First Real Estate Investment Trust Of New Jersey, Inc 10-Q for FY2023 Q1
First Real Estate Investment Trust Of New Jersey, Inc. (FREVS)
About this 10-Q
First Real Estate Investment Trust Of New Jersey, Inc filed this 10-Q on March 16, 2023, covering the quarter ended January 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended January 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $6.98M
- down 34.5% from $10.65M a year earlier
- Net income
- $419K
- down 99.1% from net income of $45.78M a year earlier
- Diluted EPS
- $0.06
- down 99.1% from $6.45 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly
Period Ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________________ to ____________________
Commission File No.
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| OTC Pink Market |
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.
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large Accelerated Filer ☐ | Accelerated Filer ☐ | Smaller Reporting Company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of March
16, 2023, the number of shares of common stock outstanding was
Page 2
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC.
INDEX
Page 3
Part I: Financial Information
Item 1: Unaudited Condensed Consolidated Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| January 31, | October 31, | |||||||
| 2023 | 2022 | |||||||
| (In Thousands, Except Share and Per Share Amounts) | ||||||||
| ASSETS | ||||||||
| Real estate, at cost, net of accumulated depreciation | $ | $ | ||||||
| Construction in progress | ||||||||
| Cash and cash equivalents | ||||||||
| Investment in tenancy-in-common | ||||||||
| Tenants' security accounts | ||||||||
| Receivables arising from straight-lining of rents | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Funds held in post-closing escrow | ||||||||
| Prepaid expenses and other assets | ||||||||
| Deferred charges, net | ||||||||
| Interest rate swap contracts | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Liabilities: | ||||||||
| Mortgages payable, including deferred interest of $ | $ | $ | ||||||
| Less unamortized debt issuance costs | ||||||||
| Mortgages payable, net | ||||||||
| Deferred director compensation payable | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Dividends payable | ||||||||
| Tenants' security deposits | ||||||||
| Deferred revenue | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Common Equity: | ||||||||
| Preferred stock with par value of $0.01 per share: | ||||||||
| Common stock with par value of $0.01 per share: | ||||||||
| 7,435,753 and 7,048,344 shares issued plus 0 and 272,882 vested share units granted to directors at January 31, 2023 and October 31, 2022, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Common Equity | ||||||||
| Noncontrolling interests in subsidiaries | ( | ) | ( | ) | ||||
| Total Equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
See Notes to Condensed Consolidated Financial Statements.
Page 4
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JANUARY 31, 2023 AND 2022
(Unaudited)
| Three Months Ended January 31, | ||||||||
| 2023 | 2022 | |||||||
| (In Thousands Except Per Share Amounts) | ||||||||
| Revenue: | ||||||||
| Rental income | $ | $ | ||||||
| Reimbursements | ||||||||
| Sundry income | ||||||||
| Total revenue | ||||||||
| Expenses: | ||||||||
| Operating expenses | ||||||||
| Management fees | ||||||||
| Real estate taxes | ||||||||
| Depreciation | ||||||||
| Total expenses | ||||||||
| Investment income | ||||||||
| Net (loss) gain on sale of Maryland properties | ( | ) | ||||||
| Loss on investment in tenancy-in-common | ( | ) | ( | ) | ||||
| Interest expense including amortization of deferred financing costs | ( | ) | ( | ) | ||||
| Net income | ||||||||
| Net loss (income) attributable to noncontrolling interests in subsidiaries | ( | ) | ||||||
| Net income attributable to common equity | $ | $ | ||||||
| Earnings per share: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Weighted average shares outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
See Notes to Condensed Consolidated Financial Statements.
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FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
THREE MONTHS ENDED JANUARY 31, 2023 AND 2022
(Unaudited)
| Three Months Ended January 31, | ||||||||
| 2023 | 2022 | |||||||
| (In Thousands of Dollars) | ||||||||
| Net income | $ | $ | ||||||
| Other comprehensive (loss) income: | ||||||||
| Unrealized (loss) gain on interest rate swap contracts before reclassifications | ( | ) | ||||||
| Amount reclassified from accumulated other comprehensive income to interest expense | ( | ) | ||||||
| Net unrealized (loss) gain on interest rate swap contracts | ( | ) | ||||||
| Comprehensive (loss) income | ( | ) | ||||||
| Net loss (income) attributable to noncontrolling interests in subsidiaries | ( | ) | ||||||
| Other comprehensive loss (income): | ||||||||
| Unrealized gain on interest rate swap contracts attributable to noncontrolling interests in subsidiaries | ( | ) | ||||||
| Comprehensive loss (income) attributable to noncontrolling interests in subsidiaries | ( | ) | ||||||
| Comprehensive (loss) income attributable to common equity | $ | ( | ) | $ | ||||
See Notes to Condensed Consolidated Financial Statements.
Page 6
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
THREE MONTHS ENDED JANUARY 31, 2023
(Unaudited)
| Common Equity | ||||||||||||||||||||||||||||||||
| Common Stock | Retained | Accumulated | ||||||||||||||||||||||||||||||
| Additional Paid-In- | Earnings (Accumulated | Other Comprehensive | Total Common | Noncontrolling Interests in | ||||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit) | Income (Loss) | Equity | Subsidiaries | Total Equity | |||||||||||||||||||||||||
| (In Thousands of Dollars, Except Per Share Amounts) | ||||||||||||||||||||||||||||||||
| Balance at October 31, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||||||||||
| Vested share units granted to Directors | ||||||||||||||||||||||||||||||||
| Stock options exercised | ||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests in subsidiaries | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||||||||||||||||||
| Dividends declared | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net unrealized loss on interest rate swap contracts | ( | ) | ( | ) | — | ( | ) | |||||||||||||||||||||||||
| Balance at January 31, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
Page 7
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
THREE MONTHS ENDED JANUARY 31, 2022
(Unaudited)
| Common Equity | ||||||||||||||||||||||||||||||||
| Common Stock | Retained | Accumulated | ||||||||||||||||||||||||||||||
| Additional Paid-In- | Earnings (Accumulated | Other Comprehensive | Total Common | Noncontrolling Interests in | ||||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit) | Income (Loss) | Equity | Subsidiaries | Total Equity | |||||||||||||||||||||||||
| (In Thousands of Dollars, Except Per Share Amounts) | ||||||||||||||||||||||||||||||||
| Balance at October 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||||||||||
| Vested share units granted to Directors, including $ | ||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests in subsidiaries | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Dividends declared, including $ | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net unrealized gain on interest rate swap contracts | ||||||||||||||||||||||||||||||||
| Balance at January 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
Page 8
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 2023 AND 2022
(Unaudited)
| Three Months Ended | ||||||||
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| (In Thousands of Dollars) | ||||||||
| Operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
| Net loss (gain) on sale of Maryland properties | ( | ) | ||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Stock based compensation expense | ||||||||
| Director fees and related interest paid in stock units | ||||||||
| Loss on investment in tenancy-in-common | ||||||||
| Deferred rents - straight line rent | ||||||||
| Deferred real estate tax appeal fees | ||||||||
| Bad debt (recovery) expense | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Tenants' security accounts | ( | ) | ||||||
| Accounts receivable, prepaid expenses and other assets | ||||||||
| Accounts payable, accrued expenses and deferred director compensation payable | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Due to affiliate - accrued interest | ( | ) | ||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Investing activities: | ||||||||
| (Cash Outlays) Proceeds from sale of Maryland properties, net | ( | ) | ||||||
| Proceeds from payment of secured loans receivable inclusive of accrued interest | ||||||||
| Capital improvements - existing properties | ( | ) | ( | ) | ||||
| Deferred leasing costs | ( | ) | ( | ) | ||||
| Distribution from investment in tenancy-in-common | ||||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Financing activities: | ||||||||
| Repayment of mortgages | ( | ) | ( | ) | ||||
| Proceeds from mortgage loan refinancing | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Deferred financing costs | ( | ) | ( | ) | ||||
| Due to affiliate - loan repayment | ( | ) | ||||||
| Dividends paid | ( | ) | ( | ) | ||||
| Distributions to noncontrolling interests in subsidiaries | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow data: | ||||||||
| Interest paid | $ | $ | ||||||
| Supplemental schedule of non cash activities: | ||||||||
| Investing activities: | ||||||||
| Accrued transactional costs for sale of Maryland properties | $ | $ | ||||||
| Accrued capital expenditures, construction costs and pre-development costs | $ | $ | ||||||
| Financing activities: | ||||||||
| Dividends declared but not paid | $ | $ | ||||||
| Dividends paid in share units | $ | $ | ||||||
| The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Tenants' security accounts | ||||||||
| Funds held in post-closing escrow | ||||||||
| Mortgage escrows (included in prepaid expenses and other assets) | ||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||
See Notes to Condensed Consolidated Financial Statements.
Page 9
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of presentation:
First Real Estate Investment Trust of New Jersey was organized on November 1, 1961 as a New Jersey Business Trust. On July 1, 2021, First Real Estate Investment Trust of New Jersey completed the change of its form of organization from a New Jersey real estate investment trust to a Maryland corporation (the “Reincorporation”) which was approved by its stockholders at the annual meeting of stockholders held on May 6, 2021. The Reincorporation changed the law applicable to First Real Estate Investment Trust of New Jersey’s affairs from New Jersey law to Maryland law and was accomplished by the merger of First Real Estate Investment Trust of New Jersey with and into its wholly owned subsidiary, First Real Estate Investment Trust of New Jersey, Inc. (“FREIT”, “Trust”, “us”, “we”, “our” or the “Company”), a Maryland corporation. As a result of the Reincorporation, the separate existence of First Real Estate Investment Trust of New Jersey has ceased and FREIT has succeeded to all the business, properties, assets and liabilities of First Real Estate Investment Trust of New Jersey. Holders of shares of beneficial interest in First Real Estate Investment Trust of New Jersey have received one newly issued share of common stock of FREIT for each share of First Real Estate Investment Trust of New Jersey that they own, without any action of stockholders required and all treasury stock held by First Real Estate Investment Trust of New Jersey was retired.
FREIT is organized and will continue to operate in such a manner as to qualify for taxation as a REIT under the Internal Revenue Code of 1986, as amended, and its stock is traded on the over-the-counter market under the trading symbol FREVS.
The accompanying interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and pursuant to the rules of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnotes required by GAAP for complete financial statements have been omitted. It is the opinion of management that all adjustments considered necessary for a fair presentation have been included, and that all such adjustments are of a normal recurring nature.
