =======
(A) The mortgage is payable in monthly installments of $152,153
including interest at 8.31% through June 2007 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 $24,510,000.
F-11
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 4 - Mortgages payable (concluded):
(B) On January 9, 1998, the Trust repaid the existing
mortgage on the Westwood, New Jersey shopping center
utilizing proceeds from a new mortgage in the amount
of $10,600,000 with National Realty Funding L.C. The
new mortgage is payable in monthly installments of
$73,248 including interest at 7.38% through February
2013 at which time the outstanding balance is due.
The mortgage is secured by the shopping center in
Westwood, New Jersey having a net book value of
approximately $11,510,000.
(C) Payable in monthly installments of $8,555 including
interest at 7.625% through March 1999. The mortgage
is secured by an apartment building in Spring Lake,
New Jersey having a net book value of approximately
$532,000. One of the directors of the bank is a
trustee of the Trust (see Note 10).
(D) Payable in monthly installments of $54,816 including
interest at 7.375% through January 2005 at which time
the outstanding balance is due. The mortgage is
secured by a commercial building in Patchogue, New
York having a net book value of approximately
$10,700,000.
(E) Payable in monthly installments of $76,023 including
interest at 7.29% through July 2010 at which time the
outstanding balance is due. The mortgage is secured
by an apartment building in Wayne, New Jersey having
a net book value of approximately $1,573,000.
Principal amounts (in thousands of dollars) due under the above
obligations in each of five years subsequent to October 31, 1998
are as follows:
Year Ending
October 31, Amount
----------- ------
1999 $630
2000 650
2001 702
2002 759
2003 820
Based on borrowing rates currently available to the Trust, the
fair value of the mortgage debt is approximately $50,000,000 at
October 31, 1998.
F-12
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 5 - Note payable - bank:
At October 31, 1997, note payable - bank consisted of borrowings
under a revolving line of credit agreement with Summit Bank
which expired on April 30, 1998, at which time the agreement was
renegotiated and extended to May 31, 1999. Maximum allowable
borrowings under the agreement were $12,310,000 and $20,000,000
at October 31, 1998 and 1997, respectively. The line of credit
bears interest at the bank's floating base rate plus .25% or the
LIBOR rate plus 175 basis points. Outstanding borrowings are
secured by all of the Trust's properties except commercial
property located in Frederick, Maryland, Westwood, New Jersey
and Patchogue, New York, apartment buildings in Wayne, New
Jersey, River Edge, New Jersey and Maywood, New Jersey and any
vacant land owned by the Trust. There were no outstanding
borrowings under the agreement at October 31, 1998.
In connection with new financing discussed in Note 10, maximum
borrowings under the line of credit agreement were reduced to
$8,000,000 effective November 19, 1998.
Note 6 - Commitments and contingencies:
Leases:
Retail tenants:
The Trust leases retail space having a net book value
of approximately $56,791,000 at October 31, 1998 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, 1998 are as follows:
Year Ending
October 31, Amount
----------- ------
1999 $ 6,331
2000 6,063
2001 5,904
2002 5,560
2003 5,176
Thereafter 50,039
--------
Total $ 79,073
========
F-13
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 6 - Commitments and contingencies (concluded):
Leases (concluded)
Retail tenants (concluded):
The above amounts assume that all leases which expire
are not renewed and, accordingly, neither minimal
rentals nor rentals from replacement tenants are
included.
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, 1998 were
not material.
Residential tenants:
Lease terms for residential tenants are usually one
year or less.
Standby letters of credit:
At October 31, 1998, the Trust is obligated under
irrevocable standby letters of credit of approximately
$60,000 in connection with certain required land
improvements at the Franklin Lakes shopping center.
Environmental concerns:
In accordance with applicable regulations, the Trust
reported to the New Jersey Department of Environmental
Protection that a historical discharge of hazardous material
was recently discovered at the newly renovated Franklin
Lakes shopping center (the "Center").
At present, the historical discharge material appears to be
isolated and management believes there will be no
significant effect on the operations of the Center.
In connection therewith, the Trust is required to
investigate and monitor such discharge, the cost of which
will not be material.
Note 7 - Management agreement and related party transactions:
The properties owned by the Trust are currently managed by
Hekemian. The management agreement requires fees equal to a
percentage of rents collected. Such fees were approximately
$576,000, $495,000 and $476,000 in 1998, 1997 and 1996,
respectively. In addition, Hekemian charged the Trust fees and
commissions in connection with the acquisition of the commercial
building in Patchogue, New York and various mortgage refinancing
and lease acquisition fees. Such fees and commissions amounted
to approximately $718,000 in 1998.
Note 8 - Basic earnings per share:
Basic earnings per share, based on the weighted average number
of shares outstanding during each period, are comprised of
ordinary income.
