-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IG8icyhl8aaSUstPmyp5kWI6eH9vAu9AqB24CNF+FmQeqDlQTJLQCSOasGQKTqCx 90/26pvBGVel4ST+nDEDgA== 0000914317-99-000025.txt : 19990129 0000914317-99-000025.hdr.sgml : 19990129 ACCESSION NUMBER: 0000914317-99-000025 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19990128 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY CENTRAL INDEX KEY: 0000036840 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 221697095 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25043 FILM NUMBER: 99515388 BUSINESS ADDRESS: STREET 1: 505 MAIN ST STREET 2: P O BOX 667 CITY: HACKENSACK STATE: NJ ZIP: 07602 BUSINESS PHONE: 2014886400 MAIL ADDRESS: STREET 1: P O BOX 667 STREET 2: 505 MAIN STREET CITY: HACKENSACK STATE: NJ ZIP: 07602 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended October 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to __________ Commission File No. 2-27018 ------- FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY ------------------------------------------------ (Exact name of registrant as specified in its charter) New Jersey 22-1697095 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 505 Main Street, P.O. Box 667 Hackensack, New Jersey 07602 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 201-488-6400 ------------ Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered - ------------------- --------------------- None Not Applicable Securities registered pursuant to Section 12(g) of the Act: Shares of Beneficial Interest - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in this Form 10-K or any amendment to this Form 10-K. [ X ] The registrant is an equity real estate investment trust and beneficial interests in the registrant are represented by shares without par value. At January 15,1999, the aggregate market value of the registrant's shares of beneficial interest held by nonaffiliates of the registrant was approximately $34,859,130. Excluded from this calculation are shares of the registrant owned or deemed to be beneficially owned by the trustees and executive officers of the registrant, including shares with respect to which the trustees and executive officers disclaim beneficial ownership. At January 15, 1999 1,559,788 shares of beneficial interest were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement for the Registrant's 1999 Annual Meeting of Shareholders to be held in April 1999 are incorporated by reference in Part III of this Annual Report. FORWARD-LOOKING STATEMENTS Certain information included in this Annual Report contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The registrant cautions readers that forward-looking statements, including, without limitation, those relating to the registrant's investment policies and objectives; the financial performance of the registrant; the ability of the registrant to service its debt; the competitive conditions which affect the registrant's business; the impact of environmental conditions affecting the registrant's properties; the registrant's liquidity and capital resources, and the impact of the Year 2000 issue and the registrant's state of readiness with respect to the Year 2000 issue, are subject to certain risks and uncertainties. Actual results or outcomes may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors, including, without limitation, the registrant's future financial performance; the availability of capital; general market conditions; national and local economic conditions, particularly long-term interest rates; federal, state and local governmental regulations that affect the registrant; and the competitive environment in which the registrant operates, including, the availability of retail space and residential apartment units in the areas where the registrant's properties are located. In addition, the registrant's continued qualification as a real estate investment trust involves the application of highly technical and complex rules of the Internal Revenue Code. The forward-looking statements are made as of the date of this Annual Report and the registrant assumes no obligation to update the forward-looking statements or to update the reasons actual results could differ from those projected in such forward-looking statements. PART I ITEM 1 BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS First Real Estate Investment Trust of New Jersey (the "Registrant") is an unincorporated business trust which was organized in New Jersey in 1961 pursuant to a Trust Agreement, dated as of November 1, 1961; amended and restated as of November 7, 1983; and amended on May 31, 1994 and September 10, 1998 (the "Declaration of Trust"). The Registrant acquires, develops and holds for investment income producing real estate properties, including apartment buildings and complexes and retail properties. At December 31, 1998, the Registrant's real estate portfolio consisted of (i) eight (8) apartment buildings or complexes containing 639 units, (ii) a forty percent (40%) equity interest in Westwood Hills, LLC, a limited liability company which owns a 210 unit apartment complex ("Westwood Hills"), (iii) five (5) retail properties comprised of an aggregate of approximately 588,000 square feet of leasable space, including three (3) shopping centers and two (2) single tenant locations, and (iv) three (3) undeveloped parcels of land consisting of an aggregate of approximately 56.5 acres. See "Investment in Affiliate" and "Item 2 Properties - Portfolio of Investments." All of the Registrant's properties are currently managed by Hekemian & Co., Inc., a real estate brokerage and management company ("Hekemian & Co."). See "Management Agreement." From its inception, the Registrant's general investment policy has been to acquire, develop and hold income producing properties for long-term investment and not for resale. The Registrant's long-range investment policy is to continue to review and evaluate potential real estate investment opportunities with the objective of making, from time to time, certain strategic acquisitions of properties which the Registrant believes will (i) complement its existing investment portfolio, (ii) generate income and increase the Registrant's earnings and its distributions to shareholders, and (iii) increase the overall value of the Registrant's investment portfolio. The decision to acquire or develop a particular property is made on a case by case basis by the Registrant's Board of Trustees which determines whether in its judgment such an investment is in the best interests of the Registrant and its shareholders. Except for its equity investment in Westwood Hills, the Registrant has invested only in retail properties since 1988. Although the Registrant's portfolio of developed properties consists only of residential apartment and retail properties, the Registrant does and will continue to evaluate potential investment properties in other sectors of the real estate market. All but two of the Registrant's properties are located in New Jersey. The Registrant's largest retail shopping center, the 256,600 square foot Westridge Square shopping center which the Registrant acquired in 1992, is located in Frederick, Maryland (Western Maryland). The Registrant's most recent property acquisition, which occurred in December 1997, was a 63,900 square foot retail property located in Patchogue (Long Island), New York, on which Pathmark operates a supermarket super store. The Company has reviewed and evaluated and will continue to review and evaluate potential real estate investment opportunities in New Jersey as well as in locations outside of New Jersey. Although the Registrant's general policy is to hold and maintain its properties as long-term income producing investments, the Registrant has sold and in the future could sell, from time to time, certain properties in its portfolio. Factors which are considered by the Registrant's Board of Trustees in evaluating the disposition of a property include (i) whether the property continues to satisfy the Registrant's investment objectives for its real estate portfolio, and (ii) whether the proceeds from a sale could be reinvested into another property or other properties which may offer greater growth potential and a higher rate of return to the Registrant. Except for the Registrant's equity investment in Westwood Hills, each of the properties in the Registrant's real estate portfolio is wholly-owned in fee by the Registrant. In the future, if the circumstances warrant, the Registrant could acquire interests in other real estate properties on a joint venture basis with another party or parties; provided, that the Registrant would be able to maintain appropriate control over the management and operation of any such property. The Registrant is a real estate investment trust ("REIT") under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). The Registrant was the first REIT organized in New Jersey. As a result of its election to be treated as a REIT, the Registrant will not be subject to federal income tax on that portion of its REIT taxable income which is currently distributed to the Registrant's shareholders, assuming it satisfies the various REIT requirements under the Code. REITs are subject to a number of highly technical and complex organizational and operational requirements. One of the REIT requirements under the Code is that at least 95% of the Registrant's REIT taxable income shall be distributed to the shareholders. REIT taxable income is computed in accordance with normal corporate rules subject to several adjustments. If the Registrant fails to qualify as a REIT, its taxable income may be subject to federal income tax at the applicable regular corporate tax rates. For the foreseeable future, it is the Registrant's intention to continue to conduct its operations in a manner intended to qualify as a REIT for tax purposes. However, no assurance can be given that the Registrant's operations for any one taxable year will satisfy such requirements, and no assurance can be given that the Internal Revenue Service would not be able to successfully challenge the Registrant's eligibility for taxation as a REIT. Fiscal Year 1998 Developments (i) Purchase of Supermarket in Patchogue, New York On December 22, 1997, the Registrant completed its purchase of a 63,900 square foot single tenant retail property located in Patchogue, New York. The purchase price was $10.9 million, of which $7.5 million was financed with the property serving as collateral for the mortgage loan. Pathmark operates a supermarket super store on the property pursuant to a twenty-five (25) year lease with options to extend for up to a maximum of twenty-four (24) years. The supermarket is located on approximately 8.775 acres of land. (ii) Completion of New Development of Franklin Crossing Shopping Center During the summer of 1997, the Registrant completed the construction of a new shopping center, named "Franklin Crossing," containing approximately 87,000 square feet of leasable space in Franklin Lakes, New Jersey. Franklin Crossing replaced an old shopping center which the Registrant had owned since 1964 and which contained approximately 33,000 square feet of leasable space. The old shopping center was closed and completely demolished in December 1996 to allow for the construction of Franklin Crossing. Grand Union has leased a total of approximately 41,000 square feet of the available space and is operating a supermarket in the shopping center. Grand Union took possession of its space for tenant fit-up in August, 1997 and commenced payment of rent on October 12, 1997 when it opened for business. Grand Union has a twenty (20) year lease with options to extend for up to a maximum of twenty (20) additional years. Approximately 13,600 square feet of satellite space at Franklin Crossing has been leased to seven (7) other tenants. At December 31, 1998, there was approximately 32,300 square feet of vacant leasable space at Franklin Crossing. The Registrant is actively pursuing tenants to fill the remaining available space. (iii) Mortgage Financings and Amendment and Extension of Credit Facility During fiscal 1998 and the first quarter of fiscal 1999, the Registrant took advantage of the appreciated values of certain real estate properties in its investment portfolio and a favorable interest rate environment to complete a number of mortgage financings which yielded approximately $28.8 million in net proceeds to the Registrant. In addition, Westwood Hills completed a refinancing of its outstanding mortgage debt in December 1998, yielding net proceeds of approximately $4.9 million. Pursuant to its 40% equity investment in Westwood Hills, the Registrant received a $2 million distribution out of such proceeds. Part of the net proceeds from the financings which were completed in the first quarter of fiscal 1998 were used to acquire the Patchogue, Long Island property on which the Pathmark supermarket super store is located and to pay off the Registrant's outstanding balance under its credit facility with Summit Bank. The remaining proceeds from these financings provides the Registrant with an immediately available source of capital for future property acquisitions and development. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." As a result of these mortgage financings, the Registrant is more highly leveraged than it has been in the past. The increase in the Registrant's debt service requirements could have an adverse effect on the financial condition and results of operations. Although the Registrant believes that it will generate sufficient funds from its operations to service the Registrant's debt requirements, a default by the Registrant with respect to any of its mortgage indebtedness could have a material adverse effect on the Registrant. See "Real Estate Financing" and "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." The Registrant's line of credit with Summit Bank, which was scheduled to expire on April 30, 1998, was renegotiated, amended and extended through May 31, 1999. Prior to such extension, the Registrant paid off the outstanding balance under the credit facility with a portion of the proceeds received by the Registrant from the mortgage financings which the Registrant closed during the first quarter of fiscal 1998. In connection with and in anticipation of the above described mortgage financings, the maximum amount which the Registrant can borrow under this credit facility has been reduced from approximately $12.3 million to $8 million effective as of November 30, 1998. At December 31, 1998, the Registrant did not have any outstanding borrowings under the Summit Bank credit facility. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." (iv) Year 2000 Issue The Year 2000 ("Y2K") issue results from computer programs being written using two (2) rather than four (4) digits to define the applicable year. As the year 2000 approaches, systems using such programs may be unable to accurately process certain date based information. As disclosed elsewhere in this Annual Report, Hekemian & Co. currently manages the Registrant's properties, and the Registrant does not own any computer systems. The business managed by Hekemian & Co. is dependent on computer hardware, software, systems and processes, including financial and accounting systems, relating to information technology ("IT Systems") and non-information technology systems such as HVAC systems, boilers, alarms, elevators, escalators, building security systems, backup lighting and generators, sprinkler systems, fire/smoke detection and suppression systems, parking garage systems and other equipment containing embedded microprocessor technology ("Non-IT Systems"). The Registrant is participating with Hekemian & Co. in a comprehensive assessment of the Registrant's business exposure relative to the Y2K issue. The Registrant and Hekemian & Co. have assessed all systems for Y2K readiness. Hekemian & Co. has advised the Registrant that it has utilized or is utilizing the resources necessary to replace, upgrade or modify all significant systems affected by the Y2K issue. All major Non-IT Systems critical to the Registrant's business operations are Y2K compliant. IT Systems were assessed for Y2K compliance and in most cases new hardware was purchased and is operating. All personal computer and network server software has been upgraded for Y2K compliance. The accounting system is now substantially compliant and is expected to be fully Y2K compliant by the end of the first quarter of fiscal 1999. It is expected that all IT Systems will be tested for Y2K compliance by June, 1999 and that all such systems will be Y2K compliant before the end of 1999. In addition to the remediation efforts outlined above, Hekemian & Co. has identified and mailed Y2K information requests to all retail tenants of the Registrant and all critical external entities (product suppliers, service providers, and those with which Hekemian & Co. or the Registrant exchange information) to determine whether they will be able to continue normal business operations at the turn of the century. Approximately 19% of such tenants and entities, including most of the Registrant's major tenants and suppliers, have responded. The third parties responding to the request have indicated that the Y2K issue does not and will not significantly impact their businesses, or that they either will be Y2K compliant or will have an adequate contingency plan ready and active before the year 2000. Neither Hekemian & Co. nor the Registrant has yet established any contingency plans for possible Y2K interruptions. Based upon the continuing assessment of possible risks, the Registrant could establish contingency plans in the future to address the Registrant's exposure to potential Y2K problems. The failure of critical systems of the Registrant, its management service company, or its significant retail tenants and external entities to be Y2K compliant could disrupt or interrupt the business of the Registrant, which could have a material adverse effect on the results of operations or financial condition of the Registrant. The Registrant anticipates that any costs incurred by it in assessing the Y2K