UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the fiscal year
ended October 31, 2001
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. 1-12803
URSTADT BIDDLE PROPERTIES INC.
(Exact name of registrant as specified in its charter)
MARYLAND 04-2458042
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(State of Incorporation) (I.R.S. Employer
Identification No.)
321 RAILROAD AVENUE
GREENWICH, CONNECTICUT 06830
---------------------- ---------------
(Address of Principal Executive Offices) (Zip code)
Registrant's telephone number, including area code: (203) 863-8200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
Common Stock, par value $.01 per share New York Stock Exchange
Class A Common Stock, par value $.01 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
Indicate 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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of January 9, 2002: Common Shares, par value $.01 per share -
$32,492,216; Class A Common Shares, par value $.01 per share - $96,964,424.
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock and Class A Common Stock, as of January 9, 2002 (latest
date practicable): 6,352,513 Common Shares, par value $.01 per share, and
10,367,423 Class A Common Shares, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Stockholders to be held on March 13,
2002 (certain parts as indicated herein) (Part III).
1
TABLE OF CONTENTS
Form 10-K
Item No. Report Page
PART I
1. Business 3
2. Properties 8
3. Legal Proceedings 10
4. Submission of Matters to a Vote of Security Holders 10
PART II
5. Market for the Registrant's Common Equity
and Related Shareholder Matters 10
6. Selected Financial Data 13
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
7.A Quantitative and Qualitative Disclosures about Market Risk 17
8. Financial Statements and Supplementary Data 17
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 17
PART III
10. Directors and Executive Officers of the Registrant 18
11. Executive Compensation 18
12. Security Ownership of Certain Beneficial Owners and Management 18
13. Certain Relationships and Related Transactions 19
PART IV
14. Exhibits, Financial Statements, Schedules
and Reports on Form 8-K 19
2
PART I
Forward-Looking Statements
This Annual Report on Form 10-K, together with other statements and information
publicly disseminated by Urstadt Biddle Properties Inc. (the "Registrant" or the
"Company"), contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such statements are based on assumptions and expectations
which may not be realized and are inherently subject to risks, uncertainties and
other factors, many of which cannot be predicted with accuracy and some of which
might not even be anticipated. Future events and actual results, performance or
achievements, financial and otherwise, many differ materially from the results,
performance or achievements expressed or implied by the forward-looking
statements. Risk, uncertainties and other factors that might cause such
differences, some of which could be material, include, but are not limited to
economic and other market conditions; financing risks, such as the inability to
obtain debt or equity financing on favorable terms; the level and volatility of
interest rates; financial stability of tenants; the inability of the Company's
properties to generate revenue increases to offset expense increases;
governmental approvals, actions and initiatives; environmental/safety
requirements; risks of real estate acquisitions (including the failure of
acquisitions to close); risks of disposition strategies; as well as other risks
identified in this Annual Report on Form 10-K and in the other reports filed by
the Company with the SEC or otherwise publicly disseminated by the Company.
Item 1. Business.
Organization
Urstadt Biddle Properties Inc., a Maryland Corporation, (the "Company"), is a
real estate investment trust engaged in the acquisition, ownership and
management of commercial real estate. The Company was organized as an
unincorporated business trust under the laws of the Commonwealth of
Massachusetts on July 7, 1969. In 1997, the shareholders of HRE Properties (the
"Trust") approved a plan of reorganization of the Trust from a Massachusetts
business trust to a corporation organized in Maryland. The plan of
reorganization was effected by means of a merger of the Trust into the Company.
As a result of the plan of reorganization, the Trust was merged with and into
the Company, the separate existence of the Trust ceased, the Company was the
surviving entity in the merger and each issued and outstanding common share of
beneficial interest of the Trust was converted into one share of Common Stock,
par value $.01 per share, of the Company. In 1998, the stockholders of the
Company approved an amendment to the Company's articles of incorporation to
change the name of the Company from HRE Properties, Inc. to Urstadt Biddle
Properties Inc.
Tax Status - Qualification as a Real Estate Investment Trust
The Company elected to be taxed as a real estate investment trust ("REIT") under
Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code")
beginning with its taxable year ended October 31, 1970. Pursuant to such
provisions of the Code, a REIT which distributes at least 95% (90% for years
after December 31, 2000) of its real estate investment trust taxable income to
its shareholders each year and which meets certain other conditions regarding
the nature of its income and assets will not be taxed on that portion of its
taxable income which is distributed to its shareholders. Although the Company
believes that it will continue to operate as a real estate investment trust for
federal income tax purposes no assurance can be given that the Company will
continue to qualify as a REIT.
Description of Business
The Company's sole business is the ownership of real estate investments which
consist principally of equity investments in income-producing properties, with
primary emphasis on properties in the northeastern part of the United States
with a primary concentration in Fairfield County, Connecticut and Westchester
and Putnam Counties, New York. The Company's core properties consist principally
of neighborhood and community shopping centers. The remaining properties include
office and retail buildings and industrial properties. The Company seeks to
identify desirable properties for acquisitions which it acquires in the normal
course of business. In addition, the Company regularly reviews its portfolio and
from time to time may sell certain of its properties.
3
The Company intends to continue to invest substantially all of its assets in
income producing real estate, with a primary emphasis on neighborhood and
community shopping centers, although the Company will retain the flexibility to
invest in other types of real property. While the Company is not limited to any
geographical location, the Company's current strategy is to invest primarily in
properties located in the northeastern region of the United States with a
primary concentration in Fairfield County, Connecticut and Westchester and
Putnam Counties, New York.
At October 31, 2001, the Company owned or had an equity interest in twenty four
properties comprised of neighborhood and community shopping centers, office and
retail buildings and service and distribution facilities located in nine states
throughout the United States, containing a total of 2,567,000 square feet of
gross leasable area ("GLA"). For a description of the Company's individual
investments, see Item 2.
Investment and Operating Strategy
The Company's investment objective is to increase the cash flow and consequently
the value of its properties, and seeks growth through (i) the strategic
re-tenanting, renovation and expansion of its existing properties, and (ii) the
selective acquisition of income-producing properties, primarily neighborhood and
community shopping centers, in its targeted geographic region. We may also
invest in other types of real estate in the targeted geographic region.
The Company invests in properties where cost effective renovation and expansion
programs combined with effective leasing and operating strategies, can improve
the properties values and economic returns. Retail properties are typically
adaptable for varied tenant layouts and can be reconfigured to accommodate new
tenants or the changing space needs of existing tenants. In determining whether
to proceed with a renovation or expansion, the Company considers both the cost
of such expansion or renovation and the increase in rent attributable to such
expansion or renovation. The Company believes that its properties provide
opportunities for future renovation and expansion.
When evaluating potential acquisitions, the Company will consider such factors
as (i) economic, demographic, and regulatory conditions in the property's local
and regional market; (ii) the location, construction quality, and design of the
property; (iii) the current and projected cash flow of the property and the
potential to increase cash flow; (iv) the potential for capital appreciation of
the property; (v) the terms of tenant leases, including the relationship between
the property's current rents and market rents and the ability to increase rents
upon lease rollover; (vi) the occupancy and demand by tenants for properties of
a similar type in the market area; (vii) the potential to complete a strategic
renovation, expansion or re-tenanting of the property; (viii) the property's
current expense structure and the potential to increase operating margins; and
(ix) competition from comparable properties in the market area.
The Company may from time to time enter into joint venture partnership
arrangements for the acquisition of properties with unaffiliated property owners
in exchange for units of limited partnership interests in partnerships that the
Company controls. These partnership units may be redeemable for cash or for
shares of the Company's Common stock or Class A Common stock. The Company
believes that this acquisition method may permit the Company to acquire
properties at attractive prices from property owners wishing to enter into
tax-deferred transactions.
4
Core Properties
The Company considers those properties which are directly managed by the
Company, concentrated in the retail sector and located close to the Company's
headquarters in Fairfield County, Connecticut, to be core properties. Of the
twenty four properties in the Company's portfolio, twenty properties are
considered core properties consisting of twelve community shopping centers,
three mixed-use (retail/office) properties, and five office buildings (including
the Company's executive headquarters). At October 31, 2001, these properties
contained in the aggregate 1,816,000 square feet of GLA. The Company's core
properties collectively had 355 tenants providing a wide range of products and
services. Tenants include national and regional supermarkets, discount
department stores, other local retailers and office tenants. At October 31,
2001, the core properties were 98% leased.
Two of the core properties in the Company's portfolio are owned by operating
partnerships in which the Company is the sole general partner.
A substantial portion of the Company's operating lease income is derived from
tenants under leases with terms greater than one year. Certain of the leases
provide for the payment of fixed base rentals monthly in advance and for the
payment of a pro-rata share of the real estate taxes, insurance, utilities and
common area maintenance expenses incurred in operating the properties.
Non-Core Properties
In a prior year, the Board of Directors of the Company expanded and refined the
strategic objectives of the Company to concentrate the real estate portfolio
into one of primarily retail properties located in the Northeast and authorized
a plan to sell its non-core properties in the normal course of business over a
period of several years given prevailing market conditions and the
characteristics of each property.
Through this strategy, the Company seeks to update its core property portfolio
by disposing of properties which have limited growth potential and redeploying
capital into properties in its target geographic region and product type where
the Company's management skills may enhance property values. The Company may
engage from time to time in like-kind property exchanges which allow the Company
to dispose of properties and redeploy proceeds in a tax efficient manner.
At October 31, 2001, the Company's non-core properties consists of one office
building, containing 202,000 square feet of GLA, one retail property totaling
126,000 square feet and two industrial facilities with a total of 423,000 square
feet of GLA. The non-core properties were 100% leased at October 31, 2001.
The office property has five tenants which offer a range of services, including
engineering, management and administrative.
The retail property, located in Tempe, Arizona, is leased to two tenants under
long term leases. One lease is "triple net" whereby the tenant pays all taxes,
insurance, maintenance and other operating costs on its portion of the property
leased during the term of the lease.
The two industrial facilities are 100% occupied and consist of automobile and
truck parts distribution warehouses. The facilities are net leased to
DaimlerChrysler Corporation under long-term lease arrangements whereby the
tenant pays all taxes, insurance, maintenance and other operating costs of the
property during the term of the lease. Rental income derived from the tenant
represent approximately 4% of the Company's gross revenues for fiscal 2001.
At October 31, 2001, the Company also holds three fixed rate mortgage
receivables totaling $3,507,000. The mortgages are secured by retail properties
and bear interest rates ranging from 9% to 12%.
5
Financing Strategy
The Company intends to finance future acquisitions with the most advantageous
sources of capital which it believes are available to the Company at the time,
and which may include the sale of common stock or Class A common stock through
public offerings or private placements, the incurrence of additional
indebtedness through secured or unsecured borrowings, and the reinvestment of
proceeds from the disposition of assets. The Company's financing strategy is to
maintain a strong and flexible financial position by (i) maintaining a prudent
level of leverage, and (ii) minimizing its exposure to interest rate risk
represented by floating rate debt.
Recent Developments
In November 2001, the Company repurchased 200,000 shares of its outstanding
8.99% Series B Cumulative Preferred Stock for a purchase price of $16,050,000 in
a negotiated transaction with the preferred stockholder. The repurchased shares
had a net carrying value of $19,121,000 at October 31, 2001.
In December 2001, the Company contracted to purchase a shopping center for
$7,100,000.
Matters Relating to the Real Estate Business
The Company is subject to certain business risks arising in connection with
owning real estate which include, among others, (1) the bankruptcy or insolvency
of, or a downturn in the business of, any of its major tenants, (2) the
possibility that such tenants will not renew their leases as they expire, (3)
vacated anchor space affecting the entire shopping center because of the loss of
the departed anchor tenant's customer drawing power, (4) risks relating to
leverage, including uncertainty that the Company will be able to refinance its
indebtedness, and the risk of higher interest rates, (5) potential liability for
unknown or future environmental matters, and (6) the risk of uninsured losses.
Unfavorable economic conditions could also result in the inability of tenants in
certain retail sectors to meet their lease obligations and otherwise could
adversely affect the Company's ability to attract and retain desirable tenants.
The Company believes that its shopping centers are relatively well positioned to
withstand adverse economic conditions since they typically are anchored by
grocery stores, drug stores and discount department stores that offer day-to-day
necessities rather than luxury goods.
Compliance with Governmental Regulations
The Company, like others in the commercial real estate industry, is subject to
numerous environmental laws and regulations. Although potential liability could
exist for unknown or future environmental matters, the Company believes that its
tenants are operating in accordance with current laws and regulations and has
established procedures to monitor these operations.
Competition
The real estate investment business is highly competitive. The Company competes
for real estate investments with investors of all types, including domestic and
foreign corporations, financial institutions, other real estate investment
trusts and individuals. In addition, the Company's properties are subject to
local competitors from the surrounding areas. The Company does not consider its
real estate business to be seasonal in nature. The Company's shopping centers
compete for tenants with other regional, community or neighborhood shopping
centers in the respective areas where Company retail properties are located. The
Company's office buildings compete for tenants principally with office buildings
throughout the respective areas in which they are located. In most areas where
the Company's office buildings are located, competition for tenants is intense.
Leasing space to prospective tenants is generally determined on the basis of,
among other things, rental rates, location, physical quality of the property and
availability of space.
6
Since the Company's industrial properties are net leased under long-term lease
arrangements which are not due to expire in the near future, the Company does
not currently face any immediate competitive re-leasing pressures with respect
to such properties.
Property Management
The Company actively manages and supervises the operations and leasing at all of
its core properties. Three of the Company's non-core properties are net leased
to tenants under long-term lease arrangements, in which case, property
management is provided by the tenants. The Company's remaining property is
managed by a property management company which is also a limited partner in the
joint venture that owns the property. The Company supervises the property
management company that manages the property.
Employees
The Company's executive offices are located at 321 Railroad Avenue, Greenwich,
Connecticut. It occupies approximately 5,000 square feet in a two story office
building owned by the Company.
The Company has 19 employees, eleven of whom oversee the management of the
Company's real estate portfolio, or analyze potential acquisition properties and
determine which properties, if any, to sell. The Company's remaining employees
serve in various professional, executive and administrative capacities. The
Company believes that its relationship with its employees is good.