F-14
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 9 - Equity incentive plan:
On September 10, 1998, the Board of Trustees approved the
Trust's Equity Incentive Plan (the "Plan") whereby, subject to
ratification of the Plan by the Trust's stockholders, up to
230,000 of the Trust's shares of beneficial interest may be
granted to key personnel in the form of stock options,
restricted share awards and other share-based awards. In
connection therewith, the Board of Trustees approved an increase
of 230,000 shares in the Trust's number of authorized shares of
beneficial interest. Key personnel eligible for these awards
include trustees, executive officers and other persons or
entities including, without limitation, employees, consultants
and employees of consultants, who are in a position to make
significant contributions to the success of the Trust. Under the
Plan, the exercise price of all options will be the fair market
value of the shares on the date of grant. The consideration to
be paid for restricted share and other share-based awards shall
be determined by the Board of Trustees, with the amount not to
exceed the fair market value of the shares on the date of grant.
The maximum term of any award granted may not exceed ten years.
The actual terms of each award will be determined by the Board
of Trustees.
In accordance with the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25"), the Trust will recognize compensation costs as a result of
the issuance of restricted share and other share-based awards
based on the excess, if any, of the fair value of the underlying
stock at the date of grant or award (or at an appropriate
subsequent measurement date) over the amount the recipient must
pay to acquire the stock. Therefore, the Trust will not be
required to recognize compensation expense as a result of any
grants of stock options, restricted share and other share-based
awards at an exercise price that is equivalent to or greater
than fair value. The Trust will also make proforma disclosures,
as required by Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS 123"), of
net income or loss as if a fair value based method of accounting
for stock options had been applied instead if such amounts
differ materially from the historical amounts.
Note 10- Subsequent events:
On November 2, 1998, the Trust closed on a $5,375,000 mortgage
with Larson Financial Resources, Inc. The mortgage is payable in
monthly installments of $43,711 including interest at 6.75%
through December 2013 at which time the outstanding balance is
due. The mortgage is secured by an apartment building in River
Edge, New Jersey having a net book value of approximately
$1,369,000.
On November 2, 1998, the Trust also closed on a $3,900,000
mortgage with Larson Financial Resources, Inc. The mortgage is
payable in monthly installments of $33,676 including interest at
6.75% through December 2013 at which time the outstanding
balance is due. The mortgage is secured by an apartment building
in Maywood, New Jersey having a net book value of approximately
$949,000.
F-15
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 10- Subsequent events (concluded):
On November 19, 1998, the Trust repaid the outstanding mortgage
on the Spring Lake, New Jersey apartment building (approximately
$29,000 - see Note 4) utilizing proceeds from a new mortgage in
the amount of $3,700,000 with Larson Financial Resources, Inc.
The new mortgage is payable in monthly installments of $29,863
including interest at 6.70% through December 2013 at which time
the outstanding balance is due.
Principal amounts (in thousands of dollars) due under the above
obligations in each of the five years subsequent to October 31,
1998 are as follows:
Year Ending
October 31, Amount
----------- ------
1999 $115
2000 147
2001 157
2002 168
2003 179
* * *
F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members
Westwood Hills, LLC
We have audited the accompanying balance sheets of WESTWOOD HILLS, LLC as of
October 31, 1998 and 1997, and the related statements of income and members'
equity and cash flows for each of the three years in the period ended October
31, 1998. These financial statements are the responsibility of the Company'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 financial statements referred to above present fairly, in
all material respects, the financial position of Westwood Hills, LLC as of
October 31, 1998 and 1997, and its results of operations and cash flows for each
of the three years in the period ended October 31, 1998, in conformity with
generally accepted accounting principles.
/S/J.H. COHN LLP
----------------
J.H. COHN LLP
Roseland, New Jersey
November 18, 1998
F-17
<PAGE>
<TABLE>
<CAPTION>
WESTWOOD HILLS, LLC
(A New Jersey Limited Liability Company)
BALANCE SHEETS
OCTOBER 31, 1998 AND 1997
ASSETS
1998 1997
------- -------
(In Thousands
of Dollars)
<S> <C> <C>
Real estate, at cost, net of accumulated depreciation of $1,362,000
and $1,044,000 .................................................. $14,330 $14,611
Equipment, at cost, net of accumulated depreciation of $37,000
and $22,000 ..................................................... 86 85
Cash ................................................................. 51 107
Tenants' security accounts ........................................... 284 256
Prepaid expenses and other assets .................................... 106 112
Refundable deposit ................................................... 465
Deferred charges, net ................................................ 70 76
------- -------
Totals ...................................................... $15,392 $15,247
======= =======
LIABILITIES AND MEMBERS' EQUITY
Liabilities:
Mortgage payable ................................................ $10,025 $10,192
Notes payable - related parties ................................. 250
Accounts payable and accrued expenses ........................... 41 27
Tenants' security deposits ...................................... 285 268
------- -------
Total liabilities ........................................... 10,601 10,487
Members' equity ...................................................... 4,791 4,760
------- -------
Totals ...................................................... $15,392 $15,247
======= =======
</TABLE>
See Notes to Financial Statements.