issue and remediating any Y2K problems will not have a significant adverse effect on the Registrant's operating results or financial condition. (b) Financial Information about Industry Segments All revenues, operating profits or losses, and assets of the Registrant are attributable to one line of business, the acquisition, development and ownership of real property for investment. The revenue and profits from, and the assets which are part of, the Registrant's operations are as set forth in the Financial Statements of the Registrant and of Westwood Hills beginning on page F-1 of this Annual Report. (c) Narrative Description of Business The Registrant was founded and organized for the principal purpose of acquiring, developing and owning a portfolio of diverse income producing real estate properties. The Registrant's developed properties include residential apartment and retail properties. The Registrant's properties are located principally in New Jersey, with the Westridge Square Shopping Center located in Frederick, Maryland and the Pathmark supermarket super store located on Long Island. The Registrant also currently owns approximately 56.5 acres of unimproved land in New Jersey. See "Item 2 Properties - Portfolio of Investments." The Registrant elected to be taxed as a REIT under the Code. The Registrant operates in such a manner as to qualify for taxation as a REIT in order to take advantage of certain favorable tax aspects of the REIT structure. Generally, a REIT will not be subject to federal income taxes on that portion of its ordinary income or capital gain that is currently distributed to its equity holders. As an equity REIT, the Registrant generally acquires interests in income producing properties to be held by the Registrant as long-term investments. The Registrant's return on such investments is based on the income generated by such properties mainly in the form of rents. From time to time, the Registrant has sold, and may sell again in the future, certain of its properties in order to (i) obtain capital used or to be used to purchase, develop or renovate other properties which the Registrant believes will provide a higher rate of return and increase the value of the Registrant's investment portfolio, and (ii) divest properties which the Registrant has determined or determines are no longer compatible with the Registrant's growth strategies and investment objectives for its real estate portfolio. The Registrant does not hold any patents, trademarks or licenses. Portfolio of Real Estate Investments At December 31, 1998, the Registrant's real estate holdings included (i) eight (8) apartment buildings or complexes containing 639 rentable units, (ii) five (5) retail properties containing approximately 588,000 square feet of leasable space, including two (2) single tenant stores, and (iii) three (3) parcels of undeveloped land consisting of approximately 56.5 acres. All such property is wholly-owned in fee by the Registrant. See "Item 2 Properties - Portfolio of Investments" of this Annual Report for a description of the Registrant's separate investment properties and certain other pertinent information with respect to such properties which is relevant to the Registrant's business. In addition, the Registrant holds a 40% membership interest in Westwood Hills which owns an apartment complex containing 210 rentable units. See "Investment in Affiliate." Investment in Affiliate In May 1994, the Registrant acquired a forty percent (40%) membership interest in Westwood Hills, a New Jersey limited liability company. In June 1994, Westwood Hills consummated the purchase of Westwood Properties, a residential apartment complex containing 210 units, located in Westwood, New Jersey, for a total purchase price of approximately $15.4 million. Approximately $9.5 million of the purchase price was financed by the proceeds of a mortgage loan which was refinanced in December 1998. See "Fiscal Year 1998 Developments - Mortgage Financings and Amendment and Extension of Credit Facility." The Registrant is the managing member of Westwood Hills, and Hekemian & Co. currently is the managing agent of the property. See "Management Agreement." In connection with the refinancing, Robert S. Hekemian, Chairman of the Board of the Registrant and a member of Westwood Hills, provided a personal guarantee in certain limited circumstances. The Registrant has agreed to indemnify Mr. Hekemian with respect to this guaranty. Employees The Registrant does not have any full-time employees. Except for Mr. Hekemian, Chairman of the Board, who devotes approximately twenty-five percent (25%) of his business activities to the Registrant's business, none of the other executive officers of the Registrant (who are identified in "Item 4A Executive Officers of the Registrant" of this Annual Report), devotes more than ten percent (10%) of his business activities to the business of the Registrant. Hekemian & Co. has been retained by the Registrant to manage the Registrant's developed properties and is responsible for providing the personnel required to perform all services related to the management and operation of the Registrant's properties. See "Management Agreement." For the foreseeable future, the Registrant intends to maintain its present form of management arrangement and does not anticipate hiring employees. Management Agreement Pursuant to the terms of a Management Agreement, dated December 20, 1961, by and between the Registrant and Hekemian & Co., as amended (the "Management Agreement"), Hekemian & Co., a real estate brokerage and management company, manages all of the Registrant's properties. In connection with its management services, Hekemian & Co. employs the superintendents and other personnel who perform the functions required to operate and maintain the Registrant's properties. Pursuant to the terms of the Management Agreement, the Registrant pays Hekemian & Co. certain fees and commissions as compensation for its services. The Registrant also reimburses Hekemian & Co. for the salaries, payroll taxes, insurance costs and certain other costs of persons employed at the Registrant's properties by Hekemian & Co. on behalf of the Registrant. From time to time, the Registrant engages Hekemian & Co. to provide certain additional services, such as consulting services related to development and financing activities of the Registrant. Separate fee arrangements are negotiated between Hekemian & Co. and the Registrant with respect to such services. See "First Real Estate Investment Trust of New Jersey Notes to Financial Statements - - Note 7." Mr. Hekemian, Chairman of the Board and a Trustee of the Registrant, is currently the Chairman of the Board and Chief Executive Officer of Hekemian & Co. Mr. Hekemian, his brother and two sisters currently own all of the issued and outstanding shares of Hekemian & Co. A dispute between the shareholders of Hekemian & Co. has developed which will lead to the dissolution of the company. The Registrant is confident that any such dissolution will not have a material adverse effect on its business operations. Real Estate Financing The Registrant funds acquisition opportunities and the development of its real estate properties largely through debt financing, including mortgage loans against certain of the Registrant's properties, and an $8 million line of credit with Summit Bank. At December 31, 1998, the Registrant's aggregate outstanding mortgage debt was $60.69 million with an average interest cost on a weighted average basis of 7.518%. The Registrant has mortgage loans against the following properties which serve as collateral for such loans: (i) Westridge Square shopping enter in Frederick, Maryland, (ii) Westwood Plaza shopping center in Westwood, New Jersey, (iii) Pathmark supermarket super store property in Patchogue, New York, (iv) Berdan Court Apartments in Wayne, New Jersey, (v) Steuben Arms Apartments in River Edge, New Jersey,(vi) Hammel Gardens Apartments in Maywood, New Jersey, and (vii) Heights Manor Apartments in Spring Lake Heights, New Jersey. See the tables in "Item 2 Properties - Portfolio of Investments" for the outstanding mortgage balance at December 31, 1998 with respect to each of these properties. At December 31, 1998, there was no outstanding balance under the Summit Bank line of credit. Any borrowings under the credit facility would bear interest at a variable fluctuating rate which is based at the Registrant's election on (i) Summit Bank's floating base rate plus one-quarter of one percent (0.25%) or (ii) the London Interbank Offered Rate (LIBOR) plus 175 basis points (1.75%). The Franklin Crossing shopping center and each of the Registrant's residential apartment properties in Lakewood, Palisades Park and Hasbrouck Heights, New Jersey, serve as collateral for the Summit Bank line of credit. In fiscal 1998, the Registrant consummated a series of mortgage financings in order to take advantage of the appreciated values of certain of the Registrant's real estate properties and a favorable interest rate environment. In addition, Westwood Hills, in which the Registrant has a 40% equity interest, also refinanced its existing mortgage during the first quarter of fiscal 1999. See "Fiscal Year 1998 Developments - Mortgage Financings and Amendment and Extension of Credit Facility." As a result of these mortgage financings and as a result of the Registrant's purchase of the Pathmark supermarket super store property in Patchogue, New York, which was largely financed by a $7.5 million mortgage loan, the Registrant is currently, and will continue to be for the foreseeable future, more highly leveraged than it has been in the past. This increased level of indebtedness also presents an increased risk of default on the obligations of the Registrant and an increase in debt service requirements that could adversely affect the financial condition and results of operations of the Registrant. A number of the Registrant's mortgage loans, including several of the recent loans, are being amortized over a period that is greater than the terms of such loans; thereby requiring balloon payments at the expiration of the terms of such loans. The Registrant has not established a cash reserve sinking fund with respect to such obligations and at this time does not expect to have sufficient funds from operations to make such balloon payments when due under the terms of such loans. The Registrant is subject to the normal risks associated with debt financing, including the risk that the Registrant's cash flow will be insufficient to meet required payments of principal and interest; the risk that indebtedness on its properties will not be able to be renewed, repaid or refinanced when due; or that the terms of any renewal or refinancing will not be as favorable as the terms of the indebtedness being replaced. If the Registrant were unable to refinance its indebtedness on acceptable terms, or at all, the Registrant might be forced to dispose of one or more of its properties on disadvantageous terms which might result in losses to the Registrant. These losses could have a material adverse effect on the Registrant and its ability to make distributions to shareholders and to pay amounts due on its debt. If a property is mortgaged to secure payment of indebtedness and the Registrant is unable to meet mortgage payments, the mortgagee could foreclose upon the property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies, all with a consequent loss of revenues and asset value to the Registrant. Further, payment obligations on the Registrant's mortgage loans will not be reduced if there is a decline in the economic performance of any of the Registrant's properties. If any such decline in economic performance occurs, the Registrant's revenues, earnings and funds available for distribution to shareholders would be adversely affected. Neither the Declaration of Trust nor any policy statement formally adopted by the Registrant's Board of Trustees limits either the total amount of indebtedness or the specified percentage of indebtedness (based on the total capitalization of the Registrant) which may be incurred by the Registrant. Accordingly, the Registrant may incur in the future additional secured or unsecured indebtedness in furtherance of its business activities, including, if or when necessary, to refinance its existing debt. Future debt incurred by the Registrant could bear interest at rates which are higher than the rates on the Registrant's existing debt. Future debt incurred by the Registrant could also bear interest at a variable rate. Increases in interest rates would increase the Registrant's variable interest costs (to the extent that the related indebtedness was not protected by interest rate protection arrangements), which could have a material adverse effect on the Registrant and its ability to make distributions to shareholders and to pay amounts due on its debt or cause the Registrant to be in default under its debt. Further, in the future, the Registrant may not be able to, or may determine that it is not able to, obtain financing for property acquisitions or for capital expenditures to develop or improve its properties on terms which are acceptable to the Registrant. In such event, the Registrant might elect to defer certain projects unless alternative sources of capital were available, such as through an equity or debt offering by the Registrant. Competitive Conditions The Registrant is subject to normal competition with other investors to acquire real property and to profitably manage such property. Numerous other REIT(s), banks, insurance companies and pension funds, as well as corporate and individual developers and owners of real estate, compete with the Registrant in seeking properties for acquisition and for tenants. During the 1990s, the Registrant has concentrated upon the acquisition and development of multi-family residential and retail shopping center properties which are substantially larger than those real estate assets the Registrant had historically sought to include in its investment portfolio. As a result, the Registrant has encountered increasing competition for investment grade real estate from other entities and persons which have investment objectives similar to those of the Registrant. Such competitors may have significantly greater financial resources than the Registrant, may derive funding from foreign and domestic sources, and may have larger staffs than the Registrant to find, evaluate and secure new properties. In addition, retailers at the Registrant's properties face increasing competition from discount shopping centers, outlet malls, sales through catalogue offerings, discount shopping clubs, marketing and shopping through cable and computer sources, particularly over the Internet, and telemarketing. In many markets, the trade areas of the Registrant's retail properties overlap with the trade areas of other shopping centers. Renovations and expansions at those competing shopping centers and malls could negatively affect the Registrant's retail properties by encouraging shoppers to make their purchases at such new, expanded or renovated shopping centers and malls. Increased competition through these various sources could adversely affect the viability of the Registrant's tenants, and any new retail real estate competition developed in the future could potentially have an adverse effect on the revenues of and earnings from the Registrant's retail properties. (A) General Factors Affecting Investment in Retail and Apartment Complex Properties; Effect on Economic and Real Estate Conditions The revenues and value of the Registrant's retail and residential apartment properties may be adversely affected by a number of factors, including, without limitation, the national economic climate; the regional economic climate (which may be adversely affected by plant closings, industry slow downs and other local business factors); local real estate conditions (such as an oversupply of retail space or apartment units); perceptions by retailers or shoppers of the security, safety, convenience and attractiveness of a shopping center; perception by residential tenants of the safety, convenience and attractiveness of an apartment building or complex; the proximity and the number of competing shopping centers and apartment complexes; the availability of recreational and other amenities and the willingness and ability of the owner to provide capable management and adequate maintenance. In addition, other factors may adversely affect the fair market value of a retail property or apartment building or complex without necessarily affecting the revenues, including changes in government regulations (such as limitations on development or on hours of operation) changes in tax laws or rates, and potential environmental or other legal liabilities. (B) Retail Shopping Center Properties' Dependence on Anchor Stores and Satellite Tenants The Registrant believes that its revenues and earnings; its ability to meet its debt obligations; and its funds available for distribution to shareholders would be adversely affected if space in the Registrant's multi-store shopping center properties could not be leased or if anchor store tenants or satellite tenants failed to meet their lease obligations. The success of the Registrant's investment in its shopping center properties is largely dependent upon the success of its tenants. Unfavorable economic, demographic or competitive conditions may adversely affect the financial condition of tenants and consequently the lease revenues from and the value of the Registrant's investments in its shopping center properties. If the sales of stores operating in the Registrant's shopping center properties were to decline due to deteriorating economic conditions, the tenants may be unable to pay their base rents or meet other lease charges and fees due to the Registrant. In addition, any lease provisions providing for rent based on a percentage of sales, particularly with respect to the Registrant's food supermarket tenants, could be rendered moot. In the event of default by a tenant, the Registrant could suffer a loss of rent and experience extraordinary