The consolidated results of operations for the three-month period ended January 31, 2023 are not necessarily indicative of the results to be expected for the full year or any other period. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in FREIT’s Annual Report on Form 10-K for the year ended October 31, 2022.
Note 2 - Recently issued accounting standard:
In March 2020 and January 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2020-04 “Reference Rate Reform (ASC 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, and ASU 2021-01 “Reference Rate Reform (ASC 848): Scope” which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform in contracts and other transactions that reference the London Interbank Offered Rate or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. ASU 2020-04 and ASU 2021-01 are effective for all entities as of March 12, 2020 through the recently deferred date of December 31, 2024. We currently do not anticipate the need to modify our existing debt agreements as a result of reference rate reform in the current year, however if any modification is executed as a result of reference rate reform, the Company will elect the optional expedient available under ASU 2020-04 and ASU 2021-01, which allows entities to account for the modification as if the modification was not substantial. We will disclose the nature of and reason for electing the optional expedient in each interim and annual financial statement period if and when applicable through December 31, 2024.
Note 3 – Dividends and earnings per share:
The FREIT Board of Directors (“Board”)
declared a dividend of approximately $
Basic earnings per share is calculated by dividing
net income attributable to common equity (numerator) by the weighted average number of shares and vested share units (See Note 14) outstanding
during each period (denominator). 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 shares that would have been outstanding if all potentially dilutive
shares, such as those issuable upon the exercise of stock options, were issued during the period using the Treasury Stock method. Under
the Treasury Stock method, the assumption is that the proceeds received upon exercise of the options, including the unrecognized stock
option compensation expense attributable to future services, are used to repurchase FREIT’s stock at the average market price during
the period, thereby increasing the number of shares to be added in computing diluted earnings per share. For the three months ended January
31, 2023, the outstanding stock options increased the average dilutive shares outstanding by approximately
Page 10
the three months ended January 31, 2023 and 2022. Anti-dilutive shares consist of out-of-the money stock options under the Equity Incentive Plan (See Note 13).
Note 4 - Interest rate cap and swap contracts:
In accordance with “Accounting Standards
Codification Topic 815, Derivatives and Hedging ("ASC 815")”, FREIT has been accounting for the Damascus Centre, LLC
(“Damascus Centre”), FREIT Regency, LLC (“Regency”), Wayne PSC, LLC (“Wayne PSC”) and Station Place
on Monmouth (“Station Place”) interest rate swaps and the Grande Rotunda, LLC (“Grande Rotunda”) interest rate
cap as cash flow hedges marking these contracts to market, taking into account present interest rates compared to the contracted fixed
rate over the life of the contract and recording the unrealized gain or loss on the swaps and cap in comprehensive income (loss).
For the three months ended January 31, 2023
and 2022, FREIT recorded an unrealized loss of approximately $
The fair values are based on observable inputs (level 2 in the fair value hierarchy as provided by authoritative guidance).
Note 5 – Investment in tenancy-in-common:
On February 28, 2020, FREIT reorganized its
subsidiary S and A Commercial Associates Limited Partnership (“S&A”) from a partnership into a tenancy-in-common form
of ownership (“TIC”). Prior to this reorganization, FREIT owned a
FREIT’s investment in the TIC was approximately
$
Hekemian & Co., Inc. (“Hekemian & Co.”) manages the Pierre Towers property pursuant to a management agreement between the owners of the TIC and Hekemian & Co. dated as of February 28, 2020, which was for an initial term of one (1) year and which renews for successive one (1) year terms unless either party gives written notice of termination to the other party at least sixty (60) days prior to the end of the then-current term. The management agreement renewed for a successive one (1) year term on February 28, 2023 and will expire on February 28, 2024.
The management agreement requires the payment
of management fees equal to
Page 11
The following table summarizes the balance sheets of the Pierre Towers property as of January 31, 2023 and October 31, 2022, accounted for by the equity method:
| January 31, | October 31, | |||||||
| 2023 | 2022 | |||||||
| (In Thousands of Dollars) | ||||||||
| Real estate, net | $ | $ | ||||||
| Cash and cash equivalents | ||||||||
| Tenants' security accounts | ||||||||
| Receivables and other assets | ||||||||
| Total assets | $ | $ | ||||||
| Mortgages payable, net of unamortized debt issuance costs | $ | $ | ||||||
| Accounts payable and accrued expenses | ||||||||
| Tenants' security deposits | ||||||||
| Deferred revenue | ||||||||
| Equity | ||||||||
| Total liabilities & equity | $ | $ | ||||||
| FREIT's investment in TIC (65% interest) | $ | $ | ||||||
The following table summarizes the statements of operations of the Pierre Towers property for the three months ended January 31, 2023 and 2022, accounted for by the equity method:
| Three Months Ended January 31, | ||||||||
| 2023 | 2022 | |||||||
| (In Thousands of Dollars) | ||||||||
| Revenue | $ | $ | ||||||
| Operating expenses | ||||||||
| Depreciation | ||||||||
| Operating income | ||||||||
| Interest expense including amortization of deferred financing costs | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| FREIT's loss on investment in TIC (65% interest) | $ | ( | ) | $ | ( | ) | ||
Note 6 – Termination of Purchase and Sale Agreement:
On February 4, 2022, the Superior Court of New
Jersey, Monmouth County (“Court”) entered an Order with respect to summary judgment motions filed by the parties in connection
with litigation between certain affiliates of FREIT (the “Sellers” or “Defendant”) and Sinatra Properties, LLC
(“Sinatra” or “Plaintiff”). The litigation relates to a Purchase and Sale Agreement entered into on January 14,
2020 (“PSA”) between the Sellers and Sinatra involving the sale by the Sellers of
The Court Order entered on February 4, 2022 (the “February 4 Order”) with respect to the Summary Judgment Motions provides as follows:
| (1) | The Court finds that the Plaintiff’s have breached the subject contract and the Court dismisses all claims for relief filed by the Plaintiffs in this suit. The Court dismissed the Complaint and dismisses the Lis Pendens. |
| (2) | The Court finds that the liquidated damage provision of the contract is not enforceable and the Court
Orders that the $ |
| (3) | The Court dismisses the Counterclaims and Third Party Complaint. All pleadings are dismissed. |
Page 12
On May 31, 2022, Sinatra filed a Motion for Reconsideration with the Court, requesting that the Court reconsider its February 4, 2022 Order and, among other things, (a) grant Sinatra’s motion for summary judgment, and (b) reverse the Court’s findings that (1) Sinatra breached the Purchase and Sale Agreement, (2) the Sellers did not breach the Purchase and Sale Agreement and (3) the Court’s dismissal of the Complaint and Lis Pendens. On July 8, 2022, the Court denied Sinatra’s Motion for Reconsideration.
Following the February 4 Order, the Sellers
and the Purchaser each filed a motion for an award of attorney’s fees and costs pursuant to the applicable provisions of the Purchase
and Sale Agreement. On December 8, 2022 the Court entered an Order awarding Sellers $
On December 8, 2022, the Sellers filed a
Notice of Appeal, appealing from that portion of the February 4 Order which declined to enforce the liquidated damages provision in
the Purchase and Sale Agreement. As a result of such appeal by the Sellers, the liquidated damage amount of $
On December 22, 2022, the Purchaser filed a
Notice of Cross Appeal appealing from all determinations by the Court adverse to the Purchaser, including (i) that portion of the February
4 Order holding that the Purchaser breached the contract; (ii) the denial of the Purchaser’s motion for reconsideration of the February
4 Order; and (iii) the December 8 Order awarding the Sellers $
The Sellers continue to believe that the allegations set forth in the Complaint filed by Sinatra and in the Answer to Counterclaims and Third-Party Complaint and Affirmative Defenses filed by Sinatra and Kushner Realty Acquisition LLC, are without merit.
Through the quarter ended January 31, 2023, the $
Note 7 – Maryland property dispositions:
On November 22, 2021, certain affiliates (the
“Maryland Sellers”) of FREIT entered into a Purchase and Sale Agreement (the “Maryland Purchase and Sale Agreement”)
with MCB Acquisition Company, LLC (the “Maryland Purchaser”), a third party, pursuant to which the Maryland Sellers agreed
to sell three properties to the Maryland Purchaser. The properties consisted of retail and office space and a residential apartment community
owned by Grande Rotunda, LLC (the “Rotunda Property”), a shopping center owned by Damascus Centre, LLC (the “Damascus
Property”), and a shopping center owned by WestFREIT Corp. (the “Westridge Square Property”). FREIT owns
The sale of the Maryland Properties having a
total net book value of $
On August 4, 2022, FREIT’s Board declared
a special, extraordinary, non-recurring cash distribution of approximately $
As the disposal of the Maryland Properties did not represent a strategic shift that would have a major impact on FREIT’s operations or financial results, the properties’ operations were not reflected as discontinued operations in the accompanying condensed consolidated financial statements.
Page 13
Note 8 - Management agreement, fees and transactions with related party:
Hekemian & Co. currently manages all of the properties owned by FREIT and its affiliates, except for the office building at the Rotunda Property, which was sold on December 30, 2021 and was formerly managed by an independent third party management company. The management agreement between FREIT and Hekemian & Co. dated as of November 1, 2001 (“Management Agreement”) expires on October 31, 2023 and is automatically renewed for successive periods of two years unless either party gives not less than six (6) months prior notice of non-renewal.
The Management Agreement requires the payment
of management fees equal to
From time to time, FREIT engages Hekemian &
Co., or certain affiliates of Hekemian & Co., to provide additional services, such as consulting services related to development,
property sales and financing activities of FREIT. Separate fee arrangements are negotiated between Hekemian & Co. and FREIT with respect
to such additional services. Such fees incurred for the three months ended January 31, 2023 and 2022 were approximately $
The Management Agreement provides for a termination
fee (“Termination Fee”) in
Robert S. Hekemian, Jr., Chief Executive Officer, President and a Director of FREIT, is the Chief Executive Officer of Hekemian & Co. David B. Hekemian, a Director of FREIT, is the President of Hekemian & Co. Allan Tubin, Chief Financial Officer and Treasurer of FREIT, is the Chief Financial Officer of Hekemian & Co.
