UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
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 No.
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | ||
| (1) | Registered pursuant to Section 12 (b) of the Act pursuant to a form 8-A filed by the registrant on August 3, 2023. Until the Distribution Date (as defined in the registrant’s Stockholder Rights Agreement dated July 31, 2023) the Preferred Stock Purchase Rights will be transferred with and only with the shares of the registrant’s Common Stock to which the Preferred Stock Purchase Rights are attached. |
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.
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large Accelerated Filer ☐ | Accelerated Filer ☐ | Smaller Reporting Company | |
| Emerging growth company ☐ |
Page 2
If an emerging
growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of March
14, 2025, the number of shares of common stock outstanding was
Page 3
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC.
INDEX
Page 4
Part I: Financial Information
Item 1: Unaudited Condensed Consolidated Financial Statements
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| January 31, | October 31, | |||||||
| 2025 | 2024 | |||||||
| (In Thousands, Except Share and Per Share Amounts) | ||||||||
| ASSETS | ||||||||
| Real estate, at cost, net of accumulated depreciation | $ | $ | ||||||
| Construction in progress | ||||||||
| Cash and cash equivalents | ||||||||
| Investment in U.S. Treasury securities available-for-sale | ||||||||
| Investment in tenancy-in-common | ||||||||
| Tenants' security accounts | ||||||||
| Receivables arising from straight-lining of rents | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $ | ||||||||
| Prepaid expenses and other assets | ||||||||
| Deferred charges, net | ||||||||
| Interest rate swap contracts | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Liabilities: | ||||||||
| Mortgages payable, including deferred interest of $ | $ | $ | ||||||
| Less unamortized debt issuance costs | ||||||||
| Mortgages payable, net | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Dividends payable | ||||||||
| Tenants' security deposits | ||||||||
| Deferred revenue | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Common Equity: | ||||||||
| Preferred stock with par value of $ | ||||||||
| Common stock with par value of $ | ||||||||
| Additional paid-in-capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income | ||||||||
| Total Common Equity | ||||||||
| Noncontrolling interests in subsidiaries | ( | ) | ( | ) | ||||
| Total Equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
See Notes to Condensed Consolidated Financial Statements.
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FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2025 AND 2024
(Unaudited)
| Three Months Ended January 31, | ||||||||
| 2025 | 2024 | |||||||
| (In Thousands, Except Per Share Amounts) | ||||||||
| Revenue: | ||||||||
| Rental income | $ | $ | ||||||
| Reimbursements | ||||||||
| Sundry income | ||||||||
| Total revenue | ||||||||
| Expenses: | ||||||||
| Operating expenses | ||||||||
| Management fees | ||||||||
| Real estate taxes | ||||||||
| Depreciation | ||||||||
| Total expenses | ||||||||
| Investment income | ||||||||
| Net loss on sale of Maryland properties | ( | ) | ||||||
| Income (loss) on investment in tenancy-in-common | ( | ) | ||||||
| Interest expense including amortization of deferred financing costs | ( | ) | ( | ) | ||||
| Net income (loss) | ( | ) | ||||||
| Net loss attributable to noncontrolling interests in subsidiaries | ||||||||
| Net income (loss) attributable to common equity | $ | $ | ( | ) | ||||
| Earnings (loss) per share: | ||||||||
| Basic and diluted | $ | $ | ( | ) | ||||
| Weighted average shares outstanding: | ||||||||
| Basic and diluted | ||||||||
See Notes to Condensed Consolidated Financial Statements.
Page 6
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED JANUARY 31, 2025 AND 2024
(Unaudited)
| Three Months Ended January 31, | ||||||||
| 2025 | 2024 | |||||||
| (In Thousands of Dollars) | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Other comprehensive income (loss): | ||||||||
| Unrealized gain (loss) on interest rate swap contracts before reclassifications | ( | ) | ||||||
| Amount reclassified from accumulated other comprehensive income to interest expense | ( | ) | ( | ) | ||||
| Net unrealized loss on interest rate swap contracts | ( | ) | ( | ) | ||||
| Unrealized gain (loss) on U.S. Treasury securities available-for-sale before reclassifications | ( | ) | ||||||
| Amount reclassified from accumulated other comprehensive income to investment income | ( | ) | ||||||
| Net unrealized gain (loss) on U.S. Treasury securities available-for-sale | ( | ) | ||||||
| Comprehensive income (loss) | ( | ) | ||||||
| Comprehensive loss attributable to noncontrolling interests in subsidiaries | ||||||||
| Comprehensive income (loss) attributable to common equity | $ | $ | ( | ) | ||||
See Notes to Condensed Consolidated Financial Statements.
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FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
THREE MONTHS ENDED JANUARY 31, 2025
(Unaudited)
| Common Equity | ||||||||||||||||||||||||||||||||
| Common Stock | Accumulated | |||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In- Capital | Retained Earnings | Other Comprehensive Income | Total Common Equity | Noncontrolling Interests in Subsidiaries | Total Equity | |||||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||||||||
| Balance at October 31, 2024 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||
| Distributions to noncontrolling interests in subsidiaries | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net income (loss) | ( | ) | ||||||||||||||||||||||||||||||
| Dividends declared | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net unrealized loss on interest rate swap contracts | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net unrealized gain on investment in U.S. Treasury securities available-for-sale | ||||||||||||||||||||||||||||||||
| Balance at January 31, 2025 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
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FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
THREE MONTHS ENDED JANUARY 31, 2024
(Unaudited)
| Common Equity | ||||||||||||||||||||||||||||||||
| Common Stock | Accumulated | |||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In- Capital | Accumulated Deficit | Other Comprehensive Income | Total Common Equity | Noncontrolling Interests in Subsidiaries | Total Equity | |||||||||||||||||||||||||
| (In Thousands) | ||||||||||||||||||||||||||||||||
| Balance at October 31, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock based compensation expense | ||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests in subsidiaries | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Dividends declared | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net unrealized loss on interest rate swap contracts | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Net unrealized loss on investment in U.S. Treasury securities available-for-sale | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at January 31, 2024 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
See Notes to Condensed Consolidated Financial Statements.