delays while incurring additional costs in enforcing its rights under the lease which may or may not be recaptured by the Registrant. (C) Renewal of Leases and Reletting of Space There is no assurance that the Registrant will be able to retain tenants at its retail properties upon expiration of their leases. Upon expiration or termination of leases for space located in the Registrant's retail properties, the premises may not be relet or the terms of reletting (including the cost of concessions to tenants) may not be as favorable as lease terms for the terminated lease. If the Registrant were unable to promptly relet all or a substantial portion of this space or if the rental rates upon such reletting were significantly lower than current or expected rates, the Registrant's revenues and earnings; the Registrant's ability to service its debt; and the Registrant's ability to make expected distributions to its shareholders, could be adversely affected. There are no leases which the Registrant considers material or significant in terms of any single property in the Registrant's real estate portfolio which expired during the fiscal year 1998 or which are scheduled to expire in the fiscal year 1999. (D) Illiquidity of Real Estate Investments; Possibility that Value of the Registrant's Interests may be less than its Investment Equity real estate investments are relatively illiquid. Accordingly, the ability of the Registrant to vary its portfolio in response to changed economic, market or other conditions is limited. Also, the Registrant's interest in Westwood Hills is subject to transfer constraints imposed by the operating agreement which governs the Registrant's investment in Westwood Hills. Even without such restrictions on the transfer of its interest, the Registrant believes that there would be a limited market for its interest in Westwood Hills. If the Registrant had to liquidate all or substantially all of its real estate holdings, the value of such assets would likely be diminished if a sale was required to be completed in a limited time frame. The proceeds to the Registrant from any such sale of the assets in the Registrant's real estate portfolio might be less than the fair market value of those assets. Impact of Governmental Laws and Regulations on Registrant's Business The Registrant's properties are subject to various Federal, state and local laws, ordinances and regulations, including those relating to the environment and local rent control and zoning ordinances. (A) Environmental Matters Both Federal and state governments are concerned with the impact of real estate construction and development programs upon the environment. Environmental legislation affects the cost of selling real estate, the cost to develop real estate, and the risks associated with purchasing real estate. Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property, as well as certain other potential costs relating to hazardous or toxic substances (including government fines and penalties and damages for injuries to persons and adjacent property). Such laws often impose such liability without regard to whether the owners knew of, or were responsible for, the presence or disposal of such substances. Such liability may be imposed on the owner in connection with the activities of any operator of, or tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages and the owner's liability therefor could exceed the value of the property and/or the aggregate assets of the owner. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. If the Registrant incurred any such liability, it could reduce the Registrant's revenues and ability to make distributions to its shareholders. A property can also be negatively impacted by either physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties. At this time, the Registrant is aware of the following environmental matters affecting its properties: (i) Vacant Land Located in Rockaway Township, N.J. The property located in Rockaway Township contains wetlands and associated transition areas. Pursuant to New Jersey law, transition areas may not be developed. The Registrant has not formally determined the full impact that the wetlands and associated transition areas will have on the development of the property pursuant to the applicable laws and regulations of New Jersey. However, it is believed that future development of the property will not be substantially restricted as a result of the presence of wetlands and the associated transition areas. Under the current zoning ordinances, the property can be developed for residential use only. The Registrant has no present plan to develop the property. Any development would be subject to all of the then applicable governmental rules and regulations. However, if the Registrant chose to develop this property, it does not believe that this environmental condition would prevent it from developing a material portion of the property. (ii) Westwood Plaza Shopping Center, Westwood, N.J. This property is in a HUD Flood Hazard Zone and serves as a local flood retention basin for part of Westwood, New Jersey. The Registrant maintains flood insurance in the amount of $500,000 for the subject property which is the maximum available under the HUD Flood Program for the property. Any reconstruction of that portion of the property situated in the flood hazard zone is subject to regulations promulgated by the New Jersey Department of Environmental Protection ("NJDEP") which could require extraordinary construction methods. (iii) Franklin Crossing, Franklin Lakes, N.J. The new Franklin Crossing shopping center was completed during the summer of 1997. Also in 1997, a historical discharge of hazardous materials was discovered at Franklin Crossing. The discharge was reported to the NJDEP in accordance with applicable regulations. The Registrant is engaged in completing a remediation process under the supervision of the NJDEP. The Registrant anticipates that: (a) the historical discharge will have no significant impact upon the operations at Franklin Crossing; (b) the discharge materials appear to be isolated and have been excavated; (c) it will be required to monitor the discharge; and (d) that the cost of the investigation and monitoring will not be material. The Registrant is in the process of securing a Classification Exception Area for groundwater use restriction from the NJDEP pursuant to its Memorandum of Agreement Program. (iv) Other The State of New Jersey has adopted an underground fuel storage tank law and various regulations which impact upon the Registrant's responsibilities with respect to underground storage tanks maintained on its properties. The Registrant does have underground storage tanks located on two (2) of its properties used in connection with the heating of apartment units. The Registrant periodically visually inspects the location of each underground storage tank for evidence of any spills or discharges. Based upon these inspections, the Registrant knows of no underground storage tanks which are discharging material into the soil at the present time. Current state law does not require the Registrant to submit its underground storage tanks to tightness testing. The Registrant has conducted no such tests. The Registrant has conducted environmental audits for all of its properties except for its undeveloped land; retail properties in Franklin Lakes (Franklin Crossing) and Glen Rock, New Jersey; and residential apartment properties located in Lakewood, Camden, Palisades Park and Hasbrouck Heights, New Jersey. Except as noted in subparagraph (iii) above, the environmental reports secured by the Registrant have not revealed any environmental conditions on its properties which require remediation pursuant to any applicable Federal or state law or regulation. The Registrant does not believe that the environmental conditions described in subparagraphs(i) - (iv) above will have a materially adverse effect upon the capital expenditures, revenues, earnings, financial condition or competitive position of the Registrant. (B) Rent Control Ordinances Each of the apartment buildings or complexes owned by the Registrant is subject to some form of rent control ordinance which limits the amount by which the Registrant can increase the rent for renewed leases, and in some cases, limits the amount of rent which the Registrant can charge for vacated units. Westwood Hills is not subject to any rent control law or regulation. (C) Zoning Ordinances Local zoning ordinances may prevent the Registrant from developing its unimproved properties, or renovating, expanding or converting its existing properties, for their highest and best use as determined by the Registrant's Board of Trustees, which could diminish the values of such properties. (d) Financial Information about Foreign and Domestic Operations and Export Sales The Registrant does not engage in operations in foreign countries and it does not derive any portion of its revenues from customers in foreign countries. ITEM 2. PROPERTIES Portfolio of Investments The following charts set forth certain information relating to each of the Registrant's real estate investments. In addition to the specific mortgages which may be indicated below, the following Registrant properties: Franklin Crossing and the residential apartment properties located in Lakewood, Palisades Park and Hasbrouck Heights, New Jersey, are subject to a lien from Summit Bank pursuant to the line of credit in the face amount of $8 million. Apartment Properties as of December 31, 1998: - ---------------------------------------------
Depreciated Cost of Occupancy Buildings Rate (% of Mortgage and Property and Year No. of No. of Balance Equipment Location Acquired Units Units) (000's) (000's) - -------- -------- ----- ------ ------- ------- Lakewood Apts. Lakewood, NJ 1962 40 91.0% None $ 181 Palisades Manor Palisades Park, NJ 1962 12 93.6% None $ 66 Grandview Apts. Hasbrouck Heights, NJ 1964 20 94.2% None $ 151 Heights Manor Spring Lake Heights, NJ 1971 79 96.3% $3,697 $ 551 Hammel Gardens Maywood, NJ 1972 80 97.4% $3,896 $ 939 Sheridan Apts. Camden, NJ 1964 132 91.1% None $ 647 Steuben Arms River Edge, NJ 1975 100 96.7% $5,370 $ 1,359 Berdan Court Wayne, NJ 1965 176 97.4% $10,993 $ 1,628 Westwood Hills Westwood, NJ (1) 1994 210 97.9% $15,500 $14,374
(1) The Registrant owns a 40% equity interest in Westwood Hills. See "Item 1(c) Narrative Description of Business - Investment in Affiliate." Retail Properties as of December 31, 1998: - ------------------------------------------
Depreciated Mortgage Cost of Leasable Occupancy Balance Buildings Space - Rate (% of or Bank and Property and Year Approximate Square Loan Equipment Location Acquired Square Feet Feet) (000's) (000's) - -------- -------- ----------- ----- ------- ------- Franklin Crossing Franklin Lakes, NJ 1966(1) 87,041 68.6% None $10,064 Westwood Plaza Westwood, NJ 1988 173,854 96.5% $10,505 $11,471 Westridge Square Frederick, Maryland 1992 256,620 99.8% $18,833 $24,405 Pathmark Super Store Patchogue, New York 1997 63,932 100% $ 7,392 $10,663 Property has been vacant since February 28, Glen Rock, NJ 1962 4,800 1998 None $ 24
(1) See "Item 1(a) General Development of Business - Fiscal Year 1998 Developments; Completion of New Development of Franklin Crossing Shopping Center." Vacant Land as of December 31, 1998: - ------------------------------------
Permitted Use per Mortgage Local Acreage Balance or Current Zoning per Bank Loan Location Acquired Use Laws Parcel (000's) - -------- -------- --- ---- ------ ------- Franklin Lakes, NJ 1966 None Limited 4.27 None Office Rockaway, NJ 1964/1963 None Residential 19.26 None South Brunswick, NJ 1964 Leased as Commercial 33 None farmland qualifying for state farmland assessment tax treatment
The Registrant believes that it has a diversified portfolio of residential and retail properties. The Registrant's business is not materially dependent upon any single tenant or any one of its properties. Several of the Registrant's properties have contributed 15% or more of the Registrant's total revenue in one or more of the last three (3) fiscal years. For the fiscal years ended October 31, 1996, 1997 and 1998, (i) the Westridge Square Shopping Center in Frederick, Maryland contributed 29.8%, 30.2% and 26.2%, respectively, of the Registrant's total revenues; (ii) the Westwood Plaza Shopping Center in Westwood, New Jersey contributed 20.4%, 18.9% and 15.3%, respectively, of the Registrant's total revenues; and (iii) the Berdan Court apartment complex in Wayne, New Jersey contributed 17.4%, 17% and 14.3%, respectively, of the Registrant's total revenues. Although the Registrant's general investment policy is to hold properties as long-term investments, the Registrant could selectively sell certain properties if it determines that any such sale is in the Registrant's and its shareholders best interests. With respect to the Registrant's future acquisition and development activities, the Registrant will evaluate various real estate opportunities which the Registrant believes would increase the Registrant's revenues and earnings as well as compliment and increase the overall value of the Registrant's existing investment portfolio. Except for the Pathmark supermarket super store located in Patchogue, Long Island, and the single tenant store located in Glen Rock, New Jersey, all of the Registrant's retail properties have multiple tenants. The sole tenant in the Glen Rock store location terminated its lease effective as of February 28, 1998. The Registrant is actively engaged in efforts to secure a replacement tenant. However, the Registrant does not believe that the absence of a tenant for this property for any period of time will have a material effect on the Registrant's operating results as the property is not a significant part of the Registrant's real estate portfolio. The Registrant's retail shopping center properties have anchor tenants which occupy a significant amount of the leasable space in each such property. The Westwood Plaza shopping center in Westwood, New Jersey is anchored by a Kmart Store and a Grand Union supermarket and has eighteen (18) satellite stores. A Giant Supermarket and Burlington Coat Factory store anchor the Westridge Square shopping center in Frederick, Maryland, which also has twenty-six(26) satellite stores and a six (6) screen movie theater complex. In the newly constructed and expanded Franklin Crossing shopping center in Franklin Lakes, New Jersey, the anchor tenant is a Grand Union supermarket which occupies approximately 41,000 square feet of the approximately 87,000 square feet available for lease. Franklin Crossing also has seven (7) satellite stores and there is approximately 32,300 square feet of available leasable space. With respect to most of the Registrant's retail properties, lease terms range from five (5) years to twenty-five (25) years with options which if exercised would extend the terms of such leases. The lease agreements generally contain clauses for reimbursement of real estate taxes, maintenance, insurance and certain other operating expenses of the properties. During the last three (3) completed fiscal years, the Registrant's retail properties have averaged a 98.5% occupancy rate with respect to the Registrant's available leasable space. This excludes Franklin Crossing since the old shopping center was closed and demolished in December 1996 and the new and expanded shopping center was not reopened for business until October 1997. Leases for the Registrant's apartment buildings and complexes are usually one (1) year in duration. Even though the residential units are leased on a short term basis, the Registrant has averaged, during the last three (3) completed fiscal years, a 94.9% occupancy rate with respect to the Registrant's available apartment units. The Registrant does not believe that any seasonal factors materially affect the Registrant's business operations and the leasing of its retail and apartment properties. The Registrant does not lease space to any Federal, state or local government entity. The Registrant believes that its properties are covered by adequate fire and property insurance provided by reputable companies and with commercially reasonable deductibles and limits. ITEM 3 LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Registrant is a party or of which any of its properties is the subject. There is, however, ordinary and routine litigation involving the Registrant's business including various tenancy and related matters. Notwithstanding the environmental conditions disclosed in "Item 1(c) Description of Business - Impact of Governmental Laws and Regulations on Registrant's Business; Environmental Matters," there are no legal proceedings concerning environmental issues with respect to any property owned by the Registrant. