FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. Cautionary Statement Identifying Important Factors That Could Cause FREIT's 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 consolidated financial statements of FREIT (including related notes thereto) appearing elsewhere in this 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 regarding future results of operations, economic performance, financial condition and achievements of FREIT, and do not relate strictly to historical or current facts. FREIT has tried, wherever possible, to identify these forward-looking statements by using words such as "believe," "expect," "anticipate," "intend, " "plan," " estimate," or words of similar meaning. 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, which may cause the actual results to differ materially from those projected. Such factors include, but are not limited to the following: general economic and business conditions, 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; and risks of real estate development and acquisitions. 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 rent in the form of expense reimbursements derived from operating commercial properties. FREIT's properties are primarily located in northernNew Jersey ,Maryland andNew York . FREIT acquires existing properties for investment and properties that FREIT believes have redevelopment potential through changes and capital improvements to these properties. FREIT's policy is to acquire and develop real property for long-term investment. The economic and financial environment:TheU.S. economy grew an average annualized rate of 2.1% in the third quarter of 2019. Employment remains healthy with an unemployment rate at 3.6% inOctober 2019 and real income continues to grow at a solid pace. If theU.S. economy improves, theFederal Reserve may continue to increase lending rates which may affect the refinancing of mortgages coming due in the short-term and borrowings for other purposes.Residential Properties :FREIT has aggressively increased rental rates on its stabilized properties resulting in FREIT's rental rates continuing to show year-over-year increases at most of its properties. FREIT expects increases in rental rates to taper; however, the increased rental rates that are in place should positively impact future revenues.
Special Committee Formation:OnMarch 28, 2019 , FREIT announced that its Board established a Special Committee to explore strategic alternatives focusing on maximizing shareholder value. The Special Committee is comprised solely of independent Trustees and is charged with exploring potential strategic transactions involving FREIT, including, without limitation, a potential sale of FREIT, a business combination involving FREIT or other alternatives for maximizing shareholder value, and determining whether a potential strategic transaction is in the best interests of FREIT and its shareholders. The members of the Special Committee areRonald J. Artinian ,Richard J. Aslanian ,David F. McBride andJustin F. Meng . The Special Committee has engagedHFF Securities L.P. as the Special Committee's financial advisor, and the law firm ofPaul, Weiss, Rifkind, Wharton & Garrison LLP as legal counsel to the Special Committee. There can be no assurance that the Special Committee's exploration of potential strategic transactions will result in any transaction being consummated. FREIT does not intend to discuss or disclose any developments with respect to the Special Committee's functions or activity, unless and until otherwise determined that further disclosure is appropriate or required by regulation or law. There is no formal timetable for the Special Committee's completion of its exploration of potential strategic transactions. Development Projects and Capital Expenditures: FREIT continues to make only those capital expenditures that are absolutely necessary. The construction at the Rotunda development project began inSeptember 2013 and, with the exception of retail tenant improvements, the redevelopment was substantially completed in the third quarter of Fiscal 2016. By the end of the third quarter of Fiscal 2018, the residential section reached a stabilized level of occupancy of approximately 94%. The retail 19
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space continues to lease-up and is approximately 86.5% leased and 84.1% occupied as ofOctober 31, 2019 . FREIT expects Rotunda's retail operations to stabilize in 2020. Debt Financing Availability:Financing has been available to FREIT and its affiliates. OnFebruary 7, 2018 ,Grande Rotunda, LLC refinanced its$115.3 million construction loan held by Wells Fargo with a new loan held byAareal Capital Corporation in the amount of approximately$118.5 million with additional funding available for retail tenant improvements and leasing costs in the amount of$3,380,000 . This refinancing paid off the loan previously held by Wells Fargo, funded loan closing costs and paid the amount due to Hekemian Development Resources for a development fee of$900,000 plus accrued interest of approximately$45,000 (See Note 8 to FREIT's consolidated financial statements for further details on this fee). This loan is secured by the Rotunda property, bears a floating interest rate at 285 basis points over the one-month LIBOR rate and has a maturity date ofFebruary 6, 2021 with two one-year renewal options. As part of this transaction,Grande Rotunda, LLC purchased an interest rate cap on LIBOR for the full amount that can be drawn on this loan of$121.9 million , capping the one-month LIBOR rate at 3% for the first two years of this loan. As ofOctober 31, 2019 , approximately$118.5 million of this loan facility was drawn down and the interest rate was approximately 4.84%. OnAugust 26, 2019 ,Berdan Court, LLC ("Berdan Court"), (owned 100% by FREIT), refinanced its$17 million loan (which matured onSeptember 1, 2019 ) with the lender in the amount of$28,815,000 . This loan, secured by an apartment building located inWayne, New Jersey , has a term of ten years and bears a fixed interest rate equal to 3.54%. Interest-only payments are required each month for the first five years of the term and thereafter, principal payments plus accrued interest will be required each month through maturity. This refinancing resulted in: (i) a reduction in the annual interest rate from a fixed rate of 6.09% to a fixed rate of 3.54% and (ii) net refinancing proceeds of approximately$11.6 million which can be used for capital expenditures and general corporate purposes. OnApril 3, 2019 , WestFREIT, Corp. (owned 100% by FREIT) exercised its option to extend its loan held by M&T Bank, with an outstanding balance of approximately$22.5 million , for twelve months. Effective beginning onJune 1, 2019 , the extension of this loan secured by theWestridge Square Shopping Center , requires monthly principal payments of$47,250 plus interest based on a floating interest rate equal to 240 basis points over the one-month LIBOR and has a maturity date ofMay 1, 2020 . OnJanuary 8, 2018 ,Pierre Towers, LLC ("Pierre"), owned byS And A Commercial Associates Limited Partnership ("S&A"), which is a consolidated subsidiary, refinanced its$29.1 million loan held byState Farm with a new mortgage loan from New York Life Insurance in the amount of$48 million . Pierre paid New York Life Insurance a good faith deposit in the amount of$960,000 , which was reimbursed byNew York Life when the loan closed inJanuary 2018 . The new loan has a term of ten years and bears a fixed interest rate equal to 3.88%. Interest-only payments are required each month for the first five years of the term and thereafter, principal payments plus accrued interest will be required each month through maturity. This refinancing resulted in: (i) a reduction in the annual interest rate from a fixed rate of 5.38% to a fixed rate of 3.88%; and (ii) net refinancing proceeds of approximately$17.2 million (after giving effect to a$1.2 million loan prepayment cost to pay-off the loan held byState Farm ) that were distributed to the partners in S&A with FREIT receiving approximately$11.2 million , based on its 65% membership interest in S&A, which can be used for capital expenditures and general corporate purposes. OnDecember 7, 2017 ,Station Place onMonmouth, LLC (owned 100% by FREIT) closed on a mortgage loan in the amount of$12,350,000 held byProvident Bank to purchase theStation Place property inRed Bank, New Jersey . Interest-only payments are required each month for the first two years of the term and thereafter, principal payments plus accrued interest will be required each month through maturity. The loan bears a floating interest rate equal to 180 basis points over the one-monthBBA LIBOR with a maturity date ofDecember 15, 2027 . In order to minimize interest rate volatility during the term of the loan,Station Place onMonmouth, LLC entered into an interest rate swap agreement that, in effect, converted the floating interest rate to a fixed interest rate of 4.35% over the term of the loan. OnJanuary 21, 2019 ,Station Place onMonmouth, LLC entered into a modification agreement withProvident Bank . The material terms of the modification were: (i) FREIT guarantees$2,350,000 of the outstanding principal balance of the loan; and (ii) the loan's Debt Service Coverage Ratio ("DSCR") covenants are reduced to a single test that will be tested semi-annually (commencing with the six-month period endingApril 30, 2019 ) and require a DSCR of 1.2 / 1.0 based on actual debt service. Prior to this modification, the loan's DSCR covenants were calculated using the greater of the actual debt service or other hypothetical debt service measures, as provided in the loan agreement, that were to be tested quarterly. As previously disclosed in FREIT's current report on Form 8-K filed with theSEC onJanuary 24, 2019 ,Station Place had not been in compliance with the loan covenants as ofOctober 31, 2018 , and the modification waives all previous non-compliance. If the DSCR should fall below 1.2 / 1.0,Provident Bank , at its discretion, may require a current appraisal of theStation Place property. If the loan balance exceeds 85% loan-to-value ("L-T-V") based on the appraised value,Station Place may be required to resize the loan to bring the L-T-V into compliance by paying down the outstanding principal balance of the loan, posting a letter of credit, or providing additional collateral toProvident Bank . As ofOctober 31, 2019 ,Station Place was in compliance with this covenant. OnOctober 27, 2017 , FREIT's revolving line of credit provided by theProvident Bank was renewed for a three-year term ending onOctober 27, 2020 at which point no further advances shall be permitted and provided the line of credit is not renewed by the lender, the outstanding principal balance of the line of credit shall convert to a commercial term loan maturing 20
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onOctober 31, 2022 . 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 onFREIT's Franklin Crossing Shopping Center inFranklin Lakes, New Jersey and retail space inGlen Rock, New Jersey . The total line of credit was increased from$12.8 million to$13 million and the interest rate on the amount outstanding will be at a floating rate of 275 basis points over the 30-day LIBOR with a floor of 3.75%. As ofOctober 31, 2019 , there was no amount outstanding and$13 million was available under the line of credit. In accordance with the loan agreement for each of the loans described above, FREIT may be required to meet or maintain certain financial covenants throughout the term of the loan. Operating Cash Flow: FREIT expects that cash provided by net operating income will be adequate to cover mandatory debt service payments (excluding balloon payments), necessary capital improvements at stabilized properties and other needs as may be required to maintain its status as a REIT.
