Attached files

file filename
8-K - 8-K - FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEYform8k-118790_freit.htm

 

 

Exhibit 99.1 

 

 

 

 

 

 

HACKENSACK, NJ, December 16, 2011 – First Real Estate Investment Trust (“FREIT”) announced its operating results for the year and three-months ended October 31, 2011. The results of operations as presented in this earnings release are unaudited, and are not necessarily indicative of future operating results.

FINANCIAL HIGHLIGHTS Year Ended
October 31, 2011
Three Months Ended
October 31, 2011
*  Net Income Per Share-Basic: $0.77 $0.22
*  Dividends Per Share:  $1.20 $0.30
*  FFO Per Share-Basic:  $1.61 $0.45
*  FFO Payout:  74.5% 66.7%
*  Average Residential Occupancy:  95.2% 95.9%
*  Average Commercial Occupancy:  89.6% 89.1%

RESULTS OF OPERATIONS

Summary revenue and net income attributable to common equity for the fiscal years ended October 31, 2011 (“Fiscal 2011”) and October 31, 2010 (“Fiscal 2010”), as well as for the three months ended October 31, 2011 (“Current Quarter”) and October 31, 2010 (“Prior Year’s Quarter”) are as follows:

 

   Year Ended October 31,    Three Months Ended October 31,  
   2011  2010  Change  2011  2010  Change  
   (in thousands, except per share)  (in thousands, except per share)
Real estate revenues:                              
 Commercial properties  $24,333   $24,923   $(590)  $6,296   $6,166   $130 
 Residential properties   19,724    19,130    594    4,999    4,831    168 
     Total real estate revenue   44,057    44,053    4    11,295    10,997    298 
                               
Operating expenses:                              
 Real estate operations   18,138    18,607    (469)   4,659    4,369    290 
 General and administrative   1,543    1,567    (24)   354    334    20 
 Depreciation   6,109    6,053    56    1,549    1,497    52 
     Total operating expenses   25,790    26,227    (437)   6,562    6,200    362 
                               
     Operating income   18,267    17,826    441    4,733    4,797    (64)
                               
Investment income   101    122    (21)   24    27    (3)
                               
 Financing costs   (11,655)   (13,817)   2,162    (2,931)   (5,114)   2,183 
     Net income (loss)   6,713    4,131    2,582    1,826    (290)   2,116 
Net (income) loss attributable to noncontrolling interests   (1,335)   280    (1,615)   (292)   1,023    (1,315)
   Net income attributable to common equity  $5,378   $4,411   $967   $1,534   $733   $801 
                               
Earnings per share-basic (attributable to common equity)  $0.77   $0.64   $0.14   $0.22   $0.11   $0.12 
                               
Weighted average shares outstanding   6,942    6,942         6,942    6,942      

 

Total real estate revenue for Fiscal 2011 increased slightly to $44,057,000 compared to $44,053,000 for Fiscal 2010. For the Current Quarter, total real estate revenue increased 2.7% to $11,295,000 compared to $10,997,000 for the Prior Year’s Quarter. Net income attributable to common equity (“Net Income-Common Equity”) for Fiscal 2011 was $5,378,000 ($0.77 per share basic) compared to $4,411,000 ($0.64 per share basic) for Fiscal 2010. Net Income-Common Equity for the Current Quarter was $1,534,000 ($0.22 per share basic) compared to $733,000 ($0.11 per share basic) for the Prior Year’s Quarter. Included in interest expense for Fiscal 2010 and the Prior Year’s Quarter was a $2.1 million prepayment penalty related to the early extinguishment of debt and the subsequent debt refinancing at FREIT’s Westwood Hills property. The impact of the prepayment penalty on Net Income-Common Equity for Fiscal 2010 was $840,000 ($0.12 per share basic). The refinancing increased FREIT’s cash reserves by $2.2 million, reduced interest expense on the new loan from 6.6% (weighted-average) to 4.62%, and extended the maturity of the loan 7 years. (Refer to the segment disclosure below for a more detailed discussion on the financial performance of FREIT’s commercial and residential segments.)

