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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2004
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File Number 1-12803
URSTADT BIDDLE PROPERTIES INC.
(Exact Name of Registrant in its Charter)
MARYLAND 04-2458042
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
321 Railroad Avenue, Greenwich, CT 06830
----------------------------------------
Address of principal executive offices) (ZipCode)
Registrant's telephone number, including area code: (203) 863-8200
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 whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes X No
As of March 8, 2004, the number of shares of the Registrant's classes of Common
Stock and Class A Common Stock was: 7,038,435 Common Shares, par value $.01 per
share and 18,611,534 Class A Common Shares, par value $.01 per share
THE SEC FORM 10-Q, FILED HEREWITH, CONTAINS 20 PAGES, NUMBERED CONSECUTIVELY
FROM 1 TO 20 INCLUSIVE, OF WHICH THIS PAGE IS 1.
1
INDEX
URSTADT BIDDLE PROPERTIES INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - January 31, 2004 and October 31, 2003.
Consolidated Statements of Income -Three months ended January 31, 2004
and 2003.
Consolidated Statements of Cash Flows - Three months ended January 31,
2004 and 2003.
Consolidated Statements of Stockholders' Equity - Three months ended
January 31, 2004.
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 6. Exhibits and Reports on Form 8-K.
SIGNATURES
2
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
January October 31
ASSETS 2004 2003
---- ----
(unaudited)
Real Estate Investments:
Core properties-- at cost, net of accumulated depreciation $329,071 $330,920
Non-core properties - at cost, net of accumulated depreciation 10,961 11,215
Mortgage notes receivable 2,166 2,184
----- -----
342,198 344,319
Cash and cash equivalents 28,452 22,449
Restricted cash 1,102 1,098
Marketable securities 2,014 9,532
Tenant receivables, net allowances of $1,509 and $1,369 10,064 8,815
Prepaid expenses and other assets 4,940 3,276
Deferred charges, net of accumulated amortization 3,258 3,229
----- -----
Total Assets $392,028 $392,718
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $104,106 $104,588
Accounts payable and accrued expenses 1,892 2,743
Deferred officers' compensation 441 401
Other liabilities 4,653 5,243
----- -----
Total Liabilities 111,092 112,975
------- -------
Minority Interests 7,320 7,320
----- -----
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); 150,000 shares issued and outstanding 14,341 14,341
8.50% Series C Senior Cumulative Preferred Stock, (liquidation preference
of $100 per share); 400,000 issued and outstanding 38,406 38,406
------ ------
Total Preferred Stock 52,747 52,747
------ ------
Commitments and Contingencies
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;
7,038,435 and 6,817,771 issued and outstanding shares, respectively 70 68
Class A Common stock, par value $.01 per share; 40,000,000 shares authorized;
18,611,534 and 18,548,453 issued and outstanding shares, respectively 186 185
Additional paid in capital 262,231 258,296
Cumulative distributions in excess of net income (33,891) (33,611)
Other comprehensive income 348 -
Unamortized restricted stock compensation and officers notes receivable (8,075) (5,262)
------- -------
Total Stockholders' Equity 220,869 219,676
------- -------
Total Liabilities and Stockholders' Equity $392,028 $392,718
======== ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
3
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Three Months Ended
January 31,
2004 2003
---- ----
Revenues:
Base rents $12,619 $10,400
Recoveries from tenants 3,776 2,920
Lease termination income 542 -
Interest and other 221 361
------ ------
17,158 13,681
------ ------
Operating Expenses:
Property operating 2,788 2,332
Property taxes 2,134 1,642
Interest 2,005 2,035
Depreciation and amortization 2,792 2,349
General and administrative 1,019 985
Directors' fees and expenses 57 49
------ -----
10,795 9,392
------ -----
Operating Income before Minority Interests 6,363 4,289
Minority Interests in Results of Consolidated Joint Ventures (92) (92)
---- -----
Net Income 6,271 4,197
Preferred Stock Dividends (1,187) (337)
------- -----
Net Income Applicable to Common and Class A Common Stockholders $5,084 $3,860
====== ======
Basic Earnings per Share:
Common $.19 $.15
==== ====
Class A Common $.21 $.16
==== ====
Diluted Earnings Per Share:
Common $.19 $.15
==== ====
Class A Common $.21 $.16
==== ====
Dividends Paid Per Share:
Common $.195 $.19
===== ====
Class A Common $.215 $.21
===== ====
The accompanying notes to consolidated financial statements are an
integral part of these statements.