F-18
<PAGE>
<TABLE>
<CAPTION>
WESTWOOD HILLS, LLC
(A New Jersey Limited Liability Company)
STATEMENTS OF INCOME AND MEMBERS' EQUITY
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
INCOME 1998 1997 1996
------- ------- -------
(In Thousands of Dollars)
<S> <C> <C> <C>
Revenue:
Rental income .................................... $ 2,592 $ 2,479 $ 2,343
Sundry income .................................... 25 18 17
------- ------- -------
Totals ....................................... 2,617 2,497 2,360
------- ------- -------
Expenses:
Operating expenses ............................... 508 546 547
Management fees .................................. 131 123 105
Real estate taxes ................................ 292 352 350
Interest ......................................... 822 802 813
Depreciation ..................................... 333 326 315
------- ------- -------
Totals ....................................... 2,086 2,149 2,130
------- ------- -------
Net income ............................................ 531 348 230
MEMBERS' EQUITY
Balance, beginning of year ............................ 4,760 4,812 4,931
Less distributions .................................... (500) (400) (349)
------- ------- -------
Balance, end of year .................................. $ 4,791 $ 4,760 $ 4,812
======= ======= =======
</TABLE>
See Notes to Financial Statements.
F-19
<PAGE>
<TABLE>
<CAPTION>
WESTWOOD HILLS, LLC
(A New Jersey Limited Liability Company)
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996
1998 1997 1996
----- ----- -----
(In Thousands of Dollars)
<S> <C> <C> <C>
Operating activities:
Net income ................................................ $ 531 $ 348 $ 230
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ......................... 363 358 349
Changes in operating assets and liabilities:
Tenants' security accounts ....................... (28) (11) (24)
Prepaid expenses and other assets ................ 6 25 (11)
Accounts payable and accrued expenses ............ 14 (42) 40
Tenants' security deposits ....................... 17 23 24
----- ----- -----
Net cash provided by operating activities .... 903 701 608
----- ----- -----
Investing activities - capital expenditures .................... (51) (94) (131)
----- ----- -----
Financing activities:
Distributions paid ........................................ (500) (400) (349)
Proceeds from notes payable - related parties ............. 250
Repayment of mortgage ..................................... (167) (154) (142)
Deferred mortgage costs ................................... (26)
Refundable deposit ........................................ (465)
----- ----- -----
Net cash used in financing activities ........ (908) (554) (491)
----- ----- -----
Net increase (decrease) in cash ................................ (56) 53 (14)
Cash, beginning of year ........................................ 107 54 68
----- ----- -----
Cash, end of year .............................................. $ 51 $ 107 $ 54
===== ===== =====
Supplemental disclosure of cash flow data:
Interest paid ............................................. $ 822 $ 802 $ 813
===== ===== =====
</TABLE>
See Notes to Financial Statements.
F-20
<PAGE>
WESTWOOD HILLS, LLC
(A New Jersey Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting policies:
Organization:
Westwood Hills, LLC (the "Company") was formed in May 1994
as a New Jersey limited liability company for the purpose of
acquiring a residential apartment complex in Westwood, New
Jersey. The Company is 40%-owned by First Real Estate
Investment Trust of New Jersey (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 Company are either trustees of the
Trust or their families or officers of Hekemian.
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.
Cash:
The Company maintains its cash in bank deposit accounts
which, at times, may exceed Federally insured limits. The
Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents. At October 31, 1998 and 1997, the Company 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 ranging from 7 to 40 years.
Deferred charges:
Deferred charges consist of mortgage costs which are
amortized on the straight-line method by annual charges to
operations over the term of the mortgage.
Advertising:
The Company expenses the cost of advertising and promotions
as incurred. Advertising costs charged to operations were
not material.
Income taxes:
The Company, 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 in the
accompanying financial statements.
F-21
<PAGE>
WESTWOOD HILLS, LLC
(A New Jersey Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
Note 2 - Real estate:
Real estate consists of the following:
1998 1997
------- -------
(In Thousands
of Dollars)
Land ........................ $ 3,849 $ 3,849
Apartment buildings ......... 11,843 11,806
------- -------
15,692 15,655
Less accumulated depreciation 1,362 1,044
------- -------
Totals ................. $14,330 $14,611
======= =======
Note 3 - Mortgage payable:
The mortgage is payable in monthly installments of $79,655
including interest at 7.8% through October 2002 at which time
the outstanding balance is due (see Note 6). The mortgage is
secured by the apartment complex.
Principal amounts (in thousands of dollars) due under the above
obligation in each of the years subsequent to October 31, 1998
are as follows:
Year Ending
October 31, Amount
----------- ------
1999 $ 180
2000 195
2001 211
2002 9,439
Based on borrowing rates currently available to the Company, the
fair value of the mortgage approximates $10,400,000 at October
31, 1998.
