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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2005
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____to_____
Commission File Number 1-12803
URSTADT BIDDLE PROPERTIES INC.
(Exact Name of Registrant in its Charter)
MARYLAND 04-2458042
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
321 Railroad Avenue, Greenwich, CT 06830
(Address of principal executive offices) (ZipCode)
Registrant's telephone number, including area code: (203) 863-8200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes X No ____
As of June 7, 2005, the number of shares of the Registrant's classes of Common
Stock and Class A Common Stock was: 7,411,463 Common Shares, par value $.01 per
share and 18,732,958 Class A Common Shares, par value $.01 per share
THE SEC FORM 10-Q, FILED HEREWITH, CONTAINS 26 PAGES, NUMBERED CONSECUTIVELY
FROM 1 TO 26 INCLUSIVE, OF WHICH THIS PAGE IS 1.
1
INDEX
URSTADT BIDDLE PROPERTIES INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - April 30, 2005 and October 31, 2004.
Consolidated Statements of Income -Three and Six months ended April 30,
2005 and 2004.
Consolidated Statements of Cash Flows - Six months ended April 30, 2005
and 2004.
Consolidated Statements of Stockholders' Equity - Six months ended
April 30, 2005.
Notes to Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits
SIGNATURES
2
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
April 30, October 31,
ASSETS 2005 2004
---- ----
(Unaudited)
Real Estate Investments:
Core properties - at cost $ 433,775 $ 381,937
Non-core properties - at cost 20,621 20,621
Less: accumulated depreciation (66,564) (61,389)
-------- --------
387,832 341,169
Mortgage notes receivable 2,068 2,109
------ -----
389,900 343,278
Property held for sale - 4,002
Cash and cash equivalents 8,683 25,940
Restricted cash 1,189 1,184
Marketable securities 2,499 2,681
Tenant receivables, net of allowances of $1,750 and $2,047, respectively 13,960 11,249
Prepaid expenses and other assets 4,843 3,303
Deferred charges, net of accumulated amortization 3,247 3,280
------ -----
Total Assets $ 424,321 $ 394,917
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 106,340 $107,443
Accounts payable and accrued expenses 1,781 1,515
Deferred compensation - officers 782 501
Other liabilities 4,263 3,617
----- -----
Total Liabilities 113,166 113,076
------- -------
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:
7.5% Series D Senior Cumulative Preferred stock (liquidation preference of
$25 per share); 1,000,000 and 0 shares issued and outstanding 23,995 -
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;
7,411,463 and 7,189,991 shares issued and outstanding 74 72
Class A Common stock, par value $.01 per share; 40,000,000 shares authorized;
18,732,958 and 18,649,008 shares issued and outstanding 187 186
Additional paid in capital 269,377 264,680
Cumulative distributions in excess of net income (32,659) (36,581)
Accumulated other comprehensive income 470 472
Unamortized restricted stock compensation and officers notes receivable (10,356) (7,055)
-------- -------
Total Stockholders' Equity 251,088 221,774
------- -------
Total Liabilities and Stockholders' Equity $424,321 $ 394,917
======== =========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
3
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Six Months Ended Three Months Ended
April 30, April 30,
2005 2004 2005 2004
---- ---- ---- ----
Revenues:
Base rents $26,666 $24,742 $13,746 $12,305
Recoveries from tenants 8,764 7,300 4,636 3,656
Lease termination income - 542 - -
Interest and other 382 417 178 196
--- --- --- --- ---
35,812 33,001 18,560 16,157
------ ------ ------ ------
Operating Expenses:
Property operating 6,277 5,308 3,493 2,585
Property taxes 4,709 4,235 2,465 2,174
Interest 4,322 3,999 2,269 1,994
Depreciation and amortization 6,109 5,418 3,078 2,664
General and administrative 2,109 1,879 992 860
Directors' fees and expenses 127 105 59 48
--- --- --- ---
23,653 20,944 12,356 10,325
------ ------ ------ ------
Operating Income 12,159 12,057 6,204 5,832
Minority Interests (184) (183) (92) (91)
----- ----- ----- -----
Income from Continuing Operations 11,975 11,874 6,112 5,741
Discontinued Operations:
Income (Loss) from discontinued operations (24) 263 - 125
Gain on sale of property 5,634 - - -
----- ----- ----- -----
Income from Discontinued Operations 5,610 263 - 125
----- ------ ----- -----
Net Income 17,585 12,137 6,112 5,866
Preferred Stock Dividends (2,473) (2,374) (1,286) (1,187)
------- ------- ------- -------
Net Income Applicable to Common and Class A Common Stockholders $15,112 $9,763 $4,826 $4,679
======= ====== ====== ======
Basic Earnings per Share:
Per Common Share:
Income from continuing operations $.36 $.36 $.18 $.18
Income from discontinued operations $.21 $.01 - -
---- ---- ---- ----
Net Income Applicable to Common Stockholders $.57 $.37 $.18 $.18
==== ==== ==== ====
Per Class A Common Share:
Income from continuing operations $.39 $.40 $.20 $.19
Income from discontinued operations $.23 $.01 - -
---- ---- ---- ----
Net Income Applicable Class A Common Stockholders $.62 $.41 $.20 $.19
==== ==== ==== ====
Diluted Earnings Per Share:
Per Common Share:
Income from continuing operations $.35 $.35 $.18 $.17
Income from discontinued operations $.20 $.01 - -
---- ---- ---- ----
Net Income Applicable-Common Stockholders $.55 $.36 $.18 $.17
==== ==== ==== ====
Per Class A Common Share:
Income from continuing operations $.39 $.39 $.19 $.19
Income from discontinued operations $.22 $.01 - -
---- ---- ---- ----
Net Income Applicable to Class A Common Stockholders $.61 $.40 $.19 $.19
==== ==== ==== ====
Dividends per share:
Common $.40 $.39 $.20 $.195
==== ==== ==== =====
Class A Common $.44 $.43 $.22 $.215
==== ==== ==== =====
The accompanying notes to consolidated financial statements are an
integral part of these statements.