4
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three Months Ended
January 31,
2004 2003
---- ----
Operating Activities:
Net income $6,271 $4,197
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,792 2,349
Amortization of restricted stock 302 252
Minority interests 92 92
Increase in tenant receivables (1,249) (430)
Decrease (increase) in accounts payable and accrued expenses (851) 395
Decrease (increase) in other assets and other liabilities, net (2,175) 300
Increase in restricted cash (4) -
----- -----
Net Cash Provided by Operating Activities 5,178 7,155
----- -----
Investing Activities:
Acquisitions of properties - (51,352)
Sale of short term investments 7,866 25,145
Improvements and other payments to properties and deferred charges (757) (806)
Distributions to limited partners of consolidated joint ventures (92) (92)
Payments received on mortgage notes receivables 18 29
----- --------
Net Cash Provided by (Used in) Investing Activities 7,035 (27,076)
----- --------
Financing Activities:
Dividends paid on Common and Class A Common shares (5,364) (5,166)
Dividends paid on Preferred Stock (1,187) (337)
Payments on mortgage notes payable (482) (448)
Sales of additional Common and Class A Common shares 690 96
Repayment of officer's note receivable 133 -
------- -------
Net Cash Used in Financing Activities (6,210) (5,855)
------- -------
Net Increase (Decrease) In Cash and Cash Equivalents 6,003 (25,776)
Cash and Cash Equivalents at Beginning of Period 22,449 46,342
------- ------
Cash and Cash Equivalents at End of Period $28,452 $20,566
======= =======
Supplemental Cash Flow Disclosures:
Interest Paid $2,005 $2,035
====== ======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (In thousands,
except shares and per share data)
Unamortized
Restricted
Stock
Common Stock Class A Common Stock Compensation
------------------ ------------------ (Cumulative and
Outstanding Outstanding Additional Distributions Other Officers
Number of Par Number of Par Paid In In Excess of Comprehensive Notes
Shares Value Shares Value Capital Net Income) Income Receivable Total
--------- ----- ---------- ----- -------- ---------- ------------ ---------- -----
Balances - October 31, 2003 6,817,771 $68 18,548,453 $185 $258,296 $(33,611) $ - $(5,262) $219,676
Comprehensive income:
Net income applicable to Common
and Class A common stockholders - - - - - 5,084 - - 5,084
Unrealized gain on marketable
securities 348 - 348
---
Total Comprehensive income 5,432
Cash dividends paid:
Common stock ($.195 per share) - - - - - (1,364) - - (1,364)
Class A common stock
($.215 per share) - - - - - (4,000) - - (4,000)
Sales of shares under dividend
reinvestment plan 45,164 - 4,456 - 690 - - - 690
Shares granted under restricted
stock plan 175,500 2 58,625 1 3,245 - - (3,248) -
Amortization of restricted
stock compensation - - - - - - - 302 302
Repayment of officer's note
receivable - - - - - - - 133 133
--------- ---- --------- ---- -------- -------- ---- ------- --------
Balances - January 31, 2004 7,038,435 $70 18,611,534 $186 $262,231 $(33,891) $348 $(8,075) $220,869
========= ==== ========== ==== ======== ========= ==== ======== ========
The accompanying notes to consolidated financial
statements are an integral part of these statements.
6
URSTADT BIDDLE PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Business
Urstadt Biddle Properties Inc. (the Company) 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. As of January 31, 2004, the Company owned or had interests in
30 properties containing approximately 3.4 million square feet of leasable area.
Basis of Presentation
The accompanying unaudited 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. All
significant intercompany transactions and balances have been eliminated. The
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Results of operations for the three-month period ended January 31, 2004 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 2004. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended October 31, 2003.
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. The balance sheet at October 31, 2003 has been derived from
audited financial statements at that date.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Federal Income Taxes
The Company has elected to be treated as a real estate investment trust (REIT)
under the Internal Revenue Code, as amended. A REIT, that among other things,
distributes at least 90% of its REIT taxable income will not be taxed on that
portion of its taxable income which is distributed. The Company believes it
qualifies and intends to continue to qualify as a REIT.
Earnings Per Share
Basic 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.
