URSTADT BIDDLE PROPERTIES INC.
The following discussion should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto included elsewhere in
this report, the "Special Note Regarding Forward-Looking Statements" in Part I
and "Item 1A. Risk Factors."
19
--------------------------------------------------------------------------------
Table Of Contents
Executive Summary
Overview
We are a fully integrated, self-administered real estate company that has
elected to be a Real Estate Investment Trust ("REIT") for federal income tax
purposes, engaged in the acquisition, ownership and management of commercial
real estate, primarily neighborhood and community shopping centers, anchored by
supermarkets, pharmacy/drug-stores and wholesale clubs, with a concentration in
the metropolitan tri-state area outside of the City of New York . Other real
estate assets include office properties, two self-storage facilities, single
tenant retail or restaurant properties and office/retail mixed-use properties.
Our major tenants include supermarket chains and other retailers who sell basic
necessities.
At October 31, 2022 , we owned or had equity interests in 77 properties, which
include equity interests we own in four consolidated joint ventures and six
unconsolidated joint ventures, containing a total of 5.3 million square feet of
Gross Leasable Area ("GLA"). Of the properties owned by wholly-owned
subsidiaries or joint venture entities that we consolidate, approximately 93.0%
of the GLA was leased (91.9% at October 31, 2021 ). Of the properties owned by
unconsolidated joint ventures, approximately 94.4% of the GLA was leased (93.9%
at October 31, 2021 ). In addition, we own and operate self-storage facilities
at two of our retail properties. Both self-storage facilities are managed for
us by Extra Space Storage, a publicly-traded REIT. One of the self-storage
facilities is located in the back of our Yorktown Heights, NY shopping center in
below grade space. As of October 31, 2022 , this self-storage facility had
57,300 square feet of available GLA, which was 94.1% leased. As discussed later
in this Item 7, we have also developed a second self-storage facility located in
Stratford, CT with 90,000 square feet of available GLA. This facility has been
operational for approximately 18 months and is 87.0% leased. We are also close
to completion on a third self-storage facility at our Pompton Lakes, NJ property
and our anticipated investment to develop the facility is approximately $7
million .
We have paid quarterly dividends to our stockholders continuously since our founding in 1969.
Impact of COVID-19
InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 a global pandemic. During the early part of the pandemic, the U.S. market came under severe pressure due to numerous factors, including preventive measures taken by local, state and federal authorities to alleviate the public health crisis, such as mandatory business closures, quarantines, and restrictions on travel. These measures, as implemented by the tri-state area ofConnecticut ,New York andNew Jersey , generally permitted businesses designated as "essential" to remain open, but limited the operations of other categories of our tenants to varying degrees. These restrictions have been long since lifted, and the negative impact of the COVID-19 pandemic appears to be much improved, with most tenant businesses operating at pre-pandemic levels. For certain categories of our tenants, such as dry cleaners and some small format fitness tenants, however, the negative impact of COVID-19 was more severe and the recovery is still in progress.
The following information is intended to provide certain information regarding the impact of the COVID-19 pandemic on our portfolio and our tenants:
• As of
restaurants and stand-alone bank branches are open and operating.
• As of
anchored by grocery stores, pharmacies or wholesale clubs, 3.7% of our GLA is
located in outdoor retail shopping centers adjacent to regional malls, and 7.8%
of our GLA is located in outdoor neighborhood convenience retail, with the
remaining 1.5% of our GLA consisting of six suburban office buildings located
in
branches. All six suburban office buildings are open and all of the retail
bank branches are open.
20
--------------------------------------------------------------------------------
Table Of ContentsRent Deferrals, Abatements and Lease Restructurings
Similar to other retail landlords acrossthe United States , we received a number of requests for rent relief from tenants, with most requests received during the early days of the COVID-19 pandemic when stay-at-home orders were in place and many businesses were required to close. We evaluated each request on a case-by-case basis to determine the best course of action, recognizing that in many cases some type of concession may be appropriate and beneficial to our long-term interests. Although each negotiation has been specific to that tenant, most concessions have been in the form of deferred rent for some portion of rents due inApril 2020 through the beginning of fiscal 2021, to be paid back over the later part of the lease, preferably within a period of one year or less. Some of these concessions have been in the form of rent abatements for some portion of tenant rents due. In addition, we have continued to receive a small number of follow-on requests from tenants to whom we had already provided temporary rent relief in the early days of the pandemic. These tenants are generally ones whose businesses have been slower to recover from the pandemic, as discussed above, due to the high touch nature of their services or the impact of the remote workforce. These requests, however, are greatly reduced. Each reporting period, we must make estimates as to the collectability of our tenants' accounts receivable related to base rent, straight-line rent, expense reimbursements and other revenues. Management analyzes accounts receivable by considering tenant creditworthiness, current economic trends, including the impact of the COVID-19 pandemic on tenants' businesses, and changes in tenants' payment patterns when evaluating the adequacy of the allowance for doubtful accounts. As a result, in accordance with ASC Topic 842, we revised our collectability assumptions for many of our tenants that were most significantly impacted by COVID-19. This amount includes changes in our collectability assessments for certain tenants in our portfolio from probable to not probable, which requires that revenue recognition for those tenants be converted to cash basis accounting, with previously uncollected billed rents reversed in the current period. From the beginning of the COVID-19 pandemic through the end of our second quarter of fiscal 2021, we converted 89 tenants to cash basis accounting in accordance with ASC Topic 842. We have not converted any additional tenants to cash basis accounting since our second quarter of fiscal 2021. As ofOctober 31, 2022 , 34 of the 89 tenants are no longer tenants in the Company's properties. In addition, when one of the Company's tenants is converted to cash basis accounting in accordance with ASC Topic 842, all previously recorded straight-line rent receivables need to be reversed in the period, in which the tenant is converted to cash basis revenue recognition. In continuing to evaluate the collectability of tenant lease income billings, during the year endedOctober 31, 2022 and 2021 we determined that lease payments for 10 and 13 tenants, respectively, which had previously been converted to cash-basis accounting as a result of our earlier assessment that their future lease payments were not probable of collection, had become probable of collection and were restored to accrual basis accounting. Our criteria for restoring a cash-basis tenant to accrual accounting required the tenant to demonstrate its ability to make current rental payments over the preceding six months and for that tenant to have no significant receivables at the time of reinstatement. As a result of the change in assessment for these tenants and the restoration of such tenants' straight-line rent receivables, we recorded$57,200 and$582,000 in lease income in the years endedOctober 31, 2022 and 2021, respectively. During the years endedOctober 31, 2022 and 2021, we recognized collectability adjustments/(recoveries) totaling$(34,000) and$4.2 million , respectively. As ofOctober 31, 2022 , the revenue from approximately 3.7% of our tenants (based on total commercial leases) is being recognized on a cash basis. Each reporting period, management assesses whether there are any indicators that the value of the Company's real estate investments may be impaired, and management has concluded that none of the Company's investment properties are impaired atOctober 31, 2022 . We will continue to monitor the economic, financial, and social conditions resulting from the COVID-19 pandemic and assess our real estate asset portfolio for any impairment indicators as required under GAAP. If we determine that any of our real estate assets are impaired, we will be required to take impairment charges, and such amounts could be material.
See
Footnote 1 to the Notes to the Company's Consolidated Financial Statements for additional discussion regarding our policies on impairment charges.
21
--------------------------------------------------------------------------------
Table Of ContentsStrategy, Challenges and Outlook
We have a conservative capital structure, which includes permanent equity sources of Common Stock, Class A Common Stock and two series of perpetual preferred stock, which are only redeemable at our option. In addition, we have mortgage debt secured by some of our properties and a$125 million Unsecured Revolving Credit Facility (the "Facility"). We do not have any secured debt maturing until August of 2024.