Director fee expense and/or executive compensation
(including interest and dividends) incurred by FREIT for the three months ended January 31, 2023 and 2022 was approximately $
Note 9 – Mortgage financings and line of credit:
On August 19, 2022, Westwood Hills, LLC exercised
its right, pursuant to the loan agreement, to extend the term of its $
On July 22, 2022,
Page 14
On December 30, 2021, FREIT refinanced its $
FREIT’s revolving line of credit provided
by the Provident Bank was renewed for a three-year term ending on October 31, 2023. Draws against the credit line can be used for working
capital needs and standby letters of credit. Draws against the credit line are secured by mortgages on FREIT’s Franklin Crossing
Shopping Center in Franklin Lakes, New Jersey and retail space in Glen Rock, New Jersey. The total line of credit is $
While FREIT intends to renew or refinance its debt obligations as they become due, there can be no assurance that it will be successful or, if successful, that the new terms will be similar to the terms of its existing debt obligations or as favorable.
Note 10 – Fair value of long-term debt:
The following table shows the estimated fair value and net carrying value of FREIT’s long-term debt at January 31, 2023 and October 31, 2022:
| ($ in Millions) | January 31, 2023 | October 31, 2022 | ||
| Fair Value | $ |
$ | ||
| Carrying Value, Net | $ |
$ | ||
Fair values are estimated based on market interest rates at January 31, 2023 and October 31, 2022 and on a discounted cash flow analysis. Changes in assumptions or estimation methods may significantly affect these fair value estimates. The fair value is based on observable inputs (level 2 in the fair value hierarchy as provided by authoritative guidance).
Note 11 - Segment information:
ASC 280-10, "Disclosures about Segments of an Enterprise and Related Information", establishes standards for reporting financial information about operating segments in interim and annual financial reports and provides for a "management approach" in identifying the reportable segments. FREIT has determined that it has two reportable segments: commercial properties and residential properties. These reportable segments offer different types of space, have different types of tenants, and are managed separately because each requires different operating strategies and management expertise. The commercial segment is comprised of five (5) properties, excluding the Rotunda Property, the Westridge Square Property and the Damascus Property, which were sold on December 30, 2021, January 7, 2022 and January 10, 2022, respectively. The residential segment is comprised of six (6) properties, excluding the Icon at the Rotunda Property, which was sold as part of the Maryland Properties on December 30, 2021. (See Note 7 for further details.)
The accounting policies of the segments are the same as those described in Note 1 in FREIT’s Annual Report on Form 10-K for the fiscal year ended October 31, 2022. The chief operating and decision-making group responsible for oversight and strategic decisions of FREIT's commercial segment, residential segment and corporate/other is comprised of FREIT’s Board.
FREIT, through its chief operating and decision making group, assesses and measures segment operating results based on net operating income ("NOI"). NOI, a standard used by real estate professionals, is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes: deferred rents (straight lining), depreciation, financing costs and other items. NOI is not a measure of operating results or cash flows from operating activities as measured by GAAP, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity.
Page 15
Real estate rental revenue, operating expenses, NOI and recurring capital improvements for the reportable segments are summarized below and reconciled to condensed consolidated net income attributable to common equity for the three months ended January 31, 2023 and 2022. Asset information is not reported since FREIT does not use this measure to assess performance.
| Three Months Ended | ||||||||
| January 31, | ||||||||
| 2023 | 2022 | |||||||
| (In Thousands of Dollars) | ||||||||
| Real estate rental revenue: | ||||||||
| Commercial | $ | $ | ||||||
| Residential | ||||||||
| Total real estate rental revenue | ||||||||
| Real estate operating expenses: | ||||||||
| Commercial | ||||||||
| Residential | ||||||||
| Total real estate operating expenses | ||||||||
| Net operating income: | ||||||||
| Commercial | ||||||||
| Residential | ||||||||
| Total net operating income | $ | $ | ||||||
| Recurring capital improvements - residential | $ | ( | ) | $ | ( | ) | ||
| Reconciliation to condensed consolidated net income attributable to common equity: | ||||||||
| Segment NOI | $ | $ | ||||||
| Deferred rents - straight lining | ( | ) | ( | ) | ||||
| Investment income | ||||||||
| General and administrative expenses | ( | ) | ( | ) | ||||
| Loss on investment in tenancy-in-common | ( | ) | ( | ) | ||||
| Depreciation | ( | ) | ( | ) | ||||
| Net (loss) gain on sale of Maryland properties | ( | ) | ||||||
| Financing costs | ( | ) | ( | ) | ||||
| Net income | ||||||||
| Net loss (income) attributable to noncontrolling interests in subsidiaries | ( | ) | ||||||
| Net income attributable to common equity | $ | $ | ||||||
Note 12 – Income taxes:
FREIT has elected to be treated as a REIT for
federal income tax purposes and as such intends to distribute at least
As of January 31, 2023, FREIT had no material uncertain income tax positions. The tax years subsequent to and including the fiscal year ended October 31, 2019 remain open to examination by the major taxing jurisdictions.
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Note 13 – Equity Incentive Plan:
As of January 31, 2023,
The following table summarizes stock option activity for the three months ended January 31, 2023 and 2022:
| Three Months Ended | Three Months Ended | |||||||||||||||
| January 31, 2023 | January 31, 2022 | |||||||||||||||
| No. of Options | Weighted Average | No. of Options | Weighted Average | |||||||||||||
| Outstanding | Price | Outstanding | Price | |||||||||||||
| Options outstanding at beginning of period | $ | $ | ||||||||||||||
| Options granted during period | ||||||||||||||||
| Options forfeited/cancelled during period | ||||||||||||||||
| Options exercised during period | ( | ) | ( | ) | ||||||||||||
| Options outstanding at end of period | $ | $ | ||||||||||||||
| Options vested and expected to vest | ||||||||||||||||
| Options exercisable at end of period | ||||||||||||||||
For the three months ended January 31, 2023
and 2022, compensation expense related to stock options vested amounted to approximately $
Note 14 – Deferred fee plan:
On September 4, 2014, the Board approved amendments,
effective November 1, 2014, to the FREIT Deferred Fee Plan for its executive officers and directors, one of which provides for the issuance
of share units payable in FREIT shares in respect of (i) deferred amounts of all director fees on a prospective basis; (ii) interest on
director fees deferred prior to November 1, 2014 (payable at a floating rate, adjusted quarterly, based on the average
For the three months ended January 31, 2023
and 2022, the aggregate amounts of deferred director fees together with related interest and dividends were approximately $
On November 4, 2021 (the “Adoption Date”), the Board approved the termination of the Deferred Fee Plan resulting in the termination of the deferral of fees on December 31, 2021 with any subsequent fees earned by a participant being paid in cash. Consistent with the termination of the Deferred Fee Plan, payment related to each participant’s cash account (in the form of a cash lump sum payment) and share unit account (in the form of the issuance of common stock) (collectively “the Deferred Fee Plan Termination Payment”) must be made to each participant no earlier than twelve (12) months and one day after, and no later than twenty-four (24) months, after the Adoption Date. Any interest earned on the participant’s cash account along with dividends (if any) earned on share units, will continue to accrue in share units on each participant’s account until final payment is made. On November 3, 2022, the Board determined that the Deferred Fee Plan Termination Payment shall be made to the participants in the Deferred Fee Plan on January 20, 2023.
As of October 31, 2022, the total payment related
to each participant’s cash account was approximately $
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Note 15 – Rental Income:
Commercial tenants:
Fixed lease income under our commercial operating leases generally includes fixed minimum lease consideration, which is accrued on a straight-line basis over the terms of the leases. Variable lease income includes consideration based on sales, as well as reimbursements for real estate taxes, maintenance, insurance and certain other operating expenses of the properties.
Minimum fixed lease consideration (in thousands
of dollars) under non-cancelable tenant operating leases for each of the next
| Year Ending October 31, | Amount | ||
| 2023 | $ | ||
| 2024 | |||
| 2025 | |||
| 2026 | |||
| 2027 | |||
| Thereafter | | ||
| Total | $ | ||
The above amounts assume that all leases which expire are not renewed and, accordingly, neither month-to-month 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. Rental income that is contingent on future events is not included in income until the contingency is resolved. Contingent rentals included in income for the three months ended January 31, 2023 and 2022 were not material.
Residential tenants:
Lease terms for residential tenants are usually
Note 16 – Subsequent Events:
Effective February 1, 2023, FREIT entered into
a loan extension and modification agreement with Valley National Bank on its loan secured by the Westwood Plaza shopping center in Westwood,
New Jersey with a then outstanding balance of approximately $
On March 9, 2023, in accordance with FREIT’s Equity Incentive Plan, the Compensation Committee of the FREIT Board of Directors (the “Board”) recommended to the Board and the Board approved that for services rendered and to be rendered in 2023, in lieu of cash compensation in the amount of $
Page 18
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Identifying Important Factors That Could Cause First Real Estate Investment Trust of New Jersey, Inc.’s (“FREIT”) Actual Results to Differ From Those Projected in Forward Looking Statements.
Readers of this discussion are advised that the discussion should be read in conjunction with the unaudited condensed consolidated financial statements of FREIT (including related notes thereto) appearing elsewhere in this Form 10-Q, and the consolidated financial statements included in FREIT’s most recently filed Form 10-K. Certain statements in this discussion may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect FREIT’s current expectations and are based on estimates, projections, beliefs, data, methods and assumptions of management of FREIT at the time of such statements regarding future results of operations, economic performance, financial condition and achievements of FREIT, and do not relate strictly to historical or current facts. These forward-looking statements are identified through the use of words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or words of similar meaning. Forward-looking statements involve risks and uncertainties in predicting future results and conditions.
Although FREIT believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties. These and certain other uncertainties, factors and risks, including those risk factors set forth and further described in Part I, Item 1A entitled “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended October 31, 2022, and other risks described in our subsequent filings with the SEC, may cause our actual results to differ materially from those projected. Such factors include, but are not limited to, the following: general economic and business conditions, including the purchase of retail products over the Internet, which will, among other things, affect demand for rental space, the availability of prospective tenants, lease rents, the financial condition of tenants and the default rate on leases, operating and administrative expenses and the availability of financing; adverse changes in FREIT’s real estate markets, including, among other things, competition with other real estate owners, competition confronted by tenants at FREIT’s commercial properties; governmental actions and initiatives; environmental/safety requirements; risks of real estate development and acquisitions; and public health crises, epidemics and pandemics. The risks with respect to the development of real estate include: increased construction costs, inability to obtain construction financing, or unfavorable terms of financing that may be available, unforeseen construction delays and the failure to complete construction within budget.