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of the Registrant's 1998 fiscal year. ITEM 4A EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Registrant as of January 15, 1999 are listed below. Brief summaries of their business experience and certain other information with respect to each of them is set forth in the following table and in the information which follows the table. As a result of Hekemian & Co. being responsible for managing the day to day operations of the Registrant's properties and providing personnel to manage the Registrant's properties, the executive officers are not required to devote a significant part of their business activities to their duties as executive officers of the Registrant. No executive officer of the Registrant directly devotes more than ten percent (10%) of his business activities to the Registrant's business, except for Mr. Hekemian, Chairman of the Board, who devotes approximately twenty-five percent (25%) of his business activities to the Registrant. See "Item 1(c) Narrative Description of Business - Management Agreement." Except for Mr. DeLorenzo, Executive Secretary and Treasurer of the Registrant, each of the executive officers is also a Trustee of the Registrant. The executive officers of the Registrant are as follows: Name Age Position - ---- --- -------- Robert S. Hekemian 67 Chairman of the Board and Chief Executive Officer Donald W. Barney 58 President John B. Voskian, M.D. 74 Secretary William R. DeLorenzo, Jr., Esq. 54 Executive Secretary and Treasurer ROBERT S. HEKEMIAN has been active in the real estate industry for more than forty-five(45) years. Mr. Hekemian has served as Chairman of the Board and Chief Executive Officer of the Registrant since 1991, and as a Trustee since 1980. From 1981 to 1991, Mr. Hekemian was President of the Registrant. Mr. Hekemian directly devotes approximately twenty-five percent (25%) of his time to execute his duties as an executive officer of the Registrant. Mr. Hekemian is also the Chairman of the Board and Chief Executive Officer of Hekemian & Co. See "Item 1(c) Narrative Description of Business - Management Agreement." Mr. Hekemian is a director of Summit Bancorp. Mr. Hekemian is also a director, partner and officer in numerous private real estate corporations and partnerships. Mr. Hekemian is the brother-in-law of Dr. Voskian. DONALD W. BARNEY has served as President of the Registrant since 1993, and as a Trustee since 1981. Mr. Barney devotes approximately five percent (5%) of his time to execute his duties as an executive officer of the Registrant. Mr. Barney has been associated with Union Camp Corporation, a diversified manufacturer of paper, packaging products, chemicals and wood products, since 1969, most recently, and until December 31, 1998, as Vice President and Treasurer. Mr. Barney is also a director of Ramapo Financial Corporation and a partner and director in several other private real estate investment companies. Mr. Barney was formerly the brother-in-law of Mr. DeLorenzo. DR. JOHN B. VOSKIAN has served as Secretary and a Trustee of the Registrant since 1968. Dr. Voskian spends less than five percent (5%) of his time with respect to his duties as an executive officer of the Registrant. A physician, Dr. Voskian has retired from the practice of medicine. Dr. Voskian is also a director and an officer in a number of private real estate companies. Dr. Voskian is the brother-in-law of Mr. Hekemian. WILLIAM R. DELORENZO, JR., an attorney, has served as the Treasurer and Executive Secretary of the Registrant since 1974. Mr. DeLorenzo devotes approximately five percent (5%) of his time to his activities as an executive officer of the Registrant. Since 1996, Mr. DeLorenzo has been in private practice with the law firm of Nowell Amoroso, P.A., with offices in Hackensack, New Jersey and New York City. From 1990 to 1994, Mr. DeLorenzo was the Chairman of the New Jersey Commission on Capital Budget and Planning. Mr. DeLorenzo was formerly the brother-in-law of Mr. Barney. PART II ------- ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS Shares of Beneficial Interest Beneficial interests in the Registrant are represented by shares without par value (the "Shares"). The Shares represent the Registrant's only authorized, issued and outstanding class of equity. As of January 15, 1999, there were 429 holders of record of the Shares. The Shares are traded in the over-the-counter market through use of the OTC Bulletin Board(R) Service (the "OTC Bulletin Board") provided by NASD, Inc. The Registrant does not believe that an active United States public trading market exists for the Shares since historically only small volumes of the Shares are traded on a sporadic basis. The following table sets forth, for the periods indicated, the high and low bid quotations for the Shares on the OTC Bulletin Board. High Low ---- --- Fiscal Year Ended October 31, 1998 - ---------------------------------- First Quarter 25-1/2 25 Second Quarter 26 25-1/2 Third Quarter 28 26 Fourth Quarter 30 27 Fiscal Year Ended October 31, 1997 - ---------------------------------- First Quarter 21-7/8 21-1/2 Second Quarter 22-3/4 22-1/4 Third Quarter 24-1/2 24 Fourth Quarter 25-1/8 25-1/8 The bid quotations set forth above for the Shares reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions. The source of the bid quotations is Janney Montgomery Scott, Inc., members of the New York Stock Exchange and other national securities exchanges. Dividends The holders of Shares are entitled to receive distributions as may be declared by the Registrant's Board of Trustees. Dividends may be declared from time to time by the Board of Trustees and may be paid in cash, property or Shares. The Board of Trustees' present policy is to distribute annually at least ninety-five percent (95%) of the Registrant's REIT taxable income as dividends to the holders of Shares in order to qualify as a REIT for Federal income tax purposes. Distributions are made on a quarterly basis. In fiscal 1997 and fiscal 1998, the Registrant paid aggregate total dividends of $1.90 and $2.12 per share, respectively, to the holders of Shares. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - REIT Distributions to Shareholders." ITEM 6 SELECTED FINANCIAL DATA The selected consolidated financial data for the Registrant for each of the five (5) fiscal years in the period ended October 31, 1998 are derived from financial statements that have been audited and reported upon by J.H. Cohn LLP, independent public accountants for the Registrant. This data should be read in conjunction with "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report and with the Registrant's financial statements and related notes included in this Annual Report. Income Statement Data:
Years Ended October 31: ------------------------------------------------------- 1998 1997 1996 1995 1994 ------- ------- ------- ------- ------- (in thousands) Equity in Income of Affiliate (1) ............... $ 213 $ 139 $ 92 $ 81 $ 51 ======= ======= ======= ======= ======= Total Revenue ............... $14,432 $11,698 $11,417 $11,124 $10,335 ======= ======= ======= ======= ======= Total Expenses............... $10,747 $ 8,735 $ 8,755 $ 8,338 $ 7,952 ======= ======= ======= ======= ======= Net Income .................. $ 3,685 $ 2,963 $ 2,662 $ 2,786 $ 2,383 ======= ======= ======= ======= =======
Balance Sheet Data:
As of October 31: ----------------- (in thousands, except per share data) 1998 1997 1996 1995 1994 ------- ------- ------- ------- ------- Total Assets $71,275 $59,233 $51,674 $51,838 $52,398 ======= ======= ======= ======= ======= Long-Term Obligations $47,853 $24,429 $23,609 $24,110 $24,564 ======= ======= ======= ======= ======= Shareholders' Equity $20,362 $19,984 $19,984 $19,989 $21,148 ======= ======= ======= ======= ======= Per Share Data: Basic Earnings Per Share $ 2.36 $ 1.90 $ 1.71 $ 1.79 $ 1.53 ======= ======= ======= ======= ======= Dividends Per Share $ 2.12 $ 1.90 $ 1.71 $ 2.53 $ 1.62 ======= ======= ======= ======= ======== Weighted Average Number of Shares Outstanding 1,559 1,559 1,559 1,559 1,559 ======= ======= ======= ======= ========
(1) All of the financial data set forth above has been stated for the fiscal years ended October 31, 1998 and 1997 and restated for each of the fiscal years ended October 31, 1994 through 1996 using the equity method of accounting for Westwood Hills. See "First Real Estate Investment Trust Of New Jersey Notes to Financial Statements - Notes 1 and 2." ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Registrant is an equity REIT which owns a portfolio of residential apartment and retail properties. The Registrant's revenues consist primarily of fixed rental income and additional rent in the form of expense reimbursements derived from its income producing retail properties. The Registrant also receives income from its 40% owned affiliate, Westwood Hills, which owns a residential apartment property. The Registrant's policy has been to acquire real property for long-term investment. During the period covering fiscal 1996 through the first quarter of fiscal 1999, the events which had the most significant impact on the Registrant's operations were (i) the closing and demolition of the old Franklin Lakes shopping center in December 1996 and the completion of construction of the new and expanded (approximately 87,000 square feet) Franklin Crossing shopping center in the fourth quarter of fiscal 1997; (ii) the acquisition in December 1997 of the Patchogue, New York single tenant retail property which has a large Pathmark supermarket super store (63,900 square feet) as its tenant; and (iii) the series of mortgage financings which the Registrant closed during fiscal 1998 and the first quarter of fiscal 1999. The following discussion should be read in conjunction with the Registrant's financial statements and related notes included elsewhere in this Annual Report. Certain statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" may constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Although the Registrant believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, including those discussed elsewhere in this Annual Report, that could cause actual results to differ materially from those projected. Results of Operations Fiscal Years ended October 31, 1998 and October 31, 1997 Revenues For the fiscal year ended October 31, 1998, total revenue increased $2,734,000(23.4%) from $11,698,000 in fiscal 1997 to $14,432,000. $2,313,000 of the increase in revenues is due, primarily, to the December 1997 acquisition of the property in Patchogue, New York and the reopening of the new and expanded Franklin Crossing shopping center in the fourth quarter of fiscal 1997. Grand Union which leases approximately 47% of the available leasable space and operates a supermarket at Franklin Crossing commenced paying rent in October 1997. At October 31, 1998, Franklin Crossing was 60% occupied and 65% leased. The balance of the revenue increase is attributable to increased revenues at the Registrant's other properties and its 40% equity in the earnings of Westwood Hills. Expenses For the year ended October 31, 1998, total expenses increased $2,012,000 (23.0%) from $8,735,000 in fiscal 1997 to $10,747,000 in fiscal 1998. $1,133,000 of this increase is attributable to an increase in financing costs (including a one-time debt retirement charge of $130,000) resulting from the Registrant's increased debt level. See "Item 1(a) General Development of Business - Fiscal 1998 Developments; Mortgage Financings and Amendment and Extension of Credit Facility." Real estate operating expenses increased $528,000 (11.7%) from $4,498,000 in fiscal 1997 to $5,026,000 in fiscal 1998, primarily due to $470,000 attributable to the operations at Patchogue and Franklin Crossing. Depreciation increased $331,000 (25.1%) from $1,319,000 in fiscal 1997 to $1,650,000 in fiscal 1998 primarily due to additional depreciation taken on the Patchogue and Franklin Crossing properties. In fiscal 1999, the Registrant expects its rental revenues to continue to grow at a faster rate than its expenses. Under the terms of their leases, retail tenants reimburse the Registrant for the majority of the operating expenses and real estate taxes incurred at the retail properties. Varying occupancy rates affect the amount of reimbursements received by the Registrant. For the past three fiscal years, average occupancy at the retail properties has been 98.5%. Net Income and Funds from Operations For the fiscal year ended October 31, 1998, the Registrant's net income increased $722,000 (24.4%) from $2,963,000 in fiscal 1997 to $3,685,000. Earnings per share increased from $1.90 per share in fiscal 1997 to $2.36 per share in fiscal 1998. Earnings at operating properties increased $1,801,000 (31.5%) to $7,538,000 from $5,733,000 for the prior year. Earnings at same properties increased 5.9% as a result of high, stable occupancy levels, and revenue increases (3.7%) outpacing expense increases (1.4%). Earnings from the Registrant's new retail property in Patchogue, New York and the reopened Franklin Crossing shopping center accounted for the majority of the earnings increases. Funds from Operations ("FFO") increased $900,000 (20.5%) from $4,399,000 ($2.82 per share) in fiscal 1997 to $5,299,000 ($3.40 per share) in fiscal 1998. The Registrant believes that in fiscal 1999 the continued economic strength in the employment markets in which its properties are located should allow the Registrant to realize its current occupancy rates for its apartment properties with a sound support base for its retail properties. The Registrant expects that continued increasing occupancy at Franklin Crossing should generate increased earnings and FFO in fiscal 1999. FFO is a standard measurement of a REIT's performance. It is an indication of a REIT's financial results and its ability to pay dividends. FFO is defined by the Registrant as net income, excluding (i) deferred rents and gains and losses from property sales and (ii) real estate related depreciation and amortization. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles ("GAAP"), and therefore should not be considered a substitute for net income as a measure of results of operations or for cash flow from operations as a measure of liquidity. Additionally, the application and calculation of FFO by certain other REITs may vary materially from that of the Registrant, and therefore the Registrant's FFO and the FFO of other REITs may not be directly comparable. As an example, the definition of FFO adopted by the National Association of Real Estate Investment Trusts ("NAREIT") encourages including the "straight lining" of rents. The Registrant does not incorporate straight line rents in determining FFO which results in lesser amounts of FFO reported by the Registrant than if it used the method of calculation adopted by NAREIT. Fiscal Years ended October 31, 1997 and October 31, 1996 Revenues The Registrant's total revenue increased $281,000 (2.5%) from $11,417,000 in fiscal 1996 to $11,698,000 in fiscal 1997. The Registrant's shopping center in Franklin Lakes, New Jersey was closed and demolished in December 1996. As a practical matter, the shopping center was really closed for the last quarter of fiscal 1996, since the Registrant did not renew leases as they expired. Construction on the new and expanded Franklin Crossing was not completed until August 1997 and did not reopen until the end of fiscal 1997. Rental income would have been greater in fiscal 1996 and fiscal 1997 if the Franklin Lakes shopping center had not been closed. However, the Registrant expects that the new and expanded Franklin Crossing shopping center will provide a more significant contribution to the Registrant's revenues and income than was provided by the previous shopping center. Expenses For the fiscal year ended October 31, 1997, the Registrant's total expenses decreased by $20,000 from $8,743,000 in fiscal 1996 to $8,723,000. The decrease in expenses in fiscal 1997 was mainly a result of certain increased costs in fiscal 1996 incurred during the harsh winter of 1996 such as snow removal costs and utility costs that were not incurred during fiscal 1997. Property taxes are a major component of operating expenses. The Registrant continues to vigorously appeal real estate assessments where appropriate in an effort to assure that its properties are fairly assessed for real estate tax purposes. During the demolition and the construction of the new Franklin Crossing shopping center, various costs were incurred by the Registrant. In accordance with GAAP, the costs relating to construction were capitalized during the period of construction. The effect of capitalizing construction costs is that while the Registrant is experiencing cash outflows with respect to such costs, there is an immaterial effect on the Registrant's fiscal 1997 Statement of Income and Undistributed Earnings with respect to such capitalized costs. Net Income and Funds from Operations For the fiscal year ended October 31, 1997, the Registrant's net income increased $301,000 (11.3%) from $2,662,000 in fiscal 1996 to $2,963,000. Earnings per share for fiscal 1997 was $1.90 as compared to $1.71 for fiscal 1996. FFO increased $231,000 (5.5%) in fiscal 1997 from $4,158,000 ($2.67 per share) in fiscal 1996 to $4,399,000 ($2.82 per share). Earnings at operating properties increased 4.3%. Liquidity and Capital Resources At October 31, 1998, the Registrant's cash and cash equivalents totaled $793,000 as compared to $228,000 at October 31, 1997. At December 31, 1998, cash and cash equivalents totaled $14,942,000. Net cash inflows from the Registrant's operations amounted to $5.1 million in fiscal 1998 as compared to $3.7 million in fiscal 1997 and $3.3 million in fiscal 1996. In fiscal 1997, the Registrant recognized the declining cost trend of fixed rate, long-term financing, and developed a plan to replace its reliance on its short-term, variable rate financing with long-term, fixed rate financing. During fiscal 1998, the Registrant mortgaged a previously debt free property for $11,100,000, and refinanced an existing $5,157,000 mortgage for $10,600,000. The net proceeds from these financings of approximately $16,065,000 were used to repay the then outstanding balance under the Summit Bank line of credit, fund construction costs at Franklin Crossing, and pay the cash portion of the Patchogue acquisition. See "Item 1(a) General Development of Business - Fiscal Year 1998 Developments." In the first quarter of fiscal 1999, the Registrant closed on a series of mortgage financings which yielded net cash proceeds of $12,706,000 to the Registrant. In addition, the Registrant's 40% owned affiliate, Westwood Hills, also completed a mortgage financing in the first quarter of fiscal 1999 which yielded approximately $4,900,000 in net cash proceeds. Approximately $2 million of these proceeds was distributed to the Registrant in accordance with its equity ownership. As a result of the various mortgage financings, and reflecting the reduced collateral available, the Registrant's line of credit from Summit Bank was reduced from $20 million at October 31, 1997, to $12.3 million at October 31, 1998, and to $8 million at November 30, 1998. The Registrant may use this line of credit to finance the acquisition or development of additional properties and for general business purposes. At October 31, 1998 and December 31, 1998, there were no outstanding borrowings under the line of credit as compared