Key elements of our growth strategy and operating policies are to:
• maintain our focus on community and neighborhood shopping centers, anchored
principally by regional supermarkets, pharmacy chains or wholesale clubs, which
we believe can provide a more stable revenue flow even during difficult economic times, given the focus on food and other types of staple goods;
• acquire quality neighborhood and community shopping centers in the northeastern
part of
metropolitan tri-state area outside of the
value in these properties with selective enhancements to both the property and
tenant mix, as well as improvements to management and leasing fundamentals,
with the hope of growing our assets through acquisitions subject to the availability of acquisitions that meet our investment parameters;
• selectively dispose of underperforming properties and re-deploy the proceeds
into potentially higher performing properties that meet our acquisition criteria;
• invest in our properties for the long term through regular maintenance,
periodic renovations and capital improvements, enhancing their attractiveness
to tenants and customers (e.g. curbside pick-up), as well as increasing their
value;
• leverage opportunities to increase GLA at existing properties, through
development of pad sites and reconfiguring of existing square footage, to meet
the needs of existing or new tenants;
• proactively manage our leasing strategy by aggressively marketing available
GLA, renewing existing leases with strong tenants, anticipating tenant weakness
when necessary by pre-leasing their spaces and replacing below-market-rent
leases with increased market rents, with an eye towards securing leases that
include regular or fixed contractual increases to minimum rents;
• improve and refine the quality of our tenant mix at our shopping centers;
• maintain strong working relationships with our tenants, particularly our anchor
tenants;
• maintain a conservative capital structure with low debt levels; and
• control property operating and administrative costs.
We believe our strategy of focusing on community and neighborhood shopping centers, anchored principally by regional supermarkets, pharmacy chains or wholesale clubs, has been validated during the COVID-19 pandemic. We believe the nature of our properties makes them less susceptible to economic downturns than other retail properties whose anchor tenants do not supply basic necessities. During normal conditions, we believe that consumers generally prefer to purchase food and other staple goods and services in person, and even during the COVID-19 pandemic our supermarkets, pharmacies and wholesale clubs have been posting strong in-person sales. Moreover, most of our grocery stores implemented or expanded curbside pick-up or partnered with delivery services to cater to the needs of their customers during the COVID-19 pandemic. We recognize, however, that the pandemic may have accelerated a movement towards e-commerce that may be challenging for weaker tenants that lack an omni-channel sales or micro-fulfillment strategy. We launched a program designating dedicated parking spots for curbside pick-up and are assisting tenants in many other ways. Many tenants have adapted to the new business environment through use of our curbside pick-up program, and early industry data seems to indicate that micro-fulfillment from retailers with physical locations may be a new competitive alternative to e-commerce. We have seen significant improvement in general business conditions, but the pandemic is still ongoing, with existing and new variants making the situation difficult to predict. Moreover, challenges presented by inflation, labor shortages, supply chain disruptions and uncertainties in theU.S. economy could present continued or new challenges for our tenants. We will continue to accrue rental revenue during the deferral period, except for tenants for which revenue recognition was converted to cash basis accounting in accordance with ASC Topic 842.
As a REIT, we are susceptible to changes in interest rates, the lending environment, the availability of capital markets and the general economy. The impacts of any changes are difficult to predict.
22
--------------------------------------------------------------------------------
Table Of ContentsHighlights of Fiscal 2022; Recent Developments
Set forth below are highlights of our recent property acquisitions, potential acquisitions under contract, other investments, property dispositions and financings:
• In
property located in
accordance with ASC Topic 360-10-45, the property met all the criteria to be
classified as held for sale in the fourth quarter of fiscal 2021, and
accordingly we recorded a loss on property held for sale of
loss was included in continuing operations in the consolidated statement of
income for the year ended
our FFO as discussed below in this Item 7. The amount of the loss represented
the net carrying amount of the property over the fair value of the asset, less
estimated cost to sell. In
we realized an additional loss on sale of property of
included in continuing operations in the consolidated statement of income for
the year ended
• In
noncontrolling members. The total cash price paid for the redemptions was
million. As a result of the redemptions, our ownership percentage of High Ridge
increased to 26.9% from 24.6%.
• In
payable secured by our
balance of
fixed interest rate of 3.45%. The new mortgage matures in
• In
The
property was sold for
in our second quarter of fiscal 2022 in the amount of
• In
secured by our
balance of
principal and interest at a variable rate based on the Secured Overnight
Finance Rate ("SOFR"), plus an applicable spread. Concurrent with entering
into the mortgage, we entered into an interest rate swap agreement with the
lender as the counterparty, which converts the variable rate based on SOFR to a
fixed rate of interest totaling 3.0525% per annum.
• In
exercised an option to purchase a pad site adjacent to the shopping center
(collectively, "Shelton"), for an aggregate of
closing costs).
center located in
2022, and proceeds from mortgage borrowings.
• In
The
property was sold for
our second quarter of fiscal 2022 in the approximate amount of
• In
noncontrolling member. The total cash price paid for the redemption was$502,000 . As a result of the redemption, we now own 100% of the entity.
• In
in the amount of
• In
noncontrolling members. The total cash price paid for the redemptions was
million. As a result of the redemptions, our ownership percentage of High Ridge
increased to 29.2% from 26.9%.
• In
noncontrolling members. The total cash price paid for the redemptions was
increased to 37.8% from 36.4%.
• In the fiscal year ended
our Class A Common stock at an average price of
shares of our Common stock at an average price per share of
previously announced share repurchase programs, as we believed it was a good
use of our cash and a way to add value to our stockholders.
23
--------------------------------------------------------------------------------
Table Of Contents
Leasing
Overview
With the early negative impacts of the COVID-19 pandemic much improved and most
tenant businesses operating at pre-pandemic levels, we have observed a marked
increase in leasing activity, including interest from potential new tenants and
tenants interested in renewing their leases. However, challenges presented by
inflation, labor shortages, supply chain disruptions and uncertainties in the
U.S. economy could present continued or new challenges for our tenants.
For the fiscal year 2022, we executed new leases and renewals for a total of
942,000 square feet of predominantly retail space in our consolidated
portfolio. New leases for vacant spaces were signed for 190,000 square feet at
an average rental increase of 1.8% on a cash basis. Renewals for 752,000 square
feet of currently occupied space were signed at an average rental increase of
3.7% on a cash basis.
Tenant improvements and leasing commissions averaged $46.70 per square foot for
new leases for the fiscal year ended October 31, 2022 . There was no significant
cost related to our lease renewals for the fiscal year ended 2022. There is
risk that some new tenants may be delayed in taking possession of their space or
opening their businesses due to supply chain issues that result in construction
delays or labor shortages. In the event we are responsible for all or a portion
of the construction resulting in the delay, some tenants may have the right to
terminate their leases or delay paying rent.
The rental increases/decreases associated with new and renewal leases generally
include all leases signed in arms-length transactions reflecting market leverage
between landlords and tenants during the period. The comparison between average
rent for expiring leases and new leases is determined by including minimum rent
paid on the expiring lease and minimum rent to be paid on the new lease in the
first year. In some instances, management exercises judgment as to how to most
effectively reflect the comparability of spaces reported in this calculation.
The change in rental income on comparable space leases is impacted by numerous
factors including current market rates, location, individual tenant
creditworthiness, use of space, market conditions when the expiring lease was
signed, the age of the expiring lease, capital investment made in the space and
the specific lease structure. Tenant improvements include the total dollars
committed for the improvement (fit-out) of a space as it relates to a specific
lease but may also include base building costs (i.e. expansion, escalators or
new entrances) that are required to make the space leasable. Incentives (if
applicable) include amounts paid to tenants as an inducement to sign a lease
that does not represent building improvements.
New leases signed in 2022 generally become effective over the following one to
two years and have an average term of 5.3 years. Renewals also have an average
term of 4 years. There is risk that some new tenants will not ultimately take
possession of their space and that tenants for both new and renewal leases may
not pay all of their contractual rent due to operating, financing or other
reasons.
