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 January 31, 2000 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 [ X ] No [ ]
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
INDEX
Part I: Financial Information
Item 1: Financial Statements
a.) Balance Sheets as at January 31, 2000 and October
31, 1999;
b.) Statements of Income and Undistributed Earnings For
the Three Months Ended January 31, 2000 and 1999;
c.) Statements of Cash Flows for the Three Months Ended
January 31, 2000 and 1999;
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 6. Exhibits and Reports on Form 8-K
<PAGE>
Item 1: Financial Statements
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
BALANCE SHEETS
January 31, 2000 and October 31, 1999
January 31, October 31,
2000 1999
-------- --------
(Unaudited) (See Note 1)
(In thousands of Dollars)
ASSETS
<S> <C> <C>
Real estate and equipment, at cost, net of accumulated
depreciation $ 63,193 $ 63,441
Investments in marketable securities 14,314 14,453
Cash and cash equivalents 772 2,083
Tenant's security accounts 754 771
Sundry receivables 1,708 1,326
Prepaid expenses and other assets 1,202 1,004
Deferred charges, net 1,324 1,350
-------- --------
Totals $ 83,267 $ 84,428
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages payable $ 59,877 $ 60,071
Accounts payable and accrued expenses 326 503
Cash distributions in excess of investment in affiliate 342 294
Dividends payable 780 1,638
Tenants' security deposits 969 1,000
Deferred revenue 417 402
-------- --------
Total liabilities 62,711 63,908
------ ------
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 1,428 1,253
Accumulated other comprehensive income (loss) (186) (47)
Total shareholders' equity 20,556 20,520
-------- --------
Totals $ 83,267 $ 84,428
======== ========
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND UNDISTRIBUTED EARNINGS
THREE MONTHS ENDED JANUARY 31, 2000 AND 1999
(Unaudited)
2000 1999
(In Thousands of Dollars,
INCOME Except Per Share Amounts)
<S> <C> <C>
Revenue:
Rental income $ 3,334 $ 3,228
Reimbursements 476 395
Equity in income (loss) of affiliate 24 (142)
Interest income 254 144
Sundry income 50 44
--------- ---------
Totals 4,138 3,669
--------- ---------
Expenses:
Operating expenses 934 808
Management fees 153 153
Real estate taxes 511 445
Financing costs 1,150 1,149
Depreciation 432 421
--------- ---------
Totals 3,180 2,976
--------- ---------
Income before state income taxes 958 693
Provision for state income taxes 3 3
--------- ---------
Net income $ 955 $ 690
========= =========
Basic earnings per share $ 0.61 $ 0.44
========= =========
Basic weighted average shares outstanding 1,559,788 1,559,788
========= =========
COMPREHENSIVE INCOME
Net income $ 955 $ 690
Other comprehensive income (loss)-unrealized loss on
marketable securities (139)
--------- ---------
Comprehensive income $ 816 $ 690
========= =========
UNDISTRIBUTED EARNINGS
Balance, beginning of year $ 1,253 $ 1,048
Net income 955 690
Less dividends (780) (624)
--------- ---------
Balance, end of period $ 1,428 $ 1,114
========= =========
Dividends per share $ 0.50 $ 0.40
========= =========
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
<CAPTION>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 2000 AND 1999
(Unaudited)
2000 1999
------- -------
(In thousands of Dollars)
<S> <C> <C>
Operating activities:
Net income $ 955 $ 690
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 473 456
Equity in (income) loss of affiliate (24) 142
Deferred revenue 15 (101)
Changes in operating assets and liabilities:
Tenants' security accounts 17 (10)
Sundry receivables, prepaid expenses and other assets (395) 59
Accounts payable and accrued expenses (177) (9)
Tenants' security deposits (31) 11
------- -------
Net cash provided by operating activities 833 1,238
------- -------
Investing activities:
Capital expenditures (184) (227)
Distributions from affiliate 72 2,080
Repayment from (loan to) affiliate - 100
Acquisition deposit (200)
------- -------
Net cash provided by (used in) investing activities (312) 1,953
------- -------
Financing activities:
Dividends Paid (1,638) (1,435)
Net proceeds from mortgage refinancing - 3,671
Proceeds from mortgage borrowings - 9,275
Repayment of mortgages (194) (168)
Deferred mortgage costs - (185)
------- -------
Net cash provided by (used by) financing activities (1,832) 11,158
------- -------
Net increase (decrease) in cash and cash equivalents (1,311) 14,349
Cash and cash equivalents, beginning of period 2,083 793
------- -------
Cash and cash equivalents, end of period $ 772 $ 15,142
======= ========
Supplemental disclosure of cash flow data:
Interest paid $ 1,127 $ 1,149
======= ========
Income taxes paid $ 3 $ 3
======= =======
Supplemental disclosure of non cash Investing and
financing activities:
Dividends declared but not paid $ 780 $ 624
======= =======
</TABLE>
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 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.
