SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended April 30, 1999 Commission File No. 2-27018
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
(exact name of registrant as specified in its charter)
New Jersey 22-1697095
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
505 Main Street, P.O. Box 667, Hackensack, New Jersey 07602
- ------------------------------------------------------ -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 201-488-6400
------------
_______________________________________________________________________________
Former name, former address and former fiscal year, if changed since last
report.
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 for such 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 XX No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
There were 1.559,788 shares of beneficial interest outstanding
at June 14, 1999.
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
------------------------------------------------
INDEX
-----
Part I: Financial Information
Item 1: Financial Statements
a.) Balance Sheets as at April 30, 1999 and October 31,
1998;
b.) Statements of Income and Undistributed Earnings For
the Six Months and three Months Ended April 30, 1999
and 1998;
c.) Statements of Cash Flows for the Six Months Ended
April 30, 1999 and 1998;
d.) Notes to Financial Statements.
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Item 3: Quantitative and Qualitative Disclosures of Market Risk.
Part II: Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Events.
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
Item 1. Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
BALANCE SHEETS
APRIL 30, 1999 AND OCTOBER 31, 1998
<TABLE>
<CAPTION>
April October
ASSETS 30, 1999 31, 1998
(Unaudited) (See Note 1)
(In Thousands of Dollars)
<S> <C> <C>
Real estate, at cost, net of accumulated depreciation $63,839 $64,432
Equipment, at cost, net of accumulated depreciation of
$309,000 and $657,000 179 190
Investment in affiliate 1,918
Cash and cash equivalents 15,536 793
Tenants' security accounts 803 752
Note receivable - affiliate 100
Sundry receivables 877 728
Prepaid expenses and other assets 1,057 1,172
Deferred charges, net 1,408 1,190
--------- ---------
Totals $83,699 $71,275
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages payable $60,448 $47,853
Accounts payable and accrued expenses 378 401
Cash distributions in excess of investment in affiliate 339
Dividends payable 624 1,435
Tenants' security deposits 1,010 969
Deferred revenue 235 255
---------- ----------
Total liabilities 63,034 50,913
-------- --------
Commitments and contingencies
Shareholders' equity:
Shares of beneficial interest without par value; 1,790,000 shares
authorized; 1,559,788 shares issued and outstanding 19,314 19,314
Undistributed earnings 1,351 1,048
--------- ---------
Total shareholders' equity 20,665 20,362
-------- --------
Totals $83,699 $71,275
======= =======
</TABLE>
See Notes to Financial Statements.
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS
SIX AND THREE MONTHS ENDED APRIL 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended April 30, Ended April 30,
------------------------- -------------------------
INCOME 1999 1998 1999 1998
------ --------- -------- --------- ---------
(In Thousands of Dollars,
Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenue:
Rental income $6,433 $6,026 $3,219 $3,108
Reimbursements 877 824 482 441
Equity in income (loss) of affiliate (136) 78 6 42
Interest income 306 162
Sundry income 95 102 51 65
--------- -------- --------- ---------
Totals 7,575 7,030 3,920 3,656
------- ------- ------- -------
Expenses:
Operating expenses 1,660 1,485 866 773
Management fees 306 273 153 145
Real estate taxes 899 889 454 447
Interest 2,309 1,869 1,160 952
Depreciation 845 792 424 417
-------- -------- -------- --------
Totals 6,019 5,308 3,057 2,734
------- ------- ------- -------
Income before state income taxes 1,556 1,722 863 922
Provision for state income taxes 5 7 2 3
---------- ---------- ---------- ----------
Net income $1,551 $1,715 $ 861 $ 919
====== ====== ======= =======
Basic earnings per share $ .99 $ 1.10 $ .55 $ .59
======== ======= ========= ========
Basic weighted average shares outstanding 1,559,788 1,559,788 1,559,788 1,559,788
========= ========= ========= =========
UNDISTRIBUTED EARNINGS
Balance, beginning of period $1,048 $ 670 $1,114 $ 842
Net income 1,551 1,715 861 919
Less dividends (1,248) (1,248) (624) (624)
------- ------- -------- --------
Balance, end of period $1,351 $1,137 $1,351 $1,137
====== ====== ====== ======
Dividends per share $ .80 $ .80 $ .40 $ .40
======== ======== ======== =======
</TABLE>
See Notes to Financial Statements.