to $11.4 million which was outstanding at October 31, 1997. At October 31, 1998, the Registrant's aggregate outstanding mortgage debt was approximately $47.9 million as compared to approximately $24.4 million at October 31, 1997 and approximately $34 million at October 31, 1996. At December 31, 1998, the Registrant's aggregate outstanding mortgage debt was $60.69 million. Cash flow from operations has been sufficient to meet all operational needs of the Registrant. The Registrant anticipates that the cash flow from operations will be more than sufficient to meet the Registrant's increased mortgage obligations. However, to the extent the proceeds from the various financings cannot be redeployed to earn more than the stated interest costs, there will be a negative impact on earnings and cash flow available to pay dividends. The Registrant continues to make capital improvements to, primarily, its apartment properties when it deems such improvements to be necessary or appropriate. The short term impact of such capital outlays will be to depress the Registrant's current cash flow. The Registrant is now experiencing the benefits of these expenditures by preserving the physical integrity of its properties and securing increased rentals. Other than the apartment rehabilitation program described above, the Registrant has made no commitments and has no understandings for any material capital expenditures during fiscal 1999 other than in the ordinary course of business. REIT Distributions to Shareholders Since its inception in 1961, the Registrant has elected to be treated as a REIT for Federal income tax purposes. In order to qualify as a REIT, the Registrant must satisfy a number of highly technical and complex operational requirements including, that it must distribute to its shareholders at least 95% of its REIT taxable income. The Registrant anticipates making distributions to shareholders from operating cash flows, which are expected to increase from future growth in rental revenues. Although cash used to make distributions reduces amounts available for capital investment, the Registrant generally intends to distribute not less than 95% of the Registrant's REIT taxable income in order to satisfy the applicable REIT requirement as set forth in the Code. Cash dividends are paid to shareholders on a quarterly basis. Dividends per share were $2.12, $1.90 and $1.71 in the fiscal years ended October 31, 1998, 1997 and 1996, respectively. Total dividends paid to shareholders during these three fiscal years were $3,306,750, $2,963,597 and $2,667,237, respectively, representing 104.3%, 105.4% and 99.3% of the Registrant's REIT taxable income of $3,171,000, $2,813,000, and $2,686,000, respectively, for each such fiscal year. Although the Registrant receives most of its rental payments on a monthly basis, it has and intends to continue to make regular quarterly dividend payment distributions. The funds accumulated for dividend distributions may be invested by the Registrant in short-term marketable instruments. Inflation The Registrant anticipates that the U.S. Mid-Atlantic states will continue to experience moderate growth with limited inflation. Any sustained inflation may, however, negatively impact the Registrant in at least two areas: (i) the interest costs of any new mortgage financing or the use of the Summit Bank line of credit may be higher than rates currently in effect; and (ii) higher real estate operating costs, especially in those areas where such costs are not chargeable to commercial tenants. Year 2000 Issue The Registrant and Hekemian & Co., which manages the Registrant's developed properties and provides other services to the Registrant, have undertaken a comprehensive assessment of the Registrant's business exposure relative to the Y2K issue. While the Registrant does not own or use any computer systems, the business managed by Hekemian & Co. is dependent on computer hardware, software, systems and processes. Hekemian & Co. has advised the Registrant that all of its major Non-IT systems are Y2K compliant and that it expects that all major IT systems will be compliant before the end of 1999. The Registrant expects that any costs incurred by it to assess the Y2K issue and to remediate any Y2K problems will not have a significant adverse effect on the Registrant's operating results or financial condition. Hekemian & Co. has also contacted the Registrant's tenants and all other critical external entities to determine their exposure to the Y2K issue and how and if such exposure may impact the Registrant's business. To date, no party responding to this inquiry has indicated that it expects its business operations to be significantly affected by the Y2K issue. At this time, the Registrant does not expect that the Y2K issue will have a material adverse effect on its properties, business, operating results, or financial condition. See "Item 1(a) General Development of Business - Fiscal Year 1998 Developments; Year 2000 Issue." ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a result of the Registrant having replaced short-term, variable rate financing with long-term fixed rate financing during fiscal 1998 and the first quarter of fiscal 1999, the Registrant believes that its exposure to market risk relating to interest rate risk is not material. The Registrant's only variable rate financing is the Summit Bank line of credit under which there was no outstanding balance as of December 31, 1998. The Registrant believes that its business operations are not exposed to market risk relating to foreign currency exchange risk, commodity price risk or equity price risk. ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data of the Registrant and of its affiliate, Westwood Hills, are submitted as a separate section of this Annual Report. See "Index to Financial Statements" on page F-1 of this Annual Report. ITEM 9 CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III - -------- Certain information required by Part III is incorporated by reference to the Registrant's definitive proxy statement (the "Proxy Statement") to be filed with the Securities and Exchange Commission no later than 120 days after the end of the Registrant's fiscal year covered by this Annual Report. Only those sections of the Proxy Statement which specifically address the items set forth in this Annual Report are incorporated by reference from the Proxy Statement into this Annual Report. ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT The information concerning the Registrant's trustees required by this item is incorporated herein by reference to the sections titled "Election of Trustees" and "Compliance with Section 16(a) of the Securities Exchange Act" in the Registrant's Proxy Statement for its Annual Meeting to be held in April 1999. The information concerning the Registrant's executive officers required by this item is set forth in Item 4A of Part I of this Annual Report under the caption "Executive Officers of the Registrant." ITEM 11 EXECUTIVE COMPENSATION The information pertaining to executive compensation required by this item is incorporated herein by reference to the section titled "Election of Trustees - Executive Compensation" in the Registrant's Proxy Statement for its Annual Meeting to be held in April 1999. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to the section titled "Security Ownership of Certain Beneficial Owners and Management" in the Registrant's Proxy Statement for its Annual Meeting to be held in April 1999. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated herein by reference to the section titled "Certain Relationships and Related Transactions" in the Registrant's Proxy Statement for its Annual Meeting to be held in April 1999. PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements of Registrant and of Registrant's Affiliate, Westwood Hills: (i) Reports of Independent Public Accountants for Registrant, J.H. Cohn LLP (ii) Balance Sheets as of October 31, 1998 and 1997 (iii) Statements of Income and Undistributed Earnings for the years ended October 31, 1998, 1997 and 1996 for Registrant and Statements of Income and Members' Equity for the years ended October 31, 1998, 1997 and 1996 for Westwood Hills (iv) Statements of Cash Flows for the years ended October 31, 1998, 1997 and 1996 (v) Notes to Financial Statements Financial Statement Schedules: (i) Short-Term Borrowings. (ii) Supplementary Income Statement Information. (iii) Real Estate and Accumulated Depreciation. Exhibits: See Index to Exhibits immediately following the Financial Statements. (b) Reports on Form 8-K: No report on Form 8-K was filed by the Registrant during the last quarter of the fiscal year ended October 31, 1998. (c) Exhibits: See Index to Exhibits. (d) Financial Statement Schedules: See Index to Financial Statements and Financial Statement Schedules. SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. First Real Estate Investment Trust of New Jersey Dated: January 28, 999 By: /s/Robert S. Hekemian --------------------- Robert S. Hekemian, Chairman of the Board and Chief Executive Officer POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert S. Hekemian his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date --------- ----- ---- /s/Robert S. Hekemian Chairman of the Board, Chief January 28, 1999 - --------------------- Executive Officer and Robert S. Hekemian Trustee (Principal Executive Officer) /s/Donald W. Barney Trustee January 28, 1999 - ------------------- Donald W. Barney /s/John B. Voskian Trustee January 28, 1999 - ------------------ John B. Voskian /s/Herbert C. Klein Trustee January 28, 1999 - ------------------- Herbert C. Klein Signature Title Date --------- ----- ---- Trustee January , 1999 - ------------------- Charles J. Dodge Trustee January , 1999 - ------------------------- Nicholas A. Laganella /s/Ronald J. Artinian Trustee January 28, 1999 - --------------------- Ronald J. Artinian /s/Alan L. Aufzien Trustee January 28, 1999 - ------------------- Alan L. Aufzien /s/William R. DeLorenzo, Jr. Executive Secretary and January 28, 1999 - ---------------------------- Treasurer (Principal William R. DeLorenzo, Jr. Financial and Accounting Officer) FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (ITEMS 8 AND 14(a)) PAGE ---- (A) FINANCIAL STATEMENTS OF REGISTRANT: REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2 BALANCE SHEETS OCTOBER 31, 1998 AND 1997 F-3 STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 F-4/5 STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 F-6/7 NOTES TO FINANCIAL STATEMENTS F-8/16 (B) FINANCIAL STATEMENTS OF AFFILIATE: REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-17 BALANCE SHEETS OCTOBER 31, 1998 AND 1997 F-18 STATEMENTS OF INCOME AND MEMBERS' EQUITY YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 F-19 STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 F-20 NOTES TO FINANCIAL STATEMENTS F-21/23 (C) FINANCIAL STATEMENT SCHEDULES: IX - SHORT-TERM BORROWINGS S-1 X - SUPPLEMENTARY INCOME STATEMENT INFORMATION S-1 XI - REAL ESTATE AND ACCUMULATED DEPRECIATION S-2/4 Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto. F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Trustees and Shareholders First Real Estate Investment Trust of New Jersey We have audited the accompanying balance sheets of FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY as of October 31, 1998 and 1997, and the related statements of income and undistributed earnings and cash flows for each of the three years in the period ended October 31, 1998. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Real Estate Investment Trust of New Jersey as of October 31, 1998 and 1997, and its results of operations and cash flows for each of the three years in the period ended October 31, 1998, in conformity with generally accepted accounting principles. Our audits referred to above included the information in Schedules IX, X and XI which present fairly, when read in conjunction with the financial statements, the information required to be set forth therein. /S/J.H. COHN LLP ---------------- J.H. COHN LLP Roseland, New Jersey November 20, 1998 F-2
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY BALANCE SHEETS OCTOBER 31, 1998 AND 1997 ASSETS 1998 1997 ------- ------- (In Thousands of Dollars) Real estate, at cost, net of accumulated depreciation ................ $64,432 $53,737 Equipment, at cost, net of accumulated depreciation of $703,000 and $657,000 ............................................ 190 184 Investment in affiliate .............................................. 1,918 1,905 Cash and cash equivalents ............................................ 793 228 Tenants' security accounts ........................................... 752 719 Note receivable - affiliate .......................................... 100 Sundry receivables ................................................... 728 280 Prepaid expenses and other assets .................................... 1,172 1,470 Deferred charges, net ................................................ 1,190 710 ------- ------- Totals .................................................... $71,275 $59,233 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Mortgages payable ................................................ $47,853 $24,429 Note payable - bank .............................................. 11,429 Accounts payable and accrued expenses ............................ 401 409 Construction liabilities ......................................... 496 Dividends payable ................................................ 1,435 1,326 Tenants' security deposits ....................................... 969 905 Deferred revenue ................................................. 255 255 ------- ------- Total liabilities ......................................... 50,913 39,249 ------- ------- Commitments and contingencies Shareholders' equity: Shares of beneficial interest without par value; 1,790,000 and 1,560,000 shares authorized; 1,559,788 shares issued and outstanding .................................................. 19,314 19,314 Undistributed earnings ........................................... 1,048 670 ------- ------- Total shareholders' equity ................................ 20,362 19,984 ------- ------- Totals .................................................... $71,275 $59,233 ======= =======
See Notes to Financial Statements. F-3
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 INCOME 1998 1997 1996 ----------- ----------- ----------- (In Thousands of Dollars, Except per Share Amounts) Revenue: Rental income .................................. $ 12,450 $ 9,982 $ 9,589 Reimbursements ................................. 1,576 1,433 1,568 Equity in income of affiliate .................. 213 139 92 Sundry income .................................. 193 144 168 ----------- ----------- ----------- Totals ..................................... 14,432 11,698 11,417 ----------- ----------- ----------- Expenses: Operating expenses ............................. 2,989 2,588 2,483 Management fees ................................ 576 495 476 Real estate taxes .............................. 1,758 1,692 1,739 Interest ....................................... 3,762 2,629 2,750 Depreciation ................................... 1,650 1,319 1,295 ----------- ----------- ----------- Totals ..................................... 10,735 8,723 8,743 ----------- ----------- ----------- Income before state income taxes ................... 3,697 2,975 2,674 Provision for state income taxes ................... 12 12 12 ----------- ----------- ----------- Net income ......................................... $ 3,685 $ 2,963 $ 2,662 =========== =========== =========== Basic earnings per share ........................... $ 2.36 $ 1.90 $ 1.71 =========== =========== =========== Basic weighted average shares outstanding .......... 1,559,788 1,559,788 1,559,788 =========== =========== ===========
F-4
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY STATEMENTS OF INCOME AND UNDISTRIBUTED EARNINGS YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 (continued) 1998 1997 1996 ----------- ----------- ----------- (In Thousands of Dollars, Except per Share Amounts) UNDISTRIBUTED EARNINGS Balance, beginning of year ......................... $ 670 $ 670 $ 675 Net income ......................................... 3,685 2,963 2,662 Less dividends ..................................... (3,307) (2,963) (2,667) ----------- ----------- ----------- Balance, end of year ............................... $ 1,048 $ 670 $ 670 =========== =========== =========== Dividends per share ................................ $ 2.12 $ 1.90 $ 1.71 =========== =========== ===========
See Notes to Financial Statements. F-5
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 1998 1997 1996 -------- -------- -------- (In Thousands of Dollars) Operating activities: Net income ................................................... $ 3,685 $ 2,963 $ 2,662 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................ 1,777 1,356 1,333 Equity in income of affiliate ............................ (213) (139) (92) Deferred revenue ......................................... (4) 2 Changes in operating assets and liabilities: Tenants' security accounts ............................ (33) 35 (28) Sundry receivables, prepaid expenses and other assets . (150) (712) (585) Accounts payable and accrued expenses ................. (8) 131 (54) Tenants' security deposits ............................ 64 52 26 -------- -------- -------- Net cash provided by operating activities ......... 5,122 3,682 3,264 -------- -------- -------- Investing activities: Capital expenditures ......................................... (5,347) (7,723) (880) Distributions from affiliate ................................. 200 160 140 Loan to affiliate ............................................ (100) -------- -------- -------- Net cash used in investing activities ............. (5,247) (7,563) (740) -------- -------- -------- Financing activities: Dividends paid ............................................... (3,198) (2,667) (2,792) Proceeds (repayments) of note payable - bank ................. (11,429) 5,767 493 Net proceeds from mortgage refinancing ....................... 5,443 1,314 Proceeds from mortgage borrowings ............................ 11,100 Repayment of mortgages ....................................... (619) (494) (501) Deferred mortgage costs ...................................... (607) -------- -------- -------- Net cash provided by (used in) financing activities 690 3,920 (2,800) -------- -------- -------- Net increase (decrease) in cash and cash equivalents ............. 565 39 (276) Cash and cash equivalents, beginning of year ..................... 228 189 465 -------- -------- -------- Cash and cash equivalents, end of year ........................... $ 793 $ 228 $ 189 ======== ======== ======== Supplemental disclosure of cash flow data: Interest paid, net of capitalized interest of $68,000 in 1998 and $158,000 in 1997 ..................................... $ 3,763 $ 2,589 $ 2,883 ======== ======== ======== Income taxes paid ............................................ $ 12 $ 12 $ 8 ======== ======== ========