OVERVIEW
FREIT is an equity real estate investment trust (“REIT”) that is self-administered and externally managed. FREIT owns a portfolio of residential apartment and commercial properties. FREIT’s revenues consist primarily of rental income and other related revenues from its residential and commercial properties and additional rents derived from operating commercial properties. FREIT’s properties are primarily located in northern New Jersey and New York.
The economic and financial environment: As of January 2023, the annual inflation rate is at 6.4%, which is primarily being driven by soaring food prices and energy costs, labor shortages and supply disruptions, while the U.S. unemployment rate decreased to 3.4%. Though inflation still remains at a high level, it is showing signs of slowing down as the inflation rate has come down from a 40-year high of 9.1% in June 2022. The Federal Reserve continues to raise interest rates in an effort to lower inflation. However, the pace at which it may continue to do so is uncertain leading to uncertainties in the financing market and a volatile economy.
Residential Properties: Our residential properties continue to generate positive cash flow while average rents on turned units (apartments which were vacated and then re-leased to new tenants) has continued to increase across the portfolio. Additionally, the rate of increase on renewals for existing tenants has continued to be robust, but could begin to soften in the current year. These increases should meaningfully contribute to FREIT’s income over time but it is uncertain what impact the significant rise in inflation and rising interest rates may have on these properties over the next year.
Commercial Properties: While our retail properties have stabilized from the impact of the COVID-19 pandemic, certain of our properties still have not attained pre-pandemic operating levels despite some recovery in brick and mortar retail. Additionally, the significant rise in inflation and rising interest rates could have an impact on the operating and financial performance of our commercial properties.
Debt Financing Availability: Financing has been available to FREIT and its affiliates. Certain recent refinancings and loan modifications/extensions have been at higher interest rates and for shorter terms.
Effective February 1, 2023, FREIT entered into a loan extension and modification agreement with Valley National Bank on its loan secured by the Westwood Plaza shopping center in Westwood, New Jersey with a then outstanding balance of approximately $16,864,361. Under the terms and conditions of this loan extension and modification, the maturity date of the loan will be extended for a term of one (1) year from February 1, 2023 to February 1, 2024 with the option of FREIT to extend for one additional year from the maturity date, subject to certain provisions of the loan agreement. The loan will be payable based on monthly installments
Page 19
of approximately $157,347 based on a fixed rate of interest of 7.5%. Additionally, FREIT funded an interest reserve escrow account (“Escrow”) at closing representing the annualized principal and interest payments for one (1) year, amounting to approximately $1,888,166. This Escrow is held at Valley National Bank and in the event of a default on this loan, the bank shall be permitted to use the proceeds from the escrow account to make monthly debt service payments on the loan.
On August 19, 2022, Westwood Hills, LLC exercised its right, pursuant to the loan agreement, to extend the term of its $25 million loan on its property located in Westwood, New Jersey, for an additional six (6) months from an initial maturity date of October 1, 2022 to a new maturity date of April 1, 2023. On March 1, 2023, Westwood Hills, LLC exercised its right, pursuant to the loan agreement, to extend the term of its loan, for an additional six (6) months to a new maturity date of October 1, 2023 on the same terms and conditions as stated in the loan agreement. As of January 31, 2023, $25,000,000 of this loan was drawn and outstanding and the interest rate was 8.37%.
Operating Cash Flow: FREIT expects that cash provided by operating activities and cash reserves will be adequate to cover mandatory debt service payments (including payments of interest, but excluding balloon payments, which are expected to be refinanced and/or extended), real estate taxes, recurring capital improvements at its properties and other needs to maintain its status as a REIT for at least a period of one year from the date of filing of this quarterly report on Form 10-Q.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Pursuant to the SEC disclosure guidance for "Critical Accounting Policies," the SEC defines Critical Accounting Policies as those that require the application of management's most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, the preparation of which takes into account estimates based on judgments and assumptions that affect certain amounts and disclosures. Accordingly, actual results could differ from these estimates. The accounting policies and estimates used, which are outlined in Note 1 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022, have been applied consistently as of January 31, 2023, and for the three months ended January 31, 2023 and 2022. We believe that the following accounting policies or estimates require the application of management's most difficult, subjective, or complex judgments.
Revenue Recognition: Base rents, additional rents based on tenants' sales volume and reimbursement of the tenants' share of certain operating expenses are generally recognized when due from tenants. The straight-line basis is used to recognize base rents under leases if they provide for varying rents over the lease terms. Straight-line rents receivable represent unbilled rents receivable to the extent straight-line rents exceed current rents billed in accordance with lease agreements. Before FREIT can recognize revenue, it is required to assess, among other things, its collectability.
Valuation of Long-Lived Assets: FREIT assesses the carrying value of long-lived assets periodically, or whenever events or changes in circumstances indicate that the carrying amounts of certain assets may not be recoverable. When FREIT determines that the carrying value of long-lived assets may be impaired, the measurement of any impairment is based on a projected discounted cash flow method determined by FREIT's management. While FREIT believes that our discounted cash flow methods are reasonable, different assumptions regarding such cash flows may significantly affect the measurement of impairment.
Real Estate Development Costs: It is FREIT’s policy to capitalize pre-development costs, which generally include legal and professional fees and other directly related third-party costs. Real estate taxes and interest costs incurred during the development and construction phases are also capitalized. FREIT ceases capitalization of these costs when the project or portion thereof becomes operational, or when construction has been postponed. In the event of postponement, capitalization of these costs will recommence once construction on the project resumes.
See Note 2 to FREIT’s condensed consolidated financial statements for recently issued accounting standards.
Page 20
RESULTS OF OPERATIONS
Real estate revenue for the three months ended January 31, 2023 (“Current Quarter”) decreased 34.5% to $6,979,000 compared to $10,649,000 for the three months ended January 31, 2022 (“Prior Year’s Quarter”). The decrease in revenue for the Current Quarter was primarily attributable to the Maryland Properties sold in the Prior Year’s Quarter.
Net income attributable to common equity (“net income-common equity”) for the Current Quarter was $419,000 ($0.06 per share basic and diluted) compared to $45,777,000 ($6.51 per share basic and $6.45 per share diluted) for the Prior Year’s Quarter.
The schedule below provides a detailed analysis of the major changes that impacted net income-common equity for the three months ended January 31, 2023 and 2022:
| NON-GAAP NET INCOME COMPONENTS | Three Months Ended | |||||||||||
| January 31, | ||||||||||||
| 2023 | 2022 | Change | ||||||||||
| (In Thousands of Dollars) | ||||||||||||
| Income from real estate operations: | ||||||||||||
| Commercial properties | $ | 979 | $ | 1,626 | $ | (647 | ) | |||||
| Residential properties | 2,613 | 3,697 | (1,084 | ) | ||||||||
| Total income from real estate operations | 3,592 | 5,323 | (1,731 | ) | ||||||||
| Financing costs: | ||||||||||||
| Fixed rate mortgages | (1,211 | ) | (1,342 | ) | 131 | |||||||
| Floating rate mortgages | (518 | ) | (952 | ) | 434 | |||||||
| Interest rate swap contracts breakage fee | — | (213 | ) | 213 | ||||||||
| Other - corporate interest | (26 | ) | (58 | ) | 32 | |||||||
| Mortgage cost amortization | (121 | ) | (363 | ) | 242 | |||||||
| Total financing costs | (1,876 | ) | (2,928 | ) | 1,052 | |||||||
| Investment income | 189 | 26 | 163 | |||||||||
| General & administrative expenses: | ||||||||||||
| Accounting fees | (135 | ) | (138 | ) | 3 | |||||||
| Legal and professional fees | (225 | ) | (713 | ) | 488 | |||||||
| Directors fees | (269 | ) | (273 | ) | 4 | |||||||
| Stock compensation expense | (5 | ) | (5 | ) | — | |||||||
| Corporate expenses | (193 | ) | (198 | ) | 5 | |||||||
| Total general & administrative expenses | (827 | ) | (1,327 | ) | 500 | |||||||
| Depreciation | (722 | ) | (1,820 | ) | 1,098 | |||||||
| Loss on investment in tenancy-in-common | (67 | ) | (124 | ) | 57 | |||||||
| Adjusted net income (loss) | 289 | (850 | ) | 1,139 | ||||||||
| Net (loss) gain on sale of Maryland properties | (243 | ) | 70,003 | (70,246 | ) | |||||||
| Net income | 46 | 69,153 | (69,107 | ) | ||||||||
| Net loss (income) attributable to noncontrolling interests in subsidiaries | 373 | (23,376 | ) | 23,749 | ||||||||
| Net income attributable to common equity | $ | 419 | $ | 45,777 | $ | (45,358 | ) | |||||
The condensed consolidated results of operations for the Current Quarter are not necessarily indicative of the results to be expected for the full year or any other period. The table above includes income from real estate operations, which is a non-GAAP financial measure and is not a measure of operating results or cash flow as measured by GAAP, and is not necessarily indicative of cash available to fund cash needs.
Adjusted net income (loss) for the Current Quarter was adjusted net income of $289,000 ($0.04 per share basic and diluted) compared to adjusted net loss of ($850,000) (($0.12) per share basic and diluted) for the Prior Year’s Quarter. Adjusted net income (loss) is a non-GAAP measure, which management believes is a useful and meaningful gauge to investors of our operating performance, since it excludes the impact of unusual and infrequent items specifically: a (loss) gain on sale of Maryland Properties.
The increase in adjusted net income for the Current Quarter was primarily driven by the following: (a) a decrease in General & Administrative expenses (“G&A”) of approximately $500,000 primarily driven by a decline in legal costs attributed to the legal proceeding between FREIT and certain of its affiliates and Sinatra Properties, LLC of approximately $411,000 and a decrease in
Page 21
legal costs incurred in the Prior Year’s Quarter of approximately $77,000 related to the sale of the Maryland Properties; (b) an increase in adjusted net income of approximately $444,000 (with a consolidated impact to FREIT of approximately $257,000) attributed to the Maryland Properties sold; (c) an increase in investment income of approximately $163,000 resulting from higher interest rates in the Current Quarter; (d) a decrease in snow removal costs at the commercial properties, excluding the Maryland Properties sold in the Prior Year’s Quarter, of approximately $93,000 (with a consolidated impact to FREIT of approximately $46,000) due to a milder winter compared to the Prior Year’s Quarter; (e) a decrease in depreciation, excluding the Maryland Properties sold in the Prior Year’s Quarter, of approximately $72,000 (with a consolidated impact to FREIT of approximately $24,000) primarily attributed to the write-off of a tenant improvement at the Wayne Preakness Shopping Center in the Prior Year’s Quarter; and (f) a decrease in loss on investment in tenancy-in-common of approximately $57,000; offset by (g) an increase in interest expense of approximately $193,000 (with a consolidated impact to FREIT of approximately $77,000) attributed to the increase in the variable interest rate on the Westwood Hills loan as compared to the Prior Year’s Quarter. (Refer to the segment disclosure below for a more detailed discussion of the financial performance of FREIT’s commercial and residential segments.)