Financial Information About Industry Segments
The Company is in the business of managing, operating, leasing, acquiring,
redeveloping and investing in commercial real estate properties, primarily
community and neighborhood shopping centers. Information related to the
Company's segments for the years ended October 31, 2001, 2000 and 1999 is set
forth in Note 12 to the consolidated financial statements that are part of this
Annual Report on Form 10-K.
7
Item 2. Properties.
Core Properties
The following table sets forth information concerning each core property at
October 31, 2001. Except as otherwise noted, all core properties are 100% owned
by the Company.
Gross
Year Year Leasable Number
Location Completed Acquired Square Feet Acres of Tenants Leased Principal Tenant
-------- --------- -------- ----------- ----- ---------- ------ ----------------
Retail Properties:
Springfield, MA 1970 1970 314,000 26.0 26 99% A&P Supermarket
Meriden, Ct 1989 1993 312,000 29.2 22 98% ShopRite Supermarket
Danbury, Ct 1989 1995 194,000 19.3 21 100% Christmas Tree Shops
Briarcliff Manor, NY (1) 1978 1998 160,000 11.4 31 98% Stop & Shop Supermarket
Carmel, NY 1983 1995 126,000 19.0 19 100% ShopRite Supermarket
Wayne, NJ 1959 1992 102,000 9.0 45 100% A&P Supermarket
Darien, CT 1955 1998 95,000 9.5 22 100% Shaw's Supermarket
Somers, NY 1991 1999 78,000 10.8 36 100% Gristede's Supermarket
Farmingdale, NY 1981 1993 70,000 5.6 15 100% King Kullen Supermarket
Eastchester, NY (1) 1978 1997 68,000 4.0 8 91% Food Emporium (Div. of A&P)
Briarcliff Manor, NY 1970 2001 38,000 1.0 18 97% Dress Barn
Somers, NY 1989 1992 19,000 4.9 12 100% Putnam County Savings Bank
Office Properties:
Greenwich, CT 1983 1998 20,000 1.0 2 100% Greenwich Hospital
Greenwich, CT 1977 2001 11,000 0.4 4 100% Glenville Medical Center
Greenwich, CT 1983 1993 10,000 0.2 3 100% Urstadt Biddle Properties
Greenwich, CT 1978 2000 10,000 1 4 100% Insurance Center of Greenwich
Greenwich, CT 1983 1994 10,000 0.2 4 100% Prescott Investors
Mixed Use Properties:
Newington, NH 1975 1979 102,000 14.3 9 93% Linens `N Things
Ridgefield, CT 1930 1998 48,000 2.1 51 89% Chico's
Briarcliff Manor, NY 1981 1999 29,000 4.0 3 88% Westchester Community College
------ ---
1,816,000 355
========= ===
(1) The Company has a general partnership interest in this property.
8
Non-Core Properties
The following table sets forth information concerning each non-core property in
which the Company owned an equity interest at October 31, 2001. Except as
otherwise noted, non-core properties are 100% owned by the Company.
Year Year Rentable Number of
Location Completed Acquired Square Feet Acres Tenants Leased Principal Tenant
-------- --------- -------- ----------- ----- ------- ------ ----------------
Southfield, MI (1) 1973 1983 202,000 7.8 5 100% Giffels Associates
Tempe, AZ 1970 1970 126,000 8.6 2 100% Mervyn's, Inc.
Dallas, TX 1970 1970 253,000 14.5 1 100% DaimlerChrysler Corporation
St. Louis, MO 1970 1970 170,000 16.0 1 100% DaimlerChrysler Corporation
------- -
751,000 9
======= =
(1) The Company has a general partnership interest in this property.
Lease Expirations - Total Portfolio
The following table sets forth a summary schedule of the lease expirations for
the core and non-core properties for the leases in place as of October 31, 2001,
assuming that none of the tenants exercise renewal options, if any, at or prior
to the scheduled expirations.
Year of Lease Number of Leases Square Footage of Percentage of Total
Expiration Expiring Expiring Leases Occupied Square Feet
- ---------- -------- --------------- --------------------
2002 (1) 50 180,766 7.2%
2003 56 124,968 4.9%
2004 43 108,936 4.3%
2005 35 113,550 4.5%
2006 37 142,862 5.7%
2007 18 313,943 12.4%
2008 21 339,529 13.4%
2009 28 213,010 8.4%
2010 16 116,501 4.6%
2011 24 324,781 12.8%
2012 21 33,008 1.3%
Thereafter 15 517,158 20.5%
-- ------- -----
364 2,529,012 100.00%
=== ========= =======
(1) Represents lease expirations from November 1, 2001 to October 31, 2002
and month-to-month leases.
9
Item 3. Legal Proceedings.
In the ordinary course of business, the Company is involved in legal
proceedings. However, there are no material legal proceedings presently pending
against the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year ended October 31, 2001.
Item Pursuant to Instruction 3 of Item 401 (b) of Regulation S-K:
Executive Officers of the Company.
For information regarding Executive Officers of the Company
--See Item 10.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters.
(a) Price Range of Common Shares
Shares of Common stock and Class A Common stock of the Company are traded on the
New York Stock Exchange under the symbols "UBP" and "UBP.A", respectively. The
following table sets forth the high and low closing sales prices for the
Company's Common Stock and Class A Common Stock during the fiscal years ended
October 31, 2001 and 2000 as reported on the New York Stock Exchange:
Fiscal Year Ended Fiscal Year Ended
Common shares: October 31, 2001 October 31, 2000
- -------------- ---------------- ----------------
Low High Low High
--- ---- --- ----
First Quarter $6.354 $7.274 $6.75 $7.438
Second Quarter $6.987 $7.848 $6.75 $7.375
Third Quarter $7.638 $8.660 $6.75 $7.313
Fourth Quarter $8.020 $8.930 $6.75 $7.188
Fiscal Year Ended Fiscal Year Ended
Class A Common shares: October 31, 2001 October 31, 2000
- ---------------------- ---------------- ----------------
Low High Low High
--- ---- --- ----
First Quarter $6.385 $7.641 $7.125 $7.688
Second Quarter $7.354 $8.543 $7.250 $7.688
Third Quarter $8.123 $9.277 $6.750 $7.563
Fourth Quarter $8.550 $9.750 $7.125 $7.563
(b) Approximate Number of Equity Security Holders
At January 7, 2002 (latest date available), there were 1,541 shareholders of
record of the Company's Common stock and 1,564 shareholders of record of the
Class A Common stock.
(c) Dividends Declared on Common stock and Class A Common stock and Tax Status
The following table sets forth the dividends declared per Common share and Class
A Common share and tax status for Federal income tax purposes of the dividends
paid during the fiscal years ended October 31, 2001 and 2000:
10
Dividends Paid Per:
Common Share Class A Common Share
------------ --------------------
Ordinary Ordinary
Dividend Payment Gross Dividend Income Capital Gain Gross Dividend Income Capital Gain
Date Paid Per Share Distribution Distribution Paid Per Share Distribution Distribution
- ---------------- -------------- ------------ ------------ -------------- ------------ ------------
January 21, 2001 $0.18 $0.18 $0.00 $0.20 $0.20 $0.00
April 21, 2001 $0.18 $0.18 $0.00 $0.20 $0.20 $0.00
July 21, 2001 $0.18 $0.18 $0.00 $0.20 $0.20 $0.00
October 19, 2001 $0.18 $0.18 $0.00 $0.20 $0.20 $0.00
------ ------ ------ ------ ------ -----
$0.72 $0.72 $0.00 $0.80 $0.80 $0.00
====== ====== ====== ====== ====== =====
Common Share Class A Common Share
------------ --------------------
Ordinary Ordinary
Dividend Payment Gross Dividend Income Capital Gain Gross Dividend Income Capital Gain
Date Paid Per Share Distribution Distribution Paid Per Share Distribution Distribution
- ---------------- -------------- ------------ ------------ -------------- ------------ ------------
January 21,2000 $0.175 $0.159 $0.016 $0.195 $0.177 $0.018
April 21, 2000 $0.175 $0.159 $0.016 $0.195 $0.177 $0.018
July 21, 2000 $0.175 $0.159 $0.016 $0.195 $0.177 $0.018
October 20, 2000 $0.175 $0.159 $0.016 $0.195 $0.177 $0.018
------- ------- ------- ------- ------- ------
$0.700 $0.636 $0.064 $0.780 $0.708 $0.072
======= ======= ======= ======= ======= ======
The Company has paid uninterrupted quarterly dividends since it commenced
operations as a real estate investment trust in 1969. During the fiscal year
ended October 31, 2001, the Company made distributions to stockholders
aggregating $.72 per Common share and $.80 per Class A Common share.
On June 16, 1998, the Board of Directors declared a special stock dividend on
the Company's Common stock consisting of one share of a newly created class of
Class A Common Stock, par value $.01 per share for each share of the Company's
Common Stock. The Class A Common Stock entitles the holder to 1/20 of one vote
per share. Each share of Common Stock and Class A Common Stock have identical
rights with respect to dividends except that each share of Class A Common Stock
will receive not less than 110% of the regular quarterly dividends paid on each
share of Common Stock. The stock dividend was paid on August 14, 1998.
Although the Company intends to continue to declare quarterly dividends on its
Common shares and Class A Common shares, no assurances can be made as to the
amounts of any future dividends. The declaration of any future dividends by the
Company is within the discretion of the Board of Directors, and will be
dependent upon, among other things, the earnings, financial condition and
capital requirements of the Company, as well as any other factors deemed
relevant by the Board of Directors. Two principal factors in determining the
amounts of dividends are (i) the requirement of the Internal Revenue Code that a
real estate investment trust distribute to shareholders at least 95% (90% for
years beginning after December 31, 2000) of its real estate investment trust
taxable income, and (ii) the amount of the Company's funds from operations.
11
The Company has a Dividend Reinvestment and Share Purchase Plan which allows
shareholders to acquire additional shares of Common Stock and Class A Common
Stock by automatically reinvesting dividends. Shares are acquired pursuant to
the Plan at a price equal to the higher of 95% of the market price of such
shares on the dividend payment date or 100% of the average of the daily high and
low sales prices for the five trading days ending on the day of purchase without
payment of any brokerage commission or service charge. Approximately 20% of the
Company's eligible holders of Class A Common shares and Common shares currently
participate in the Plan.
(d) Recent Sales of Unregistered Securities
On January 5, 2001, the Company entered into Stock Purchase Agreements with two
parties affiliated with officers or directors of the Company pursuant to which
such parties purchased, by way of private placement under Section 4(2) of the
Securities Act of 1933, as amended, 200,000 shares of Common stock of the
Company at a price of $7.00 per share and 5,000 shares of Class A Common stock
of the Company at a price of $7.0875 per share. The Company received cash
proceeds of $1,435,438.
12
Item 6. Selected Financial Data.
(In thousands, except per share data)
Year Ended October 31, 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Balance Sheet Data:
Total Assets $218,352 $180,792 $183,774 $ 165,039 $137,430
======== ======== ======== ========= ========
Mortgage Notes Payable $47,115 $51,903 $51,263 $32,900 $43,687
======= ======= ======= ======= =======
Preferred Stock $33,462 $33,462 $33,462 $33,462 -
======= ======= ======= ======= =======
Operating Data:
Total Revenues $36,093 $31,009 $29,430 $ 25,385 $24,719
======= ======= ======= ======== =======
Total Operating Expenses $26,154 $23,281 $21,596 $17,252 $ 16,238
======= ======= ======= ======= ========
Net Income Applicable to Common and Class A
Common Stockholders $10,540 $ 5,442 $ 6,043 $ 5,615 $ 8,589
======= ======= ======= ======= =======
Other Data :
Funds from Operations (Note 1) $14,611 $11,914 $11,878 $ 11,782 $ 10,189
======= ======= ======= ======== ========
Net Cash Provided by Operating Activities $21,050 $13,892 $14,423 $13,901 $14,755
======= ======= ======= ======= =======
Net Cash (Used in) Provided by Investing Activities $(10,962) $ (3,262) $(10,556) $(31,130) $ (7,460)
========= ========= ========= ========= =========
Net Cash Provided by (Used in) Financing Activities $22,040 $(11,436) $ (5,009) $19,207 $ (7,192)
======= ========= ========= ======= =========
Per Share Data (Note 2):
Net Income - Diluted:
Common Stock $.88 $.49 $.54 $.54 $.79
Class A Common Stock $.97 $.55 $.61 $.57 $.86
Cash Dividends on:
Class A Common Stock $.80 $.78 $.76 $.19 ---
Common Stock $.72 $.70 $.68 $1.13 $1.26
---- ---- ---- ----- -----
Total $1.52 $1.48 $1.44 $1.32 $1.26
===== ===== ===== ===== =====
Note 1: The Company has adopted the definition of Funds from Operations (FFO)
suggested by the National Association of Real Estate Investment Trusts (NAREIT)
and defines FFO as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from sales of properties,
plus depreciation, amortization and after adjustments for unconsolidated joint
ventures. FFO does not represent net cash from operating activities in
accordance with generally accepted accounting principles and should not be
considered an alternative to net income as an indicator of the Company's
operating performance, or for cash flows as a measure of liquidity or ability to
make distributions. The Company considers FFO an appropriate supplemental
measure of operating performance because it primarily excludes the assumption
that the value of real estate assets diminishes predictably over time, and
because industry analysts recognize it as a performance measure. Comparison of
the Company's presentation of FFO, using the NAREIT definition, to similarly
titled measures for other REITs may not necessarily be meaningful due to
possible differences in the application of the NAREIT definition used by such
REITs. For a further discussion of FFO, see Management's Discussion and Analysis
on page 15.
Note 2: Per share data for all periods prior to 1999 have been restated to
reflect the effect of the one-for-one stock dividend in the form of a new issue
of Class A Common Stock distributed in August 1998, however, the cash dividends
are presented based on actual amounts paid.