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FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 2025
(Unaudited)
| Three Months Ended | ||||||||
| January 31, | ||||||||
| 2025 | 2024 | |||||||
| (In Thousands of Dollars) | ||||||||
| Operating activities: | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Net loss on sale of Maryland properties | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Stock based compensation expense | ||||||||
| (Gain) loss on investment in tenancy-in-common | ( | ) | ||||||
| Deferred rents - straight line rent | ||||||||
| Bad debt expense | ||||||||
| Accreted interest on investment in U.S. Treasury securities | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Tenants' security accounts | ( | ) | ( | ) | ||||
| Accounts receivable, prepaid expenses and other assets | ( | ) | ||||||
| Accounts payable, accrued expenses and deferred director compensation payable | ||||||||
| Deferred revenue | ||||||||
| Net cash provided by operating activities | ||||||||
| Investing activities: | ||||||||
| Cash outlays from sale of Maryland properties, net | ( | ) | ||||||
| Purchase of U.S. Treasury securities | ( | ) | ( | ) | ||||
| Proceeds from maturities of U.S. Treasury securities | ||||||||
| Capital improvements - existing properties | ( | ) | ( | ) | ||||
| Deferred leasing costs | ( | ) | ( | ) | ||||
| Distribution from investment in tenancy-in-common | ||||||||
| Net cash provided by investing activities | ||||||||
| Financing activities: | ||||||||
| Repayment of mortgages | ( | ) | ( | ) | ||||
| Deferred financing costs | ( | ) | ( | ) | ||||
| Dividends paid | ( | ) | ( | ) | ||||
| Distributions to noncontrolling interests in subsidiaries | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow data: | ||||||||
| Interest paid | $ | $ | ||||||
| Supplemental schedule of non cash activities: | ||||||||
| Investing activities: | ||||||||
| Accrued transactional costs for sale of the Maryland properties | $ | $ | ||||||
| Accrued capital expenditures, construction costs and pre-development costs | $ | $ | ||||||
| Financing activities: | ||||||||
| Dividends declared but not paid | $ | $ | ||||||
| The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Tenants' security accounts | ||||||||
| Funds held in post-closing escrow | ||||||||
| Mortgage escrows (included in prepaid expenses and other assets) | ||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||
See Notes to Condensed Consolidated Financial Statements.
Page 10
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of presentation:
First Real Estate Investment Trust of New Jersey was organized on November 1, 1961 as a New Jersey Business Trust. On July 1, 2021, First Real Estate Investment Trust of New Jersey completed the change of its form of organization from a New Jersey real estate investment trust to a Maryland corporation. First Real Estate Investment Trust of New Jersey, Inc. (“FREIT”, “Trust”, “us”, “we”, “our” or the “Company”) is a Maryland corporation.
FREIT is organized and will continue to operate in such a manner as to qualify for taxation as a REIT under the Internal Revenue Code of 1986, as amended, and its stock is traded on the over-the-counter market under the trading symbol FREVS.
The accompanying interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and pursuant to the rules of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnotes required by GAAP for complete financial statements have been omitted. It is the opinion of management that all adjustments considered necessary for a fair presentation have been included, and that all such adjustments are of a normal recurring nature.
The consolidated results of operations for the three-month period ended January 31, 2025 are not necessarily indicative of the results to be expected for the full year or any other period. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in FREIT’s Annual Report on Form 10-K for the year ended October 31, 2024.
Note 2 – Recently issued accounting standards:
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”) to improve reportable segment disclosure requirements, primarily through enhanced disclosure about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that the updated standard will have on its financial statement disclosure.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires entities to disclose additional information with respect to the effective tax rate reconciliation and to disclose the disaggregation by jurisdiction of income tax expense and income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of ASU 2023-09 on our consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses” (“ASU 2024-03”), and in January 2025, the FASB issued ASU 2025-01, “Income Statement – Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date” ("ASU 2025-01"). ASU 2024-03 requires additional disclosure of the nature of expenses included in the income statement as well as disclosures about specific types of expenses included in the expense captions presented in the income statement. ASU 2024-03, as clarified by ASU 2025-01, is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the impact of these standards on our consolidated financial statements.
Note 3 – Dividends and earnings (loss) per share:
The FREIT Board of Directors (“Board”)
declared a dividend of approximately $
Basic earnings (loss) per share is calculated by dividing net income attributable to common equity (numerator) by the weighted average number of shares outstanding during each period (denominator). The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include the number of additional shares that would have been outstanding if all potentially dilutive shares, such as those issuable upon the exercise of stock options, were issued during the period using the Treasury Stock method. Under the Treasury Stock method, the assumption is that the proceeds received upon exercise of the options, including the unrecognized stock option compensation expense attributable to future services, are used to repurchase FREIT’s stock at the average market price during the period, thereby increasing the number of shares to be added in computing diluted earnings per share.
For the three months ended January 31, 2025, only basic earnings per share is presented since there are no outstanding stock options or other diluted securities. For the three months ended January 31, 2024, the outstanding stock options were anti-dilutive with no
Page 11
impact on loss per share. There were approximately
Note 4 – Fair Value Measurements:
Financial assets that are measured at fair value on our condensed consolidated balance sheets consist of (i) investments in U.S. Treasury securities (classified as available for sale) and (ii) interest rate swap contracts.
In accordance with ASC Topic 320, “Investments
– Debt Securities”, FREIT is accounting for the investments in U.S. Treasury securities classified as available for sale
in the amount of approximately $
In accordance with “Accounting Standards
Codification Topic 815, Derivatives and Hedging ("ASC 815")”, FREIT has been accounting for the FREIT Regency, LLC
(“Regency”) and Station Place on Monmouth (“Station Place”) interest rate swap contracts as cash flow hedges marking
these contracts to market, taking into account present interest rates compared to the contracted fixed rate over the life of the contract
and recording the unrealized gain or loss on the swaps in comprehensive income (loss). On December 15, 2024, the Regency loan and its
corresponding interest rate swap contract matured with no settlement due at maturity. (See Note 9 for further details.) For the three
months ended January 31, 2025 and 2024, FREIT recorded an unrealized loss of approximately $
Note 5 – Investment in tenancy-in-common:
On February 28, 2020, FREIT reorganized S and
A Commercial Associates Limited Partnership (“S&A”) from a partnership into a tenancy-in-common form of ownership (“TIC”).
Prior to this reorganization, FREIT owned a
FREIT’s investment in the TIC was approximately
$
Hekemian & Co., Inc. (“Hekemian & Co.”) manages the Pierre Towers property pursuant to a management agreement which renews for successive one (1) year terms unless either party gives written notice of termination to the other party at least sixty (60) days prior to the end of the then-current term. The management agreement expires on February 28, 2026.
The management agreement requires the payment
of management fees equal to
Page 12
The following table summarizes the balance sheets of the Pierre Towers property as of January 31, 2025 and October 31, 2024, accounted for by the equity method:
| January 31, | October 31, | |||||||
| 2025 | 2024 | |||||||
| (In Thousands of Dollars) | ||||||||
| Real estate, net | $ | $ | ||||||
| Cash and cash equivalents | ||||||||
| Tenants' security accounts | ||||||||
| Receivables and other assets | ||||||||
| Total assets | $ | $ | ||||||
| Mortgages payable, net of unamortized debt issuance costs | $ | $ | ||||||
| Accounts payable and accrued expenses | ||||||||
| Tenants' security deposits | ||||||||
| Deferred revenue | ||||||||
| Equity | ||||||||
| Total liabilities & equity | $ | $ | ||||||
| FREIT's investment in TIC ( | $ | $ | ||||||
The following table summarizes the statements of operations of the Pierre Towers property for the three months ended January 31, 2025 and 2024, accounted for by the equity method:
| Three Months Ended January 31, | ||||||||
| 2025 | 2024 | |||||||
| (In Thousands of Dollars) | ||||||||
| Revenue | $ | $ | ||||||
| Operating expenses | ||||||||
| Depreciation | ||||||||
| Operating income | ||||||||
| Interest income | ||||||||
| Interest expense including amortization of deferred financing costs | ( | ) | ( | ) | ||||
| Net income (loss) | $ | $ | ( | ) | ||||
| FREIT's share of income (loss) on investment in TIC ( | $ | $ | ( | ) | ||||
Note 6 – Termination of Purchase and Sale Agreement:
As FREIT previously reported, on June 26, 2024, a settlement was reached between FREIT and certain of its affiliates and Sinatra Properties, LLC (“Sinatra”) and Kushner Companies, LLC, (collectively the “Kushner Parties”) regarding previously reported ongoing litigation. The litigation involved a dispute between the parties related to a purchase and sale agreement entered into on January 14, 2020. All settlement payments have been received by FREIT and its affiliates.