Basis of presentation:
The financial information included herein as at January 31,
2000 and for the three months ended January 31, 2000 and
1999 is unaudited and, in the opinon 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, 1999 was derived from the Trust's audited annual
report for 1999.
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.
Investments in marketable securities:
Investments in marketable debt securities classified as
"available for sale" are recorded at fair value and
unrealized gains and losses are reported as accumulated
other comprehensive income within shareholders' equity.
Cash and cash equivalents:
Financial instruments which potentially subject the Trust to
concentrations of credit risk consist primarily of cash and
cash equivalents. The Trust considers all highly liquid
investments purchased with a maturity of three months or
less to be
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting policies (continued):
cash equivalents. The Trust maintains its cash and cash
equivalents in bank and other accounts, the balances of
which, at times, may exceed Federally insured limits. At
January 31, 2000, such cash and cash equivalent balances
exceeded Federally insured limits by approximately $672,000.
Exposure to credit risk is reduced by placing such deposits
with high credit quality financial institutions.
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 $23,000 and
$21,000 for the three months ended January 31, 2000 and
1999, respectively. Deferred leasing commissions are
amortized on the straight-line method over the terms of the
applicable leases.
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 $19,000 and $9,000 for the three months
ended January 31, 2000 and 1999, 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
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and significant accounting policies (concluded):
potentially dilutive common shares, such as those issuable
upon the exercise of stock options and warrants, were issued
during the period. For the three months ended January 31,
2000, 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 three months ended January 31, 2000 and 1999, the
Trust had no potentially dilutive common shares.
Comprehensive income:
Effective November 1, 1998, the Trust adopted Statement of
Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"), which establishes new
rules for the reporting and display of comprehensive income
and its components; however, the adoption had no impact on
the Trust's net income. SFAS 130 requires unrealized gains
or losses on the Trust's available-for-sale securities, to
be included in other comprehensive income.
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 January
31, 2000 and October 31, 1999 and for the three months ended
January 31, 2000 and 1999 is as follows:
<PAGE>
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
(In thousands of dollars)
Balance sheet data:
Assets:
<S> <C> <C>
Real estate and equipment, net $ 14,139 $ 14,190
Other 742 812
-------- --------
Total assets $ 14,881 $ 15,002
======== ========
Liabilities and equity:
Liabilities:
Mortgage payable $ 15,319 $ 15,362
Other 420 378
-------- --------
Total liabilities 15,739 15,740
-------- --------
Members' equity:
Trust (342) (294)
Others (516) (444)
-------- --------
Total members' equity (858) (738)
-------- --------
Total liabilities and members' equity $ 14,881 $ 15,002
-------- --------
</TABLE>
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 2 - Investment in affiliate (concluded):
Three Months Ended
January 31, January 31,
2000 1999
----- ------
(In thousands of dollars)
Income statement data:
Rental revenue $ 696 $ 659
Expenses 636 571
----- ------
Income from rental operations 60 88
Prepayment penalty on mortgage refinancing (442)
----- ------
Net income (loss) $ 60 $ (354)
===== ======
Note 3 - Investments in marketable securities:
At January 31, 2000, the Trust's investment in marketable debt
securities, all of which were classified as available for sale,
consisted of government agency bonds. The maturities for all
securities held at January 31, 2000 and October 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Fair Value
