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 July 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
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 September 13,
2000.
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
------------------------------------------------
INDEX
-----
Part I: Financial Information
Item 1: Consolidated Financial Statements
a.) Balance Sheets as at July 31, 2000 (unaudited) and October 31, 1999;
b.) Statements of Income, Comprehensive Income and Undistributed Earnings
For the Nine and Three Months Ended July 31, 2000 and 1999
(unaudited);
c.) Statements of Cash Flows for the Nine Months Ended
July 31, 2000 and 1999 (unaudited);
d.) Notes to Financial Statements (unaudited).
e.) Report of Independent Public Accountants.
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 AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 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 $ 78,353 $ 63,441
Investments in marketable securities 9,380 14,453
Cash and cash equivalents 2,360 2,083
Note receivable - related party 1,044
Tenants' security accounts 755 771
Sundry receivables 2,019 1,326
Prepaid expenses and other assets 1,142 1,004
Deferred charges, net 1,424 1,350
---------------- -----------------
Totals $ 96,477 $ 84,428
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Mortgages payable $ 70,418 $ 60,071
Accounts payable and accrued expenses 823 503
Cash distributions in excess of earnings and investment in affiliate 359 294
Dividends payable 780 1,638
Tenants' security deposits 1,078 1,000
Deferred revenue 459 402
---------------- -----------------
Total liabilities 73,917 63,908
---------------- -----------------
Minority interest 1,034
----------------
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 2,332 1,253
Accumulated other comprehensive income (loss) (120) (47)
---------------- -----------------
Total shareholders' equity 21,526 20,520
---------------- -----------------
Totals $ 96,477 $ 84,428
================ =================
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME AND UNDISTRIBUTED EARNINGS
NINE AND THREE MONTHS ENDED JULY 31, 2000 AND 1999
(Unaudited)
Nine Months Three Months
Ended July 31, Ended July 31,
---------------------------------- --------------------------------
2000 1999 2000 1999
---- ---- ---- ----
(In Thousands of Dollars,
Except Per Share Amounts)
INCOME
------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ 10,703 $ 9,778 $ 3,873 $ 3,345
Reimbursements 1,555 1,277 561 400
Equity in income (loss) of affiliate 107 (93) 35 43
Net Investment Income 620 490 204 184
Sundry income 326 162 219 67
--------------- --------------- -------------- -------------
Totals 13,311 11,614 4,892 4,039
--------------- --------------- -------------- -------------
Expenses:
Operating expenses 2,530 2,446 769 786
Management fees 512 460 193 154
Real estate taxes 1,603 1,367 565 468
Financing costs 3,779 3,466 1,400 1,157
Depreciation 1,442 1,277 542 432
Minority interest 17 11
--------------- --------------- -------------- -------------
Totals 9,883 9,016 3,480 2,997
--------------- --------------- -------------- -------------
Income before state income taxes 3,428 2,598 1,412 1,042
Provision for state income taxes 10 9 3 4
--------------- --------------- -------------- -------------
Net income $ 3,418 $ 2,589 $ 1,409 $ 1,038
=============== =============== ============== =============
Basic earnings per share $ 2.19 $ 1.66 $ 0.90 $ 0.67
=============== =============== ============== =============
Basic weighted average shares outstanding 1,559,788 1,559,788 1,559,788 1,559,788
=============== =============== ============== =============
COMPREHENSIVE INCOME
--------------------
Net income $ 3,418 $ 2,589 $ 1,409 $ 1,038
Other comprehensive income (loss)-
unrealized gain (loss) on marketable securities (73) 49
--------------- --------------- -------------- -------------
Comprehensive income $ 3,345 $ 2,589 $ 1,458 $ 1,038
=============== =============== ============== =============
UNDISTRIBUTED EARNINGS
----------------------
Balance, beginning of period $ 1,253 $ 1,048 $ 1,703 $ 1,351
Net income 3,418 2,589 1,409 1,038
Less dividends (2,339) (1,872) (780) (624)
--------------- --------------- -------------- -------------
Balance, end of period $ 2,332 $ 1,765 $ 2,332 $ 1,765
=============== =============== ============== =============
Dividends per share $ 1.50 $ 1.20 $ 0.50 $ 0.40
=============== =============== ============== =============
