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, 2004
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
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(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
8.50 % Series C Senior Cumulative Preferred Sto 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.
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes x No
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of April 30, 2004: Common Shares, par value $.01 per share
$42,077,048; Class A Common Shares, par value $.01 per share $246,609,486.
Indicate the number of shares outstanding of each of the Registrant's
classes of Common Stock and Class A Common Stock, as of January 4, 2005 (latest
date practicable): 7,189,991 Common Shares, par value $.01 per share, and
18,649,008 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 9, 2005
(certain parts as indicated herein) (Part III).
1
TABLE OF CONTENTS
Form 10-K
Item No. Page
PART I
1. Business 3
2. Properties 9
3. Legal Proceedings 11
4. Submission of Matters to a Vote of Security Holders 11
PART II
5. Market for the Registrant's Common Equity and Related
Shareholder Matters 12
6. Selected Financial Data 14
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
7(A). Quantitative and Qualitative Disclosures about Market Risk 24
8. Financial Statements and Supplementary Data 24
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 24
9(A). Controls and Procedures 24
9(B). Other Information 24
PART III
10. Directors and Executive Officers of the Registrant 25
11. Executive Compensation 25
12. Security Ownership of Certain Beneficial Owners and Management 26
13. Certain Relationships and Related Transactions 26
14. Principal Accountant Fees and Services 26
PART IV
15. Exhibits, Financial Statements, Schedules and Reports on Form 8-K 31
Signatures
2
PART I
Forward-Looking Statements
This Annual Report on Form 10-K, of Urstadt Biddle Properties Inc. (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, may 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 Securities and Exchange Commission (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 (the "Trust") under the laws of the Commonwealth
of Massachusetts on July 7, 1969. In 1997, the shareholders of 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.
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 90% 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 qualifies 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 investments in income-producing properties, with primary
emphasis on properties in the northeastern part of the United States with a
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 acquisition, 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.
The Company intends to continue to invest substantially all of its assets in
income-producing real estate, with an 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
concentration in Fairfield County, Connecticut and Westchester and Putnam
Counties, New York.
3
At October 31, 2004, the Company owned or had an equity interest in thirty-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 3.5 million square feet of
gross leasable area. 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. The Company 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. The Company 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 certain of 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 arrangements for the acquisition of
properties with unaffiliated property owners through the issuance of units of
limited partnership interests in entities that the Company controls. These 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 prices from property owners wishing to enter
into tax-deferred transactions.
Core Properties
The Company considers those properties that 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
thirty-four properties in the Company's portfolio, thirty properties are
considered core properties consisting of twenty-five retail properties and five
office buildings (including the Company's executive headquarters). At October
31, 2004, these properties contained in the aggregate 2.7 million square feet of
gross leasable area. The Company's core properties collectively had 471 tenants
providing a wide range of products and services. Tenants include regional
supermarkets, national and regional discount department stores, other local
retailers and office tenants. At October 31, 2004, the core properties were 99%
leased. The Company believes the core properties are adequately covered by
insurance. No single tenant comprises more than 4% of total annual base rents of
the Company's core properties.
4
The following table sets out a schedule of our ten largest tenants by percent of
total annual base rent of our core properties as of October 31, 2004.
Number % of Total
of Annual Base Rent of
Tenant Stores Core Properties
The Stop & Shop Co. 2 4.0%
Bed, Bath, and Beyond 1 2.6%
Marshall's 2 2.3%
ShopRite Supermarkets 2 2.3%
Toys `R' Us 1 2.3%
Christmas Tree Shops 1 2.0%
Big Y Foods 1 1.9%
Borders Inc 1 1.9%
Shaw's Supermarkets 1 1.7%
Burlington Coat Factory 2 1.5%
----
22.5%
The Company's single largest real estate investment is its 90% interest in the
Ridgeway Shopping Center ("Ridgeway"). Ridgeway is located in Stamford,
Connecticut and was developed in the 1950's and redeveloped in the mid 1990's.
The property contains approximately 369,000 square feet of gross leasable space.
It is the dominant grocery anchored center and the largest non-mall shopping
center located in the City of Stamford, Fairfield County, Connecticut. For the
year ended October 31, 2004, Ridgeway revenues represented approximately 15.4%
of the Company's total revenues and approximately 22.7% of the Company's total
assets at October 31, 2004. The loss of this center or a material decrease in
revenues from the center might have a material adverse effect on the Company.
As of October 31, 2004, Ridgeway was 99% leased. The property's largest tenants
are: The Stop & Shop Company (a division of Ahold), occupying 60,000 square feet
of space in the property, and Bed, Bath and Beyond, a retailer occupying 47,000
square feet of space. Other than The Stop & Shop Company (19%), Bed Bath &
Beyond (14%) and Marshall's Inc, a division of the TJX Companies (10%), no other
tenant accounts for more than 10% of Ridgeway's annual base rents.
The following table sets out a schedule of the annual lease expirations for
retail leases at Ridgeway as of October 31, 2004 for each of the next ten years
and thereafter (assuming that no tenants exercise renewal or cancellation
options and that there are no tenant bankruptcies or other tenant defaults):
Year of Number of Square Minimum Base Rent
Expiration Leases Expiring Footage Base Rentals (%)
2005 1 2,375 $120,000 1.3%
2006 2 4,642 146,000 1.6%
2007 4 9,400 333,000 3.7%
2008 12 70,216 1,874,000 20.7%
2009 1 1,404 77,000 0.9%
2010 3 39,540 612,000 6.8%
2011 1 3,040 99,000 1.1%
2012 4 21,567 654,000 7.2%
2013 3 60,676 1,491,000 16.5%
2014 2 4,558 134,000 1.5%
Thereafter 4 151,210 3,500,000 38.7%
- ------- --------- -----
Total 37 368,628 $9,040,000 100.0%
== ======= ========== ======
Three of the core properties in the Company's portfolio are owned by
partnerships in which the Company is the sole general partner.
5
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.
In November 2004, the Company sold a 70,000 square foot shopping center in
Farmingdale, New York for a sale price of $9.75 million realizing a net gain
on the sale of approximately $5.7 million.
On December 22, 2004, the Company contracted to purchase four retail properties
totaling approximately 73,000 square feet in New York for an aggregate purchase
price of $18 million.
On January 7, 2005, the Company acquired the Dock Shopping Center, a 269,000
square foot shopping center in Stratford, Connecticut for $50.25 million
excluding closing costs. The property was acquired from an unaffiliated third
party and funded with available cash and borrowings of $17.5 million under the
Company's secured line of credit. The Property is 97% leased and is anchored by
a 60,000 square foot Stop & Shop supermarket.
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
the sale of the Company's 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, 2004, the Company's non-core properties consisted 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 447,000 square
feet of GLA. The non-core properties collectively had 6 tenants and were 92%
leased at October 31, 2004.
The office property consists of two tenants which offer engineering services.
The retail property, located in Tempe, Arizona, is leased to two tenants under
long-term leases. The leases obligate these tenants to pay all taxes, insurance,
maintenance and other operating costs on their 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.
At October 31, 2004, the Company also holds two fixed rate mortgage notes with a
total book value of $2,109,000. The mortgages are secured by retail properties
that were previously owned by the Company.
Financing Strategy
The Company intends to continue to finance acquisitions and property
improvements and/or expansions 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 or preferred equity 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.
6
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, and physical quality of the property
and availability of space.
Since the Company's industrial properties are net leased under long-term lease
arrangements that are not due to expire in the next twelve months, 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. An independent property management
company manages the Company's non-core office 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 26 employees. The Company
believes that its relationship with its employees is good.
7
Company Website
All of the Company's filings with the Securities and Exchange commission,
including the Company's annual reports on Form 10-K, quarterly reports on Form
10-Q and current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, are available free of charge at the Company's website at
www.ubproperties.com, as soon as reasonably practicable after the Company
electronically files such material with, or furnishes it to, the Securities and
Exchange Commission. These filings can also be accessed through the Securities
and Exchange Commission's website at www.sec.gov. Alternatively, the Company
will provide paper copies of its filings free of charge upon request.
Code of Ethics and Whistleblower Policies
During 2004, the Company's Board of Directors adopted a Code of Ethics for
Senior Financial Officers that applies to the Company's Chief Executive Officer,
Chief Financial Officer and Controller and a Code of Business Conduct and Ethics
applicable to all employees. Copies of these documents are available in the
Investor Relations section of the Company's website. The Board of Directors
also maintains procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls or
auditing matters; and for the submission by employees of the Company, on a
confidential and anonymous basis, of concerns regarding questionable accounting
or auditing matters. Persons desiring to contact the Company, the Audit
Committee of the Board of Directors or the non-management Directors as a group
may do so by writing to the desired party c/o Secretary, Urstadt Biddle
Properties Inc., 321 Railroad Avenue, Greenwich, CT 06830. Any such
correspondence marked "confidential" will not be opened by the Secretary.
Financial Information About Industry Segments
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
Item 2. Properties.
Core Properties
The following table sets forth information concerning each core property at
October 31, 2004. Except as otherwise noted, all core properties are 100% owned
by the Company.
Gross Number
Year Year Year Leasable of
Location Renovated Completed Acquired Sq Feet Acres Tenants Leased Principal Tenant
-------- --------- --------- -------- ------- ----- ------- ------ ----------------
Retail Properties:
Stamford, CT (1) 1997 1950 2002 369,000 13.6 37 99% Stop & Shop Supermarket
Springfield, MA 1996 1970 1970 323,000 26.0 30 97% Big Y
Meriden, CT 2001 1989 1993 313,000 29.2 25 100% Shop Rite Supermarket
Danbury, CT - 1989 1995 194,000 19.3 21 100% Christmas Tree Shops
White Plains, NY 1994 1958 2003 185,000 3.5 9 100% Toys "R" Us
Briarcliff Manor, NY (1) 2000 1978 1998 161,000 11.4 31 99% Stop & Shop Supermarket
Somers, NY - 2002 2003 135,000 26.0 27 99% Home Goods, New York
Sports Club
Carmel, NY 1999 1983 1995 126,000 19.0 17 99% Shop Rite Supermarket
Wayne, NJ 1992 1959 1992 102,000 9.0 45 99% A&P Supermarket
Newington, NH 1994 1975 1979 102,000 14.3 8 97% Linens `N Things, Outback
Darien, CT 1992 1955 1998 95,000 9.5 19 100% Shaw's Supermarket
Somers, NY - 1991 1999 78,000 10.8 34 99% Gristede's Supermarket
Orange, CT - 1990 2003 78,000 10.0 10 100% Seaman's Furniture
Farmingdale, NY (2) 1993 1981 1993 70,000 5.6 14 100% King Kullen Supermarket
Eastchester, NY (1) 2002 1978 1997 70,000 4.0 11 100% Food Emporium (Division
of A&P)
Ridgefield, CT 1999 1930 1998 51,000 2.1 48 95% Chico's
Rye, NY (4 buildings) Various 2004 40,000 1.0 20 91% Cosi
Westport, CT - 1986 2003 38,000 3.0 10 100% Pier One Imports
Briarcliff Manor, NY - 1975 2001 38,000 1.0 18 98% Dress Barn
Danbury, CT - 1988 2002 33,000 2.7 5 95% Boston Billiards, Sleepys
Briarcliff Manor, NY 2001 1981 1999 29,000 4.0 3 100% Party Plus Warehouse
Somers, NY - 1987 1992 19,000 4.9 12 100% Putnam County Savings Bank
Office Properties:
Greenwich, CT - 1983 1998 19,000 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 1983 1953 1994 10,000 0.2 4 97% Prescott Investors
Greenwich, CT - 1978 2000 9,000 1.0 4 100% Insurance Center of
--------- --- Greenwich
2,708,000 471
========= ===
(1) The Company has a general partnership interest in this property.
(2) Property sold November 15, 2004.
9
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
the sale of the Company's 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.
At October 31, 2004, the Company's non-core properties consisted of one office
building, containing 202,000 square feet of GLA, one retail property containing
126,000 square feet and two industrial facilities with a total of 447,000 square
feet of GLA. The non-core properties collectively had 6 tenants and were 92%
leased at October 31, 2004.