4
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands) Six Months Ended
April 30,
2005 2004
---- ----
Operating Activities:
Net income $17,585 $12,137
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,109 5,418
Depreciation and amortization on discontinued operations - 76
Gain on sale of real estate investment (5,634) -
Amortization of restricted stock 782 642
Minority interests 184 183
Increase in tenant receivables (2,437) (1,832)
Increase (decrease) in accounts payable and accrued expenses 261 (1,526)
Increase in other assets and other liabilities, net (399) (1,131)
(Increase) decrease in restricted cash (5) 2
---- ----
Net Cash Provided by Operating Activities 16,446 13,969
------ ------
Investing Activities:
Acquisition of real estate investment (51,432) -
Net proceeds received from sale of property 9,406 -
Sale of marketable securities 182 7,866
Deposits on acquisitions (500) (875)
Improvements to properties and deferred charges (1,275) (1,130)
Payments received on mortgage notes receivables 41 37
Distributions to limited partners of consolidated joint ventures (184) (183)
----- -----
Net Cash (Used in) Provided by Investing Activities (43,762) 5,715
-------- -----
Financing Activities:
Proceeds from revolving credit line borrowings 19,500 -
Repayments on revolving credit line borrowings (19,500) -
Proceeds from sale of Series D Preferred Stock 23,995 -
Dividends paid on Common and Class A Common shares (11,190) (10,744)
Dividends paid on Preferred shares (2,473) (2,374)
Sales of additional Common and Class A Common shares 830 1,544
Payments on mortgage notes payable (1,103) (974)
Repayment of note receivable from officer - 133
------ ------
Net Cash Provided by (Used in) Financing Activities 10,059 (12,415)
------ --------
Net (Decrease) Increase In Cash and Cash Equivalents (17,257) 7,269
Cash and Cash Equivalents at Beginning of Period 25,940 22,449
------ ------
Cash and Cash Equivalents at End of Period $8,683 $29,718
====== =======
Supplemental Cash Flow Disclosures:
Interest Paid $4,322 $3,999
====== ======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(In thousands, except shares and per share data)
Preferred Stock Common Stock Class A Common Stock
--------------- ------------ -------------------- Additional Distributions
Number 7.50% Number Par Number of Par Paid In In Excess of
of Shares Series D of Shares Value Shares Value Capital Net Income)
--------- -------- --------- ----- --------- ----- --------- -------------
Balances - October 31, 2004 $- 7,189,991 $72 18,649,008 $186 $264,680 $(36,581)
Comprehensive Income:
Net income applicable to
Common and Class A common
stockholders - - - - - - 15,112
Unrealized gains on
marketable securities - - - - - - -
Total Comprehensive Income -
Cash dividends paid:
Common stock ($.40 per share) - - - - - - (2,950)
Class A common stock
($.44 per share) - - - - - - (8,240)
Sales of additional shares
under dividend reinvestment
plan - 45,672 - 8,275 - 830 -
Shares granted under
restricted stock plan - 175,800 2 75,675 1 4,080 -
Amortization of restricted
stock compensation and
other adjustments - - - - - (213) -
Net proceeds from preferred
stock offering 1,000,000 23,995 - - - - - -
--------- ------ ------- ---- --------- ---- -------- ------
Balances - April 30, 2005 1,000,000 $23,995 7,411,463 $74 18,732,958 $187 $269,377 $(32,659)
========= ======= ========= ==== ========== ==== ======== =========
Unamortized
Restricted
Stock
Accumulated Compensation
Other and Officers
Comprehensive Notes
Income Receivable Total
------- ---------- ------
Balances - October 31, 2004 $472 $(7,055) $221,774
Comprehensive Income:
Net income applicable to
Common and Class A common
stockholders - - 15,112
Unrealized gains on
marketable securities (2) (2)
---
Total Comprehensive Income 15,110
Cash Dividends Paid:
Common stock ($.40 per share) - - (2,950)
Class A common stock
($.44 per share) - - (8,240)
Sales of additional shares
under dividend reinvestment
plan - - 830
Shares granted under
restricted stock plan - (4,083) -
Amortization of restricted
stock compensation and
other adjustments - 782 569
Net proceeds from preferred
stock offering - - 23,995
----- ----- ------
Balances - April 30, 2005 $470 $(10,356) $251,088
======= ========= =========
The accompanying notes to consolidated financial statements
are an integral part of these statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) 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 April 30,
2005, the Company owned or had interests in 34 properties containing a total of
3.7 million square feet of leasable area.
