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Revenue Increase and Positive Same Property Performance
First Real Estate Investment Trust of New Jersey (FREIT) reported an increase in revenue for the current quarter, driven by higher base rents across all properties. Net operating income remained flat due to an increase in total operating costs, but same property operating results showed positive trends. Same property revenue increased by 2.2% for the current six months and 3.6% for the current quarter compared to the prior year’s periods. Same property NOI saw a slight increase of 0.3% for the current six months, while it decreased by 0.1% for the current quarter.
Residential Segment and Rental Income
FREIT’s residential segment, which includes six same properties, generates revenue primarily from monthly apartment rental income. The average monthly residential rents at the end of the current quarter were $2,116, representing a 6.6% increase compared to the prior year’s quarter. A 1% decline in average occupancy or average rents from the current levels would result in an annual revenue decline of approximately $201,000 and $196,000, respectively.
Capital Expenditures for Maintenance and Improvements
Capital expenditures for FREIT are primarily allocated to maintenance and capital improvements for its residential properties constructed more than 25 years ago. These properties include Steuben Arms, Berdan Court, Westwood Hills, and Pierre Towers. Funds for these projects come from cash flow generated by property operations and cash reserves.
Financing Costs and Debt Management
In terms of financing costs, FREIT saw a decrease of approximately $628,000, or 14.1%, in total financing costs for the current six months compared to the prior year’s six months. This decrease was mainly due to the pay-down of loans outstanding on the Maryland properties sold in the prior year’s period. Additionally, a decline in fixed interest rate on the Boulders loan refinanced in December 2022 also contributed to the reduction in financing costs. However, an increase in the variable interest rate on the loan for the Westwood Hills property partially offset these savings.
For the current quarter, total financing costs increased by approximately $424,000, or 27.8%, compared to the prior year’s quarter. The increase was primarily driven by higher variable interest rates on the loan for the Westwood Hills property and an increase in fixed interest rates on the Wayne PSC and Westwood Plaza loans.
General and Administrative Expenses
FREIT’s general and administrative expenses (G&A) decreased by approximately $394,000 for the current six months compared to the prior year’s period. This decline was mainly driven by a decrease in legal costs related to a legal proceeding between FREIT and certain affiliates, partially offset by an increase in director fees due to stock awards issued for services rendered and to be rendered in 2023. G&A expenses increased by approximately $106,000 for the current quarter, primarily due to an increase in director fees related to stock awards.
Depreciation Expense
Depreciation expense for the current six months decreased by approximately $1,080,000 compared to the prior year’s period. This decline was primarily attributable to the sale of the Maryland properties in the prior year. Depreciation expense for the current quarter increased by approximately $18,000 compared to the prior year’s quarter.
Liquidity and Capital Resources
In terms of liquidity and capital resources, FREIT had cash, cash equivalents, and restricted cash totaling $44.4 million as of April 30, 2023, a decrease from $58.5 million at October 31, 2022. The decrease in cash was primarily attributed to dividends paid, deferred compensation to directors, capital improvements on existing properties, and mortgage repayments. However, proceeds received from the exercise of stock options partially offset these cash outflows.
FREIT’s aggregate outstanding mortgage debt stood at $138.5 million as of April 30, 2023, with a weighted average interest rate of 5.31% and an average life of approximately 2.2 years. Balloon payments for the mortgage debt are required in various fiscal years, with the largest payment of $26 million due in 2029.
Interest Rate Management and Future Outlook
To manage interest rate volatility, FREIT utilizes interest rate swap and cap contracts. These contracts help convert floating interest rates to fixed rates, reducing exposure to fluctuations. FREIT marks-to-market these contracts under accounting rules, with gains or losses reported in other comprehensive income.
Looking ahead, FREIT expects sufficient cash flow from operations and cash reserves to cover debt service payments, real estate taxes, dividends, capital improvements, and other obligations for at least one year from the filing date of the quarterly report.
Conclusion
In conclusion, First Real Estate Investment Trust of New Jersey experienced an increase in revenue driven by higher base rents across all properties. Same property performance showed positive trends, with increases in revenue and slight fluctuations in NOI. The company continues to manage financing costs and actively monitor its debt levels. With a focus on liquidity and capital resources, FREIT aims to maintain its status as a REIT and evaluate the dividend on a quarterly basis.
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