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- ----------
(In Thousands
of Dollars)
<S> <C> <C>
Operating activities:
Net income $ 1,551 $ 1,715
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 918 852
Deferred revenue (20) (168)
Equity in (income) loss of affiliate 136 (78)
Changes in operating assets and liabilities:
Tenants' security accounts (51) (38)
Sundry receivables, prepaid expenses and other assets (34) 282
Deferred charges (106)
Accounts payable and accrued expenses (23) 37
Tenants' security deposits 41 41
----------- ----------
Net cash provided by operating activities 2,412 2,643
----------- ----------
Investing activities:
Capital expenditures (240) (5,026)
Distributions from affiliate 2,120 120
Repayment of loan by affiliate 100
----------- ----------
Net cash provided by (used in) investing activities 1,980 (4,906)
----------- ----------
Financing activities:
Dividends paid (2,059) (1,950)
Repayments of note payable - bank (11,429)
Net proceeds from mortgage refinancing 3,671 5,443
Proceeds from mortgage borrowings 9,275 11,100
Deferred mortgage costs (185) (525)
Repayment of mortgages (351) (286)
----------- ----------
Net cash provided by financing activities 10,351 2,353
----------- ----------
Net increase in cash and cash equivalents 14,743 90
Cash and cash equivalents, beginning of period 793 228
----------- ----------
Cash and cash equivalents, end of period $15,536 $ 318
=========== ==========
Supplemental disclosure of cash flow data:
Interest paid $ 2,309 $ 1,837
=========== ==========
</TABLE>
Supplemental schedule of noncash investing and financing activities: Dividends
declared but not paid amounted to $624,000 at April 30, 1999 and 1998.
During the six months ended April 30, 1998, the Trust completed its
acquisition of a 64,000 square foot retail property in Patchogue, New York
for approximately $11,000,000, in part, with the proceeds of a $7,500,000
mortgage.
See Notes to Financial Statements.
<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 on November 1, 1961 as a New Jersey
Business Trust. The Trust is engaged in owning residential
and retail income producing properties located 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.
Basis of presentation:
The financial information included herein as at April 30,
1999 and for the six and three months ended April 30, 1999
and 1998 is unaudited and, in the opinion of the Trust,
reflects all adjustments (which include only normal
recurring accruals) necessary for a fair presentation of the
financial position as of that date and the results of
operations for those periods. The information in the balance
sheet as of October 31, 1998 was derived from the Trust's
audited annual report for 1998.
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assump-tions 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 debt instruments 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.
<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 retail tenants generally provide for
additional rentals based on such factors as percentage of
tenants' sales in excess of specified volumes, increases in
real estate taxes, Consumer Price Indices and common area
maintenance charges. These additional rentals are generally
included in income when reported to the Trust, when billed
to tenants or ratably over the appropriate period.
Deferred charges:
Deferred charges consist of mortgage costs and leasing
commissions. Deferred mortgage costs are amortized on the
straight-line method by annual charges to operations over
the terms of the mortgages. Amortization of such costs is
included in interest expense and approximated $44,000 and
$30,000 for the six months ended April 30, 1999 and 1998,
respectively, and approximately $23,000 and $19,000 for the
three months ended April 30, 1999 and 1998, respectively.
Deferred leasing commissions are amortized on the
straight-line method over the terms of the applicable
leases.
Advertising:
The Trust expenses the cost of advertising and promotions as
incurred. Advertising costs charged to operations amounted
to approximately $32,000 and $23,000 for the six months
ended April 30, 1999 and 1998, respectively, and
approximately $23,000 and $9,000 for the three months ended
April 30, 1999 and 1998, 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 the six and three months
ended April 30, 1999, diluted earnings per share have not
been presented because prices of all of the outstanding
stock options approximated the average fair market value and
there were no additional shares derived from the assumed
exercise of stock options and the application of the
treasury stock method. For the six and three months ended
April 30, 1998, the Trust had no potentially dilutive common
shares.