----------------------------
Amortized January 31, October 31,
Cost 2000 1999
------------ ---------- ------------
<S> <C> <C> <C>
One to five years $ 14,000,000 $13,858,000 $ 13,986,000
Five to ten years 500,000 456,000 467,000
------------ ---------- ------------
Totals $ 14,500,000 14,314,000 $ 14,453,000
============ ========== ============
</TABLE>
Note 4 - Real estate and equipment:
Real estate and equipment consists of the following:
<TABLE>
<CAPTION>
Range of
Estimated January 31, October 31,
Useful Lives 2000 1999
------------ ---- ----
(In Thousands of Dollars)
<S> <C> <C>
Land $ 22,773 $ 22,773
Unimproved land 2,347 2,354
Apartment buildings 7-40 years 10,787 10,764
Commercial buildings and
shopping centers 15-50 years 40,752 40,723
Construction in progress 1,552 1,426
Equipment 3-15 years 531 522
-------- --------
78,742 78,562
Less accumulated deprecition 15,549 15,121
-------- --------
$ 63,193 $ 63,441
-------- --------
</TABLE>
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 5 - Mortgages payable:
Mortgages payable consist of the following:
<TABLE>
<CAPTION>
January 31, October 31,
2000 1999
-------- --------
(In thousands of Dollars)
<S> <C> <C>
Northern Life Insurance Cos. - Frederick, MD (A) $ 18,539 $ 18,609
National Realty funding L.C. - Westwood, NJ (B) 10,392 10,420
Larson Financial Resources, Inc. - Spring Lake, NJ (C) 3,653 3,664
Summit Bank - Patchogue, NY (D) 7,265 7,295
Larson Financial Resources, Inc. - Wayne, NJ (E) 10,869 10,898
Larson Financial Resources, Inc. - River Edge, NJ (F) 5,308 5,323
Larson financial Resources, Inc. - Maywood, NJ (G) 3,851 3,862
-------- --------
Totals $ 59,877 $ 60,071
-------- --------
</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 $23,781,000.
(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 $11,288,000.
(C) The new mortgage is payable in monthly installments
of $23,875 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 $508,000.
(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 $10,430,000.
(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 $1,614,000.
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 5 - Mortgages payable (concluded):
(F) Payable in monthly installments of $34,862 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
$1,282,000.
(G) Payable in monthly installments of $25,295 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
$920,000.
Principal amounts (in thousands of dollars) due under the above
obligations in each of the five years subsequent to January 31,
2000 are as follows:
Year Ending
January 31, Amount
2001 $ 764
2002 825
2003 890
2004 961
2005 7,582
Based on borrowing rates currently available to the Trust, the
fair value of the mortgage debt approximates carrying value at
January 31, 2000.
Note 6 - Line of credit agreement:
The Trust has a revolving line of credit agreement with Summit
Bank which expires in May 2001. Maximum allowable borrowings
under the agreement are $8,000,000. 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
shopping center in Franklin Lakes, New Jersey. There were no
outstanding borrowings under the agreement at January 31, 2000
and October 31, 1999. One of the directors of the bank is a
trustee of the Trust.
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 7 - Commitments and contingencies:
Leases:
Retail tenants:
The Trust leases retail space having a net book value
of approximately $55,576,000 at January 31, 2000 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
January 31, 2000 are as follows:
Year Ending
January 31, Amount
2001 $ 6,426
2002 6,198
2003 5,956
2004 5,466
2005 4,906
Thereafter 44,949
--------
Total $73,901
=======
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 the three
months ended January 31, 2000 and 1999 were not
material.
Residential tenants:
Lease terms for residential tenants are usually one
year or less.
Environmental concerns:
In accordance with applicable regulations, the Trust
reported to the New Jersey Department of Environmental
Protection ("NJDEP") that a historical discharge of
hazardous material was discovered in 1997 at the
renovated Franklin Lakes shopping center (the
"Center").