The following table sets forth information concerning each non-core property at
October 31, 2004. The non-core properties are 100% owned by the Company.
Year Year Year Rentable # of
Location Renovated Completed Acquired Square Feet Acres Tenants Leased Principal Tenant
Southfield, MI - 1973 1983 202,000 7.8 2 70% Arcadis
Tempe, AZ 2000 1970 1970 126,000 8.6 2 100% Mervyn's, Inc.
Dallas, TX 1989 1970 1970 255,000 14.5 1 100% DaimlerChrysler Corporation
St. Louis, MO 2000 1970 1970 192,000 16.0 1 100% DaimlerChrysler Corporation
------- -
775,000 6
======= =
Total Portfolio 3,483,000 477
========= ===
Lease Expirations - Total Portfolio
The following table sets forth a summary schedule of the annual lease
expirations for the core and non-core properties for the leases in place as of
October 31, 2004, assuming that none of the tenants exercise renewal or
cancellation 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
2005 (1) 80 256,389 7.58%
2006 53 160,535 4.75%
2007 56 375,060 11.09%
2008 54 451,240 13.34%
2009 60 455,267 13.46%
2010 30 237,426 7.02%
2011 28 365,552 10.81%
2012 44 276,086 8.16%
2013 25 130,016 3.84%
2014 19 95,917 2.84%
Thereafter 28 579,147 17.11%
--- --------- -------
Total 477 3,382,635 100.00%
=== ========= =======
(1) Represents lease expirations from November 1, 2004 to October 31, 2005
and month-to-month leases.
10
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, 2004.
11
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 "UBA", 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, 2004 and 2003 as reported on the New York Stock Exchange:
Fiscal Year Ended Fiscal Year Ended
Common shares: October 31, 2004 October 31, 2003
- -------------- ---------------- ------------------------
Low High Low High
--- ---- --- ----
First Quarter $13.15 $14.00 $11.00 $12.70
Second Quarter $13.00 $15.10 $11.95 $13.03
Third Quarter $12.91 $14.70 $12.70 $13.80
Fourth Quarter $13.75 $15.85 $12.60 $13.40
Fiscal Year Ended Fiscal Year Ended
Class A Common shares: October 31, 2004 October 31, 2003
- --------------------- Low High Low High
--- ---- --- ----
First Quarter $13.63 $14.94 $10.85 $11.72
Second Quarter $13.88 $16.60 $11.00 $12.54
Third Quarter $12.60 $15.55 $12.15 $13.80
Fourth Quarter $13.75 $16.81 $13.10 $14.30
(b) Approximate Number of Equity Security Holders
At January 4, 2005 (latest date available), there were 1,275 shareholders of
record of the Company's Common stock and 1,290 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 tables set 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, 2004 and 2003:
Dividends Paid Per: Common Share Class A Common Share
Ordinary Ordinary
Gross Dividend Income Non Taxable Gross Dividend Income Non Taxable
Dividend Payment Date Paid Per Share Distribution Distribution Paid Per Share Distribution Distribution
--------------------- -------------- ------------ ------------ -------------- ------------ ------------
January 16, 2004 $.195 $.178 $.017 $.215 $.196 $.019
April 16, 2004 $.195 $.178 $.017 $.215 $.196 $.019
July 16, 2004 $.195 $.178 $.017 $.215 $.196 $.019
October 15, 2004 $.195 $.178 $.017 $.215 $.196 $.019
----- ----- ----- ----- ----- -----
$ .78 $.712 $.068 $ .86 $.784 $.076
===== ===== ===== ===== ===== =====
12
Dividends Paid Per: Common Share Class A Common Share
Ordinary Ordinary
Dividend Payment Gross Dividend Income Gross Dividend Income
Paid Per Share Distribution Paid Per Share Distribution
-------------- ------------ -------------- ------------
January 17, 2003 $.19 $.19 $.21 $.21
April 18, 2003 $.19 $.19 $.21 $.21
July 18, 2003 $.19 $.19 $.21 $.21
October 17, 2003 $.19 $.19 $.21 $.21
---- ---- ---- ----
$.76 $.76 $.84 $.84
==== ==== ==== ====
The Company has paid quarterly dividends since it commenced operations as a real
estate investment trust in 1969. During the fiscal year ended October 31, 2004,
the Company made distributions to stockholders aggregating $.78 per Common share
and $.86 per Class A Common share. On December 15, 2004, the Company's Board of
Directors approved the payment of a quarterly dividend payable January 17, 2005
to stockholders of record on January 5, 2005. The quarterly dividend rates were
declared in the amounts of $.20 per Common share and $.22 per Class A Common
share.
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 90% of its real
estate investment trust taxable income, and (ii) the amount of the Company's
funds from operations, as defined.
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 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. 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.
(d) Securities Authorized for Issuance under Equity Compensation Plans
The information with respect to securities authorized for issuance under the
Company's equity compensation plans will be included in the Company's Proxy
Statement for its Annual Meeting of Stockholders to be held on March 9, 2005.
(e) Recent Sales of Unregistered Securities
None
(f) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None
13
Item 6. Selected Financial Data.
(In thousands, except per share data)
Year Ended October 31, 2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Balance Sheet Data:
Total Assets $394,917 $392,639 $353,562 $218,292 $180,727
======== ======== ======== ======== ========
Mortgage Notes Payable $107,443 $104,588 $106,429 $47,115 $49,928
======== ======== ======== ======= =======
Preferred Stock $52,747 $52,747 $14,341 $33,462 $33,462
======= ======= ======= ======= =======
Operating Data:
Total Revenues (Note 1) $64,916 $ 59,153 $43,198 $35,048 $30,087
======= ======== ======= ======= =======
Total Operating Expenses and Minority Interest
(Note 1) $41,962 $ 39,353 $29,227 $25,974 $22,943
======= ======== ======= ======= =======
Income from Continuing Operations $22,954 $ 19,800 $13,971 $9,074 $ 7,144
======= ======== ======= ====== =======
Other Data :
Net Cash Provided by Operating Activities $30,744 $ 31,176 $18,532 $21,308 $14,262
======= ======== ======= ======= =======
Net Cash Used in Investing Activities $(2,416) $(69,818) $(64,960) $(11,394) $ (3,713)
======== ========= ========= ========= =========
Net Cash (Used in) Provided by
Financing Activities $(24,837) $ 14,749 $59,023 $22,040 $ (11,436)
========= ======== ======= ======= ==========
Per Share Data:
Net Income from Continuing Operations - Basic:
Class A Common Stock $ .75 $.72 $.86 $ .99 $.55
Common Stock $ .69 $.65 $.77 $ .89 $.49
Net Income from Continuing Operations - Diluted:
Class A Common Stock $.75 $.71 $.84 $.95 $.54
Common Stock $.68 $.64 $.75 $.86 $.49
Cash Dividends on:
Class A Common Stock $.86 $.84 $.82 $.80 $.78
Common Stock $.78 $.76 $.74 $.72 $.70
---- ---- ---- ---- ----
Total $1.64 $1.60 $1.56 $1.52 $1.48
===== ===== ===== ===== =====
Note 1: Does not include amounts reflected in Discontinued Operations
Funds from Operations (Note 2) $29,813 $ 27,964 $24,144 $14,611 $11,914
======= ======== ======= ======= =======
Note 2: 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 real estate related depreciation and amortization and after adjustments for
unconsolidated joint ventures. For a reconciliation of net income and FFO, see
Management's Discussion and Analysis on page 15. FFO does not represent cash
flows 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. The Company considers FFO a
meaningful, additional measure of operating performance because it primarily
excludes the assumption that the value of its real estate assets diminishes
predictably over time and industry analysts have accepted it as a performance
measure. FFO is presented to assist investors in analyzing the performance of
the Company. It is helpful as it excludes various items included in net income
that are not indicative of the Company's operating performance. However,
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.
14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto included elsewhere in
this report.
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.
Overview
The Company, a 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 October 31, 2004, the Company owned or had controlling interests
in 34 properties containing a total of 3.5 million square feet of GLA of which
approximately 97% was leased at October 31, 2004.
The Company focuses on increasing cash flow and, consequently, the value of its
properties and seeks continued growth through strategic re-leasing, renovations
and expansion of its existing properties and selective acquisition of income
producing properties, primarily neighborhood and community shopping centers in
the northeastern part of the United States.
Key elements of the company's growth strategies and operating policies are to:
|1| Acquire neighborhood and community shopping centers in the
northeastern part of the United States with a concentration in
Fairfield County, Connecticut, and Westchester and Putnam
Counties, New York
|2| Hold core properties for long-term investment and enhance their
value through regular maintenance, periodic renovation and capital
improvement
|3| Selectively dispose of non-core assets and re-deploy the proceeds into
properties located in the Company's preferred region
|4| Increase property values by aggressively marketing available GLA and
renewing existing leases
|5| Renovate, reconfigure or expand existing properties to meet the needs of
existing or new tenants
|6| Negotiate and sign leases which provide for regular or fixed contractual
increases to minimum rents
|7| Control property operating and administrative costs
15
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. Estimates are used
to establish reimbursements from tenants for common area maintenance, real
estate tax and insurance costs. Adjustments are also made throughout the year to
tenant receivables and the related cost recovery income based upon the Company's
best estimate of the final amounts to be billed and collected. The Company
analyzes the balance of its estimated accounts receivable for real estate taxes,
common area maintenance and insurance for each of its properties by comparing
actual recoveries versus actual expenses and any actual write-offs. Based on its
analysis, the Company may record an additional amount in its allowance for
doubtful accounts related to these items. It is also the Company's policy to
maintain an allowance of approximately 10% of the deferred straight-line rents
receivable balance for future tenant credit losses.
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.
The amounts to be capitalized as a result of an acquisition and the periods over
which the assets are depreciated or amortized are determined based on estimates
as to fair value and the allocation of various costs to the individual assets.
The Company allocates the cost of an acquisition based upon the estimated fair
value of the net assets acquired. The Company also estimates the fair value of
intangibles related to its acquisitions. The valuation of the fair value of
intangibles involves estimates related to market conditions, probability of
lease renewals and the current market value of in-place leases. This market
value is determined by considering factors such as the tenant's industry,
location within the property and competition in the specific region in which the
property operates. Differences in the amount attributed to the intangible assets
can be significant based upon the assumptions made in calculating these
estimates.
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.
16
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 Shorter of lease term or useful life
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 when management's estimate of
current and projected operating cash flows (undiscounted and without interest)
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. Changes in estimated future cash flows due to
changes in the Company's plans or market and economic conditions could result in
recognition of impairment losses which could be substantial. Management does not
believe that the value of any of its rental properties or mortgage notes
receivable is impaired at October 31, 2004.
Liquidity and Capital Resources
At October 31, 2004, the Company had unrestricted cash and cash equivalents of
$25.9 million compared to $22.4 million in 2003. 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.
Cash Flows
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 for fiscal 2005 and to meet its dividend
requirements necessary to maintain its REIT status. In fiscal 2004, 2003 and
2002, net cash provided by operations amounted to $30.7 million, $31.2 million
and $18.5 million, respectively. Cash dividends paid increased to $26.3 million
in 2004 compared to $23.5 million in 2003 and $16.4 million in 2002. The Company
expects to continue paying regular dividends to its stockholders. These
dividends will be paid from operating cash flows which are expected to increase
due to property acquisitions and growth in operating income in the existing
portfolio and from other sources. 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.
Capital Resources
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 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
17
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 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 and Debt
During fiscal 2002, the Company filed a shelf registration statement on Form S-3
for up to $150 million of debt securities, preferred stock, depository shares,
common stock and Class A common stock. As of October 31, 2004, the Company has
$62.3 million available for issuance under this shelf registration statement.
In May 2003, the Company sold 400,000 shares of a new issue of Series C
Cumulative Preferred Stock (Series C Preferred Stock) for net proceeds of $38.4
million. The Series C Preferred Stock issue entitles the holders to a 8.5%
cumulative dividend. The Company used a portion of the proceeds to purchase
retail properties in 2004 and 2003. The Company intends to use the balance of
the proceeds for property acquisitions during fiscal 2005.