13
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources
The Company's liquidity and capital resources include its cash and cash
equivalents, proceeds from bank borrowings and long-term mortgage debt, capital
financings and sales of real estate investments. The Company expects to meet its
short-term liquidity requirements primarily by generating net cash from the
operations of its properties. Payments of expenses related to real estate
operations, debt service, management and professional fees, and dividend
requirements place demands on the Company's short-term liquidity. The Company
believes that its net cash provided by operations is sufficient to fund its
short-term liquidity requirements for fiscal 2002. The Company expects to fund
its long-term liquidity requirements such as property acquisitions, repayment of
indebtedness and capital expenditures through other long-term indebtedness
(including indebtedness assumed in acquisitions), proceeds from sales of
non-core properties and/or the issuance of equity securities.
At October 31, 2001, the Company had cash and cash equivalents of $34.1 million
compared to $1.9 million in 2000. The Company also has a $20 million secured
revolving credit facility with a bank which expires in fiscal 2005 and a
conditional $20 million unsecured revolving line of credit with the same bank
which expires in fiscal 2003. The revolving credit lines are available to
finance the acquisition, management and/or development of commercial real
estate, refinance indebtedness and for working capital purposes. Extensions of
credit under the unsecured credit line are at the bank's discretion and subject
to the bank's satisfaction of certain conditions. In fiscal 2001, the Company
utilized borrowings totaling $16.5 million from the revolving credit lines to
repay mortgage indebtedness, finance property acquisitions and to fund tenant
lease obligations.
At October 31, 2001, long-term debt consists of mortgage notes payable totaling
$47.1 million. In fiscal 2001, the Company repaid $6 million in mortgage
indebtedness which matured and obtained $11.0 million in new mortgage loans (of
which $9.8 million has been advanced). The new loans have seven and ten year
terms with interest at fixed rates ranging from 6.24% to 7.25%. Proceeds from
the mortgage loans were used to repay a portion of the outstanding revolving
credit line indebtedness.
In fiscal 2001, the Company completed a secondary offering of 4,800,000 shares
of its Class A Common stock in an underwritten public offering. The aggregate
net proceeds to the Company (after deducting underwriting fees and expenses)
were $41.1 million. The Company also granted the underwriters an option,
exercisable for 30 days, to purchase up to 720,000 additional shares of Class A
Common Stock to cover over-allotments. On November 26, 2001, the underwriters
exercised an option for 699,222 shares which resulted in net proceeds to the
Company of $6.1 million. The Company intends to use the proceeds of this
offering for acquisitions of properties, capital improvements (including tenant
improvements) and debt repayment.
The Company also sold 200,000 shares of Common stock and 5,000 shares of Class A
Common stock in a private placement for proceeds of $1,435,000.
In 1996, the Company's Board of Directors authorized the purchase of 500,000
shares each of the Company's Common stock and Class A Common stock. The Company
may postpone or discontinue repurchases of its shares for any reason including
prevailing market conditions, availability of cash resources or alternative
investment opportunities. To date, the Company has repurchased 224,500 Common
shares and 214,100 Class A Common shares under this program. The Company expects
to fund the cost of future share purchases, if any, from available cash.
In November 2001, the Company repurchased 200,000 shares of its outstanding
8.99% Series B Cumulative Preferred Stock for a purchase price of $16,050,000.
The repurchase was effected in a negotiated transaction with the preferred
stockholder. A portion of the proceeds received from the sale of Class A Common
Stock was utilized to repurchase these shares.
14
The Company expects to make real estate investments periodically. In fiscal
2001, the Company acquired two properties for $9.8 million. One property was
acquired subject to a first mortgage loan of $4.2 million. The loan has a
remaining term of six years and fixed interest of 7.83%. The purchases were
financed from available cash and borrowings under the Company's revolving credit
lines. After year end, the Company signed a contract to acquire a shopping
center for $7.1 million subject to a first mortgage loan of $2.3 million. The
Company also invests in its existing properties and in fiscal 2001, spent
approximately $11.7 million for capital expenditures including $8.3 million
related to tenant improvements and allowances in connection with the Company's
leasing activities. The Company expects to spend an additional $3.2 million to
complete its known capital improvement and leasing costs over the next year.
In a prior year, the Company's Board of Directors expanded and refined the
strategic objectives of the Company to refocus its real estate portfolio into
one of self-managed retail properties located in the Northeast and authorized a
plan to sell the non-core properties of the Company in the normal course of
business over a period of several years. In fiscal 2001, the Company sold two
non-core properties for aggregate proceeds of $1.2 million realizing net gains
on the sales of $316,000. An unconsolidated joint venture in which the Company
is the general partner sold a shopping center that it owned. Upon the sale of
the property, the Company effectively gained control of the Partnership and, as
a result, the Partnership's accounts which included $1.2 million in notes and
1.2 million in shares of the Company's Class A Common stock held by the joint
venture were thereafter consolidated with the Company. Upon consolidation, the
shares were retired by the Company. The Company intends to sell the remaining
non-core properties as opportunities become available and expects such property
sales to result in net gains to the Company. At October 31, 2001, the non-core
properties consist of two distribution and service facilities, one office
building and one retail property (all of which are located outside of the
Northeast region of the United States).
Funds from Operations
The Company considers Funds from Operations ("FFO") to be one supplemental
financial measure of an equity REIT's operating performance. FFO is calculated
as net income (computed in accordance with generally accepted accounting
principles (GAAP)), plus depreciation and amortization, excluding gains (or
losses) from sales of property, and after adjustments for unconsolidated joint
ventures. The Company considers recoveries of investments in properties subject
to finance leases to be analogous to amortization for purposes of calculating
FFO. FFO does not represent cash flows from operations as defined by GAAP and
should not be considered an alternative to net income as an indication of the
Company's operating performance or for cash flows as a measure of liquidity or
its dividend paying capacity. Furthermore, FFO as disclosed by other REITs may
not be comparable to the Company's calculation of FFO. The table below provides
a reconciliation of net income in accordance with GAAP to FFO for each of the
years ended October 31, 2001, 2000 and 1999 (amounts in thousands).
2001 2000 1999
---- ---- ----
Net Income Applicable to Common and Class A Common Stockholders $10,540 $5,442 $6,043
Plus: Real property depreciation 4,463 4,571 4,114
Amortization of tenant improvements and allowances 2,234 1,067 956
Amortization of deferred leasing costs 851 545 585
Recoveries of investments in properties subject to
finance leases 91 822 890
Adjustments for unconsolidated joint venture (3,252) 534 654
Less: Gains on sales of real estate investments (316) (1,067) (1,364)
----- ------- -------
Funds from Operations $14,611 $11,914 $11,878
======= ======= =======
15
Results of Operations
Fiscal 2001 vs. Fiscal 2000
Revenues
Revenues from operating leases increased 13.1% to $34.2 million in fiscal 2001
compared to $30.2 million in fiscal 2000. Overall, property occupancy levels
increased to 98% from 97% last year. The increase in operating lease revenues
results from leasing of vacant space, higher tenant base rent renewal rates at
certain of the Company's properties and higher recoveries of property operating,
real estate tax and other recoverable costs. Three of the Company's properties
were accounted for as direct finance leases in accordance with generally
accepted accounting principles. In fiscal 2001, one of the properties accounted
for as a direct finance lease was sold and the leases of the remaining two
properties expired and were relet. The re-negotiated leases were classified as
operating leases and resulted in an increase of operating rents of $682,000.
The lease termination income of $1.137 million, net of expenses represents a
settlement in satisfaction of the Company's claims against a former tenant
arising from the tenant's bankruptcy and rejection of its lease at one of the
Company's properties.
Prior to September 2001, the Company had an investment in an unconsolidated
joint venture that owned a shopping center in Clearwater, Florida which was
accounted for under the equity method. In September 2001, the property was sold
for $16 million. Through the date of sale, the Company recorded $3,864,000 as
its proportionate share of the earnings from the sale of the property and income
of the joint venture. Upon the sale of the property, the Company effectively
gained control of the joint venture and, as a result, the joint venture's
accounts which included $1.2 million in mortgage notes and 1.2 million shares of
the Company's Class A Common shares that the joint venture owned were thereafter
consolidated. Upon consolidation, the Class A Common shares were deemed retired
by the Company. (See Note 5 to financial statements)
In 2001, the Company sold two non-core properties for net gains of $316,000.
Expenses
Total expenses amounted to $26.2 million in fiscal 2001 compared to $23.3
million last year. Property expenses increased principally from higher snow
removal costs and higher property taxes during the year. Snow removal costs and
property taxes increased $686,000 in fiscal 2001 due to higher amounts of
snowfall during the period and increased real estate tax assessments at certain
of the Company's core properties.
Interest expense increased from additional borrowings of $16.5 million on the
Company's revolving credit lines in fiscal 2001. The increase in interest
expense was partially offset by higher interest rate mortgage loans that were
repaid during the year.
Depreciation and amortization expense increased to $7.6 million from $6.3
million from the expenditure of $11.7 million for property improvements, tenant
allowances and deferred leasing costs in fiscal 2001. The Company wrote off
$287,000 for unamortized tenant allowances related to tenants who vacated space
during the year.
16
Fiscal 2000 vs. Fiscal 1999
Revenues
Revenues from operating leases increased 5.2% to $30.2 million in fiscal 2000
compared to $28.7 million in fiscal 1999. The increase in operating lease
revenues reflects $1.8 million of additional rental income from recent
properties acquired by the Company in fiscal 1999. The increase in operating
lease revenues was partially offset from the absence of approximately $700,000
in rents from tenants who filed for bankruptcy and vacated the premises. The
Company subsequently re-let the vacant spaces.
The Company sold two non-core properties for net gains on the sales of
$1,067,000.
Expenses
Total expenses amounted to $23.3 million in fiscal 2000 compared to $21.6
million in fiscal 1999. The largest expense category is property expenses of the
real estate operating properties. The increases in property expenses in fiscal
2000 result principally from the additional property expenses for properties
acquired during fiscal 1999, which increased property expenses by $669,000.
Property expenses for all other properties increased by 3.3% from higher repair
and maintenance expenses and real estate taxes at certain of the Company's core
properties. Repairs and maintenance expenses increased $70,000 from paving
repairs at certain of the Company's shopping center parking lots, increased
painting expenses and exterior facade and building work.
Interest expense increased as a result of a full year's interest expense on
incremental borrowings of $18.3 million in fiscal 1999.
Depreciation and amortization expense increased principally from the write off
of unamortized tenant improvement costs and other allowances for tenants that
vacated during the year. These costs amounted to $280,000 in fiscal 2000.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to interest rate risk primarily through its borrowing
activities. There is inherent rollover risk for borrowings as they mature and
are renewed at current market rates. The extent of this risk is not quantifiable
or predictable because of the variability of future interest rates and the
Company's future financing requirements.
During fiscal 2001 and 2000, variable rate indebtedness had a weighted average
interest rate of 6.9% and 7.8%, respectively. Had the weighted average interest
rate been 100 basis points higher, the Company's net income would have been
lower by $145,000 and $119,000 in fiscal 2001 and 2000, respectively. The
Company has not, and does not plan to, enter into any derivative financial
instruments for trading or speculative purposes. As of October 31, 2001 the
Company has no other material exposure to market risk.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements required by this Item, together with the
report of the Company's independent public accountants thereon and the
supplementary financial information required by this Item are included under
Item 14 of this Annual Report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
No information is required to be reported under this Item.
17
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Company has filed with the Securities and Exchange Commission its
definitive Proxy Statement for its Annual Meeting of Stockholders to be held on
March 13, 2002. The additional information required by this Item is included
under the captions "ELECTION OF DIRECTORS"and "COMPENSATION AND TRANSACTIONS
WITH MANAGEMENT AND OTHERS" of such Proxy Statement and is incorporated herein
by reference.
Executive Officers of the Registrant.
------------------------------------
The following sets forth certain information regarding the executive officers of
the Company:
Name Age Offices Held
Charles J. Urstadt 73 Chairman and Chief Executive Officer (since September 1989)
Mr. Urstadt has been the Chairman of the Board of Directors since 1986, and a
Director since 1975. Mr. Urstadt also serves as the Chairman of Urstadt Property
Company, Inc. (formerly Pearce, Urstadt, Mayer & Greer Inc.) and has served in
such capacity for more than five years.
Willing L. Biddle 40 President and Chief Operating Officer (since December, 1996); Executive Vice
President and Chief Operating Officer (March, 1996 to December 1996); Senior
Vice President - Management (June, 1995 to March 1996); Vice President - Retail
(April 1993 to June, 1995); Vice President - Asset Management (April 1993 to
June 1994); Vice President, Levites Realty Management Corp. (1989 to 1993)
James R. Moore 53 Executive Vice President and Chief Financial Officer (since March, 1996); Senior
Vice President and Chief Financial Officer (September 1989 to March 1996);
Secretary (since April 1987) and Treasurer (since December 1987); Vice
President-Finance and Administration (April 1987 to September 1989); prior to
1987, Senior Manager, Ernst & Young
Raymond P. Argila 53 Senior Vice President and Chief Legal Officer (since June 1990); formerly Senior
Counsel, Cushman & Wakefield, Inc. (September 1987 to May 1990); Vice President
and Chief Legal Officer, Pearce, Urstadt, Mayer & Greer Realty Corp. from
(January 1984 to March 1987).
Officers of the Company are elected annually by the Directors.
Item 11. Executive Compensation.
The Company has filed with the Securities and Exchange Commission its definitive
Proxy Statement for its Annual Meeting of Stockholders to be held on March 13,
2002. The information required by this Item is included under the captions
"ELECTION OF DIRECTORS" and "COMPENSATION AND TRANSACTIONS WITH MANAGEMENT AND
OTHERS" of such Proxy Statement and is incorporated herein by reference.
18
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The Company has filed with the Securities and Exchange Commission its definitive
Proxy Statement for its Annual Meeting of Stockholders to be held on March 13,
2002. The information required by this Item is included under the captions
"ELECTION OF DIRECTORS - Security Ownership of Certain Beneficial Owners and
Management" of such Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The Company has filed with the Securities and Exchange Commission its definitive
Proxy Statement for its Annual Meeting of Stockholders to be held on March 13,
2002. The information required by this Item is included under the caption
"ELECTION OF DIRECTORS" and "COMPENSATION AND TRANSACTIONS WITH MANAGMENT AND
OTHERS" of such Proxy Statement and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.