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Pursuant to theSEC disclosure guidance for "Critical Accounting Policies," theSEC 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 which is presented elsewhere in this Form 10-K, have been applied consistently as ofOctober 31, 2019 andOctober 31, 2018 , and for the years endedOctober 31, 2019 , 2018 and 2017. 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 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: We assess 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 we believe 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 1 to FREIT's consolidated financial statements for recently issued accounting standards. 21 Table of Contents Results of Operations:
Fiscal Years Ended
Summary revenues and net income for the fiscal years ended
Years Ended October 31,
2019 2018 Change
(in thousands, except per share amounts)
Real estate revenues:
Commercial properties $ 27,122 Residential properties 33,155
31,848 1,307
Total real estate revenues 60,277
57,997 2,280
Operating expenses:
Real estate operations 26,062
24,883 1,179
General and administrative 4,049
2,305 1,744
Depreciation 11,339
11,515 (176 )
Total operating expenses 41,450 38,703 2,747 Operating income 18,827 19,294 (467 ) Investment income 360 267 93
Unrealized (loss) gain on interest rate cap contract (160 ) 72 (232 ) Gain on sale of property 836
- 836
Financing costs (18,070 ) (18,667 ) 597
Net income 1,793 966 827
Net (income) loss attributable to noncontrolling
interests in subsidiaries (6 ) 517 (523 ) Net income attributable to common equity$ 1,787
Earnings per share - basic and diluted: $ 0.26
$ 0.21
Weighted average shares outstanding:
Basic and diluted 6,940
6,883
Real estate revenue for Fiscal 2019 increased 3.9% to$60,277,000 compared to$57,997,000 for Fiscal 2018. The increase in revenue was primarily attributable to an increase in the average occupancy rate at the Rotunda property resulting from the lease-up of the residential units and retail space at the property. Net income attributable to common equity ("net income-common equity") for Fiscal 2019 was$1,787,000 ($0.26 per share basic and diluted), compared to$1,483,000 ($0.21 per share basic and diluted) for Fiscal 2018. 22 Table of Contents
The schedule below provides a detailed analysis of the major changes that impacted revenue and net income-common equity for Fiscal 2019 and 2018:
NET INCOME COMPONENTS
Years Ended October 31,
2019 2018 Change
(thousands of dollars)Income from real estate operations:
Commercial properties$ 15,427 $
14,288
Residential properties 18,788 18,826 (38 ) Total income from real estate operations 34,215 33,114 1,101 Financing costs: Fixed rate mortgages (8,953 ) (10,248 ) 1,295 Floating rate mortgages (7,384 ) (5,368 ) (2,016 ) Floating rate - Rotunda construction loan - (1,321 ) 1,321 Credit line - (28 ) 28 Other - Corporate interest (594 ) (652 ) 58 Mortgage cost amortization (1,139 ) (1,050 ) (89 ) Total financing costs (18,070 ) (18,667 ) 597 Investment income 360 267 93
Unrealized (loss) gain on interest rate cap contract (160 ) 72 (232 )
General & administrative expenses:
Accounting fees (654 )
(544 ) (110 )
Legal & professional fees (135 )
(121 ) (14 )
Trustees and consultant fees (1,164 )
(989 ) (175 ) Stock option expense (124 ) (130 ) 6 Special committee expenses (1,416 ) - (1,416 ) Corporate expenses (556 ) (521 ) (35 ) Total general & administrative expenses (4,049 ) (2,305 ) (1,744 ) Depreciation (11,339 ) (11,515 ) 176 Adjusted net income 957 966 (9 ) Gain on sale of property 836 - 836 Net income 1,793 966 827
Net (income) loss attributable to noncontrolling
interests in subsidiaries (6 )
517 (523 )
Net income attributable to common equity$ 1,787 $
1,483$ 304
Adjusted net income for Fiscal 2019 was$957,000 ($0.14 per share basic and diluted) compared to$966,000 ($0.14 per share basic and diluted) for Fiscal 2018. Adjusted income 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 gain related to the sale of the property inPatchogue, New York in Fiscal 2019. The slight decrease in adjusted net income for Fiscal 2019 was primarily driven by the following: real estate tax credits and refunds related to the Icon at the Rotunda property in the amount of approximately$1.1 million received in Fiscal 2018 related to Fiscal 2017 (with a consolidated impact to FREIT of approximately$0.7 million ); general and administrative expense increase in the amount of approximately$1.7 million , primarily attributable to$1.4 million in Special Committee expenses related to advisory and legal fees incurred in Fiscal 2019; interest expense increase on the loan on the Rotunda property in the amount of approximately$0.6 million resulting primarily from an increase in interest rates as compared to the prior year; offset by an increase in revenue of approximately$2.3 million as explained above and Fiscal 2018 being burdened by a$1.2 million loan prepayment cost (with a consolidated impact to FREIT of$0.8 million ) related to thePierre Towers, LLC loan refinancing. Refer to the segment disclosure below for a more detailed discussion on the financial performance of FREIT's commercial and residential segments.) 23 Table of Contents SEGMENT INFORMATION The following table sets forth comparative net operating income ("NOI") data for FREIT's real estate segments and reconciles the NOI to consolidated net income-common equity for Fiscal 2019, as compared to Fiscal 2018 (See below for definition of NOI): Commercial Residential Combined Years Ended Years Ended Years Ended October 31, Increase (Decrease) October 31, Increase (Decrease) October 31, 2019 2018 $ % 2019 2018 $ % 2019 2018 (In Thousands) (In Thousands) (In Thousands) Rental income$ 20,324 $ 19,379 $ 945 4.9 %$ 32,592 $ 31,283 $ 1,309 4.2 %$ 52,916 $ 50,662 Reimbursements 6,295 5,989 306 5.1 % 134 104 30 28.8 % 6,429 6,093 Other 73 96 (23 ) -24.0 % 449 541 (92 ) -17.0 % 522 637 Total revenue 26,692 25,464 1,228 4.8 % 33,175 31,928 1,247 3.9 % 59,867 57,392 Operating expenses 11,694 11,861 (167 )
-1.4 % 14,368 13,022 1,346 10.3 % 26,062
24,883
Net operating income
32,509
Gain on sale of property $ 836 $ - $ 836 100.0 % $ - $ - $ - 0.0 % 836 -
Average Occupancy % 81.5 %* 80.6 %* 0.9 % 95.2 % 94.4 % 0.8 %
Reconciliation to consolidated net income-common equity:
Deferred rents - straight lining 410 605
Investment income 360 267
Unrealized (loss) gain on interest
rate cap contract (160 ) 72
General and administrative expenses (4,049 ) (2,305 )
Depreciation (11,339 ) (11,515 )
Financing costs (18,070 ) (18,667 )
Net income 1,793 966
Net (income) loss attributable to
noncontrolling interests (6 ) 517
Net income attributable to
common equity $ 1,787 $ 1,483
*Average occupancy rate excludes the
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 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 eight (8) separate properties. Seven of these properties are multi-tenanted retail or office centers, and one is single tenanted on land located inRockaway, 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. OnFebruary 8, 2019 , FREIT sold a commercial building, formerly occupied as a Pathmark supermarket inPatchogue, New York for a sales price of$7.5 million . The sale of this property, which had a carrying value of approximately$6.2 million , resulted in a gain of approximately$0.8 million net of sales fees and commissions. Net cash proceeds of approximately$2 million were realized after paying off the related mortgage on this property in the amount of approximately$5.2 million . The sale of this property eliminates an operating loss of approximately$0.8 million ($0.12 per share) incurred, annually, since Pathmark vacated the building inDecember 2015 (see Note 2 to FREIT's consolidated financial statements for further details). As indicated in the table above under the caption Segment Information, total revenue and NOI from FREIT's commercial segment for Fiscal 2019 increased by 4.8% and 10.3%, respectively, as compared to Fiscal 2018. Average occupancy for all commercial properties increased by 0.9% as compared to Fiscal 2018. The increase in revenue and NOI was primarily attributable to an increase in occupancy at the Rotunda property resulting from the lease-up of the new retail space from an average annual occupancy of 73.8% in Fiscal 2018 to 82.3% in Fiscal 2019.