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
(In Thousands of Dollars)
Operating activities:
<S> <C> <C>
Net income $ 3,418 $ 2,589
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,581 1,391
Equity in (income) loss of affiliate (107) 93
Deferred revenue 57 (141)
Minority interest 17
Changes in operating assets and liabilities:
Tenants' security accounts 16 (3)
Sundry receivables, prepaid expenses and other assets (858) (132)
Deferred charges (151) (112)
Accounts payable and accrued expenses 320 (90)
Tenants' security deposits 78 (2)
---------------- -----------------
Net cash provided by operating activities 4,371 3,593
---------------- -----------------
Investing activities:
Capital expenditures (706) (356)
Distributions from affiliate 172 2,121
Repayment from affiliate - 100
Sale of marketable securities 5,000
Acquisition of partnership interest (4,728)
---------------- -----------------
Net cash provided by (used in) investing activities (262) 1,865
---------------- -----------------
Financing activities:
Dividends paid (3,197) (2,683)
Net proceeds from mortgage refinancing - 3,671
Proceeds from mortgage borrowings - 9,275
Repayment of mortgages (573) (537)
Deferred mortgage costs (62) (185)
---------------- -----------------
Net cash provided by (used in) financing activities (3,832) 9,541
---------------- -----------------
Net increase in cash and cash equivalents 277 14,999
Cash and cash equivalents, beginning of period 2,083 793
---------------- -----------------
Cash and cash equivalents, end of period $ 2,360 $ 15,792
================ =================
Supplemental disclosure of cash flow data:
Interest paid $ 3,699 $ 3,399
================ =================
Income taxes paid $ 10 $ 9
================ =================
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
During the nine months ended July 31, 2000, the Trust completed an
acquisition of a 98,800 square foot retail property in Olney, MD for
approximately $15,648,000, in part, with the proceeds of a $10,920,000
mortgage.
During the nine months ended July 31, 2000 and 1999, the Trust had
dividends declared but not paid of $780,000 and $624,000, respectively.
See Notes to Consolidated Financial Statements
<PAGE>
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 July 31, 2000 and for the nine
and three months ended July 31, 2000 and 1999 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, 1999 was derived from the Trust's audited annual
report for 1999. The results of the Trust's operations for the nine and three
months ended July 31, 2000 are not necessarily indicative of the results of
operations for the full year ending October 31, 2000.
Principles of consolidation:
The consolidated financial statements include the accounts of the Trust and,
subsequent to March 29, 2000, its 75% owned subsidiary S and A Commercial
Associates Limited Partnership ("S and A"). The consolidated financial
statements include 100% of S and A's assets, liabilities, operations and cash
flows with the 25% interest not owned by the Trust reflected as "minority
interest." All significant intercompany accounts and transactions have been
eliminated in consolidation (See Note 2).
Investment in affiliate:
The Trust's 40% investment in Westwood Hills, LLC ("WHLLC") is accounted for
using the equity method.
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.
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 (loss) within shareholders' equity.
<PAGE>
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 maturity of three months or less to
be 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 July 31, 2000, such cash and cash equivalent balances
exceeded Federally insured limits by approximately $2,260,000. 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 financing costs and approximated $80,000 and $67,000 for the nine
months ended July 31, 2000 and 1999, respectively, and approximately $32,000 and
$23,000 for the three months ended July 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 $48,000 and
$47,000 for the nine months ended July 31, 2000 and 1999, respectively, and
approximately $16,000 and $15,000 for the three months ended July 31, 2000 and
1999, respectively.
Earnings per share:
The Trust presented "basic" earnings per share in the accompanying consolidated
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
nine and three months ended July 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 nine and three months ended July 31, 1999, the
Trust had no potentially dilutive common shares.