A. Financial Statements and Financial Statement Schedules
1. Financial Statements --
The consolidated financial statements listed in the
accompanying index to financial statements on Page 23 are
filed as part of this Annual Report.
2. Financial Statement Schedules --
The financial statement schedules required by this Item are
filed with this report and are listed in the accompanying
index to financial statements on Page 23. All other financial
statement schedules are inapplicable.
B. Reports on Form 8-K
There were no reports on Form 8-K filed by the Registrant
during the fourth quarter of the fiscal year ended October 31,
2001.
C. Exhibits.
Listed below are all Exhibits filed as part of this report.
Certain Exhibits are incorporated by reference to documents
previously filed by the Company with the Securities and
Exchange Commission pursuant to Rule 12b-32 under the
Securities Exchange Act of 1934, as amended.
Exhibit
(3) Articles of Incorporation and By-laws.
-------------------------------------
3.1 (a) Amended Articles of Incorporation of the Company,
(incorporated by reference to Exhibit C of Amendment No.1 to
Registrant's Statement on Form S-4 (No. 333-19113).
(b) Articles Supplementary of the Company (incorporated by
reference to Annex A of Exhibit 4.1 of the Registrant's
Current Report on Form 8-K dated August 3, 1998).
(c) Articles Supplementary of the Company (incorporated by
reference to Exhibit 4.1 of the Registrant's Current Report on
Form 8-K dated January 8, 1998).
(d) Articles Supplementary of the Company (incorporated by
reference to Exhibit A of Exhibit 4.1 of the Registrant's
Current Report on Form 8-K dated March 12, 1998).
19
3.2 By-laws of the Company, (incorporated by reference to Exhibit
D of Amendment No. 1 to Registrant's Registration Statement
on Form S-4 (No. 333-19113).
(4) Instruments Defining the Rights of
----------------------------------
Security Holders, Including Indentures.
--------------------------------------
4.1 Common Stock: See Exhibits 3.1 (a)-(d) hereto.
------------
4.2 Series B Preferred Shares: See Exhibits 3.1 (a)-(d), 10.12
------------------------- and 10.13 hereto.
4.3 Series A Preferred Share Purchase Rights: See Exhibits 3.1
----------------------------------- (a)-(d) and 10.3 hereto.
(10) Material Contracts.
------------------
10.1 Form of Indemnification Agreement entered into between the
Registrant and each of its Directors and for future use with
Directors and officers of the Company (incorporated herein by
reference to Exhibit 10.1 of the Registrant's Annual Report on
Form 10-K for the year ended October 31, 1989).1
10.2 Amended and Restated Change of Control Agreement between the
Registrant and James R. Moore dated November 15, 1990
(incorporated herein by reference to Exhibit 10.3 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1990).1
10.3 Amended and Restated Rights Agreement between the Company and
The Bank of New York, as Rights Agent, dated as of July 31,
1998 (incorporated herein by reference to Exhibit 10-1 of the
Registrant's Current Report on Form 8-K dated November 5,
1998).
10.4 Change of Control Agreement dated as of June 12, 1990
between the Registrant and Raymond P. Argila (incorporated
herein by reference to Exhibit 10.7 of the Registrant's
Annual Report on Form 10-K for the year ended October 31,
1990). 1
10.4.1 Agreement dated December 19, 1991 between the Registrant and
Raymond P. Argila amending the Change of Control Agreement
dated as of June 12, 1990 between the Registrant and Raymond
P. Argila (incorporated herein by reference to Exhibit 10.6.1
of the Registrant's Annual Report on Form 10-K for the year
ended October 31, 1991). 1
10.5 Change of Control Agreement dated as of December 20,
1990 between the Registrant and Charles J. Urstadt
(incorporated herein by reference to Exhibit 10.8 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1990). 1
20
10.6 Amended and Restated HRE Properties Stock Option Plan
(incorporated herein by reference to Exhibit 10.8 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1991). 1
10.6.1 Amendments to HRE Properties Stock Option Plan dated June 9,
1993 (incorporated by reference to Exhibit 10.6.1 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1995). 1
10.6.2 Form of Supplemental Agreement with Stock Option Plan
Participants (non-statutory options). (incorporated by
reference to Exhibit 10.6.2 of the Registrant's Annual Report
on Form 10-K for the year ended October 31, 1998). 1
10.6.3 Form of Supplemental Agreement with Stock Option Plan
Participants (statutory options). (incorporated by reference
to Exhibit 10.6.2 of the Registrant's Annual Report on Form
10-K for the year ended October 31, 1998). 1
10.7 Amended and Restated Dividend Reinvestment and Share
Purchase Plan (incorporated herein by reference to the
Registrant's Registration Statement on Form S-3
(No. 333-64381).
10.8 Amended and Restated Change of Control Agreement dated as
of November 6, 1996 between the Registrant and Willing L.
Biddle (incorporated by reference to Exhibit 10.7 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1996). 1
10.9 Countryside Square Limited Partnership Agreement of Limited
Partnership dated as of November 22, 1996 between HRE
Properties, as General Partner and the persons whose names are
set forth on Exhibit A of the Agreement, as Limited Partners
(incorporated by reference to Exhibit I of the Registrant's
Current Report on Form 8-K dated November 22, 1996).
10.10 Restricted Stock Plan (incorporated by reference
to Exhibit B of Amendment No. 1 to Registrant's
Registration Statement on Form S-4 (No. 333-19113)). 1
10.10.1 Form of Supplemental Agreement with Restricted
Stockholders (incorporated by reference to Exhibit 10.6.2
of the Registrant's Annual Report on Form 10-K for the year
ended October 31, 1998). 1
10.11 Excess Benefit and Deferred Compensation Plan (incorporated
by reference to Exhibit 10.10 of the Registrant's Annual
Report on Form 10-K for the year ended October 31, 1998). 1
10.12 Purchase and Sale Agreement, dated September 9, 1998 by and
between Goodwives Center Limited Partnership, as seller, and
UB Darien, Inc., a wholly owned subsidiary of the Registrant,
as purchaser (incorporated by reference to Exhibit 10 of the
Registrant's Current Report on Form 8-K dated September 23,
1998).
10.13 Subscription Agreement, dated January 8, 1998, by and among
the Company and the Initial Purchasers (incorporated by
reference to Exhibit 4.2 of the Registrant's Current Report on
Form 8-K dated January 8, 1998).
21
10.14 Registration Rights Agreement, dated January 8, 1998, by and
among the Company and the Initial Purchasers (incorporated by
reference to Exhibit 4.3 of the Registrant's Current Report on
Form 8-K dated January 8, 1998).
10.15 Waiver and Amendment of Registration Rights Agreement dated as
of April 16, 1999, by and among the Company and the Initial
Purchasers (incorporated by reference to Exhibit 10.15 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1999).
10.16 Amendment to Shareholder Rights Agreement dated as of
September 22, 1999 between the Company and the Rights Agent
(incorporated by reference to Exhibit 10.18 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1999).
10.17 Waiver and Amendment of Registration Rights Agreement dated
as of September 14, 2001 by and among the Company and the
Initial Purchasers.
10.18 Amended and Restated Restricted Stock Award Plan effective
December 9, 1999 as approved by the Registrant's stockholders
on March 15, 2000 (incorporated by reference to Exhibit 10.18
of the Registrant's Annual Report on Form 10-K for the year
ended October 31, 2000).
10.19 Amended and Restated Stock Option Plan adopted June 28, 2000
(incorporated by reference to Exhibit 10.19 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 2000).
10.20 Promissory Note and Stock Pledge Agreement dated January 5,
2001 by Willing L. Biddle in favor of the Registrant
(incorporated by reference to Exhibit 10.20 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 2000). 1
(21) Subsidiaries.
------------
21.1 List of Company's subsidiaries (incorporated by reference
to Exhibit 21.1 of the Registrant's Annual Report on Form
10-K for the year ended October 31, 2000)
(23) Consents of Experts and Counsel.
-------------------------------
23.1 The consent of Arthur Andersen LLP to the incorporation by
reference of its reports included herein or incorporated
by reference in the Registrant's Registration Statements on
Form S-2 (No. 333-69858) Form S-3 (No.33-57119), Form S-3
(No. 333-64381), Form S-4 (No. 333-19113), Form S-8
(No.2-93146), Form S-8 (No. 333-61765), Form S-8
(No.333-61767) and Form S-8 (No. 33-41408) is filed herewith
as part of this report.
(1) Management contract, compensatory plan or arrangement required to be filed
as and exhibit to this Annual Report on Form 10-K pursuant to Items 14(c).
22
URSTADT BIDDLE PROPERTIES INC.
Item 14a. INDEX TO FINANCIAL STATEMENTS AND
- --------- ----------------------------------
FINANCIAL STATEMENT SCHEDULES
Page
Consolidated Balance Sheets at October 31, 2001 and 2000 24
Consolidated Statements of Income for each of the
three years ended October 31, 2001 25
Consolidated Statements of Cash Flows for each of the
three years ended October 31, 2001 26
Consolidated Statements of Stockholders' Equity
for each of the three years ended October 31, 2001 27
Notes to Consolidated Financial Statements 28-38
Report of Independent Public Accountants 39
Schedule.
- --------
The following consolidated financial statement schedules of Urstadt Biddle
Properties Inc. are included in Item 14(d):
III Real Estate and Accumulated Depreciation - October 31, 2001 40
IV Mortgage Loans on Real Estate - October 31, 2001 43
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
23
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
October 31
------------------------
ASSETS 2001 2000
---- ----
Real Estate Investments:
Properties owned-- at cost, net of accumulated depreciation $160,152 $146,851
Properties available for sale - at cost, net of accumulated
depreciation and recoveries 11,039 12,158
Investment in unconsolidated joint venture - 8,859
Mortgage notes receivable 3,507 2,379
----- -----
174,698 170,247
Cash and cash equivalents 34,080 1,952
Interest and rent receivable 3,826 3,853
Deferred charges, net of accumulated amortization 3,477 2,824
Prepaid expenses and other assets 2,271 1,916
----- -----
$218,352 $180,792
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $47,115 $51,903
Accounts payable and accrued expenses 2,670 1,222
Deferred officers' compensation 230 102
Other liabilities 4,142 2,090
----- -----
54,157 55,317
------ ------
Minority Interest 4,365 4,832
----- -----
Preferred Stock, par value $.01 per share; 20,000,000 shares authorized; 8.99%
Series B Senior Cumulative Preferred stock, (liquidation preference of
$100 per share); 350,000 shares issued and outstanding in 2001 and 2000 33,462 33,462
------ ------
Stockholders' Equity:
Excess stock, par value $.01 per share; 10,000,000 shares authorized;
none issued and outstanding - -
Common stock, par value $.01 per share; 30,000,000 shares authorized;
6,242,139 and 5,557,387 issued and outstanding shares in 2001 and 2000, respectively 62 55
Class A Common stock, par value $.01 per share; 40,000,000 shares authorized;
9,600,019 and 5,356,249 issued and outstanding shares in 2001 and 2000 respectively 96 54
Additional paid in capital 162,763 122,448
Cumulative distributions in excess of net income (31,654) (33,397)
Unamortized restricted stock compensation and notes receivable
from officers/stockholders (4,899) (1,979)
------- -------
126,368 87,181
------- ------
$218,352 $180,792
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
24
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended October 31,
-------------------------------------
2001 2000 1999
---- ---- ----
Revenues
Operating leases $34,209 $30,242 $28,666
Lease termination income 1,137 - -
Interest and other 747 767 764
------ ------ ------
36,093 31,009 29,430
------ ------ ------
Operating Expenses
Property expenses 11,502 10,413 9,460
Interest 4,456 4,245 3,913
Depreciation and amortization 7,568 6,307 5,896
General and administrative expenses 2,484 2,152 2,150
Directors' fees and expenses 144 164 177
------ ------ ------
26,154 23,281 21,596
------ ------ ------
Operating Income 9,939 7,728 7,834
Equity in Earnings of Unconsolidated Joint Venture 3,864 245 384
Minority Interests in Results of Consolidated Joint Ventures (432) (451) (392)
Gains on Sales of Real Estate Investments 316 1,067 1,364
------ ----- -----
Net Income 13,687 8,589 9,190
Preferred Stock Dividends (3,147) (3,147) (3,147)
------- ------- -------
Net Income Applicable to Common and Class A Common Stockholders
$10,540 $5,442 $6,043
======= ====== ======
Basic Earnings per Share:
Common $.91 $.50 $.55
==== ==== ====
Class A Common $1.01 $.55 $.62
===== ==== ====
Weighted Average Number of Shares Outstanding:
Common 5,881 5,351 5,236
===== ===== =====
Class A Common 5,182 5,059 5,101
===== ===== =====
Diluted Earnings Per Share:
Common $.88 $.49 $.54
==== ==== ====
Class A Common $.97 $.55 $.61
==== ==== ====
Weighted Average Number of Shares Outstanding:
Common and Common Equivalent 6,038 5,433 5,317
===== ===== =====
Class A Common and Class A Common Equivalent 5,606 5,532 5,545
===== ===== =====
The accompanying notes to consolidated financial statements are an
integral part of these statements.