F-6 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 Supplemental schedule of noncash investing and financing activities: During 1998, the Trust completed its acquisition of a 64,000 square foot commercial property in Patchogue, New York for approximately $11,000,000, in part, with the proceeds of a $7,500,000 mortgage. Dividends declared but not paid amounted to $1,435,000, $1,326,000 and $1,029,000 in 1998, 1997 and 1996, respectively. Capital expenditures incurred but not paid amounted to $496,000 in 1997. See Notes to Financial Statements. F-7 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 1 - Organization and significant accounting policies: Organization: First Real Estate Investment Trust of New Jersey (the "Trust") was organized November 1, 1961 as a New Jersey Business Trust. The Trust is engaged in owning residential and commercial income producing properties located primarily in New Jersey, Maryland and New York. The Trust has elected to be taxed as a Real Estate Investment Trust under the provisions of Sections 856-860 of the Internal Revenue Code, as amended. Accordingly, the Trust does not pay Federal income tax on income whenever income distributed to shareholders is equal to at least 95% of real estate investment trust taxable income. Further, the Trust pays no Federal income tax on capital gains distributed to shareholders. The Trust is subject to Federal income tax on undistributed taxable income and capital gains. The Trust may make an annual election under Section 858 of the Internal Revenue Code to apply part of the regular dividends paid in each respective subsequent year as a distribution for the immediately preceding year. For fiscal 1998, 1997 and 1996, the Trust made such an election. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Investment in affiliate: The Trust's 40% investment in Westwood Hills, LLC (the "Affiliate") is accounted for using the equity method. Cash and cash equivalents: The Trust maintains its cash in bank deposit accounts which, at times, may exceed Federally insured limits. The Trust considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Depreciation: Real estate and equipment are depreciated on the straight-line method by annual charges to operations calculated to absorb costs of assets over their estimated useful lives. Deferred charges: Deferred charges consist of mortgage costs and leasing commissions. Deferred mortgage costs are amortized on the straight-line method by annual charges to operations over the terms of the mortgages. Amortization of such costs is included in interest expense and approximated $67,000, $40,000 and $85,000 in 1998, 1997 and 1996, respectively. Deferred leasing commissions are amortized on the straight-line method over the terms of the applicable leases. F-8 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 1 - Organization and significant accounting policies (concluded): Revenue recognition: Income from leases is recognized on a straight-line basis regardless of when payment is due. Lease agreements between the Trust and commercial tenants generally provide for additional rentals based on such factors as percentage of tenants' sales in excess of specified volumes, increases in real estate taxes, Consumer Price Indices and common area maintenance charges. These additional rentals are generally included in income when reported to the Trust, when billed to tenants or ratably over the appropriate period. Advertising: The Trust expenses the cost of advertising and promotions as incurred. Advertising costs charged to operations amounted to approximately $73,000, $33,000 and $49,000 in 1998, 1997 and 1996, respectively. Earnings per share: The Trust has presented "basic" earnings per share in the accompanying statements of income in accordance with the provisions of Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS 128"). SFAS 128 also requires the presentation of "diluted" earnings per share if the amount differs from basic earnings per share. Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during each period. The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, such as those issuable upon the exercise of stock options and warrants, were issued during the period. For each of the three years in the period ended October 31, 1998, the Trust had no potentially dilutive common shares. Other recent accounting pronouncements: The Financial Accounting Standards Board has issued certain other pronouncements as of October 31, 1998 that will become effective in subsequent periods; however, management does not believe that any of those pronouncements will effect any financial accounting measurements or disclosures the Trust will be required to make. Reclassifications: Certain amounts in the 1997 and 1996 financial statements have been reclassified to conform with the current presentation. F-9 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 2 - Investment in affiliate: The Trust is a 40% member of the Affiliate, a limited liability company that is managed by Hekemian & Co., Inc. ("Hekemian"), a company which manages all of the Trust's properties and in which one of the trustees of the Trust is the chairman of the board. Certain other members of the Affiliate are either trustees of the Trust or their families or officers of Hekemian. The Affiliate owns a residential apartment complex located in Westwood, New Jersey. Summarized financial information of the Affiliate as of October 31, 1998 and 1997 and for each of the three years in the period ended October 31, 1998 is as follows: 1998 1997 ------- ------- (In Thousands of Dollars) Balance sheet data: Assets: Real estate and equipment, net ... $14,416 $14,696 Other ............................ 976 551 ------- ------- Total assets ............... $15,392 $15,247 ======= ======= Liabilities and equity: Liabilities: Mortgage payable .............. $10,025 $10,192 Other ......................... 576 295 ------- ------- Totals ..................... 10,601 10,487 ------- ------- Members' equity: Trust ......................... 1,918 1,905 Others ........................ 2,873 2,855 ------- ------- Totals ..................... 4,791 4,760 ------- ------- Total liabilities and equity $15,392 $15,247 ======= ======= 1998 1997 1996 ------ ------ ------ (In Thousands of Dollars) Income statement data: Rental revenue ... $2,617 $2,497 $2,360 Rental expenses .. 2,086 2,149 2,130 ------ ------ ------ Net income ....... $ 531 $ 348 $ 230 ====== ====== ====== F-10 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 2 - Investment in affiliate (concluded): At October 31, 1998, the Trust had a $100,000 note receivable from the Affiliate that is due on demand and bears interest at 7%. Interest income was not material for the year ended October 31, 1998. Note 3 - Real estate: Real estate consists of the following:
Range of Estimated Useful Lives 1998 1997 ------------ ------- ------- (In Thousands of Dollars) Land $22,773 $20,244 Unimproved land 2,305 2,310 Apartment buildings 7-40 years 11,013 10,711 Commercial buildings and shopping centers 15-50 years 39,931 30,328 Construction in progress 2,053 2,126 ------- ------- 78,075 65,719 Less accumulated depreciation 13,643 11,982 ------- ------- Totals $64,432 $53,737 ======= =======
Note 4 - Mortgages payable: Mortgages payable consist of the following: 1998 1997 ------- ------- (In Thousands of Dollars) Northern Life Insurance Cos. - Frederick, MD (A) ..... $18,876 $19,123 Travelers Insurance - Westwood, NJ (B) ............... 5,181 National Realty Funding L.C. - Westwood, NJ (B) ...... 10,526 Summit Bank - Springlake, NJ (C) ..................... 29 125 Summit Bank - Patchogue, NY (D) ..................... 7,410 Federal Home Loan Mortgage Corporation - Wayne, NJ (E) 11,012 ------- ------- Totals ...................................... $47,853 $24,429 ======= ======= (A) The mortgage is payable in monthly installments of $152,153 including interest at 8.31% through June 2007 at which time the outstanding balance is due. The mortgage is secured by a shopping center in Frederick, Maryland having a net book value of approximately $24,510,000. F-11 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 4 - Mortgages payable (concluded): (B) On January 9, 1998, the Trust repaid the existing mortgage on the Westwood, New Jersey shopping center utilizing proceeds from a new mortgage in the amount of $10,600,000 with National Realty Funding L.C. The new mortgage is payable in monthly installments of $73,248 including interest at 7.38% through February 2013 at which time the outstanding balance is due. The mortgage is secured by the shopping center in Westwood, New Jersey having a net book value of approximately $11,510,000. (C) Payable in monthly installments of $8,555 including interest at 7.625% through March 1999. The mortgage is secured by an apartment building in Spring Lake, New Jersey having a net book value of approximately $532,000. One of the directors of the bank is a trustee of the Trust (see Note 10). (D) Payable in monthly installments of $54,816 including interest at 7.375% through January 2005 at which time the outstanding balance is due. The mortgage is secured by a commercial building in Patchogue, New York having a net book value of approximately $10,700,000. (E) Payable in monthly installments of $76,023 including interest at 7.29% through July 2010 at which time the outstanding balance is due. The mortgage is secured by an apartment building in Wayne, New Jersey having a net book value of approximately $1,573,000. Principal amounts (in thousands of dollars) due under the above obligations in each of five years subsequent to October 31, 1998 are as follows: Year Ending October 31, Amount ----------- ------ 1999 $630 2000 650 2001 702 2002 759 2003 820 Based on borrowing rates currently available to the Trust, the fair value of the mortgage debt is approximately $50,000,000 at October 31, 1998. F-12 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 5 - Note payable - bank: At October 31, 1997, note payable - bank consisted of borrowings under a revolving line of credit agreement with Summit Bank which expired on April 30, 1998, at which time the agreement was renegotiated and extended to May 31, 1999. Maximum allowable borrowings under the agreement were $12,310,000 and $20,000,000 at October 31, 1998 and 1997, respectively. The line of credit bears interest at the bank's floating base rate plus .25% or the LIBOR rate plus 175 basis points. Outstanding borrowings are secured by all of the Trust's properties except commercial property located in Frederick, Maryland, Westwood, New Jersey and Patchogue, New York, apartment buildings in Wayne, New Jersey, River Edge, New Jersey and Maywood, New Jersey and any vacant land owned by the Trust. There were no outstanding borrowings under the agreement at October 31, 1998. In connection with new financing discussed in Note 10, maximum borrowings under the line of credit agreement were reduced to $8,000,000 effective November 19, 1998. Note 6 - Commitments and contingencies: Leases: Retail tenants: The Trust leases retail space having a net book value of approximately $56,791,000 at October 31, 1998 to tenants for periods of up to twenty years. Most of the leases contain clauses for reimbursement of real estate taxes, maintenance, insurance and certain other operating expenses of the properties. Minimum rental income (in thousands of dollars) to be received from noncancelable operating leases in years subsequent to October 31, 1998 are as follows: Year Ending October 31, Amount ----------- ------ 1999 $ 6,331 2000 6,063 2001 5,904 2002 5,560 2003 5,176 Thereafter 50,039 -------- Total $ 79,073 ======== F-13 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 6 - Commitments and contingencies (concluded): Leases (concluded) Retail tenants (concluded): The above amounts assume that all leases which expire are not renewed and, accordingly, neither minimal rentals nor rentals from replacement tenants are included. Minimum future rentals do not include contingent rentals which may be received under certain leases on the basis of percentage of reported tenants' sales volume or increases in Consumer Price Indices. Contingent rentals included in income for each of the three years in the period ended October 31, 1998 were not material. Residential tenants: Lease terms for residential tenants are usually one year or less. Standby letters of credit: At October 31, 1998, the Trust is obligated under irrevocable standby letters of credit of approximately $60,000 in connection with certain required land improvements at the Franklin Lakes shopping center. Environmental concerns: In accordance with applicable regulations, the Trust reported to the New Jersey Department of Environmental Protection that a historical discharge of hazardous material was recently discovered at the newly renovated Franklin Lakes shopping center (the "Center"). At present, the historical discharge material appears to be isolated and management believes there will be no significant effect on the operations of the Center. In connection therewith, the Trust is required to investigate and monitor such discharge, the cost of which will not be material. Note 7 - Management agreement and related party transactions: The properties owned by the Trust are currently managed by Hekemian. The management agreement requires fees equal to a percentage of rents collected. Such fees were approximately $576,000, $495,000 and $476,000 in 1998, 1997 and 1996, respectively. In addition, Hekemian charged the Trust fees and commissions in connection with the acquisition of the commercial building in Patchogue, New York and various mortgage refinancing and lease acquisition fees. Such fees and commissions amounted to approximately $718,000 in 1998. Note 8 - Basic earnings per share: Basic earnings per share, based on the weighted average number of shares outstanding during each period, are comprised of ordinary income. F-14 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 9 - Equity incentive plan: On September 10, 1998, the Board of Trustees approved the Trust's Equity Incentive Plan (the "Plan") whereby, subject to ratification of the Plan by the Trust's stockholders, up to 230,000 of the Trust's shares of beneficial interest may be granted to key personnel in the form of stock options, restricted share awards and other share-based awards. In connection therewith, the Board of Trustees approved an increase of 230,000 shares in the Trust's number of authorized shares of beneficial interest. Key personnel eligible for these awards include trustees, executive officers and other persons or entities including, without limitation, employees, consultants and employees of consultants, who are in a position to make significant contributions to the success of the Trust. Under the Plan, the exercise price of all options will be the fair market value of the shares on the date of grant. The consideration to be paid for restricted share and other share-based awards shall be determined by the Board of Trustees, with the amount not to exceed the fair market value of the shares on the date of grant. The maximum term of any award granted may not exceed ten years. The actual terms of each award will be determined by the Board of Trustees. In accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), the Trust will recognize compensation costs as a result of the issuance of restricted share and other share-based awards based on the excess, if any, of the fair value of the underlying stock at the date of grant or award (or at an appropriate subsequent measurement date) over the amount the recipient must pay to acquire the stock. Therefore, the Trust will not be required to recognize compensation expense as a result of any grants of stock options, restricted share and other share-based awards at an exercise price that is equivalent to or greater than fair value. The Trust will also make proforma disclosures, as required by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), of net income or loss as if a fair value based method of accounting for stock options had been applied instead if such amounts differ materially from the historical amounts. Note 10- Subsequent events: On November 2, 1998, the Trust closed on a $5,375,000 mortgage with Larson Financial Resources, Inc. The mortgage is payable in monthly installments of $43,711 including interest at 6.75% through December 2013 at which time the outstanding balance is due. The mortgage is secured by an apartment building in River Edge, New Jersey having a net book value of approximately $1,369,000. On November 2, 1998, the Trust also closed on a $3,900,000 mortgage with Larson Financial Resources, Inc. The mortgage is payable in monthly installments of $33,676 including interest at 6.75% through December 2013 at which time the outstanding balance is due. The mortgage is secured by an apartment building in Maywood, New Jersey having a net book value of approximately $949,000. F-15 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY NOTES TO FINANCIAL STATEMENTS Note 10- Subsequent events (concluded): On November 19, 1998, the Trust repaid the outstanding mortgage on the Spring Lake, New Jersey apartment building (approximately $29,000 - see Note 4) utilizing proceeds from a new mortgage in the amount of $3,700,000 with Larson Financial Resources, Inc. The new mortgage is payable in monthly installments of $29,863 including interest at 6.70% through December 2013 at which time the outstanding balance is due. Principal amounts (in thousands of dollars) due under the above obligations in each of the five years subsequent to October 31, 1998 are as follows: Year Ending October 31, Amount ----------- ------ 1999 $115 2000 147 2001 157 2002 168 2003 179 * * * F-16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Members Westwood Hills, LLC We have audited the accompanying balance sheets of WESTWOOD HILLS, LLC as of October 31, 1998 and 1997, and the related statements of income and members' equity and cash flows for each of the three years in the period ended October 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Westwood Hills, LLC as of October 31, 1998 and 1997, and its results of operations and cash flows for each of the three years in the period ended October 31, 1998, in conformity with generally accepted accounting principles. /S/J.H. COHN LLP ---------------- J.H. COHN LLP Roseland, New Jersey November 18, 1998 F-17
