Table of Contents
Introduction
First Real Estate Investment Trust of New Jersey (FREIT) recently underwent significant changes in its operations, including a merger and the disposition of Maryland properties. The company changed its governing law from New Jersey to Maryland through the merger of FREIT with its wholly-owned subsidiary, First Real Estate Investment Trust of New Jersey, Inc. As a result, FREIT now operates as a Maryland corporation. The company qualifies as a real estate investment trust (REIT) under the Internal Revenue Code and its stock is traded on the over-the-counter market under the ticker symbol FREVS.
Financial Statements
The accompanying interim condensed consolidated financial statements, prepared in accordance with generally accepted accounting principles in the United States, provide a snapshot of FREIT’s financial performance for the six and three-month periods ended April 30, 2023. These statements should be read in conjunction with FREIT’s Annual Report on Form 10-K for the year ended October 31, 2022.
Dividend Declaration
During the second quarter of fiscal 2023, FREIT’s Board of Directors declared a dividend of approximately $372,000 ($0.05 per share), which will be paid on June 15, 2023, to stockholders of record on June 1, 2023. The Board will continue to evaluate the dividend on a quarterly basis. Basic earnings (loss) per share is calculated by dividing net income attributable to common equity by the weighted average number of shares outstanding. Diluted earnings per share takes into account potentially dilutive shares, such as those issuable upon the exercise of stock options. For the six and three months ended April 30, 2023, the outstanding stock options increased the average dilutive shares outstanding by approximately 7,000 and 5,000 shares, respectively, with no impact on earnings per share.
Interest Rate Swaps and Caps
FREIT has also designated some of its interest rate swaps and caps as cash flow hedges under Accounting Standards Codification Topic 815. The company recorded an unrealized loss of approximately $557,000 and $107,000 for the six and three months ended April 30, 2023, respectively, due to changes in the fair value of these cash flow hedges. The fair values are based on observable inputs.
Reorganization of Subsidiary
Another significant development for FREIT was the reorganization of its subsidiary, S and A Commercial Associates Limited Partnership, from a partnership into a tenancy-in-common (TIC) form of ownership. Prior to the reorganization, FREIT owned a 65% partnership interest in S&A, which owned the Pierre Towers property in Hackensack, New Jersey. The TIC agreement transferred ownership of the property to FREIT in a common interest arrangement. Under the equity method of accounting, FREIT recognizes its investment in the TIC. For the six and three months ended April 30, 2023, FREIT recognized a loss on investment in TIC of approximately $188,000 and $121,000, respectively.
Ongoing Litigation
FREIT also provided an update on ongoing litigation involving a Purchase and Sale Agreement (PSA) with Sinatra Properties, LLC. The Superior Court of New Jersey issued an order on February 4, 2022, finding that the plaintiffs breached the contract and dismissing all claims for relief. The court also determined that the liquidated damage provision of the contract was unenforceable. Sinatra filed a motion for reconsideration, which the court denied on July 8, 2022. Both parties have filed notices of appeal, and the litigation remains unresolved.
Property Dispositions
In terms of property dispositions, FREIT entered into a Purchase and Sale Agreement on November 22, 2021, to sell three Maryland properties to MCB Acquisition Company, LLC. The sale was completed for a purchase price of $248,750,269, after accounting for certain deductions. The net proceeds to FREIT amounted to approximately $55 million. Some of the escrowed funds from the sale were released, and the remaining funds are held in a post-closing escrow for rents.
Conclusion
These recent developments and financial updates provide a comprehensive view of the current state of affairs for First Real Estate Investment Trust of New Jersey. The company’s strategic shifts, merger, and property disposition demonstrate its commitment to adapting to changing market conditions and optimizing its portfolio for future growth. Investors and stakeholders will continue to monitor FREIT’s performance and potential resolutions in ongoing litigation.
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