 

 

1
 

 

SEGMENT INFORMATION

The following table sets forth comparative operating data for FREIT’s real estate segments:

 

   Commercial  Residential  Combined
   Year Ended        Year Ended        Year Ended
   October 31,  Increase (Decrease)  October 31,  Increase (Decrease)  October 31,
   2011  2010  $  %  2011  2010  $  %  2011  2010
   (in thousands)     (in thousands)     (in thousands)
Rental income  $18,560   $18,634   $(74)   -0.4%  $19,398   $18,872   $526    2.8%  $37,958   $37,506 
Reimbursements   5,374    5,923    (549)   -9.3%                    5,374    5,923 
Other   182    156    26    16.7%   326    258    68    26.4%   508    414 
Total revenue   24,116    24,713    (597)   -2.4%   19,724    19,130    594    3.1%   43,840    43,843 
                                                   
Operating expenses   9,561    9,702    (141)   -1.5%   8,577    8,905    (328)   -3.7%   18,138    18,607 
Net operating income  $14,555   $15,011   $(456)   -3.0%  $11,147   $10,225   $922    9.0%   25,702    25,236 
Average                                                  
Occupancy %   89.6%(1)  89.8%        -0.2%   95.2%   94.3%        0.9%          
                                                   

 

       Reconciliation to consolidated net income:          
      Deferred rents - straight lining   242    240 
   Amortization of acquired leases   (25)   (30)
   Investment income   101    122 
   General and administrative expenses   (1,543)   (1,567)
   Depreciation   (6,109)   (6,053)
   Financing costs   (11,655)   (13,817)
   Net income   6,713    4,131 
   Net (income) loss attributable to noncontrolling interests   (1,335)   280 
  Net income attributable to common equity  $5,378   $4,411 

   Commercial  Residential  Combined
   Three Months Ended        Three Months Ended        Three Months Ended
   October 31,  Increase (Decrease)  October 31,  Increase (Decrease)  October 31,
   2011  2010  $  %  2011  2010  $  %  2011  2010
   (in thousands)     (in thousands)     (in thousands)
Rental income  $4,718   $4,593   $125    2.7%  $4,928   $4,747   $181    3.8%  $9,646   $9,340 
Reimbursements   1,463    1,465    (2)   -0.1%                    1,463    1,465 
Other   42    38    4    10.5%   71    84    (13)   -15.5%   113    122 
Total revenue   6,223    6,096    127    2.1%   4,999    4,831    168    3.5%   11,222    10,927 
                                                   
Operating expenses   2,363    2,365    (2)   -0.1%   2,296    2,004    292    14.6%   4,659    4,369 
Net operating income  $3,860   $3,731   $129    3.5%  $2,703   $2,827   $(124)   -4.4%   6,563    6,558 
Average                                                  
Occupancy %   89.1%(1)  89.6%        -0.5%   95.9%   94.3%        1.6%          

   Reconciliation to consolidated net income:          
    Deferred rents - straight lining   80    78 
    Amortization of acquired leases   (7)   (8)
       Investment income   24    27 
    General and administrative expenses   (354)   (334)
       Depreciation   (1,549)   (1,497)
    Financing costs   (2,931)   (5,114)
    Net income (loss)   1,826    (290)
    Net (income) loss attributable to noncontrolling interests   (292)   1,023 
    Net income attributable to common equity  $1,534   $733 

 

(1) Represents average “economic” occupancy, (based upon the payment of rent for leased space), as opposed to “physical” occupancy, (based upon possession and use of leased space). Actual physical occupancy would be 87.9% and 84.8% for the full year and 4th Quarter 2011, respectively. This decrease in physical occupancy as compared to economic occupancy is primarily attributable to a vacancy at FREIT’s Westridge Square Shopping Center .Giant Supermarket elected not to renew its lease for 55,330 sq ft at the Westridge Square Shopping Center and vacated the space during May, 2011, but continued paying rent through October 31, 2011.(See discussion under the caption “Commercial Segment” below.)