<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 April
30, 1999 and October 31, 1998 and for the six and three months
ended April 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
April October
30, 1999 31, 1998
---------- ---------
(In Thousands of Dollars)
<S> <C> <C>
Balance sheet data:
Assets:
Real estate and equipment, net $14,304 $14,416
Other 685 976
---------- ---------
Total assets $14,989 $15,392
======= =======
Liabilities and equity:
Liabilities:
Mortgage payable $15,445 $10,025
Other 393 576
---------- ----------
Totals 15,838 10,601
-------- --------
Members' equity (deficiency):
Trust (339) 1,918
Others (510) 2,873
---------- ---------
Totals (849) 4,791
---------- ---------
Total liabilities and members' equity $14,989 $15,392
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Three Months
Ended Ended
April 30, April 30,
1999 1998 1999 1998
------ ------ ------ ------
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
Income statement data:
Rental revenue $1,334 $1,293 $675 $648
Rental expenses 1,233 1,098 662 542
------ ------ ------ ------
Income from rental operations 101 195 13 106
Prepayment penalty on mortgage
refinancing (442)
Net income (loss) $ (341) $ 195 $ 13 $106
====== ======= ===== ====
</TABLE>
At October 31, 1998, the Trust had a $100,000 note receivable
from the Affiliate that was repaid during the six months ended
April 30, 1999 with interest at 7%. Interest income was not
material.
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 3 - Real estate:
Real estate consists of the following:
<TABLE>
<CAPTION>
Range
of Estimated April October
Useful Lives 30, 1999 31, 1998
------------ -------- --------
(In Thousands
of Dollars)
<S> <C> <C>
Land $22,773 $22,773
Unimproved land 2,315 2,305
Apartment buildings 7-40 years 10,623 11,013
Retail buildings 15-50 years 40,435 39,931
Construction in progress 1,695 2,053
--------- ---------
77,841 78,075
Less accumulated depreciation 14,002 13,643
-------- --------
Totals $63,839 $64,432
======= =======
</TABLE>
Note 4 - Mortgages payable:
Mortgages payable consist of the following:
<TABLE>
<CAPTION>
April October
30, 1999 31, 1998
-------- --------
(In Thousands
of Dollars)
<S> <C> <C>
Northern Life Insurance Cos. - Frederick, MD (A) $18,746 $18,876
National Realty Funding L.C. - Westwood, NJ (B) 10,474 10,526
Summit Bank - Spring Lake, NJ (C) 29
Larson Financial Resources, Inc. - Spring Lake, NJ (C) 3,684
Summit Bank - Patchogue, NY (D) 7,354 7,410
Larson Financial Resources, Inc. - Wayne, NJ (E) 10,956 11,012
Larson Financial Resources, Inc. - River Edge, NJ (F) 5,352
Larson Financial Resources, Inc. - Maywood, NJ (G) 3,882
-------- --------
Totals $60,448 $47,853
======= =======
</TABLE>
(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 retail building in
Frederick, Maryland having a net book value of
approximately $24,234,000.
(B) The 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 a retail building in
Westwood, New Jersey having a net book value of
approximately $11,395,000.
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 4 - Mortgages payable (concluded):
(C) On November 19, 1998, the Trust repaid the outstanding
mortgage on the Spring Lake, New Jersey apartment
building utilizing proceeds from a new mortgage in the
amount of $3,700,000. 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. The mortgage is secured by
an apartment building in Spring Lake, New Jersey having
a net book value of approximately $537,000.
(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 retail building in Patchogue, New York having a
net book value of approximately $10,588,000.
(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 $1,598,000.
(F) 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 $1,334,000.
(G) 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 $938,000.
Principal amounts (in thousands of dollars) due under the above
obligations in each of the five years subsequent to April 30,
1999 are as follows:
Year Ending
April 30, Amount
--------- ------
2000 $ 768
2001 828
2002 893
2003 963
2004 1,040
Based on borrowing rates currently available to the Trust, the
fair value of the mortgage debt is approximately $63,000,000 at
April 30, 1999.