In November 1999, the Trust received a no further
action letter from the NJDEP concerning the historical
discharge at the Center. However, the Trust is required
to continue monitoring such discharge, the cost of
which will not be material.
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 7 - Commitments and contingencies (concluded):
Acquisition:
The Trust has entered in to an agreement to purchase an existing
one story neighborhood shopping center consisting of
approximately 99,000 square feet with expansion potential to
approximately 131,000 square feet in Olney, MD. The purchase
price of $15,150,000 is expected to be financed in part, with a
mortgage loan that will not exceed 70% of the appraised value of
the shopping center. The balance of the purchase price will be
provided from the Registrant's cost and marketable securities.
The closing of the purchase is expected to occur late March
2000.
Note 8 - 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
$221,000 and $204,000 for the three months ended January 31,
2000 and 1999 , respectively. In addition, Hekemian charged the
Trust fees and commissions in connection with the various
mortgage refinancing and lease acquisition fees. Such fees and
commissions amounted to approximately $13,000 and $68,000 in
2000 and 1999, respectively.
Note 9 - 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 10- 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 shareholders 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.
Upon ratification of the Plan on April 7,1999, the Trust issued
188,500 stock options which it had previously granted to key
personnel on September 10, 1998. The fair value of the options
on the date of grant was $30 per share. The options, all of
which are outstanding at October 31, 1999, are exercisable
through September 2008.
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
NOTES TO FINANCIAL STATEMENTS
Note 10- 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 LLC ("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 Annual Report, that could cause actual results to differ
materially from those projected.
Results of Operations:
Quarters ended January 31, 2000 and 1999
Revenues
For the quarter ended January 31, 2000, total revenue increased 12.8% to
$4,138,000 from $3,669,999 for the quarter ended January 31, 1999.
The revenue increase results, in part, from increased revenues at the
Registrant's operating properties: $187,000, increased interest income:
$110,000, from investing the Registrant's cash equivalents and marketable
securities, and a positive swing in the registrant's share of operations at the
Registrant's 40% owned affiliate: $166,000.
Real Estate Operations: Revenues from real estate operations increased (5.3%) to
$3,860,000 during the quarter ended January 31, 2000 from $3,667,000 for the
quarter ended January 31, 1999. The increase came primarily from higher revenues
from the Registrant's residential and retail properties. Higher per unit rental
collections were experienced at the Registrant's residential properties.
Increased revenues at the Registrant's retail properties came primarily from
increased occupancy at the Registrant's Franklin Crossing Shopping Center,
Franklin Lakes, NJ, and expense reimbursements.
Interest Income: The increase in Interest Income results from the redeployment
of approximately $14 million from institutional money market pools (during the
quarter ended January 31, 1999) to fixed income, short-to-intermediate term
Government Agency bonds (during quarter ended October 31, 1999). However, as a
result of the current higher interest rate environment then when the bonds were
acquired, the Registrant has recorded an unrealized loss of $139,000 in the
market value of these bonds (See Statement of Comprehensive Income).
Earnings From 40% Owned Affiliate: During the prior year's quarter ended January
31, 1999, the Registrant's 40% owned affiliate, Westwood Hills, refinanced its
mortgage loan incurring one-time refinancing costs of $440,000. The Registrant's
40% share of these refinancing costs ($176,000) was charged against income
during that quarter. No such comparable costs were incurred during the current
quarter ended January 31, 2000 contributing to the positive earnings swing of
$166,000.
Expenses:
For the quarter ended January 31, 2000 overall expenses increased $204,000
(6.9%) to $3,180,000 from $2,976,000 for the prior year's quarter ended January
<PAGE>
31, 1999. The major increases and percentage increases came in the following
areas: Real estate operations: $172,000 (21.5%) and Real Estate Taxes: $66,000
(14.8%). Corporate administrative expenses fell 29.8% to $114,000 from $160,000.
Real Estate Operations: Direct operating expenses increased 21.5% to $973,000
for the quarter ended January 31, 2000 from $801,000 for the comparable prior
year's quarter. The major increases resulted from higher utility costs due to
higher rates; increased landscaping and clean-up costs resulting from hurricane
Floyd damages, and other one-time other costs.