 

The above table details the comparative net operating income (“NOI”) for FREIT’s Commercial and Residential Segments, and reconciles the combined NOI to consolidated Net Income-Common Equity. NOI is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes deferred rents (straight lining), lease amortization, depreciation, financing costs and other items. FREIT assesses and measures segment operating results based on NOI. NOI is not a measure of operating results or cash flow as measured by generally accepted accounting principles, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity.

 

 

2
 

 

 

 

COMMERCIAL SEGMENT

FREIT’s commercial properties consist of ten (10) properties totaling approximately 1,139,000 sq. ft. of retail space and 138,000 sq. ft. of office space for Fiscal 2011. Seven (7) are multi-tenanted retail or office centers, and one is a single tenanted store. In addition, FREIT has two parcels of land, from which it receives rental income. One is from a tenant who has built and operates a bank branch on land FREIT owns in Rockaway, NJ. The other is from a tenant who has built and operates a bank branch on land FREIT owns in Rochelle Park, NJ. As indicated in the table above under the caption Segment Information, total rental revenue and NOI from FREIT’s commercial segment for Fiscal 2011 decreased by 2.4% and 3.0%, respectively, as compared to Fiscal 2010. The primary reason for the decrease in revenue for Fiscal 2011 was lower expense reimbursements stemming from prior year common area maintenance adjustments recorded in Fiscal 2011, which also affected the reduction in NOI. For the Current Quarter, total rental revenue and NOI increased 2.1% and 3.5%, respectively, over the Prior Year’s Quarter. The increase in total revenue and NOI was primarily attributable to a $140,000 lease termination fee relating to a tenant that cancelled their lease at the Grande Rotunda.

Although the U.S. economy has recovered from the recession, the rate of recovery has been much slower than anticipated. Forecasts for economic growth and job gains over the next year have been downsized, due in large part to the recent turbulence in the US and global markets. Retail sales over the past year have posted slight gains, although among retailers, results have been mixed. The biggest problem in our areas of operations continues to be unemployment, renewing consumers’ concerns about their jobs, resulting in a reluctance to increase spending. Exclusive of the Giant Supermarket space that was vacated during May 2011 (see discussion below), tenant fall-out at our other properties has been minor, as average occupancy rates for fiscal 2011 (exclusive of the Damascus Center, which has recently completed a major redevelopment project), decreased 0.2% from last year’s comparable period.

At Westridge Square, a major tenant, Giant Supermarket, has elected not to extend its lease beyond October 31, 2011, and has vacated its space at the center during May 2011. However, Giant continued to pay their monthly rent in accordance with its lease through October 31, 2011. FREIT is actively pursuing the leasing of the space vacated by Giant. It is FREIT’s intention to re-lease the space to a new tenant or tenants that will enhance the shopping experience at Westridge. However, the space is vacant and no rent will be received from the space beginning November 1, 2011 unless or until FREIT is able to re-lease the space, and it is occupied by a new tenant(s). Additionally, FREIT expects to incur leasing costs and tenant improvement costs associated with re-leasing the space. The vacancy will adversely affect FREIT’s operating results in fiscal 2012, and the effect of the vacancy will depend upon the outcome and timing of FREIT’s re-leasing efforts for this space. The potential impact on FREIT’s per share earnings for Fiscal 2012 is estimated at approximately $0.10 per share assuming the vacant space is not leased for the entire year.

Construction related to the expansion and renovation of the Damascus Center was completed in November 2011. We are currently in the negotiation process with potential tenants for the new, currently available space constructed in the final phase (Phase III) of this project.