Same Property Operating Results: FREIT's commercial segment currently contains
eight (8) same properties. (See definition of same property under Segment
Information above.) The
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increased by 4.8% and 8.2%, respectively, as compared to Fiscal 2018. The changes resulted from the factors discussed in the immediately preceding paragraph.
Leasing: The following tables reflect 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 Fiscal 2019.
Tenant
Weighted Weighted Improvement Lease
Average Average Prior Allowance Commissions
Number of Lease Area Lease Rate Lease Rate % Increase (per Sq. Ft.) (per Sq. Ft.)
RETAIL: Leases (Sq. Ft.) (per Sq. Ft.) (per Sq. Ft.) (Decrease) (a) (a)
Comparable leases (b) 23 83,812 $ 16.99 $ 16.26 4.5 % $ 0.20 $ 0.50
Non-comparable leases 8 10,708 $ 33.35 N/A N/A $ 2.32 $ 1.62
Total leasing activity 31 94,520
Tenant
Weighted Weighted Improvement Lease
Average Average Prior Allowance Commissions
Number of Lease Area Lease Rate Lease Rate % Increase (per Sq. Ft.) (per Sq. Ft.)
OFFICE: Leases (Sq. Ft.) (per Sq. Ft.) (per Sq. Ft.) (Decrease) (a) (a)
Comparable leases (b) 15 28,845 $ 31.68 $ 29.06 9.0 % $ 0.40 $ 0.85
Non-comparable leases 4 14,590 $ 25.76 N/A N/A $ 5.16 $ 1.77
Total leasing activity 19 43,435
(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 of existing tenant leases.
RESIDENTIAL SEGMENT FREIT currently operates eight (8) multi-family apartment buildings or complexes totaling 1,437 apartment units. OnDecember 7, 2017 , FREIT completed the acquisition ofStation Place , a residential apartment complex consisting of one building with 45 units, located inRed Bank, New Jersey throughStation Place onMonmouth, LLC (FREIT's 100% owned consolidated subsidiary). FREIT identifiedStation Place as the replacement property for theHammel Gardens property located inMaywood, New Jersey that FREIT sold onJune 12, 2017 , which completed the like-kind exchange pursuant to Section 1031 of the Internal Revenue Code (see Notes 2 and 3 to FREIT's consolidated financial statements for further details). As indicated in the table above under the caption Segment Information, total revenue and NOI from FREIT's residential segment for Fiscal 2019 increased by 3.9% and decreased by 0.5%, respectively, as compared to Fiscal 2018. Average occupancy for all residential properties increased by 0.8% as compared to Fiscal 2018. The increase in revenue for Fiscal 2019 was primarily attributable to: (a) an increase in the average occupancy at the Icon (the residential portion of the Rotunda property inBaltimore, Maryland ) to 95.1% in Fiscal 2019 from 91.9% in Fiscal 2018; and (b) an increase in base rent across the residential properties. The slight decrease in NOI for Fiscal 2019 was primarily attributed to the real estate tax credits and refunds related to the Icon property at the Rotunda in the amount of$1.1 million received in Fiscal 2018 related to Fiscal 2017 (with a consolidated impact to FREIT of approximately$0.7 million ) offset by a$1.2 million increase in revenue as explained above. Same Property Operating Results: FREIT's residential segment currently contains seven (7) same properties. (See definition of same property under Segment Information above.)The Station Place property is not included as same property, since it is a newly acquired property that had been in operation for less than a year in Fiscal 2018. Same property revenue and NOI increased by 3.8% and decreased by 0.3%, respectively, from Fiscal 2018. Average occupancy for same properties increased by approximately 0.9% as compared to Fiscal 2018. 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, (excluding from both periods presented for comparability purposes, theStation Place property which was a newly acquired property that had been in operation for less than a year in Fiscal 2018), at the end of Fiscal 2019 and Fiscal 2018 were$1,949 and$1,902 , respectively. For comparability purposes, the average residential rent for Fiscal 2018 has been restated to include the impact of the Icon. 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$326,000 and$304,000 , respectively. Capital expenditures: Since all of FREIT's apartment communities, with the exception of the Boulders, Regency, Icon andStation Place properties, were constructed more than 25 years ago, FREIT tends to spend more in any given year on maintenance and capital improvements than may be spent on newer properties. Funds for these capital projects will be available from cash flow from the property's operations and cash reserves. InApril 2018 ,Pierre Towers, LLC ("Pierre"), a consolidated subsidiary, entered into an agreement withPublic Service Electric & Gas Company ("PSE&G"), whereby PSE&G funded a project to make certain upgrades at the Pierre property located inHackensack, New Jersey ,
which
included
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boiler replacement, replacement of interior and exterior lighting fixtures and minor lighting controls in apartment lighting. PSE&G funded 100% of this project at a total cost of approximately$926,000 and the project was completed inDecember 2018 . Per the reimbursement agreement,Pierre Towers, LLC will reimburse PSE&G for approximately$314,000 of this cost on a monthly basis over a five-year term with no interest. FINANCING COSTS Years Ended October 31, 2019 2018 (In Thousands of Dollars) Fixed rate mortgages (a): 1st Mortgages Existing$ 8,763 $ 8,353 New 190 1,895 Variable rate mortgages: 1st Mortgages Existing 7,384 1,071 New - 4,297 Construction loan-Rotunda - 1,321 Credit line - 28 Other 594 652 Total financing costs, gross 16,931 17,617 Amortization of mortgage costs 1,139 1,050 Total financing costs, net$ 18,070 $ 18,667
(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 net financing costs for Fiscal 2019 decreased 3.2% as compared to Fiscal 2018 which was primarily driven by Fiscal 2018 being burdened by a$1.2 million loan prepayment cost (with a consolidated impact to FREIT of$0.8 million ) related to thePierre Towers, LLC loan refinancing offset by an increase in Fiscal 2019 of approximately$0.6 million in interest expense on theGrande Rotunda, LLC loan resulting from an increase in the one-month LIBOR interest rate. (See Note 5 to FREIT's consolidated financial statements for more details.) INVESTMENT INCOME
Investment income for Fiscal 2019 was$360,000 as compared to$267,000 for Fiscal 2018. Investment income is principally derived from interest earned from cash on deposit in institutional money market funds and interest earned from secured loans receivable (loans made to Hekemian employees, including certain members of the immediate family ofRobert S. Hekemian , FREIT's former Chairman, Chief Executive Officer and consultant of FREIT,Robert S. Hekemian , Jr., the Chief Executive Officer, President and a Trustee of FREIT, andDavid Hekemian , a Trustee of FREIT, for their equity investments (through Rotunda 100, LLC) inGrande Rotunda, LLC , a limited liability company in which FREIT owns a 60% equity interest, and for their equity investments (through Damascus 100, LLC) inDamascus Centre, LLC , a limited liability company in which FREIT owns a 70% equity interest). The secured loan receivable (including accrued interest) from Damascus 100 was repaid in the fourth quarter of Fiscal 2018.