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.
Mortgage notes payable consist of $107,443,000 of fixed rate mortgage loan
indebtedness with a weighted average interest rate of 7.48% at October 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 anticipates that it will make
principal mortgage payments due in fiscal 2005 from available cash. The Company
expects to refinance a majority of its mortgage loans, at or prior to scheduled
maturity, through replacement mortgage loans. The ability to do so, however, is
dependent upon various factors, including the income level of the properties,
interest rates and credit conditions within the commercial real estate market.
Accordingly, there can be no assurance that such refinancing can be achieved.
At October 31, 2004, the Company had a secured revolving credit facility with a
bank which expires in October 2005 and allows for borrowings up to $17.5
million. The secured credit line is collateralized by two properties having a
net book value of $28.5 million at October 31, 2004. The Company intends to seek
renewal of the facility at its scheduled expiration. The Company also has a $20
million unsecured revolving line of credit with the same bank which was
scheduled to expire in January 2005. In December 2004, the Company extended the
unsecured credit line for an additional one year period. Extensions of credit
under the unsecured credit line are at the bank's discretion and subject to the
bank's satisfaction of certain conditions. Both revolving credit lines are
available to finance the acquisition, management and/or development of
commercial real estate, refinance indebtedness and for working capital purposes.
There were no borrowings on either credit line during the year and there were no
outstanding borrowings at October 31, 2004.
18
Contractual Obligations
The Company's contractual payment obligations as of October 31, 2004, were as
follows (amounts in thousands):
Payments Due by Period
------------------------------------------------------------------------------------------------------------------------
Total 2005 2006 2007 2008 2009 Thereafter
----- ---- ---- ---- ---- ---- ----------
Mortgage notes payable $107,443 $2,247 $9,040 $11,348 $53,392 $17,754 $13,662
Tenant obligations* 1,843 1,034 809 - - - -
-------- ------ ------ ------- ------- ------- -------
Total Contractual Obligations $109,286 $3,281 $9,849 $11,348 $53,392 $17,754 $13,662
======== ====== ====== ======= ======= ======= =======
*Committed tenant-related obligations based on executed leases as of October 31,
2004.
The Company has various standing or renewable service contracts with vendors
related to its property management. In addition, the Company also has certain
other utility contracts entered into in the ordinary course of business which
may extend beyond one year, which very 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.
Off-Balance Sheet Arrangements
..
During the twelve month periods ended October 31, 2004 and 2003, the Company did
not have any off-balance sheet arrangements.
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. In each of the three years ended October 31, 2004, the Company
incurred approximately $2.8 million for capital expenditures for property
improvements and 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 expects to incur an additional $5 million for expected
capital improvements and leasing costs in fiscal 2005. These expenditures are
expected to be funded from operating cash flows or borrowings.
Acquisitions and Sales
The Company seeks to acquire properties which are primarily shopping centers
located in the northeastern part of the United States.
In fiscal 2004, the Company acquired four retail properties totaling 40,000
square feet of leasable space, for a total purchase price of $11.0 million. In
connection with the acquisition of three of the properties, the Company assumed
mortgage loans totaling $4.7 million.
In fiscal 2003, the Company acquired four properties totaling 436,000 square
feet in separate transactions for approximately $83 million. The properties were
purchased with cash raised from sales of equity securities and consisted of: the
Westchester Pavilion in White Plains, New York, for $39.9 million, the Orange
Meadows Shopping Center in Orange, Connecticut, for $11.3 million, the Greens
Farms Plaza in Westport, Connecticut, for $10.1 million and seven retail
building units in Somers Commons in Somers, New York for $21.7 million.
In fiscal 2002, the Company acquired a 90% general partner interest in a
shopping center in Stamford, Connecticut for $86.8 million. The property was
acquired subject to a $57.4 million first mortgage loan. The Company also
purchased a shopping center in Danbury, Connecticut for $7.0 million subject to
a first mortgage loan of $2.0 million and acquired the remaining 15% interest in
an office building that it did not own for a purchase price of $1.25 million.
19
Shortly after the close of fiscal 2004, the Company sold its Farmingdale, New
York property for $9.75 million. The proceeds are expected to be used to acquire
additional properties in the Company's target acquisition area.
On December 22, 2004, the Company contracted to purchase four retail properties
totaling 73,000 square feet in New York for an aggregate purchase price of
$18 million.
On January 7, 2005, the Company acquired a 269,000 square foot shopping center
located in Stratford, Connecticut for $50.25 million, excluding closing costs.
The acquisition was funded with available cash and borrowings of $17.5 million
under the Company's secured line of credit.
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 Company's non-core properties in the normal course of business
over a period of several years. The non-core properties 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).
The Company intends to sell its 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. There were no sales of non-core properties during
fiscal 2004. At October 31, 2004, the four non-core properties have a net book
value of approximately $10.7 million.
Funds from Operations
The Company considers Funds from Operations ("FFO") to be an additional measure
of an equity REIT's operating performance. The Company reports FFO in addition
to its net income applicable to common stockholders and net cash provided by
operating activities. Management has adopted the definition suggested by The
National Association of Real Estate Investment Trusts ("NAREIT") and defines FFO
to mean net income (computed in accordance with GAAP), excluding gains (or
losses) from sales of property plus real estate related depreciation and
amortization, and after adjustments for unconsolidated joint ventures.
Management considers FFO a meaningful, additional measure of operating
performance because it primarily excludes the assumption that the value of its
real estate assets diminishes predictably over time and industry analysts have
accepted it as a performance measure. FFO is presented to assist investors in
analyzing the performance of the Company. It is helpful as it excludes various
items included in net income that are not indicative of the Company's operating
performance, such as gains (or losses) from sales of property and depreciation
and amortization. However, FFO:
Does not represent cash flows from operating activities in accordance
with GAAP (which, unlike FFO, generally reflects all cash effects of
transactions and other events in the determination of net income)
Should not be considered an alternative to net income as an indication
of the Company's performance.
20
FFO as defined by us, may not be comparable to similarly titled items reported
by other real estate investment trusts due to possible differences in the
application of the NAREIT definition used by such REITs. The table below
provides a reconciliation of net income in accordance with GAAP to FFO for each
of the three years in the period ended October 31, 2004 (amounts in thousands).
Year Ended October 31,
----------------------
2004 2003 2002
---- ---- ----
Net Income Applicable to Common and Class A Common Stockholders $ 18,566 $ 17,576 $ 16,080
Plus: Real property depreciation 8,547 7,831 5,459
Amortization of tenant improvements and allowances 2,175 2,088 2,088
Amortization of deferred leasing costs 525 469 517
-------- -------- --------
Funds from Operations Applicable to Common and Class A Common Stockholders $ 29,813 $ 27,964 $ 24,144
======== ======== ========
Net Cash Provided by (Used in):
Operating Activities $ 30,744 $ 31,176 $ 18,532
======== ======== ========
Investing Activities $(2,416) $(69,818) $(64,960)
======== ======== ========
Financing Activities $(24,837) $ 14,749 $ 59,023
========= ======== ========
FFO increased by 6.6% to $29.8 million in fiscal 2004 compared to $28.0 million
in fiscal 2003. This increase is attributable to an increase in net income from
continuing operations resulting from an increase in overall property operating
income and recent property acquisitions.
21
Results of Operations
Fiscal 2004 vs. Fiscal 2003
Revenues
Base rents increased 8.3% to $49.7 million in fiscal 2004 from $45.9 million in
fiscal 2003. The increase in base rents reflects the additional base rents from
four properties acquired in fiscal 2003. The acquisitions of these properties
increased base rents incrementally by $3.2 million in fiscal 2004. In addition,
base rents increased by $584,000 in fiscal 2004 from the effect of new leasing
and renewals of expiring leases at generally higher base rental rates.
Recoveries from tenants (which represent reimbursements from tenants for
property operating expenses and property taxes) increased 13.7% in fiscal 2004
compared to fiscal 2003. The increase in recoveries from tenants includes
amounts applicable to properties acquired in fiscal 2003 which increased this
component of revenues by $888,000 in fiscal 2004 compared to fiscal 2003.
Recoveries from tenants for properties owned in both 2004 and 2003 increased by
$779,000 due to higher tenant recovery rates and property tax recoveries.
In fiscal 2004, the Company leased or renewed approximately 284,000 square feet
of space or 10.5% of total core property GLA. At October 31, 2004, the Company's
core properties were 99% leased, an increase of approximately 2% since the
beginning of the year.
The Company's non-core office building property in Southfield, Michigan was
approximately 30% vacant at October 31, 2004. The office leasing market in this
region of the country continues to be weak and the Company is aggressively
marketing the vacant space. A tenant who currently leases 41,000 sf of space in
the building is not expected to renew its lease upon expiration in December
2004.
The Company's single largest real estate investment is its 90% ownership
interest in Ridgeway Shopping Center (a consolidated joint venture) located in
Stamford, Connecticut. Ridgeway's revenues represented approximately 15.4% or
$10.2 million of total consolidated revenues in fiscal 2004 compared to 16.4% or
$9.9 million in fiscal 2003. The property was 99% leased at October 31, 2004.
Lease termination income of $577,000 in fiscal 2004 consists of a lease
cancellation payment of $265,000 from a tenant who terminated during the year
and a payment of $312,000 received in settlement of a bankruptcy action of a
former tenant.
Interest income in fiscal 2004 decreased from the prior year from the
utilization of cash to purchase properties in both fiscal 2004 and 2003 and the
repayment of a $1.2 million note receivable in fiscal 2003.
Expenses
Property operating expenses increased 2.2% to $10.2 million in fiscal 2004
from $10.0 million last year. Property expenses of recently acquired properties
increased operating expenses by $557,000 in fiscal 2004. Operating expenses for
properties owned in both 2004 and 2003 decreased by $358,000 from lower snow
removal costs and repairs and maintenance expenses.
Property taxes increased to $8.6 million or 16.5% in fiscal 2004 compared to
2003. New properties increased property taxes by $628,000 in fiscal 2004.
Property taxes for properties owned in both 2004 and 2003 increased by $613,000
from higher real estate tax assessment rates at several of the Company's
properties in the current year. The Company anticipates that it will incur
higher property tax assessment rates at certain of its properties in fiscal
2005.
Depreciation and amortization expense increased $863,000 in fiscal 2004 from
additional depreciation on recent property acquisitions.
General and administrative expense increased by $262,000 in fiscal 2004 due
primarily to higher compensation costs including an increase in restricted
stock compensation of $217,000 in fiscal 2004.
22
Discontinued Operations
In September 2004, the Company contracted to sell its Farmingdale, New York
shopping center for $9.75 million and in November 2004, the property was sold.
Accordingly, its operating results for the three years ended October 31, 2004
have been reclassified as discontinued operations in accordance with SFAS #144.
Revenues for this property totaled $1,034,000, $1,207,000, and $ 1,142,000 for
the years ended October 31, 2004, 2003, and 2002, respectively.
Fiscal 2003 vs. Fiscal 2002
Revenues
Base rents and recoveries from tenants increased to $45.9 million and $12.1
million or 36.9% and 61.3%, respectively, in fiscal 2003 from $33.5 million and
$7.5 million in fiscal 2002. The increase in base rents and recoveries resulted
primarily from (i) the acquisition of four properties in fiscal 2003 containing
436,000 square feet of leasable space, providing revenues of $8.3 million in the
year, (ii) the full year impact related to two operating properties acquired in
2002, providing incremental revenue of $6.5 million in fiscal 2003, (iii) an
increase in recoveries of property operating expenses and property taxes from
tenants of $700,000 in fiscal 2003 and (iv) an overall increase in the leasing
levels at the Company's properties.
At October 31, 2003, the Company's core portfolio was 97% leased compared to
96% leased in fiscal 2002. During fiscal 2003, the Company renewed or signed new
leases totaling 375,000 square feet of space.
Lease termination income of $80,000 represented a lease cancellation payment
from a tenant who terminated its lease early. This space was re-leased during
the year.