 

RESIDENTIAL SEGMENT

FREIT operates nine (9) multi-family apartment communities totaling 1,075 apartment units. As indicated in the table above, total rental revenue and NOI from FREIT’s residential segment for Fiscal 2011 reflected increases of 3.1% and 9.0%, respectively, over Fiscal 2010. The increase in total revenue and NOI for Fiscal 2011 is primarily attributable to higher base rental income at many of our residential properties, overall lower operating costs for the current year, and a $235,000 insurance recovery relating to storm damages incurred and expensed last year at FREIT’s Pierre Towers apartment complex. The insurance recovery has been recorded as an offset within operating expenses. The positive operating results for Fiscal 2011 reflect the upward movement of occupancy levels, as evidenced by average occupancy increasing 0.9% as compared to Fiscal 2010. Total rental revenue for the Current Quarter increased 3.5% over last year’s comparable quarter. NOI for the Current Quarter decreased 4.4% over the Prior Year’s Quarter primarily attributable to higher real estate taxes for the Current Quarter.

FREIT continues to pursue the sale of the Palisades Manor Apartments, in Palisades Park, NJ, the Grandview Apartments in Hasbrouck Heights, NJ, and the Heights Manor Apartments in Spring Lake Heights, NJ. The decision to pursue the sale of these properties was based on the Board’s desire to re-deploy the net proceeds arising from the sale to real estate assets in other areas of FREIT’s operations. It is not possible for management to estimate when a sale of any of these properties will occur.

 

 

 

3
 

 

 

Funds From Operations (“FFO”)

Many consider FFO as the standard measurement of a REIT’s performance. We compute FFO as follows:

 

   Year Ended October 31,    Three Months Ended October 31,  
   2011  2010  2011  2010  
   ($ in thousands, except per share)    ($ in thousands, except per share)  
             
Net income (loss)  $6,713   $4,131   $1,826   $(290)
Depreciation   6,109    6,053    1,549    1,497 
Amortization of deferred leasing costs   282    284    67    76 
Deferred rents (Straight lining)   (242)   (240)   (80)   (78)
Amortization of acquired leases   25    30    7    8 
Capital Improvements - Apartments   (474)   (363)   (107)   (109)
Distributions from operations to noncontrolling interests   (1,267)   (1,022)*   (123)    
   FFO  $11,146   $8,873   $3,139   $1,104 
                     
 FFO Per Share-Basic  $1.61   $1.28   $0.45   $0.16 
                     
  Weighted Average Shares Outstanding   6,942    6,942    6,942    6,942 
                     
* Excludes $3,360,000 of distributions to noncontrolling interests arising from proceeds related to a mortgage refinancing.

 

FFO does not represent cash generated from operating activities in accordance with accounting principles generally accepted in the United States of America, and therefore should not be considered a substitute for net income as a measure of results of operations or for cash flow from operations as a measure of liquidity. Additionally, the application and calculation of FFO by certain other REITs may vary materially from that of FREIT’s, and therefore FREIT’s FFO and the FFO of other REITs may not be directly comparable.

 

DIVIDENDS

The Current Quarter dividend of $0.30 per share was paid on December 15, 2011 to shareholders of record on December 1, 2011.

 

 

The statements in this report that relate to future earnings or performance are forward-looking. Actual results might differ materially and be adversely affected by such factors as longer than anticipated lease-up periods or the inability of tenants to pay increased rents. Additional information about these factors is contained in the Trust’s filings with the SEC including the Trust’s most recent filed report on Form 10-K and Form 10-Q.

 

First Real Estate Investment Trust is a publicly traded (over-the-counter – symbol FREVS) REIT organized in 1961. It has approximately $243 million (historical cost basis) of assets. Its portfolio of residential and commercial properties extends from Eastern L.I. to Maryland, with the largest concentration in Northern New Jersey.

For additional information contact Shareholder Relations at (201) 488-6400

Visit us on the web: www.freitnj.com

 

 

4