7
The following table sets forth the reconciliation between basic and diluted EPS
(in thousands):
Three Months Ended
January
2004 2003
---- ----
Numerator
Net income applicable to common stockholders - basic $1,219 $914
Effect of dilutive securities:
Operating partnership units 36 34
------ ----
Net income applicable to common stockholders - diluted $1,255 $948
====== ====
Denominator
Denominator for basic EPS-weighted average common shares 6,337 6,232
Effect of dilutive securities:
Stock options 203 227
Operating partnership units 55 55
----- -----
Denominator for diluted EPS - weighted average common equivalent shares 6,595 6,514
===== =====
Numerator
Net income applicable to Class A common Stockholders-basic $3,865 $2,946
Effect of dilutive securities:
Operating partnership units 55 58
------ ------
Net income applicable to Class A common Stockholders - diluted $3,920 $3,004
====== ======
Denominator
Denominator for basic EPS - weighted average Class A common shares 18,231 18,170
Effect of dilutive securities:
Stock options 146 190
Operating partnership units 310 310
------ ------
Denominator for diluted EPS - weighted average Class A Common equivalent shares 18,687 18,670
====== ======
Marketable Securities
Marketable securities consist of short-term investments and marketable equity
securities. Short-term investments consist of investments with original
maturities of greater than three months when purchased and are carried at fair
value (which approximates cost plus accrued interest). Marketable equity
securities are carried at fair value. The Company has classified marketable
securities as available for sale. Unrealized gains and losses on available for
sale securities are recorded as other comprehensive income in Stockholders
Equity. At January 31, 2004, other comprehensive income consists of net
unrealized holding gains of $348,000. Unrealized gains held in other
comprehensive income will be reclassified into earnings, as gains are realized.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents, mortgage notes
receivable and tenant receivables. The Company places its cash and cash
equivalents in excess of insured amounts with high quality financial
institutions. The Company performs ongoing credit evaluations of its tenants and
may require certain tenants to provide security deposits or letters of credit.
Though these security deposits and letters of credit may be insufficient to meet
the terminal value of a tenant's lease obligation, they are a measure of good
faith and source of funds to offset the economic costs associated with lost rent
and the costs associated with retenanting the space. There is no dependence upon
any single tenant.
Segment Reporting
The Company operates in one industry segment, ownership of commercial real
estate properties which are located principally in the northeastern United
States. Management reviews operating and financial data for each property
separately and independently from all other properties when making resource
allocation decisions and measuring performance.
8
Recently Issued Accounting Pronouncements
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of
Variable Interest Entities," which explains how to identify variable interest
entities ("VIE") and assess whether to consolidate such entities. The provisions
of this interpretation are effective immediately for VIE's formed after January
31, 2003. For VIE's formed prior to January 31, 2003, the provisions of this
interpretation apply to the first fiscal year or interim period beginning after
December 15, 2003. The adoption of this pronouncement in the first quarter of
fiscal 2004 did not have any effect on the Company's operations or financial
position as the company does not have any VIE's.
In November 2003, the FASB deferred the classification and measurement
provisions of FASB No. 150 which apply to certain mandatorily redeemable
non-controlling interests. This deferral is expected to remain in effect while
these provisions are further evaluated by the FASB. The Company has one finite
life joint venture which contains a mandatorily redeemable non-controlling
interest. At January 31, 2004, the estimated fair value of the minority interest
was approximately $2.7 million. The joint venture has a termination date of
December 31, 2097.
2. CORE PROPERTIES
In December 2002, the Company purchased Orange Meadows Shopping Center in
Orange, Connecticut for $11.3 million. In connection with the acquisition, the
Company agreed to pay the seller, as additional purchase price, an amount to be
determined pursuant to an agreed formula, but not less than $969,000, for
leasing efforts at the property. In January 2004, the Company paid the seller
$1.7 million in satisfaction of the contingent payment.
Upon the acquisition of real estate properties, the fair value of the real
estate purchased is allocated to the acquired tangible assets, (consisting of
land, buildings and building improvements) and identified intangible assets and
liabilities, (consisting of above-market and below-market leases and in-place
leases) in accordance with SFAS No.141 "Business Combinations." The Company
utilizes methods similar to those used by independent appraisers in estimating
the fair value of acquired assets and liabilities. The fair value of tangible
assets of an acquired property considers the value of the property
"as-if-vacant." The fair value reflects the depreciated replacement cost of the
asset. In allocating purchase price to identified intangible assets and
liabilities of an acquired property, the values of above-market and below-market
leases are estimated based on the differences between (i) contractual rentals
and the estimated market rents over the applicable lease term discounted back to
the date of acquisition utilizing a discount rate adjusted for the credit risk
associated with the respective tenants and (ii) the estimated cost of acquiring
such leases giving effect to the Company's history of providing tenant
improvements and paying leasing commissions, offset by a vacancy period during
which such space would be leased. The aggregate value of in-place leases, is
measured by the excess of (i) the purchase price paid for a property after
adjusting existing in-place leases to market rental rates over (ii) the
estimated fair value of the property "as-if-vacant," determined as set forth
above.
The Company is currently in the process of analyzing the fair value of in-place
leases for Somers Commons in Somers, New York, which was acquired in June 2003,
and consequently, no value has yet been assigned to the leases. Accordingly, the
purchase price allocation is preliminary and may be subject to change.