SEGMENT INFORMATION
The following table sets forth comparative net operating income ("NOI") data for FREIT’s real estate segments and reconciles the NOI to condensed consolidated net income-common equity for the Current Quarter as compared to the Prior Year’s Quarter (see below for definition of NOI):
| Commercial | Residential | Combined | ||||||||||||||||||||||||||||||||||||||
| Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||||||||||||||||||||||||
| January 31, | Increase (Decrease) | January 31, | Increase (Decrease) | January 31, | ||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | $ | % | 2023 | 2022 | $ | % | 2023 | 2022 | |||||||||||||||||||||||||||||||
| (In Thousands) | (In Thousands) | (In Thousands) | ||||||||||||||||||||||||||||||||||||||
| Rental income | $ | 1,592 | $ | 3,576 | $ | (1,984 | ) | -55.5% | $ | 4,658 | $ | 6,197 | $ | (1,539 | ) | -24.8% | $ | 6,250 | $ | 9,773 | ||||||||||||||||||||
| Reimbursements | 637 | 727 | (90 | ) | -12.4% | 9 | 30 | (21 | ) | -70.0% | 646 | 757 | ||||||||||||||||||||||||||||
| Other | 25 | 18 | 7 | 38.9% | 86 | 111 | (25 | ) | -22.5% | 111 | 129 | |||||||||||||||||||||||||||||
| Total revenue | 2,254 | 4,321 | (2,067 | ) | -47.8% | 4,753 | 6,338 | (1,585 | ) | -25.0% | 7,007 | 10,659 | ||||||||||||||||||||||||||||
| Operating expenses | 1,247 | 2,685 | (1,438 | ) | -53.6% | 2,140 | 2,641 | (501 | ) | -19.0% | 3,387 | 5,326 | ||||||||||||||||||||||||||||
| Net operating income | $ | 1,007 | $ | 1,636 | $ | (629 | ) | -38.4% | $ | 2,613 | $ | 3,697 | $ | (1,084 | ) | -29.3% | 3,620 | 5,333 | ||||||||||||||||||||||
| Average Occupancy % * | 66.4% | 68.9% | -2.5% | 96.8% | 98.9% | -2.1% | ||||||||||||||||||||||||||||||||||
| Reconciliation to condensed consolidated net income-common equity: | |||||||||
| Deferred rents - straight lining | (28 | ) | (10 | ) | |||||
| Investment income | 189 | 26 | |||||||
| Net (loss) gain on sale of Maryland properties | (243 | ) | 70,003 | ||||||
| General and administrative expenses | (827 | ) | (1,327 | ) | |||||
| Loss on investment in tenancy-in-common | (67 | ) | (124 | ) | |||||
| Depreciation | (722 | ) | (1,820 | ) | |||||
| Financing costs | (1,876 | ) | (2,928 | ) | |||||
| Net income | 46 | 69,153 | |||||||
| Net loss (income) attributable to noncontrolling interests in subsidiaries | 373 | (23,376 | ) | ||||||
| Net income attributable to common equity | $ | 419 | $ | 45,777 | |||||
| * | Average occupancy rate excludes the Rotunda Property, the Damascus Property and the Westridge Square Property from all periods presented as the properties were sold in the three months ended January 31, 2022. See Note 7 to FREIT’s condensed consolidated financial statements for further details. |
NOI is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes deferred rents (straight lining), depreciation, financing costs and other items. FREIT assesses and measures segment operating results based on NOI.
Same Property NOI: FREIT considers same property net operating income (“Same Property NOI”) to be a useful supplemental non-GAAP measure of its operating performance. FREIT defines same property within both the commercial and residential segments to be those properties that FREIT has owned and operated for both the current and prior periods presented, excluding those properties that FREIT acquired, sold or redeveloped during those periods. Any newly acquired property that has been in operation for less than a year, any property that is undergoing a major redevelopment but may still be in operation at less than full capacity, and/or any property that has been sold is not considered same property.
NOI and Same Property NOI are non-GAAP financial measures and are not measures of operating results or cash flow as measured by GAAP, and are not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity.
COMMERCIAL SEGMENT
The commercial segment contains five (5) separate properties, excluding the Rotunda Property, the Westridge Square Property and the Damascus Property, which were sold on December 30, 2021, January 7, 2022 and January 10, 2022, respectively. Four of these properties
Page 22
are multi-tenanted retail centers and one is single tenanted on land located in Rockaway, New Jersey owned by FREIT from which it receives monthly rental income from a tenant who has built and operates a bank branch on the land. (See Note 7 to FREIT’s condensed consolidated financial statements for additional details on the sale of the Maryland Properties.)
As indicated in the table above under the caption Segment Information, total revenue and NOI from FREIT’s commercial segment for the Current Quarter decreased by 47.8% and 38.4%, respectively, as compared to the Prior Year’s Quarter. Average occupancy for all commercial properties, excluding the Maryland Properties sold, for the Current Quarter decreased by 2.5% as compared to the Prior Year’s Quarter.
The decline in revenue for the Current Quarter was primarily attributable to the Maryland Properties sold in the Prior Year’s Quarter. The decrease in NOI for the Current Quarter was primarily attributable to the following: (a) a decrease of approximately $778,000 attributed to the Maryland Properties sold in the Prior Year’s Quarter; offset by (b) a decline in snow removal costs of approximately $93,000, excluding the Maryland Properties sold, due to a milder winter compared to the Prior Year’s Quarter.
Same Property Operating Results: FREIT’s commercial segment currently contains five (5) same properties. (See definition of same property under Segment Information above.) The Rotunda Property, the Westridge Square Property and the Damascus Property were excluded from same property results for all periods presented because these properties were sold in the Prior Year’s Quarter. Same property revenue and NOI for the Current Quarter increased by 2.8% and 16.5%, respectively, as compared to the Prior Year’s Quarter. The changes resulted from the factors discussed in the immediately preceding paragraph.
Leasing: The following table reflects leasing activity at FREIT’s commercial properties for comparable leases (leases executed for spaces in which there was a tenant at some point during the previous twelve-month period) and non-comparable leases for the Current Quarter:
| RETAIL: | Number of Leases | Lease Area (Sq. Ft.) | Weighted Average Lease Rate (per Sq. Ft.) | Weighted Average Prior Lease Rate (per Sq. Ft.) | % Increase (Decrease) | Tenant Improvement Allowance (per Sq. Ft.) (a) | Lease Commissions (per Sq. Ft.) (a) | |||||||||||||||||||||
| Comparable leases (b) | — | — | $ | — | $ | — | 0.0% | $ | — | $ | — | |||||||||||||||||
| Non-comparable leases | 1 | 1,384 | $ | 29.14 | N/A | N/A | $ | — | $ | 1.17 | ||||||||||||||||||
| Total leasing activity | 1 | 1,384 | ||||||||||||||||||||||||||
| (a) | These leasing costs are presented as annualized costs per square foot and are allocated uniformly over the initial lease term. |
| (b) | This includes new tenant leases and/or modifications/extensions/renewals of existing tenant leases. |
RESIDENTIAL SEGMENT
FREIT currently operates six (6) multi-family apartment buildings or complexes totaling 792 apartment units, excluding the Icon at the Rotunda Property, which was sold as part of the Maryland Properties on December 30, 2021 (see Note 7 to FREIT’s condensed consolidated financial statements) and the Pierre Towers property, which was converted to a TIC (see Note 5 to FREIT’s condensed consolidated financial statements).
As indicated in the table above under the caption Segment Information, total revenue and NOI from FREIT’s residential segment for the Current Quarter decreased by 25% and 29.3%, respectively, as compared to the Prior Year’s Quarter. Average occupancy for all residential properties, excluding the Icon at the Rotunda property sold, for the Current Quarter decreased by 2.1% as compared to the Prior Year’s Quarter. The decrease in revenue and NOI for the Current Quarter was primarily attributable to the Icon at the Rotunda Property sold in the Prior Year’s Quarter.
Same Property Operating Results: FREIT’s residential segment currently contains six (6) same properties. (See definition of same property under Segment Information above.) The Icon at the Rotunda Property was excluded from same property results for all periods presented because this property was sold in the Prior Year’s Quarter. Same property revenue and NOI for the Current Quarter increased by 0.8% and 0.9%, respectively, as compared to the Prior Year’s Quarter. The changes resulted from the factors discussed in the immediately preceding paragraph.
FREIT’s residential revenue is principally composed of monthly apartment rental income. Total rental income is a factor of occupancy and monthly apartment rents. Monthly average residential rents at the end of the Current Quarter and the Prior Year’s Quarter were $2,080 and $1,958, respectively. A 1% decline in annual average occupancy, or a 1% decline in average rents from current levels, results in an annual revenue decline of approximately $198,000 and $191,000, respectively.
Capital expenditures: FREIT tends to spend more in any given year on maintenance and capital improvements at its residential properties which were constructed more than 25 years ago (Steuben Arms, Berdan Court and Westwood Hills properties) than on its newer properties (Boulders, Regency and Station Place properties). Funds for these capital projects are available from cash flow from the property's operations and cash reserves.
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FINANCING COSTS
| Three Months Ended January 31, | ||||||||
| 2023 | 2022 | |||||||
| (In Thousands of Dollars) | ||||||||
| Fixed rate mortgages (a): | ||||||||
| 1st Mortgages | ||||||||
| Existing | $ | 1,211 | $ | 1,322 | ||||
| New | — | 20 | ||||||
| Variable rate mortgages: | ||||||||
| 1st Mortgages | ||||||||
| Existing | 518 | 952 | ||||||
| New | — | — | ||||||
| Interest rate swap contracts breakage fee | — | 213 | ||||||
| Other | 26 | 58 | ||||||
| Total financing costs, gross | 1,755 | 2,565 | ||||||
| Amortization of mortgage costs | 121 | 363 | ||||||
| Total financing costs, net | $ | 1,876 | $ | 2,928 | ||||
| (a) Includes the effect of interest rate swap contracts which effectively convert the floating interest rate to a fixed interest rate over the term of the loan. | ||||||||
Total financing costs for the Current Quarter decreased by approximately $1,052,000, or 35.9%, compared to the Prior Year’s Quarter which was primarily attributable to the following: (a) a decline of approximately $1,304,000 attributed to the pay-down of the loans outstanding on the Maryland Properties sold in the Prior Year’s Quarter; offset by (b) an increase of approximately $193,000 primarily attributed to the increase in the variable interest rate on the Westwood Hills loan as compared to the Prior Year’s Quarter. (See Note 7 to FREIT’s condensed consolidated financial statements for additional details on the sale of the Maryland properties.)