25
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended October 31,
--------------------------------------
2001 2000 1999
---- ---- ----
Operating Activities:
Net income $13,687 $8,589 $9,190
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 7,568 6,307 5,896
Restricted stock compensation 769 630 488
Recovery of investment in properties owned
subject to financing leases 191 1,214 1,249
Equity in income of unconsolidated joint venture (3,864) (245) (384)
Gains on sales of real estate investments (316) (1,067) (1,364)
Decrease (increase) in interest and rent receivable 98 (481) (925)
Increase (decrease) in accounts payable and accrued expenses 1,448 (684) 780
Decrease (increase) in other assets and other liabilities, net 1,469 (371) (507)
----- ----- -----
Net Cash Provided by Operating Activities 21,050 13,892 14,423
------ ------ ------
Investing Activities:
Acquisitions of properties (5,606) (1,627) (9,717)
Acquisition of minority interest (1,013) - -
Improvements to properties and deferred charges (11,695) (6,642) (3,985)
Investment in unconsolidated joint venture (480) (535) (635)
Net proceeds from sales of properties 1,216 3,921 2,765
Distributions received from unconsolidated joint venture 6,544 1,500 600
Payments received on mortgage notes receivable 72 121 107
Miscellaneous - - 309
-------- ------- --------
Net Cash (Used in) Investing Activities (10,962) (3,262) (10,556)
-------- ------- --------
Financing Activities:
Sales of additional Common and Class A Common shares 42,959 2,713 2,232
Proceeds from mortgage notes payable and bank loans 26,250 6,500 19,000
Payments on mortgage notes payable and bank loans (35,190) (7,861) (15,039)
Dividends paid - Common and Class A Common shares (8,797) (7,712) (7,471)
Dividends paid - Preferred Stock (3,147) (3,147) (3,147)
Purchases of Common and Class A Common shares (35) (1,929) (584)
------ ------- -----
Net Cash Provided by (Used in) Financing Activities 22,040 (11,436) (5,009)
------ -------- -------
Net Increase (Decrease) In Cash and Cash Equivalents 32,128 (806) (1,142)
Cash and Cash Equivalents at Beginning of Year 1,952 2,758 3,900
----- ----- -----
Cash and Cash Equivalents at End of Year $34,080 $1,952 $2,758
======= ====== ======
The accompanying notes to consolidated financial statements are an
integral part of these statements.
26
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares and per share data)
Unamortized
Common Stock Class A Common Stock Restricted
------------ -------------------- (Cumulative Stock
Outstanding Outstanding Additional Distributions Compensation
Number of Par Number of Par Paid In In Excess Of and Notes
Shares Value Shares Value Capital Net(Income) Receivable Total
--------- ------ ------ ----- -------- ----------- ---------- -----
Balances - October 31, 1998 5,221,602 $52 5,193,650 $52 $118,558 $(29,699) $(1,634) $87,329
Net income applicable to Common
and Class A common stockholders - - - - - 6,043 - 6,043
Cash dividends paid :
Common stock ($.68 per share) - - - - - (3,511) - (3,511)
Class A common stock ($.76
per share) - - - - - (3,960) - (3,960)
Deemed repurchase of Class A
common stock and reissuance of
Common stock 272,727 3 (272,727) (3) - - - -
Sale of additional shares 32,000 - 212,000 2 1,943 - - 1,945
Sale of additional shares under
dividend reinvestment plan 17,816 - 18,616 - 287 - - 287
Shares issued under restricted 46,500 1 46,500 1 759 - (761) -
stock plan
Amortization of restricted stock
compensation - - - - - - 488 488
Purchases of shares (58,800) (1) (14,000) - (583) - - (584)
-------- --- -------- - ----- -------- ----- ------
Balances - October 31, 1999 5,531,845 55 5,184,039 52 120,964 (31,127) (1,907) 88,037
Net Income Applicable to Common
and Class A common stockholders - - - - - 5,442 - 5,442
Cash dividends paid :
Common Stock ($.70 per share) - - - - - (3,748) - (3,748)
Class A common Stock ($.78
per share) - - - - - (3,964) - (3,964)
Sale of additional shares 64,400 - 256,400 3 2,406 - - 2,409
Sale of additional shares under
dividend reinvestment plan 21,367 - 22,035 - 304 - - 304
Shares issued under restricted 48,375 1 48,375 1 700 - (702) -
stock plan
Amortization of restricted stock
compensation - - - - - - 630 630
Purchases of shares (108,600) (1) (154,600) (2) (1,926) - - (1,929)
--------- --- --------- --- ------- -------- ------- -------
Balances - October 31, 2000 5,557,387 55 5,356,249 54 122,448 (33,397) (1,979) 87,181
Net Income Applicable to Common
and Class A common stockholders - - - - - 10,540 - 10,540
Cash dividends paid :
Common stock ($.72 per share) - - - - - (4,487) - (4,487)
Class A common stock ($.80
per share) - - - - - (4,310) - (4,310)
Sale of additional shares 200,000 2 4,805,000 48 42,521 - - 42,571
Sale of additional shares under
dividend reinvestment plan 18,652 - 23,257 - 343 - - 343
Shares issued under restricted 48,000 - 48,000 - 686 - (686) -
stock plan
Amortization of restricted stock
compensation - - - - - - 769 769
Purchases of shares (900) - (2,800) - (35) - (35)
-
Exercise of stock options 419,000 5 24,859 - 3,043 - - 3,048
Note from officer upon exercise
of stock options - - - - - - (3,003) (3,003)
Deemed repurchase of Class A
common Stock - - (654,546) (6) (6,243) - - (6,249)
--------- --- --------- --- -------- -------- -------- --------
Balances - October 31, 2001 6,242,139 $62 9,600,019 $96 $162,763 $(31,654) $(4,899) $126,368
========= === ========= === ======== ========= ======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Urstadt Biddle Properties Inc. (Company), a real estate investment trust (REIT),
is engaged in the acquisition, ownership and management of commercial real
estate, primarily neighborhood and community shopping centers in the
northeastern part of the United States. Other assets include office and retail
buildings and industrial properties. The Company's major tenants include
supermarket chains and other retailers who sell basic necessities. At October
31, 2001, the Company owned or had interests in 24 properties.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its
wholly owned subsidiaries, and joint ventures in which the Company has the
ability to control the affairs of the venture. Prior to September 2001, the
Company had an investment in an unconsolidated joint venture which was accounted
for by the equity method of accounting. Under the equity method, only the
Company's net investment and proportionate share of income or loss of the
unconsolidated joint venture is reflected in the financial statements. All
significant intercompany transactions and balances have been eliminated in
consolidation.
Reclassifications
Certain 2000 amounts have been reclassified to conform to 2001 presentation.
Accounting for Leases
The Company accounts for its leases of real property in accordance with the
provisions of Financial Accounting Standards Statement No. 13, "Accounting for
Leases," as amended. This Statement sets forth specific criteria for determining
whether a lease should be accounted for as an operating lease or a direct
financing lease. In general, the financing lease method applies where property
is under long-term lease to a creditworthy tenant and the present value of the
minimum required lease payments at the inception of a lease is at least 90% of
the market value of the property leased. Other leases are accounted for as
operating leases.
Direct financing leases are carried at the aggregate minimum lease payments to
be received over the terms of the leases, plus an estimated residual value, less
unearned income. The income component of rental payments received, which is
based upon the interest rate implicit in the lease, is reflected as financing
lease revenues and the remaining portion of the rent is reflected as a recovery
of the financing lease asset.
Federal Income Taxes
The Company has elected to be treated as a real estate investment trust under
Sections 856-860 of the Internal Revenue Code (IRC). Under those sections, a
REIT, that among other things, distributes at least 95% (90% for tax years
beginning after December 31, 2000) of real estate trust taxable income will not
be taxed on that portion of its taxable income which is distributed. The Company
believes it qualifies as a REIT and has distributed all of its taxable income
for the fiscal years through 2001 in accordance with the provisions of Section
858 of the IRC. Accordingly, no provision has been made for Federal income taxes
in the accompanying consolidated financial statements.
Taxable income of the Company prior to the dividends paid deduction for the
years ended October 31, 2001, 2000 and 1999 was approximately $11,394,000,
$11,936,000 and $8,600,000 respectively. The difference between net income for
financial reporting purposes and taxable income results from, among other
things, differences in adjusted bases for capital gains and losses and different
methods of accounting for leases, depreciable lives related to the properties
owned and investments in joint ventures.
Depreciation and Amortization
The Company uses the straight-line method for depreciation and amortization.
Properties owned and properties available for sale are depreciated over the
estimated useful lives of the properties, which range from 30 to 40 years.
Tenant improvements and deferred leasing costs are amortized over the life of
the related leases. All other deferred charges are amortized over the terms of
the agreements to which they relate.
Properties Available for Sale
A property is classified as available for sale upon determination by the Board
of Directors that the property is to be marketed for sale in the normal course
of business over the next several years.
28
Real Estate Investment Impairment
The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to future net cash flows,
undiscounted and without interest, expected to be generated by the asset. If
such assets are considered impaired, the impairment to be recognized is measured
by the amount by which the carrying amount of the assets exceed the fair value
of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. It is the Company's policy to
reclassify properties available for sale as assets to be disposed of upon
determination that such properties will be sold within one year.
Capitalization
Acquisition of real estate investments, including brokerage, legal and other
external costs incurred in acquiring new properties are capitalized as incurred.
Additions, renovations and improvements that enhance and/or extend the useful
life of a property are also capitalized. Direct leasing commissions, legal and
other leasing related costs expended in connection with the Company's successful
leasing activities are capitalized as incurred. Expenditures for ordinary
maintenance, repairs and improvements that do not materially prolong the normal
useful life of an asset are charged to operations as incurred.
Income Recognition
Revenues from operating and finance leases include revenues from properties
owned and properties available for sale. Rental income is generally recognized
based on the terms of leases entered into with tenants. Rental income from
leases with scheduled rent increases is recognized on a straight-line basis over
the lease term. Percentage rent is recognized when a specific tenant's sales
breakpoint is achieved. Property operating cost recoveries from tenants of
common area maintenance, real estate taxes, and other recoverable costs are
recognized in the period the related expenses are incurred. Interest income is
recognized as it is earned. Gains and losses on sales of properties are recorded
when the criteria for recognizing such gains or losses under generally accepted
accounting principles have been met.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, "Revenue Recognition" ("SAB No. 101"), to provide
guidance on the recognition, presentation and disclosure of revenue in financial
statements. Specifically, SAB No. 101, among other things, provides guidance on
lessors' accounting for contingent rent. SAB No. 101 did not require the Company
to change existing revenue recognition policies and therefore had no impact on
the Company's financial position or results of operations.
Statements of Cash Flows
The Company considers short-term investments with original maturities of 90 days
or less to be cash equivalents.
Use of Estimates
The preparation of financial statements requires management to make use of
estimates and assumptions that affect amounts reported in the financial
statements as well as certain disclosures. Actual results could differ from
those estimates.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, rent and interest receivable,
accounts payable, accrued expenses and other assets and liabilities are
reasonable estimates of their fair values because of the short maturities of
these instruments. Mortgage notes receivable and payable have aggregate carrying
values that approximate their estimated fair values based upon the remaining
maturities and interest rates for loans with similar terms and remaining
maturities. The fair value of these financial instruments were not materially
different from their carrying values.
Earnings Per Share
Basic earnings per share ("EPS") excludes the impact of dilutive shares and is
computed by dividing net income applicable to Common and Class A Common
stockholders by the weighted number of Common shares and Class A Common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue Common shares or Class A
Common shares were exercised or converted into Common shares or Class A Common
shares and then shared in the earnings of the Company. Since the cash dividends
declared on the Company's Class A Common stock are higher than the dividends
declared on the Common Stock, basic and diluted EPS have been calculated using
the "two-class" method. The two-class method is an earnings allocation formula
that determines earnings per share for each class of common stock according to
the weighted average of the dividends declared, outstanding shares per class and
participation rights in undistributed earnings.
29
The following table sets forth the reconciliation between basic and diluted EPS
(in thousands):
2001 2000 1999
---- ---- ----
Numerator
Net income applicable to common stockholders - basic $5,326 $2,650 $2,893
Effect of dilutive securities:
Operating partnership units (32) 28 -
------ ------ ------
Net income applicable to common stockholders - diluted $5,294 $2,678 $2,893
====== ====== ======
Denominator
Denominator for basic EPS-weighted average common shares 5,881 5,351 5,236
Effect of dilutive securities:
Stock options and awards 157 82 81
----- ----- -----
Denominator for diluted EPS - weighted average common equivalent shares 6,038 5,433 5,317
===== ===== =====
Numerator
Net income applicable to Class A common stockholders-basic $5,214 $2,792 $3,150
Effect of dilutive securities
Operating partnership units 246 246 218
------ ------ ------
Net income applicable to Class A common stockholders - diluted $5,460 $3,038 $3,368
====== ====== ======
Denominator
Denominator for basic EPS - weighted average Class A common shares 5,182 5,059 5,101
Effect of dilutive securities:
Stock options and awards 135 90 104
Operating partnership units 289 383 340
----- ----- -----
Denominator for diluted EPS - weighted average Class A common equivalent shares 5,606 5,532 5,545
===== ===== =====
The weighted average Common equivalent shares and Class A common equivalent
shares for the years ended October 31, 2001, 2000 and 1999 each exclude 54,553
shares. These shares were not included in the calculation of diluted EPS because
the effect would be anti-dilutive.
Derivative Instruments and Hedging Activities
The Company adopted the provisions of Financial Accounting Standards Board
Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities"
in fiscal 2001. The statement generally requires that all derivative instruments
be reflected in the financial statements at their estimated fair value. The
Company does not generally enter into derivative contracts for either investment
or hedging purposes and accordingly there was no effect on the Company's
financial position or results of operations as a result of the adoption of this
statement.
New Accounting Pronouncement
In 2001, the Financial Accounting Standards Board issued Statement No. 144
"Accounting for the Impairment or Disposal of Long Lived Assets" which updates
and clarifies the accounting and reporting for impairment of assets held in use
and to be disposed of. The Statement, among other things, will require the
Company to classify the operations and cash flow of properties to be disposed of
as discontinued operations. The Company expects to adopt the provisions of the
Statement in Fiscal 2003, and does not expect the Statement to have a material
impact on the Company's financial position or results from operations.