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 5 - Line of credit agreement:
The Trust has a revolving line of credit agreement with Summit
Bank which expires on May 31, 1999. Maximum allowable borrowings
under the agreement were $8,000,000 and $12,310,000 at April 30,
1999 and October 31, 1998, 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 apartment buildings in Hasbrouck Heights, New Jersey,
Lakewood, New Jersey, and Palisades Park, New Jersey as well as
a retail building in Franklin Lakes, New Jersey. There were no
outstanding borrowings under the agreement at April 30, 1999 and
October 31, 1998. One of the directors of the bank is a trustee
of the Trust.
Note 6 - Commitments and contingencies:
Leases:
Retail tenants:
The Trust leases retail space having a net book value of
approximately $56,300,000 at April 30, 1999 to tenants for
periods of up to twenty-five 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 April 30, 1999 are
as follows:
Year Ending
April 30, Amount
--------- --------
2000 $ 6,373
2001 6,211
2002 5,926
2003 5,678
2004 5,068
Thereafter 48,498
--------
Total $ 77,754
========
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 six and three months ended April
30, 1999 and 1998 were not material.
Residential tenants:
Lease terms for residential tenants are usually one year
or less.
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 6 - Commitments and contingencies (concluded):
Environmental concerns:
In accordance with applicable regulations, the Trust
reported to the New Jersey Department of Environmental
Protection that a discharge of hazardous material was
recently discovered at the newly renovated Franklin Crossing
Retail Building (the "Building").
At present, the discharge material appears to be isolated
and management believes there will be no significant effect
on the operations of the Building.
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
$306,000 and $273,000 for the six months ended April 30, 1999
and 1998, respectively, and approximately $153,000 and $145,000
for the three months ended April 30, 1999 and 1998,
respectively. In addition, Hekemian charged the Trust fees and
commissions in connection with the acquisition of the retail
building in Patchogue, New York and various mortgage refinancing
and lease acquisition fees. Such fees and commissions amounted
to approximately $121,000 and $695,000 for the six months ended
April 30, 1999 and 1998, respectively, and approximately $55,000
and $11,000 for the three months ended April 30, 1999 and 1998,
respectively.
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.
Note 9 - Equity incentive plan:
On September 10, 1998, the Board of Trustees approved the
Trust's Equity Incentive Plan (the "Plan"), which was ratified
by the Trust's stockholders on April 7, 1999, whereby 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.
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 9 - Equity incentive plan (concluded):
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.
In the opinion of management, if compensation cost for the stock
options granted in 1999 had been determined based on the fair
value of the options at the grant date under the provisions of
SFAS 123 using the Black-Scholes option pricing model and
assuming a risk-free interest rate of 5.25%, expected option
lives of ten years, expected volatility of 1% and expected
dividends of 7.13%, the Company's pro forma net income and pro
forma basic net income per share arising from such computation
would not have differed materially from the corresponding
historical amounts.
* * *
<PAGE>
Item 2.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.
The following discussion should be read in conjunction with the Registrant's
financial statements and related notes included elsewhere in this Form 10-Q.
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 Form 10-Q, that could cause actual results to differ
materially from those projected.
Results of Operations
Six months ended April 30, 1999 vs. 1998
Revenues
For the six months ended April 30, 1999, total revenue increased 7.8% to
$7,575,000 from $7,030,000 for the six months ended April 30, 1998. The revenue
increase results, in part, from a $454,000 increase in revenues generated at the
Registrant's operating properties, and a $306,000 increase in interest income
from investing the Registrant's cash equivalents. These increases were offset by
the negative swing of $214,000 in the Registrant's share of operations at its
40% owned affiliate. The revenue increase at operating properties is principally
the result of the Patchogue, LI property being included in operations for the
full 1999 six months as opposed to only four and one half months during the
prior year's six months (acquired in December 1997), and increased revenues at
the Franklin Crossing property as a result of leasing activities. The increase
in interest income is due to the investing of mortgage financing proceeds. (See
"Liquidity and Capital Resources" below). The loss resulting from the
Registrant's 40% equity interest in its affiliate is due to one-time financing
costs incurred by the affiliate in connection with mortgage financing - see
below.