Interest income in fiscal 2003 decreased due to the utilization of cash from the
Company's sale of 8,050,000 shares of Class A common stock in fiscal 2002. The
cash was used to acquire properties in fiscal 2003.
Expenses
Operating expenses, including depreciation and amortization, increased to $38.9
million in fiscal 2003 from $28.8 million in fiscal 2002. Property operating
expenses increased $5.0 million of which $4.6 million was attributable to the
property expenses of newly acquired properties. Property expenses for properties
owned during both 2003 and 2002 increased 4.0% from higher snow removal and
property tax costs, which increased expenses by $475,000 and $171,000
respectively in fiscal 2003.
Interest expense increased to $8.1 million in fiscal 2003 from an additional
$60 million in mortgage loans assumed in connection with property
acquisitions in fiscal 2002.
Depreciation expense increased by $2.4 million in fiscal 2003 from the
additional depreciation on recent property acquisitions.
General and administrative expenses increased to $3.2 million in fiscal 2003
due principally to higher compensation costs.
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 (a) scheduled base rent increases and (b) 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 exposure to
increases in costs and operating expenses resulting from inflation.
23
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 (a) the discovery of
environmental conditions, which were previously unknown, (b) changes in law, (c)
the conduct of tenants or (d) 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.
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.
The following table sets forth the Company's long term debt obligations by
principal cash payments and maturity dates, weighted average interest rates and
estimated fair value at October 31, 2004. (amounts in thousands, except weighted
average interest rate):
For the years ended October 31,
---------- ---------- ---------- ----------- ----------- ------------- ------------ --------
Estimated
2005 2006 2007 2008 2009 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
Mortgage notes payable $2,247 $9,040 $11,348 $53,392 $17,754 $13,662 $107,443 $114,705
Weighted average interest rate
for debt maturing 7.48% 8.19% 7.84% 7.54% 7.06% 7.25%
As of October 31, 2004 and for the year then ended, the Company had no
outstanding borrowings under its bank line of credit arrangements.
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 15 of this Annual Report.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
There were no changes in, nor any disagreements with the Company's independent
accountants on accounting principles and practices or financial disclosure,
during the year ended October 31, 2004.
Item 9A. Controls and Procedures.
At the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e).
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective. During the fourth quarter of 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.
Item 9B. Other Information.
Not applicable.
24
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Company will file its definitive Proxy Statement for its Annual Meeting of
Stockholders to be held on March 9, 2005 within the period required under the
applicable rules of the Securities and Exchange Commission. 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 76 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. and has served in such capacity for more than five years.
Willing L. Biddle 43 President and Chief Operating Officer (since December 1996); Executive Vice
President (March 1996 to December 1996); Senior Vice President - Management
(June 1995 to March 1996).
James R. Moore 56 Executive Vice President and Chief Financial Officer (since March 1996); Senior
Vice President and Chief Financial Officer (1989 to 1996); Treasurer (since
December 1987). Secretary (1987-1999) Vice President-Finance and Administration
(1987 to 1989).
Raymond P. Argila 56 Senior Vice President and Chief Legal Officer (since June 1990); formerly Senior
Counsel, Cushman & Wakefield, Inc. (1987 to 1990).
The Directors elect officers of the Company annually.
The Company has adopted a code of ethics that applies to the chief executive
officer and senior financial officers. In the event of any amendment to, or
waiver from, the code of ethics, the Company will promptly disclose the
amendment or waiver as required by law or regulation of the SEC.
Item 11. Executive Compensation.
The Company will file its definitive Proxy Statement for its Annual Meeting of
Stockholders to be held on March 9, 2005 within the period required under the
applicable rules of the Securities and Exchange Commission. The information
required by this Item is included under the caption "ELECTION OF DIRECTORS" and
"COMPENSATION AND TRANSACTIONS WITH MANAGEMENT AND OTHERS" of such Proxy
Statement and is incorporated herein by reference.
25
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The Company will file its definitive Proxy Statement for its Annual Meeting of
Stockholders to be held on March 9, 2005 within the period required under the
applicable rules of the Securities and Exchange Commission. The information
required by this Item is included under the caption "ELECTION OF DIRECTORS -
Security Ownership of Certain Beneficial Owners and Management" and
"COMPENSATION AND TRANSACTIONS WITH MANAGEMENT AND OTHERS - Equity Compensation
Plan Information" of such Proxy Statement and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
The Company will file its definitive Proxy Statement for its Annual Meeting of
Stockholders to be held on March 9, 2005 within the period required under the
applicable rules of the Securities and Exchange Commission. The information
required by this Item is included under the caption "ELECTION OF DIRECTORS" and
"COMPENSATION AND TRANSACTIONS WITH MANAGEMENT AND OTHERS" of such Proxy
Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The Company will file its definitive Proxy Statement for its Annual meeting of
Stockholders to be held on March 9, 2005 within the period required under the
applicable rules of the Securities and Exchange Commission. The information
required by this Item is included under the caption "FEES BILLED BY INDEPENDENT
AUDITORS" of such Proxy Statement and is incorporated herein by reference.
26
PART IV
Item 15. 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 31 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 31. All other financial statement schedules are not
applicable.
B. 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 SEC 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 (SEC File 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 (SEC File No.
001-12803)).
(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 (SEC File No. 001-12803)).
(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 (SEC File No.
001-12803)).
(e) Articles Supplementary of the Company (incorporated by
reference to Exhibit 4.2 of the Registrant's Registration
Statement on Form S-3 (SEC File No. 333-107803)).
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 (SEC File No. 333-19113).
(4) Instruments Defining the Rights of Security Holders, Including Indentures
4.1 Common Stock: See Exhibits 3.1 (a)-(e) hereto.
4.2 Series B Preferred Shares: See Exhibits 3.1 (a)-(e),
10.13 - 10.15, 10.17 and 10.22 hereto.
4.3 Series C Preferred Shares: See Exhibits 3.1 (a)-(e)
and 10.23 hereto.
4.4 Series A Preferred Share Purchase Rights: See Exhibits 3.1 (a)
-(d), 10.3 and 10.16 hereto.
27
(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 (SEC File No.
001-12803)). 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 (SEC File No. 001-12803)). 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
(SEC File No. 001-12803)).
10.4 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 (SEC File No. 001-12803)).
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 (SEC File No. 001-12803)). 1
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 (SEC File No. 001-12803)). 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 (SEC File No. 001-12803)). 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 (SEC
File No. 001-12803)). 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 (SEC File No.
001-12803)). 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 (See File 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 (SEC File No. 001-12803)). 1
28
10.10 Restricted Stock Plan (incorporated by reference to
Exhibit B of Amendment No. 1 to Registrant's Registration
Statement on Form S-4 (SEC File 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 (SEC File No. 001-12803)). 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
(SEC File No. 001-12803)). 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 (SEC File No. 001-12803)).
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 (SEC File No. 001-12803)).
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 (SEC File No. 001-12803)).
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 (SEC File No. 001-12803)).
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 (SEC File No. 001-12803)).
10.17 Waiver and Amendment of Registration Rights Agreement dated as
of September 14, 2001 by and among the Company and the Initial
Purchasers (incorporated by reference to Exhibit 10.17 of the
Registrant's Annual Report on Form 10-K for the year ended
October 31, 2001 (SEC File No. 001-12803)).
10.18 Amended and Restated Restricted Stock Award Plan effective
December 9, 1999 (incorporated by reference to Exhibit 10.18
of the Registrant's Annual Report on Form 10-K for the year
ended October 31, 2000 (SEC File No. 001-12803)). 1
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 (SEC File No. 001-12803)). 1
10.19.1 Form of Option Agreement or Grant with Stock Option Plan
Participants (non-statutory options).
10.19.2 Form of Option Agreement or Grant with Stock Option Plan
Participants (statutory options).
10.20 Promissory Note and Stock Pledge Agreement dated July 3, 2002
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, 2002
(SEC File No. 001-12803)). 1
10.21 Amended and Restated Restricted Stock Award Plan effective
December 12, 2001 as approved by the Registrant's
stockholders on March 13, 2002 (incorporated by reference
to Exhibit 10.21 of the Registrant's Annual Report on Form
10-K for the year ended October 31, 2002). 1
10.22 Amendment to Registration Rights Agreement dated as of
December 31, 2001 by and among the Company and the Remaining
Initial Purchasers (incorporated by reference to Exhibit 10.22
of the Registrant's Annual Report on Form 10-K for the year
ended October 31, 2002).
29
10.23 Registration Rights Agreement dated as of May 29, 2004 by and
between the Company and Ferris, Baker Watts, Incorporated
(incorporated by reference to Exhibit 4.1 of the Registrant's
Registration Statement on Form S-3 (SEC File No. 333-107803)).
10.24 Amended and Restated Restricted Stock Award Plan as approved
by the Company's stockholders on March 10, 2004.
10.24.1 Form of Restricted Stock Award Agreement with Restricted
Stock Plan Participants (Non-Employee Directors).
10.24.2 Form of Restricted Stock Award Agreement with Restricted
Stock Plan Participants (Employee Directors).
10.24.3 Form of Restricted Stock Award Agreement with Restricted
Stock Plan Participants (Employees).
10.25 Excess Benefit and Deferred Compensation Plan effective as
of January 1, 2005.
(14) Code of Ethics for Chief Executive Officer and Senior Financial
Officers (incorporated by reference to Exhibit 14
of the Registrant's Annual Report on Form 10-K (or the year
ended October 31, 2003.)
(21) Subsidiaries.
21.1 List of Company's subsidiaries
(23) Consents of Experts and Counsel.
23.1 The consent of Ernst & Young LLP to the incorporation by
reference of its report included herein in the Company's
Registration Statement is filed herewith as part of this
report
31.1 Certification pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, signed and dated by Charles
J.Urstadt.
31.2 Certification pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, signed and dated by James R.
Moore.
(32) Certification pursuant to 18 U.S.C. Section 1350, as adopted,
pursuant to section 906 of the Sarbanes-Oxley Act of 2002,
signed and dated by Charles J. Urstadt and James R. Moore.
(1) Management contract, compensatory plan or arrangement to be filed as an
exhibit to this Annual Report on Form 10-K pursuant to Item 15(c).
30
URSTADT BIDDLE PROPERTIES INC.
Item 15a. INDEX TO FINANCIAL STATEMENTS AND
- --------- ----------------------------------
FINANCIAL STATEMENT SCHEDULES
Page
Consolidated Balance Sheets at October 31, 2004 and 2003 32
Consolidated Statements of Income for each of the
three years in the period ended October 31, 2004 33
Consolidated Statements of Cash Flows for each of the
three years in the period ended October 31, 2004 34
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended October 31, 2004 35
Notes to Consolidated Financial Statements 36-47
Report of Independent Registered Public Accounting Firm 48
Schedules.
The following consolidated financial statement schedules of Urstadt Biddle
Properties Inc. are included in Item 15(d):
III Real Estate and Accumulated Depreciation - October 31, 2004 49
9IV Mortgage Loans on Real Estate - October 31, 2004 51
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.
31
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
October 31,
-------------- --------------
ASSETS 2004 2003
---- ----
Real Estate Investments:
Core properties - at cost $ 381,937 $ 369,390
Non-core properties - at cost 20,621 21,376
Less: accumulated depreciation (61,389) (52,544)
-------- --------
341,169 338,222
Mortgage notes receivable 2,109 2,184
------ -------
343,278 340,406
Property held for sale 4,002 4,265
Cash and cash equivalents 25,940 22,449
Restricted cash 1,184 1,098
Marketable securities 2,681 9,532
Tenant receivables, net of allowances of $2,047 and $1,369, respectively 11,249 8,434
Prepaid expenses and other assets 3,303 3,245
Deferred charges, net of accumulated amortization 3,280 3,210
--------- ---------
Total Assets $ 394,917 $ 392,639
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 107,443 $ 104,588
Accounts payable and accrued expenses 1,515 2,741
Deferred officers' compensation 501 401
Other liabilities 3,617 5,166
------- -------
Total Liabilities 113,076 112,896
------- -------
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 shares 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;
7,189,991 and 6,817,771 shares issued and outstanding shares at October 31,2004 and 2003 72 68
Class A Common stock, par value $.01 per share; 40,000,000 shares authorized;
18,649,008 and 18,548,453 shares issued and outstanding shares at October 31,2004 and 2003 186 185
Additional paid in capital 264,680 258,296
Cumulative distributions in excess of net income (36,581) (33,611)
Accumulated other comprehensive income 472 -
Unamortized restricted stock compensation and officers notes receivable (7,055) (5,262)
------- -------
Total Stockholders' Equity 221,774 219,676
--------- ---------
Total Liabilities and Stockholders' Equity $ 394,917 $ 392,639
========= =========
The accompanying notes to consolidated financial statements are an
integral part of these statements.