30
(2) REAL ESTATE INVESTMENTS
The Company's investments in real estate were composed of the following at
October 31, 2001 and 2000 (in thousands):
Properties Mortgage
Properties Available for Notes 2001 2000
Owned Sale Receivable Totals Totals
- ------------------------ ------------ --------------- ------------ ------------------- -------------------
Retail $139,772 $2,010 $3,507 $145,289 $143,367
Office/Mixed Use 20,076 6,995 - 27,071 23,233
Industrial - 2,034 - 2,034 2,543
Undeveloped Land 304 - - 304 1,104
-------- ------- ------ -------- --------
$160,152 $11,039 $3,507 $174,698 $170,247
======== ======= ====== ======== ========
The Company's investments at October 31, 2001, consisted of equity interests in
24 properties, which are located in various regions throughout the United States
and mortgage notes. As a significant concentration of the Company's properties
are in the Northeast, market changes in this region could have an effect on the
Company's leasing efforts and ultimately its overall results of operations. The
following is a summary of the geographic locations of the Company's investments
at October 31, 2001 and 2000 (in thousands):
2001 2000
---- ----
- -------------------------------------------------------------------- ------------------- ------------------
Northeast $160,897 $147,620
Southeast 1,200 9,060
Midwest 8,064 8,782
Southwest 4,537 4,785
-------- --------
$174,698 $170,247
======== ========
(3) PROPERTIES OWNED
The components of properties owned were as follows (in thousands):
2001 2000
---- ----
- ---------------------------------------------------------- ----------------------------- ------------------
Land $32,524 $29,592
Buildings and improvements 159,650 144,644
------- -------
192,174 174,236
Accumulated depreciation (32,022) (27,385)
-------- --------
$160,152 $146,851
======== ========
Space at properties owned by the Company is generally leased to various
individual tenants under short and intermediate term leases which are accounted
for as operating leases.
Minimum rental payments on non-cancelable operating leases become due as
follows: 2002 - $22,605,000; 2003 - $21,117,000; 2004 - $19,333,000; 2005 -
$17,564,000; 2006 - $15,738,000 and thereafter - $78,098,000.
Certain of the Company's leases provide for the payment of additional rent based
on a percentage of the tenant's revenues. Such additional percentage rents are
included in operating lease income and aggregated approximately $70,000,
$148,000, and $165,000, in 2001, 2000 and 1999 respectively.
In fiscal 2001, the Company received net proceeds of $1,137,000 in satisfaction
of all claims against a former tenant arising from the tenant's filing of a
petition in bankruptcy and the tenant's rejection of its lease at one of the
Company's properties. The settlement amount has been reflected in revenues in
the accompanying consolidated statement of income as a lease termination income
in the year ended October 31, 2001.
The Company is the general partner in a consolidated joint venture which owns
the Eastchester Mall in Eastchester, New York. The limited partner is entitled
to preferential distributions of cash flow from the property and may put its
interest in the joint venture to the Company for a fixed number of shares of
Common Stock and Class A Common stock of the Company. The Company, at its
option, may redeem the limited partner's interest for cash. The Company also has
an option to purchase the limited partner's interest after a certain period. The
partnership agreement, among other things, restricts the sale or refinancing of
the property without the limited partner's consent.
31
The Company is also the general partner in a consolidated joint venture that
owns the Arcadian Shopping Center in Briarcliff Manor, New York. In fiscal 1999,
the limited partners contributed the property, subject to a $6.3 million first
mortgage to the joint venture in exchange for operating partnership units
(OPU's) of the joint venture. The OPU's are exchangeable into an equivalent
number of shares of the Company's Class A Common Stock. The limited partners are
entitled to preferential distributions of cash flow from the property and may
put their partnership interests to the Company at the general partner's option,
for cash or Class A Common Stock of the Company at a unit price as defined in
the partnership agreement. The Company has the option to purchase the limited
partners interest for cash after a certain period. In fiscal 2001, the Company
redeemed, at net book value, 127,548 OPU's for cash of $1.0 million. The
partnership agreement, among other things, places certain restrictions on the
sale or refinancing of the property without the limited partners' consent for a
specified period; thereafter the partnership agreement imposes no such
restrictions. The acquisition of the shopping center and the assumption of the
first mortgage by the joint venture represent noncash investing and financing
activities and therefore are not included in the accompanying 1999 consolidated
statement of cash flows.
The limited partner's interests in both partnerships are reflected in the
accompanying consolidated financial statements as Minority Interests.
In fiscal 2001, the Company entered into separate purchase agreements to acquire
an office property and a shopping center (the "Properties") for purchase prices
totaling $9.5 million. The Properties are owned by unrelated title insurance
companies (the "LLC's") to position the Company to effect a tax-free exchange of
properties under Section 1031 of the IRC. Pursuant to certain Exchange
Agreements between the Company and the LLCs (the "Exchange Agreements"), the
Company loaned the net purchase prices of the respective Properties to the LLCs
to complete the purchase of the Properties. The LLCs have net leased the
Properties to the Company for monthly lease payments equal to the debt service
on the mortgage loans. The Exchange Agreements provide that on the earlier of
the closing of the sale of a property or six months from the date of the
assignment of the Purchase Agreements, the LLCs will convey the Properties
directly to the Company in satisfaction of the loans. In December 2001, the
office property was conveyed to the Company in satisfaction of the corresponding
loan.
Since the Company effectively has all the risks and rewards of ownership, the
net leases and mortgage loans with the LLCs referred to above have been given no
accounting recognition and the transactions have been recorded as purchases of
the properties. The properties are reflected at their respective purchase costs
in "Properties Owned" in the accompanying consolidated balance sheet at October
31, 2001.
In connection with the acquisition of the shopping center, the Company assumed a
first mortgage of $4.2 million. The assumption of the first mortgage represents
a non-cash financing activity and is therefore not included in the accompanying
2001 consolidated statement of cash flows.
In fiscal 2000, the Company purchased one office property for $1.65 million.
In fiscal 1999, the Company acquired interests in three properties for total
consideration of $23 million, including the assumption of a first mortgage loan
of $4.1 million. The assumption of the first mortgage represents a noncash
financing activity and is therefore not included in the accompanying 1999
consolidated statement of cash flows.
(4) PROPERTIES AVAILABLE FOR SALE
The Board of Directors authorized a plan to sell all of the non-core properties
of the Company over a period of several years. At October 31, 2001, the non-core
properties, which have been classified as Properties Available for Sale, consist
of two distribution and service properties, one office building and one retail
property located outside of the Northeast region of the United States.
At October 31, 2001 and 2000, properties available for sale consisted of the
following (in thousands):
2001 2000
- ---------------------------------------------------------- -------------------------- --------------------------
Properties available for sale subject to:
Operating leases $11,039 $9,615
Direct financing leases - 2,543
------- -------
$11,039 $12,158
======= =======
32
Operating Leases
The components of properties available for sale subject to operating leases
were as follows (in thousands):
2001 2000
- --------------------------------------------------------------- ---------------------- ---------------------
Land $1,493 $2,292
Buildings and improvements 17,970 15,706
------ ------
19,463 17,998
Accumulated depreciation (8,424) (8,383)
------- -------
$11,039 $9,615
======= ======
Minimum rental payments on non-cancelable operating leases become due as
follows: 2002 - $5,667,000; 2003 - $4,956,000; 2004 - $4,304,000; 2005 -
$4,304,000; 2006 - $4,416,000 and thereafter $7,441,000.
Sales of Properties
In fiscal 2001, the Company sold a non-core property to the property's sole
tenant for $100,000. There was no gain or loss on the sale. The Company also
sold undeveloped land for a net gain on the sale of the property of $316,000.
In fiscal 2000, the Company sold two of its non-core properties for net gains on
the sales of the properties of $1,067,000.
In fiscal 1999, the Company sold one of its non-core properties for a net gain
on the sale of the property of $1,364,000.
The net operating income of the properties sold in each of the years ended
October 31, 2001, 2000 and 1999 was $73,000, $226,000 and $754,000.
In fiscal 2001, the Company had a contract to sell one of its non-core
properties which was classified as a property held for sale. During the
Company's fourth quarter of fiscal 2001 the contract for sale was terminated and
the property was reclassified as available for sale. At October 31, 2001 and
2000, the Company had not made a determination to sell any specific property
currently available for sale.
(5) INVESTMENT IN UNCONSOLIDATED JOINT VENTURE
The Company is the sole general partner in Countryside Square Limited
Partnership (the "Partnership"), which owned the Countryside Square Shopping
Center in Clearwater, Florida. Upon the formation of the Partnership in a
previous year, the Company contributed the property and the limited partners
contributed 600,000 Common shares of the Company. In 1998, the Partnership
received 600,000 Class A Common shares pursuant to a stock dividend and in 1999,
exchanged 600,000 Common shares with an affiliate for an equivalent number of
Class A Common shares. After the exchange, the Partnership owned 1,200,000
shares of Class A Common stock of the Company. The Company accounted for its
proportionate interest in the Class A Common shares owned by the Partnership as
a deemed repurchase of 545,454 Class A Common shares and reduced its investment
in the unconsolidated joint venture and stockholders' equity in an amount equal
to the fair value of the shares repurchased.
In September 2001, the property was sold by the Partnership. Prior to the sale
of the property, the Company accounted for its interest in the Partnership under
the equity method. Accordingly, through the date of sale in fiscal 2001, the
Company recorded $3,864,000 as its proportionate share of the income of the
joint venture including earnings from the sale of the property. The Company's
equity in earnings of the Partnership was reflected after eliminating its
proportionate share of dividend income in the Class A Common shares of the
Company recorded by the Partnership.
Upon the Partnership's sale of the property, the Company effectively gained
control of the Partnership and as a result, the Partnership's accounts, which
included $1.2 million in notes issued by the purchaser of the property and
1,200,000 shares of the Company's Class A Common stock held by the Partnership,
were thereafter consolidated with the Company. Upon consolidation, the remaining
654,546 shares of Class A Common stock held by the Partnership were deemed to be
retired for accounting purposes. In December 2001, the Partnership was
liquidated.
Upon the consolidation of the Partnership, the 654,546 shares of Class A Common
stock deemed retired and the $1.2 million in notes issued by the purchaser and
received by the Company represent noncash activities and therefore are not
included in the accompanying 2001 consolidated statement of cash flows.
33
(6) MORTGAGE NOTES RECEIVABLE
Mortgage notes receivable consist of fixed rate mortgages with contractual
interest rates of 9% and 12%. The components of the mortgage notes receivable at
October 31, 2001 and 2000 were as follows (in thousands):
2001 2000
- -------------------------------------------------------------------------------------- ----------- -----------
Remaining principal balance $3,986 $2,897
Unamortized discounts to reflect market interest rates
at time of acceptance of notes (479) (518)
----- -----
$3,507 $2,379
====== ======
At October 31, 2001, principal payments on mortgage notes receivable become due
as follows: 2002 - $104,000; 2003 - $164,000; 2004 - $1,261,000; 2005 -
$130,000; 2006 - $142,000 and thereafter - $2,185,000.
(7) MORTGAGE NOTES PAYABLE AND LINES OF CREDIT
At October 31, 2001, the Company has eight nonrecourse mortgage notes payable
totaling $47,115,000 ($40,034,000 at October 31, 2000) due in installments over
various terms extending to the year 2011 and which bear rates of interest
ranging from 6.24% to 8.13%. The mortgage notes payable are collateralized by
real estate investments having a net carrying value of approximately $73.0
million as of October 31, 2001.
Scheduled principal payments during the next five years and thereafter are as
follows: 2002 - $860,000; 2003 - $928,000; 2004 - $1,000,000; 2005 - $1,078,000;
2006 - $6,110,000 and thereafter - $37,139,000.
The Company has a $20 million secured revolving credit loan agreement (the
"Agreement") with a bank. The agreement which expires in October 2005 is secured
by first mortgage liens on two properties. Interest on outstanding borrowings is
at a variable rate of prime + 1/2% or LIBOR + 1.5%. The Company can elect a
fixed rate option at any time prior to the last year of the agreement. The
agreement requires the Company to maintain certain debt service coverage ratios
during its term and provides for a permanent reduction in the revolving credit
loan amount of $625,000 annually. At October 31, 2001, the Company had no
outstanding borrowings under this revolving credit agreement ($11,869,000 at
October 31, 2000).
The Company also has a $20 million unsecured line of credit arrangement with the
same bank. The line of credit expires in fiscal 2003 and, is available to
acquire real estate, refinance indebtedness and for working capital needs.
Extensions of credit under the arrangement are at the bank's discretion and
subject to the bank's satisfaction of certain conditions. Outstanding borrowings
bear interest at the prime rate + 1/2% or LIBOR + 2 1/2%. The Company pays an
annual fee of 1/4% on unused amounts. There were no borrowings outstanding under
this line of credit at October 31, 2001 and 2000.
Interest paid for the years ended October 31, 2001, 2000, and 1999 was
$4,456,000 $4,245,000 and $4,038,000, respectively.
(8) PREFERRED STOCK
In fiscal 1998 the Company sold 350,000 shares of 8.99% Series B Senior
Cumulative Preferred Stock, par value $.01 per share, with a liquidation
preference of $100 per share ("Series B Preferred Stock"). Holders of the Series
B Preferred Stock are entitled to receive cumulative preferential cash dividends
equal to 8.99% per annum, payable quarterly in arrears and subject to
adjustments under certain circumstances.
The Series B Preferred Stock has no stated maturity, will not be subject to any
sinking fund or mandatory redemption and will not be convertible into other
securities or property of the Company. On or after January 8, 2008, the Series B
Preferred Stock may be redeemed by the Company at its option, in whole or in
part, at a redemption price of $100 per share, plus all accrued dividends. Upon
a Change in Control of the Company (as defined), (i) each holder of Series B
Preferred Stock shall have the right, at such holder's option, to require the
Company to repurchase all or any part of such holder's Series B Preferred Stock
for cash at a repurchase price of $100 per share, plus all accrued and unpaid
dividends, and (ii) the Company shall have the right, at the Company's option,
to redeem all or any part of the Series B Preferred Stock at (a) prior to
January 8, 2008, the Make-Whole Price (as defined) and (b) on or subsequent to
January 8, 2008, the redemption price of $100 per share, plus all accrued and
unpaid dividends.
34
The Series B Preferred Stock contains covenants which require the Company to
maintain certain financial coverages relating to fixed charge and capitalization
ratios. Shares of the Series B Preferred Stock are non-voting; however, under
certain circumstances (relating to non-payment of dividends or failure to comply
with the financial covenants) the preferred stockholders will be entitled to
elect two directors. The Company was in compliance with such covenants at
October 31, 2001 and 2000.