<PAGE>
Note 2 - Investment in affiliates:
The Trust is a 40% member of WHLLC, 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 WHLLC are either trustees of the Trust or their
families or officers of Hekemian. WHLLC owns a residential apartment complex
located in Westwood, New Jersey.
Summarized financial information of WHLLC as of July 31, 2000 and October 31,
1999 and for the nine and three months ended July 31, 2000 and 1999 is as
follows:
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
---- ----
(In thousands of dollars)
<S> <C> <C>
Balance sheet data:
Assets:
Real estate and equipment, net $ 14,017 $ 14,190
Other 675 812
------------- ------------
Total assets $ 14,692 $ 15,002
============= ============
Liabilities and equity:
Liabilities:
Mortgage payable $ 15,230 $ 15,362
Other 361 378
------------- ------------
Total liabilities 15,591 15,740
------------- ------------
Members' deficiency:
Trust (359) (294)
Others (540) (444)
------------- ------------
Total members' deficiency (899) (738)
------------- ------------
Total liabilities and members' deficiency $ 14,692 $ 15,002
============= ============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
July 31, July 31,
------------------------------------- -------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
(In thousands of dollars)
Income statement data:
<S> <C> <C> <C> <C>
Rental revenue $ 2,129 $ 2,037 $ 721 $ 703
Expenses 1,861 1,828 633 595
----------------- ---------------- ------------------ ----------------
Income from rental operations 268 209 88 108
Prepayment penalty on mortgage refinancing (442)
----------------- ---------------- ------------------ ----------------
Net income (loss) $ 268 $ (233) $ 88 $ 108
================= ================ ================== ================
</TABLE>
On March 29, 2000, the Trust acquired 100% of S and A, whose only asset is a
neighborhood shopping center in Olney, MD. The shopping center contains
approximately 98,800 square feet of gross leaseable area situated on
approximately 13 acres of land. Approximately 11 acres of the land are subject
to a ground lease expiring in 2078, and approximately 2 acres are owned in Fee
simple.
<PAGE>
The purchase price of S and A was approximately $15,648,000 of which $4,728,000
was paid in cash and $10,920,000 was financed by the proceeds of a mortgage. The
Trust agreed to sell a 25% interest in S and A, as of March 29, 2000, to a group
consisting principally of employees of Hekemian on the same basis and cost to
the Trust. The unpaid purchase price of the 25% interest accrues interest at
what the Trust's borrowing rate would be under its expired line of credit. The
receivable and accrued interest is expected to be paid within the next quarter.
The accompanying financial statements reflect the operations of the shopping
center since its acquisition.
The following unaudited pro forma information (in thousands of dollars, except
per share amounts) shows the results of operations for the nine and three months
ended July 31, 2000 and 1999 as though S and A had been acquired at the
beginning
of fiscal 1999:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
July 31, July 31,
------------------------ ------------------------
2000 1999 2000 1999
---- ---- ---- ----
(In thousands of dollars)
<S> <C> <C> <C> <C>
Revenue $ 14,069 $ 13,087 $ 4,893 $ 4,499
Expenses 10,704 10,484 3,484 3,482
---------- ---------- ----------- ----------
Income before minority interest 3,365 2,603 1,409 1,017
Minority interest 23 28 11 4
---------- ---------- ----------- ----------
Net income $ 3,342 $ 2,575 $ 1,398 $ 1,013
========== ========== =========== ==========
Earnings per share $ 2.14 $ 1.65 $ 0.90 $ 0.65
========== ========== =========== ==========
</TABLE>
The unaudited pro forma results include adjustments for depreciation based on
the purchase price, increased interest expense, and reduced net investment
income related to assets utilized to make the acquisition, and obligations
incurred to complete the transaction.
The unaudited pro forma results of operations set forth above are not
necessarily indicative of the results that would have occurred had the
acquisition been made at the beginning of the fiscal 1999 or of future results
of operations of the Trust's combined properties.