32
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended October 31,
2004 2003 2002
---- ---- ----
Revenues
Base rents $ 49,704 $ 45,896 $ 33,537
Recoveries from tenants 13,810 12,143 7,527
Lease termination income 577 80 765
Interest and other 825 1,034 1,369
------ ------ ------
64,916 59,153 43,198
------ ------ ------
Operating Expenses
Property operating 10,194 9,970 7,274
Property taxes 8,571 7,354 5,061
Interest 8,113 8,094 5,584
Depreciation 10,574 9,767 7,392
Amortization 520 464 512
General and administrative expenses 3,416 3,154 2,836
Directors' fees and expenses 207 185 173
------ ------ ------
41,595 38,988 28,832
------ ------ ------
Operating Income 23,321 20,165 14,366
Minority Interests (367) (365) (395)
------ ------ ------
Income from Continuing Operations 22,954 19,800 13,971
Income from Discontinued Operations 361 570 536
------ ------ ------
Net Income 23,315 20,370 14,507
Preferred Stock Dividends (4,749) (2,794) (1,498)
Excess of Carrying Value Over Cost to Repurchase Preferred Shares - - 3,071
-------- -------- --------
Net Income Applicable to Common and Class A Common Stockholders $ 18,566 $ 17,576 $ 16,080
======== ======== ========
Basic Earnings per Share:
Per Common Share:
Income from Continuing operations $ .69 $ .65 $ .77
Income from Discontinued operations $ .01 $ .02 $ .03
------ ------ ------
Net Income Applicable to Common Stockholders $ .70 $ .67 $ .80
====== ====== ======
Per Class A Common Share:
Income from Continuing operations $ .75 $ .72 $ .86
Income from Discontinued operations $ .02 $ .02 $ .03
------ ------ ------
Net Income Applicable to Class A Common Stockholders $ .77 $ .74 $ .89
====== ====== ======
Diluted Earnings Per Share:
Per Common Share:
Income from Continuing operations $ .68 $ .64 $ .75
Income from Discontinued operations $ .01 $ .02 $ .03
------ ------ -----
Net Income Applicable Common Stockholders $ .69 $ .66 $ .78
====== ====== =====
Per Class A Common Share:
Income from Continuing operations $ .75 $ .71 $ .84
Income from Discontinued operations $ .01 $ .02 $ .03
------ ------ -----
Net Income Applicable to Class A Common Stockholders $ .76 $ .73 $ .87
====== ====== =====
Dividends per share:
Common $ .78 $ .76 $ .74
====== ====== =====
Class A Common $ .86 $ .84 $ .82
====== ====== =====
The accompanying notes to consolidated financial statements are an
integral part of these statements.
33
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended October 31,
2004 2003 2002
---- ---- ----
Operating Activities:
Net income $ 23,315 $ 20,370 $ 14,507
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization including discontinued operations 11,241 10,388 8,064
Amortization of restricted stock 1,322 1,105 942
Minority interests 367 365 395
Increase in restricted cash (86) (2) (181)
Increase in tenant receivables (2,708) (3,120) (1,871)
(Decrease) increase in accounts payable and accrued expenses (1,226) 243 (1,649)
(Decrease) increase in other assets and other liabilities, net (1,481) 1,827 (1,675)
------ ------ ------
Net Cash Provided by Operating Activities 30,744 31,176 18,532
------ ------ ------
Investing Activities:
Sales (purchases) of marketable securities 7,323 15,613 (25,145)
Acquisitions of properties (6,625) (83,485) (34,785)
Acquisition of minority interests - - (1,258)
Improvements to properties and deferred charges (2,822) (2,844) (2,814)
Net proceeds from sales of properties - - 275
Distributions to limited partners of consolidated joint ventures (367) (365) (395)
Payments to limited partners of unconsolidated joint venture - - (600)
Payments received on mortgage notes and other receivables 75 1,263 62
Deposits on acquisitions of properties - - (300)
------ -------- -------
Net Cash Used in Investing Activities (2,416) (69,818) (64,960)
------ -------- -------
Financing Activities:
Sales of Series C Preferred Stock - 38,406 -
Sales of additional Common and Class A Common shares 3,141 1,366 88,523
Proceeds from bank loans - - 17,200
Payments on mortgage notes payable and bank loans (1,826) (1,841) (17,256)
Dividends paid - Common and Class A Common shares (21,536) (20,700) (14,913)
Dividends paid - Preferred Stock (4,749) (2,794) (1,498)
Repurchase of preferred shares - - (16,050)
Repayments of note receivable from officer 133 312 3,017
------- ------ -------
Net Cash (Used In) Provided by Financing Activities (24,837) 14,749 59,023
------- ------ -------
Net Increase (Decrease) In Cash and Cash Equivalents 3,491 (23,893) 12,595
Cash and Cash Equivalents at Beginning of Year 22,449 46,342 33,747
------ ------- -------
Cash and Cash Equivalents at End of Year $ 25,940 $ 22,449 $ 46,342
======== ======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
34
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares and per share data)
Common Stock Class A Common Stock Unamortized
---------------- --------------- (Cumulative Accumulated Restricted Stock
Outstanding Outstanding Additional Distributions Other Compensation
Number of Par Number of Par Paid In In Excess of Comprehensive and Notes
Shares Value Shares Value Capital Net Income Income Receivable Total
------ ----- ------ ----- ------- ---------- ------ ---------- -----
Balances - October 31, 2001 6,242,139 $ 62 9,600,019 $ 96 $162,763 $(31,654) $ - $(4,899) $126,368
Net income applicable to Common
and Class A common - - - - - 16,080 - - 16,080
stockholders
Cash dividends paid :
Common stock ($.74 per share) - - - - - (4,750) - - (4,750)
Class A common stock ($.82 per share) - - - - - (10,163) - - (10,163)
Sales of Class A common shares - - 8,749,222 88 87,835 - - - 87,923
Sales of additional shares under
dividend reinvestment plan 14,296 - 19,494 - 364 - - - 364
Shares issued under restricted
stock plan 110,375 2 43,425 1 1,577 - - (1,580) -
Amortization of restricted stock
compensation - - - - - - - 942 942
Exercises of stock options 211,762 2 37,312 - 1,727 - - - 1,729
Notes from officers upon exercises
of stock options - - - - - - - (1,493) (1,493)
Repayment of notes receivable
from officers - - - - - - - 3,017 3,017
--------- -- ---------- --- ------- -------- --- ------- -------
Balances - October 31, 2002 6,578,572 66 18,449,472 185 254,266 (30,487) - (4,013) 220,017
Comprehensive Income:
Net income applicable to Common
and Class A common - - - - - 17,576 - - 17,576
stockholders
Cash dividends paid :
Common stock ($.76 per share) - - - - - (5,135) - - (5,135)
Class A common stock ($.84 per share) - - - - - (15,565) - - (15,565)
Sales of shares under
dividend reinvestment plan 61,699 1 18,704 - 1,051 - - - 1,052
Shares issued under restricted
stock Plan 159,500 1 56,200 - 2,665 - - (2,666) -
Amortization of restricted stock
compensation - - - - - - - 1,105 1,105
Exercises of stock options 18,000 - 24,077 - 314 - - - 314
Repayment of notes receivable
from officers - - - - - - - 312 312
--------- -- ---------- --- ------- -------- --- ------ --------
Balances - October 31, 2003 6,817,771 68 18,548,453 185 258,296 (33,611) - (5,262) 219,676
Comprehensive Income:
Net income applicable to Common
and Class A common - - - - - 18,566 - - 18,566
stockholders
Unrealized gains on marketable securities - - - - - - 472 - 472
---
Total Comprehensive income 19,038
Cash dividends paid :
Common stock ($.78 per share) - - - - - (5,516) - - (5,516)
Class A common stock ($.86 per share) - - - - - (16,020) - - (16,020)
Sales of additional shares under
dividend reinvestment plan 181,720 2 18,306 - 2,843 - - - 2,845
Shares issued under restricted
stock paln 175,500 2 58,625 1 3,245 - - (3,248) -
Amortization of restricted stock
compensation - - - - - - - 1,322 1,322
Exercises of stock options 15,000 - 23,624 - 296 - - - 296
Repayment of note receivable from
officer - - - - - - - 133 133
--------- ---- ---------- ----- ------- --------- ---- -------- ---------
Balances - October 31, 2004 7,189,991 $ 72 18,649,008 $ 186 $264,680 $(36,581) $472 $(7,055) $221,774
========= ===== ========== ===== ======== ========= ==== ======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
35
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, 2004, the Company owned or had interests in 34 properties containing a total
of 3.5 million square feet of leasable area.
Principles of Consolidation and Use of Estimates
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. The Company believes it has the
ability to control the affairs of its consolidated joint ventures because as the
sole general partner, the Company has the exclusive right to exercise all
management powers over the business and affairs of the respective joint
ventures. In addition, the limited partners have no important rights as defined
in the AICPA's Statement of Position ("SOP") 78-9 "Accounting for Investments in
Real Estate Ventures". The joint ventures are consolidated into the consolidated
financial statements of the Company. All significant intercompany transactions
and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
Reclassifications
Certain prior period amounts have been reclassified (including the presentation
of the consolidated statements of income required by SFAS #144) to conform to
the current year presentation.
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 (Code). Under those sections, a
REIT, that among other things, distributes at least 90% of real estate trust
taxable income and meets certain other qualifications prescribed by the Code
will not be taxed on that portion of its taxable income that is distributed. The
Company believes it qualifies as a REIT and has distributed all of its taxable
income for the fiscal years through 2004 in accordance with the provisions of
the Code. Accordingly, no provision has been made for Federal income taxes in
the accompanying consolidated financial statements.
Real Estate Investments
All capitalizable costs related to the improvement or replacement of real estate
properties are capitalized. Additions, renovations and improvements that enhance
and/or extend the useful life of a property are also capitalized. 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.
Upon the acquisition of real estate, the Company assesses the fair value of
acquired tangible assets such as land, buildings and tenant improvements,
intangible assets such as above and below market leases, acquired-in place
leases and other identified intangible assets and assumed liabilities in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 141.
The Company allocates the purchase price to the acquired assets and assumed
liabilities based on their relative fair values. The Company assesses and
considers fair value based on estimated cash flow projections that utilize
appropriate discount and/or capitalization rates, as well as available market
information. The fair value of the tangible assets of an acquired property
considers the value of the property as if it were vacant.
Above and below market leases acquired are recorded at their fair value. The
capitalized above-market lease values are amortized as a reduction of rental
revenue over the remaining term of the respective leases and the capitalized
below-market lease values are amortized as an increase to rental revenue over
the remaining term of the respective leases.
The value of in-place leases is based on the Company's evaluation of the
specific characteristics of each tenant's lease. Factors considered include
estimates of carrying costs during hypothetical expected lease-up periods,
current market conditions, and cost to execute similar leases. The value of
in-place leases are amortized to depreciation and amortization expense over the
remaining term of the respective leases. If a tenant vacates its space prior to
its contractual expiration date, any unamortized balance of their related
intangible asset is expensed.
36
Depreciation and Amortization
The Company uses the straight-line method for depreciation and amortization.
Core and non-core properties are depreciated over the estimated useful lives of
the properties, which range from 30 to 40 years. Property improvements are
depreciated over the estimated useful lives that range from 10 to 20 years.
Furniture and fixtures are depreciated over the estimated useful lives that
range from 3 to 10 years. Tenant improvements are amortized over the shorter of
the life of the related leases or useful life.