GENERAL AND ADMINISTRATIVE EXPENSES ("G&A")
During Fiscal 2019, G&A was$4,049,000 as compared to$2,305,000 for Fiscal 2018. The primary components of G&A are accounting/auditing fees, legal and professional fees, Trustees' and consultant fees, and Special Committee fees. The increase in G&A expense in Fiscal 2019 was primarily attributed to expenses incurred by the Special Committee related to advisory and legal fees incurred. DEPRECIATION Depreciation expense from operations for Fiscal 2019 was$11,339,000 as compared to$11,515,000 for Fiscal 2018. The slight decrease in depreciation in Fiscal 2019 was primarily attributable to lower depreciation expense resulting from the sale of thePatchogue property inFebruary 2019 . (See Note 2 to FREIT's consolidated financial statements for further details.) 26 Table of Contents
Fiscal Years Ended
Summary revenues and net income for the fiscal years ended
Years Ended October 31,
2018 2017 Change
(in thousands, except per share amounts)
Real estate revenues:
Commercial properties $ 26,149 $ 24,748 $ 1,401
Residential properties 31,848 26,886 4,962
Total real estate revenues 57,997 51,634 6,363
Operating expenses:
Real estate operations 24,883 26,233 (1,350 )
Lease termination fee - 620 (620 )
General and administrative 2,305 2,129 176
Depreciation 11,515 10,669 846
Total operating expenses 38,703 39,651 (948 )
Operating income 19,294 11,983 7,311
Investment income 267 206 61Unrealized gain on interest rate cap contract 72 - 72 Gain on sale of property - 15,395 (15,395 ) Loan prepayment costs relating to property sale -
(1,139 ) 1,139
Financing costs (18,667 ) (15,762 ) (2,905 )
Net income 966 10,683 (9,717 )
Net loss attributable to noncontrolling
interests in subsidiaries 517 2,433 (1,916 ) Net income attributable to common equity$ 1,483 $
13,116
Earnings per share - basic and diluted:$ 0.21 $
1.92
Weighted average shares outstanding:
Basic and diluted 6,883 6,833
Real estate revenue for Fiscal 2018 increased 12.3% to$57,997,000 compared to$51,634,000 for Fiscal 2017. The increase in revenue was primarily attributable to an increase in the average occupancy rate at the Rotunda property resulting from the lease-up of the new residential units and retail space at the property offset partially by the loss of revenue from Macy's vacating thePreakness Shopping Center inWayne, New Jersey inApril 2017 . Net income attributable to common equity ("net income-common equity") for Fiscal 2018 was$1,483,000 ($0.21 per share basic and diluted), compared to$13,116,000 ($1.92 per share basic and diluted) for Fiscal 2017. Excluding the$14.3 million net impact of the sale of theHammel Gardens property, net income for Fiscal 2017 was a net loss of$1.1 million or ($0.17 ) per share. Included in net income for Fiscal 2018 was the following: a consolidated net loss of$1.8 million at the Rotunda property as the property continues to lease-up the new retail space and residential units (inclusive of$2.2 million of real estate tax refunds and credits attributed to the residential development at the Rotunda Icon property with a consolidated impact to FREIT of approximately$1.3 million based on FREIT's 60% ownership); a loan prepayment cost of$1.2 million related to thePierre Towers, LLC loan refinancing (which is included in interest expense on the accompanying consolidated statement of income for the year endedOctober 31, 2018 ) with a consolidated impact to FREIT of approximately$0.8 million based on FREIT's 65% ownership. Included in net income for Fiscal 2017 was the following: a consolidated net loss of$4.6 million at the Rotunda property driven by higher operational costs as the property was leasing up the new retail space and residential units and increased real estate taxes related to the reassessment resulting from completion of the project; and a$620,000 lease termination fee payment made byWayne PSC, LLC , owner of thePreakness Shopping Center inWayne, New Jersey , with a consolidated impact to FREIT of approximately ($250,000 ) based on FREIT's 40% ownership. (Refer to the segment disclosure below for a more detailed discussion on the financial performance of FREIT's commercial and residential segments.) 27 Table of Contents
The schedule below provides a detailed analysis of the major changes that impacted revenue and net income-common equity for Fiscal 2018 and 2017:
NET INCOME COMPONENTS
Years Ended October 31,
2018 2017 Change
(thousands of dollars)Income from real estate operations:
Commercial properties$ 14,288 $ 12,957 $ 1,331 Residential properties 18,826 12,444 6,382 Total income from real estate operations 33,114 25,401 7,713 Financing costs: Fixed rate mortgages (10,248 ) (9,462 ) (786 ) Floating rate mortgages (5,368 ) (476 ) (4,892 ) Floating rate - Rotunda construction loan (1,321 ) (4,014
) 2,693 Credit line (28 ) (69 ) 41 Other - Corporate interest (652 ) (443 ) (209 ) Mortgage cost amortization (1,050 ) (1,298 ) 248 Total financing costs (18,667 ) (15,762 ) (2,905 ) Investment income 267 206 61
Unrealized gain on interest rate cap contract 72 - 72
General & administrative expenses:
Accounting fees (544 ) (521
) (23 )
Legal & professional fees (121 ) (74
) (47 )
Trustees and consultant fees (989 ) (947 ) (42 ) Stock option expense (130 ) (122 ) (8 ) Corporate expenses (521 ) (465 ) (56 )
Total general & administrative expenses (2,305 ) (2,129
) (176 ) Depreciation (11,515 ) (10,669 ) (846 ) Adjusted net income (loss) 966 (2,953 ) 3,919 Gain on sale of property - 15,395 (15,395 )
Loan prepayment costs relating to property sale - (1,139
) 1,139 Lease termination fee - (620 ) 620 Net income 966 10,683 (9,717 )
Net loss attributable to noncontrolling interests
in subsidiaries 517 2,433 (1,916 ) Net income attributable to common equity$ 1,483 $ 13,116 $ (11,633 )
Adjusted net income for Fiscal 2018 was$966,000 ($0.14 per share basic and diluted), compared to a loss of$2,953,000 or ($0.43 ) per share basic and diluted) for Fiscal 2017. Adjusted income 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 gain and loan prepayment costs related to the sale ofHammel Gardens inMaywood, New Jersey in Fiscal 2017; and a lease termination fee paid in Fiscal 2017. 28 Table of Contents SEGMENT INFORMATION
The following table sets forth comparative net operating income ("NOI") data for FREIT's real estate segments and reconciles the NOI to consolidated net income-common equity for Fiscal 2018, as compared to Fiscal 2017:
Commercial Residential Combined
Years Ended Years Ended Years Ended
October 31, Increase (Decrease) October 31, Increase (Decrease) October 31,
2018 2017 $ % 2018 2017 $ % 2018 2017
(In Thousands) (In Thousands) (InThousands) Rental income$ 19,379 $ 18,247 $ 1,132 6.2 %$ 31,283 $ 26,476 $ 4,807 18.2 %$ 50,662 $ 44,723 Reimbursements 5,989 5,550 439 7.9 % 104 47 57 121.3 % 6,093 5,597 Other 96 317 (221 ) -69.7 % 541 363 178 49.0 % 637 680 Total revenue 25,464 24,114 1,350 5.6 % 31,928 26,886 5,042 18.8 % 57,392 51,000 Operating expenses 11,861 11,791 70 0.6 % 13,022 14,442 (1,420 ) -9.8 % 24,883 26,233
Net operating income
24,767
Gain on sale of property $ - $ - $ - 0.0 % $ -
15,395
Loan prepayment costs relating to property sale $ - $ - $ -
0.0 % $ -
(1,139 ) Average Occupancy % 76.8 % 75.7 % 1.1 % 94.4 % 83.8 %* 10.6 %
Reconciliation to consolidated net income-common equity:
Deferred rents - straight lining 605 634 Lease termination fee - (620 ) Investment income 267 206 Unrealized gain on interest rate cap contract 72
-
General and administrative expenses (2,305 ) (2,129 )
Depreciation (11,515 ) (10,669 )
Financing costs (18,667 ) (15,762 )
Net income 966 10,683
Net loss attributable to noncontrolling interests 517 2,433
Net income attributable to common equity $ 1,483 $ 13,116 * Average occupancy rate excludes the
COMMERCIAL SEGMENT
The commercial segment contains nine (9) separate properties. Seven are multi-tenanted retail or office centers, and two are single tenanted - a building formerly occupied as a supermarket and land located inRockaway, 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. As indicated in the table above under the caption Segment Information, total revenue and NOI from FREIT's commercial segment for Fiscal 2018 increased by 5.6% and 10.4%, respectively, as compared to Fiscal 2017. The increase in revenue and NOI was primarily attributable to an increase in occupancy at the Rotunda property resulting from the lease-up of the new retail space offset partially by the loss of revenue from Macy's vacating thePreakness Shopping Center inWayne, New Jersey inApril 2017 . Same Property Operating Results: FREIT's commercial segment currently contains nine (9) same properties. (See definition of same property under Segment Information above.) Since all of FREIT's commercial properties are considered same properties in the current fiscal year, refer to the preceding paragraph for discussion of changes in same property results. Leasing: The following tables reflect 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 Fiscal 2018. Tenant Weighted Weighted Improvement Lease Average Average Prior Allowance Commissions Number of Lease Area Lease Rate Lease Rate % Increase (per Sq. Ft.) (per Sq. Ft.) RETAIL: Leases (Sq. Ft.) (per Sq.