Expenses
For the six months ended April 30, 1999, total expenses increased 13.4% to
$6,019,000 from $5,308,000 for the comparable prior year six months. Expenses at
operating properties increased 4.7%, with virtually all of the increase coming
from increased operating expenses and depreciation at Patchogue and Franklin
Crossing (see "Revenues" above). Financing costs registered the highest
increase, rising to $2,309,000 for the current fiscal year's six month period
from $1,869,000 (including a one time $130,000 refinancing charge) during last
year's six month period. This is attributable to higher debt levels (See
"Liquidity and Capital Resources" below). Administrative costs during the
current six months increased 79%, principally resulting from one-time costs in
connection with the Registrant becoming a 34 Act reporting company.
<PAGE>
Net Income and Funds from Operations
For the six months ended April 30, 1999, the Registrant's net income decreased
$164,000 (9.6%) to $1,551,000 from $1,715,000 for last year's first six months
ended April 30, 1998. Earnings per share decreased to $.99 per share for the
current year's six months from $1.10 per share last year. Earnings at operating
properties increased 8.2% over last year. Higher rents and occupancy rates at
the residential properties along with the higher earnings contribution from
Franklin Crossing and Patchogue accounting for this increase in earnings. The
decrease in net income is principally attributable, as discussed above, to the
Registrant's 40% share of the losses at its affiliate totaling $136,000 during
the six months ended April 30, 1999, compared to a profit of $78,000 for the
comparable prior year's six months. The losses at the affiliate were due to one
time mortgage refinancing costs, of which $177,000 was accounted for as the
Registrant's share. Funds from Operations ("FFO") during the six months ended
April 30, 1999 decreased 3.6% to $2,480,000 ($1.50 per share) from $2,573,000
($1.65 per share) for the comparable prior year six months.
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
it will be successful in leasing the Franklin Crossing will generate increased
earnings and FFO over the balance of fiscal 1999.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.
Liquidity and Capital Resources
At April 30, 1999, the Registrant's cash and cash equivalents totaled
$15,536,000 as compared to $793,000 at April 30, 1998. 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. In the first six months of fiscal 1999, the Registrant closed on a
series of mortgage financings that 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 six months of fiscal
1999 which yielded approximately $4,900,000 in net cash proceeds. Approximately
$2 million of these proceeds were distributed to the Registrant in accordance
with its equity ownership.
<PAGE>
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 April 30, 1999, there were no outstanding
borrowings under the line of credit. At April 30, 1999, the Registrant's
aggregate outstanding mortgage debt was approximately $60.4 million as compared
to approximately $48.2 million at April 30, 1998. 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.
Results of Operations
Three months ended April 30, 1999 vs. 1998
Revenues
For the three months ended April 30, 1999, total revenue increased 7.2% to
$3,920,000 from $3,656,000 for the three months ended April 30, 1998. The
revenue increase results, in part, from $139,000 of increased revenues at the
Registrant's operating properties, and $162,000 of increased interest income
from investing the Registrant's cash equivalents. These increases were offset by
the decrease in the Registrant's share of income at the Registrant's 40% owned
affiliate to $6,000 from $42,000 last year reflecting the higher financing costs
of the affiliate (see "Liquidity and Capital Resources").
Expenses
For the three months ended April 30, 1999, total expenses increased 11.8% to
$3,057,000 from $2,734,000 for the comparable prior year's three months.
Expenses at operating properties increased 4.9%. Financing costs increased to
$1,160,000 from $952,000 last year. This is attributable to higher debt levels
(See "Liquidity and Capital Resources").
Net Income and Funds from Operations
For the three months ended April 30, 1999,the Registrant's net income decreased
$58,000 (6.3%) to $861,000 from $919,000 for last year's three months ended
April 30, 1998. Earnings per share decreased to $.55 per share for the current
year's three months from $.59 per share last year. Earnings at operating
properties increased 2.8% over last year. Higher rents and occupancy rates at
the residential properties along with the higher earnings contribution from
Franklin Crossing and Patchogue accounting for this increase in earnings. The
decrease in net income is principally attributable, as discussed above, to lower
earnings from the Registrant's 40% share of the income at its affiliate, and
increased financing costs not completely off-set by interest income earned.