Impact of Inflation on Leasing
Our long-term leases contain provisions to mitigate the adverse impact of
inflation on our operating results. Such provisions include clauses entitling us
to receive scheduled base rent increases and percentage rents based upon
tenants' gross sales, which could increase as prices rise. In addition, many of
our non-anchor leases are for terms of less than ten years, which permits us to
seek increases in rents upon renewal at then current market rates if rents
provided in the expiring leases are below then current market rates. Most of our
leases require tenants to pay a share of operating expenses, including common
area maintenance, real estate taxes, insurance and utilities, thereby reducing
our exposure to increases in costs and operating expenses resulting from
inflation.
24
--------------------------------------------------------------------------------
Table Of ContentsCritical Accounting Estimates
Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation and uncertainty and are reasonably likely to have a material impact on the financial condition or results of operations of the Company and require management's most difficult, complex or subjective judgments. Our most significant accounting estimates are as follows:
• Valuation of investment properties
• Revenue recognition
• Determining the amount of our allowance for doubtful accounts
Valuation of Investment Properties At each reporting period management must assess whether the value of any of its investment properties are impaired. The judgement of impairment is subjective and requires management to make assumptions about future cash flows of an investment property and to consider other factors. The estimation of these factors has a direct effect on valuation of investment properties and consequently net income. As ofOctober 31, 2022 , management does not believe that any of our investment properties are impaired based on information available to us atOctober 31, 2022 . In the future, almost any level of impairment would be material to our net income. Revenue Recognition Our main source of revenue is lease income from our tenants to whom we lease space at our 77 shopping centers. The COVID-19 pandemic has caused distress for many of our tenants as some of those tenant businesses were forced to close early in the pandemic, and although most have been allowed to re-open and operate, some categories of tenants have been slower to recover. As a result, we had several tenantswho had difficulty paying all of their contractually obligated rents and we reached agreements with many of them to defer or abate portions of the contractual rents due under their leases with the Company. In accordance with ASC Topic 842, where appropriate, we will continue to accrue rental revenue during the deferral period, except for tenants for which revenue recognition was converted to cash basis accounting in accordance with ASC Topic 842. However, we anticipate that some tenants eventually will be unable to pay amounts due, and we will incur losses against our rent receivables, which would reduce lease income. The extent and timing of the recognition of such losses will depend on future developments, which are highly uncertain and cannot be predicted and these future losses could be material. Allowance for Doubtful Accounts GAAP requires us to bill our tenants based on the terms in their leases and to record lease income on a straight-line basis. When a tenant does not pay a billed amount due under their lease, it becomes a tenant account receivable, or an asset of the Company. GAAP requires that receivables, like most assets, be recorded at their realizable value. Each reporting period we analyze our tenant accounts receivable, and based on the information available to management at the time, record an allowance for doubtful account for any unpaid tenant receivable that we believe is uncollectable. This analysis is subjective and the conclusions reached have a direct impact on net income. As ofOctober 31, 2022 , the portion of our billed but unpaid tenant receivables, excluding straight-line rent receivables that we believe are collectable, amounts to$1.4 million . For a further discussion of our accounting estimates and critical accounting policies, please see Note 1 in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. 25 -------------------------------------------------------------------------------- Table Of Contents
Liquidity and Capital Resources
Overview
AtOctober 31, 2022 , we had cash and cash equivalents of$15.0 million , compared to$24.1 million atOctober 31, 2021 . Our sources of liquidity and capital resources include operating cash flows from real estate operations, proceeds from bank borrowings and long-term mortgage debt, capital financings and sales of real estate investments. Substantially all of our revenues are derived from rents paid under existing leases, which means that our operating cash flow depends on the ability of our tenants to make rental payments. In fiscal 2022, 2021 and 2020, net cash flow provided by operating activities amounted to$77.8 million ,$73.7 million and$61.9 million , respectively. Our short-term liquidity requirements consist primarily of normal recurring operating expenses and capital expenditures, debt service, management and professional fees, cash distributions to certain limited partners and non-managing members of our consolidated joint ventures, and regular dividends paid to our Common and Class A Common stockholders. Cash dividends paid on Common and Class A Common stock for fiscal years endedOctober 31, 2022 , 2021 and 2020 totaled$37.3 million ,$29.0 million and$30.0 million , respectively. Historically, we have met short-term liquidity requirements, which is defined as a rolling twelve-month period, primarily by generating net cash from the operation of our properties. During the first two quarters of fiscal 2021, the Board of Directors declared and the Company paid quarterly dividends that were reduced from pre-pandemic levels. Subsequent to the end of the second quarter of fiscal 2021, the Board of Directors increased our Common and Class A Common stock dividends when compared to the reduced dividends that were paid during the earlier part of the pandemic. InDecember 2021 , the Board of Directors further increased the annualized dividend by$0.03 per Common and Class A Common share beginning with ourJanuary 2022 dividend and continued at that rate with our second, third and fourth quarter dividends payable in April, July andOctober 2022 , respectively. OnDecember 14, 2022 , the Board of Directors declared a quarterly dividend, payableJanuary 13, 2023 , of$0.25 per Class A Share and$0.225 per Common share. Future determinations regarding quarterly dividends will impact the Company's short-term liquidity requirements. Although we intend to continue to declare quarterly dividends on its Common shares and Class A Common shares, no assurances can be made as to the amounts of any future dividends. The declaration of any future dividends by us is within the discretion of the Board of Directors and will be dependent upon, among other things, the earnings, financial condition and capital requirements of the Company, as well as any other factors deemed relevant by the Board of Directors. Two principal factors in determining the amounts of dividends are (i) the requirement of the Internal Revenue Code that a real estate investment trust distribute to shareholders at least 90% of its real estate investment trust taxable income, and (ii) the amount of the Company's available cash.
In
In
InFebruary 2022 , we purchasedShelton Square shopping center, and inJuly 2022 exercised an option to purchase a pad site adjacent to the shopping center for an aggregate of$35.6 million (exclusive of closing costs). We funded the purchase with available cash, a$20 million borrowing on our Facility,$10 million of which was repaid inMarch 2022 , and proceeds from mortgage borrowings. In fiscal 2022, we repurchased 1,202,932 shares of our Class A Common stock at an average price per share of$16.76 and 19,717 shares of our Common stock at an average price per share of$17.02 . All share repurchases were funded with available cash, borrowings under our Facility and proceeds from investment property sales. Our long-term liquidity requirements consist primarily of obligations under our long-term debt, dividends paid to our preferred stockholders, capital expenditures and capital required for acquisitions. In addition, the limited partners and non-managing members of our four consolidated joint venture entities,McLean Plaza Associates, LLC ,UB Orangeburg, LLC ,UB High Ridge, LLC andUB Dumont I, LLC , have the right to require us to repurchase all or a portion of their limited partner or non-managing member interests at prices and on terms as set forth in the governing agreements. See Note 5 to the financial statements included in Item 8 of this Report on Annual Report on Form 10-K. Historically, we have financed the foregoing requirements through operating cash flow, borrowings under our Facility, debt refinancings, new debt, equity offerings and other capital market transactions, and/or the disposition of under-performing assets, with a focus on keeping our debt level low. We expect to continue doing so in the future. We cannot assure you, however, that these sources will always be available to us when needed, or on the terms we desire.