Legal costs attributed to the legal proceeding
between FREIT and certain of its affiliates and Sinatra have been incurred in the amount of approximately $
Note 7 – Maryland property dispositions:
On November 22, 2021, certain affiliates (the “Maryland Sellers”) of FREIT entered into a Purchase and Sale Agreement (the “Maryland Purchase and Sale Agreement”) with MCB Acquisition Company, LLC (the “Maryland Purchaser”), a third party, pursuant to which the Maryland Sellers agreed to sell three properties to the Maryland Purchaser. The properties consisted of retail and office space and a residential apartment community owned by Grande Rotunda, LLC (the “Rotunda Property”), a shopping center owned by Damascus Centre, LLC (the “Damascus Property”), and a shopping center owned by WestFREIT Corp. (the
Page 13
“Westridge Square Property”). FREIT owns
The sale of the Maryland Properties having a total
net book value of $
On August 4, 2022, FREIT’s Board declared
a special, extraordinary, non-recurring cash distribution of approximately $
On July 12, 2023, FREIT’s Board declared
an ordinary dividend of $
As the disposal of the Maryland Properties did not represent a strategic shift that would have a major impact on FREIT’s operations or financial results, the properties’ operations were not reflected as discontinued operations in the accompanying condensed consolidated financial statements.
Note 8 - Management agreement, fees and transactions with related party:
Hekemian & Co. currently manages all of the properties owned by FREIT and its affiliates. The management agreement between FREIT and Hekemian & Co. dated as of November 1, 2001 (“Management Agreement”) will expire on October 31, 2025 and is automatically renewed for successive periods of two years unless either party gives not less than six (6) months prior notice of non-renewal.
The Management Agreement requires the payment
of management fees equal to
From time to time, FREIT engages Hekemian &
Co., or certain affiliates of Hekemian & Co., to provide additional services, such as consulting services related to development,
property sales and financing activities of FREIT. Separate fee arrangements are negotiated between Hekemian & Co. and FREIT with respect
to such additional services. Such fees incurred for the three months ended January 31, 2025 and 2024 were approximately $
Robert S. Hekemian, Jr., Chief Executive Officer,
President and a Director of FREIT, is the Chief Executive Officer of Hekemian & Co. David B. Hekemian, a Director of FREIT, is the
President of Hekemian & Co. Allan Tubin, Chief Financial Officer and Treasurer of FREIT, is the Chief Financial Officer of Hekemian
& Co. Director fee expense and/or executive compensation (including stock awards) incurred by FREIT for the three months ended January
31, 2025 and 2024 was approximately $
Page 14
$
Note 9 – Mortgages payable and line of credit:
The following table is a summary of mortgages payable as of January 31, 2025 and October 31, 2024:
| Interest Rate at | Mortgages Payable as of | |||||||||||||
| Mortgages Secured By: | Maturity | January 31, 2025 | January 31, 2025 | October 31, 2024 | ||||||||||
| (In Thousands of Dollars) | ||||||||||||||
| Steuben Arms - River Edge, NJ (A) | $ | $ | ||||||||||||
| Berdan Court - Wayne, NJ | ||||||||||||||
| Westwood Hills - Westwood, NJ | ||||||||||||||
| Regency Club - Middletown, NY (B) | ||||||||||||||
| Station Place - Red Bank, NJ | ||||||||||||||
| Westwood Plaza - Westwood, NJ (C) | ||||||||||||||
| Preakness S/C - Wayne, NJ | ||||||||||||||
| Total fixed rate mortgages payable | ||||||||||||||
| Total unamortized debt issuance costs | ( | ) | ( | ) | ||||||||||
| Total mortgages payable, net | $ | $ | ||||||||||||
| (A) |
| (B) |
| (C) |
FREIT’s revolving line of credit provided
by Provident Bank was renewed for a three-year term ending on
Page 15
by mortgages on FREIT’s Franklin Crossing
Shopping Center in Franklin Lakes, New Jersey and retail space in Glen Rock, New Jersey. The total line of credit is $
While FREIT intends to renew or refinance its debt obligations as they become due, there can be no assurance that it will be successful or, if successful, that the new terms will be similar to the terms of its existing debt obligations or as favorable.
Principal amounts (in thousands of dollars) due under the above obligations in each of the next five years ending October 31, is as follows:
| Year Ending October 31, | Amount | |||
| 2025 | $ | (a) | ||
| 2026 | $ | |||
| 2027 | $ | |||
| 2028 | $ | |||
| 2029 | $ | |||
| (a) | Includes the following: |
| (1) | The loan on the Westwood Plaza shopping center located in Westwood, New Jersey, in the amount of approximately
$ |
| (2) | The loan on the Preakness shopping center located in Wayne, New Jersey, in the amount of approximately $ |
Fair value of long-term debt:
The following table shows the estimated fair value and net carrying value of FREIT’s long-term debt at January 31, 2025 and October 31, 2024:
| ($ in Millions) | January 31, 2025 | October 31, 2024 | ||||||
| Fair Value | $ | $ | ||||||
| Carrying Value, Net | $ | $ | ||||||
Fair values are estimated based on market interest rates at January 31, 2025 and October 31, 2024 and on a discounted cash flow analysis. Changes in assumptions or estimation methods may significantly affect these fair value estimates. The fair value is based on observable inputs (level 2 in the fair value hierarchy as provided by authoritative guidance).
Note 10 - Segment information:
ASC 280-10, "Disclosures about Segments
of an Enterprise and Related Information", establishes standards for reporting financial information about operating segments
in interim and annual financial reports and provides for a "management approach" in identifying the reportable segments. FREIT
has determined that it has
The accounting policies of the segments are the same as those described in Note 1 in FREIT’s Annual Report on Form 10-K for the fiscal year ended October 31, 2024. The chief operating and decision-making group responsible for oversight and strategic decisions of FREIT's commercial segment, residential segment and corporate/other is comprised of FREIT’s Board.
Page 16
FREIT, through its chief operating and decision making group, assesses and measures segment operating results based on net operating income ("NOI"). NOI, a standard used by real estate professionals, is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes: deferred rents (straight lining), depreciation, financing costs and other items. NOI is not a measure of operating results or cash flows from operating activities as measured by GAAP, 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.