Deferred Charges
Deferred charges consist principally of leasing commissions, which are amortized
ratably over the life of the tenant leases and financing fees, which are
amortized over the terms of the respective agreements. Deferred charges in the
accompanying consolidated balance sheets are shown at cost, net of accumulated
amortization of $1,886,000 and $1,712,000 as of October 31, 2004 and 2003,
respectively.
Asset 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 aggregate 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 amounts of the assets exceed the
fair value less costs to sell. It is the Company's policy to reclassify
properties as assets to be disposed of upon determination that such properties
will be sold within one year.
Revenue Recognition
Revenues from operating leases include revenues from core properties and
non-core properties. Rental income is generally recognized based on the terms of
leases entered into with tenants. Minimum rental income from leases with
scheduled rent increases is recognized on a straight-line basis over the lease
term. At October 31, 2004 and 2003, approximately $7,199,000 and $5,735,000 has
been recognized as straight-line rents receivable (representing the current net
cumulative rents recognized prior to when billed and collectible as provided by
the terms of the leases), all of which is included in tenant receivables in the
accompanying consolidated financial statements. Percentage rent is recognized
when a specific tenant's sales breakpoint is achieved. Property operating
expense recoveries from tenants of common area maintenance, real estate taxes,
and other recoverable costs are recognized in the period the related expenses
are incurred. Lease termination amounts received by the Company from its tenants
are recognized as income in the period received. Interest income is recognized
as it is earned. Gains or losses on disposition of properties are recorded when
the criteria for recognizing such gains or losses under generally accepted
accounting principles have been met.
The Company provides an allowance for doubtful accounts against the portion of
tenant receivables (including an allowance for future tenant credit losses of
approximately 10% of the deferred straight-line rents receivable) which is
estimated to be uncollectible. Such allowances are reviewed periodically. At
October 31, 2004 and 2003, tenant receivables in the accompanying consolidated
balance sheets are shown net of allowances for doubtful accounts of $2,047,000
and $1,369,000, respectively.
Cash and Cash Equivalents
The Company considers highly liquid investments with original maturities of 90
days or less when purchased to be cash equivalents.
Restricted Cash
Restricted cash consists of those tenant security deposits and replacement and
other reserves required by agreement with certain of the Company's mortgage
lenders for property level capital requirements which are required to be held in
separate bank accounts.
Marketable Securities
Marketable securities consist of short-term investments and marketable equity
securities. Short-term investments (consisting of investments with original
maturities of greater than three months when purchased) and 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 October 31,2004, other comprehensive income consists of net
unrealized gains of $472,000. Unrealized gains included in other comprehensive
income will be reclassified into earnings as gains are realized.
37
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, restricted cash, tenant
receivables, prepaid expenses and other assets, accounts payable and accrued
expenses and other liabilities are reasonable estimates of their fair values
because of the short maturities of these instruments.
The estimated fair value of mortgage notes receivable collateralized by real
property is based on discounting the future cash flows at a year-end risk
adjusted lending rate that the Company would utilize for loans of similar risk
and duration. At October 31, 2004 and 2003, the estimated aggregate fair value
of the mortgage notes receivable was $2,016,000 and $2,161,000 respectively.
The estimated fair value of mortgage notes payable was $115,000,000 and
$114,000,000 at October 31, 2004 and 2003, respectively. The estimated fair
value of mortgage notes payable is based on discounting the future cash flows at
a year-end risk adjusted lending rate currently available to the Company for
issuance of debt with similar terms and remaining maturities.
Although management is not aware of any factors that would significantly affect
the estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date and current
estimates of fair value may differ significantly from the amounts presented
herein.
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 are insufficient to meet
the terminal value of a tenant's lease obligation, they are a measure of good
faith and a 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.
Earnings Per Share
The Company calculates basic and diluted earnings per share in accordance with
SFAS No. 128, "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.
38
The following table sets forth the reconciliation between basic and diluted EPS
(in thousands):
2004 2003 2002
---- ---- ----
Numerator
Net income applicable to common stockholders - basic $4,488 $4,171 $4,880
Effect of dilutive securities:
Operating partnership units 192 151 160
------ ------ ------
Net income applicable to common stockholders - diluted $4,680 $4,322 $5,040
====== ====== ======
Denominator
Denominator for basic EPS-weighted average common shares 6,414 6,259 6,089
Effect of dilutive securities:
Stock options and awards 351 252 288
Operating partnership units 55 55 55
----- ----- -----
Denominator for diluted EPS - weighted average common equivalent shares 6,820 6,566 6,432
===== ===== =====
Numerator
Net income applicable to Class A common stockholders-basic $14,078 $13,405 $11,200
Effect of dilutive securities:
Operating partnership units 175 215 202
------- ------- -------
Net income applicable to Class A common stockholders - diluted $14,253 $13,620 $11,402
======= ======= =======
Denominator
Denominator for basic EPS - weighted average Class A common shares 18,248 18,200 12,615
Effect of dilutive securities:
Stock options and awards 278 210 211
Operating partnership units 310 310 310
------ ------ ------
Denominator for diluted EPS - weighted average Class A common
equivalent shares 18,836 18,720 13,136
====== ====== ======
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.
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 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 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. In November 2003, the FASB
deferred the classification and measurement provisions of the Statement which
apply to certain mandatory 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
mandatory redeemable non-controlling interest. At October 31, 2004 the estimated
fair value of the minority interest was approximately $3.3 million. The joint
venture has a termination date of December 31, 2097.
In December 2004, the FASB issued SFAS No. 123R "Accounting for Stock-Based
Compensation." The Statement supersedes APB Opinion No. 25 "Accounting for Stock
Issued to Employees." The Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. The Statement is effective as of the beginning of the third
fiscal quarter of 2005. Management does not believe that the adoption of this
pronouncement will have a material effect on its operations or financial
position.
39
(2) REAL ESTATE INVESTMENTS
The Company's investments in real estate, net of depreciation, were composed of
the following at October 31, 2004 and 2003 (in thousands):
Mortgage
Core Non-Core Notes 2004 2003
Properties Properties Receivables Totals Totals
----------------------------------- ------------ --------------- -------------- ------------ ------------
Retail $322,459 $ 2,039 $ 2,109 $326,607 $322,835
Office 7,723 7,300 - 15,023 15,703
Industrial - 1,344 - 1,344 1,564
Undeveloped Land 304 - - 304 304
-------- -------- -------- -------- ---------
$330,486 $ 10,683 $ 2,109 $343,278 $340,406
======== ======== ======== ======== ========
The Company's investments at October 31, 2004, consisted of equity interests in
34 properties, which are located in various regions throughout the United States
and mortgage notes. The Company's primary investment focus is neighborhood and
community shopping centers located in the northeastern United States. These
properties are considered core properties of the Company. The remaining
properties are located outside of the northeastern United States and are
considered non-core properties. 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, 2004 and 2003 (in thousands):
2004 2003
-------------------------------------------------------------------- ------------------ ------------------
Northeast $331,139 $327,695
Midwest 8,089 8,704
Southwest 4,050 4,007
-------- --------
$343,278 $340,406
======== ========
(3) CORE PROPERTIES
The components of core properties were as follows (in thousands):
2004 2003
- ---------------------------------------------------------- ----------------------------- ------------------
Land $ 70,983 $ 68,729
Buildings and improvements 310,954 300,660
------- -------
381,937 369,389
Accumulated depreciation (51,451) (42,383)
-------- --------
$330,486 $327,006
======== ========
Space at the Company's core properties 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: 2005 -$42,991,000; 2006 - $41,021,000; 2007 - $38,432,000; 2008 -
$35,416,000; 2009 - $30,514,000 and thereafter - $133,337,000.
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 were less than 1% of consolidated
revenues in each of the three years ended October 31, 2004.
Owned Properties
In fiscal 2004, the company purchased four retail properties ("Rye Properties")
totaling 40,000 square feet of leasable space for total consideration of $11.0
million subject to mortgage loans totaling $4.7 million which encumbered three
of the properties (with fixed interest rates ranging from 7.0% to 7.82%). The
assumption of the mortgage loans represent non-cash financing activities and are
therefore not included in the accompanying 2004 consolidated statement of cash
flows. The Company has evaluated the carrying amount of the mortgage loans
assumed and adjusted such amounts by $218,000 to reflect their estimated fair
values at the date of acquisition.
40
In fiscal 2003, the Company acquired four properties for cash consisting of the
Westchester Pavilion in White Plains, New York, for $39.9 million, seven retail
building units in The Somers Commons in Somers, New York, for $21.65 million,
the Orange Meadows Shopping Center in Orange, Connecticut, for $11.3 million,
and the Greens Farms Plaza, in Westport, Connecticut, for $10.1 million.
In fiscal 2002, the Company acquired the Airport Plaza shopping center in
Danbury, Connecticut for $7.0 million subject to a first mortgage loan of $2.0
million at a fixed interest rate of 8.375%. The assumption of the first mortgage
represents a non-cash financing activity and is therefore not included in the
accompanying 2002 consolidated statement of cash flows.
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 the
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 value 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 the acquisitions of the Rye Properties in fiscal 2004, and
consequently, no value has yet been assigned to the leases. Accordingly, the
purchase price allocation is preliminary and may be subject to change.
Property Held for Sale and Discontinued Operations
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS #144). SFAS #144 requires, among other things, that the assets and
liabilities and the results of operations of the Company's properties which have
been sold or otherwise qualify as held for sale be classified as discontinued
operations and presented separately in the Company's consolidated financial
statements. Properties held for sale represent properties that are under
contract for sale and are expected to close within the next twelve months.
Property held for sale consists of a shopping center in Farmingdale, New York
which was under contract at October 31, 2004. In November 2004, the property was
sold (See Note 12) and accordingly, its operating results for the three years
ended October 31, 2004, have been reclassified as discontinued operations in the
accompanying consolidated financial statements. Revenues from discontinued
operations were $1,034,000, $1,207,000 and $1,142,000 for the years ended
October 31,2004, 2003 and 2002 respectively.
Consolidated Joint Ventures
The Company is the general partner in a partnership that owns the Eastchester
Mall in Eastchester, New York. The limited partner who contributed the property
in exchange for common and preferred LP Units (partnership units) is entitled to
preferential distributions of cash flow from the property and may put its
partnership units to the Company in exchange for shares of the Company's Common
Stock, Class A Common stock and cash. However, the Company, at its option, may
elect to redeem the partnership units for cash. The Company also has an option
to purchase all of the partnership units for cash after 2007. At October 31,2004
there were 54,553 Common LP units, Class A Common LP units and Preferred LP
units outstanding.
The Company is the general partner in a partnership that owns the Arcadian
Shopping Center in Briarcliff Manor, New York. The limited partners contributed
the property, subject to a $6.3 million first mortgage, in exchange for
partnership units ("PU's") of the entity. The PU'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 for cash or
Class A Common Stock of the Company at a unit price as defined in the
partnership agreement. The Company, at its option, may redeem the limited
partners' interest for cash. At October 31, 2004 there were 255,097 PU's
outstanding.
41
The Company is the general partner in a partnership that owns the Ridgeway
Shopping Center in Stamford, Connecticut. The partnership acquired the property
in 2002, subject to a $57.4 million mortgage loan. The partners are entitled to
receive an annual cash preference payable from available cash of the
partnership. Any unpaid preferences accumulate and are paid from future
available cash, if any. The limited partners' cash preferences are paid after
the general partner's preferences are satisfied. The balance of available cash,
if any, is distributed in accordance with the respective partners' interests.
Upon liquidation, proceeds from the sale of partnership assets are to be
distributed in accordance with the respective partners' interests. The partners
are not obligated to make any additional capital contributions to the
partnership. The Company has retained an affiliate of one of the limited
partners to provide management and leasing services to the property at an annual
fee of $125,000 for a period of five years ending in June 2007. The assumption
of the mortgage loan represented a non-cash financing activity and is therefore
not included in the accompanying 2002 consolidated statement of cash flows.
The limited partner interests are reflected in the accompanying consolidated
financial statements as Minority Interests.