Capital Expenditures
We invest in our existing properties and regularly make capital expenditures in the ordinary course of business to maintain our properties. We believe that such expenditures enhance the competitiveness of our properties. For the fiscal year endedOctober 31, 2022 , we paid approximately$15.6 million for property improvements, tenant improvements and leasing commission costs ($5.7 million representing property improvements,$4.8 million in property improvements related to ourStratford project andPompton Lakes, NJ self-storage project (see paragraphs below) and approximately$5.1 million related to new tenant space improvements, leasing costs and capital improvements as a result of new tenant spaces). The amount of these expenditures can vary significantly depending on tenant negotiations, market conditions and rental rates. We expect to incur approximately$10.5 million for anticipated capital improvements, tenant improvements/allowances and leasing costs related to new tenant leases and property improvements during fiscal 2023. This amount is inclusive of commitments for theStratford, CT andPompton Lakes, NJ developments discussed directly below. These expenditures are expected to be funded from operating cash flows, bank borrowings or other financing sources. We have begun construction of a new self-storage facility at ourPompton Lakes, NJ property. Our investment in this development is estimated to be$7 million , which will be funded with available cash or borrowings on our Facility. We are currently in the process of developing 3.4 acres of acquired land adjacent to a shopping center we own inStratford, CT . We built one pad-site building that is leased to two retail chains and will be building another pad-site building once we receive approvals to move a cell tower to an alternate site on our adjacent shopping center property. These two pad sites total approximately 5,200 square feet. In addition, we built a recently-opened self-storage facility of approximately 131,000 square feet located inStratford, CT , which is managed for us by a national self-storage company. The total project cost of the completed pad site and the completed self-storage facility was approximately$18.8 million (excluding land cost). We plan on funding the development cost for the second pad site with available cash, borrowings on our Facility or other sources, as more fully described earlier in this Item 7. TheStratford storage building is approximately 87.0% leased as ofOctober 31, 2022 . 26 -------------------------------------------------------------------------------- Table Of Contents
Financing Strategy, Unsecured Revolving Credit Facility and other Financing Transactions
Our strategy is to maintain a conservative capital structure with low leverage levels by commercial real estate standards. Mortgage notes payable and other loans of$302.3 million primarily consist of$1.7 million in variable rate debt with an interest rate of 4.3% as ofOctober 31, 2022 and$299.2 million in fixed-rate mortgage loans with a weighted average interest rate of 3.83% atOctober 31, 2022 . The mortgages are secured by 23 properties with a net book value of$489 million and have fixed rates of interest ranging from 3.1% to 5.6%. The$1.7 million in variable rate debt is unsecured. We may refinance our mortgage loans, at or prior to scheduled maturity, through replacement mortgage loans. The ability to do so, however, is dependent upon various factors, including the income level of the properties, interest rates and credit conditions within the commercial real estate market. Accordingly, there can be no assurance that such re-financings can be achieved. AtOctober 31, 2022 , we had 48 properties in the consolidated portfolio that were unencumbered by mortgages. Included in the mortgage notes discussed above, we have nine promissory notes secured by properties we consolidate and two promissory notes secured by properties in joint ventures that we do not consolidate, the interest rate on which 11 notes is based on some variation of the London Interbank Offered Rate ("LIBOR") or SOFR, plus a specified credit spread amount. In addition, on each of the dates these notes were executed by us, we entered into a corresponding derivative interest rate swap contract, the counterparty of which was either the lender on the aforementioned promissory notes or an affiliate of that lender. These swap contracts are in accordance with theInternational Swaps and Derivatives Association, Inc ("ISDA"). These swap contracts convert the variable interest rate in the notes, which are based on LIBOR or SOFR, to a fixed rate of interest for the life of each note. InJuly 2017 , theUnited Kingdom regulator that regulates LIBOR announced its intention to phase out LIBOR rates by the end of 2021. However, theICE Benchmark Administration , in its capacity as administrator of USD LIBOR, subsequently announced that it extended publication of USD LIBOR (other than one-week and two-month tenors) by 18 months toJune 2023 . In August andDecember 2022 , we amended six mortgages and their related interest rate swap agreements to include market standard provisions for determining the benchmark replacement rate for LIBOR in the form of SOFR. We are in the process of working with the lenders and counterparties to amend the remaining promissory notes and swap contracts that reference LIBOR. We have good working relationships with all of our lenders/counterparties, and expect that the replacement reference rate under the amended notes will continue to match the replacement rates in the swaps. Therefore, we believe there would be no material effect on our financial position or results of operations. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk" included in this Annual Report on Form 10-K for additional information on our interest rate risk. We currently maintain a ratio of total debt to total assets below 34.0% and a fixed charge coverage ratio of over 3.5 to 1 (excluding preferred stock dividends), which we believe will allow us to obtain additional secured mortgage loans or other types of borrowings, if necessary. We currently have a$125 million unsecured revolving credit facility with a syndicate of three banks led by The Bank of New York Mellon, as administrative agent. The syndicate also includedWells Fargo Bank N.A. and Bank of Montreal, as co-syndication agents. The Facility gives us the option, under certain conditions, to increase the Facility's borrowing capacity to$175 million , subject to lender approval. The maturity date of the Facility isMarch 29, 2024 , with a one-year extension at our option. Borrowings under the Facility can be used for general corporate purposes and the issuance of letters of credit (up to$10 million ). Borrowings will bear interest at our option of either the Eurodollar rate plus 1.45% to 2.20%, or The Bank of New York Mellon's prime lending rate plus 0.45% to 1.20% based on consolidated total indebtedness, as defined. We pay a quarterly commitment fee on the unused commitment amount of 0.15% to 0.25% based on outstanding borrowings during the year. Our ability to borrow under the Facility is subject to our compliance with the covenants and other restrictions on an ongoing basis. The principal financial covenants limit our level of secured and unsecured indebtedness, including preferred stock, and additionally requires us to maintain certain debt coverage ratios. We were in compliance with such covenants atOctober 31, 2022 . The Facility includes market standard provisions for determining the benchmark replacement rate for LIBOR. The Facility contains representations and financial and other affirmative and negative covenants usual and customary for this type of agreement. So long as any amounts remain outstanding or unpaid under the Facility, we must satisfy certain financial covenants:
• unsecured indebtedness may not exceed
• secured indebtedness may not exceed 40% of gross asset value, as determined
under the Facility;
• total secured and unsecured indebtedness, excluding preferred stock, may not be
more than 60% of gross asset value;
• total secured and unsecured indebtedness, plus preferred stock, may not be more
than 70% of gross asset value;
• unsecured indebtedness may not exceed 60% of the eligible real asset value of
unencumbered properties in the unencumbered asset pool as defined under the
Facility;
• earnings before interest, taxes, depreciation and amortization must be at least
175% of fixed charges, which exclude preferred stock dividends;
• the net operating income from unencumbered properties must be 200% of unsecured
interest expenses;
• not more than 25% of the gross asset value and unencumbered asset pool may be
attributable to the Company's pro rata share of the value of unencumbered properties owned by non-wholly owned subsidiaries or unconsolidated joint ventures; and
• the number of un-mortgaged properties in the unencumbered asset pool must be at
least 10 and at least 10 properties must be owned by the Company or a wholly-owned subsidiary. For purposes of these covenants, eligible real estate value is calculated as the sum of the Company's properties annualized net operating income for the prior four fiscal quarters capitalized at 6.75% and the purchase price of any eligible real estate asset acquired during the prior four fiscal quarters. Gross asset value is calculated as the sum of eligible real estate value, the Company's pro rata share of eligible real estate value of eligible joint venture assets, cash and cash equivalents, marketable securities, the book value of the Company's construction projects and the Company's pro rata share of the book value of construction projects owned by unconsolidated joint ventures, and eligible mortgages and trade receivables, as defined in the agreement.
At
See Note 4 to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for a further description of mortgage financing transactions in fiscal 2022 and 2021.
Contractual Obligations
Our contractual payment obligations as of
Payments Due by Period
Total 2023 2024 2025 2026 2027 Thereafter
Mortgage
notes
payable and
other loans $ 302,316 $ 7,612 $ 26,449 $ 87,483 $ 12,940 $ 43,333 $ 124,499
Interest on
mortgage
notes
payable 62,402 12,522 12,135 8,719 7,381 6,794 14,851
Capital
improvements
to
properties* 10,500 10,500 - - - - -
Total
Contractual
Obligations $ 375,218 $ 30,634 $ 38,584 $ 96,202 $ 20,321 $ 50,127 $ 139,350 *Includes committed tenant-related obligations based on executed leases as of
We have various standing or renewable service contracts with vendors related to
property management. In addition, we also have certain other utility contracts
entered into in the ordinary course of business which may extend beyond one
year, which vary based on usage. These contracts include terms that provide for
cancellation with insignificant or no cancellation penalties. Contract terms
are generally one year or less.