Real estate rental revenue, operating expenses,
NOI and recurring capital improvements for the reportable segments are summarized below and reconciled to condensed consolidated net income
(loss) attributable to common equity for the three months ended January 31, 2025 and 2024.
| Three Months Ended | ||||||||
| January 31, | ||||||||
| 2025 | 2024 | |||||||
| (In Thousands of Dollars) | ||||||||
| Real estate rental revenue: | ||||||||
| Commercial | $ | $ | ||||||
| Residential | ||||||||
| Total real estate rental revenue | ||||||||
| Real estate operating expenses: | ||||||||
| Commercial | ||||||||
| Residential | ||||||||
| Total real estate operating expenses | ||||||||
| Net operating income: | ||||||||
| Commercial | ||||||||
| Residential | ||||||||
| Total net operating income | $ | $ | ||||||
| Recurring capital improvements - residential | $ | ( | ) | $ | ( | ) | ||
| Reconciliation to condensed consolidated net income (loss) attributable to common equity: | ||||||||
| Segment NOI | $ | $ | ||||||
| Deferred rents - straight lining | ( | ) | ( | ) | ||||
| Investment income | ||||||||
| General and administrative expenses | ( | ) | ( | ) | ||||
| Income (loss) on investment in tenancy-in-common | ( | ) | ||||||
| Depreciation | ( | ) | ( | ) | ||||
| Net loss on sale of Maryland properties | ( | ) | ||||||
| Financing costs | ( | ) | ( | ) | ||||
| Net income (loss) | ( | ) | ||||||
| Net loss attributable to noncontrolling interests in subsidiaries | ||||||||
| Net income (loss) attributable to common equity | $ | $ | ( | ) | ||||
Note 11 – Income taxes:
FREIT has elected to be treated as a REIT for
federal income tax purposes and as such intends to distribute at least
As of January 31, 2025, FREIT had no material uncertain income tax positions. The tax years subsequent to and including the fiscal year ended October 31, 2021 remain open to examination by the major taxing jurisdictions.
Note 12 – Equity Incentive Plan:
On February 20, 2025, in accordance with FREIT’s
Equity Incentive Plan (the “Plan”), the Compensation Committee of FREIT’s Board recommended to the Board and the Board
approved that for services rendered and to be rendered in Fiscal 2025, in lieu of cash compensation in the amount of $
Page 17
of
On March 22, 2024, in accordance with the Plan,
the Compensation Committee of FREIT’s Board recommended to the Board and the Board approved that for services rendered and to be
rendered in Fiscal 2024, in lieu of cash compensation in the amount of $
As of January 31, 2025,
As of January 31, 2025, all options have been
fully vested and exercised with no remaining compensation cost to be recognized. For the three months ended January 31, 2025 and 2024,
compensation expense related to stock options vested amounted to approximately $
The following table summarizes stock option activity for the three months ended January 31, 2024:
| Three Months Ended January 31, | ||||||||
| 2024 | ||||||||
| No. of Options | Weighted Average | |||||||
| Outstanding | Price | |||||||
| Options outstanding at beginning of period | $ | |||||||
| Options granted during period | ||||||||
| Options forfeited/cancelled during period | ||||||||
| Options exercised during period | ||||||||
| Options outstanding at end of period | $ | |||||||
| Options vested | ||||||||
| Options exercisable at end of period | ||||||||
Note 13 – Rental Income:
Commercial tenants:
Fixed lease income under our commercial operating leases generally includes fixed minimum lease consideration, which is accrued on a straight-line basis over the terms of the leases. Variable lease income includes consideration based on sales, as well as reimbursements for real estate taxes, maintenance, insurance and certain other operating expenses of the properties.
Minimum fixed lease consideration (in thousands
of dollars) under non-cancelable tenant operating leases for each of the next
| Year Ending October 31, | Amount | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ | |||
The above amounts assume that all leases that expire are not renewed and, accordingly, neither month-to-month nor rentals from replacement tenants are included.
Minimum future rentals do not include contingent rentals, which may be received under certain leases on the basis of percentage of reported tenants' sales volume. Rental income that is contingent on future events is not included in income until the contingency is resolved. Contingent rentals included in income for the three months ended January 31, 2025 and 2024 were not material.
Residential tenants:
Lease terms for residential tenants are usually
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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Identifying Important Factors That Could Cause First Real Estate Investment Trust of New Jersey, Inc.’s (“FREIT”) Actual Results to Differ From Those Projected in Forward Looking Statements.
Readers of this discussion are advised that the discussion should be read in conjunction with the unaudited condensed consolidated financial statements of FREIT (including related notes thereto) appearing elsewhere in this Form 10-Q, and the consolidated financial statements included in FREIT’s most recently filed Form 10-K. Certain statements in this discussion may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect FREIT’s current expectations and are based on estimates, projections, beliefs, data, methods and assumptions of management of FREIT at the time of such statements regarding future results of operations, economic performance, financial condition and achievements of FREIT, and do not relate strictly to historical or current facts. These forward-looking statements are identified through the use of words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or words of similar meaning. Forward-looking statements involve risks and uncertainties in predicting future results and conditions.
Although FREIT believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties. These and certain other uncertainties, factors and risks, including those risk factors set forth and further described in Part I, Item 1A entitled “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended October 31, 2024, and other risks described in our subsequent filings with the SEC, may cause our actual results to differ materially from those projected. Such factors include, but are not limited to, the following: general economic and business conditions, including the purchase of retail products over the Internet, which will, among other things, affect demand for rental space, the availability of prospective tenants, lease rents, the financial condition of tenants and the default rate on leases, operating and administrative expenses and the availability of financing; interest rate risk; adverse changes in FREIT’s real estate markets, including, among other things, competition with other real estate owners, competition confronted by tenants at FREIT’s commercial properties; governmental actions and initiatives; environmental/safety requirements; risks of real estate development and acquisitions; and public health crises, epidemics and pandemics. The risks with respect to the development of real estate include: increased construction costs, inability to obtain construction financing, or unfavorable terms of financing that may be available, unforeseen construction delays and the failure to complete construction within budget.
OVERVIEW
FREIT is an equity real estate investment trust (“REIT”) that is self-administered and externally managed. FREIT owns a portfolio of residential apartment and commercial properties. FREIT’s revenues consist primarily of rental income and other related revenues from its residential and commercial properties and additional rents derived from operating commercial properties. FREIT’s properties are primarily located in northern New Jersey and New York.
The economic and financial environment: The U.S. inflation rate has increased from 2.6% in October 2024 to 3% in January 2025, while the U.S. unemployment rate has declined slightly from 4.1% in October 2024 to 4% in January 2025. Mortgage rates continue to hold at the highest levels in more than a decade. After previously having lowered interest rates at three consecutive meetings in the latter half of 2024 from a previous interest rate of 5.5%, which was the highest rate level since 2001, the Federal Reserve held the interest rate steady at 4.5% at its meeting in January 2025. This somewhat elevated inflation rate, which is above the Federal Reserve’s 2% target, coupled with a slowdown in employers hiring and the unemployment rate rising may signal the Federal Reserve to continue to lower interest rates. However, it is uncertain if this is the action they will take and at what pace this would be done.