(4) NON-CORE PROPERTIES
At October 31, 2004, the non-core properties consist of two distribution and
service properties, one office building and one retail property located outside
of the Northeast region of the United States. The Board of Directors has
authorized management, subject to its approval of any contract for sale, to sell
the non-core properties of the Company over a period of several years in
furtherance of the Company's objectives to focus on northeast properties.
The components of non-core properties were as follows (in thousands):
2004 2003
- --------------------------------------------------------------- ---------------------- ---------------------
Land $1,943 $1,943
Buildings and improvements 18,678 19,433
------ ------
20,621 21,376
Accumulated depreciation (9,938) (10,161)
------- --------
$10,683 $11,215
======= =======
Minimum rental payments on non-cancelable operating leases of the non-core
properties become due as follows: 2005 - $4,332,000; 2006 - $4,408,000; 2007 -
$4,156,000; 2008 - $1,376,000; 2009 - $906,000 and thereafter $1,263,000.
(5) MORTGAGE NOTES RECEIVABLE
Mortgage notes receivable consist of two fixed rate mortgages with contractual
interest rates of 9% and 12% which are secured by commercial property. Interest
is recognized on the effective yield method. The mortgage notes are recorded at
a discounted amount which reflected market interest rates at the time of
acceptance of the notes. At October 31, 2004 and 2003, the unamortized discounts
were $349,000 and $393,000 respectively.
At October 31, 2004, principal payments on the mortgage notes receivable become
due as follows: 2005 - $130,000; 2006 - $142,000; 2007 - $156,000; 2008 -
$170,000; 2009 - $186,000 and thereafter - $1,673,000.
(6) MORTGAGE NOTES PAYABLE AND LINES OF CREDIT
At October 31, 2004, mortgage notes payable are due in installments over various
periods to fiscal 2011 at fixed rates of interest ranging from 6.29% to 8.375%
and are collateralized by real estate investments having a net carrying value of
$170,372,000.
Scheduled principal payments during the next five years and thereafter are as
follows: 2005 - $2,247,000; 2006 - $9,040,000; 2007 - $11,348,000; 2008 -
$53,392,000; 2009 - $17,754,000 and thereafter - $13,662,000.
At October 31, 2004, the Company had two revolving lines of credit arrangements
with a bank. One line of credit (the"Secured Credit Facility") expires in
October 2005 and is secured by first mortgage liens on two properties and
provides for draws of up to $17.5 million. Interest is at Prime + 1/2% or LIBOR
+ 1.5%. The Secured Credit Facility requires the Company to maintain certain
debt service coverage ratios during its term. At October 31, 2004, the Company
had no outstanding borrowings under this revolving credit agreement. The Company
pays an annual fee of .25% on the unused portion of this credit facility.
42
The Company also has a $20 million unsecured line of credit arrangement with the
same bank which expires in January 2005. The line of credit is available to
acquire real estate, refinance indebtedness and for working capital needs.
Extensions of credit are at the bank's discretion and subject to the bank's
satisfaction of certain conditions. Outstanding borrowings bear interest at the
Prime + 1/2% or LIBOR + 2.5%. The Company pays an annual fee of .25% on unused
amounts. There were no borrowings outstanding under this line of credit at
October 31, 2004.
Interest paid in each of the three years ended October 31, 2004, was $8,113,000,
$8,094,000 and $5,584,000, respectively.
(7) PREFERRED STOCK
The 8.99% Series B Senior Cumulative Preferred Stock ("Series B Preferred
Stock") and 8.50% Series C Senior Cumulative Preferred Stock ("Series C
Preferred Stock") have no stated maturity, are not subject to any sinking fund
or mandatory redemption and are not convertible into other securities or
property of the Company. On or after ten years from date of issuance, the
Company at its option may redeem the Series B Preferred Stock and /or Series C
Preferred Stock, 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), each holder of Series B Preferred Stock and Series C Preferred Stock
has the right, at such holder's option, to require the Company to repurchase all
or any part of such holder's stock for cash at a repurchase price of $100 per
share, plus all accrued and unpaid dividends.
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 shares 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.
The Series B Preferred Stock and Series C Preferred Stock contain covenants,
which require the Company to maintain certain financial coverages relating to
fixed charge and capitalization ratios. Shares of both Preferred Stock series
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, 2004 and 2003.
In fiscal 2002, the Company repurchased 200,000 shares of its Series B Preferred
Stock for $16,050,000 in a negotiated transaction with a holder of the preferred
shares. The Company recorded the excess of the carrying value over the cost to
repurchase the preferred shares of $3,071,000 as an increase in net income
applicable to Common and Class A Common stockholders.
(8) STOCKHOLDERS' EQUITY
In fiscal 2002, the Company completed a secondary offering of 8,050,000 shares
of its Class A Common Stock in an underwritten public offering. The net proceeds
to the Company (after deducting underwriting fees and expenses) were
$81,854,000. In November 2001, the Company also sold 699,222 shares to its
underwriters to cover over allotments in connection with the Company's secondary
stock offering of 4,800,000 shares in fiscal 2001. Net proceeds to the Company
amounted to $6,069,000.
Underwriting commissions and costs incurred in connection with the Company's
stock offerings are reflected as a reduction of additional paid in capital.
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 Dividend Reinvestment and Share Purchase Plan, as amended,
(the "Plan") which permits shareholders to acquire additional shares of Common
Stock and Class A Common Stock by automatically reinvesting dividends. During
fiscal 2004, the Company issued 181,720 shares of Common Stock and 18,306 shares
of Class A Common Stock (61,699 shares of Common Stock and 18,704 shares of
Class A Common Stock in fiscal 2003) through the Plan. As of October 31, 2004,
there remained 299,907 shares of common stock and 525,228 shares of Class A
common stock available for issuance under the Plan.
The Company has a stockholders rights agreement, 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.
43
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 aggregate value of all outstanding 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 has limited rights, may not be voted and is not entitled to
any dividends.
(9) STOCK OPTION AND OTHER BENEFIT PLANS
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 October 31,2004 options to purchase
2,406 shares of Class A Common Stock (and no shares of common stock) were
available for future grant. 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 vest over
a maximum period of four years from the date of grant.
A summary of stock option transactions during the three years ended October 31,
2004 is as follows:
Year ended October 31 2004 2003 2002
- --------------------- ------------------ -------------------- ---------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Prices Shares Prices Shares Prices
------ ------ ------ ------ ------ ------
Common Stock:
Balance at beginning of period 55,876 $7.62 91,570 $7.50 315,060 $7.00
Granted - - - - -
Exercised (15,000) $7.29 (18,000) $7.22 (211,762) $6.88
Canceled/Forfeited (15,728) $7.27 (17,694) $7.44 (11,728) $7.03
-------- --------- --------
Balance at end of period 25,148 $7.70 55,876 $7.62 91,570 $7.50
Exercisable 25,148 55,876 91,570
Class A Common Stock:
Balance at beginning of period 42,733 $7.83 66,810 $7.71 314,605 $7.50
Granted - - - -
Exercised (23,624) $7.93 (24,077) $7.61 (37,312) $7.26
Canceled/Forfeited - - (210,483) $7.16
------ ------ ------
Balance at end of period 19,109 $7.85 42,733 $7.83 66,810 $7.71
Exercisable 19,109 42,733 66,810
At October 31, 2004, exercise prices of shares of Common Stock and Class A
Common Stock under option ranged from $7.04 to $7.69, for the Common Stock and
$6.78 to $9.28, for the Class A Common Stock. For both classes of stock, option
expiration dates range from April 2005 through April 2009 and the weighted
average remaining contractual life of these options is 2.5 years.
As of October 31, 2004, outstanding options to acquire approximately 6,000
shares each of Common Stock and Class A Common stock permit the optionee to
elect to receive either shares of Common stock, Class A Common Stock or a
combination of both. Upon an election to exercise shares of a class of common
stock by the optionee, an equivalent number of shares of the class of common
stock not elected by such optionee are deemed cancelled and no longer available
for future grants.
In connection with the exercise of stock options certain officers of the Company
executed full recourse promissory notes equal to the purchase price of the
shares. At October 31, 2004 officers notes receivable totaled $1,300,000
($1,434,000 at October 31,2003) The outstanding notes have a term of ten years
and bear interest at an annual rate determined at the date of origination of the
note. The shares are pledged as additional collateral for the notes. Interest is
payable quarterly. The exercise of the stock options and the issuance of the
notes represent non-cash financing activities and are therefore not included in
the accompanying consolidated statements of cash flows.
44
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 stock
options granted under the plan. Had compensation cost for stock options granted
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, 2004 would have been
immaterial.
Restricted Stock Plan
The Company has a restricted stock plan for key employees and directors of the
Company. The restricted stock plan, as amended, provides for the grant of up to
1,650,000 of the Company's common equity consisting of 350,000 Common shares,
350,000 Class A Common shares and 950,000 shares, which at the discretion of the
Company's compensation committee, may be awarded in any combination of Class A
common shares or Common shares. As of October 31, 2004, the Company has awarded
685,000 shares of Common Stock and 397,875 shares of Class A Common Stock to
participants as an incentive for future services. The shares vest between five
and ten years after the date of grant. At October 31, 2004, 26,750 shares each
of Common Stock and Class A Common Stock were vested (13,250 shares each of
Common Stock and Class A Common Stock at October 31, 2003). Dividends on vested
and non-vested shares are paid as declared. The market value of shares is
recorded as unamortized restricted stock compensation on the date of grant.
Unamortized restricted stock compensation is expensed over the respective
vesting periods. For the years ended October 31, 2004, 2003 and 2002 amounts
charged to expense totaled $1,322,000, $1,105,000 and $942,000, respectively.
Profit Sharing and Savings Plan
The Company has a profit sharing and savings plan (the "401K Plan"), which
permits all eligible employees to defer a portion of their compensation in
accordance with the Internal Revenue Code. Under the 401K Plan, the Company may
make discretionary contributions on behalf of eligible employees. For the years
ended October 31, 2004, 2003 and 2002, the Company made contributions to the
401K Plan of $127,000, $95,000 and $93,000, respectively. The Company also has
an Excess Benefits and Deferred Compensation Plan that allows eligible employees
to defer benefits in excess of amounts provided under the Company's 401K Plan
and a portion of the employee's current compensation.
45
(10) PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The unaudited pro forma financial information set forth below is based upon the
Company's historical consolidated statements of income for the years ended
October 31, 2004 and 2003 adjusted to give effect to the acquisitions completed
in fiscal 2003 (see Note 3), the disposition of the Company's Farmingdale New
York property in November 2004 and the issuance of 400,000 shares of Series C
Preferred Stock (May 2003) as though these transactions were completed on
November 1, 2002.
The pro forma financial information is presented for informational purposes
only and may not be indicative of what the actual results of operations would
have been had the transactions occurred as of November 1, 2002 nor does it
purport to represent the results of future operations. (amounts in thousands,
except per share figures).
Year Ended October 31,
----------------------
2004 2003
---- ----
Pro forma revenues: $64,916 $62,096
======= =======
Pro forma net income applicable to Common
and Class A Common $18,566 $17,064
======= =======
Pro forma basic shares outstanding:
Common and Common Equivalent 6,414 6,259
===== =====
Class A Common and Class A Common Equivalent 18,248 18,200
====== ======
Pro forma diluted shares outstanding:
Common and Common Equivalent 6,820 6,566
===== =====
Class A Common and Class A Common Equivalent 18,836 18,720
====== ======
Pro forma earnings per share:
Basic:
Common $ .69 $ .63
===== =====
Class A Common $ .75 $ .70
===== ======
Diluted:
Common $ .68 $ .62
===== =====
Class A Common $ .75 $ .69
===== =====
46
(11) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The unaudited quarterly results of operations for the years ended October 31,
2004 and 2003 are as follows (in thousands, except per share data):
Year Ended October 31, 2004 Year Ended October 31, 2003
--------------------------- ---------------------------
Quarter Ended Quarter Ended
------------- -------------
Jan 31 Apr 30 July 31 Oct 31 Jan 31 Apr 30 July 31 Oct 31
------ ------ ------- ------ ------ ------ ------- ------
Revenues (1) $16,844 $16,157 $15,694 $16,221 $13,372 $14,706 $15,125 $15,950
======= ======= ======= ======= ======= ======= ======= =======
Net Income $6,271 $5,866 $5,341 $5,837 $4,197 $4,870 $5,459 $5,844
Preferred Stock Dividends (1,187) (1,187) (1,187) (1,188) (337) (337) (932) (1,188)
Net Income Applicable to
Common and Class A
Common Stockholders $5,084 $4,679 $4,154 $4,649 $3,860 $4,533 $4,527 $4,656
====== ====== ====== ====== ====== ====== ====== ======
Basic Earnings per Share:
Common $.19 $.18 $.16 $.17 $.15 $.17 $.17 $.18
Class A Common $.21 $.19 $.17 $.20 $.16 $.19 $.19 $.19
Diluted Earnings per Share:
Common $.19 $.17 $.15 $.18 $.15 $.17 $.17 $.17
Class A Common $.21 $.19 $.17 $.19 $.16 $.19 $.19 $.19
(1) All periods have been adjusted to reflect the impact of operating properties
classified as held for sale as of October 31, 2004, which are reflected in the
caption Discontinued Operations in the accompanying Consolidated Statements of
Income.