Principles of Consolidation and Use of Estimates
The accompanying unaudited consolidated financial statements include the
accounts of the Company, its wholly owned subsidiaries, and joint ventures in
which the Company has the ability to control the affairs of the venture. 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 financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Results of operations for the six month period ended April 30, 2005, are not
necessarily indicative of the results that may be expected for the year ending
October 31, 2005. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended October 31, 2004.
The preparation of financial statements requires management to make use of
estimates and assumptions that affect amounts reported in the financial
statements as well as certain disclosures. Actual results could differ from
those estimates. The balance sheet at October 31, 2004 has been derived from
audited financial statements at that date.
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 and intends to continue to qualify as a REIT.
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.
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 April 30, 2005, other comprehensive income consists of net unrealized
gains of $470,000. Unrealized gains included in other comprehensive income will
be reclassified into earnings as gains are realized. For the six month and three
month periods ended April 30, 2005, gains on sales of marketable securities
amounted to $35,000 (none in the comparable periods in fiscal 2004).
7
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.
The following table sets forth the reconciliation between basic and diluted EPS
(in thousands):
Six Months Ended Three Months Ended
April 30, April 30,
--------- ---------
2005 2004 2005 2004
---- ---- ---- ----
Numerator
Net income applicable to common stockholders - basic $3,714 $2,346 $1,188 $1,128
Effect of dilutive securities:
Operating partnership units 148 74 56 37
----- ------ ----- -----
Net income applicable to common stockholders - diluted $3,862 $2,420 $1,244 $1,165
====== ====== ====== ======
Denominator
Denominator for basic EPS-weighted average common shares 6,556 6,362 6,568 6,386
Effect of dilutive securities:
Stock options and awards 409 220 416 223
Operating partnership units 55 55 55 55
----- ----- ----- -----
Denominator for diluted EPS - weighted average common
equivalent shares 7,020 6,637 7,039 6,664
===== ===== ===== =====
Numerator
Net income applicable to Class A common Stockholders-basic $11,398 $7,417 $3,638 $3,551
Effect of dilutive securities:
Operating partnership units 35 110 36 54
----- ----- ----- -----
Net income applicable to Class A common Stockholders - diluted $11,433 $7,527 $3,674 $3,605
======= ====== ====== ======
Denominator
Denominator for basic EPS - weighted average Class A common shares
18,289 18,236 18,293 18,241
Effect of dilutive securities:
Stock options and awards 289 173 287 158
Operating partnership units 310 310 310 310
---- ---- ---- ----
Denominator for diluted EPS - weighted average
Class A Common equivalent shares 18,888 18,719 18,890 18,709
====== ====== ====== ======
Segment Reporting
The Company operates in one industry segment, ownership of commercial real
estate properties which are located principally in the northeastern United
States. Management reviews operating and financial data for each property
separately and independently from all other properties when making resource
allocation decisions and measuring performance.
8
Recently Issued Accounting Pronouncements
In 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.
(2) CORE PROPERTIES
On January 7, 2005, the Company acquired The Dock Shopping Center, a 269,000
square foot shopping center located in Stratford, Connecticut for $51.0 million
(including closing costs of approximately $750,000). The acquisition was funded
with available cash and borrowings of $17.5 million under the Company's secured
line of credit.
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.
During the second quarter of fiscal 2005, the Company completed its evaluation
of the Rye Properties which were acquired in May 2004. As a result of its
evaluations, the Company has allocated $435,000 to a liability and $22,000 to an
asset associated with the net fair value assigned to the acquired leases at the
property.
The Company is currently in the process of analyzing the fair value of in-place
leases for The Dock Shopping Center and consequently, no value has yet been
assigned to the leases. Accordingly, the purchase price allocation is
preliminary and may be subject to change.
The Company is the general partner in a consolidated limited partnership which
owns a shopping center. The limited partnership has a defined termination date
of December 31, 2097. Upon liquidation of the partnership, proceeds from the
sale of partnership assets are to be distributed in accordance with the
respective partner interests. If termination of the partnership occurred on
April 30, 2005, the amount payable to the limited partnership is estimated to be
$3,300,000.
(3) 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. The Company classifies properties held for sale that are under
contract for sale and are expected to be sold within the next twelve months as
properties held for sale.
At October 31, 2004, one retail property was under contract for sale. In
November 2004, the Company sold the retail property and recorded a gain on the
sale of $5.6 million in the accompanying consolidated statements of income for
the six month period ended April 30, 2005. The operating results for this
property has been reclassified as discontinued operation in the accompanying
consolidated financial statements. Revenues from discontinued operations were
$6,000 and $612,000 in the six-month periods ended April 30, 2005 and 2004,
respectively.