Residential Properties: Our residential portfolio continues to generate positive cash flow. While average rents on turned units (apartments which were vacated and then re-leased to new tenants) and existing tenant renewals continue to increase across most of the portfolio, the rates of these increases has indicated a slight softening of the market. These increases should meaningfully contribute to FREIT’s income over time but it is uncertain what impact elevated interest rates may continue to have on these properties over the next year.
Commercial Properties: While the Franklin Crossing and Glen Rock shopping centers continue to attain higher occupancies and realize stronger net operating incomes, the vacancy rates at the Westwood Plaza and Wayne Preakness Shopping centers remain elevated. We continue to work diligently to locate the right tenant(s) for the vacant anchor tenant spaces at each of these properties. Given the rebounding interest for “brick and mortar” sites, and the fact that these properties are located in desirable communities with high barriers to entry, management remains optimistic about the successful leasing at these two properties. Additionally, the elevated interest rates could have a continued adverse impact on the operating and financial performance of our existing commercial tenants.
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Debt Financing Availability: Financing has been available to FREIT and its affiliates. Certain recent refinancings and loan modifications/extensions have been at higher interest rates and for shorter terms. In accordance with certain loan agreements, FREIT may be required to meet or maintain certain financial covenants throughout the term of the loan.
On December 15, 2024, the mortgage secured by an apartment building located in Middletown, New York and the corresponding interest rate swap contract on its underlying loan came due with no settlement of the swap contract due at maturity. Effective December 15, 2024, FREIT Regency, LLC entered into a loan extension and modification agreement with the lender of this loan, Provident Bank, with a then outstanding loan balance of approximately $13.9 million. Under the terms and conditions of this loan extension and modification, the maturity date of this loan is extended for three years to December 15, 2027, the interest rate on the outstanding debt is based on a fixed interest rate of 6.05% and monthly installments of principal and interest of approximately $84,521 are required. (See Note 9 to FREIT’s condensed consolidated financial statements for further details.)
On December 1, 2023, the mortgage secured by an apartment building located in River Edge, New Jersey came due. Provident Bank extended the initial maturity date of this loan for a 90-day period with a maturity date of March 1, 2024 and further extended this loan for another 60-day period with a maturity date of June 1, 2024, based on the same terms and conditions of the existing loan agreement. On May 1, 2024, FREIT entered into a loan extension and modification agreement with Provident Bank, effective June 1, 2024, with a then outstanding loan balance of approximately $8.9 million. Under the terms and conditions of this loan extension and modification, the maturity date of this loan is extended for three years to May 31, 2027, requires monthly installments of principal and interest of approximately $58,016 and is based on a fixed interest rate of 6.75%. (See Note 9 to FREIT’s condensed consolidated financial statements for further details.)
On October 31, 2023, FREIT exercised its right, pursuant to the loan agreement, to extend the term of its loan secured by the Westwood Plaza Shopping Center located in Westwood, New Jersey for one additional year from an initial maturity date of February 1, 2024 to a new maturity date of February 1, 2025. This loan extension of its outstanding balance as of February 1, 2024 of approximately $16,458,000 is based on a fixed interest rate of 8.5% and is payable based on monthly installments of principal and interest of approximately $166,727. Additionally, FREIT funded the interest reserve escrow account for this loan (“Escrow”) with an additional $112,556 increasing the Escrow balance to $2,000,722, which represents the annualized principal and interest payments for one (1) year under this loan extension. This Escrow is held at Valley National Bank and in the event of a default on this loan, the bank shall be permitted to use the proceeds from the Escrow to make monthly debt service payments on the loan. Effective February 1, 2025, Valley National Bank extended this loan for 90 days from a maturity date of February 1, 2025 to a maturity date of May 1, 2025 under the same terms and conditions of the existing loan agreement. Management expects this loan to be further extended, however, until such time as a definitive agreement providing for an extension of this loan is entered into, there can be no assurance this loan will be extended. (See Note 9 to FREIT’s condensed consolidated financial statements for further details.)
FREIT’s revolving line of credit provided by Provident Bank was renewed for a three-year term ending on October 31, 2026. Draws against the credit line can be used for working capital needs and standby letters of credit. Draws against the credit line are secured by mortgages on FREIT’s Franklin Crossing Shopping Center in Franklin Lakes, New Jersey and retail space in Glen Rock, New Jersey. The total line of credit is $13 million and the interest rate on the amount outstanding is based on a floating interest rate of prime minus 25 basis points with a floor of 6.75%. As of January 31, 2025 and October 31, 2024, there was no amount outstanding and $13 million was available under the line of credit.
Operating Cash Flow: FREIT expects that cash provided by operating activities and cash reserves will be adequate to cover mandatory debt service payments (including payments of interest, but excluding balloon payments, which are expected to be refinanced and/or extended), real estate taxes, recurring capital improvements at its properties and other needs to maintain its status as a REIT for at least a period of one year from the date of filing of this quarterly report on Form 10-Q.
Page 20
SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Pursuant to the SEC disclosure guidance for "Critical Accounting Policies," the SEC defines Critical Accounting Policies as those that require the application of management's most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, the preparation of which takes into account estimates based on judgments and assumptions that affect certain amounts and disclosures. Accordingly, actual results could differ from these estimates. The accounting policies and estimates used, which are outlined in Note 1 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2024, have been applied consistently as of January 31, 2025, and for the three months ended January 31, 2025 and 2024. We believe that the following accounting policies or estimates require the application of management's most difficult, subjective, or complex judgments.
Revenue Recognition: Base rents, additional rents based on tenants' sales volume and reimbursement of the tenants' share of certain operating expenses are generally recognized when earned from tenants. The straight-line basis is used to recognize base rents under leases if they provide for varying rents over the lease terms. Straight-line rents receivable represent unbilled rents receivable to the extent straight-line rents exceed current rents billed in accordance with lease agreements. Before FREIT can recognize revenue, it is required to assess, among other things, its collectability.
Valuation of Long-Lived Assets: FREIT assesses the carrying value of long-lived assets periodically, or whenever events or changes in circumstances indicate that the carrying amounts of certain assets may not be recoverable. When FREIT determines that the carrying value of long-lived assets may be impaired, the measurement of any impairment is based on a projected discounted cash flow method determined by FREIT's management. While we believe that our discounted cash flow methods are reasonable, different assumptions regarding such cash flows may significantly affect the measurement of impairment.
Real Estate Development Costs: It is FREIT’s policy to capitalize pre-development costs, which generally include legal and professional fees and other directly related third-party costs. Real estate taxes and interest costs incurred during the development and construction phases are also capitalized. FREIT ceases capitalization of these costs when the project or portion thereof becomes operational, or when construction has been postponed. In the event of postponement, capitalization of these costs will recommence once construction on the project resumes.
See Note 2 to FREIT’s condensed consolidated financial statements for recently issued accounting standards.