Note 4 - Notes payable - related parties:
At October 31, 1998, the Company had outstanding notes payable
to the Trust and an affiliated partnership owned by the
Hekemians totaling $100,000 and $150,000, respectively. The
notes are due on demand and bear interest at 7%. Interest on
such borrowings was not material for the year ended October 31,
1998.
F-22
<PAGE>
WESTWOOD HILLS, LLC
(A New Jersey Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
Note 5 - Management agreement:
The apartment complex is currently managed by Hekemian. The
management agreement requires fees equal to a percentage of
rents collected. Such fees were approximately $131,000, $123,000
and $105,000 in 1998, 1997 and 1996, respectively.
Note 6 - Subsequent event:
On November 20, 1998, the Company entered into an agreement with
Larson Financial Resources, Inc. ("Larson") to refinance its
existing mortgage with a new mortgage in the amount of
$15,500,000. The new mortgage will bear interest at 6.693% and
be payable in monthly installments of principal and interest
through January 2014 at which time the outstanding balance will
be due. Closing of the loan is expected to take place on or
before December 4, 1998. In connection therewith, prior to
October 31, 1998, the Company was required to post a refundable
deposit in the amount of $465,000 with Larson.
* * *
F-23
<PAGE>
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
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>
1998:
Note payable - bank $ -- --% $12,755 $ 1,860 7.875%
======== ==== ======= ======== =====
1997:
Note payable - bank $ 11,429 7.75% $11,429 $ 7,703 7.7%
======== ==== ======= ======== =====
1996:
Note payable - bank $ 5,662 7.98% $ 6,362 $ 5,683 8.2%
======== ==== ======= ======== =====
</TABLE>
(A) See Note 5 of notes to financial statements.
(B) Calculated using average monthly loan balances and actual interest expense.
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In Thousands of Dollars)
Column A Column B
-------- --------
Charged to Costs
and Expenses
------------------------------------------
Item (A) 1998 1997 1996
Maintenance and repairs ....... $ 373 $ 269 $ 252
====== ====== ======
Real estate taxes ............. $1,758 $1,691 $1,739
====== ====== ======
- ------------
(A) Amounts for other items were less than 1% of revenue in all years.
S-1
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
(In Thousands of Dollars)
Reconciliation of real estate and accumulated depreciation:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Real estate:
Balance, beginning of year .................... $ 65,719 $ 57,879 $ 57,035
Additions:
Building and improvements ................. 12,363 8,002 824
Carrying costs ............................ (7) (162) 20
-------- -------- --------
Balance, end of year .......................... $ 78,075 $ 65,719 $ 57,879
======== ======== ========
Accumulated depreciation:
Balance, beginning of year .................... $ 11,982 $ 11,043 $ 9,780
Additions - charged to operating expenses ..... 1,661 1,277 1,263
Deletions ..................................... (338)
-------- -------- --------
Balance, end of year .......................... $ 13,643 $ 11,982 $ 11,043
======== ======== ========
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION
OCTOBER 31, 1998
(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 Improve- Carrying and
Description brances Land Improvements Land ments Costs Land Improvements Total(1)
----------- ------- ---- ------------ ---- ----- ----- ---- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Garden apartments:
Sheridan Apts., Camden, NJ $ 117 $ 360 $ 938 $ 117 $ 1,298 $ 1,415
Grandview Apts., Hasbrouck
Heights, NJ 22 180 197 22 377 399
Lakewood Apts., Lakewood, NJ 11 396 209 11 605 616
Hammel Gardens, Maywood, NJ 313 728 668 313 1,396 1,709
Palisades Manor, Palisades
Park, NJ 12 81 85 12 166 178
Steuben Arms, River Edge, NJ 364 1,773 395 364 2,168 2,532
Heights Manor, Spring Lake
Heights, NJ $ 29 109 974 337 109 1,311 1,420
Berdan Court, Wayne, NJ 11,012 250 2,206 1,486 250 3,692 3,942
Retail properties:
Franklin Lakes Shopping Center,
Franklin Lakes, NJ 29 $3,382 6,704 3,411 6,704 10,115
Glen Rock, NJ 12 36 22 12 58 70
Patchogue Shopping Center,
Patchogue, NY 7,410 2,128 8,818 2,128 8,818 10,946
Westridge Shopping Center,
Frederick, MD 18,876 9,135 19,159 338 9,135 19,497 28,632
Westwood Shopping Center,
Westwood, NJ 10,526 6,889 6,416 491 6,889 6,907 13,796
Vacant land:
Franklin Lakes, NJ 224 (168) 56 56
Rockaway, NJ 1,683 $394 2,077 2,077
South Brunswick, NJ 80 92 172 172
------- ------- ------- ------ ------- ---- ------- ------- -------