9
(4) BANK LINES OF CREDIT
At April 30, 2005, the Company had two revolving lines of credit arrangements
with a bank. In April 2005, the Company entered into a new senior secured
revolving credit facility (the "Secured Credit Facility") which provides for
borrowings of up to $30 million. The new secured credit facility replaced an
existing credit facility that was scheduled to expire in October 2005. The
Secured Credit Facility expires in April 2008 and is secured by first mortgage
liens on two of the Company's properties. Interest on outstanding borrowings 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. The
Company pays an annual fee of .25% on the unused portion of the Secured Credit
Facility.
The Company also has a $20 million unsecured line of credit arrangement with the
same bank which expires in January 2006. 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.
(5) STOCKHOLDERS' EQUITY
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 has 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.
In April 2005, the Company sold 1,000,000 shares of a new 7.5% Series D Senior
Cumulative Preferred Stock ("Series D Preferred Stock") issue in a public
offering at a price of $25.00 per share. The net proceeds to the Company (after
deducting underwriting fees and expenses) were $24 million. In May 2005, the
Company sold an additional 650,000 shares of Series D Preferred Stock in a
public offering at a price of $25.2475 per share. The net proceeds to the
Company (after deducting underwriting fees and expenses) were $15.8 million. The
Series D Preferred Stock has no maturity and is not convertible into any other
security of the Company. The Series D Preferred Stock is redeemable at the
Company's option on or after April 12, 2010 at a price of $25.00 per share plus
accrued and unpaid dividends. A portion of the net proceeds of the offerings
were used to repay $19.5 million of revolving credit bank debt in April 2005.
The balance of the net proceeds are expected to be used to fund the acquisitions
of income producing properties and/or capital improvements to properties owned
and working capital.
The Company has a restricted stock plan for key employees and directors of the
Company. The restricted stock plan ("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. In January, 2005, the
compensation committee awarded 175,800 shares of Common Stock and 75,675 shares
of Class A Common Stock to participants in the plan. As of April 30, 2005, the
Company has awarded 860,800 shares of Common Stock and 473,550 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 April 30, 2005,
36,750 shares each of Common Stock and Class A Common Stock were vested.
Dividends on vested and non-vested shares are paid as declared. The market value
of shares granted is recorded as unamortized restricted stock compensation on
the date of grant. As a result of the 2005 grants, the Company recorded
$4,082,600 as unamortized restricted stock compensation in the first quarter of
2005. Unamortized restricted stock compensation is expensed over the respective
vesting periods. For the six months ended April 30, 2005, and 2004 amounts
charged to compensation expense totaled $782,000 and $642,000 respectively.
The Company has a Dividend Reinvestment and Share Purchase Plan, as amended,
which permits shareholders to acquire additional shares of Common Stock and
Class A Common Stock by automatically reinvesting dividends. During the six
months ended April 30, 2005, the Company issued 45,672 shares of Common Stock
and 8,275 shares of Class A Common Stock through the Plan. As of April 30, 2005,
there remained 254,235 shares of Common Stock and 516,953 shares of Class A
Common Stock available for issuance under the Plan.
10
(6) 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 six months ended
April 30, 2005 and 2004 adjusted to give effect to the acquisition of The Dock
Shopping Center completed in January, 2005 (see Note 2) as though the
acquisition was completed on November 1, 2003.
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, 2003, nor does it
purport to represent the results of future operations. (Amounts in thousands,
except per share figures).
Six Months Ended
April 30,
2005 2004
---- ----
Pro forma revenues: $36,883 $35,895
======= =======
Pro forma income from continuing operations
applicable to Common and Class A Common: $ 9,905 $10,587
======= =======
Pro forma basic shares outstanding:
Common and Common Equivalent 6,556 6,362
===== =====
Class A Common and Class A Common Equivalent 18,289 18,236
====== ======
Pro forma diluted shares outstanding:
Common and Common Equivalent 7,020 6,637
===== =====
Class A Common and Class A Common Equivalent 18,888 18,719
====== ======
Pro forma earnings per share from continuing operations:
Basic:
Common $.37 $.40
==== ====
Class A Common $.41 $.44
==== ====
Diluted:
Common $.36 $.39
==== ====
Class A Common $.40 $.43
==== ====
11
(7) SUBSEQUENT EVENTS, COMMITMENTS AND CONTINGENCIES
In February 2005, the Company contracted to purchase a shopping center
containing approximately 200,000 square feet of GLA located in Westchester,
New York for a purchase price of approximately $28.4 million. The contract to
purchase is subject to various conditions, including customary conditions to
close and therefore there can be no assurance as to when or if the transaction
will be completed.
On May 3, 2005, the Company sold 650,000 shares of Series D Preferred Stock in
a public offering at a price of $25.2475 per share. The net proceeds to the
Company (after deducting underwriting fees and expenses) were $15.8 million. In
June 2005, the Company agreed to sell 800,000 shares of Series D Preferred Stock
in a public offering at a price of $25.2775. The net proceeds to the Company
(after deducting underwriting fees and expenses will be $19.5 million).