3. MORTGAGE NOTES PAYABLE AND LINES OF CREDIT
At January 31, 2004, the Company had ten non-recourse first mortgage notes
payable totaling $104,106,000 due in installments over various terms extending
to the fiscal year 2011 at fixed rates of interest ranging from 6.29% to 8.375%.
The mortgage notes payable are collateralized by real estate investments having
a net carrying value of approximately $166,169,000 as of January 31, 2004.
The Company has a secured revolving line of credit with a bank which permits
borrowings up to $18.125 million. The agreement expires in October 2005 and 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 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. The Company also has a $20 million unsecured line of
credit which expires in January 2005. Outstanding borrowings bear interest at
prime rate + 1/2 or LIBOR + 2 1/2%. Extensions of credit under the arrangement
are at the bank's discretion and subject to the bank's satisfaction of certain
conditions. There were no borrowings outstanding under either line of credit at
January 31, 2004.
4. PREFERRED STOCK
In fiscal 2003, the Company sold 400,000 shares of 8.50% Series C Senior
Cumulative Preferred Stock, par value $.01 per share ("Series C Preferred
Stock") for net proceeds of $38.4 million. The Series C Preferred Stock has no
stated maturity and is not convertible into other securities of the Company. On
or after May 29, 2013, the Series C Preferred Stock may be redeemed by the
Company, at its option, at a redemption price of $100 per share. The Series C
Preferred Stock contains covenants which require the Company to maintain certain
financial coverages relating to fixed charge and capitalization ratios. The
Company was in compliance with such covenants at January 31, 2004.
9
In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("Statement").
The Statement establishes standards for classifying and measuring as liabilities
certain financial instruments that embody obligations of the issuer and have
characteristics of both liabilities and equity. As the holders of the Series B
Preferred Stock and Series C Preferred Stock only have a contingent right to
require the Company to repurchase all or part of such holders interests upon a
change of control of the Company (as defined), the Series B Preferred Stock and
Series C Preferred Stock are classified as redeemable equity instruments as a
change in control is not certain to occur.
5. STOCKHOLDERS EQUITY
The Company has a restricted stock plan for key employees and directors of the
Company. The plan authorizes grants as an incentive for future services of up to
1,050,000 shares (350,000 shares each of Class A Common stock and Common stock
and 350,000 shares, which at the discretion of the Company's compensation
committee, may be awarded in any combination of Class A Common or Common Stock).
In January 2004, the Company awarded 58,625 shares of Class A Common stock and
175,500 shares of Common stock to participants in the Plan. The shares vest
between five and ten years after the date of grant. The market value of shares
awarded is recorded as unamortized restricted stock compensation and amortized
to expense over the vesting periods. As a result of the 2004 grants, the Company
recorded $3,249,000 as unamortized restricted stock compensation in the first
quarter of 2004. As of January 31, 2004, the Company has awarded 685,000 shares
of Common stock and 301,125 shares of Class A Common Stock to participants in
the plan (of which 21,750 shares each of Common Stock and Class A Common Stock
are vested). Dividends on vested and non-vested shares are paid as declared.
The Company has a Dividend Reinvestment and Share Purchase Plan that allows
shareholders to acquire additional shares of Common Stock and Class A Common
Stock by automatically reinvesting dividends. The Company issued 45,164 shares
of Common Stock and 4,456 shares of Class A Common Stock in the three months
ended January 31, 2004 (3,236 shares of Common Stock and 4,945 shares of Class A
Common Stock in 2003) through the Plan.
6. STOCK OPTION PLAN
The Company has a stock option plan whereby 824,093 Common shares and 743,003
Class A Common shares were reserved for issuance to key employees and
non-employee Directors of the Company. As of January 31, 2004, options to
purchase 55,876 shares of Common shares and 42,733 shares of Class A Common
shares, respectively, were outstanding (All outstanding grants are fully
vested). Options are granted at fair market value on the date of grant, have a
duration of ten years from the date of grant, and vest over a maximum period of
four years from the date of grant. There were no grants of stock options in 2004
or 2003. Had compensation cost for stock options granted been determined based
on fair value on the grant date consistent with the provisions of SFAS 123,
there would have been no effect on the Company's net income and earnings per
share in each of the three month periods ended January 31, 2004 and 2003.
In a prior year, an officer of the Company exercised certain stock options to
purchase shares of Common Stock of the Company. In connection with the exercise,
the officer executed a full recourse promissory note equal to the purchase price
of the shares. At January 31, 2004, the outstanding balance of the note was
$1,300,000. The note, which expires in fiscal 2012, has a 10-year term at an
annual interest rate of 6.8%. The shares are pledged as additional collateral
for the note. Interest is payable quarterly. During the first quarter of fiscal
2004, another officer fully repaid his outstanding stock option loan of
$133,584.