Totals $47,853 $21,378 $41,127 $3,214 $11,870 $486 $25,078 $52,997 $78,075
======= ======= ======= ====== ======= ==== ======= ======= =======
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
Column F Column G Column H Column I
-------- -------- -------- --------
Life on
Which De-
Accumulated Date of Date preciation
Depreciation Construction Acquired is Computed
------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Garden apartments:
Sheridan Apts., Camden, NJ $ 767 1950 1964 7-40 years
Grandview Apts., Hasbrouck
Heights, NJ 252 1925 1964 7-40 years
Lakewood Apts., Lakewood, NJ 444 1960 1962 7-40 years
Hammel Gardens, Maywood, NJ 773 1949 1972 7-40 years
Palisades Manor, Palisades
Park, NJ 117 1935/70 1962 7-40 years
Steuben Arms, River Edge, NJ 1,207 1966 1975 7-40 years
Heights Manor, Spring Lake
Heights, NJ 888 1967 1971 7-40 years
Berdan Court, Wayne, NJ 2,369 1964 1965 7-40 years
Retail properties:
Franklin Lakes Shopping Center,
Franklin Lakes, NJ 126 1963/75/97 1966 10-50 years
Glen Rock, NJ 46 1940 1962 10-31.5 years
Patchogue Shopping Center,
Patchogue, NY 246 1997 1997 39 years
Westridge Shopping Center,
Frederick, MD 4,122 1986 1992 15-31.5 years
Westwood Shopping Center,
Westwood, NJ 2,286 1981 1988 15-31.5 years
Vacant land:
Franklin Lakes, NJ 1966/93
Rockaway, NJ 1964/92/93
South Brunswick, NJ 1964
-------
Totals $13,643
=======
</TABLE>
(1) Aggregate cost is the same for Federal income tax purposes.
S-4
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
EXHIBIT INDEX
Exhibit No. Exhibit
*3 Amended and Restated Declaration of Trust of First Real Estate
Investment Trust of New Jersey, dated November 7, 1993, as
amended on May 31, 1994 and on September 10, 1998.
4 Form of Specimen Share Certificate, Beneficial Interest in First
Real Estate Investment Trust of New Jersey.
10 Management Agreement, dated December 20, 1961, by and between the
Registrant and Hekemian & Co., as amended.
24 Power of Attorney (filed with signature pages).
27 Financial Data Schedule.
* Incorporated by reference to Exhibit No. 1 to Registrant's
Registration Statement on Form 8-A filed with the Securities and
Exchange Commission on November 6, 1998.
E-1
[GRAPHIC-STOCK CERTIFICATE OF FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY]
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
CUSIP 336142 10 4
CREATED IN NEW JERSEY BY A DECLARATION OF TRUST
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS Certifies that
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, NO PAR VALUE, OF
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY transferable on the books of
the Trust by the holder hereof in person or by duly authorized attorney upon
surrender of this certificate properly endorsed. This certificate and the shares
represented hereby are issued and shall be held subject to all of the provisions
specified in the Declaration of Trust and any amendments thereto, to all of
which the hereby holder, by acceptance hereof, assents.
Under the terms of the Declaration of Trust, the Trust may refuse to transfer
shares if such transfer may endanger the qualification of the Trust as a Real
Estate Investment Trust, pursuant to Section 856 et seq. of the Internal Revenue
Code of 1986, as amended.
This certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar. WITNESS the
seal of the Trust and the signature of its duly authorized
officers.
Dated:
[GRAPHIC-SEAL]
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY 1961
/s/ /s/
- ------------------- ---------------------
Treasurer Chairman of the Board
Countersigned and Registered:
REGISTRAR AND TRANSFER COMPANY
(New Jersey)
Transfer Agent
and Registrar,
Authorized Signature
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - _________ Custodian __________
(Cust) (Minor)
under Uniform Gifts to Minors
Act __________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
________________________________________________________________________________
________________________________________________________________________________
______________________________________________________________ Shares ________
of Beneficial Interest represented by the within certificate, and do hereby
irrevocably constitute and appoint _____________________________________________
________________________________________________________________________________
Attorney to transfer the said shares on the books of the within-named Trust with
power of substitution in the premises.
Dated, ________________________________
_________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the cerficate, in every particular, without alteration
or enlargement, or any change whatever.