In May 2005, the Company contracted to sell two of its non-core properties in
unrelated transactions. One contract is for the sale of the Company's office
building in Southfield, Michigan for a sale price of $9,175,000. The second
contract is for the sale of the Company's industrial property in Dallas, Texas
for a sale price of $10.3 million. The two properties had an aggregate net
carrying value of $7.5 million at April 30, 2005. The sales are expected to be
completed during the Company's third quarter of fiscal 2005. Revenues from these
properties totaled $1.7 million and $1.9 million in the six month periods ended
April 30, 2005 and 2004.
On June 1, 2005, the Company fully repaid a mortgage note payable in the
principal amount of $1.8 million. The mortgage note was scheduled to mature in
November 2005.
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.
In June 2005, the Company entered into a contract for the purchase of a shopping
center containing 20,000 square feet of GLA located in Fairfield County,
Connecticut for a purchase price of $6,740,000. The contract to purchase is
subject to various conditions, including customary conditions to close and
therefore there can be no assurance as to when or if the transaction will be
completed.
12
Item 2. 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 April 30, 2005, the Company owned or had controlling interests
in 34 properties containing a total of 3.7 million square feet of GLA of which
approximately 96% was leased at April 30, 2005
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:
|X| 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
|X| Hold core properties for long-term investment and enhance their
value through regular maintenance, periodic renovation and capital
improvement
|X| Selectively dispose of non-core assets and re-deploy the proceeds into
properties located in the Company's preferred region
|X| Increase property values by aggressively marketing available GLA and
renewing existing leases
|X| Renovate, reconfigure or expand existing properties to meet the needs of
existing or new tenants
|X| Negotiate and sign leases which provide for regular or fixed contractual
increases to minimum rents
|X| Control property operating and administrative costs
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 for the year ended October 31, 2004.
13
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.
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
14
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 April 30, 2005.
Liquidity and Capital Resources
At April 30, 2005, the Company had unrestricted cash and cash equivalents of
$8.7 million compared to $25.9 million at October 31, 2004. 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. Net cash provided by
operations for the six months ended April 30, 2005, amounted to $16.5 million,
compared to $14.0 million in the comparable period of fiscal 2004. Dividends
paid to stockholders of the Company in the six month periods ended April 30,
2005 and 2004 were $13.7 million and $13.1 million, respectively. 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, 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
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.
15
Financings and Debt
In April 2005, the Company sold 1,000,000 shares of 7.5% Series D Senior
Cumulative Preferred Stock, ("Series D Preferred Stock") in a public offering
for net proceeds of approximately $24 million. The Series D Preferred Stock has
no stated maturity and is not convertible into other securities of the Company.
On or after April 12, 2010, the Series D Preferred Stock may be redeemed by the
Company, at its option, at a redemption price of $25 per share. In May 2005, the
Company sold an additional 650,000 shares of Series D Preferred Stock for net
proceeds of $15.8 million and in June 2005, the Company agreed to sell an
additional 800,000 shares of Series D Preferred Stock in a public offering for
net proceeds of $19.5 million.
The Company utilized a portion of the net proceeds from the preferred stock
sales to repay all of its outstanding revolving credit line indebtedness of
$19.5 million during the second quarter. The Company intends to use
approximately $20 million of the net proceeds to fund the cash portion of the
purchase price of a property under contract. The balance of the net proceeds are
expected to be used to acquire other income producing properties and to fund
renovations on, or capital improvements to its existing properties, including
tenant improvements and for working capital.
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 fixed rate mortgage loan indebtedness with a
weighted average interest rate of 7.48% at April 30, 2005. The mortgage loans
are secured by fourteen properties and have fixed rates of interest ranging from
6.29% to 8.375%. In June 2005, the Company fully repaid a mortgage note in the
principal amount of $1.8 million. The mortgage note was scheduled to mature in
November 2005. The Company anticipates that it will make all remaining scheduled
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 refinancings can be achieved.
In April 2005, the Company entered into a new senior secured revolving credit
facility with a commercial bank which provides for borrowings of up to $30
million. This credit line replaced a secured revolving credit line of $17.5
million which was scheduled to expire in October 2005. The senior secured
revolving credit line is collateralized by two properties having a net book
value of $28.1 million at April 30, 2005. There were no borrowings outstanding
under this line of credit at April 30, 2005. The Company also has a $20 million
unsecured revolving line of credit with the same bank which expires in 2006. At
April 30, 2005, there were no borrowings outstanding under this line of credit.
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 credit lines are available to finance the acquisition, management and/or
development of commercial real estate, refinance indebtedness and for working
capital purposes.
Contractual Obligations
The Company's contractual payment obligations as of April 30, 2005, were as
follows (amounts in thousands):
Payments Due by Period
- --------------------------------------------------------------------------------
Total 2005 2006 2007 2008 2009 Thereafter
----- ---- ---- ---- ---- ---- ----------
Mortgage notes payable $106,340 $1,144 $9,040 $11,348 $53,392 $17,755 $13,661
Tenant obligations* 1,700 900 800 - - - -
--------- ----- ----- ------- ------- ------- ---------
Total Contractual Obligations $108,040 $2,044 $9,840 $11,348 $53,392 $17,755 $13,661
======== ====== ====== ======= ======= ======= =======
*Committed tenant-related obligations based on executed leases as of
April 30, 2005.