Ft.) (per Sq. Ft.) (Decrease) (a) (a)
Comparable leases (b) 19 75,158 $ 23.74 $ 23.82 -0.3 % $ 0.20 $ 0.46
Non-comparable leases 7 12,400 $ 40.64 N/A N/A $ 4.32 $ 1.99
Total leasing activity 26 87,558
Tenant
Weighted Weighted Improvement Lease
Average Average Prior Allowance Commissions
Number of Lease Area Lease Rate Lease Rate % Increase (per Sq. Ft.) (per Sq. Ft.)
OFFICE: Leases (Sq. Ft.) (per Sq. Ft.) (per Sq. Ft.) (Decrease) (a) (a)
Comparable leases (b) 5 7,870 $ 26.24 $ 23.78 10.3 % $ 0.27 $ 0.15
Non-comparable leases - - $ - N/A N/A $ - $ -
Total leasing activity 5 7,870
(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 of existing tenant leases.
29
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The US economic recovery continued to show signs of improvement while there
continues to be some uncertainty in the retail environment. Average occupancy
rates for Fiscal 2018, increased 1.1% from last year's comparable period which
was primarily attributed to an increase in occupancy at the Rotunda property due
to continued lease up at the property offset by the decline in occupancy at
Wayne PSC due to Macy's vacating its space at the Preakness Shopping Center inApril 2017 . RESIDENTIAL SEGMENT FREIT operates eight (8) multi-family apartment buildings or complexes totaling 1,437 apartment units, which is inclusive of theStation Place property inRed Bank New Jersey , which was acquired inDecember 2017 . OnJune 12, 2017 , FREIT sold itsHammel Gardens property, a residential property located inMaywood, New Jersey , for a sales price of$17 million . The sale of this property, which had a carrying value of approximately$0.7 million , resulted in a capital gain of approximately$15.4 million net of sales fees and commissions. As a result of this sale, FREIT incurred a loan prepayment cost of approximately$1.1 million and paid off the related mortgage on theHammel Gardens property in the amount of approximately$8 million from the proceeds of the sale. FREIT structured this sale in a manner that qualified it as a like-kind exchange of real estate pursuant to Section 1031 of the Internal Revenue Code. The 1031 exchange transaction resulted in a deferral for income tax purposes of the$15.4 million capital gain. The net proceeds from this sale, which were approximately$7 million , were held in escrow until a replacement property was purchased. A replacement property related to this like-kind exchange (Station Place ) was acquired onDecember 7, 2017 , and the sale proceeds held in escrow were applied to the purchase price of such property. (See Note 2 and 3 to FREIT's consolidated financial statements.) As indicated in the table above under the caption Segment Information, total revenue and NOI from FREIT's residential segment for Fiscal 2018 increased by 18.8% and 51.9%, respectively, as compared to Fiscal 2017. The increase in revenue and NOI for Fiscal 2018 was primarily attributable to: (a) an increase in the average annual occupancy at the Icon (the residential portion of the Rotunda property inBaltimore, Maryland ) to 91.9% in Fiscal 2018 from 51.3% in Fiscal 2017; (b) an increase in base rent; (c) $2.2 million in real estate tax refunds and credits attributed to the residential development at the Rotunda Icon property (with a consolidated impact to FREIT of approximately$1.3 million based on FREIT's 60% ownership). Same Property Operating Results: FREIT's residential segment currently contains seven (7) same properties. (See definition of same property under Segment Information above.)The Station Place property is not included as same property, since it is a newly acquired property that has been in operation for less than a year.The Hammel Gardens property was excluded from same property results for all periods presented because this property was sold in the prior fiscal year. Same property revenue and NOI increased by 17.6% and 50%, respectively, from Fiscal 2017. 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, (excluding from both periods presented for comparability purposes, theStation Place property which was a newly acquired property that has been in operation for less than a year and the Icon which reached a stabilized occupancy rate in the third quarter of Fiscal 2018), at the end of Fiscal 2018 and Fiscal 2017 were$1,902 and$1,863 , 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$231,000 and$220,000 , respectively. FINANCING COSTS Years Ended October 31, 2018 2017 (In Thousands of Dollars) Fixed rate mortgages (a): 1st Mortgages Existing$ 8,353 $ 9,462 New 1,895 - Variable rate mortgages: 1st Mortgages Existing 1,071 - New 4,297 476 Construction loan-Rotunda 1,321 4,014 Credit line 28 69 Other 652 443 Total financing costs, gross 17,617 14,464 Amortization of mortgage costs 1,050 1,298 Total financing costs, net$ 18,667 $ 15,762
(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 net financing costs for Fiscal 2018 increased 18.4% as compared to Fiscal 2017 which was primarily attributable to a$1.2 million loan prepayment cost related to thePierre Towers, LLC loan refinancing with a consolidated impact to FREIT of 30 Table of Contents
approximately
INVESTMENT INCOME
Investment income for Fiscal 2018 was$267,000 as compared to$206,000 for the prior year's period. Investment income is principally derived from interest earned from cash on deposit in institutional money market funds and interest earned from secured loans receivable (loans made to Hekemian employees, including certain members of the immediate family ofRobert S. Hekemian , FREIT's former Chairman, Chief Executive Officer and consultant of FREIT,Robert S. Hekemian , Jr., the Chief Executive Officer and a Trustee of FREIT, andDavid Hekemian , a Trustee of FREIT, for their equity investments (through Rotunda 100, LLC) inGrande Rotunda, LLC , a limited liability company in which FREIT owns a 60% equity interest, and for their equity investments (through Damascus 100, LLC) inDamascus Centre, LLC , a limited liability company in which FREIT owns a 70% equity interest). The secured loan receivable (including accrued interest) from Damascus 100 was repaid in the fourth quarter of Fiscal 2018.
GENERAL AND ADMINISTRATIVE EXPENSES ("G&A")
During Fiscal 2018, G&A was$2,305,000 as compared to$2,129,000 for the prior year's period. The primary components of G&A are accounting/auditing fees, legal and professional fees, Trustees' and consulting fees.
DEPRECIATION
Depreciation expense from operations for Fiscal 2018 was$11,515,000 as compared to$10,669,000 for the prior year's period. The increase in depreciation was primarily attributable to additional retail tenant improvements at the Rotunda property being placed into service as the property continues to lease-up and the acquisition ofStation Place inDecember 2017 .