7. CONTINGENCIES
In the normal course of business, from time to time, the Company is involved in
legal actions relating to the ownership and operations of its properties. In
management's opinion, the liabilities, if any that may ultimately result from
such legal actions are not expected to have a material adverse effect on the
consolidated financial position, results of operations or liquidity of the
Company.
10
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
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 real estate 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
January 31, 2004, the Company owned or had controlling interests in 30
properties containing a total of 3.4 million square feet of leasable area.
Forward Looking Statements
This report includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. All statements, other than statements of historical facts, included
in this report that address activities, events or developments that the Company
expects, believes or anticipates will or may occur in the future, including such
matters as future capital expenditures, dividends and acquisitions (including
the amount and nature thereof), expansion and other development trends of the
real estate industry, business strategies, expansion and growth of the Company's
operations and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate. Such statements are subject to a number of assumptions, risks and
uncertainties, general economic and business conditions, the business
opportunities that may be presented to and pursued by the Company, changes in
laws or regulations and other factors, many of which are beyond the control of
the Company. Any such statements are not guarantees of future performance and
actual results or developments may differ materially from those anticipated in
the forward-looking statements.
Critical Accounting Policies
Critical accounting policies are those that are both important to the
presentation of the Company's financial condition and results of operations and
require management's most difficult, complex or subjective judgments. Set forth
below is a summary of the accounting policies that management believes are
critical to the preparation of the consolidated financial statements. This
summary should be read in conjunction with the more complete discussion of the
Company's accounting policies included in Note 1 to the consolidated financial
statements of the Company.
Revenue Recognition
The Company records base rents on a straight-line basis over the term of each
lease. The excess of rents recognized over amounts contractually due pursuant to
the underlying leases is included in tenant receivables on the accompanying
balance sheets. Most leases contain provisions that require tenants to reimburse
a pro-rata share of real estate taxes and certain common area expenses. These
amounts are recognized in the period the related expenses are incurred. Expense
reimbursement payments generally are made monthly based on an estimated amount
determined at the beginning of the year. The difference between the actual
amount due and the estimated amounts paid by the tenant throughout the year is
billed or credited to the tenant.
Allowance for Doubtful Accounts
The allowance for doubtful accounts and mortgage notes receivable is established
based on a quarterly analysis of the risk of loss on specific accounts. The
analysis places particular emphasis on past-due accounts and considers
information such as the nature and age of the receivables, the payment history
of the tenants or other debtors, the financial condition of the tenants and
management's assessment of their ability to meet their lease obligations, the
basis for any disputes and the status of related negotiations, among other
things. Management's estimates of the required allowance is subject to revision
as these factors change and is sensitive to the effects of economic and market
conditions on tenants, particularly those at retail centers. It is the Company's
policy to maintain an allowance for future tenant credit losses of approximately
10% of the deferred straight-line rents receivable balance.
11
Real Estate
Land, buildings, property improvements, furniture/fixtures and tenant
improvements are recorded at cost. Expenditures for maintenance and repairs are
charged to operations as incurred. Renovations and/or replacements, which
improve or extend the life of the asset, are capitalized and depreciated over
their estimated useful lives.
Properties are depreciated using the straight-line method over the estimated
useful lives of the assets. The estimated useful lives are as follows:
Buildings 30-40 years
Property Improvements 10-20 years
Furniture/Fixtures 3-10 years
Tenant Improvements Lease term
The Company is required to make subjective assessments as to the useful life of
its properties for purposes of determining the amount of depreciation. These
assessments have a direct impact on the Company's net income.
Assessments by the Company of certain other lease related costs are made when
the Company has a reason to believe that the tenant may not be able to perform
under the terms of the lease as originally expected. This requires management to
make estimates as to the recoverability of such assets.
Asset Impairment
On a periodic basis, management assesses whether there are any indicators that
the value of the real estate properties and mortgage notes receivable may be
impaired. A property value is considered impaired only if management's estimate
of current and projected operating cash flows (undiscounted and without interest
charges) of the property over its remaining useful life is less than the net
carrying value of the property. Such cash flow projections consider factors such
as expected future operating income, trend and prospects, as well as the effects
of demand, competition and other factors. To the extent impairment has occurred,
the loss is measured as the excess of the net carrying amount of the property
over the fair value of the asset. Management does not believe that the value of
any of its rental properties or mortgage notes receivable was impaired at
January 31, 2004.