Funds from Operations ("FFO") during the three months ended April 30, 1999
decreased 5.2% to $1,226,000 ($.79 per share) from $1,292,000 ($.83 per share)
for the comparable prior year three months reflecting lower earnings.
<PAGE>
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 REIT taxable income in order to satisfy the applicable REIT
requirement as set forth in the Internal Revenue Code. Cash dividends are paid
to shareholders on quarterly basis. Cash dividends declared through the six
months ended April 30, 1999 & 1998 are as follows:
<TABLE>
<CAPTION>
- -------------------------- ------------------------- ------------------------
FISCAL 1999 FISCAL 1998
- -------------------------- ------------------------- ------------------------
<S> <C> <C>
First Six months $.40 $.40
- -------------------------- ------------------------- ------------------------
Second Six months $.40 $.40
- -------------------------- ------------------------- ------------------------
Year To Date $.80 $.80
- -------------------------- ------------------------- ------------------------
</TABLE>
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.
Item 3. 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
six months 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 is
no outstanding balance. 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.
<PAGE>
Part II: Other Information
Item 1. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The following maters were submitted to a vote of security
holders at the Registrant's Annual Meeting of Shareholders
held on April 7, 1999. Election of Trustees
The Shareholders re-elected Messrs. Robert S. Hekemian, John
B. Voskian and Charles J. Dodge to serve as Trustees for an
additional three (3) term. The balloting for election was as
follows:
<TABLE>
<CAPTION>
-------------------------------- ------------------ --------------- ----------------
NOMINEE FOR AGAINST WITHHELD
-------------------------------- ------------------ --------------- ----------------
<S> <C> <C> <C>
Robert S. Hekemian 1,366,665 0 3,547
-------------------------------- ------------------ --------------- ----------------
John B. Voskian 1,364,790 0 5,422
-------------------------------- ------------------ --------------- ----------------
Charles J. Dodge 1,366,655 0 3,547
-------------------------------- ------------------ --------------- ----------------
</TABLE>
Equity Incentive Plan The Shareholders adopted the Equity
Incentive Plan. The balloting for adoption was as follows:
<TABLE>
<CAPTION>
------------------ -----------------------------
VOTE NUMBER OF SHARES
------------------ -----------------------------
<S> <C>
For 1,242,883
------------------ -----------------------------
Against 79,889
------------------ -----------------------------
Abstained 14,161
------------------ -----------------------------
Withheld 33,279
------------------ -----------------------------
</TABLE>
Item 5. Other Events
MANAGEMENT AGREEMENT.
Hekemian & Co., Inc. (`Hekemian"), pursuant to the terms of a
Management Agreement, manages all of the Registrant's
properties. It was reported in the Registrant's Form 10-K for
the year ended October 31, 1998, that a dispute between the
shareholders of Hekemian had developed that will lead to the
dissolution of Hekemian. That dispute has been resolved and,
as such, dissolution of Hekemian will not be required.
Item 6. Exhibits and Reports of Form 8-K
No reports on Form 8-K have been filed during the six months
ended April 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements 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
----------------------------
(Registrant)
Date June 14, 1999
/s/ William R. DeLorenzo, Jr.
-----------------------------
(Signature)*
William R. DeLorenzo, Jr.
Executive Secretary and Treasurer
*Print name and title of the signing officer under his signature.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> APR-30-1999
<CASH> 15,536,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 78,329,000
<DEPRECIATION> (14,311,000)
<TOTAL-ASSETS> 83,699,000
<CURRENT-LIABILITIES> 0
<BONDS> 60,448,000
0
0
<COMMON> 19,314,000
<OTHER-SE> 1,351,000
<TOTAL-LIABILITY-AND-EQUITY> 83,699,000
<SALES> 0
<TOTAL-REVENUES> 7,575,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,710,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,309,000
<INCOME-PRETAX> 1,556,000
<INCOME-TAX> 5,000
<INCOME-CONTINUING> 1,551,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,551,000
<EPS-BASIC> 0.99
<EPS-DILUTED> 0.99
</TABLE>