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was$13.8 million for Fiscal 2019 compared to$12.9 million for Fiscal 2018. 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), real estate taxes, recurring capital improvements at 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 Form 10-K. As atOctober 31, 2019 , FREIT had cash, cash equivalents and restricted cash totaling$42.5 million compared to$26.4 million atOctober 31, 2018 . The increase in cash for Fiscal 2019 is primarily attributable to$13.8 million in net cash provided by operating activities and$4 million in net cash provided by investing activities after capital expenditures, offset by$1.7 million used in financing activities. OnFebruary 8, 2019 , FREIT sold a commercial building, formerly occupied as a Pathmark supermarket inPatchogue, New York for a sales price of$7.5 million . The sale of this property, which had a carrying value of approximately$6.2 million , resulted in a gain of approximately$0.8 million net of sales fees and commissions. Net cash proceeds of approximately$2 million were realized after paying off the related mortgage on this property in the amount of approximately$5.2 million . In connection with and in anticipation of the closing of the sale of thePatchogue property, FREIT declared a one-time special dividend of$0.10 per share in the first quarter of Fiscal 2019. The sale of this property eliminates an operating loss of approximately$0.8 million ($0.12 per share) incurred, annually, since Pathmark vacated the building inDecember 2015 . (See Note 2 to FREIT's consolidated financial statements.) OnJune 12, 2017 , FREIT sold itsHammel Gardens property, a residential property located inMaywood, New Jersey , for a sales price of$17 million . The sale of this property, which had a carrying value of approximately$0.7 million , resulted in a capital gain of approximately$15.4 million net of sales fees and commissions. As a result of this sale, FREIT incurred a loan prepayment cost of approximately$1.1 million and paid off the related mortgage on theHammel Gardens property in the amount of approximately$8 million from the proceeds of the sale. FREIT structured this sale in a manner that qualified it as a like-kind exchange of real estate pursuant to Section 1031 of the Internal Revenue Code. The 1031 exchange transaction resulted in a deferral for income tax purposes of the$15.4 million capital gain. The net proceeds from this sale, which were approximately$7 million , were held in escrow until a replacement property was purchased. (See Note 2 to FREIT's consolidated financial statements.) OnDecember 7, 2017 , FREIT completed the acquisition ofStation Place , a residential apartment complex consisting of one building with 45 units, located inRed Bank, New Jersey throughStation Place onMonmouth, LLC (FREIT's 100% owned consolidated subsidiary). FREIT identifiedStation Place as a replacement property for theHammel Gardens property that FREIT sold onJune 12, 2017 to complete the like-kind exchange transaction under Section 1031 of the Internal Revenue Code.Station Place is part of FREIT's residential segment. The acquisition cost was$19,550,000 (inclusive of approximately$550,000 of transaction costs capitalized as part of the asset acquisition), which was funded in part with$7 million in net proceeds from the sale of theHammel Gardens property, and the remaining balance of$12,350,000 (inclusive of the transaction costs) was funded byStation Place onMonmouth, LLC through long-term financing for this property fromProvident Bank . (See Note 3 to FREIT's consolidated financial statements.) 31
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OnApril 25, 2017 , Wayne PSC announced it had agreed to a termination of Macy's lease for the 81,160 square foot Macy's store at thePreakness Shopping Center , effective as ofApril 15, 2017 . To terminate the lease and take possession of the space, Wayne PSC paid Macy's a termination fee of$620,000 . Wayne PSC expects to re-position this space and re-lease to a new tenant (or multiple tenants) at market rents, which are currently higher than the rent provided for under the terminated Macy's lease. FREIT will lose total consolidated annual rental income, including reimbursements, of approximately$0.2 million until such time as the space is fully re-leased. FREIT anticipates increased revenue from the space when it is re-leased. (See Note 14 to FREIT's consolidated financial statements.) FREIT owns and operates an 87,661 square foot shopping center located inFranklin Lakes, New Jersey , the anchor tenant of which is Stop & Shop. OnJuly 26, 2017 , Stop & Shop entered into a lease modification with FREIT whereby the tenant exercised its option to renew the lease for a ten-year period with a right of the tenant to terminate the lease at any time during the fifth year if the store does not meet certain sales volume levels set forth in the modification. This lease modification provided for a$250,000 reduction in annual rent over the renewed term. (See Note 14 to FREIT's consolidated financial statements.) The Rotunda property inBaltimore, Maryland (owned by FREIT's 60% owned consolidated affiliateGrande Rotunda, LLC ) is an 11.5 acre site containing, at the time that the property was acquired, a building with approximately 137,000 sq. ft. of office space and approximately 83,000 sq. ft. of retail space on the lower level of the building. InSeptember 2013 , FREIT began construction to redevelop and expand this property and, with the exception of retail tenant improvements, the redevelopment was substantially completed in the third quarter of Fiscal 2016. The redevelopment and expansion plans included a modernization of the office building and smaller adjacent buildings, construction of 379 residential apartment rental units, an additional 75,000 square feet of new retail space, and 864 above level parking spaces. By the end of the third quarter of Fiscal 2018, the residential section reached a stabilized level of occupancy of approximately 94%. The retail space continues to lease-up and is approximately 86.5% leased and 84.1% occupied as ofOctober 31, 2019 . FREIT expects Rotunda's retail operations to stabilize in 2020. With regard to the funding of the Rotunda redevelopment project,Wells Fargo Bank , a previous lender, required thatGrande Rotunda, LLC contribute not less than$14,460,000 toward the construction before any construction loan proceeds could be disbursed. To secure these fundsGrande Rotunda, LLC made a capital call on its members, which are FREIT and Rotunda 100, LLC ("Rotunda 100"). FREIT's share (60%) amounted to approximately$8.7 million , and the Rotunda 100 members' share (40%) amounted to approximately$5.8 million . FREIT, pursuant to previous agreements, made secured loans to the Rotunda 100 members of approximately$2.1 million towards their share of the$5.8 million capital call. The balance of Rotunda 100's capital call of approximately$3.7 million was initially made by FREIT until it was repaid by Rotunda 100 inAugust 2014 . These loans bear an interest rate of 225 basis points over the 90 day LIBOR, and had a maturity date ofJune 19, 2015 . OnJune 4, 2015 , FREIT'sBoard of Trustees approved an extension of the maturity date to occur the earlier of (a)June 19, 2018 or (b) five days after the closing of a permanent mortgage loan secured by the Rotunda property. OnDecember 7, 2017 , the Board approved a further extension of the maturity dates of these loans to the date or dates upon which distributions of cash are made byGrande Rotunda, LLC to its members as a result of the refinancing or sale ofGrande Rotunda, LLC or the Rotunda property. Rotunda 100 is principally owned by employees ofHekemian & Co. , includingAllan Tubin , FREIT's Chief Financial Officer, and certain members of the immediate family ofRobert S. Hekemian , FREIT's former Chairman, Chief Executive Officer and consultant of FREIT,Robert S. Hekemian , Jr., Chief Executive Officer, President and a Trustee of FREIT, andDavid Hekemian , a Trustee of FREIT. As ofOctober 31, 2019 , FREIT and Rotunda 100 have made their required capital contributions of$8.7 million and$5.8 million , respectively, towards the Rotunda construction financing. Both FREIT and the Rotunda 100 members are treating their required capital contributions as additional investments inGrande Rotunda, LLC . In Fiscal 2017,Grande Rotunda, LLC incurred substantial expenditures at the Rotunda property related to retail tenant improvements, leasing costs and operating expenditures which, in the aggregate, exceeded revenues as the property was still in the rent up phase and the construction loan previously held with Wells Fargo was at its maximum level resulting in no additional funding available to draw. Accordingly, during Fiscal 2017 the equity owners inGrande Rotunda, LLC (FREIT with a 60% ownership and Rotunda 100 with a 40% ownership) contributed their respective pro-rata share of any cash needs through loans toGrande Rotunda, LLC . As ofOctober 31, 2019 and 2018, Rotunda 100, LLC has fundedGrande Rotunda, LLC with approximately$5.7 million and$5.4 million (including interest), respectively, which is included in "Due to affiliate" on the accompanying consolidated balance sheets. OnFebruary 7, 2018 ,Grande Rotunda, LLC refinanced its$115.3 million construction loan held by Wells Fargo with a new loan held byAareal Capital Corporation in the amount of approximately$118.5 million with additional funding available for retail tenant improvements and leasing costs in the amount of$3,380,000 . This refinancing paid off the loan previously held by Wells Fargo, funded loan closing costs and paid the amount due toHekemian Development Resources for a development fee of$900,000 plus accrued interest of approximately$45,000 (See Note 8 to FREIT's consolidated financial statements for further details on this fee). This loan is secured by the Rotunda property, bears a floating interest rate at 285 basis points over the one-month LIBOR rate and has a maturity date ofFebruary 6, 2021 with two one-year renewal options. As part of this transaction,Grande Rotunda, LLC purchased an interest rate cap on LIBOR for the full amount that can be drawn on this loan of$121.9 million , capping the one-month LIBOR rate at 3% for the first two years of this loan. As ofOctober 31, 2019 , 32 Table of Contents