Liquidity and Capital Resources
At January 31, 2004, the Company had unrestricted cash and cash equivalents of
$28.5 million compared to $22.4 million at October 31, 2003. The Company's cash
positions include the remaining net proceeds received from the sale of the
Company's Series C Preferred Stock in May 2003 for $38.4 million. (See below)
The Company's sources of 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. 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 expects to meet its short-term liquidity requirements
primarily by generating net cash from the operations of its properties. The
Company believes that its net cash provided by operations will be sufficient to
fund its short-term liquidity requirements in fiscal 2004 and to meet its
dividend requirements necessary to maintain its REIT status. Net cash provided
by operations for the three months ended January 31, 2004 amounted to $5.2
million compared to $7.2 million in the comparable period of fiscal 2003. The
decrease in net cash provided by operations is primarily due to the timing of
payments on property taxes and rents received. Dividends paid to stockholders of
the Company in the three month periods ended January 31, 2004 and 2003 were $6.6
million and $5.5 million, respectively. The Company derives substantially all of
its revenues from tenants under existing leases at its properties. The Company's
operating cash flow therefore depends on the rents that it is able to charge to
its tenants, and the ability of its tenants to make rental payments. The Company
believes that the nature of the properties in which it typically invests -
primarily grocery-anchored neighborhood and community shopping centers -
provides a more stable revenue flow in uncertain economic times, in that
consumers still need to purchase basic staples and convenience items. However,
even in the geographic areas in which the Company owns properties, general
economic downturns may adversely impact the ability of the Company's tenants to
make lease payments and the Company's ability to re-lease space as leases
expire. In either of these cases, the Company's cash flow could be adversely
affected.
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. The Company believes that these sources of capital will
continue to be available to it in the future to fund its long-term capital
needs; however, there are certain factors that may have a material adverse
effect on its access to capital sources. The Company's ability to incur
additional debt is dependent upon its existing leverage, the value of its
unencumbered assets and borrowing limitations imposed by existing lenders. The
Company's ability to raise funds through sales of equity securities is dependent
on, among other things, general market conditions for REITs, market perceptions
12
about the Company and its stock price in the market. The Company's ability to
sell properties in the future to raise cash will be dependent upon market
conditions at the time of sale.
Financings
In May 2003, the Company sold 400,000 shares of Series C Cumulative Preferred
Stock (Series C Preferred Stock) and realized net proceeds of $38.4 million from
the sale. A portion of the net proceeds was used to acquire a retail property in
fiscal 2003 and the remaining proceeds of approximately $17 million is expected
to be used to acquire additional income producing properties consistent with the
Company's current business strategy and to fund renovations on, or capital
improvements in connection with, the Company's existing properties, including
tenant improvements. Pending such use of the net proceeds, the Company may use
the net proceeds to make investments in short-term income-producing securities.
At January 31, 2004, the Company had a $18.125 million secured revolving credit
facility with a bank which expires in fiscal 2005. The agreement provides for a
permanent reduction in the revolving credit loan amount of $625,000 annually and
requires the Company to maintain certain coverage ratios during its term. The
Company also has a $20 million unsecured credit line with the same bank.
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
January 2004, the unsecured credit line was extended on the same terms as the
expiring arrangement for an additional one year period. Both revolving credit
lines are available to finance future acquisitions, management and/or
development of commercial real estate, refinance indebtedness and for working
capital purposes. There were no borrowings during the first quarter of fiscal
2004 and there were no outstanding borrowings on either line of credit at
January 31, 2004.
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.
Borrowings consist of $104,106,000 of fixed rate mortgage notes payable with a
weighted average interest rate of 7.53% at January 31, 2004. The mortgage loans
are secured by fourteen properties and have fixed rates of interest ranging from
6.29% to 8.375%. The Company may refinance certain of these borrowings, at or
prior to maturity, through new mortgage loans on real estate. The ability to do
so, however, is dependent upon various factors, including the income level of
the properties, interest rates and credit conditions within the commercial real
estate market. Accordingly, there can be no assurance that such refinancings can
be achieved.
Contractual Obligations
The Company's contractual payment obligations as of January 31, 2004, were as
follows (Amounts in thousands):
Payments Due by Period
Total 2004 2005 2006 2007 2008 Thereafter
----- ---- ---- ---- ---- ---- ----------
Contractual Obligations:
Mortgage notes payable $104,106 $1,502 $2,139 $8,926 $11,225 $53,261 $27,053
Tenant obligations* 717 717 - - - - -
-------- ------ ------ ------ ------- ------- -------
Total Contractual Obligations $104,823 $2,219 $2,139 $8,926 $11,225 $53,261 $27,053
======== ====== ====== ====== ======= ======= =======
* Committed tenant-related obligations based on executed leases as of January
31, 2004.
We have various standing or renewable service contracts with vendors related to
our property management. In addition, we have certain other utility contracts we
enter into in the ordinary course of business which may extend beyond one year,
which vary based on usage. These contracts include terms that provide for
cancellation with insignificant or no cancellation penalties. Contract terms are
generally one year or less.