(9) STOCKHOLDERS' EQUITY
On October 31, 2001 the Company completed a secondary offering of 4,800,000
shares of its Class A Common stock in an underwritten public offering. The
aggregate net proceeds to the Company (after deducting underwriting fees and
expenses) were $41,136,000. The Company also granted the underwriters an option,
exercisable for 30 days, to purchase up to 720,000 additional shares of Class A
Common Stock to cover over-allotments. On November 26, 2001 the underwriters
exercised an option for 699,222 shares that resulted in net proceeds to the
Company of $6,112,000.
In fiscal 2001, the Company also sold 200,000 shares of Common Stock and 5,000
shares of Class A Common Stock for proceeds of $1,435,000 in a private placement
offering with two entities controlled by an officer of the Company.
In fiscal 1998, the Board of Directors declared and paid a special stock
dividend on the Company's Common Stock consisting of one share of a newly
created class of Class A Common Stock, par value $.01 per share for each share
of the Company's Common Stock. The Class A Common Stock entitles the holder to
1/20 of one vote per share. Each share of Common Stock and Class A Common Stock
have identical rights with respect to dividends except that each share of Class
A Common Stock will receive not less than 110% of the regular quarterly
dividends paid on each share of Common Stock.
The Company has a Stockholders rights plan, which expires on November 12, 2008.
The rights are not currently exercisable. When they are exercisable, the holder
will be entitled to purchase from the Company one one-hundredth of a share of a
newly-established Series A Participating Preferred Stock at a price of $65 per
one one-hundredth of a preferred share, subject to certain adjustments. The
distribution date for the rights will occur 10 days after a person or group
either acquires or obtains the right to acquire 10% ("Acquiring Person") or more
of the combined voting power of the Company's Common Shares, or announces an
offer the consummation of which would result in such person or group owning 30%
or more of the then outstanding Common Shares. Thereafter, shareholders other
than the Acquiring Person will be entitled to purchase original common shares of
the Company having a value equal to two times the exercise price of the right.
If the Company is involved in a merger or other business combination at any time
after the rights become exercisable, and the Company is not the surviving
corporation or 50% or more of the Company assets are sold or transferred, the
rights agreement provides that the holder other than the Acquiring Person will
be entitled to purchase a number of shares of common stock of the acquiring
company having a value equal to two times the exercise price of each right.
The Company's articles of incorporation provide that if any person acquires more
than 7.5% of the outstanding shares of any class of stock, except, among other
reasons, as approved by the Board of Directors, such shares in excess of this
limit shall automatically be exchanged for an equal number of shares of Excess
Stock. Excess Stock have limited rights, may not be voted and are not entitled
to any dividends.
The Company has a restricted stock plan which provides for the grant of
restricted stock awards to key employees and directors of the Company. The plan
allows for restricted stock awards of up to 350,000 shares each of Common Stock
and Class A Common Stock. As of October 31, 2001, the Company has awarded
239,625 shares of Common stock and 142,875 shares of Class A Common stock to
participants as an incentive for future services. None of the shares awarded
were vested at October 31, 2001. The shares vest after five years. Dividends on
vested and non-vested shares are paid as declared. The market value of shares
awarded has been recorded as unamortized restricted stock compensation and is
shown as a separate component of stockholders' equity. Unamortized restricted
stock compensation is being amortized to expense over the five year vesting
period. For the years ended October 31, 2001, 2000 and 1999 amounts charged to
expense totaled $769,000, $630,000 and $488,000 respectively.
In 1996, the Company's Board of Directors authorized a program to purchase up to
500,000 shares each of the Company's Common Stock and Class A Common Stock. As
of October 31, 2001, the Company purchased and retired a total of 224,500 Common
shares and 214,100 Class A Common shares under this program.
35
(10) STOCK OPTION PLAN
The Company has a stock option plan, as amended, whereby 824,093 Common shares
and 743,003 Class A Common shares are reserved for issuance to key employees and
non-employee Directors of the Company. Options are granted at fair market value
on the date of the grant, have a duration of ten years from the date of grant
and are generally exercisable in installments over a maximum period of four
years from the date of grant.
A summary of stock option transactions during the periods covered by these
financial statements is as follows:
Year ended October 31 2001 2000 1999
- --------------------- ------------------------- --------------------------------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
Of Exercise of Exercise of Exercise
Common Stock: Shares Prices Shares Prices Shares Prices
- ------------- ------ ------ ------ ------ ------ ------
Balance at beginning of period 739,958 $6.91 736,843 $7.04 734,843 $7.09
Granted --- --- 593,000 $6.81 6,000 $7.69
Exercised (419,000) $6.83 --- --- --- ---
Canceled (5,898) $7.54 (589,885) $6.91 (4,000) $12.70
------- --------- -------
Balance at end of period 315,060 $7.00 739,958 $6.91 736,843 $7.04
Exercisable 222,060 146,958 698,597
Class A Common Stock:
Balance at beginning of period 739,464 $7.48 732,482 $7.10 730,482 $7.09
Granted --- --- 593,000 $7.13 6,000 $8.18
Exercised (24,859) $7.38 --- --- --- ---
Canceled (400,000) $7.13 (586,018) $6.96 (4,000) $12.79
---------- --------- -------
Balance at end of period 314,605 $7.50 739,464 $7.48 732,482 $7.10
221,605 146,464 694,405
Weighted average fair value of
options granted during the year
- Common Stock --- $0.18 $0.55
- Class A Common Stock --- $0.12 $0.59
At October 31, 2001, exercise prices of Common Shares and Class A Common Shares
under option ranged from $6.29 to $9.03, for the Common Shares and $6.33 to
$9.09, for the Class A Common Shares. Option expiration dates range for both
classes of stock from April 2002 through July 2010 and the weighted average
remaining contractual life of these options is 7.0 years.
As of October 31, 2001, options to acquire approximately 261,000 shares each of
Common stock and Class A Common stock held by certain officers and directors of
the Company permit the optionee to elect to receive either shares of Common
stock of Class A Common stock or a combination of both. Upon an election to
exercise shares of a class of common stock by the optionee, a comparable number
of shares of the class of common stock not elected by such optionee is deemed
cancelled and no longer available for future grants.
The fair value of the Company's stock options were estimated as of the date of
grant using a Black-Scholes option pricing model with the following weighted
average assumptions for the years ended October 31, 2000 and 1999 (there were no
grants in 2001):
Year ended October 31,
2000 1999
---- ----
Risk-free interest rate 6.17% 5.65%
Expected dividend yields 9.8%-10.9% 9.1%
Expected volatility 15.1% 23.6%
Weighted average option life 10 Years 10 Years
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock volatility. Because the
Company's stock option plan has characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of the above stock option plan.
36
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
123"). Accordingly, no compensation expense has been recognized for the options
described above. Had compensation cost for these options been determined based
on the fair value on the grant date consistent with the provisions of SFAS 123,
the effect on the Company's net income and earnings per share in each of the
three years ended October 31, 2001, 2000 and 1999 would have been immaterial.
Certain officers of the Company have exercised stock options to purchase Common
shares and Class A Common shares of the Company and signed full recourse
promissory notes which, at October 31, 2001 total $3,270,000 ($267,000 at
October 31, 2000). The notes are secured by the shares issued. The notes are for
10 year terms and bear fixed interest at 2% over an applicable U.S. treasury
note rate. Interest is payable quarterly. The exercise of the stock options and
the notes receivable from officers represent non-cash financing activities and
are therefore not included in the accompanying consolidated statements of cash
flows. The notes are shown as a reduction in stockholders equity as "Notes
receivable from officers/stockholders".
(11) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The unaudited quarterly results of operations for the years ended October 31,
2001 and 2000 are as follows (in thousands, except per share data):
Year Ended October 31, 2001 Year Ended October 31, 2000
--------------------------- ---------------------------
Quarter Ended Quarter Ended
------------- -------------
Jan 31 Apr 30 July 31 Oct 31 Jan 31 Apr 30 July 31 Oct 31
------ ------ ------- ------ ------ ------ ------- ------
Revenues $8,281 $8,702 $9,983 $9,127 $7,783 $7,682 $7,595 $7,949
====== ====== ====== ====== ====== ====== ====== ======
Net Income (1) $1,932 $2,276 $3,211 $6,268 $1,787 $3,067 $1,811 $1,924
Preferred Stock Dividends 786 787 787 787 786 787 787 787
--- --- --- --- --- --- --- ---
Net Income Applicable to
Common and Class A
Common Stockholders $1,146 $1,489 $2,424 $5,481 $1,001 $2,280 $1,024 $1,137
====== ====== ====== ====== ====== ====== ====== ======
Basic Earnings per Share:
Common $.10 $.13 $.21 $.47 $.09 $.21 $.09 $.11
Class A Common $.11 $.14 $.24 $.52 $.10 $.23 $.10 $.12
Diluted Earnings per Share:
Common $.10 $.12 $.21 $.45 $.09 $.20 $.09 $.11
Class A Common $.11 $.14 $.23 $.49 $.10 $.23 $.10 $.12
(1) Quarters ended October 31, 2001 and April 30, 2000 include gains on sales of
real estate investments of $316,000 and $1,067,000 respectively. In addition,
the quarter ended October 31, 2001 includes $3,884,000 representing the
Company's proportionate share of the earnings of its unconsolidated joint
venture, a component of which is the earnings from the sale of its retail
property on September 17, 2001.
(12) SEGMENT REPORTING
For financial reporting purposes, the Company has grouped its real estate
investments into two segments: equity investments and mortgage loans. Equity
investments are managed separately from mortgage loans as they require a
different operating strategy and management approach. The Company assesses and
measures operating results for each of its segments, based on net operating
income. For equity investments, net operating income is calculated as rental
revenues of the property less its rental expenses (such as common area expenses,
property taxes, insurance, etc.) and, for mortgage loans, net operating income
consists of interest income less direct expenses, if any.
The revenues, net operating income and assets for each of the reportable
segments are summarized in the following tables for the years ended October 31,
2001, 2000 and 1999. Non-segment assets include cash and cash equivalents,
interest receivable, and other assets. The non-segment revenues consist
principally of interest income on temporary investments. The accounting policies
of the segments are the same as those described in Note 1. (In thousands)
37
Equity Mortgage Non
Year Ended October 31, Investments Loans Segment Total
2001
Total Revenues $ 35,346 $ 302 $ 445 $ 36,093
========= ======= ========= =========
Net Operating Income $ 23,412 $ 302 $ 445 $ 24,159
========= ======= ========= =========
Total Assets $183,474 $3,507 $31,371 $218,352
======== ====== ======= ========
2000
Total Revenues $ 30,242 $ 376 $ 391 $ 31,009
========= ======= ======= =========
Net Operating Income $ 19,378 $ 376 $ 391 $ 20,145
========= ======= ======= =========
Total Assets $176,461 $2,379 $1,952 $180,792
======== ====== ====== ========
1999
Total Revenues $ 28,666 $ 302 $ 462 $ 29,430
========== ======== ======== =========
Net Operating Income $ 18,814 $ 302 $ 462 $ 19,578
========== ======== ======== =========
Total Assets $179,370 $2,500 $1,904 $183,774
========= ======= ======= ========
The reconciliation to net income for the combined reportable segments and for
the Company is as follows:
Year Ended October 31, 2001 2000 1999
---- ---- ----
Net Operating Income from Reportable Segments $24,159 $20,145 $19,578
------- ------- -------
Additions:
Equity in earnings of unconsolidated Joint Venture 3,864 245 384
Gains on sales of real estate investments 316 1,067 1,364
--- ----- -----
Total Additions 4,180 1,312 1,748
Deductions:
Interest expense 4,456 4,245 3,913
Depreciation and amortization 7,568 6,307 5,896
General, administrative and other expenses 2,628 2,316 2,327
----- ----- ------
Total Deductions 14,652 12,868 12,136
------ ------ ------
Net Income 13,687 8,589 9,190
Preferred stock dividends (3,147) (3,147) (3,147)
------- ------- -------
Net Income Applicable to
Common and Class A Common Stockholders $10,540 $5,442 $ 6,043
======= ====== =======
(13) SUBSEQUENT EVENTS AND COMMITMENT
During fiscal 2001, the Company obtained a mortgage loan commitment from a
commercial bank for $6 million secured by five office properties in Greenwich,
Connecticut. The bank made an initial disbursement of $4.8 million with $1.2
million to be advanced. The $1.2 million, when advanced, will have a seven year
term and bear interest at a fixed rate of 2% over the U.S. treasury rate
determined at the date of close.
In November 2001, the Company repurchased 200,000 shares of its outstanding
8.99% Series B Cumulative Preferred Stock for a purchase price of $16,050,000 in
a negotiated transaction with the preferred stockholder. The repurchased shares
have a net carrying value of $19,121,000 at October 31, 2001.
In December 2001, the Company contracted to purchase a shopping center for
$7,100,000.
38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of Urstadt Biddle
Properties Inc.:
We have audited the accompanying consolidated balance sheets of Urstadt Biddle
Properties Inc. and subsidiaries (the "Company") as of October 31, 2001 and
2000, and the related consolidated statements of income, cash flows and
stockholders' equity for each of the three years in the period ended October 31,
2001. These financial statements and schedules referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 Urstadt Biddle Properties Inc.
and subsidiaries as of October 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 2001 in conformity with accounting principles generally accepted in
the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the accompanying
index to financial statements are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the
basic financial statements. These schedules have been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
New York, New York
December 12, 2001
39
URSTADT BIDDLE PROPERTIES INC.