GENERAL AND ADMINISTRATIVE EXPENSES
G&A for the Current Quarter was approximately $827,000 compared to $1,327,000 for the Prior Year’s Quarter. The primary components of G&A are legal and professional fees, directors’ fees, corporate expenses and accounting/auditing fees. The decrease in G&A for the Current Quarter was primarily driven by a decline in legal costs attributed to the legal proceeding between FREIT and certain of its affiliates and Sinatra Properties, LLC.
DEPRECIATION
Depreciation expense for the Current Quarter was approximately $722,000 compared to $1,820,000 for the Prior Year’s Quarter. The decline in depreciation expense for the Current Quarter was primarily attributable the following: (a) a decline of approximately $1,026,000 attributed to the Maryland Properties sold in the Prior Year’s Quarter; and (b) a decrease of approximately $72,000, excluding the Maryland Properties sold in the Prior Year’s Quarter, primarily attributed to the write-off of a tenant improvement at the Wayne Preakness Shopping Center in the Prior Year’s Quarter. (See Note 7 to FREIT’s condensed consolidated financial statements for additional details on the sale of the Maryland Properties.)
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was approximately $0.9 million for the Current Quarter compared to net cash provided by operating activities of approximately $2.9 million for the Prior Year’s Quarter. FREIT expects that cash provided by operating activities and cash reserves will be adequate to cover mandatory debt service payments (including payments of interest, but excluding balloon payments, which are expected to be refinanced and/or extended), real estate taxes, dividends, recurring capital improvements at its properties and other needs to maintain its status as a REIT for at least a period of one year from the date of filing of this quarterly report on Form 10-Q.
As of January 31, 2023, FREIT had cash, cash equivalents and restricted cash totaling $45.6 million, compared to $58.5 million at October 31, 2022. The decrease in cash in the Current Quarter was primarily attributable to $11.8 million in net cash used in financing activities, $0.9 million in net cash used in operating activities and $0.4 million in net cash used in investing activities including capital expenditures. The decrease in cash of approximately $13 million in the Current Quarter was primarily attributed to the following: (a) dividends paid of approximately $10.7 million; (b) deferred compensation paid to respective directors of approximately $2.3 million; (c) a distribution of additional net proceeds received from the sale of the Rotunda Property to the minority interest of approximately $1.6 million; and (d) a distribution of additional net proceeds received from the sale of the Damascus Property to the minority interest of approximately $0.3 million; offset by (e) proceeds received from the exercise of stock
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options in November 2022 of approximately $1.2 million. (See Note 7 to FREIT’s condensed consolidated financial statements for additional details on the sale of the Maryland properties.)
Credit Line: FREIT’s revolving line of credit provided by Provident Bank was renewed for a three-year term ending on October 31, 2023. Draws against the credit line can be used for working capital needs and standby letters of credit. Draws against the credit line are secured by mortgages on FREIT’s Franklin Crossing Shopping Center in Franklin Lakes, New Jersey and retail space in Glen Rock, New Jersey. The total line of credit is $13 million and the interest rate on the amount outstanding is based on a floating interest rate of prime minus 25 basis points with a floor of 3.75%. As of January 31, 2023 and October 31, 2022, there was no amount outstanding and $13 million was available under the line of credit.
Dividend: After careful consideration of FREIT’s projected operating results and cash needs, the FREIT Board of Directors (“Board”) declared a dividend of approximately $372,000 ($0.05 per share) in the first quarter of Fiscal 2023 which was paid on March 15, 2023 to stockholders of record on March 1, 2023. The Board will continue to evaluate the dividend on a quarterly basis.
As of January 31, 2023, FREIT’s aggregate outstanding mortgage debt was $138.9 million, which bears a weighted average interest rate of 5.22% and an average life of approximately 2.4 years. FREIT’s mortgages are subject to amortization schedules that are longer than the terms of the mortgages. As such, balloon payments (unpaid principal amounts at the mortgage due date) for all mortgage debt will be required as follows:
| Fiscal Year | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | |
| ($ in millions) | ||||||||
| Mortgage "Balloon" Payments | $25.0 (A) | $33.0 (B) | $38.9 | $0.0 | $0.0 | $10.5 | $26.0 | |
| Includes the following: | ||||||||
| (A) | A loan on the Westwood Hills property, which is a residential property located in Westwood, New Jersey, in the amount of approximately $25 million. Pursuant to the loan agreement, this loan was extended for an additional six (6) months from an initial maturity date of October 1, 2022 to a new maturity date of April 1, 2023. On March 1, 2023, Westwood Hills, LLC exercised its right, pursuant to the loan agreement, to extend the term of its loan, for an additional six (6) months to a new maturity date of October 1, 2023 on the same terms and conditions as stated in the loan agreement. (See Note 9 to FREIT's condensed consolidated financial statements for additional details.) | |||||||
| (B) | Effective February 1, 2023, FREIT entered into a loan extension and modification agreement with Valley National Bank on its loan secured by the Westwood Plaza shopping center in Westwood, New Jersey with a then outstanding balance of approximately $16,864,361. Under the terms and conditions of this loan extension and modification, the loan will be extended for a term of one (1) year from February 1, 2023 to February 1, 2024 with the option of FREIT to extend for one year from the maturity date, subject to certain provisions of the loan agreement. (See Note 16 to FREIT's condensed consolidated financial statements for additional details.) | |||||||
The following table shows the estimated fair value and net carrying value of FREIT’s long-term debt at January 31, 2023 and October 31, 2022:
| ($ in Millions) | January 31, 2023 | October 31, 2022 | ||
| Fair Value | $133.8 | $132.2 | ||
| Carrying Value, Net | $137.8 | $138.1 | ||
Fair values are estimated based on market interest rates at January 31, 2023 and October 31, 2022 and on a discounted cash flow analysis. Changes in assumptions or estimation methods may significantly affect these fair value estimates. The fair value is based on observable inputs (level 2 in the fair value hierarchy as provided by authoritative guidance).
FREIT expects to refinance the individual mortgages with new mortgages or exercise extension options when their terms expire. To this extent, FREIT has exposure to interest rate risk. If interest rates, at the time any individual mortgage note is due, are higher than the current fixed interest rate, higher debt service may be required, and/or refinancing proceeds may be less than the amount of
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mortgage debt being retired. For example, at January 31, 2023, a 1% interest rate increase would reduce the fair value of FREIT’s debt by $2.8 million, and a 1% decrease would increase the fair value by $3 million.
FREIT continually reviews its debt levels to determine if additional debt can prudently be utilized for property acquisitions for its real estate portfolio that will increase income and cash flow to stockholders.
Effective February 1, 2023, FREIT entered into a loan extension and modification agreement with Valley National Bank on its loan secured by the Westwood Plaza shopping center in Westwood, New Jersey with a then outstanding balance of approximately $16,864,361. Under the terms and conditions of this loan extension and modification, the maturity date of the loan will be extended for a term of one (1) year from February 1, 2023 to February 1, 2024 with the option of FREIT to extend for one additional year from the maturity date, subject to certain provisions of the loan agreement. The loan will be payable based on monthly installments of approximately $157,347 based on a fixed rate of interest of 7.5%. Additionally, FREIT funded an interest reserve escrow account (“Escrow”) at closing representing the annualized principal and interest payments for one (1) year, amounting to approximately $1,888,166. This Escrow is held at Valley National Bank and in the event of a default on this loan, the bank shall be permitted to use the proceeds from the escrow account to make monthly debt service payments on the loan.
On August 19, 2022, Westwood Hills, LLC exercised its right, pursuant to the loan agreement, to extend the term of its $25 million loan on its property located in Westwood, New Jersey, for an additional six (6) months from an initial maturity date of October 1, 2022 to a new maturity date of April 1, 2023. On March 1, 2023, Westwood Hills, LLC exercised its right, pursuant to the loan agreement, to extend the term of its loan, for an additional six (6) months to a new maturity date of October 1, 2023 on the same terms and conditions as stated in the loan agreement. As of January 31, 2023, $25,000,000 of this loan was drawn and outstanding and the interest rate was 8.37%.
Interest rate swap contracts: To reduce interest rate volatility, FREIT uses a “pay fixed, receive floating” interest rate swap to convert floating interest rates to fixed interest rates over the term of a certain loan. FREIT enters into these swap contracts with a counterparty that is usually a high-quality commercial bank. In essence, FREIT agrees to pay its counterparties a fixed rate of interest on a dollar amount of notional principal (which generally corresponds to FREIT’s mortgage debt) over a term equal to the term of the mortgage notes. FREIT’s counterparties, in return, agree to pay FREIT a short-term rate of interest - generally LIBOR - on that same notional amount over the same term as the mortgage notes.
FREIT had variable interest rate loans secured by its Damascus Centre and Wayne PSC properties and currently has a variable interest rate loan secured by its Regency and Station Place properties. To reduce interest rate fluctuations, FREIT entered into interest rate swap contracts for each of these loans. These interest rate swap contracts effectively converted variable interest rate payments to fixed interest rate payments. The contracts were based on a notional amount of approximately $16,200,000 ($14,504,000 at January 31, 2023) for the Regency swap and a notional amount of approximately $12,350,000 ($11,695,000 at January 31, 2023) for the Station Place swap. On January 10, 2022, the property owned by Damascus Centre was sold and a portion of the proceeds from the sale was used to pay off the $18.2 million then outstanding balance of the underlying loan and the corresponding swap breakage fees of approximately $213,000 related to the early termination of the interest rate swap contracts on this loan which was included as interest expense on the accompanying condensed consolidated statement of income for the three months ended January 31, 2022. (See Note 7 to FREIT’s condensed consolidated financial statements for further details on the sale of this property.) On June 17, 2022, Wayne PSC terminated its interest rate swap contract on its underlying loan held with People’s United Bank, which had a maturity date of October 2026, for a settlement amount of approximately $1.4 million. People’s United Bank held the proceeds from this settlement in escrow until the underlying loan was paid off in July 2022. (See Note 9 to FREIT’s condensed consolidated financial statements for further details.)