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RESULTS OF OPERATIONS
Real estate revenue for the three months ended January 31, 2025 (“Current Quarter”) increased 3.9% to $7,269,000 compared to $6,999,000 for the three months ended January 31, 2024 (“Prior Year’s Quarter”).
The increase in revenue of approximately $270,000 for the Current Quarter was primarily attributable to an increase from the residential segment driven by an increase in base rents across most properties and an increase in the average occupancy rate from 95.3% in the Prior Year’s Quarter to 96.8% in the Current Quarter.
Net income (loss) attributable to common equity (“net income (loss)-common equity”) for the Current Quarter was net income of $614,000 ($0.08 per share basic and diluted) compared to net loss of ($512,000) (($0.07) per share basic and diluted) for the Prior Year’s Quarter.
The schedule below provides a detailed analysis of the major changes that impacted net income (loss)-common equity for the three months ended January 31, 2025 and 2024:
| NON-GAAP NET INCOME (LOSS) COMPONENTS | Three Months Ended | |||||||||||
| January 31, | ||||||||||||
| 2025 | 2024 | Change | ||||||||||
| (In Thousands of Dollars) | ||||||||||||
| Income from real estate operations: | ||||||||||||
| Commercial properties | $ | 539 | $ | 625 | $ | (86 | ) | |||||
| Residential properties | 2,994 | 2,865 | 129 | |||||||||
| Total income from real estate operations | 3,533 | 3,490 | 43 | |||||||||
| Financing costs: | ||||||||||||
| Fixed rate mortgages | (1,751 | ) | (1,687 | ) | (64 | ) | ||||||
| Mortgage cost amortization | (122 | ) | (155 | ) | 33 | |||||||
| Total financing costs | (1,873 | ) | (1,842 | ) | (31 | ) | ||||||
| Investment income | 400 | 407 | (7 | ) | ||||||||
| General & administrative expenses: | ||||||||||||
| Accounting fees | (118 | ) | (135 | ) | 17 | |||||||
| Legal and professional fees | (247 | ) | (375 | ) | 128 | |||||||
| Directors fees | (297 | ) | (297 | ) | — | |||||||
| Stock compensation expense | — | (1 | ) | 1 | ||||||||
| Corporate expenses | (183 | ) | (1,000 | ) | 817 | |||||||
| Total general & administrative expenses | (845 | ) | (1,808 | ) | 963 | |||||||
| Depreciation | (723 | ) | (725 | ) | 2 | |||||||
| Income (loss) on investment in tenancy-in-common | 9 | (109 | ) | 118 | ||||||||
| Adjusted net income (loss) | 501 | (587 | ) | 1,088 | ||||||||
| Net loss on sale of Maryland properties | — | (79 | ) | 79 | ||||||||
| Net income (loss) | 501 | (666 | ) | 1,167 | ||||||||
| Net loss attributable to noncontrolling interests in subsidiaries | 113 | 154 | (41 | ) | ||||||||
| Net income (loss) attributable to common equity | $ | 614 | $ | (512 | ) | $ | 1,126 | |||||
The condensed consolidated results of operations for the Current Quarter are not necessarily indicative of the results to be expected for the full year or any other period. The table above includes income from real estate operations, which is a non-GAAP financial measure and is not a measure of operating results or cash flow as measured by GAAP, and is not necessarily indicative of cash available to fund cash needs.
Adjusted net income (loss) for the Current Quarter was net income of $501,000 ($0.07 per share basic and diluted) compared to net loss of ($587,000) (($0.08) per share basic and diluted) for the Prior Year’s Quarter. Adjusted net income (loss) is a non-GAAP measure, which management believes is a useful and meaningful gauge to investors of our operating performance, since it excludes the impact of unusual and infrequent items specifically: a net loss on sale of Maryland Properties.
Page 22
The increase in adjusted net income of approximately $1,088,000 for the Current Quarter was primarily attributable to the following: (a) a decline in general and administrative expenses of approximately $963,000 driven by a decrease in corporate expenses of approximately $817,000 primarily related to costs incurred in the Prior Year’s Quarter for work performed for the Company by a financial advisory firm and a decline in legal and professional expenses of approximately $128,000; (b) an increase in revenue of approximately $270,000 (FREIT’s share is approximately $244,000); (c) an increase in income from the investment in the Pierre TIC of approximately $118,000; offset by (e) an increase in total operating expenses in the residential segment of approximately $187,000.
(Refer to the segment disclosure below for a more detailed discussion of the financial performance of FREIT’s commercial and residential segments.)
SEGMENT INFORMATION
The following table sets forth comparative net operating income ("NOI") data for FREIT’s real estate segments and reconciles the NOI to condensed consolidated net income (loss)-common equity for the Current Quarter as compared to the Prior Year’s Quarter (see below for definition of NOI):
| Commercial | Residential | Combined | ||||||||||||||||||||||||||||||||||||||
| Three Months Ended | Three Months Ended | Three Months Ended | ||||||||||||||||||||||||||||||||||||||
| January 31, | Increase (Decrease) | January 31, | Increase (Decrease) | January 31, | ||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | 2025 | 2024 | $ | % | 2025 | 2024 | |||||||||||||||||||||||||||||||
| (In Thousands) | (In Thousands) | (In Thousands) | ||||||||||||||||||||||||||||||||||||||
| Rental income | $ | 1,350 | $ | 1,507 | $ | (157 | ) | -10.4% | $ | 5,270 | $ | 4,976 | $ | 294 | 5.9% | $ | 6,620 | $ | 6,483 | |||||||||||||||||||||
| Reimbursements | 560 | 473 | 87 | 18.4% | 5 | (15 | ) | 20 | 133.3% | 565 | 458 | |||||||||||||||||||||||||||||
| Other | 24 | 1 | 23 | 2300.0% | 88 | 86 | 2 | 2.3% | 112 | 87 | ||||||||||||||||||||||||||||||
| Total revenue | 1,934 | 1,981 | (47 | ) | -2.4% | 5,363 | 5,047 | 316 | 6.3% | 7,297 | 7,028 | |||||||||||||||||||||||||||||
| Operating expenses | 1,367 | 1,327 | 40 | 3.0% | 2,369 | 2,182 | 187 | 8.6% | 3,736 | 3,509 | ||||||||||||||||||||||||||||||
| Net operating income | $ | 567 | $ | 654 | $ | (87 | ) | -13.3% | $ | 2,994 | $ | 2,865 | $ | 129 | 4.5% | 3,561 | 3,519 | |||||||||||||||||||||||
| Average Occupancy % | 48.2% | 50.1% | -1.9% | 96.8% | 95.3% | 1.5% | ||||||||||||||||||||||||||||||||||
| Reconciliation to condensed consolidated net income (loss)-common equity: | |||||||||
| Deferred rents - straight lining | (28 | ) | (29 | ) | |||||
| Investment income | 400 | 407 | |||||||
| Net loss on sale of Maryland properties | — | (79 | ) | ||||||
| General and administrative expenses | (845 | ) | (1,808 | ) | |||||
| Gain (loss) on investment in tenancy-in-common | 9 | (109 | ) | ||||||
| Depreciation | (723 | ) | (725 | ) | |||||
| Financing costs | (1,873 | ) | (1,842 | ) | |||||
| Net income (loss) | 501 | (666 | ) | ||||||
| Net loss attributable to noncontrolling interests in subsidiaries | 113 | 154 | |||||||
| Net income (loss) attributable to common equity | $ | 614 | $ | (512 | ) | ||||
NOI is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes deferred rents (straight lining), depreciation, financing costs and other items. FREIT assesses and measures segment operating results based on NOI.