approximately
OnApril 22, 2016 ,Damascus Centre, LLC was able to take-down a second tranche of its loan held withPeople's United Bank in the amount of$2,320,000 , of which approximately$470,000 was readily available and the remaining$1,850,000 was held in escrow. InJuly 2018 , these funds totaling$1,850,000 were released from escrow by the bank and became readily available to Damascus,Centre LLC .Damascus Centre, LLC distributed amounts due to FREIT and Damascus 100 andDamascus 100 in turn repaid FREIT the secured loans receivable plus accrued interest in the amount of approximately$1.9 million . Credit Line: OnOctober 27, 2017 , FREIT's revolving line of credit provided by theProvident Bank was renewed for a three-year term ending onOctober 27, 2020 at which point no further advances shall be permitted and provided the line of credit is not renewed by the lender, the outstanding principal balance of the line of credit shall convert to a commercial term loan maturing onOctober 31, 2022 . 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 onFREIT's Franklin Crossing Shopping Center inFranklin Lakes, New Jersey and retail space inGlen Rock, New Jersey . The total line of credit was increased from$12.8 million to$13 million and the interest rate on the amount outstanding will be at a floating rate of 275 basis points over the 30-day LIBOR with a floor of 3.75%. During Fiscal 2017, FREIT utilized$3 million of its credit line to fund tenant improvements for new retail tenants at the Rotunda property. InFebruary 2018 , FREIT repaid the line of credit in the amount of$3.1 million . As ofOctober 31, 2019 and 2018, there was no amount outstanding and$13 million was available under the line of credit. Dividend: After careful consideration of FREIT's Fiscal 2019 financial results, cash flow and projected cash needs, theBoard of Trustees declared a fourth quarter dividend of$0.20 per share, which was paid onDecember 13, 2019 to shareholders of record onDecember 1, 2019 . Specifically, over the course of the Trust's history, the fourth quarter dividend takes into consideration the full fiscal year results, and as such, may not be indicative of future quarterly dividends. The Board will continue to evaluate the dividend on a quarterly basis. As atOctober 31, 2019 , FREIT's aggregate outstanding mortgage debt was$352.8 million , which bears a weighted average interest rate of 4.51% and an average life of approximately 4.4 years. FREIT's fixed rate mortgages are subject to amortization schedules that are longer than the terms of the mortgages. As such, balloon payments (unpaid principal amounts at mortgage due date) for all mortgage debt will be required as follows: Fiscal Year 2020 2021 2022 2023 2024 2025 2026 2028 2029 ($ in millions) Mortgage "Balloon" Payments$21.9 $137.6 (A)$14.4 $34.4 $9.0 $13.9 $18.2 $53.9 $25.9
(A) Includes loan on the Rotunda property located in
The following table shows the estimated fair value and carrying value of FREIT's
long-term debt, net at
($ in Millions) October 31, 2019 October 31, 2018
Fair Value $352.9 $338.3
Carrying Value, Net $349.9 $347.0 Fair values are estimated based on market interest rates at the end of each fiscal year 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 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 mortgage debt being retired. For example, atOctober 31, 2019 , a 1% interest rate increase would reduce the fair value of FREIT's debt by$10 million , and a 1% decrease would increase the fair value by$10.7 million . FREIT believes that the values of its properties will be adequate to command refinancing proceeds equal to or higher than the mortgage debt to be refinanced. 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 shareholders. OnAugust 26, 2019 ,Berdan Court, LLC ("Berdan Court"), (owned 100% by FREIT), refinanced its$17 million loan (which matured onSeptember 1, 2019 ) with the lender in the amount of$28,815,000 . This loan, secured by an apartment building located inWayne, New Jersey , has a term of ten years and bears a fixed interest rate equal to 3.54%. Interest-only payments are required each month for the first five years of the term and thereafter, principal payments plus accrued interest will be required each month through maturity. This refinancing resulted in: (i) a reduction in the annual interest rate from a fixed rate of 6.09% to a fixed rate of 3.54% and (ii) net refinancing proceeds of approximately$11.6 million which can be used for capital expenditures and general corporate purposes. OnApril 3, 2019 , WestFREIT, Corp. (owned 100% by FREIT) exercised its option to extend its loan held by M&T Bank, with an outstanding balance of approximately$22.5 million , for twelve months. Effective beginning onJune 1, 2019 , the 33
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extension of this loan secured by theWestridge Square Shopping Center , requires monthly principal payments of$47,250 plus interest based on a floating interest rate equal to 240 basis points over the one-month LIBOR and has a maturity date ofMay 1, 2020 . OnJanuary 8, 2018 ,Pierre Towers, LLC ("Pierre"), owned byS And A Commercial Associates Limited Partnership ("S&A"), which is a consolidated subsidiary, refinanced its$29.1 million loan held byState Farm with a new mortgage loan from New York Life Insurance in the amount of$48 million . Pierre paid New York Life Insurance a good faith deposit in the amount of$960,000 , which was reimbursed byNew York Life when the loan closed inJanuary 2018 . The new loan has a term of ten years and bears a fixed interest rate equal to 3.88%. Interest-only payments are required each month for the first five years of the term and thereafter, principal payments plus accrued interest will be required each month through maturity. This refinancing resulted in: (i) a reduction in the annual interest rate from a fixed rate of 5.38% to a fixed rate of 3.88%; and (ii) net refinancing proceeds of approximately$17.2 million (after giving effect to a$1.2 million loan prepayment cost to pay-off the loan held byState Farm ) that were distributed to the partners in S&A with FREIT receiving approximately$11.2 million , based on its 65% membership interest in S&A, which can be used for capital expenditures and general corporate purposes. OnDecember 7, 2017 ,Station Place onMonmouth, LLC (owned 100% by FREIT) closed on a mortgage loan in the amount of$12,350,000 held byProvident Bank to purchase theStation Place property inRed Bank, New Jersey . Interest-only payments are required each month for the first two years of the term and thereafter, principal payments plus accrued interest will be required each month through maturity. The loan bears a floating interest rate equal to 180 basis points over the one-monthBBA LIBOR with a maturity date ofDecember 15, 2027 . In order to minimize interest rate volatility during the term of the loan,Station Place onMonmouth, LLC entered into an interest rate swap agreement that, in effect, converted the floating interest rate to a fixed interest rate of 4.35% over the term of the loan. The interest rate swap is considered a derivative financial instrument that will be used only to reduce interest rate risk, and not held or used for trading purposes. OnJanuary 21, 2019 ,Station Place onMonmouth, LLC entered into a modification agreement withProvident Bank to modify the loan's DSCR covenants. (See Note 5 to the consolidated financial statements.) 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 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 has variable interest rate mortgages securing its Damascus Centre, Regency,Preakness Shopping Center andStation 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$22,320,000 ($19,396,000 atOctober 31, 2019 ) for the Damascus Centre swaps, a notional amount of approximately$16,200,000 ($15,588,000 atOctober 31, 2019 ) for the Regency swap, a notional amount of approximately$25,800,000 ($23,794,000 atOctober 31, 2019 ) for thePreakness Shopping Center swap and a notional amount of approximately$12,350,000 ($12,350,000 atOctober 31, 2019 ) for theStation Place swap. Interest rate cap contract: To limit exposure on interest rate volatility, FREIT uses 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 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. FREIT has a variable interest rate loan securing its Rotunda property. As part of the refinancing ofGrande Rotunda, LLC's construction loan held by Wells Fargo with a new loan fromAareal Capital Corporation ,Grande Rotunda, LLC purchased an interest rate cap on LIBOR for the full amount that can be drawn on this loan of$121.9 million , capping the one-month LIBOR rate at 3% for the first two years of this loan. The cap contract was based on a notional amount of approximately$121,900,000 ($121,900,000 atOctober 31, 2019 ) and a term of two years with the loan being hedged against having a balance of approximately$118,520,000 and a term of three years. Current GAAP requires FREIT to mark-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 are accounted for as effective cash flow hedges with the corresponding gains or losses on these contracts not affecting FREIT's income statement; 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 balance sheet. The interest rate cap is, for accounting purposes, deemed to be accounted for as an ineffective cash flow hedge with a corresponding gain or loss being recorded in FREIT's income statement. 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
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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 swap and cap contracts ("contract"): 1) early termination risk, and 2) counterparty credit risk.