16
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 six month period ended April 30, 2005 and the year ended October 31,
2004, 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. During the first six months of fiscal 2005, the Company spent
approximately $1.3 million for property improvements, tenant related
improvements 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 approximately $5 million for capital improvements and leasing costs
during the second half of fiscal 2005. These expenditures are expected to be
funded from operating cash flows, proceeds from equity offerings or borrowings.
Acquisitions and Sales
The Company seeks to 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.
At April 30, 2005, the Company was in contract for the purchase of a 200,000
square foot shopping center in Westchester County, New York. The purchase price
is $28.4 million including the assumption of an $8.2 million mortgage loan. The
Company intends to use a portion of the proceeds of its recent preferred stock
sales to fund the cash portion of the purchase price.
On January 7, 2005, the Company acquired The Dock Shopping Center, a 269,000
square foot shopping center located in Stratford, Connecticut for $51 million,
including closing costs of approximately $750,000. The acquisition was funded
with cash of approximately $23 million, net proceeds of $9.75 million from the
sale of property and borrowings of $17.5 million under the Company's secured
line of credit.
On November 15, 2004, the Company sold its Farmingdale, New York property for
$9.75 million. The proceeds were used to complete the acquisition of The Dock
Shopping Center in January, 2005. In connection with the transaction, the
Company recorded a gain on the sale of approximately $5.6 million in the first
quarter of 2005.
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. At April 30, 2005, the four non-core properties have a
net book value of approximately $10.5 million.
In May 2005, the Company entered into contracts to sell two of its non-core
assets in unrelated sale transactions. One contract is for the sale of the
Company's office building in Southfield, Michigan for a sale price of
$9,175,000. At April 30, 2005 the net carrying amount of this property was
approximately $7.0 million. The second contract is for the sale of the Company's
industrial property in Dallas, Texas for $10.3 million. This property had a net
carrying amount of $492,000 at April 30, 2005. The transactions which are
expected to be completed in the Company's third quarter of fiscal 2005 are
subject to various conditions including customary conditions to close and
therefore there can be no assurance as to when or if the transactions will be
completed.
17
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:
|X| does not represent cash flows from operating activities in accordance
with GAAP (which, unlike FFO, generally reflects all cash effects of
transactions and other events in the determination of net income); and
|X| should not be considered an alternative to net income as an indication
of the Company's performance.
FFO, as defined by the Company, 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 the
six months and three months ended April 30, 2005 and 2004 (amounts in
thousands).
Six Months Ended Three Months Ended
April 30 April 30
2005 2004 2005 2004
---- ---- ---- ----
Net Income applicable to common and class A common stockholders $15,112 $9,763 $4,826 $4,679
Plus: Real property depreciation 4,610 4,202 2,368 2,073
Amortization of tenant improvements and allowances 1,202 1,063 593 513
Amortization of deferred leasing costs 297 229 117 116
Less: Gain on sale of real estate investments (5,634) - - -
------- -------- ------- ------
Funds from Operations Applicable to Common and Class A Common Stock $15,587 $15,257 $7,904 $7,381
======= ======= ====== ======
Net Cash Provided by (used in):
Operating Activities $16,446 $13,969 $8,425 $8,791
======= ======= ====== ======
Investing Activities $(43,762) $5,715 $(1,848) $(1,320)
========= ====== ======== ========
Financing Activities $10,059 (12,415) $(2,531) $(6,205)
======= ======== ======== ========
Results of Operations
Comparison of the six months and three month period ended April 30, 2005 to the
six months and three month period ended April 30, 2004.
Revenues
Base rents increased 7.8% to $26.7 million in the six months ended April 30,
2005, compared to $24.7 million in the corresponding period of fiscal 2004. For
the three months ended April 30, 2005, base rents increased 11.7% to $13.7
million from $12.3 million in fiscal 2004. The increase reflects additional base
rents attributable to new properties acquired in fiscal 2005 and 2004. Recent
acquisitions increased base rent incrementally by $1.7 million and $1.2 million,
respectively in the six months and three month periods ended April 30, 2005 over
the corresponding periods. Base rents from "same core properties" increased 1.5%
in the six month period ended April 30, 2005. Rents at the non-core properties
decreased by $221,000 and $185,000 in the six month and three month periods
ended April 30, 2005 from the loss of a 41,000 sf office tenant in the Company's
Southfield Michigan office building earlier in the year.
Recoveries from tenants (which represent reimbursements from tenants for
property operating expenses and property taxes) increased 20.1% and 26.8% for
the six month and three month periods ended April 30, 2005 compared to the
corresponding periods in fiscal 2004. The increase in recoveries from tenants
includes amounts attributable to recently acquired properties. New properties
increased recoveries from tenants by $791,000 and $693,000 respectively in the
six month and three month periods ended April 30, 2005 compared to the
corresponding periods in fiscal 2004. Recoveries from tenants also increased by
$673,000
18
and $286,000 in the six month and three month periods ended April 30,
2005 at the "same properties" due to higher levels of operating and property tax
expenses and higher recovery rates at certain of the properties.