Interest rate cap contract: To limit exposure on interest rate volatility, FREIT may use an interest rate cap contract to cap a floating interest rate at a set pre-determined rate. FREIT enters into cap contracts with a counterparty that is usually a high-quality commercial bank. In essence, so long as the floating interest rate is below the cap rate, FREIT agrees to pay its counterparties a variable rate of interest on a dollar amount of notional principal (which generally corresponds to FREIT’s mortgage debt). Once the floating interest rate rises above the cap rate, FREIT’s counterparties, in return, agree to pay FREIT a short-term rate of interest above the cap on that same notional amount.
In accordance with ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities to Accounting Standards Codification Topic 815, Derivatives and Hedging ("ASC 815")”, FREIT marks-to-market its interest rate swap and cap contracts. As the floating interest rate varies from time-to-time over the term of the contract, the value of the contract will change upward or downward. If the floating rate is higher than the fixed rate, the value of the contract goes up and there is a gain and an asset. If the floating rate is less than the fixed rate, there is a loss and a liability. The interest rate swaps and cap are accounted for as cash flow hedges with the corresponding gains or losses on these contracts not affecting FREIT’s condensed consolidated statement of income; changes in the fair value of these cash flow hedges will be reported in other comprehensive income and appear in the equity section of the condensed consolidated balance sheet. This gain or loss represents the economic consequence of liquidating fixed rate swaps or the cap contract and replacing them with like-duration funding at current market rates, something we would likely never do. Periodic cash settlements of these contracts will be accounted for as an adjustment to interest expense.
FREIT has the following derivative-related risks with its interest rate swap contracts (“contract”): 1) early termination risk, and 2) counterparty credit risk.
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Early Termination Risk: If FREIT wants to terminate its contract before maturity, it would be bought out or terminated at market value; i.e., the difference in the present value of the anticipated net cash flows from each of the contract’s parties. If current variable interest rates are significantly below FREIT’s fixed interest rate payments, this could be costly. Conversely, if interest rates rise above FREIT’s fixed interest payments and FREIT elected early termination, FREIT would realize a gain on termination. At January 31, 2023, the contracts for Regency and Station Place were in FREIT’s favor. If FREIT had terminated these contracts at that date, it would have realized a gain of approximately $482,000 for the Regency swap and $477,000 for the Station Place swap all of which have been included in FREIT’s condensed consolidated balance sheet as at January 31, 2023. The change in the fair value for the contract (gain or loss) during such period has been included in comprehensive (loss) income and for the three months ended January 31, 2023 and 2022, FREIT recorded an unrealized loss of approximately $450,000 and unrealized gain of $1,262,000, respectively, in the condensed consolidated statements of comprehensive (loss) income.
Counterparty Credit Risk: Each party to a contract bears the risk that its counterparty will default on its obligation to make a periodic payment. FREIT reduces this risk by entering into a contract only with major financial institutions that are experienced market makers in the derivatives market.
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ADJUSTED FUNDS FROM OPERATIONS
Funds From Operations (“FFO”) is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts (“NAREIT”). FREIT does not include distributions from equity/debt/capital gain sources in its computation of FFO. Although many consider FFO as the standard measurement of a REIT’s performance, FREIT modified the NAREIT computation of FFO to include other adjustments to GAAP net income that are not considered by management to be the primary drivers of its decision making process. These adjustments to GAAP net income are straight-line rents and recurring capital improvements on FREIT’s residential apartments. The modified FFO computation is referred to as Adjusted Funds From Operations (“AFFO”). FREIT believes that AFFO is a superior measure of its operating performance. FREIT computes FFO and AFFO as follows:
| For the Three Months Ended January 31, | ||||||||
| 2023 | 2022 | |||||||
| (In Thousands, Except Per Share Amounts) | ||||||||
| Funds From Operations ("FFO") (a) | ||||||||
| Net income | $ | 46 | $ | 69,153 | ||||
| Depreciation of consolidated properties | 722 | 1,820 | ||||||
| Amortization of deferred leasing costs | 19 | 71 | ||||||
| Distributions to non-controlling interests | — | (b) | (345 | )(c) | ||||
| Net loss (gain) on sale of Maryland properties | 243 | (70,003 | ) | |||||
| Adjustment to loss on investment in tenancy-in-common for depreciation | 358 | 353 | ||||||
| FFO | $ | 1,388 | $ | 1,049 | ||||
| Per Share - Basic and Diluted | $ | 0.19 | $ | 0.15 | ||||
| (a) As prescribed by NAREIT. | ||||||||
| (b) FFO excludes the additional distribution of proceeds to non-controlling interests in the amount of approximately $1.9 million related to the sale of the Damascus and Rotunda properties. See Note 7 to FREIT's condensed consolidated financial statements for further details. | ||||||||
| (c) FFO excludes the distribution of proceeds to non-controlling interests in the amount of approximately $19.4 million related to the sale of the Damascus and Rotunda properties. See Note 7 to FREIT's condensed consolidated financial statements for further details. | ||||||||
| Adjusted Funds From Operations ("AFFO") | ||||||||
| FFO | $ | 1,388 | $ | 1,049 | ||||
| Deferred rents (Straight lining) | 28 | 10 | ||||||
| Capital Improvements - Apartments | (145 | ) | (48 | ) | ||||
| AFFO | $ | 1,271 | $ | 1,011 | ||||
| Per Share - Basic and Diluted | $ | 0.17 | $ | 0.14 | ||||
| Weighted Average Shares Outstanding: | ||||||||
| Basic | 7,424 | 7,036 | ||||||
| Diluted | 7,433 | 7,099 | ||||||
FFO and AFFO do not represent cash generated from operating activities in accordance with 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 and AFFO by certain other REITs may vary materially from that of FREIT, and therefore FREIT’s FFO and AFFO may not be directly comparable to those of other REITs.
INFLATION
Inflation can impact the financial performance of FREIT in various ways. FREIT’s commercial tenant leases normally provide that the tenants bear all or a portion of most operating expenses, which can reduce the impact of inflationary increases on FREIT. Apartment leases are normally for a one-year term, which may allow FREIT to seek increased rents as leases renew or when new tenants are obtained, subject to prevailing market conditions.
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Item 3: Quantitative and Qualitative Disclosures About Market Risk
See “Commercial Segment”, “Residential Segment” and “Liquidity and Capital Resources” under Item 2 above for a detailed discussion of FREIT’s quantitative and qualitative market risk disclosures.
Item 4: Controls and Procedures
At the end of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of FREIT’s disclosure controls and procedures. This evaluation was carried out under the supervision and with participation of FREIT’s management, including FREIT’s Chief Executive Officer and Chief Financial Officer, who concluded that FREIT’s disclosure controls and procedures are effective as of January 31, 2023. There has been no change in FREIT’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, FREIT’s internal control over financial reporting.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in FREIT’s reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in FREIT’s reports filed under the Exchange Act is accumulated and communicated to management, including FREIT’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
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Part II: Other Information
Item 1: Legal Proceedings
On February 4, 2022, the Superior Court of New Jersey, Monmouth County (“Court”) entered an Order with respect to summary judgment motions filed by the parties in connection with litigation between certain affiliates of FREIT (the “Sellers” or “Defendant”) and Sinatra Properties, LLC (“Sinatra” or “Plaintiff”). The litigation relates to a Purchase and Sale Agreement entered into on January 14, 2020 (“PSA”) between the Sellers and Sinatra involving the sale by the Sellers of 100% of their ownership interests in six (6) real properties held by the Sellers.
The Court Order entered on February 4, 2022 (the “February 4 Order”) with respect to the Summary Judgment Motions provides as follows:
| (1) | The Court finds that the Plaintiff’s have breached the subject contract and the Court dismisses all claims for relief filed by the Plaintiffs in this suit. The Court dismissed the Complaint and dismisses the Lis Pendens. |
| (2) | The Court finds that the liquidated damage provision of the contract is not enforceable and the Court Orders that the $15 million held in escrow be returned to the Plaintiff. |
| (3) | The Court dismisses the Counterclaims and Third Party Complaint. All pleadings are dismissed. |
On May 31, 2022, Sinatra filed a Motion for Reconsideration with the Court, requesting that the Court reconsider its February 4, 2022 Order and, among other things, (a) grant Sinatra’s motion for summary judgment, and (b) reverse the Court’s findings that (1) Sinatra breached the Purchase and Sale Agreement, (2) the Sellers did not breach the Purchase and Sale Agreement and (3) the Court’s dismissal of the Complaint and Lis Pendens. On July 8, 2022, the Court denied Sinatra’s Motion for Reconsideration.
Following the February 4 Order, the Sellers and the Purchaser each filed a motion for an award of attorney’s fees and costs pursuant to the applicable provisions of the Purchase and Sale Agreement. On December 8, 2022 the Court entered an Order awarding Sellers $3,420,422.88 in attorneys’ fees and denying the Plaintiff’s request for attorneys’ fees (the “December 8 Order”). Upon entering the December 8 Order, the Court had adjudicated all unresolved issues in the action.
On December 8, 2022, the Sellers filed a Notice of Appeal, appealing from that portion of the February 4 Order which declined to enforce the liquidated damages provision in the Purchase and Sale Agreement. As a result of such appeal by the Sellers, the liquidated damage amount of $15 million remains in escrow and has not been returned to Sinatra.
On December 22, 2022, the Purchaser filed a Notice of Cross Appeal appealing from all determinations by the Court adverse to the Purchaser, including (i) that portion of the February 4 Order holding that the Purchaser breached the contract; (ii) the denial of the Purchaser’s motion for reconsideration of the February 4 Order; and (iii) the December 8 Order awarding the Sellers $3,420,422.88 in attorneys’ fees and denying the Purchaser’s request for attorneys’ fees.
The Sellers continue to believe that the allegations set forth in the Complaint filed by Sinatra and in the Answer to Counterclaims and Third-Party Complaint and Affirmative Defenses filed by Sinatra and Kushner Realty Acquisition LLC, are without merit.
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Item 1A: Risk Factors
There were no material changes in any risk factors previously disclosed in FREIT’s Annual Report on Form 10-K for the year ended October 31, 2022, that was filed with the Securities and Exchange Commission on January 27, 2023.