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. AtOctober 31, 2019 , the interest rate cap contract for the Rotunda property, the swap contracts for the Damascus Centre, Regency,Station Place andPreakness Shopping Center properties were in the counterparties' favor. If FREIT had terminated these contracts at that date, it would have realized losses of approximately$0 for the Rotunda cap,$179,000 for the Damascus Centre swaps,$860,000 for the Regency swap,$1,034,000 for theStation Place swap and$53,000 for thePreakness Shopping Center swap, all of which have been included as a liability in FREIT's consolidated balance sheet as atOctober 31, 2019 . The change in the fair value for the interest rate swap contracts (gain or loss) during such period has been included in comprehensive income and for the year endedOctober 31, 2019 , FREIT recorded an unrealized loss of$6,400,000 in comprehensive income. The change in the fair value of the Rotunda interest rate cap contract (gain or loss) during such period has been included in the consolidated statement of income and for the year endedOctober 31, 2019 , FREIT recorded an unrealized loss of approximately$160,000 . For the year endedOctober 31, 2018 , FREIT recorded an unrealized gain of$3,113,000 in comprehensive income representing the change in fair value of the swaps during such period with a corresponding asset of approximately$2,452,000 for thePreakness Shopping Center swap,$955,000 for the Damascus Center swaps,$408,000 for the Regency swap and$460,000 for theStation Place swap as ofOctober 31, 2018 . For the year endedOctober 31, 2018 , FREIT recorded an unrealized gain of$72,000 in the consolidated statement of income representing the change in the fair value of the Rotunda interest rate cap contract during such period with a corresponding asset of approximately$160,000 as ofOctober 31, 2018 . Counterparty Credit Risk: Each party to a cap or swap contract bears the risk that its counterparty will default on its obligation to make a periodic payment. FREIT reduces this risk by entering into swap or cap contracts only with major financial institutions that are experienced market makers in the derivatives market.
FREIT's total contractual obligations under its line of credit and mortgage
loans in place as of
CONTRACTUAL OBLIGATIONS-PRINCIPAL
(in thousands of dollars)
Within 2 - 3 4 - 5 After 5
Total One Year Years Years Years
Long-Term Debt
Annual Amortization $ 23,522 $ 3,722 $ 6,412 $ 4,843 $ 8,545
Balloon Payments 329,268 21,916 151,993 43,413 111,946
Total Long-Term Debt $ 352,790 $ 25,638 $ 158,405 $ 48,256 $ 120,491 FREIT's annual estimated cash requirements related to interest on its line of
credit and mortgage loans in place as of
INTEREST OBLIGATIONS
(in thousands of dollars)
Within 2 - 3 4 - 5 After 5
Total One Year Years Years Years
Interest on Fixed Rate Debt
- -
Total Interest Obligations $ 54,043 $ 14,207 $ 16,250 $ 10,285 $ 13,301 (a) Includes estimated interest on the Rotunda loan held with
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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
sources or distributions from equity/debt 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, recurring capital improvements on FREIT's residential
apartments and lease termination fees paid to buyout a lease. 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:
Years Ended October 31,
2019 2018 2017
(In Thousands, Except Per Share)
Funds From Operations ("FFO") (a)
Net income $ 1,793 $ 966 $ 10,683
Depreciation of consolidated properties 11,339 11,515 10,669
Amortization of deferred leasing costs 611 739 634
Distributions to minority interests (686 ) (626 )(b) (420 )
Gain on sale of property (836 ) - (15,395 )
Loan prepayment costs relating to property sale -
- 1,139
FFO $ 12,221 $ 12,594 $ 7,310
Per Share - Basic and Diluted $ 1.76 $ 1.83 $ 1.07
(a) As prescribed by NAREIT.
(b) FFO excludes the distribution of proceeds to minority interest in the amount
of approximately $6 million related to the refinancing of the loan for Pierre
Towers, LLC , owned by S And A Commercial Associates Limited Partnership which is
a consolidated subsidiary and the distribution of funds to minority interest in
the amount of approximately $1.6 million received from Damascus Centre, LLC for
funds which were previously held in escrow. See Note 5 to the consolidated
financial statements for further details.
Adjusted Funds From Operations ("AFFO")
FFO $ 12,221 $ 12,594 $ 7,310
Deferred rents (Straight lining) (410 ) (605 ) (634 )
Capital Improvements - Apartments (685 ) (738 ) (798 )
Lease termination fee - - 620
AFFO $ 11,126 $ 11,251 $ 6,498
Per Share - Basic and Diluted $ 1.60 $ 1.63 $ 0.95
Weighted Average Shares Outstanding:
Basic and Diluted 6,940 6,883 6,833
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 comparableto those of other REITs. STOCK OPTION PLAN
OnApril 5, 2018 , FREIT shareholders approved amendments to FREIT's Equity Incentive Plan (the "Plan") to (a) increase the number of shares reserved for issuance thereunder by an additional 300,000 shares and (b) further extend the term of the Plan fromSeptember 10, 2018 toSeptember 10, 2028 . As ofOctober 31, 2019 , 442,060 shares are available for issuance under the Plan. OnMay 3, 2018 , the Board approved the grant of an aggregate of 38,000 non-qualified share options under the Plan to two members of the Board who were appointed to the Board during Fiscal 2018. The options have an exercise price of$15.50 per share, will vest in equal annual installments over a 5-year period, and will expire 10 years from the date of grant, which will beMay 2, 2028 . (See Note 10 to FREIT's consolidated financial statements for further details.) OnMarch 4, 2019 , the Board approved the grant of an aggregate of 5,000 non-qualified share options under the Plan to the Chairman of the Board. The options have an exercise price of$15.00 per share, will vest in equal annual installments over a 5-year period and will expire 10 years from the date of grant, which will beMarch 3, 2029 . (See Note 10 to FREIT's consolidated financial statements for further details.) 36 Table of Contents DISTRIBUTIONS TO SHAREHOLDERS
Since its inception in 1961, FREIT has elected to be treated as a REIT for federal income tax purposes. In order to qualify as a REIT, FREIT must satisfy a number of highly technical and complex operational requirements, including a requirement that FREIT must distribute to its shareholders at least 90% of its REIT taxable income. Although cash used to make distributions reduces amounts available for capital investment, FREIT generally intends to distribute not less than the minimum of REIT taxable income necessary to satisfy the applicable REIT requirement as set forth in the Internal Revenue Code. With respect to the Jobs and Growth Tax Relief Reconciliation Act of 2003, the reduction of the tax rate on dividends does not apply to FREIT dividends other than capital gains dividends, which are subject to capital gains rates. FREIT's policy is to pass on at least 90% of its ordinary taxable income to shareholders. FREIT's taxable income is untaxed at the trust level to the extent distributed to shareholders. FREIT's dividends of ordinary taxable income will be taxed as ordinary income to its shareholders and FREIT's capital gains dividends will be taxed as capital gains to its shareholders. FREIT'sBoard of Trustees evaluates the dividend to be paid (if any) on a quarterly basis. After careful consideration of FREIT's Fiscal 2019 financial results, cash flow and projected cash needs, theBoard of Trustees declared a fourth quarter dividend of$0.20 per share, which was paid onDecember 13, 2019 to shareholders of record onDecember 1, 2019 . Specifically, over the course of the Trust's history, the fourth quarter dividend takes into consideration the full fiscal year results, and as such, may not be indicative of future quarterly dividends. The Board will continue to evaluate the dividend on a quarterly basis. The following tables list the quarterly dividends declared for the three most recent fiscal years and the dividends as a percentage of taxable income for those periods. Fiscal Years Ended October 31, 2019 2018 2017 First Quarter$ 0.150 $ -$ 0.15 Second Quarter$ 0.125 $ 0.05 $ - Third Quarter$ 0.125 $ 0.05 $ - Fourth Quarter$ 0.200 $ 0.05 $ - Total For Year$ 0.600 $ 0.15 $ 0.15 (in thousands of dollars) Dividends Fiscal Per Total Ordinary Capital Gain Taxable as a % of Year Share Dividends Income-Tax Basis Income-Tax Basis Income Taxable Income 2019$ 0.60 $ 4,173 $ 3,150 * $ 910$ 2,700 * 154.6 % 2018$ 0.15 $ 1,035 $ 1,035 $ -$ 630 164.3 % 2017$ 0.15 $ 1,024 $ - $ - $ - 0.0 % *Estimated 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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