Note 3 - Investments in marketable securities:
At July 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 July 31, 2000 are as follows:
Amortized Fair
Cost Value
----------------- ---------------
(in thousands of dollars)
One to five years $ 9,000 $ 8,918
Five to ten years 500 462
----------------- ---------------
Totals $ 9,500 $ 9,380
================= ===============
<PAGE>
Note 4 - Real estate and equipment:
Real estate and equipment consists of the following:
<TABLE>
<CAPTION>
Range of
Estimated July 31, October 31,
Useful Lives 2000 1999
------------ ---- ----
(In thousands of dollars)
<S> <C> <C> <C>
Land $ 23,831 $ 22,773
Unimproved land 2,366 2,354
Apartment buildings 7-40 years 10,948 10,764
Commercial buildings and
shopping centers 15-50 years 56,500 40,723
Construction in progress 703 1,426
Equipment 3-15 years 569 522
----------- -----------
94,917 78,562
Less accumulated depreciation 16,564 15,121
----------- -----------
Totals $ 78,353 $ 63,441
=========== ===========
</TABLE>
Note 5 - Mortgages payable:
Mortgages payable consist of the following:
<TABLE>
<CAPTION>
July 31, October 31,
2000 1999
---- ----
(In thousands of dollars)
<S> <C> <C>
Nothern Life Insurance Cos. - Frederick, MD (A) $ 18,394 $ 18,609
National Realty Funding L.C. - Westwood, NJ (B) 10,335 10,420
Larson Financial Resources, Inc. - Spring Lake, NJ (C) 3,632 3,664
Summit Bank - Patchogue, NY (D) 7,223 7,295
Larson Financial Resources, Inc. - Wayne, NJ (E) 10,808 10,898
Larson Financial Resources, Inc. - River Edge, NJ (F) 5,277 5,323
Larson Financial Resources, Inc. - Maywood, NJ (G) 3,829 3,862
Summit Bank - Olney, MD (H) 10,920
------------ ------------
Totals $ 70,418 $ 60,071
============ ============
</TABLE>
(A) 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 $23,470,000.
(B) 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 $11,203,000.
(C) 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 $497,000.
<PAGE>
(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 $10,369,000. One of the directors of the
bank is a Trustee of the Trust.
(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 $1,654,000.
(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 $1,255,000.
(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 $912,000.
(H) Interest only is payable monthly at 175 basis points over the 90 day LIBOR
rate, and resets every 90 days. The current rate is 8.03%. The mortgage,
which is due on March 28, 2002, is secured by a shopping center in Olney,
MD having a net book value of approximately $15,608,000.
Principal amounts (in thousands of dollars) due under the above obligations in
each of the five years subsequent to July 31, 2000 are as follows:
Year Ending
July 31, Amount
-------- --------
2001 $ 794
2002 11,777
2003 925
2004 998
2005 7,533
Based on borrowing rates currently available to the Trust, the fair value of the
mortgage debt approximates carrying value at July 31, 2000.
Note 6 - Line of credit agreement:
The Trust had an $8,000,000 revolving line of credit that expired during May
2000. The line of credit bore interest at the bank's floating base rate plus
.25% or the LIBOR rate plus 175 basis points. The Trust is currently negotiating
to replace the credit agreement.
Note 7 - Commitments and contingencies:
Leases:
Retail tenants:
The Trust leases retail space having a net book value of approximately
$70,764,000 at July 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
non-cancelable operating leases in years subsequent to July 31, 2000 are as
follows:
<PAGE>
Year Ending
July 31, Amount
----------- ---------
2001 $ 8,018
2002 7,744
2003 7,467
2004 6,692
2005 6,065
Thereafter 48,377
---------
Total $ 84,363
=========
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 nine and three months ended July 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.
Ground Lease:
The Trust's shopping center in Olney, MD is on approximately thirteen acres of
land. Two acres are owned by the Trust in Fee Simple, and the balance of the
land, eleven acres, is subject to a ground lease expiring in 2078. Under the
terms of the ground lease the Trust is obligated to pay a fixed annual rental of
$79,956 plus two and one half percent (2 1/2%) of annual net rental
collections. The Trust is also obligated for the payment of real estate taxes
and insurance.