For the first six months of fiscal 2005, the Company leased or renewed
approximately 150,000 square feet of space at generally higher rent rates than
the expiring rates. The Company anticipates that most leases expiring in the
second half of the year will be renewed at rental rates comparable to the
expiring lease rates.
At April 30, 2005, the Company's total real estate portfolio was 96% leased.
The core properties were 99% leased.
In the first quarter of fiscal 2004, the Company received lease termination
payments of $542,000 in satisfaction of two former tenant lease obligations.
There were no lease termination payments in fiscal 2005.
Expenses
Property operating expenses increased 18.3% to $6.3 million in the six months
ended April 30, 2005 compared to $5.3 million in fiscal 2004. For the three
months ended April 30, 2005, operating expenses increased 35.1% to $3.5 million
from $2.6 million in the corresponding period in fiscal 2004. The increase in
operating expenses reflects the incremental expense from recent property
acquisitions which added additional operating expenses of $427,000 and $351,000
respectively in the six month and three month periods ended April 30, 2005 over
the corresponding periods in fiscal 2004. Operating expenses also increased by
$534,000 and $557,000, respectively in the six month and three month period
ended April 30, 2005 over the corresponding periods in fiscal 2004 on "same
properties" principally due to increased snow removal costs and repairs and
maintenance costs in fiscal 2005 which increased by $360,000.
Property taxes increased to $4.7 million or 11.2% in the six month period ended
April 30, 2005 compared to the same period in the previous year. Property taxes
from recently acquired properties increased total property tax expenses
incrementally by $355,000 in fiscal year 2005. Property taxes for properties
owned in both fiscal 2005 and 2004 increased by $119,000 from higher real estate
tax assessment rates at several of the Company's properties during fiscal 2004.
Property taxes increased $291,000 during the three months ended April 30, 2005
compared to the corresponding period in fiscal 2004 mostly from recent
acquisitions of properties. The Company anticipates that property tax
assessments will continue to increase on its properties, however, the Company
will continue to challenge these higher assessments.
Interest expense increased $323,000 and $275,000 in the six months and three
months periods ended April 30, 2005 principally from $4.7 million in new
mortgage loans in fiscal 2004 assumed in connection with property acquisitions
in fiscal 2004 and $19.5 million of revolving credit line debt borrowed during
fiscal 2005.
Depreciation and amortization expense increased by $691,000 and $414,000 in the
six months and three month periods ended April 30, 2005 from the additional
depreciation on recent property acquisitions.
General and administrative expenses increased by $230,000 and $132,000 in the
six month and three month periods ended April 30, 2005 due principally to higher
compensation costs, including an increase in restricted stock compensation in
fiscal 2005.
Discontinued Operations
In November 2004, the Company sold a shopping center for $9.75 million.
Accordingly, its operating results have been reclassified as discontinued
operations in accordance with SFAS #144. Revenues for this property totaled
$6,000 and $612,000 in the six month periods ended April 30, 2005 and 2004
respectively.
In connection with the sale of the shopping center, the Company recorded a gain
on the sale of the property of approximately $5.6 million in the first quarter
of fiscal 2005.
19
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.
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 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the exposure to loss resulting from changes in interest rates,
foreign currency exchange rates, commodity prices and equity prices. The primary
market risk to which we are exposed is interest rate risk, which is sensitive to
many factors, including governmental monetary and tax policies, domestic and
international economic and political considerations and other factors that are
beyond the Company's control.
Interest Rate 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.
As of April 30, 2005, the Company had no outstanding variable rate debt. During
the six months ended April 30, 2005, the weighted average interest rate on
outstanding variable rate debt during the period was 4.4%. A hypothetical 1%
increase in interest rates would have an immaterial effect on the Company's
interest expense. There were no variable rate borrowings during fiscal 2004.
The Company does not enter into any derivative financial instrument transactions
for speculative or trading purposes. The Company believes that its weighted
average interest rate of 7.4% on its fixed rate debt is not materially different
from current fair market interest rates for debt instruments with similar risks
and maturities.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on their evaluation at the end of the period covered by this Quarterly
Report on Form 10-Q. the Company's principal executive officer and principal
financial officer have concluded that the Company's disclosure and controls
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
are effective to ensure that information required to be disclosed by the Company
in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in SEC
rules and forms.
Changes in Internal Controls
During the quarter ended April 30, 2005, 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.
20
Part II - Other Information
Item 1. Legal Proceedings
The Company is not involved in any litigation, nor to its
knowledge is any litigation threatened against the Company or
its subsidiaries, that in management's opinion, would result
in a material adverse effect on the Company's ownership,
management or operation of its properties, or which is not
covered by the Company's liability insurance.