27
--------------------------------------------------------------------------------
Table Of ContentsUnconsolidated Joint Venture Debt
We have six investments in real property through unconsolidated joint ventures:
? a 66.67% equity interest in the
? an 11.792% equity interest in
? a 50% equity interest in the
? a 50% equity interest in the
Applebee's Plaza, and
? a 20% economic interest in a partnership that owns a suburban office building
with ground level retail.
These unconsolidated joint ventures are accounted for under the equity method of accounting, as we have the ability to exercise significant influence over, but not control of, the operating and financial decisions of these investments.
Our
unconsolidated joint venture investments are more fully discussed in Note 6 to
our consolidated financial statements included in Item 8 of this Annual Report
on Form 10-K. Although we have not guaranteed the debt of these joint ventures,
we have agreed to customary environmental indemnifications and nonrecourse
carve-outs (e.g. guarantees against fraud, misrepresentation and bankruptcy) on
certain loans of the joint ventures. The below table details information about
the outstanding non-recourse mortgage financings on our unconsolidated joint
ventures (amounts in thousands):
Principal Balance
Joint Venture At October Fixed Interest
Description Location Original Balance 31, 2022 Rate Per Annum Maturity Date
Midway Shopping
Center
4.80 % Dec-2027
Shopping Center
4.81 % Oct-2028
4.07 % July-2032
28
--------------------------------------------------------------------------------
Table Of ContentsNet Cash Flows from Operating Activities
Variance from fiscal 2021 to 2022: The net increase in operating cash flows when compared with the corresponding prior period was primarily related to an increase of the collection of tenant accounts receivable in fiscal 2022 when compared with 2021, predominantly related to the company and our tenants as a whole further recovering from the effects of the COVID-19 pandemic, which allowed tenants to service their leases, and in some cases make payments of prior years' accounts receivable that had been fully reserved. Variance from fiscal 2020 to 2021: The net increase in operating cash flows when compared with the corresponding prior period was primarily related to an increase of lease income related to the collection of rents that were deferred in fiscal 2020 and the collection of lease income from tenants that we account for on a cash basis in accordance with ASC Topic 842.
Net Cash Flows from Investing Activities
Variance from fiscal 2021 to 2022: The increase in net cash flows used in investing activities for the fiscal year endedOctober 31, 2022 when compared to the corresponding prior period was the result of purchasing one property in fiscal 2022 for a cash investment of$35.7 million . We did not acquire any properties in fiscal 2021. Variance from 2020 to 2021: The decrease in net cash flows used in investing activities for the fiscal year endedOctober 31, 2021 when compared to the corresponding prior period was the result of selling two properties in fiscal 2021, which generated$13.0 million more in cash flow in fiscal 2021 versus fiscal 2020, and expending$6.9 million less on property improvements in fiscal 2021 when compared with the corresponding prior period.
Net Cash Flows from Financing Activities
Cash generated:
Fiscal 2022: (Total
• Proceeds from mortgage notes payable and other loans of
Fiscal 2021: (Total
Fiscal 2020: (Total
Cash used:
Fiscal 2022: (Total
million when compared with the prior period.
• The repurchase of shares of Common and Class A stock in the amount of
million.
• Repayment of mortgage notes payable
• Amortization of mortgage notes payable
• Repayments of revolving credit line borrowings
Fiscal 2021: (Total$129.3 million ) • Dividends to shareholders in the amount of$42.7 million .
• Repayment of mortgage notes payable
• Amortization of mortgage notes payable
• Repayments of revolving credit line borrowings
• Acquisitions of noncontrolling interests of
• Distributions to noncontrolling interests of
• Repurchase of Common and Class A Common stock in the amount of
Fiscal 2020: (Total$131.5 million ) • Dividends to shareholders in the amount of$44.2 million .
• Repayment of mortgage notes payable in the amount of
• Acquisitions of noncontrolling interests in the amount of
• Redemption of preferred stock series in the amount of
29
--------------------------------------------------------------------------------
Table Of Contents
Results of Operations
Fiscal 2022 vs. Fiscal 2021
The following information summarizes our results of operations for the years
ended
Year Ended October 31, Change Attributable to:
Properties
Held in
Increase % Property Both Periods
Revenues 2022 2021 (Decrease) Change Acquisitions/Sales (Note 1)
Base rents $ 103,559 $ 99,488 $ 4,071 4.1 % $ 1,592 $ 2,479
Recoveries from tenants 34,067 35,090 (1,023 ) (2.9 )% 319 (1,342 )
Less uncollectable
amounts in lease income 13 1,529 1,516 99.1 % - 1,516
Less ASC Topic 842 cash
basis lease income
reversal (47 ) 2,685 2,732 101.8 % - 2,732
Total lease income 137,660 130,364
Lease termination 721 967 (246 ) (25.4 )% - (246 )
Other income 4,722 4,250 472 11.1 % 6 466
Operating Expenses
Property operating 25,124 22,938 2,186 9.5 % 196 1,990
Property taxes 23,700 23,674 26 0.1 % 156 (130 )
Depreciation and
amortization 29,799 29,032 767 2.6 % 749 18
General and
administrative 9,934 8,985 949 10.6 % n/a n/a
Non-Operating
Income/Expense
Interest expense 13,175 13,087 88 0.7 % - 88
Interest, dividends, and
other investment income 239 231 8 3.5 % n/a n/a
Note 1 - Properties held in both periods includes only properties owned for the
entire periods of 2022 and 2021 and for interest expense the amount also
includes parent company interest expense. All other properties are included in
the property acquisition/sales column. There are no properties excluded from
the analysis.
Base rents increased by 4.1% to $103.6 million for the fiscal year ended October
31, 2022 as compared with $99.5 million in the comparable period of 2021. The
change in base rent and the changes in other income statement line items
analyzed in the table above were attributable to:
Property Acquisitions and Properties Sold:
In fiscal 2022, we acquired one property totaling 188,000 square feet and sold
three properties totaling 14,300 square feet. In fiscal 2021, we sold two
properties totaling 105,800 square feet. These properties accounted for all of
the revenue and expense changes attributable to property acquisitions and sales
in the fiscal year ended October 31, 2022 when compared with fiscal 2021.
Properties Held in Both Periods:
Revenues
Base Rent In the fiscal year endedOctober 31, 2022 , base rent for properties held in both periods increased by$2.5 million when compared with the corresponding prior periods as a result of additional leasing in the portfolio in fiscal 2022 when compared to the corresponding prior period.