THIS AGREEMENT, made this 20th day of December, 1961, between THE FIRST
REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, (an unincorporated Trust), having
offices at #477 Main Street, Hackensack, New Jersey, hereinafter referred to as
the "Trust", and S. HEKEMIAN & CO., INC. (now Hekemian & Co., Inc), a New Jersey
Corporation, having offices at #477 Main Street, Hackensack, New Jersey,
hereinafter referred to as the "Managing Agent";
W I T N E S S E T H:
WHEREAS, the Trust is about to engage in the business of investing in
improved and unimproved real estate and real estate mortgages and other
investments and will require and desires to retain the services of the Managing
Agent;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, IT IS UNDERSTOOD AND AGREED, as follows:
1. The Trust hereby retains and hires the Managing Agent as its sole
and exclusive agent to generally manage and service all of its
real estate properties and mortgages, and agrees during the term
of this Agreement to purchase, sell, exchange, rent, lease,
operate, maintain and service said investments only through and
by the Managing Agent.
2. The Managing Agent agrees to undertake said hiring and in
connection therewith and not in limitation or restriction thereof
specifically agrees to undertake the following:
(a) Seek out and recommend to the Trust investments suitable
for the Trust.
(b) At the request of the Trust to investigate any investments
that the Trust may contemplate making and report thereon
to the Trust.
(c) To rent or lease, on terms acceptable to the Trust, the
properties owned by the Trust.
(d) To collect and receive all rents, mortgage payments,
interest and all other income from real estate to which
the Trust is entitled, and to account monthly to the Trust
therefor. Managing Agent shall use its best effort to
collect rent
<PAGE>
and other income from real estate interests of the Trust.
It may in it discretion compromise claims for such rent
and other income and may institute legal proceedings in
its own name or in the name of the Trust to collect same,
to oust or dispossess tenants or others occupying said
real estate interests and otherwise to enforce the rights
of the Trust with respect thereto. Managing Agent may in
its discretion compromise or settle such proceedings. The
foregoing authority to enforce the collection of rents and
to compromise or settle said proceedings except in
emergencies is subject to the prior approval of the
Trustees.
(e) To employ and supervise all labor and to purchase and
contract for all materials, supplies and services required
for the operation and ordinary maintenance, alteration,
improvement and repair of the Trust properties. Except in
those cases when, in the opinion of the Managing Agent, an
emergency necessitates so doing before the Trust approval
can be reasonably obtained, the Managing Agent shall not
make or incur extraordinary repairs, alterations or
improvements or expenditures without approval of the
Trust, and may, in connection with such extraordinary
repairs, alterations or improvements, hire or use its
employee or employees to coordinate and expedite said work
in addition to general contractors, sub-contractors and
architects as it may deem necessary, in which case the
salary or compensation of said employee or employees
attributable to the said work shall be chargeable to the
Trust.
(f) To periodically inspect all of the Trust properties and
make such recommendations for the maintenance and
improvement thereof as it deems advisable.
(g) From time to time to retain and cooperate with such
accountants, architects, engineers, contractors,
attorneys, and others, as it deems necessary for the
proper operation, maintenance and preservation of the
Trust properties and Trust affairs.
-2-
<PAGE>
(h) To purchase such insurance of every nature as it deems
advisable to protect the real estate interest of the
Trust, including but not limited to fire insurance with
extended coverage, boiler, elevator, public liability, and
workman's compensation insurance. The Trust shall be named
as a party in interest in such policies of insurance and
the policies or certificates of insurance shall be
delivered to the Trust. Managing Agent may receive from
others and retains its customary compensation for its
services as an insurance agent or broker in placing such
insurance.
(i) To check and present to the Trust for timely payment, all
payments due for taxes, insurance, mortgage payments and
all other obligations incurred in connection with the
operation, maintenance, alteration, improvement and repair
of Trust properties.
(j) In its discretion, to defend against and seek revision of,
or appeal from, any assessment or charge which it deems
improper. All such actions may be taken in the name of the
Trust or in Managing Agent's name, in the discretion of
the Managing Agent. Managing Agent may, if it deems
advisable, employ independent real estate experts for
appraisals and testimony in connection with such actions.
Managing Agent may also, in its discretion, pay any such
charges or assessments under protest and seek refunds
thereof, and compromise or settle any proceeding or claim
with respect thereto. Except in emergencies the foregoing
authority is to be exercised subject to the prior approval
of the Trustees.
(k) To service all mortgages owned by the Trust.
(l) To sell such of the real estate properties as the Trust
may, from time to time, decide to dispose of. To recommend
the sale and disposition of Trust properties as and when
it may deem advisable.
(m) To submit periodic and such special reports as the Trust
may require and request as to the properties managed by
the Managing Agent.
-3-
<PAGE>
(n) To maintain complete and accurate records of all its
transactions relating to real estate interests of the
Trust and make such records available for inspection by
the Trust or its representatives at reasonable times.
(o) To act as real estate consultant and adviser for the
Trust.
(p) To perform such other incidental duties in connection with
the proper operation, maintenance and improvement of the
real estate properties of the Trust as the Trust may
reasonably require and request.