Item 6: Exhibits
Exhibit Index
Exhibit 31.1 - Section 302 Certification of Chief Executive Officer
Exhibit 31.2 - Section 302 Certification of Chief Financial Officer
Exhibit 32.1 - Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
Exhibit 32.2 - Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
Exhibit 101 - The following materials from FREIT’s quarterly report on Form 10-Q for the period ended January 31, 2023, are formatted in Inline Extensible Business Reporting Language (“iXBRL”): (i) condensed consolidated balance sheets; (ii) condensed consolidated statements of income; (iii) condensed consolidated statements of comprehensive (loss) income; (iv) condensed consolidated statements of equity; (v) condensed consolidated statements of cash flows; and (vi) notes to condensed consolidated financial statements.
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, INC. | |
| (Registrant) | |
| Date: March 16, 2023 | |
| /s/ Robert S. Hekemian, Jr. | |
| (Signature) | |
| Robert S. Hekemian, Jr. | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) | |
| /s/ Allan Tubin | |
| (Signature) | |
| Allan Tubin | |
| Chief Financial Officer and Treasurer | |
| (Principal Financial/Accounting Officer) |
EXHIBIT 10.1
SECOND AMENDMENT TO MANAGEMENT AGREEMENT
THIS SECOND AMENDMENT TO MANAGEMENT AGREEMENT (this
“Amendment”) is made as of March 9, 2023 by and between FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC., a Maryland Corporation (the “Trust” or “FREIT”), and HEKEMIAN & COMPANY, INC., a New Jersey corporation (the “Agent”),
WHEREAS, First Real Estate Investment Trust of New Jersey (the predecessor of the Trust which was merged with and into the Trust on July 1, 2021) and the Agent previously entered into that certain Management Agreement dated as of November 1, 2001 (the “Original Management Agreement”; the Original Management Agreement as amended by the First Amendment (as hereinbelow defined) to the Original Management Agreement and as amended hereby, the “Management Agreement”; capitalized terms in this Amendment, to the extent not defined herein, shall have the same meaning as in the Original Management Agreement) pursuant to which the Trust engaged the Agent to provide certain assistance and services in connection with the management and operation of real property owned directly or indirectly, in whole or in part, by the Trust in accordance with the terms thereof;
WHEREAS, the Original Management Agreement was amended by the First Amendment to Management Agreement dated as of January 14, 2020 between First Real Estate Investment Trust of New Jersey, a New Jersey trust (the predecessor of the Trust which was merged into the Trust on July 1, 2021) and the Agent (the “First Amendment”), which First Amendment did not become effective and has no force and effect;
WHEREAS, by virtue of several automatic renewals, the current term of the Management Agreement expires October 31, 2023;
WHEREAS, the Original Management Agreement provides for the payment to Agent of a “M&A Termination Fee” upon a termination of the Management Agreement upon the occurrence of an M&A transaction affecting the Trust (as set forth in greater detail in Section 2(c) of the Original Management Agreement);
WHEREAS, the parties hereto desire to enter into this Amendment in order to set forth their agreement with respect to Section 2(c) of the Original Management Agreement;
NOW, THEREFORE in consideration of the foregoing Recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Effectiveness of this Amendment. The parties hereto agree that this Amendment shall become effective upon the approval by the Audit Committee of the Board of Directors of the Trust and the Board of Directors of the Trust and the execution and delivery of this Amendment by the parties hereto.
1
2. Termination Fee. Section 2(c) of the Original Management Agreement hereby is deleted in its entirety and the following is substituted therefor:
(c) By the Trust immediately upon a merger, consolidation, acquisition of all or substantially all of its assets, a tender offer or negotiated purchase of the shares of the Trust, or any transaction where the Trust ceases to effectively exist as an operating entity (hereinafter collectively referred to as an “M&A”). In the event of such termination, the Trust shall pay to the Agent any and all fees or reimbursements due under this Agreement, calculated on a pro-rata basis, as of the effective date of any such M&A. In addition, the Trust will pay to the Agent a M&A Termination Fee as defined below.
For the purposes of this subparagraph (2)(c) the M&A Termination Fee shall be equal to the Termination Fee times a factor of 2.5.
Notwithstanding the provisions of the foregoing subparagraph above, in the event of an M&A, if the Agent, or any successor entity or group in which one or more of the present shareholders of Hekemian & Co. are officers, principals or employees (“Successor Agent”), is engaged in providing management or other services, of any kind or description whatsoever, to the successor to the Trust (the “Successor Entity”) after the M&A pursuant to an agreement of any kind or description, (“Successor Entity Management Agreement”) with respect to Trust Property or other Trust matters, then, in such event, the M&A Termination Fee shall be adjusted as follows:
There shall be deducted from the M&A Termination Fee, otherwise due Agent, or Successor Agent, any management fees which it earns pursuant to the Successor Entity Management Agreement during the period of one year and three months after the effective date of the M&A.
For these purposes, however, in the event the management fees scheduled to be paid to the Agent, or Successor Agent, pursuant to the Successor Entity Management Agreement and such agreement provides for unequal annual fee payments, the fees due the Agent or Successor Agent shall be determined by the amount of fees which would have been due over the entire scheduled term of said agreement, but in no event more than three (3) years, divided by the number of years of the Agreement.
For example, if the Termination Fee is $800,000.00, as calculated in paragraph 2(a) hereof, then the Termination Fee is $800,000 x 250% or $2,000,000.
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If the Successor Entity Management Agreement is for a three (3) year period and provides for fees to be paid as follows:
| Year | Fee |
| 1 | 300,000 |
| 2 | 400,000 |
| 3 | 800,000 |
The effective annual fee would be determined as follows:
Total Income: 1,500,000 ÷ 3 = $500,000 for one (1) year.
The average annual fee of $500,000 is then subject to adjustment for a period of one (1) year and three months or 500,000 x 125% equals $625,000.
The M&A Termination would be reduced as follows:
$2,000,000 less $625,000 = $1,375,000
Section 2 of the Original Management Agreement is hereby amended to add paragraph 2(f) thereto which shall provide as follows:
2(f) Notwithstanding any provision herein contained to the contrary, in the event that FREIT does not own 100% of any property managed under the Original Management Agreement or pursuant to the Property Management Agreement between Pierre Towers, LLC and S and A Commercial Associates Limited Partnership and Hekemian & Co., Inc. dated as of February 28, 2020, as amended (the “Property Management Agreement”), then in that event any Termination Fee or M&A Termination Fee payable under the Original Management Agreement, as amended, shall be reduced on a pro rata basis to reflect that percentage of FREIT’s ownership interest in such property, and any such Termination Fee or M&A Termination Fee shall be calculated based on Base Management Fees paid in respect of FREIT’s share of ownership in such property.
Without limiting the generality of the foregoing, as of the date of this Amendment, properties managed by Hekemian & Co. and affected by this provision are Wayne PSC, LLC, Westwood Hills, LLC and Pierre Towers, LLC and S and A Commercial Associates Limited Partnership as tenants in common. Pierre Towers, LLC and S and A Commercial Associates Limited Partnership have entered into the Property Management Agreement, separate from this Agreement, with respect to the management of the property known as (the “Pierre”). FREIT and Hekemian & Co. agree that Hekemian & Co. shall be
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entitled to receive the Termination Fee and M&A Termination Fee in respect of FREIT’s 65% interest as a tenant in common in the Pierre.
By way of example, applicable in circumstances where FREIT shares ownership of a property with another party, assuming that FREIT owns a 65% interest in the Pierre property as a tenant in common and annual Base Management Fees payable to Hekemian & Co. in respect of the Pierre property amount to $100,000 in the aggregate, 65% of such fees shall be included in the calculation of the Termination Fee and M&A Termination Fee pursuant to the Agreement, as amended.
3. Counterparts. This Amendment may be executed in several counterparts, each of which shall be deemed an original of this Amendment, and all of which together shall constitute one and the same instrument. Signatures transmitted via facsimile or other electronic means (including those transmitted by electronic mail in portable document format (.pdf)) may be used in place of original signatures on this Amendment, and the Trust and the Agent both intend to be bound by signatures being so transmitted.
4. Miscellaneous.
a. Except as amended and modified by this Amendment, all of the terms, covenants, conditions, and agreements of the Original Management Agreement shall remain unchanged and in full force and effect. In the event of any conflict between the provisions of the Original Management Agreement, and the provisions of this Amendment, the provisions of this Amendment shall control.
b. This Amendment shall be construed and enforced in accordance with the laws of the State of New Jersey.
c. No covenant, agreement, term or condition of this Amendment shall be changed, modified, altered, waived or terminated except by a written instrument of change, modification, alteration, waiver or termination executed by the parties hereto.
d. This Amendment is binding upon, and inures to the benefit of, the respective permitted successors and assigns of the parties hereto.
[Signatures on following page]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written.
TRUST:
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. a Maryland Corporation | ||
| By: |
| |
| Name: | ||
| Title: | ||
AGENT:
HEKEMIAN & CO, INC., a New Jersey corporation | ||
| By: |
| |
| Name: | ||
| Title: | ||
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EXHIBIT 31.1
CERTIFICATION
I, Robert S. Hekemian, Jr., certify that:
| 1. | I have reviewed this report on Form 10-Q of First Real Estate Investment Trust of New Jersey, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: March 16, 2023 | /s/ Robert S. Hekemian, Jr. |
| Robert S. Hekemian, Jr. | |
| President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Allan Tubin, certify that:
| 1. | I have reviewed this report on Form 10-Q of First Real Estate Investment Trust of New Jersey, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: March 16, 2023 | /s/ Allan Tubin |
| Allan Tubin | |
| Chief Financial Officer and Treasurer |
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of First Real Estate Investment Trust of New Jersey, Inc. (the “Company”) on Form 10-Q for the quarter ended January 31, 2023 (the “Report”), I, Robert S. Hekemian, Jr., President and Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C.§ 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. § 78m(a) or 78o(d), and, |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: March 16, 2023 | /s/ Robert S. Hekemian, Jr. |
| Robert S. Hekemian, Jr. | |
| President and Chief Executive Officer |
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of First Real Estate Investment Trust of New Jersey, Inc. (the “Company”) on Form 10-Q for the quarter ended January 31, 2023 (the “Report”), I, Allan Tubin, Chief Financial Officer and Treasurer of the Company, do hereby certify, pursuant to 18 U.S.C.§ 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, 15 U.S.C. § 78m(a) or 78o(d), and, |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: March 16, 2023 | /s/ Allan Tubin |
| Allan Tubin | |
| Chief Financial Officer and Treasurer |