In fiscal 2022, we leased or renewed approximately 942,000 square feet (or
approximately 20.6% of total consolidated GLA). At
Tenant Recoveries In the fiscal year endedOctober 31, 2022 , recoveries from tenants (which represent reimbursements from tenants for operating expenses and property taxes) decreased by a net$1.3 million when compared with the corresponding prior period. The decrease in tenant recoveries was the result of an under-accrual adjustment in the first quarter of fiscal 2021. We completed the 2020 annual reconciliations for both common area maintenance and real estate taxes in the first quarter of fiscal 2021, and those reconciliations resulted in us billing our tenants more than we had anticipated and accrued for in the prior period. This increased tenant reimbursement income in the first quarter of fiscal 2021, and caused a negative variance in the first quarter of fiscal 2022. This net decrease was offset by an increase in property operating expenses in the fiscal year endedOctober 31, 2022 , when compared to the corresponding prior periods, predominantly related to insurance, environmental costs and roof repairs. Uncollectable Amounts in Lease Income In the year endedOctober 31, 2022 , uncollectable amounts in lease income decreased by$1.5 million . In the second quarter of fiscal 2020, we significantly increased our uncollectable amounts in lease income based on our assessment of the collectability of existing non-credit small shop tenants' receivables given the on-set of the COVID-19 pandemic inMarch 2020 . A number of non-credit small shop tenants' businesses were deemed non-essential by the states in which they operate and forced to close for a portion of the second and third quarters of fiscal 2020. This placed stress on our small shop tenants and made it difficult for many of them to pay their rents when due. This stress continued through the first half of fiscal 2021. Our assessment was that any billed but unpaid rents would likely be uncollectable. During the year endedOctober 31, 2022 , many of our tenants continued to experience business improvement as regulatory restrictions continued to ease and individuals continued to return to pre-pandemic activities. As a result, the uncollectable amounts in lease income declined during such period, when compared with the corresponding period of the prior year and in addition we were successful in collecting prior period unpaid rents that we had fully reserved for. ASC Topic 842 Cash Basis Lease Income Reversals We adopted ASC Topic 842 "Leases" at the beginning of fiscal 2020. ASC Topic 842 requires, among other things, that if the collectability of a specific tenant's future lease payments as contracted are not probable of collection, revenue recognition for that tenant must be converted to cash-basis accounting and be limited to the lesser of the amount billed or collected from that tenant. In addition, any straight-line rental receivables would need to be reversed in the period that the collectability assessment changed to not probable. As a result of continuing to analyze our entire tenant base, we determined that as a result of the COVID-19 pandemic, 89 tenants' future lease payments were no longer probable of collection. All such tenants were converted to cash basis after our second quarter of fiscal 2020 and prior to our third quarter of fiscal 2021. As ofOctober 31, 2022 , 34 of these 89 tenants are no longer tenants in the Company's properties. As a result of converting these tenants to cash-basis accounting in fiscal 2021, we reversed straight-line rent receivables in the net amount of$673,000 and reversed billed but unpaid rents related to cash-basis tenants of$2.0 million . There were no significant charges related to cash-basis tenants in the year endedOctober 31, 2022 . As ofOctober 31, 2022 , 32 tenants continue to be accounted for on a cash basis, or approximately 3.7% of our tenants. Many of our cash-basis tenants are now paying a larger portion of their billed rents, which results in an increase in revenue recognition for those tenants accounted for on a cash basis when compared with the corresponding period of the prior year.
Expenses
Property Operating In the fiscal year endedOctober 31, 2022 , property operating expenses increased by$2.0 million when compared to the prior period as a result of having higher common area maintenance expenses related to insurance, environmental costs and roof repairs. Property Taxes In the fiscal year endedOctober 31, 2022 , property tax expense was relatively unchanged when compared with the corresponding prior period.
Interest
In the fiscal year ended
Depreciation and Amortization
In the fiscal year ended
General and Administrative Expenses In the fiscal year endedOctober 31, 2022 , general and administrative expenses increased by$949,000 when compared with the corresponding prior period, predominantly related to an increase in employee compensation, state tax expense related to a capital gain for a property we sold that was located inNew Hampshire and professional fees. 30 --------------------------------------------------------------------------------
Table Of Contents
Fiscal 2021 vs. Fiscal 2020
The following information summarizes our results of operations for the years
ended
Year Ended October 31, Change Attributable to:
Properties
Held in
Increase % Property Both Periods
Revenues 2021 2020 (Decrease) Change Acquisitions/Sales (Note 2)
Base rents $ 99,488 $ 99,387 $ 101 0.1 % $ (113 ) $ 214
Recoveries from tenants 35,090 28,889 6,201 21.5 % (105 ) 6,306
Less uncollectable
amounts in lease income 1,529 3,916 (2,387 ) (61.0 )% - (2,387 )
Less ASC Topic 842 cash
basis lease income
reversal 2,685 3,419 (734 ) (21.5 )% (158 ) (576 )
Total lease income 130,364 120,941
Lease termination 967 705 262 37.2 % - 262
Other income 4,250 5,099 (849 ) (16.7 )% (10 ) (839 )
Operating Expenses
Property operating 22,938 19,542 3,396 17.4 % 220 3,176
Property taxes 23,674 23,464 210 0.9 % 52 158
Depreciation and
amortization 29,032 29,187 (155 ) (0.5 )% 73 (228 )
General and
administrative 8,985 10,643 (1,658 ) (15.6 )% n/a n/a
Non-Operating
Income/Expense
Interest expense 13,087 13,508 (421 ) (3.1 )% - (421 )
Interest, dividends, and
other investment income 231 398 (167 ) (42.0 )% n/a n/a
Note 2 - Properties held in both periods includes only properties owned for the
entire periods of 2021 and 2020 and for interest expense the amount also
includes parent company interest expense. All other properties are included in
the property acquisition/sales column. There are no properties excluded from
the analysis.
Base rents increased by 0.1% to $99.5 million for the fiscal year ended October
31, 2021 as compared with $99.4 million in the comparable period of 2020. The
change in base rent and the changes in other income statement line items
analyzed in the table above were attributable to:
Property Acquisitions and Properties Sold:
In fiscal 2020, we sold two properties totaling 18,100 square feet. In fiscal
2021, we sold two properties totaling 105,800 square feet. These properties
accounted for all of the revenue and expense changes attributable to property
acquisitions and sales in the fiscal year ended October 31, 2021 when compared
with fiscal 2020.
Properties Held in Both Periods:
Revenues
Base Rent In the fiscal year endedOctober 31, 2021 , base rent for properties held in both periods increased by$214,000 when compared with the corresponding prior periods as a result of additional leasing in the portfolio in fiscal 2021 when compared to the corresponding prior period.
In fiscal 2021, we leased or renewed approximately 742,000 square feet (or
approximately 16.8% of total consolidated GLA). At
Tenant Recoveries In the fiscal year endedOctober 31, 2021 , recoveries from tenants (which represent reimbursements from tenants for operating expenses and property taxes) increased by a net$6.3 million when compared with the corresponding prior period. The increase in tenant recoveries was the result of having higher common area maintenance expenses in the fiscal year endedOctober 31, 2021 when compared with the corresponding prior period related to snow removal, landscaping and parking lot repairs. In addition, we completed the 2020 annual reconciliations for both common area maintenance and real estate taxes in the first half of fiscal 2021 and those reconciliations resulted in us billing our tenants more than we had anticipated and accrued for in the prior period, which increased tenant reimbursement income in fiscal 2021. In addition, the percentage of common area maintenance and real estate tax costs that we recover from our tenants generally increased in fiscal 2021 when compared with fiscal 2020 as the effects of the pandemic on our tenants businesses is lessening. Uncollectable Amounts in Lease Income In the fiscal year endedOctober 31, 2021 , uncollectable amounts in lease income decreased by$2.4 million when compared with the prior year. In the second quarter of fiscal 2020, we significantly increased our uncollectable amounts in lease income based on our assessment of the collectability of existing non-credit small shop tenants' receivables given the on-set of the COVID-19 pandemic inMarch 2020 . A number of non-credit small shop tenants' businesses were deemed non-essential by the states where they operate and were forced to close for a portion of the second and third quarters of fiscal 2020. This placed stress on our small shop tenants and made it difficult for many of them to pay their rents when due. Our assessment was that any billed but unpaid rents would likely be uncollectable. During the fiscal year ended 2021, many of our tenants saw early signs of business improvement as regulatory restrictions were relaxed and individuals began returning to pre-pandemic activities following significant progress made in vaccinating theU.S. public. As a result, the uncollectable amounts in lease income have been declining. ASC Topic 842 Cash Basis Lease Income ReversalsThe Company adopted ASC Topic 842 "Leases" at the beginning of fiscal 2020.