WESTWOOD HILLS, LLC (A New Jersey Limited Liability Company) BALANCE SHEETS OCTOBER 31, 1998 AND 1997 ASSETS 1998 1997 ------- ------- (In Thousands of Dollars) Real estate, at cost, net of accumulated depreciation of $1,362,000 and $1,044,000 .................................................. $14,330 $14,611 Equipment, at cost, net of accumulated depreciation of $37,000 and $22,000 ..................................................... 86 85 Cash ................................................................. 51 107 Tenants' security accounts ........................................... 284 256 Prepaid expenses and other assets .................................... 106 112 Refundable deposit ................................................... 465 Deferred charges, net ................................................ 70 76 ------- ------- Totals ...................................................... $15,392 $15,247 ======= ======= LIABILITIES AND MEMBERS' EQUITY Liabilities: Mortgage payable ................................................ $10,025 $10,192 Notes payable - related parties ................................. 250 Accounts payable and accrued expenses ........................... 41 27 Tenants' security deposits ...................................... 285 268 ------- ------- Total liabilities ........................................... 10,601 10,487 Members' equity ...................................................... 4,791 4,760 ------- ------- Totals ...................................................... $15,392 $15,247 ======= =======
See Notes to Financial Statements. F-18
WESTWOOD HILLS, LLC (A New Jersey Limited Liability Company) STATEMENTS OF INCOME AND MEMBERS' EQUITY YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 INCOME 1998 1997 1996 ------- ------- ------- (In Thousands of Dollars) Revenue: Rental income .................................... $ 2,592 $ 2,479 $ 2,343 Sundry income .................................... 25 18 17 ------- ------- ------- Totals ....................................... 2,617 2,497 2,360 ------- ------- ------- Expenses: Operating expenses ............................... 508 546 547 Management fees .................................. 131 123 105 Real estate taxes ................................ 292 352 350 Interest ......................................... 822 802 813 Depreciation ..................................... 333 326 315 ------- ------- ------- Totals ....................................... 2,086 2,149 2,130 ------- ------- ------- Net income ............................................ 531 348 230 MEMBERS' EQUITY Balance, beginning of year ............................ 4,760 4,812 4,931 Less distributions .................................... (500) (400) (349) ------- ------- ------- Balance, end of year .................................. $ 4,791 $ 4,760 $ 4,812 ======= ======= =======
See Notes to Financial Statements. F-19
WESTWOOD HILLS, LLC (A New Jersey Limited Liability Company) STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 1998, 1997 AND 1996 1998 1997 1996 ----- ----- ----- (In Thousands of Dollars) Operating activities: Net income ................................................ $ 531 $ 348 $ 230 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ......................... 363 358 349 Changes in operating assets and liabilities: Tenants' security accounts ....................... (28) (11) (24) Prepaid expenses and other assets ................ 6 25 (11) Accounts payable and accrued expenses ............ 14 (42) 40 Tenants' security deposits ....................... 17 23 24 ----- ----- ----- Net cash provided by operating activities .... 903 701 608 ----- ----- ----- Investing activities - capital expenditures .................... (51) (94) (131) ----- ----- ----- Financing activities: Distributions paid ........................................ (500) (400) (349) Proceeds from notes payable - related parties ............. 250 Repayment of mortgage ..................................... (167) (154) (142) Deferred mortgage costs ................................... (26) Refundable deposit ........................................ (465) ----- ----- ----- Net cash used in financing activities ........ (908) (554) (491) ----- ----- ----- Net increase (decrease) in cash ................................ (56) 53 (14) Cash, beginning of year ........................................ 107 54 68 ----- ----- ----- Cash, end of year .............................................. $ 51 $ 107 $ 54 ===== ===== ===== Supplemental disclosure of cash flow data: Interest paid ............................................. $ 822 $ 802 $ 813 ===== ===== =====
See Notes to Financial Statements. F-20 WESTWOOD HILLS, LLC (A New Jersey Limited Liability Company) NOTES TO FINANCIAL STATEMENTS Note 1 - Organization and significant accounting policies: Organization: Westwood Hills, LLC (the "Company") was formed in May 1994 as a New Jersey limited liability company for the purpose of acquiring a residential apartment complex in Westwood, New Jersey. The Company is 40%-owned by First Real Estate Investment Trust of New Jersey (the "Trust") and managed by Hekemian & Co., Inc. ("Hekemian"), a company which manages all of the Trust's properties and in which one of the trustees of the Trust is the chairman of the board. Certain other members of the Company are either trustees of the Trust or their families or officers of Hekemian. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Cash: The Company maintains its cash in bank deposit accounts which, at times, may exceed Federally insured limits. The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. At October 31, 1998 and 1997, the Company had no cash equivalents. Depreciation: Real estate and equipment are depreciated on the straight-line method by annual charges to operations calculated to absorb costs of assets over their estimated useful lives ranging from 7 to 40 years. Deferred charges: Deferred charges consist of mortgage costs which are amortized on the straight-line method by annual charges to operations over the term of the mortgage. Advertising: The Company expenses the cost of advertising and promotions as incurred. Advertising costs charged to operations were not material. Income taxes: The Company, with the consent of its members, elected to be treated as a limited liability company under the applicable sections of the Internal Revenue Code. Under these sections, income or loss, in general, is allocated to the members for inclusion in their individual income tax returns. Accordingly, there is no provision for income taxes in the accompanying financial statements. F-21 WESTWOOD HILLS, LLC (A New Jersey Limited Liability Company) NOTES TO FINANCIAL STATEMENTS Note 2 - Real estate: Real estate consists of the following: 1998 1997 ------- ------- (In Thousands of Dollars) Land ........................ $ 3,849 $ 3,849 Apartment buildings ......... 11,843 11,806 ------- ------- 15,692 15,655 Less accumulated depreciation 1,362 1,044 ------- ------- Totals ................. $14,330 $14,611 ======= ======= Note 3 - Mortgage payable: The mortgage is payable in monthly installments of $79,655 including interest at 7.8% through October 2002 at which time the outstanding balance is due (see Note 6). The mortgage is secured by the apartment complex. Principal amounts (in thousands of dollars) due under the above obligation in each of the years subsequent to October 31, 1998 are as follows: Year Ending October 31, Amount ----------- ------ 1999 $ 180 2000 195 2001 211 2002 9,439 Based on borrowing rates currently available to the Company, the fair value of the mortgage approximates $10,400,000 at October 31, 1998. Note 4 - Notes payable - related parties: At October 31, 1998, the Company had outstanding notes payable to the Trust and an affiliated partnership owned by the Hekemians totaling $100,000 and $150,000, respectively. The notes are due on demand and bear interest at 7%. Interest on such borrowings was not material for the year ended October 31, 1998. F-22 WESTWOOD HILLS, LLC (A New Jersey Limited Liability Company) NOTES TO FINANCIAL STATEMENTS Note 5 - Management agreement: The apartment complex is currently managed by Hekemian. The management agreement requires fees equal to a percentage of rents collected. Such fees were approximately $131,000, $123,000 and $105,000 in 1998, 1997 and 1996, respectively. Note 6 - Subsequent event: On November 20, 1998, the Company entered into an agreement with Larson Financial Resources, Inc. ("Larson") to refinance its existing mortgage with a new mortgage in the amount of $15,500,000. The new mortgage will bear interest at 6.693% and be payable in monthly installments of principal and interest through January 2014 at which time the outstanding balance will be due. Closing of the loan is expected to take place on or before December 4, 1998. In connection therewith, prior to October 31, 1998, the Company was required to post a refundable deposit in the amount of $465,000 with Larson. * * * F-23
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY SCHEDULE IX - SHORT-TERM BORROWINGS (In Thousands of Dollars) Column A Column B Column C Column D Column E Column F -------- -------- -------- -------- -------- -------- Maximum Average Amount Amount Weighted Out- Out- Average Category of Balance Weighted standing standing Interest Aggregate at Average During During Rate Short-Term End of Interest the the During the Borrowings (A) Period Rate Period Period Period (B) -------------- ------ ---- ------ ------ ---------- 1998: Note payable - bank $ -- --% $12,755 $ 1,860 7.875% ======== ==== ======= ======== ===== 1997: Note payable - bank $ 11,429 7.75% $11,429 $ 7,703 7.7% ======== ==== ======= ======== ===== 1996: Note payable - bank $ 5,662 7.98% $ 6,362 $ 5,683 8.2% ======== ==== ======= ======== =====
(A) See Note 5 of notes to financial statements. (B) Calculated using average monthly loan balances and actual interest expense. SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION (In Thousands of Dollars) Column A Column B -------- -------- Charged to Costs and Expenses ------------------------------------------ Item (A) 1998 1997 1996 Maintenance and repairs ....... $ 373 $ 269 $ 252 ====== ====== ====== Real estate taxes ............. $1,758 $1,691 $1,739 ====== ====== ====== - ------------ (A) Amounts for other items were less than 1% of revenue in all years. S-1 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION (In Thousands of Dollars) Reconciliation of real estate and accumulated depreciation:
1998 1997 1996 -------- -------- -------- Real estate: Balance, beginning of year .................... $ 65,719 $ 57,879 $ 57,035 Additions: Building and improvements ................. 12,363 8,002 824 Carrying costs ............................ (7) (162) 20 -------- -------- -------- Balance, end of year .......................... $ 78,075 $ 65,719 $ 57,879 ======== ======== ======== Accumulated depreciation: Balance, beginning of year .................... $ 11,982 $ 11,043 $ 9,780 Additions - charged to operating expenses ..... 1,661 1,277 1,263 Deletions ..................................... (338) -------- -------- -------- Balance, end of year .......................... $ 13,643 $ 11,982 $ 11,043 ======== ======== ========
S-2
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY SCHEDULE XI - REAL ESTATE AND ACCUMULATED DEPRECIATION OCTOBER 31, 1998 (In Thousands of Dollars) Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Costs Capitalized Initial Cost Subsequent Gross Amount at Which to Company to Acquisition Carried at Close of Period --------------------- ------------------------ ------------------------------ Buildings Buildings Encum- and Improve- Carrying and Description brances Land Improvements Land ments Costs Land Improvements Total(1) ----------- ------- ---- ------------ ---- ----- ----- ---- ------------ -------- Garden apartments: Sheridan Apts., Camden, NJ $ 117 $ 360 $ 938 $ 117 $ 1,298 $ 1,415 Grandview Apts., Hasbrouck Heights, NJ 22 180 197 22 377 399 Lakewood Apts., Lakewood, NJ 11 396 209 11 605 616 Hammel Gardens, Maywood, NJ 313 728 668 313 1,396 1,709 Palisades Manor, Palisades Park, NJ 12 81 85 12 166 178 Steuben Arms, River Edge, NJ 364 1,773 395 364 2,168 2,532 Heights Manor, Spring Lake Heights, NJ $ 29 109 974 337 109 1,311 1,420 Berdan Court, Wayne, NJ 11,012 250 2,206 1,486 250 3,692 3,942 Retail properties: Franklin Lakes Shopping Center, Franklin Lakes, NJ 29 $3,382 6,704 3,411 6,704 10,115 Glen Rock, NJ 12 36 22 12 58 70 Patchogue Shopping Center, Patchogue, NY 7,410 2,128 8,818 2,128 8,818 10,946 Westridge Shopping Center, Frederick, MD 18,876 9,135 19,159 338 9,135 19,497 28,632 Westwood Shopping Center, Westwood, NJ 10,526 6,889 6,416 491 6,889 6,907 13,796 Vacant land: Franklin Lakes, NJ 224 (168) 56 56 Rockaway, NJ 1,683 $394 2,077 2,077 South Brunswick, NJ 80 92 172 172 ------- ------- ------- ------ ------- ---- ------- ------- ------- Totals $47,853 $21,378 $41,127 $3,214 $11,870 $486 $25,078 $52,997 $78,075 ======= ======= ======= ====== ======= ==== ======= ======= =======
S-3
Column F Column G Column H Column I -------- -------- -------- -------- Life on Which De- Accumulated Date of Date preciation Depreciation Construction Acquired is Computed ------------ ------------ -------- ----------- Garden apartments: Sheridan Apts., Camden, NJ $ 767 1950 1964 7-40 years Grandview Apts., Hasbrouck Heights, NJ 252 1925 1964 7-40 years Lakewood Apts., Lakewood, NJ 444 1960 1962 7-40 years Hammel Gardens, Maywood, NJ 773 1949 1972 7-40 years Palisades Manor, Palisades Park, NJ 117 1935/70 1962 7-40 years Steuben Arms, River Edge, NJ 1,207 1966 1975 7-40 years Heights Manor, Spring Lake Heights, NJ 888 1967 1971 7-40 years Berdan Court, Wayne, NJ 2,369 1964 1965 7-40 years Retail properties: Franklin Lakes Shopping Center, Franklin Lakes, NJ 126 1963/75/97 1966 10-50 years Glen Rock, NJ 46 1940 1962 10-31.5 years Patchogue Shopping Center, Patchogue, NY 246 1997 1997 39 years Westridge Shopping Center, Frederick, MD 4,122 1986 1992 15-31.5 years Westwood Shopping Center, Westwood, NJ 2,286 1981 1988 15-31.5 years Vacant land: Franklin Lakes, NJ 1966/93 Rockaway, NJ 1964/92/93 South Brunswick, NJ 1964 ------- Totals $13,643 =======