Item 4. Submission of Matters to a Vote of Security Holders
In connection with the Annual Meeting of Stockholders held on
March 9, 2005, stockholders were asked to vote on the
following matters:
1. Election of three Directors (Class II ) to serve for three years:
Director For Withheld
--------- --- --------
Peter Herrick 7,281,336 31,608
Charles D. Urstadt 7,276,214 36,730
George J. Vojta 7,286,159 26,785
2. Ratification of the appointment of Ernst & Young LLP as independent auditors
for the fiscal year ending October 31,2005:
For Against Abstain
--- ------- -------
7,291,072 12,595 9,277
Item 6. Exhibits
3.1 (a) Articles Supplementary of the Company (incorporated by reference
to Exhibit 4.1 of the Registrant's Current Report on Form 8-K dated
April 11, 2005 (SEC File No. 001-12803)).
(b) Articles Supplementary of the Company (incorporated by reference
to Exhibit 4.1 of the Registrant's Current Report on Form 8-K dated
May 3, 2005 (SEC File No. 001-12803)).
(c) Certificate of Correction to the Articles Supplementary of the
Company (incorporated by reference to Exhibit 4.2 of the
Registrant's Current Report on Form 8-K dated May 3, 2005 (SEC File
No. 001-12803)).
(d) Articles Supplementary of the Company (incorporated by reference
to Exhibit 4.1 of the Registrant's Current Report on Form 8-K dated
June 7. 2005 (SEC File No. 001-12803))
4.1 Series D Senior Cumulative Preferred Shares: See Exhibits 3.1(a)-(d)
10.1 Purchase and Sale Agreement between UB Railside, LLC and the Dock,
Incorporated (incorporated by reference to Exhibit 10.1 of the
Registrant's Current Report of Form 8-K/A dated March 11, 2005
(SEC File No. 001-12803)).
10.2 Purchase and Sale Agreement between UB Dockside, LLC and The Dock,
Incorporated (incorporated by reference to Exhibit 10.2 of the
Registrant's Current Report of Form 8-K/A dated March 11, 2005
(SEC File No. 001-12803)).
31.1 Certification of the Chief Executive Officer of Urstadt Biddle
Properties Inc. pursuant to Rule 13a-14(a)of the Securities
Exchange Act of 1934, as amended.
31.2 Certification of the Chief Financial Officer of Urstadt Biddle
Properties Inc. pursuant to Rule 13a-14(a)of the Securities
Exchange Act of 1934, as amended.
32 Certification of the Chief Executive Officer and Chief Financial
Officer of Urstadt Biddle Properties Inc.pursuant to Section 906 of
Sarbanes-Oxley Act of 2002.
21
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
URSTADT BIDDLE PROPERTIES INC.
(Registrant)
By /s/ Charles J. Urstadt
--------------------------
Charles J. Urstadt
Chairman and
Chief Executive Officer
By /s/ James R. Moore
-------------------------
James R. Moore
Executive Vice President/
Chief Financial Officer
(Principal Financial Officer
Dated: June 9, 2005 and Principal Accounting Officer)
22
EXHIBIT INDEX
Exhibit No.
31.1 Certification of the Chief Executive Officer of Urstadt Biddle
Properties Inc. pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934, as amended.
31.2 Certification of the Chief Financial Officer of Urstadt Biddle
Properties Inc. pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934, as amended.
32 Certification of the Chief Executive Officer and Chief Financial
Officer of Urstadt Biddle Properties Inc. pursuant to Section 906 of
Sarbanes-Oxley Act of 2002
23
EXHIBIT 31.1
Certification
I, Charles J. Urstadt, certify that:
I have reviewed this quarterly report on Form 10-Q for the quarter ended April
30, 2005 of Urstadt Biddle Properties Inc;
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the
end of the period covered by this report based on our evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the
case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: June 9, 2005
/s/ Charles J. Urstadt
------------------------
Charles J. Urstadt
Chairman and
Chief Executive Officer
24
EXHIBIT 31.2
Certification
I, James R. Moore, certify that:
I have reviewed this quarterly report on Form 10-Q for the quarter ended April
30, 2005 of Urstadt Biddle Properties Inc;
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end of
the period covered by this report based on our evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting; and
The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarize and report financial information;
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: June 9, 2005
James R. Moore
-------------------------
James R. Moore
Executive Vice President and
Chief Financial Officer
25
EXHIBIT 32
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
with Respect to the QuarterlyReport on Form 10-Q
for the Quarter Ended April 30, 2005
of Urstadt Biddle Properties Inc.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections
(a) and (b) of Section 1350, chapter 63 of title 18, United States Code), each
of the undersigned officers of Urstadt Biddle Properties Inc., a Maryland
corporation (the "Company"), does hereby certify, to the best of such officer's
knowledge, that:
1. The Company's Quarterly Report on Form 10-Q for the quarter ended April
30, 2005 (the "Form 10-Q") fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934, as amended; and
2. Information contained in the Form 10-Q fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
Dated: June 9, 2005 /s/ Charles J. Urstadt
------------------------
Charles J. Urstadt
Chairman and
Chief Executive Officer
Dated: June 9, 2005 /s/ James R. Moore
------------------------
James R. Moore
Executive Vice President and
Chief Financial Officer
The certification set forth above is being furnished as an Exhibit
solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not
being filed as part of the Form 10-Q or as a separate disclosure document of
the Company or the certifying officers.
26