Note 8 - Management agreement and related party transactions:
Hekemian manages the properties owned by the Trust. The management agreement
requires fees equal to a percentage of rents collected. Such fees were
approximately $512,000 and $460,000 for the nine months ended July 31, 2000 and
1999; and approximately $193,000 and $154,000 for the three months ended July
31, 2000 and 1999, respectively. In addition, Hekemian charged the Trust fees
and commissions in connection with the acquisition of the retail center in
Olney, MD and various mortgage refinancing and lease acquisition fees. Such fees
and commissions amounted to approximately $527,000 and $707,000 for the nine
months ended July 31, 2000 and 1999; and $28,000 and $586,000 for the three
months ended July 31, 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.
<PAGE>
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 Board of Trustees will determine the
actual terms of each award. 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.
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 pro forma 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
Trust'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>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Trustees and Shareholders
First Real Estate Investment Trust of
New Jersey
We have reviewed the accompanying consolidated balance sheet of FIRST REAL
ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARY as of July 31, 2000, and
the related consolidated statements of income, comprehensive income and
undistributed earnings for the nine and three months ended July 31, 2000 and the
consolidated statement of cash flows for the nine months ended July 31, 2000.
These consolidated financial statements are the responsibility of the Trust's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review of the consolidated financial statements referred to above,
we are not aware of any material modifications that should be made to the
accompanying consolidated financial statements for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of the Trust as of October 31, 1999, and the
related statements of income, comprehensive income and undistributed earnings
and cash flows for the year then ended which are not presented herein, and in
our report dated November 22, 1999, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the
accompanying balance sheet as of October 31, 1999 is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.
The accompanying statements of income, comprehensive income and undistributed
earnings for the nine and three months ended July 31, 1999 and the statement of
cash flows for the nine months ended July 31, 1999 were not audited or reviewed
by us and, accordingly, we do not express an opinion or any other form of
assurance on them.
J.H. Cohn LLP
Roseland, New Jersey
August 23, 2000
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
Overview
The Registrant is an equity REIT that owns a portfolio of residential apartment
and retail properties, and undeveloped land. The Registrant's revenues consist
primarily of fixed rental income and additional rent in the form of percentage
rents and expense reimbursements derived from its income producing retail
properties. The registrant also receives income from its 40% owned affiliate,
Westwood Hills LLC, 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, which could cause actual results to differ
materially from those projected.
Results of Operations
Nine months ended July 31, 2000 vs. 1999
Acquisition
On March 29, 2000, the Registrant completed the acquisition of the Olney Town
Center ("Olney"), in Olney, MD. Olney is a 98,800 sq. ft. neighborhood shopping
center with expansion potential to 131,000 sq. ft. The center is 91.5% occupied.
The shopping center is situated on approximately 13 acres of land. Approximately
11 acres are subject to a ground lease expiring in 2078, and approximately 2
acres are owned in Fee simple.
The center was acquired by purchasing 100% ownership interest of S And A
Commercial Associates Limited Partnership ("S and A"). S and A's only asset at
the closing date was the shopping center. The purchase price of the center,
approximately $15,648,000, was financed, in part, with the proceeds of a
$10,920,000 mortgage, with the balance of the purchase price being supplied by
the proceeds from liquidating a portion of the Trust's marketable securities.