ASC
Topic 842 requires, amongst other things, that if the collectability of a specific tenant's future lease payments as contracted are not probable of collection, revenue recognition for that tenant must be converted to cash-basis accounting and be limited to the lesser of the amount billed or collected from that tenant, and in addition, any straight-line rental receivables would need to be reversed in the period that the collectability assessment changed to not probable. As a result of continuing to analyze our entire tenant base, we determined that as a result of the COVID-19 pandemic, 89 tenants' future lease payments were no longer probable of collection. All of these tenants were converted to cash basis after our second quarter of fiscal 2020 and prior to our third quarter of fiscal 2021. As ofOctober 31, 2021 , 27 of the 89 tenants are no longer tenants in the Company's properties. During the three months endedOctober 31, 2021 , we restored 13 of the 89 tenants to accrual-basis accounting as those tenants have now demonstrated their ability to service the payments due under their leases and have no arrears balances. As ofOctober 31, 2021 , 49 tenants continue to be accounted for on a cash-basis, or 5.9% of our approximate 832 tenants. As a result of this assessment, we reversed$576,000 more in billed but uncollected rent and straight-line rent for cash basis tenants in the fiscal year endedOctober 31, 2020 than we did in fiscal 2021.
Expenses
Property Operating In the fiscal year endedOctober 31, 2021 , property operating expenses increased by$3.2 million when compared to the prior period as a result of having higher common area maintenance expenses related to snow removal, landscaping and parking lot repairs. Property Taxes In the fiscal year endedOctober 31, 2021 , property tax expense was relatively unchanged when compared with the corresponding prior period.
Interest
In the fiscal year ended
Depreciation and Amortization
In the fiscal year ended
General and Administrative Expenses In the fiscal year endedOctober 31, 2021 , general and administrative expenses decreased by$1.7 million when compared with the corresponding prior period, predominantly related to a decrease in compensation and benefits expense. The decrease was the result of accelerated vesting of restricted stock grant value upon the death of our former Chairman Emeritus in the second quarter of fiscal 2020. 31 --------------------------------------------------------------------------------
Table Of Contents
Funds from Operations
We consider Funds from Operations ("FFO") to be an additional measure of our
operating performance. We report FFO in addition to net income applicable to
common stockholders and net cash provided by operating activities. Management
has adopted the definition suggested by The National Association of Real Estate
Investment Trusts ("NAREIT") and defines FFO to mean net income (computed in
accordance with GAAP) excluding gains or losses from sales of property, plus
real estate-related depreciation and amortization and after adjustments for
unconsolidated joint ventures.
Management considers FFO a meaningful, additional measure of operating
performance because it primarily excludes the assumption that the value of our
real estate assets diminishes predictably over time and industry analysts have
accepted it as a performance measure. FFO is presented to assist investors in
analyzing our performance. It is helpful as it excludes various items included
in net income that are not indicative of our operating performance, such as
gains (or losses) from sales of property and depreciation and amortization.
However, FFO:
• does not represent cash flows from operating activities in accordance with GAAP
(which, unlike FFO, generally reflects all cash effects of transactions and
other events in the determination of net income); and
• should not be considered an alternative to net income as an indication of our
performance. FFO as defined by us may not be comparable to similarly titled items reported by other real estate investment trusts due to possible differences in the application of the NAREIT definition used by such REITs. The table below provides a reconciliation of net income applicable to Common and Class A Common Stockholders in accordance with GAAP to FFO for each of the three years in the period endedOctober 31, 2022 , 2021 and 2020 (amounts in thousands): Year Ended October 31, 2022 2021 2020 Net Income Applicable to Common and Class A Common Stockholders$ 26,054 $ 33,633 $ 8,533 Real property depreciation 23,403 22,936 22,662 Amortization of tenant improvements and allowances 4,211 4,429 4,694 Amortization of deferred leasing costs 2,114 1,599 1,737 Depreciation and amortization on unconsolidated joint ventures 1,530 1,518 1,499 (Gain)/loss on sale of properties (767 )
(11,864 ) 6,047
Funds from Operations Applicable to Common and Class A Common Stockholders$ 56,545 $ 52,251 $ 45,172
FFO amounted to
The net increase in FFO in fiscal 2022 when compared with fiscal 2021 was predominantly attributable, among other things, to:
Increases:
• An increase in base rent for new leasing in the portfolio after the first
quarter of fiscal 2021.
• A
shopping center acquisition in the first quarter of fiscal 2022 compared with
the loss of operating income for properties sold in fiscal 2021 and fiscal
2022.
• A decrease in uncollectable amounts in lease income of
fiscal year ended
period. We significantly increased our uncollectable amounts in lease income
based on our assessment of the collectability of existing non-credit small shop
tenants' receivables given the onset of the COVID-19 pandemic in
number of non-credit small shop tenants' businesses were deemed non-essential
by the states in which they operate and forced to close for a portion of the
second and third quarters of fiscal 2020. This placed stress on our small shop
tenants and made it difficult for many of them to pay their rents when due.
This stress continued through our first half of fiscal 2021. Our assessment
was that any billed but unpaid rents would likely be uncollectable. During the
fiscal year ended
of business improvement as regulatory restrictions continued to ease and
individuals continued to return to pre-pandemic activities. As a result, the
uncollectable amounts in lease income declined in fiscal 2022, when compared
with the prior year. In addition, we collected prior period unpaid rents for
tenants that we had fully reserved for.
• We adopted ASC Topic 842 "Leases" at the beginning of fiscal 2020. ASC Topic
842 requires, among other things, that if the collectability of a specific
tenant's future lease payments as contracted are not probable of collection,
revenue recognition for that tenant must be converted to cash-basis accounting
and be limited to the lesser of the amount billed or collected from that
tenant. In addition, any straight-line rental receivables would need to be
reversed in the period that the collectability assessment changed to not
probable. As a result of continuing to analyze our entire tenant base, we
determined that as a result of the COVID-19 pandemic, 89 tenants' future lease
payments were no longer probable of collection. All such tenants were converted
to cash basis after our second quarter of fiscal 2020 and prior to our third
quarter of fiscal 2021. As of
longer tenants in the Company's properties. As a result of converting these
tenants to cash-basis accounting, we reversed straight-line rent receivables in
the net amount of
amount of
no significant charges related to cash-basis tenants in the fiscal year ended
October 31, 2022 . As ofOctober 31, 2022 , 3.7% of our tenants continue to be accounted for on a cash basis. Many of our cash-basis tenants are now paying a larger portion of their billed rents, which results in an increase in revenue recognition for those tenants accounted for on a cash basis when compared with the corresponding period of the prior year. Decreases:
• A decrease in variable lease income (cost recovery income) related to an
under-accrual adjustment in recoveries from tenants for real estate taxes and
common area maintenance in the first quarter of fiscal 2021, which increased
revenue in the first quarter of fiscal 2021 and caused a negative variance in
the fiscal year ended
• A
related to increases in employee compensation, state tax expense related to a
capital gain for a property we sold that was located in
professional fees in fiscal 2022, when compared to the corresponding prior
period.
The net increase in FFO in fiscal 2021 when compared with fiscal 2020 was predominantly attributable, among other things, to:
Increases:
• An increase in variable lease income (cost recovery income) related to an
under-accrual adjustment in recoveries from tenants for real estate taxes and
common area maintenance in fiscal 2021 and a general increase in the rate at
which we recover costs from our tenants as a result of the reduced impact of
the COVID-19 pandemic on our tenants businesses, which resulted in a positive
variance in fiscal 2021 when compared to the same period of fiscal 2020.
• A
with the corresponding prior period as a result of one tenant that occupied
multiple spaces in our portfolio ceasing operations and buying out the
remaining terms of its leases.
• A net decrease in general and administrative expenses of
predominantly related to a decrease in compensation and benefits expense in
fiscal 2021 when compared to the corresponding prior period. The decrease was
the result of accelerated vesting of restricted stock grant value upon the
death of our former Chairman Emeritus in the second quarter of fiscal 2020.
• A decrease in uncollectable amounts in lease income of
second quarter of fiscal 2020, we significantly increased our uncollectable
amounts in lease income based on our assessment of the collectability of
existing non-credit small shop tenants' receivables given the onset of the
COVID-19 pandemic in
businesses were deemed non-essential by the states where they operate and were
forced to close for a portion of the second and third quarters of fiscal 2020.