13
Capital Expenditures
The Company invests in its existing properties and regularly incurs capital
expenditures in the ordinary course of business to maintain its properties. The
Company believes that such expenditures enhance the competitiveness of its
properties. During the first three months of fiscal 2004, the Company spent
approximately $.8 million for capital expenditures principally related to tenant
allowances and commissions in connection with the Company's leasing activities.
The amounts of these expenditures can vary significantly depending on tenant
negotiations, market conditions and rental rates. The Company has budgeted an
additional $3.5 million for expected capital improvement and leasing costs in
fiscal 2004. These expenditures may be funded from operating cash flows or
borrowings.
Non-Core Assets
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
the sale of the non-core properties of the Company in the normal course of
business over a period of several years. The Company intends to sell the
non-core properties as opportunities become available. The Company's ability to
generate cash from asset sales is dependent upon market conditions and will
necessarily be limited if market conditions make such sales unattractive. At
January 31, 2004, the remaining non-core properties total four properties with a
net book value of approximately $11.0 million and consist of two distribution
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") as defined by the National
Association of Real Estate Investment Trusts ("NAREIT") 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 real estate related depreciation and amortization,
excluding gains (or losses) from sales of property and debt restructuring and
after adjustments for unconsolidated joint ventures. 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 the three months ended January 31,
2004 and 2003 (amounts in thousands).
Three Months Ended January 31,
-----------------------------
2004 2003
---- ----
Net Income Applicable to Common and Class A Common Stockholders $5,084 $3,860
Plus: Real property depreciation 2,129 1,729
Amortization of tenant improvements and allowances 550 501
Amortization of deferred leasing costs 113 119
Minority interests 92 92
------ ------
Funds from Operations Applicable to Common and Class A Common Stockholders (Diluted) $7,968 $6,301
====== ======
Net Cash Provided by (Used In):
Operating Activities $5,178 $ 7,155
====== =======
Investing Activities $7,035 $(27,076)
====== =========
Financing Activities $(6,210) $(5,855)
======== ========
14
Results of Operations
Comparison of the Three Months Ended January 31, 2004 to the Three Months Ended
January 31, 2003.
Revenues
Base rents increased 21.3% to $12.6 million in the first quarter of fiscal 2004
compared to $10.4 million in the comparable quarter of fiscal 2003. Recoveries
from tenants, which represents reimbursements from tenants for property
operating expenses and property taxes, increased by 29.3% in the first quarter
of fiscal 2004 to $3.8 million from $2.9 million in the comparable quarter of
fiscal 2003. The increase in base rents and recoveries from tenants resulted
principally from a full quarter's effect of the addition of four operating
properties totaling 438,000 square feet of leasable space acquired in 2003 which
increased base rents by $1.4 million and tenant recoveries by approximately
$800,000 in the first quarter of fiscal 2004. Base rents also increased this
quarter by approximately $500,000 from the effect of new leasing of previously
vacant space and renewals of expiring leases at generally higher base rental
rates.
The Company's 202,000 sf office building property in Southfield, Michigan is
currently 70% leased and contains approximately 60,000 sf of vacant space. The
office market in this region continues to be weak and the Company does not
expect to re-lease the vacant space during fiscal 2004. The Company has also
been advised by a tenant occupying 41,000 sf of space in the building, that it
will not renew its lease upon expiration in December 2004.
At January 31, 2004, the Company's overall property occupancy level was
unchanged at 96% from the year ago period and the end of the last fiscal year.
During the first quarter of fiscal 2004, the Company leased or renewed
approximately 79,000 square feet of space. Leases totaling 66,500 square feet of
leasable space expired during the same period. The Company expects the impact of
recent leasing activity and rents attributable to acquisitions to continue to
benefit the operating results of the Company in the balance of fiscal 2004.
Lease termination income of $542,000 consists of a lease cancellation payment of
$230,000 from a tenant who terminated during the quarter and a payment of
$312,000 received in settlement of a bankruptcy action of a former tenant.
Interest income in the first quarter of fiscal 2004 decreased compared to the
same period in fiscal 2003 from the utilization of cash in 2003 to acquire
retail properties totaling $51.3 million in the first quarter.
Expenses
Property operating expenses increased to $2.8 million this quarter compared to
$2.3 million in fiscal 2003's first quarter. Property taxes increased to $2.1
million from $1.6 million last year. The increases in both property operating
expenses and property taxes reflects the effect of recently acquired properties
which increased operating expenses and property taxes this quarter by $273,000
and $335,000, respectively. Property operating expenses and taxes for properties
owned in both fiscal 2004 and 2003 periods increased from higher maintenance and
repair costs and increases in real estate tax assessment rates at several of the
Company's properties in fiscal 2004. As most of the Company's leases require the
tenants to pay share of operating expenses and taxes, the Company anticipates
that approximately 88% of these expenses are recoverable from the tenants.