OCTOBER 31 2001
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F COL.G/H COL.I
- -----------------------------------------------------------------------------------------------------------------------------------
Cost Capitalized Life on which
Initial Subsequent depreciation for
Cost to Company to Acquisition Carried at Close of Period building and
--------------- --------------------- --------------------------------- in latest
Accumulated Date statement is
Description Building & Carrying Building & Building & Depreciation constructed computed
and Location Encumbrances Land Improvements Costs Improvements Land Improvements TOTAL (Note(b)) Acquired (Note(d))
-------------- ------------ ---- ------------ ----- ------------ ---- ------------ ----- --------- --------- -------
Real Estate Subject to Operating Leases (Note (a)):
Office Buildings:
Greenwich, CT ** $4,800 $199 $795 $ - $49 $199 $844 $1,043 $146 1993 31.5
Greenwich, CT ** - 111 444 - 22 111 466 577 163 1994 31.5
Greenwich, CT ** - 488 1,139 - 29 488 1,168 1,656 35 2000 31.5
Greenwich, CT ** - 570 2,359 - 180 570 2,539 3,109 227 1998 31.5
Greenwich, CT ** - 708 1,641 - - 708 1,641 2,349 21 2001 31.5
Southfield, MI** - 1,000 10,280 - 2,071 1,000 12,351 13,351 6,355 1983 35.0
----- ----- ------ --- ----- ----- ------ ------ -----
4,800 3,076 16,658 - 2,351 3,076 19,009 22,085 6,947
----- ----- ------ --- ----- ----- ------ ------ -----
Shopping Centers:
Springfield, MA - 1,372 3,656 - 15,732 1,372 19,388 20,760 8,978 1970 40.0
Farmingdale, NY - 1,027 4,174 - 182 1,027 4,356 5,383 1,163 1993 31.5
Somers, NY 1,858 821 2,600 - 2 821 2,602 3,423 630 1992 31.5
Somers, NY 6,315 1,834 7,383 - 15 1,834 7,398 9,232 509 1999 31.5
Briarcliff, NY 5,878 2,300 9,708 - 1,321 2,300 11,029 13,329 886 1998 40.0
Briarcliff, NY 4,126 2,222 5,185 - - 2,222 5,185 7,407 33 2001 40.0
Wayne, NJ * - 2,492 9,966 - 488 2,492 10,454 12,946 2,488 1992 31.0
Eastchester, NY 4,695 1,500 6,128 - 3 1,500 6,131 7,631 613 1997 31.0
Meriden, CT - 5,000 20,309 - 5,784 5,000 26,093 31,093 5,606 1993 31.5
Danbury, CT * - 3,850 15,811 - 4,454 3,850 20,265 24,115 3,516 1994 31.5
Tempe, AZ - 493 2,284 - 1,079 493 3,363 3,856 1,845 1996 40.0
Carmel, NY 4,994 1,763 5,973 - 1,866 1,763 7,839 9,602 1,252 1995 31.5
Darien, CT 14,448 4,260 17,192 - 608 4,260 17,800 22,060 1,535 1998 40.0
------ ----- ------ --- ----- ----- ------ ------ -----
42,315 28,934 110,369 - 31,534 28,934 141,903 170,837 29,053
------ ------ ------- --- ------ ------ ------- ------- ------
Industrial Distribution Center
Dallas, TX *** - 1,090 - - - 1,090 1,090 126 1970 40.0
St.Louis,MO*** - 1,166 - - - 1,166 1,166 97 1970 40.0
--- --- ----- --- --- --- ----- ----- ---
- - 2,256 - - - 2,256 2,256 223
--- --- ----- --- --- --- ----- ----- ---
Mixed Use Facility: Retail/Office:
Briarcliff, NY - 380 1,531 - 2,150 380 3,681 4,061 288 1999 40.0
Ridgefield, CT - 900 3,793 - 639 900 4,432 5,332 581 1998 40.0
Newington, NH - 726 1,997 - 4,342 726 6,339 7,065 3,353 1979 40.0
--- --- ----- --- ----- --- ----- ----- -----
- 2,006 7,321 - 7,131 2,006 14,452 16,458 4,222
--- ----- ----- --- ----- ----- ------ ------ -----
Total $47,115 $34,016 $136,604 $- $41,016 $34,016 $177,620 $211,636 $40,445
======= ======= ======== === ======= ======= ======== ======== =======
* Properties secure a $20 million secured revolving credit line. At October 31,
2001 there were no outstanding borrowings.
**Property secure a mortgage in the
amount of $6,000,000. At October 31, 2001 the Company had drawn $4,800,000 under
this mortgage.
***Properties were previously accounted for as direct finance
leases. During 2001 the leases were re-negotiated and the new leases were
reclassified as operating leases. The residual values remaining under the
finance leases were reclassed to real estate owned subject to operating leases
and classified under "Intial cost to Company".
40
URSTADT BIDDLE PROPERTIES INC.
OCTOBER 31, 2001
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
(In thousands)
- ---------------------------------------------------------------------- ------------ ------------ ------------
NOTES: 2001 2000 1999
---- ---- ----
(a) RECONCILIATION OF REAL ESTATE
OWNED SUBJECT TO OPERATING LEASES
Balance at beginning of year $192,233 $188,467 $166,083
Property improvements during the year 10,167 5,568 2,726
Property acquired during the year 9,758 1,627 23,134
Property sold during the year (800) (3,213) (3,060)
Property reclassed from financing leases 2,252 --- ---
Property assets fully written off (1,974) (216) (416)
------- -------- --------
Balance at end of year $211,636 $192,233 $188,467
======== ======== ========
(b) RECONCILIATION OF ACCUMULATED DEPRECIATION
Balance at beginning of year $35,768 $30,735 $27,763
Provision during the year charged to income 6,698 5,638 5,070
Property sold during the year --- (358) (1,659)
Property assets fully written off (2,020) (247) (439)
------- ----- -----
Balance at end of year $40,446 $35,768 $30,735
======= ======= =======
(c) RECONCILIATION OF REAL ESTATE OWNED SUBJECT TO FINANCING LEASES
Balance at beginning of year $2,543 $3,756 $5,005
Recovery of investment in properties owned subject to financing
leases and amortization of deferred renewal rights (191) (1,213) (1,249)
Property sold during the year (100) --- ---
Reclassed to real estate owned subject to operating leases (2,252) --- ---
------- --- ---
Balance at end of year $ --- $2,543 $3,756
====== ====== ======
(d) Tenant improvement costs are depreciated over the life of the related
leases, which range from 3 to 25 years.
(e) The difference between the initial costs to the Company and costs
capitalized subsequent to acquisition and the amount at which carried at
close of period represents accumulated depreciation for the period prior to
classification of these assets as financing leases and accumulated
recoveries for the period thereafter.
(f) The aggregate cost basis for Federal income tax purposes at October 31, 2001
is $218,076,000.
(g) In fiscal 2001, two of the Company's properties accounted for as direct
finance leases were relet. The renegotiated leases were classified as
operating leases. The residual value remaining under the finance leases
were reclassed to Real Estate Owned Subject to Operating Leases.
41
URSTADT BIDDLE PROPERTIES INC.
OCTOBER 31 2001
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
- -----------------------------------------------------------------------------------------------------------------------------------
Remaining Face
Interest Rate Amount of Carrying Amount
------------- Final Mortgages of Mortgage
Maturity (Note (b)) (Note (a))
Description Coupon Effective Date Periodic Payment Terms (In Thousands) (In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
I. FIRST MORTGAGE LOANS ON BUSINESS PROPERTIES (Notes (c) and (d)):
- --------------------------------------------------------------------
Retail Store:
Erie, PA 9% 14% 1-Jul-13 Payable in monthly installments of
Principal and Interest of $10,787. $939 $746
Retail Store:
Riverside, CA 9% 12% 15-Jan-13 Payable in quarterly installments of
Principal and Interest of $54,313. 1,847 1,561
----------------------
Total First Mortgage Loans 2,786 2,307
----------------------
II. MORTGAGE LOANS ON BUSINESS PROPERTIES (Notes (c) and (e)):
Retail:
Clearwater, FL 12.5% 12.5% 5-Oct-04 Payable only in monthly installments
of interest 1,200 1,200
-----------------------
TOTAL MORTGAGE LOANS ON REAL ESTATE $3,986 $3,507
=======================
42
URSTADT BIDDLE PROPERTIES INC.
OCTOBER 31 2001
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (Continued)
(In thousands)
NOTES TO SCHEDULE IV Year Ended October 31
---------------------
(a) Reconciliation of Mortgage Loans on Real Estate
2001 2000 1999
---- ---- ----
Balance at beginning of period: $ 2,379 $ 2,500 $ 2,607
Deductions during the current period:
Collections of principal and amortization of discounts (72) (121) (107)
Additions during the current period:
Mortgage Loan issued to Countryside Holdings, L.L.C. (e) 1,200 0 0
-------------------------------------------
Balance at end of period: $ 3,507 $ 2,379 $ 2,500
===========================================
(b) The aggregate cost basis for Federal income tax purposes is equal to the
face amount of the mortgages
(c) At October 31, 2001 no mortgage loans were delinquent in payment of
currently due principal or interest.
(d) There are no prior liens for any of the Mortgage Loans on Real Estate.
(e) Loan secured by a collateral assignment and security agreement of the
ownership interest in a limited liability corporation which owns underlying
retail property
43
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.
URSTADT BIDDLE PROPERTIES INC.
By: /S/ Charles J Urstadt
------------------------------
Charles J. Urstadt
Chairman and Chief Executive Officer
Dated: January 29, 2002
44
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 date indicated.
/S/ Charles J. Urstadt January 25, 2002
- ------------------------------
Charles J. Urstadt
Chairman and Director
(Principal Executive Officer)
/S/ Willing L. Biddle January 25, 2002
- ---------------------------
Willing L. Biddle
President and Director
/S/ James R. Moore January 25, 2002
- --------------------------
James R. Moore
Executive Vice President - Chief
Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
/S/ E. Virgil Conway January 25, 2002
- ---------------------------
E. Virgil Conway
Director
/S/ Robert R. Douglass January 25, 2002
- --------------------------
Robert R. Douglass
Director
/S/ Peter Herrick January 25, 2002
- -------------------------------
Peter Herrick
Director
/S/ George H.C. Lawrence January 25,2002
- ------------------------
George H. C. Lawrence
Director
/S/ Charles D. Urstadt January 25, 2002
- -----------------------------
Charles D. Urstadt
Director
/S/ George J. Vojta January 25, 2002
- --------------------------------
George J. Vojta
Director
45
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated December 12, 2001 included in this Annual Report on Form 10-K for
the year ended October 31, 2001 of Urstadt Biddle Properties Inc. into its
previously filed Registration Statements on Form S-2 (No. 333-69858), Forms S-3
(No.33-57119 and No.333-64381), Form S-4 (No. 333-19113) and Forms S-8
(No.2-93146, No. 333-61765,No. 333-61767 and No. 33-41408).
ARTHUR ANDERSEN LLP
New York, New York
January 29, 2002
46
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
323 Railroad Corporation, a Connecticut Corporation
UB Darien, Inc., a Connecticut Corporation
47
EXHIBIT 10.17
WAIVER AND AMENDMENT
WAIVER AND AMENDMENT, dated as of September 14, 2001 (the "Amendment") to the
Registration Rights Agreement, dated as of January 8, 1998 (as amended, the
"Registration Rights Agreement"), by and among Urstadt Biddle Properties Inc.
(formerly "HRE Properties, Inc." and hereinafter referred to as the "Company"),
Cobalt Capital LLC, Wells Fargo & Company and Retirement Plan of the Bank of New
York Company, Inc. (collectively, the "Initial Purchasers"). Capitalized terms
used but not defined herein shall have the meanings given to them in the
Registration Rights Agreement.
W I T N E S S E T H
WHEREAS, the Borrower and the Initial Purchasers have entered into
the Registration Rights Agreement;
WHEREAS, the Initial Purchasers desire to waive certain of the
obligations of the Company under the Registration Rights Agreement; and
WHEREAS, the Company and the Initial Purchasers wish to implement
certain amendments to the Registration Rights Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Waiver of Section 2(a) of the Registration Rights Agreement. Section 2(a) of
the Registration Rights Agreement, as such section exists before giving effect
to the amendment set forth in Section 2 of this Amendment, is hereby waived.
This waiver shall be limited precisely as drafted and shall not be construed to
be an amendment or waiver of any other provision of the Registration Rights
Agreement and shall be effective only in this specific instance.
2. Amendment of Section 2(a) of the Registration Rights Agreement.
Section 2(a) of the Registration Rights
Agreement is hereby amended to read in full as follows:
"(a) The Company shall prepare and file with the Commission a Registration
Statement under the Securities Act relating to the offer and sale of the
Registrable Securities and shall use its reasonable best efforts to cause the
Commission to declare such Registration Statement to be effective under the
Securities Act on or prior to December 31, 2001, all in accordance with the
terms of this Agreement."
3. Miscellaneous.
(1) The Registration Rights Agreement, as affected by this Amendment, is and
shall continue to be in full force and effect and is hereby in all respects
ratified and confirmed. On and after the effective date of this Amendment, each
reference in the Registration Rights Agreement to "this Agreement", "hereunder",
"hereof" or words of like import referring to the Registration Rights Agreement
shall be a reference to the Registration Rights Agreement as amended by this
Amendment.
(2) This Amendment may be executed in any number of counterparts, each of which
shall be and shall be taken to be an original, and all such counterparts shall
together constitute one and the same instrument.
(3) THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW
OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS
PRINCIPLES THEREOF.
IN WITNESS WHEREOF, the Company and the Initial Purchasers have caused
this Amendment to be executed as of the date first above written.
URSTADT BIDDLE PROPERTIES INC.
By:/s/ James R. Moore
---------------------------------
Name: James R. Moore
Title: Treasurer
COBALT CAPITAL LLC
By: CGA Investment Management, Inc.
as Asset Manager
By:/s/ Brian J. Riordan
----------------------------------
Name: Brian J. Riordan
Title: Vice President
WELLS FARGO & COMPANY
By:/s/ Roger Wittlin
------------------------------------------
Name: Roger Wittlin
Title: Senior Vice President
RETIREMENT PLAN OF THE BANK OF NEW YORK
COMPANY, INC.
By: The Bank of New York, as Trustee
By:/s/ Mark A. Hemenetz
---------------------------------
Name: Mark A. Hemenetz
Title: Executive Vice President