This placed stress on our small shop tenants and made it difficult for many of
them to pay their rents when due. Our assessment was that any billed but
unpaid rents for such tenants would likely be uncollectable. During the fiscal
year ended
improvement as regulatory restrictions were relaxed and individuals began
returning to pre-pandemic activities following significant progress made in
vaccinating the
income have been declining. We have even recovered receivables that were
previously reserved for.
• A decrease in the reversal of lease income as a result of the application of
ASC Topic 842 "Leases" in fiscal 2021 when compared with fiscal 2020. ASC
Topic 842 requires among other things, that if the collectability of a specific
tenant's future lease payments as contracted are not probable of collection,
revenue recognition for that tenant must be converted to cash-basis accounting
and be limited to the lesser of the amount billed or collected from that
tenant, and in addition, any straight-line rental receivables would need to be
reversed in the period that the collectability assessment changed to not
probable. As a result of continuing to analyze our entire tenant base, we
determined that as a result of the COVID-19 pandemic, 89 tenants' future lease
payments were no longer probable of collection. All of these tenants were
converted to cash basis after our second quarter of fiscal 2020 and prior to
our third quarter of fiscal 2021. As a result of this assessment, we reversed
basis tenants in the fiscal year ended
2021. In addition, as the effect of the pandemic has lessened, even certain
tenants accounted for on a cash-basis have paid more of their rents in fiscal
2021 than they did in fiscal 2020, which created a positive variance in FFO in
fiscal 2021 when compared with fiscal 2020.
• A decrease of
decrease was caused by our redemption of noncontrolling units in fiscal 2020
and fiscal 2021. In addition, distributions decreased to noncontrolling unit
owners whose distributions per unit were based on the dividend rate of our
Class A Common stock, which was significantly reduced in the first half of
fiscal 2021 when compared to the corresponding prior period.
Decreases:
• A decrease in gain on marketable securities as we had invested excess cash in
marketable securities and sold them in fiscal 2020, realizing a gain of
creates a negative variance in fiscal 2021 when compared with fiscal 2020.
32
--------------------------------------------------------------------------------
Table Of Contents
Same Property Net Operating Income
We present Same Property Net Operating Income ("Same Property NOI"), which is a
non-GAAP financial measure. Same Property NOI excludes from Net Operating Income
("NOI") properties that have not been owned for the full periods presented. The
most directly comparable GAAP financial measure to NOI is operating income. To
calculate NOI, operating income is adjusted to add back depreciation and
amortization, general and administrative expense, interest expense, amortization
of above and below-market lease intangibles and to exclude straight-line rent
adjustments, interest, dividends and other investment income, equity in net
income of unconsolidated joint ventures, and gain/loss on sale of operating
properties.
We use Same Property NOI internally as a performance measure and believe Same
Property NOI provides useful information to investors regarding our financial
condition and results of operations because it reflects only those income and
expense items that are incurred at the property level. Our management also uses
Same Property NOI to evaluate property level performance and to make decisions
about resource allocations. Further, we believe Same Property NOI is useful to
investors as a performance measure because, when compared across periods, Same
Property NOI reflects the impact on operations from trends in occupancy rates,
rental rates and operating costs on an unleveraged basis, providing perspective
not immediately apparent from income from continuing operations. Same Property
NOI excludes certain components from net income attributable to Urstadt Biddle
Properties Inc. in order to provide results that are more closely related to a
property's results of operations. For example, interest expense is not
necessarily linked to the operating performance of a real estate asset and is
often incurred at the corporate level as opposed to the property level. In
addition, depreciation and amortization, because of historical cost accounting
and useful life estimates, may distort operating performance at the property
level. Same Property NOI presented by us may not be comparable to Same Property
NOI reported by other REITs that define Same Property NOI differently.
Twelve Months Ended October 31 , Three Months Ended October 31,
2022 2021 % Change 2022 2021 % Change Same Property Operating Results:
Number of Properties (Note 1) 72 72 Revenue (Note 2) Base Rent (Note 3)
(13) (1,520) (99.1)% 159 (149) (206.7)%
ASC Topic 842 cash-basis lease income reversal-same property (10) (2,011) (99.5)% 56 (129) (143.4)%
Recoveries from tenants 33,506 34,847 (3.8)% 8,143 8,044 1.2%
Other property income 1,491 476 213.2% 229 117 95.7%
133,788 130,857 2.2% 33,338 32,382 3.0%
Expenses
Property operating 14,469 14,107 2.6% 3,487 3,111 12.1%
Property taxes 23,387 23,542 (0.7)% 5,833 5,887 (0.9)%
Other non-recoverable operating expenses 2,523 2,053 22.9% 899 573 56.9%
40,379 39,702 1.7% 10,219 9,571 6.8%
Same Property Net Operating Income
Reconciliation of Same Property NOI to Most Directly Comparable GAAP Measure:
Other reconciling items: Other non same-property net operating income 2,131 937 686 55 Other Interest income 657 471 187 122 Other Dividend Income 84 52 24 16 Consolidated lease termination income 723 967 32 166 Consolidated amortization of above and below market leases 972 632 274 177 Consolidated straight line rent income 241 (2,396) 289 306 Equity in net income of unconsolidated joint ventures 1,397 1,323 583 298 Taxable REIT subsidiary income/(loss) (287) 303 (107) (116) Solar income/(loss) (361) (163) (128) (4) Storage income/(loss) 2,225 1,236 653 431 Unrealized holding gains arising during the periods - - - - Gain on sale of marketable securities - - - - Interest expense (13,175) (13,087) (3,425) (3,025) General and administrative expenses (9,934) (8,985) (2,261) (2,109) Uncollectable amounts in lease income (13) (1,529) 159 (149) Uncollectable amounts in lease income - same property 13 1,520 (159) 149 ASC Topic 842 cash-basis lease income reversal (10) (2,011) 56 (129) ASC Topic 842 cash-basis lease income reversal-same property 10 2,011 (56) 129 Directors fees and expenses (500) (355) (217) (78) Depreciation and amortization (29,799) (29,032) (7,439) (7,259) Adjustment for intercompany expenses and other (5,276) (3,985) (1,064) (950) Total other -net (50,902) (52,091) (11,913) (11,970) Income from continuing operations
42,507 39,064 8.8% 11,206 10,841 3.4% Gain (loss) on sale of real estate
767 11,864 (1) (350)
Net income 43,274 50,928 (15.0)% 11,205 10,491 6.8% Net income attributable to noncontrolling interests
(3,570) (3,645) (875) (921)
Net income attributable to Urstadt Biddle Properties Inc. Same Property Operating Expense Ratio (Note 4) 88.5% 92.6% (4.0)% 87.4% 89.4% (2.0)%
Note 1 - Includes only properties owned for the entire period of both periods presented.
Note 2 - Excludes straight line rent, above/below market lease rent, lease termination income.
Note 3 - Base rents for the three and twelve month periods endedOctober 31, 2022 are reduced by approximately$0 and$87,000 , respectively, in rents that were deferred and approximately$0 and$160,000 , in rents that were abated because of COVID-19. Base rents for the three and twelve month periods endedOctober 31, 2022 , are increased by approximately$5,000 and$470,000 , respectively, in COVID-19 deferred rents that were billed and collected in the fiscal 2022 periods. Base rents for the three and twelve month periods endedOctober 31, 2021 are reduced by approximately$27,000 and$552,000 , respectively, in rents that were deferred and approximately$309,000 and$3.0 million , in rents that were abated because of COVID-19. Base rents for the three and nine month periods endedOctober 31, 2021 , are increased by approximately$345,000 and$3.0 million , respectively, in COVID-19 deferred rents that were billed and collected in the fiscal 2021 periods.
Note 4 -Represents the percentage of property operating expense and real estate tax.
33
--------------------------------------------------------------------------------
Table Of Contents© Edgar Online, source