The Registrant has agreed to sell, as of March 29, 2000, a 25% interest is S and
A to a group consisting principally of employees of Hekemian & Co., Inc. on the
same basis and cost to the Registrant. The accompanying financial statements
include the operations of Olney since the acquisition date which are summarized
as follows:
<TABLE>
<CAPTION>
% Of Consolidated
----------------------------------
Nine Months Three Months Nine Months Three Months
Ended Ended Ended Ended
July 31, 2000 July 31, 2000 July 31, 2000 July 31, 2000
<S> <C> <C> <C> <C>
Selected Income Statement Data:
Revenues $ 737 $ 552 5.5% 11.3%
-------------- --------------
Operating Expenses 223 174 4.8% 11.4%
Financing Costs 321 237 8.5% 16.9%
Depreciation 124 93 8.6% 17.2%
Minority Interest 17 11 100.0% 100.0%
-------------- --------------
Total Expenses 685 515 6.9% 14.8%
-------------- --------------
Net Earnings $ 52 $ 37 1.5% 2.6%
============== ============== =============== ===============
Earnings Per Share $ 0.03 $ 0.02 1.5% 2.6%
============== ============== =============== ===============
</TABLE>
<PAGE>
Revenues
For the nine months ended July 31, 2000 ("Current Period"), total revenues
increased 14.6% to $13,311,000 from $11,614,000 for the nine months ended July
31, 1999 ("Prior Period"). The revenue increase results, in part, from a
$1,367,000 increase in revenues from the Trust's operating properties, a
$130,000 increase in Net Investment Income from investing the Registrant's cash
equivalents and Marketable Securities, and a positive swing of $200,000 in the
Registrant's share of operations at the Registrant's 40% owned affiliate.
Real Estate Operations: Revenues from real estate operations for the Current
Period increased 12.2% to $12,584,000 from $11,217,000 for the Prior Period. The
increase came, in part, from higher revenues at the Registrant's residential
properties resulting from higher per unit net rental collections off-setting a
1.9% decline to 93.2% in average occupancy; and increased revenues at the
Registrant's retail properties. The increase at the Registrant's retail
properties resulted primarily from increased fixed rents and expense
reimbursements, and a one time $150,000 tennant lease termination fee. These
increases resulted, primarily, from increased occupancy at the Registrant's
Franklin Crossing (Franklin Lakes, NJ) shopping center, which is now 87.6%
occupied and 91.8% leased, and Olney.
Net Investment Income: The increase in Net Investment Income results from
earning higher interest rates from the redeployment (during the quarter ended
October 31, 1999) of Funds from institutional money market pools to fixed
income, short-to-intermediate term Government Agency bonds. The increase of
$130,000 for the Current Period is net of a $68,000 loss resulting from the sale
of bonds used for the cash portion of the Olney purchase.
Earnings From 40% Owned Affiliate: During the Prior Period the Registrant's 40%
owned affiliate, Westwood Hills L.L.C., refinanced its mortgage loan incurring
one-time refinancing costs of $440,000. The Registrant's 40% share of these
costs ($176,000) was charged against income during the Prior Period. No such
comparable costs were incurred during the Current Period contributing to the
positive earnings swing of $200,000.
Expenses:
For the Current Period overall operating expenses increased $867,000 (9.6%) to
$9,883,000 from $9,016,00 for the Prior Period. The major increases and
percentage increases came in the following areas: Real estate operations
$239,000 (9.4%); real estate taxes $236,000 (17.3%) and depreciation $165,000
(12.9%). These increases were partially offset by a decline in Corporate
Administrative expenses of $86,000 (24.0%).
The majority of expense increases resulted from the acquisition of Olney during
the Current Period, and the consolidation of its operations. Overall expenses
excluding Olney increased 2.0%.
Net Income
For the Current Period Net Income increased $829,000 (32.0%) to $3,418,000
($2.19 per share) from $2,589,000 ($1.66 per share) for the Prior Period. The
earning component increases during the Current Period over the Prior Period are
as follows:
Current Period
Changes
-----------------
Real Estate Operations $ 891,000
Net Investment Income 130,000
Equity in Income of Affiliate 200,000
Financing Costs (313,000)
Depreciation (165,000)
Administrative Costs 86,000
-----------------
$ 829,000
=================
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 or increase its current occupancy rates for its apartment
properties with a sound support base for its retail properties.
<PAGE>
Results of Operations
Three months ended July 31, 2000 vs. 1999
Revenues
For the three months ended July 31, 2000 ("Current Quarter") total revenues
increased 21.1% to $4,892,000 from $4,039,000 for the three months ended July
31, 1999 ("Prior Quarter"). The revenue increase results, principally, from the
addition of Olney and increased occupancy and lease-up at the Registrant's
Franklin Crossing Shopping Center in Franklin Lakes, NJ, and a one time $150,000
tennant lease termination fee.