Depreciation expense increased by $449,000 principally due to the additional
expense incurred from recent property acquisitions.
General and administrative expense increased 3.5% to $1.0 million in the first
quarter of fiscal 2004 due primarily to higher compensation expense and costs
associated with new corporate governance initiatives.
Inflation
The Company's long-term leases contain provisions to mitigate the adverse impact
of inflation on its operating results. Such provisions include clauses entitling
the Company to receive (i) scheduled base rent increases and (ii) percentage
rents based upon tenants' gross sales, which generally increase as prices rise.
In addition, many of the Company's non-anchor leases are for terms of less than
ten years, which permits the Company to seek increases in rents upon renewal at
then current market rates if rents provided in the expiring leases are below
then existing market rates. Most of the Company's leases require tenants to pay
a share of operating expenses, including common area maintenance, real estate
taxes, insurance and utilities, thereby reducing the Company's expose to
increases in costs and operating expenses resulting from inflation.
15
Environmental Matters
Based upon management's ongoing review of its Properties, management is not
aware of any environmental condition with respect to any of the Company's
properties which would be reasonably likely to have a material adverse effect on
the Company. There can be no assurance, however, that (i) the discovery of
environmental conditions, which were previously unknown, (ii) changes in law,
(iii) the conduct of tenants or (iv) activities relating to properties in the
vicinity of the Company's properties, will not expose the Company to material
liability in the future. Changes in laws increasing the potential liability for
environmental conditions existing on properties or increasing the restrictions
on discharges or other conditions may result in significant unanticipated
expenditures or may otherwise adversely affect the operations of the Company's
tenants, which would adversely affect the Company's financial condition and
results of operations.
16
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. The primary
market risk to which we are exposed is interest rate risk, which is sensitive to
many factors, including governmental monetary and tax policies, domestic and
international economic and political considerations and other factors that are
beyond the Company's control.
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.
The Company had no borrowings during the first quarter of fiscal 2004 and fiscal
2003 which were subject to variable rates of interest. The Company believes that
its weighted average interest rate of 7.53% on its fixed rate mortgage debt is
not materially different from current market interest rates for mortgage debt
with similar risks and maturities.
During the three month periods ended January 31, 2004 and 2003, the Company did
not refinance any of its mortgage notes payable or borrow under its secured or
unsecured lines of credit arrangements at variable rates of interest.
The Company has not, and does not plan to, enter into any derivative financial
instruments for trading or speculative purposes.
Item 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on their evaluation at the end of the period covered by this Quarterly
Report on Form 10-Q, the Company's principal executive officer and principal
financial officer have concluded that its disclosure and controls procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective
to ensure that information required to be disclosed by us in reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms.
Changes in Internal Controls
During the first quarter of fiscal 2004, there were no changes in the Company's
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
17
Part II - Other Information
Item 1. Legal Proceedings
The Company is not involved in any litigation, nor to its
knowledge is any litigation threatened against the Company or
its subsidiaries, that in management's opinion, would result
in a material adverse effect on the Company's ownership,
management or operation of its properties, or which is not
covered by the Company's liability insurance.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of the Chief Executive Officer of
Urstadt Biddle Properties Inc. pursuant to Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended.
31.2 Certification of the Chief Financial Officer of
Urstadt Biddle Properties Inc. pursuant to Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended.
32 Certification of the Chief Executive Officer and
Chief Financial Officer of Urstadt Biddle Properties Inc.
pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K:
During the quarter ended January 31, 2004, the Registrant
filed with the Commission:
(1) A Current Report on Form 8-K dated December 12, 2003.
Such report referred under Item 12 to a press release
published by the Company on December 10, 2003 setting
forth the Company's results of operations for the year
ended October 31, 2003.
18
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
URSTADT BIDDLE PROPERTIES INC.
(Registrant)
By /s/ Charles J. Urstadt
Charles J. Urstadt
Chairman and
Chief Executive Officer
By /s/ James R. Moore
James R. Moore
Executive Vice President/
Chief Financial Officer
(Principal Financial Officer
Dated: March 12, 2004 and Principal Accounting Officer)
19
EXHIBIT INDEX
Exhibit No.
31.1 Certification of the Chief Executive Officer of Urstadt Biddle
Properties Inc. pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934, as amended.
31.2 Certification of the Chief Financial Officer of Urstadt Biddle
Properties Inc. pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.
32 Certification of the Chief Executive Officer and Chief Financial
Officer of Urstadt Biddle Properties Inc. pursuant to Section 906 of
Sarbanes-Oxley Act of 2002
20