Real Estate Taxes: Real Estate Taxes increased 14.8% to $511,000 during the
quarter ended January 31, 2000 from $445,000 for the quarter ended January 31,
1999. The bulk of this increase resulted from increased assessments at the
Registrant's newer retail properties in Patchogue, NY and Franklin Lakes, NJ.
These increases were offset almost entirely by reimbursements from the retail
tenants in occupancy at these locations.
General Administrative Expense: These expenses declined 28.8% to $114,000 during
the quarter ended January 31, 2000 from $160,000 during the comparable prior
year's quarter. The reduction results primarily from lower legal costs and other
expenses.
Net Income
For the quarter January 31, 2000 Net Income increased 38.4% to $955,000 ($.61
per share) from $690,000 ($.44 per share) for the quarter ended January 31,
1999.
Net Income from real estate operations declined $55,000 (2.8%) as a result of
higher expenses during the current year's quarter compared to the prior year's
quarter. Some of the expenses are considered one-time expenses. It is
anticipated that future revenues will outpace expenses and that Net Income form
real estate operations will increase during the course of the year. The increase
in total Net Income resulted from the higher interest income, the increase in
the Registrant's share of its earnings in Westwood Hills, and lower General
Administrative Expenses (see above).
The Registrant believes that in fiscal 2000 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.
Funds From Operations ("FFO")
FFO is considered by many as a standard measurement of a REIT's performance. The
Registrant computes FFO as follows:
Three Months Ended
January 31, January 31,
2000 1999
------- -------
Net Income $ 955 $ 690
Depriciation - Real Estate 432 421
Amortization of Deferred
Mortgage Costs 23 21
Deferred Rents (93) (103)
Capital Improvements - Apartments (60)
Other 22 197
------- -------
Funds From Operations $ 1,279 $ 1,154
------- -------
<PAGE>
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.
Liquidity and Capital Resources
At January 31, 2000, the Registrant's cash, cash equivalents and marketable
securities totaled $15,086,000 compared to $16,536,000 at October 31, 1999.
These funds and the funds available from the Registrant's revolving credit line
are available for property acquisitions.
At January 31, 2000, the Registrant's aggregate outstanding mortgage debt was
approximately $60 million, with a fixed weighted average interest cost of
7.513%, and an average life of 10.97 years. The Registrant anticipates that the
cash flow from operations will be more than sufficient to meet the Registrant's
operational needs and the increased mortgage obligations. As a result of the
long-term fixed rate financing, the Registrant believes that its exposure to
market risk relating to interest rate risk is not material. 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. To offset the Registrant's increased
debt-carrying costs; the Registrant has invested approximately $14.5 million in
short-to-intermediate fixed rate Government Agency Bonds. These bonds yield a
weighted average interest of 6.475% and have a weighted maturity of 24.9 months.
Since the market value of these bonds are interest rate sensitive, a sale of all
or a portion of these bonds prior to maturity in a high interest rate
environment, may result in a loss to the Registrant (See Interest Income above).
The Registrant makes capital improvements to its 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
expenditure during fiscal 2000 other than in the ordinary course of business.
Dividends
For the quarter ended January 31, 2000, the Registrant has declared a dividend
of $.50 per share payable on March 15, 2000 to share holders of record on March
1, 2000. This compares to a $.40 per share dividend paid for the quarter ended
January 31, 1999.
Acquisition
The Registrant has entered in to an agreement to purchase an existing one-story
neighborhood shopping center consisting of approximately 99,000 sq. ft. with
expansion potential to approximately 131,000 sq. ft. in Olney, MD. The purchase
price of $15,150,000 is expected to be financed, in part, with a mortage loan
that will not exceed 70% of the apprised value of the shopping center. The
closing of the purchase is expected to occur late March 2000.
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
See "Liquidity and Capital Resources" above.
<PAGE>
Part II: Other Information
Item 1. Legal Proceedings
None.
Item 6. Exhibits and Reports of Form 8-K
No reports on Form 8-K have been filed during the quarter
ended January 31, 2000.
<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 March __, 2000
/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.
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