(12) SUBSEQUENT EVENTS, COMMITMENTS AND CONTINGENCIES
On January 7, 2005, the Company acquired a 269,000 square foot shopping center
located in Stratford, Connecticut for $50.25 million excluding closing costs.
The acquisition was funded with available cash and borrowings of $17.5 million
under the Company's secured line of credit.
On December 22, 2004, the Company contracted to purchase four retail properties
totaling 73,000 square feet located in New York for an aggregate purchase price
of $18 million.
In November 2004, the Company sold a 70,000 square foot shopping center in
Farmingdale, New York for a sale price of $9.75 million,realizing a net gain on
the sale of approximately $5.7 million.
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.
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Urstadt Biddle Properties Inc.:
We have audited the accompanying consolidated balance sheets of Urstadt Biddle
Properties Inc. (the "Company") as of October 31, 2004 and 2003, and the related
consolidated statements of income, cash flows and stockholders' equity for each
of the three years in the period ended October 31, 2004. Our audits also
included the financial statement schedules listed in the Index at Item 15 (a).
These financial statements and schedules 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 the standards of the Public Company
Accounting Oversight Board (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 consolidated financial position of Urstadt Biddle
Properties Inc. at October 31, 2004 and 2003 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended October 31, 2004 in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
New York, New York
December 15, 2004,
except for the first two paragraphs in Note 12
as to which the date is January 7, 2005
48
URSTADT BIDDLE PROPERTIES INC.
OCTOBER 31, 2004
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
- ------------------------------------------------------------------------------------------------------------------------------------
Life on which
Depreciation
for
building and
improvements
Cost Amount at which in latest
Capitalized Subsequent Carried at Close of Period income
Initial Cost to Company to Acquisition ------------------------------ statement
------------------ ---------------------- Accumulated Date is
Description and Building and Carrying Building and Building and Depreciation Constructed computed
Location Encumbrances Land Improvements Costs Improvements Land Improvements TOTAL (Note(b)) Acquired (Note(c))
- ----------------- ------------ ---- ------------ -------- ------------ ---- ------------ ----- -------- -------- ---------
Real Estate Subject to Operating Leases (Note (a))
Office Buildings:
Greenwich, CT ** $ 708 $ 1,641 $ - $ 26 $ 708 $ 1,667 $ 2,375 $ 149 2001 31.5
Greenwich, CT ** 488 1,139 - 61 488 1,200 1,688 139 2000 31.5
Greenwich, CT ** 570 2,359 - 180 570 2,539 3,109 418 1998 31.5
Greenwich, CT ** 199 795 - 51 199 846 1,045 245 1993 31.5
Greenwich, CT ** 111 444 - 21 111 465 576 119 1994 31.5
Southfield, MI - 1,000 10,280 - 2,958 1,000 13,238 14,238 6,938 1983 35.0
----- ----- ------ --- ----- ----- ------ ------ -----
5,686 3,076 16,658 - 3,297 3,076 19,955 23,031 8,008
----- ------ --- ----- ----- ------ ------ -----
Shopping Centers:
Somers, NY - 4,345 17,378 (18) (24) 4,327 17,354 21,681 593 2003 39.0
Westport, CT - 2,076 8,305 - 187 2,076 8,492 10,568 384 2003 39.0
White Plains, NY - 8,065 32,258 - 801 8,065 33,059 41,124 1,554 2003 39.0
Rye, NY - 858 3,431 - - 858 3,431 4,289 44 2004 39.0
Rye, NY 1,950 487 1,948 - - 487 1,948 2,435 25 2004 39.0
Rye, NY 890 231 924 - - 231 924 1,155 12 2004 39.0
Rye, NY 2,000 669 2,673 - - 669 2,673 3,342 34 2004 39.0
Orange, CT - 2,291 10,438 30 190 2,321 10,628 12,949 497 2003 39.0
Stamford, CT 55,412 17,965 71,859 - 413 17,965 72,272 90,237 4,509 2002 39.0
Danbury, CT 1,877 2,459 4,566 - - 2,459 4,566 7,025 313 2002 39.0
Briarcliff, NY 3,862 2,222 5,185 - 23 2,222 5,208 7,430 435 2001 40.0
Somers, NY 5,981 1,834 7,383 - 27 1,834 7,410 9,244 1,216 1999 31.5
Briarcliff, NY 5,312 2,300 9,708 - 1,727 2,300 11,435 13,735 1,782 1998 40.0
Ridgefield, CT - 900 3,793 - 619 900 4,412 5,312 951 1998 40.0
Darien, CT 13,611 4,260 17,192 - 697 4,260 17,889 22,149 2,846 1998 40.0
Eastchester, NY 4,395 1,500 6,128 - 718 1,500 6,846 8,346 1,135 1997 31.0
Tempe, AZ - 493 2,284 - 1,379 493 3,663 4,156 2,116 1970 40.0
Danbury, CT * - 3,850 15,811 - 3,910 3,850 19,721 23,571 4,745 1995 31.5
Carmel, NY 4,755 1,488 5,973 - 1,652 1,488 7,625 9,113 1,850 1995 31.5
Farmingdale, NY - 1,027 4,174 - 126 1,027 4,300 5,327 1,562 1993 31.5
Meriden, CT - 5,000 20,309 - 6,550 5,000 26,859 31,859 9,146 1993 31.5
Somers, NY 1,712 821 2,600 - - 821 2,600 3,421 823 1992 31.5
Wayne, NJ * - 2,492 9,966 - 427 2,492 10,393 12,885 3,228 1992 31.0
Newington, NH - 728 1,997 - 3,523 728 5,520 6,248 3,107 1979 40.0
Springfield, MA - 1,372 3,656 307 15,507 1,679 19,163 20,842 10,114 1970 40.0
------- ------ ------- --- ------ ------ ------- ------- ------
101,757 69,733 269,939 319 38,452 70,052 308,391 378,443 53,021
------- ------ ------- --- ------ ------ ------- ------- ------
Industrial Distribution Center
Dallas, TX - 216 844 - - 216 844 1,060 506 1970 40.0
St. Louis, M - 232 933 - - 232 933 1,165 377 1970 40.0
--- --- ----- --- --- --- ----- ----- ---
- 448 1,777 - - 448 1,777 2,225 883
--- --- ----- --- --- --- ----- ----- ---
Mixed Use Facility: Retail/Office:
Briarcliff, NY - 380 1,531 - 2,276 380 3,807 4,187 1,038 1999 40.0
--- --- ----- --- ----- --- ----- ----- -----
- 380 1,531 - 2,276 380 3,807 4,187 1,038
--- --- ----- --- ----- --- ----- ----- -----
Total $107,443 $73,637 $289,905 $319 $44,025 $73,956 $333,930 $407,886 $62,950
======== ======= ======== === ======= ======= ======== ======== =======
* Properties secure a $17.5 million secured revolving credit line. At October
31, 2004 there were no outstanding borrowings.
**Properties are cross collateralized for a mortgage in the amount of
$5,686 at October 31, 2004.
49
URSTADT BIDDLE PROPERTIES INC.
OCTOBER 31, 2004
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
(In thousands)
- ---------------------------------------------------------------------- ------------ ------------ ------------
NOTES: 2004 2003 2002
---- ---- ----
(a) RECONCILIATION OF REAL ESTATE -
OWNED SUBJECT TO OPERATING LEASES
Balance at beginning of year $396,117 $310,646 $211,636
Property improvements during the year 2,248 2,393 2,406
Property acquired during the year 11,221 84,964 98,867
Property sold during the year --- --- (275)
Property assets fully written off (1,701) (1,886) (1,988)
------- ------- -------
Balance at end of year $407,885 $396,117 $310,646
======== ======== ========
(b) RECONCILIATION OF ACCUMULATED DEPRECIATION
Balance at beginning of year $53,982 $45,993 $40,446
Provision during the year charged to income 10,669 9,875 7,535
Property assets fully written off (1,701) (1,886) (1,988)
------- ------- -------
Balance at end of year $62,950 $53,982 $45,993
======= ======= =======
(c) Tenant improvement costs are depreciated over the life of the related
leases, which range from 5 to 20 years.
(d) The aggregate cost basis for Federal income tax purposes at October 31,
2004 is $428,489.
(e) The depreciation provision represents the expense calculated on real
property only.
50
URSTADT BIDDLE PROPERTIES INC.
OCTOBER 31, 2004
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Remaining Face
Interest Rate Amount of Carry Amount
----------------- Final Maturity Mortgages (Note(b)) of Mortgage (Note(a))
Description Coupon Effective Date Periodic Payment Terms (In Thousands) (In Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
FIRST MORTGAGE LOANS ON BUSINESS PROPERTIES (Notes (c) and (d)):
Retail Store:
Erie, PA 9% 14% 1-Jul-13 Payable in monthly installments of $785 $653
Principal & Interest of $10,787.
Retail Store:
Riverside, CA 9% 12% 15-Jan-13 Payable in monthly installments of 1,673 1,456
--------------------------
TOTAL MORTGAGE LOANS ON REAL ESTATE $2,458 $2,109
==========================
URSTADT BIDDLE PROPERTIES INC.
OCTOBER 31, 2004
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
-------------- ------------- ------------ -------------
2004 2003 2002 2001
-------------- ------------- ------------ -------------
(a) Balance at beginning of period: $ 2,184 $ 2,251 $ 2,307 $ 2,379
Deductions during the current period:
Collections of principal and amortization of discounts (75) (67) (56) (72)
-------------- ------------- ------------ -------------
Balance at end of period: $ 2,109 $ 2,184 $ 2,251 $ 2,307
============== ============= ============ =============
(b) The aggregate cost basis for Federal income tax purposes is equal to the
face amount of the mortgages
(c) At October 31, 2004 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.
51
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 14, 2005
52
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the Registrant and in the capacities and on the
date indicated have signed this Report below.
/S/ Charles J. Urstadt January 14, 2005
- ------------------------------
Charles J. Urstadt
Chairman and Director
(Principal Executive Officer)
/S/ Willing L. Biddle January 14, 2005
- ---------------------------
Willing L. Biddle
President and Director
/S/ James R. Moore January 14, 2005
- --------------------------
James R. Moore
Executive Vice President -
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
/S/ E. Virgil Conway January 14, 2005
- ---------------------------
E. Virgil Conway
Director
/S/ Robert R. Douglass January 14, 2005
- --------------------------
Robert R. Douglass
Director
/S/ Peter Herrick January 14, 2005
- -------------------------------
Peter Herrick
Director
/S/ George H.C. Lawrence January 14, 2005
- ------------------------
George H. C. Lawrence
Director
/S/ Robert J. Mueller January 14, 2005
- ---------------------
Robert J. Mueller
Director
/S/ Charles D. Urstadt January 14, 2005
- -----------------------------
Charles D. Urstadt
Director
/S/ George J. Vojta January 14, 2005
- --------------------------------
George J. Vojta
Director
53