3. The Trust hereby gives the Managing Agent the power and authority
necessary to perform the foregoing services and agrees to assume
the expenses and disbursements incurred in connection therewith,
and agrees to indemnify and save harmless the Managing Agent from
contractual or other liability claims, or other damages in the
performance of its duties hereunder to the extent that such
liability is not covered by insurance, and to the extent that it
does not arise by reason of the Managing Agent's gross
negligence, willful misconduct or actions committed by it in
violation of or beyond the scope of this Agreement, and to carry,
at its own expense, public liability, elevator liability, and
steam boiler insurance adequate to protect the interests of the
parties hereto, which policies shall be so written as to protect
the Managing Agent in the same manner and to the same extent as
the Trust. The Managing Agent agrees to indemnify and save the
Trust harmless from any claims or liability to the extent that
such liability is not covered by insurance and was incurred by
reason of the Managing Agent's gross negligence, willful
misconduct or actions committed by it in violation or beyond the
scope of this Agreement. The Managing Agent shall be entitled to
advice of counsel for the Trust with respect to any actions
undertaken by it or proposed to be undertaken by it under the
terms of this Agreement, and shall not be liable for any action
undertaken or omitted in good faith on the advice of such
counsel.
4. In consideration of the foregoing services to be performed by the
Managing Agent, the Trust agrees to pay to the Managing Agent,
the customary monthly management, rental and sales commissions
and fees in the manner and according to the recommended schedule
of commissions as adopted by the Bergen County Board of
-4-
<PAGE>
Realtors, or as set forth in a comparable schedule adopted by a
corresponding Board of Realtors of the area in which the property
affected is situate. Said commission may be reduced in such
amount as may be agreed upon between the Trust and the Managing
Agent as to be fair and reasonable in any transaction where its
size, nature or other factors, would, in the option of the
Trustees result in excessive compensation. Any services rendered
to the Trust for which a rate is not specified in the applicable
schedule will be compensated at the prevailing rates, or if there
is not prevailing rate, then at such rate as may be agreed upon
as fair and reasonable. In the case of purchases through the
Managing Agent where it is to the best interest of the Trust to
negotiate the purchase through a cooperating broker or on the
basis of a net purchase without compensation payable by the
Seller or at a commission payable by the Seller to the Managing
Agent at a rate less than the aforesaid applicable rates, the
Trust agrees to pay to the Managing Agent and the Managing Agent
agrees to accept such fair and reasonable compensation as to be
agreed upon between the Trust and the Managing Agent for the
Managing Agent's services in connection with said purchases. The
Managing Agent will receive no separate compensation from the
Trust for its advisory services, or for its services in acquiring
mortgages or in arranging financing. It may, however, receive and
retain compensation from mortgagees or others interested in such
financing, and in connection with insurance, it will retain
commissions from insurance companies on the placing of insurance
on trust properties.
5. At the termination or expiration of this Agreement, the Trust
shall pay to the Managing Agent, any deferred brokerage
commissions which otherwise would have become payable subsequent
to said termination or expiration and brokerage commissions on
acquisitions or dispositions of properties by the Trust with
respect to which negotiations are pending at the time of such
termination or expiration if and when such negotiations result in
an acquisition or disposition.
6. Managing Agent shall not make any claim under this Agreement
against the Trustees personally, or against the Beneficiaries of
the Trust, and shall look solely to the property of the Trust for
the payment of any claim hereunder.
-5-
<PAGE>
7. Managing Agent shall insert in all documents and agreements
prepared or executed by it on behalf of the Trust a provision
that the Trustees and the Beneficiaries shall not be personally
liable thereunder and that the other parties shall look solely to
the property of the Trust for the payment of any claim
thereunder, and reference shall be made to the Declaration of
Trust by which the Trust is constituted.
8. Managing Agent shall not, during the term of this Agreement,
acquire for its own account any real estate interest unless it
shall have first offered to the Trust the opportunity of making
such acquisition on the same terms and conditions.
9. The Trust agrees to refer to the Managing Agent all inquiries
received by it with reference to the rental or sale of all of its
real estate properties and all real estate properties offered to
the Trust for purchase, and the Managing Agent agrees to
investigate, report and recommend to the Trust thereon.
10. The Trust hereby authorizes the Managing Agent to affix on its
properties, appropriate sign or signs indicating, as the case may
be, that same are for sale, for rent, build to suit, or managed
by the Managing Agent.
11. The Trust has entered into this Agreement in reliance upon the
experience and ability of Managing Agent, and Managing Agent
shall not assign or transfer this Agreement. Nothing herein
contained, however, shall preclude the assignment or transfer of
this Agreement in connection with a reorganization or merger of
Managing Agent, nor the assignment by Managing Agent or any of
its duties of management under this Agreement to a wholly-owned
subsidiary.