Same Property NOI: FREIT considers same property net operating income (“Same Property NOI”) to be a useful supplemental non-GAAP measure of its operating performance. FREIT defines same property within both the commercial and residential segments to be those properties that FREIT has owned and operated for both the current and prior periods presented, excluding those properties that FREIT acquired, sold or redeveloped during those periods. Any newly acquired property that has been in operation for less than a year, any property that is undergoing a major redevelopment but may still be in operation at less than full capacity, and/or any property that has been sold is not considered same property.
NOI and Same Property NOI are non-GAAP financial measures and are not measures of operating results or cash flow as measured by GAAP, and are 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.
COMMERCIAL SEGMENT
The commercial segment contains five (5) separate properties. Four of these properties are multi-tenanted retail centers and one is single tenanted on land located in Rockaway, New Jersey owned by FREIT from which it receives monthly rental income from a tenant who has built and operates a bank branch on the land.
As indicated in the table above under the caption Segment Information, total revenue and NOI from FREIT’s commercial segment for the Current Quarter decreased by 2.4% and 13.3%, respectively, as compared to the Prior Year’s Quarter. Average occupancy for all commercial properties for the Current Quarter decreased by 1.9% as compared to the Prior Year’s Quarter.
Page 23
The decrease in revenue and NOI for the Current Quarter was primarily driven by a decrease in the average occupancy rate from 50.1% in the Prior Year’s Quarter to 48.2% in the Current Quarter.
Same Property Operating Results: FREIT’s commercial segment currently contains five (5) same properties. (See definition of same property under Segment Information above.) Since all of FREIT’s commercial properties are considered same properties in the current fiscal year, refer to the preceding paragraph for discussion of changes in same property results.
Leasing: The following table reflects leasing activity at FREIT’s commercial properties for comparable leases (leases executed for spaces in which there was a tenant at some point during the previous twelve-month period) and non-comparable leases for the Current Quarter:
| RETAIL: | Number of Leases | Lease Area (Sq. Ft.) | Weighted Average Lease Rate (per Sq. Ft.) | Weighted Average Prior Lease Rate (per Sq. Ft.) | % Increase (Decrease) | Tenant Improvement Allowance (per Sq. Ft.) (a) | Lease Commissions (per Sq. Ft.) (a) | |||||||||||||||||||||
| Comparable leases (b) | 3 | 11,428 | $ | 27.41 | $ | 32.27 | -15.1% | $ | — | $ | 0.21 | |||||||||||||||||
| Non-comparable leases | — | — | $ | — | N/A | N/A | $ | — | $ | — | ||||||||||||||||||
| Total leasing activity | 3 | 11,428 | ||||||||||||||||||||||||||
(a) These leasing costs are presented as annualized costs per square foot and are allocated uniformly over the lease term.
(b) This includes new tenant leases and/or modifications/extensions/renewals of existing tenant leases.
RESIDENTIAL SEGMENT
FREIT currently operates six (6) multi-family apartment buildings or complexes totaling 792 apartment units, excluding the Pierre Towers property, which was converted to a TIC (see Note 5 to FREIT’s condensed consolidated financial statements).
As indicated in the table above under the caption Segment Information, total revenue and NOI from FREIT’s residential segment for the Current Quarter increased by 6.3% and 4.5%, respectively, as compared to the Prior Year’s Quarter. Average occupancy for all residential properties for the Current Quarter increased by 1.5% as compared to the Prior Year’s Quarter.
The increase in revenue for the Current Quarter was primarily attributable to an increase in base rents across most properties and an increase in the average occupancy rate from 95.3% in the Prior Year’s Quarter to 96.8% in the Current Quarter. The increase in NOI for the Current Quarter was primarily attributed to the increase in revenue of approximately $316,000 offset by an increase in operating expenses of approximately $96,000 and an increase in repairs and maintenance expenses of approximately $48,000.
Same Property Operating Results: FREIT’s residential segment currently contains six (6) same properties. (See definition of same property under Segment Information above.) Since all of FREIT’s residential properties are considered same properties in the current fiscal year, refer to the preceding paragraph for discussion of changes in same property results.
FREIT’s residential revenue is principally composed of monthly apartment rental income. Total rental income is a factor of occupancy and monthly apartment rents. Monthly average residential rents at the end of the Current Quarter and the Prior Year’s Quarter were $2,341 and $2,228, respectively. A 1% decline in annual average occupancy, or a 1% decline in average rents from current levels, results in an annual revenue decline of approximately $223,000 and $215,000, respectively.
Capital expenditures: FREIT tends to spend more in any given year on maintenance and capital improvements at its residential properties which were constructed more than 25 years ago (Steuben Arms, Berdan Court and Westwood Hills properties) than on its newer properties (Boulders, Regency and Station Place properties). Funds for these capital projects are available from cash flow from the property's operations and cash reserves.
Page 24
FINANCING COSTS
| Three Months Ended January 31, | ||||||||
| 2025 | 2024 | |||||||
| (In Thousands of Dollars) | ||||||||
| Fixed rate mortgages (a): | ||||||||
| 1st Mortgages | ||||||||
| Existing | $ | 1,751 | $ | 1,687 | ||||
| New | — | — | ||||||
| Total financing costs, gross | 1,751 | 1,687 | ||||||
| Amortization of mortgage costs | 122 | 155 | ||||||
| Total financing costs, net | $ | 1,873 | $ | 1,842 | ||||
(a) Includes the effect of interest rate swap contracts which effectively convert the floating interest rate to a fixed interest rate over the term of the loan.
INVESTMENT INCOME
Investment income for the Current Quarter was approximately $400,000 compared to $407,000 for the Prior Year’s Quarter. Investment income is principally derived from interest earned from cash on deposit in institutional money market funds and short-term U.S. treasury securities.
GENERAL AND ADMINISTRATIVE EXPENSES (“G&A”)
G&A for the Current Quarter was approximately $845,000 compared to $1,808,000 for the Prior Year’s Quarter. The primary components of G&A are legal and professional fees, directors’ fees, corporate expenses and accounting/auditing fees. The decrease in G&A for the Current Quarter was driven by a decrease in corporate expenses of approximately $817,000 primarily related to costs incurred in the Prior Year’s Quarter for work performed for the Company by a financial advisory firm and a decline in legal and professional expenses of approximately $128,000.