(1) Aggregate cost is the same for Federal income tax purposes. S-4 FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY EXHIBIT INDEX Exhibit No. Exhibit *3 Amended and Restated Declaration of Trust of First Real Estate Investment Trust of New Jersey, dated November 7, 1993, as amended on May 31, 1994 and on September 10, 1998. 4 Form of Specimen Share Certificate, Beneficial Interest in First Real Estate Investment Trust of New Jersey. 10 Management Agreement, dated December 20, 1961, by and between the Registrant and Hekemian & Co., as amended. 24 Power of Attorney (filed with signature pages). 27 Financial Data Schedule. * Incorporated by reference to Exhibit No. 1 to Registrant's Registration Statement on Form 8-A filed with the Securities and Exchange Commission on November 6, 1998. E-1 EX-4 2 [GRAPHIC-STOCK CERTIFICATE OF FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY] FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY CUSIP 336142 10 4 CREATED IN NEW JERSEY BY A DECLARATION OF TRUST SEE REVERSE FOR CERTAIN DEFINITIONS THIS Certifies that is the owner of FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST, NO PAR VALUE, OF FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY transferable on the books of the Trust by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are issued and shall be held subject to all of the provisions specified in the Declaration of Trust and any amendments thereto, to all of which the hereby holder, by acceptance hereof, assents. Under the terms of the Declaration of Trust, the Trust may refuse to transfer shares if such transfer may endanger the qualification of the Trust as a Real Estate Investment Trust, pursuant to Section 856 et seq. of the Internal Revenue Code of 1986, as amended. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the seal of the Trust and the signature of its duly authorized officers. Dated: [GRAPHIC-SEAL] FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY 1961 /s/ /s/ - ------------------- --------------------- Treasurer Chairman of the Board Countersigned and Registered: REGISTRAR AND TRANSFER COMPANY (New Jersey) Transfer Agent and Registrar, Authorized Signature FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - _________ Custodian __________ (Cust) (Minor) under Uniform Gifts to Minors Act __________________________ (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, _______________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ________________________________________________________________________________ ________________________________________________________________________________ Please print or typewrite name and address including postal zip code of assignee ________________________________________________________________________________ ________________________________________________________________________________ ______________________________________________________________ Shares ________ of Beneficial Interest represented by the within certificate, and do hereby irrevocably constitute and appoint _____________________________________________ ________________________________________________________________________________ Attorney to transfer the said shares on the books of the within-named Trust with power of substitution in the premises. Dated, ________________________________ _________________________________________ NOTICE: The signature to this assignment must correspond with the name as written upon the face of the cerficate, in every particular, without alteration or enlargement, or any change whatever. EX-10 3 THIS AGREEMENT, made this 20th day of December, 1961, between THE FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, (an unincorporated Trust), having offices at #477 Main Street, Hackensack, New Jersey, hereinafter referred to as the "Trust", and S. HEKEMIAN & CO., INC. (now Hekemian & Co., Inc), a New Jersey Corporation, having offices at #477 Main Street, Hackensack, New Jersey, hereinafter referred to as the "Managing Agent"; W I T N E S S E T H: WHEREAS, the Trust is about to engage in the business of investing in improved and unimproved real estate and real estate mortgages and other investments and will require and desires to retain the services of the Managing Agent; NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, IT IS UNDERSTOOD AND AGREED, as follows: 1. The Trust hereby retains and hires the Managing Agent as its sole and exclusive agent to generally manage and service all of its real estate properties and mortgages, and agrees during the term of this Agreement to purchase, sell, exchange, rent, lease, operate, maintain and service said investments only through and by the Managing Agent. 2. The Managing Agent agrees to undertake said hiring and in connection therewith and not in limitation or restriction thereof specifically agrees to undertake the following: (a) Seek out and recommend to the Trust investments suitable for the Trust. (b) At the request of the Trust to investigate any investments that the Trust may contemplate making and report thereon to the Trust. (c) To rent or lease, on terms acceptable to the Trust, the properties owned by the Trust. (d) To collect and receive all rents, mortgage payments, interest and all other income from real estate to which the Trust is entitled, and to account monthly to the Trust therefor. Managing Agent shall use its best effort to collect rent and other income from real estate interests of the Trust. It may in it discretion compromise claims for such rent and other income and may institute legal proceedings in its own name or in the name of the Trust to collect same, to oust or dispossess tenants or others occupying said real estate interests and otherwise to enforce the rights of the Trust with respect thereto. Managing Agent may in its discretion compromise or settle such proceedings. The foregoing authority to enforce the collection of rents and to compromise or settle said proceedings except in emergencies is subject to the prior approval of the Trustees. (e) To employ and supervise all labor and to purchase and contract for all materials, supplies and services required for the operation and ordinary maintenance, alteration, improvement and repair of the Trust properties. Except in those cases when, in the opinion of the Managing Agent, an emergency necessitates so doing before the Trust approval can be reasonably obtained, the Managing Agent shall not make or incur extraordinary repairs, alterations or improvements or expenditures without approval of the Trust, and may, in connection with such extraordinary repairs, alterations or improvements, hire or use its employee or employees to coordinate and expedite said work in addition to general contractors, sub-contractors and architects as it may deem necessary, in which case the salary or compensation of said employee or employees attributable to the said work shall be chargeable to the Trust. (f) To periodically inspect all of the Trust properties and make such recommendations for the maintenance and improvement thereof as it deems advisable. (g) From time to time to retain and cooperate with such accountants, architects, engineers, contractors, attorneys, and others, as it deems necessary for the proper operation, maintenance and preservation of the Trust properties and Trust affairs. -2- (h) To purchase such insurance of every nature as it deems advisable to protect the real estate interest of the Trust, including but not limited to fire insurance with extended coverage, boiler, elevator, public liability, and workman's compensation insurance. The Trust shall be named as a party in interest in such policies of insurance and the policies or certificates of insurance shall be delivered to the Trust. Managing Agent may receive from others and retains its customary compensation for its services as an insurance agent or broker in placing such insurance. (i) To check and present to the Trust for timely payment, all payments due for taxes, insurance, mortgage payments and all other obligations incurred in connection with the operation, maintenance, alteration, improvement and repair of Trust properties. (j) In its discretion, to defend against and seek revision of, or appeal from, any assessment or charge which it deems improper. All such actions may be taken in the name of the Trust or in Managing Agent's name, in the discretion of the Managing Agent. Managing Agent may, if it deems advisable, employ independent real estate experts for appraisals and testimony in connection with such actions. Managing Agent may also, in its discretion, pay any such charges or assessments under protest and seek refunds thereof, and compromise or settle any proceeding or claim with respect thereto. Except in emergencies the foregoing authority is to be exercised subject to the prior approval of the Trustees. (k) To service all mortgages owned by the Trust. (l) To sell such of the real estate properties as the Trust may, from time to time, decide to dispose of. To recommend the sale and disposition of Trust properties as and when it may deem advisable. (m) To submit periodic and such special reports as the Trust may require and request as to the properties managed by the Managing Agent. -3- (n) To maintain complete and accurate records of all its transactions relating to real estate interests of the Trust and make such records available for inspection by the Trust or its representatives at reasonable times. (o) To act as real estate consultant and adviser for the Trust. (p) To perform such other incidental duties in connection with the proper operation, maintenance and improvement of the real estate properties of the Trust as the Trust may reasonably require and request. 3. The Trust hereby gives the Managing Agent the power and authority necessary to perform the foregoing services and agrees to assume the expenses and disbursements incurred in connection therewith, and agrees to indemnify and save harmless the Managing Agent from contractual or other liability claims, or other damages in the performance of its duties hereunder to the extent that such liability is not covered by insurance, and to the extent that it does not arise by reason of the Managing Agent's gross negligence, willful misconduct or actions committed by it in violation of or beyond the scope of this Agreement, and to carry, at its own expense, public liability, elevator liability, and steam boiler insurance adequate to protect the interests of the parties hereto, which policies shall be so written as to protect the Managing Agent in the same manner and to the same extent as the Trust. The Managing Agent agrees to indemnify and save the Trust harmless from any claims or liability to the extent that such liability is not covered by insurance and was incurred by reason of the Managing Agent's gross negligence, willful misconduct or actions committed by it in violation or beyond the scope of this Agreement. The Managing Agent shall be entitled to advice of counsel for the Trust with respect to any actions undertaken by it or proposed to be undertaken by it under the terms of this Agreement, and shall not be liable for any action undertaken or omitted in good faith on the advice of such counsel. 4. In consideration of the foregoing services to be performed by the Managing Agent, the Trust agrees to pay to the Managing Agent, the customary monthly management, rental and sales commissions and fees in the manner and according to the recommended schedule of commissions as adopted by the Bergen County Board of -4- Realtors, or as set forth in a comparable schedule adopted by a corresponding Board of Realtors of the area in which the property affected is situate. Said commission may be reduced in such amount as may be agreed upon between the Trust and the Managing Agent as to be fair and reasonable in any transaction where its size, nature or other factors, would, in the option of the Trustees result in excessive compensation. Any services rendered to the Trust for which a rate is not specified in the applicable schedule will be compensated at the prevailing rates, or if there is not prevailing rate, then at such rate as may be agreed upon as fair and reasonable. In the case of purchases through the Managing Agent where it is to the best interest of the Trust to negotiate the purchase through a cooperating broker or on the basis of a net purchase without compensation payable by the Seller or at a commission payable by the Seller to the Managing Agent at a rate less than the aforesaid applicable rates, the Trust agrees to pay to the Managing Agent and the Managing Agent agrees to accept such fair and reasonable compensation as to be agreed upon between the Trust and the Managing Agent for the Managing Agent's services in connection with said purchases. The Managing Agent will receive no separate compensation from the Trust for its advisory services, or for its services in acquiring mortgages or in arranging financing. It may, however, receive and retain compensation from mortgagees or others interested in such financing, and in connection with insurance, it will retain commissions from insurance companies on the placing of insurance on trust properties. 5. At the termination or expiration of this Agreement, the Trust shall pay to the Managing Agent, any deferred brokerage commissions which otherwise would have become payable subsequent to said termination or expiration and brokerage commissions on acquisitions or dispositions of properties by the Trust with respect to which negotiations are pending at the time of such termination or expiration if and when such negotiations result in an acquisition or disposition. 6. Managing Agent shall not make any claim under this Agreement against the Trustees personally, or against the Beneficiaries of the Trust, and shall look solely to the property of the Trust for the payment of any claim hereunder. -5- 7. Managing Agent shall insert in all documents and agreements prepared or executed by it on behalf of the Trust a provision that the Trustees and the Beneficiaries shall not be personally liable thereunder and that the other parties shall look solely to the property of the Trust for the payment of any claim thereunder, and reference shall be made to the Declaration of Trust by which the Trust is constituted. 8. Managing Agent shall not, during the term of this Agreement, acquire for its own account any real estate interest unless it shall have first offered to the Trust the opportunity of making such acquisition on the same terms and conditions. 9. The Trust agrees to refer to the Managing Agent all inquiries received by it with reference to the rental or sale of all of its real estate properties and all real estate properties offered to the Trust for purchase, and the Managing Agent agrees to investigate, report and recommend to the Trust thereon. 10. The Trust hereby authorizes the Managing Agent to affix on its properties, appropriate sign or signs indicating, as the case may be, that same are for sale, for rent, build to suit, or managed by the Managing Agent. 11. The Trust has entered into this Agreement in reliance upon the experience and ability of Managing Agent, and Managing Agent shall not assign or transfer this Agreement. Nothing herein contained, however, shall preclude the assignment or transfer of this Agreement in connection with a reorganization or merger of Managing Agent, nor the assignment by Managing Agent or any of its duties of management under this Agreement to a wholly-owned subsidiary. 12. In the event that the terms of this Agreement at any time shall impair the status of the Trust as a "real estate investment trust" within the meaning of the Amendment to the Internal Revenue Code of 1954 #856 et seq., which became effective January 9, 1961, as now enacted or hereafter amended, the parties hereto agree to negotiate such amendments to this Agreement as may be necessary to restore or maintain such status. If for any reason other than the terms of this Agreement, the Managing Agent shall at any time during the terms of this Agreement not be an "independent contractor" within the meaning of such provisions of the Internal Revenue Code, the -6- Managing Agent shall take such steps as may be necessary to be an "independent contractor". 13. This Agreement shall be for a term of fifteen years and may be terminated at the expiration of the term by not less than one year prior written notice by either party to the other. In default of such notice, this Agreement shall continue for successive terms of two years on the same terms and conditions, until terminated by notice in writing of either party to the other not less than one year prior to the expiration of the then current term. In the event that the Trust shall terminate during the term of this Agreement, this Agreement shall terminate at such time as the liquidation and distribution of the assets of the Trust has been substantially completed. 14. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their successors and assigns. -7- IN WITNESS WHEREOF, the parties hereto have caused these presents to be signed by their proper respective officers and caused their proper respective seals to be hereunto affixed, the day and year first above written. THE FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY By: /s/Wilton T. Barney ----------------------- Wilton T. Barney, President ATTEST: /s/Jack Charshafian ---------------------------- Jack Charshafian, Secretary S. HEKEMIAN & CO., INC. By: /s/Samuel Hekemian, Jr. ----------------------- Samuel Hekemian, Jr., President ATTEST: /s/Robert Hekemian -------------------------- Robert Hekemian, Sec'y. -8- This amendment made this 8th day of May, 1963 to an agreement made the 20th day of December 1961, between the first Real Estate Investment Trust of New Jersey, a business Trust having offices at 477 Main Street, Hackensack, New Jersey, hereinafter referred to as the "Trust", and S. Hekemian and Co., Inc., (now Hekemian & Co., Inc.), a New Jersey corporation having offices at 477 Main Street, Hackensack, New Jersey, hereinafter referred to as the "Managing Agent". There shall be added to the agreement the following provision: 15. Upon default under any regulatory agreement with the Federal Housing agreement with the Federal Housing Commissioner, which agreement is executed in connection with an F.H.A. insured mortgage loan, and upon request from the Commissioner, this agreement may be terminated as to the property covered by such regulatory agreement upon thirty days written notice. IN WITNESS WHEREOF, the parties hereto have caused these presents to be signed by their proper officers and cause their proper seals to be hereunto affixed, the day and year first above written. FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY BY:/s/Wilton T. Barney ---------------------- Wilton T. Barney, President ATTEST: /s/Jack Charshafian - ------------------- Jack Charshafian, Secretary S. HEKEMIAN & CO., INC. BY:/s/Samuel Hekemian, Jr. -------------------------- Samuel Hekemian, Jr., President ATTEST: /s/Robert Hekemian - ------------------ Robert Hekemian, Secretary -9- RE: R.E.I.T. - S. HEKEMIAN & CO., INC. MANAGEMENT AGREEMENT: Paragraph 4 of the Management Agreement provides for compensation to be paid to S. Hekemian & Co., Inc. for its services "the customary monthly management, rental and sales commissions and fees in the manner and according to the recommended schedule of commissions as adopted by the Bergen County Board of Realtors, or as set forth in a comparable schedule adopted by a corresponding Board of Realtors of the area in which the property affected is situate." "Said commission may be reduced in such amount as may be agreed upon between the Trust and the Managing Agent as to be fair and reasonable in any transaction which its size, nature or other factors, would, in the option of the Trustees, result in excessive compensation." If there is no schedule of charges approved by the Real Estate Board then fair and reasonable compensation is to be negotiated. In the case of purchase of properties where there is a cooperative broker and therefore the compensation to the Managing Agent would be reduced, a fair and reasonable negotiated fee is to be agreed upon. Therefore, from the above it would appear that it was contemplated and agreed that the Agent is entitled to management and leasing fees based upon approved Real Estate Board rates. (Attached to Page 5) -10- EX-27 4
5 12-MOS OCT-31-1998 OCT-31-1998 793,000 0 728,000 0 0 0 78,968,000 (14,346,000) 71,275,000 0 47,853,000 0 0 19,314,000 1,048,000 71,275,000 0 14,432,000 0 0 10,735,000 0 0 3,697,000 12,000 0 0 0 0 3,685,000 2.36 2.36
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