12. In the event that the terms of this Agreement at any time shall
impair the status of the Trust as a "real estate investment
trust" within the meaning of the Amendment to the Internal
Revenue Code of 1954 #856 et seq., which became effective January
9, 1961, as now enacted or hereafter amended, the parties hereto
agree to negotiate such amendments to this Agreement as may be
necessary to restore or maintain such status. If for any reason
other than the terms of this Agreement, the Managing Agent shall
at any time during the terms of this Agreement not be an
"independent contractor" within the meaning of such provisions of
the Internal Revenue Code, the
-6-
<PAGE>
Managing Agent shall take such steps as may be necessary to be an
"independent contractor".
13. This Agreement shall be for a term of fifteen years and may be
terminated at the expiration of the term by not less than one
year prior written notice by either party to the other. In
default of such notice, this Agreement shall continue for
successive terms of two years on the same terms and conditions,
until terminated by notice in writing of either party to the
other not less than one year prior to the expiration of the then
current term.
In the event that the Trust shall terminate during the term of
this Agreement, this Agreement shall terminate at such time as the
liquidation and distribution of the assets of the Trust has been
substantially completed.
14. This Agreement shall be binding upon and inure to the benefit of
the parties hereto, their successors and assigns.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
signed by their proper respective officers and caused their proper respective
seals to be hereunto affixed, the day and year first above written.
THE FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
By: /s/Wilton T. Barney
-----------------------
Wilton T. Barney, President
ATTEST: /s/Jack Charshafian
----------------------------
Jack Charshafian, Secretary
S. HEKEMIAN & CO., INC.
By: /s/Samuel Hekemian, Jr.
-----------------------
Samuel Hekemian, Jr., President
ATTEST: /s/Robert Hekemian
--------------------------
Robert Hekemian, Sec'y.
-8-
<PAGE>
This amendment made this 8th day of May, 1963 to an agreement made the
20th day of December 1961, between the first Real Estate Investment Trust of New
Jersey, a business Trust having offices at 477 Main Street, Hackensack, New
Jersey, hereinafter referred to as the "Trust", and S. Hekemian and Co., Inc.,
(now Hekemian & Co., Inc.), a New Jersey corporation having offices at 477 Main
Street, Hackensack, New Jersey, hereinafter referred to as the "Managing Agent".
There shall be added to the agreement the following provision:
15. Upon default under any regulatory agreement with the Federal
Housing agreement with the Federal Housing Commissioner, which
agreement is executed in connection with an F.H.A. insured
mortgage loan, and upon request from the Commissioner, this
agreement may be terminated as to the property covered by such
regulatory agreement upon thirty days written notice.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
signed by their proper officers and cause their proper seals to be hereunto
affixed, the day and year first above written.
FIRST REAL ESTATE INVESTMENT TRUST
OF NEW JERSEY
BY:/s/Wilton T. Barney
----------------------
Wilton T. Barney, President
ATTEST:
/s/Jack Charshafian
- -------------------
Jack Charshafian, Secretary
S. HEKEMIAN & CO., INC.
BY:/s/Samuel Hekemian, Jr.
--------------------------
Samuel Hekemian, Jr., President
ATTEST:
/s/Robert Hekemian
- ------------------
Robert Hekemian, Secretary
-9-
<PAGE>
RE: R.E.I.T. - S. HEKEMIAN & CO., INC.
MANAGEMENT AGREEMENT:
Paragraph 4 of the Management Agreement provides for compensation to be paid to
S. Hekemian & Co., Inc. for its services "the customary monthly management,
rental and sales commissions and fees in the manner and according to the
recommended schedule of commissions as adopted by the Bergen County Board of
Realtors, or as set forth in a comparable schedule adopted by a corresponding
Board of Realtors of the area in which the property affected is situate."
"Said commission may be reduced in such amount as may be agreed upon between the
Trust and the Managing Agent as to be fair and reasonable in any transaction
which its size, nature or other factors, would, in the option of the Trustees,
result in excessive compensation."
If there is no schedule of charges approved by the Real Estate Board then fair
and reasonable compensation is to be negotiated.
In the case of purchase of properties where there is a cooperative broker and
therefore the compensation to the Managing Agent would be reduced, a fair and
reasonable negotiated fee is to be agreed upon.
Therefore, from the above it would appear that it was contemplated and agreed
that the Agent is entitled to management and leasing fees based upon approved
Real Estate Board rates.
(Attached to Page 5)
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 793,000
<SECURITIES> 0
<RECEIVABLES> 728,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 78,968,000
<DEPRECIATION> (14,346,000)
<TOTAL-ASSETS> 71,275,000
<CURRENT-LIABILITIES> 0
<BONDS> 47,853,000
0
0
<COMMON> 19,314,000
<OTHER-SE> 1,048,000
<TOTAL-LIABILITY-AND-EQUITY> 71,275,000
<SALES> 0
<TOTAL-REVENUES> 14,432,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,735,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,697,000
<INCOME-TAX> 12,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,685,000
<EPS-PRIMARY> 2.36
<EPS-DILUTED> 2.36
</TABLE>