Expenses
Expenses for the Current Quarter increased $483,000 (16.1%) to $3,480,000 from
$2,997,000 for the Prior Quarter. Almost the entire increase is attributable to
the consolidation of Olney's operations. (See Acquisition). Excluding Olney,
expenses would have been approximately the same, with reductions in real estate
operating expenses offsetting slight increases in the other categories.
Net Income
Net Income for the Current Quarter increased 35.7% to 1,409,000 ($.90 per share)
from $1,038,000 ($.67 per share) for the Prior Quarter. The increase was
attributable to higher earnings at the operating properties and increased
earnings from the Registrant's 40% owned affiliate.
Funds From Operations ("FFO")
FFO is considered by many as a standard measurement of a REIT's performance. The
Registrant computes FFO as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
------------------------------- ------------------------------
7/31/00 7/31/99 7/31/00 7/31/99
-------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Net Income $ 3,418 $ 2,589 $ 1,409 $ 1,038
Depreciation - Real Estate 1,442 1,277 542 432
Amortization of Deferred Mortgage Costs 80 67 32 23
Deferred Rents (319) (305) (123) (98)
Capital Improvements - Apartments (230) (170) (115) (86)
Other 73 251 29 26
-------------- ------------ ------------- ---------------
Funds From Operations $ 4,464 $ 3,709 $ 1,774 $ 1,335
============== ============ ============= ===============
</TABLE>
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 REIT's may vary materially
from that of the Registrant, and therefore the Registrant's FFO and the FFO of
other REIT's may not be directly comparable.
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; and (ii) higher real estate
operating costs, especially in those areas where such costs are not chargeable
to commercial tenants.
Liquidity and Capital Resources
At July 31, 2000, the Registrant's cash, cash equivalents and marketable
securities totaled $11,740,000 compared to $16,536,000 at October 31, 1999. The
principal reason for the reduction was the liquidation of marketable securities
to be used for the cash portion of the purchase price of Olney. A significant
portion of these funds are available for property acquisitions.
<PAGE>
At July 31, 2000, the Registrant's aggregate outstanding mortgage debt was
approximately $70.4 million. Approximately $59.5 million bear a fixed weighted
average interest cost of 7.513%, and an average life of 10.47 years.
Approximately $10.9 million of mortgage debt bears an interest rate equal to 175
basis points over LIBOR and resets every 90 days. This mortgage is due March 28,
2002 and can be extended for one additional year. 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. The
Registrant believes that its exposure to market risk relating to interest rate
risk is not material since most of its mortgage debt is long term with fixed
rates. 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 $9.4 million in short-to-intermediate fixed rate Government Agency
Bonds. These bonds yield a weighted average interest of 6.483% and have a
weighted maturity of 30.0 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 Net Investment 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 capital improvement 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.
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.
It has been the Registrant's policy to pay fixed quarterly dividends for the
first three quarters of each fiscal year, and a final fourth quarter dividend
based on the fiscal year's net income and taxable income.
=====================================================================
FISCAL 2000 FISCAL 1999
----------- -----------
=====================================================================
First Quarter $ .50 $ .40
---------------------------------------------------------------------
Second Quarter $ .50 $ .40
---------------------------------------------------------------------
Third Quarter $ .50 $ .40
---------------------------------------------------------------------
Fourth Quarter $ 1.05
---------------------------------------------------------------------
Year To Date $ 1.50 $ 2.25
====== ======
=====================================================================
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 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Events
None.
Item 6. Exhibits and Reports of Form 8-K
On August 24, 2000, the Registrant filed a Report on Form 8-K, which
is incorporated herein by reference. The Form 8-K reported the
Registrant's third quarter dividend declaration and included a copy of
its results of its operations for the nine months and three months
ended July 31, 2000 that was sent to shareholders on August 23, 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 September 14, 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.