DEPRECIATION
Depreciation expense for the Current Quarter was approximately $723,000 compared to $725,000 for the Prior Year’s Quarter.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was approximately $1,519,000 for the Current Quarter as compared to approximately $934,000 for the Prior Year’s Quarter. FREIT expects that cash provided by operating activities and cash reserves will be adequate to cover mandatory debt service payments (including payments of interest, but excluding balloon payments, which are expected to be refinanced and/or extended), real estate taxes, dividends, recurring capital improvements at its properties and other needs to maintain its status as a REIT for at least a period of one year from the date of filing of this quarterly report on Form 10-Q.
As of January 31, 2025, FREIT had cash, cash equivalents and restricted cash totaling approximately $16,347,000, compared to approximately $19,223,000 at October 31, 2024. The decrease in cash, cash equivalents and restricted cash in the Current Quarter of approximately $2,876,000 was primarily attributable to net cash used in financing activities of $6,246,000, offset by net cash provided by investing activities of approximately $1,851,000 and net cash provided by operating activities of approximately $1,519,000. The decrease in cash, cash equivalents and restricted cash was primarily attributed to the following: (a) the purchase of investments in U.S. Treasury securities of approximately $11,511,000; (b) dividends paid of approximately $5,224,000; offset by (c) proceeds received from maturities of U.S. Treasury securities of approximately $13,543,000.
Credit Line: FREIT’s revolving line of credit provided by Provident Bank was renewed for a three-year term ending on October 31, 2026. Draws against the credit line can be used for working capital needs and standby letters of credit. Draws against the credit line are secured by mortgages on FREIT’s Franklin Crossing Shopping Center in Franklin Lakes, New Jersey and retail space in Glen Rock, New Jersey. The total line of credit is $13 million and the interest rate on the amount outstanding is based on a floating interest rate of prime minus 25 basis points with a floor of 6.75%. As of January 31, 2025 and October 31, 2024, there was no amount outstanding and $13 million was available under the line of credit.
Dividend: FREIT’s Board declared a dividend of approximately $597,000 ($0.08 per share) in the first quarter of Fiscal 2025, which will be paid on March 14, 2025 to stockholders of record on February 28, 2025. FREIT’s Board will continue to evaluate the dividend on a quarterly basis.
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As of January 31, 2025, FREIT’s aggregate outstanding mortgage debt was $128.4 million, which bears a weighted average interest rate of 5.49% and an average life of approximately 2.1 years. FREIT’s mortgages are subject to amortization schedules that are longer than the terms of the mortgages. As such, balloon payments (unpaid principal amounts at the mortgage due date) for all mortgage debt will be required as follows:
| Fiscal Year | 2025 | 2026 | 2027 | 2028 | 2029 | |
| ($ in millions) | ||||||
| Mortgage "Balloon" Payments | $40.7 (A) | $24.5 | $8.6 | $23.8 | $26.0 |
| (A) | Includes the following: |
| (1) | The loan on the Westwood Plaza shopping center located in Westwood, New Jersey, in the amount of approximately $15.7 million which had a maturity date of February 1, 2025. Valley National Bank extended this loan for 90 days from a maturity date of February 1, 2025 to a maturity date of May 1, 2025 under the same terms and conditions of the existing loan agreement. Management expects this loan to be further extended, however, until such time as a definitive agreement providing for an extension of this loan is entered into, there can be no assurance this loan will be extended. (See Note 9 to FREIT's condensed consolidated financial statements for additional details.) |
| (2) | The loan on the Preakness shopping center located in Wayne, New Jersey, in the amount of approximately $25 million which has a maturity date of August 1, 2025. Management expects this loan to be extended, however, until such time as a definitive agreement providing for an extension of this loan is entered into, there can be no assurance this loan will be extended. |
The following table shows the estimated fair value and net carrying value of FREIT’s long-term debt at January 31, 2025 and October 31, 2024:
| ($ in Millions) | January 31, 2025 | October 31, 2024 | ||||||
| Fair Value | $ | 123.8 | $ | 124.7 | ||||
| Carrying Value, Net | $ | 127.6 | $ | 128.1 | ||||
Fair values are estimated based on market interest rates at January 31, 2025 and October 31, 2024 and on a discounted cash flow analysis. Changes in assumptions or estimation methods may significantly affect these fair value estimates. The fair value is based on observable inputs (level 2 in the fair value hierarchy as provided by authoritative guidance).
FREIT expects to refinance the individual mortgages with new mortgages or exercise extension options when their terms expire. To this extent, FREIT has exposure to interest rate risk. If interest rates, at the time any individual mortgage note is due, are higher than the current fixed interest rate, higher debt service may be required, and/or refinancing proceeds may be less than the amount of mortgage debt being retired. For example, at January 31, 2025, a 1% interest rate increase would reduce the fair value of FREIT’s debt by $2.4 million, and a 1% decrease would increase the fair value by $2.4 million.
On December 15, 2024, the mortgage secured by an apartment building located in Middletown, New York and the corresponding interest rate swap contract on its underlying loan came due with no settlement of the swap contract due at maturity. Effective December 15, 2024, FREIT Regency, LLC entered into a loan extension and modification agreement with the lender of this loan, Provident Bank, with a then outstanding loan balance of approximately $13.9 million. Under the terms and conditions of this loan extension and modification, the maturity date of this loan is extended for three years to December 15, 2027, the interest rate on the outstanding debt is based on a fixed interest rate of 6.05% and monthly installments of principal and interest of approximately $84,521 are required. (See Note 9 to FREIT’s condensed consolidated financial statements for further details.)
On December 1, 2023, the mortgage secured by an apartment building located in River Edge, New Jersey came due. Provident Bank extended the initial maturity date of this loan for a 90-day period with a maturity date of March 1, 2024 and further extended this loan for another 60-day period with a maturity date of June 1, 2024, based on the same terms and conditions of the existing loan agreement. On May 1, 2024, FREIT entered into a loan extension and modification agreement with Provident Bank, effective June 1, 2024, with a then outstanding loan balance of approximately $8.9 million. Under the terms and conditions of this loan extension and modification, the maturity date of this loan is extended for three years to May 31, 2027, requires monthly installments of principal and interest of approximately $58,016 and is based on a fixed interest rate of 6.75%. (See Note 9 to FREIT’s condensed consolidated financial statements for further details.)
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On October 31, 2023, FREIT exercised its right, pursuant to the loan agreement, to extend the term of its loan secured by the Westwood Plaza Shopping Center located in Westwood, New Jersey for one additional year from an initial maturity date of February 1, 2024 to a new maturity date of February 1, 2025. This loan extension of its outstanding balance as of February 1, 2024 of approximately $16,458,000 is based on a fixed interest rate of 8.5% and is payable based on monthly installments of principal and interest of approximately $166,727. Additionally, FREIT funded the interest reserve escrow account for this loan (“Escrow”) with an additional $112,556 increasing the Escrow balance to $2,000,722, which represents the annualized principal and interest payments for one (1) year under this loan extension. This Escrow is held at Valley National Bank and in the event of a default on this loan, the bank shall be permitted to use the proceeds from the Escrow to make monthly debt service payments on the loan. Effective February 1, 2025, Valley National Bank extended this loan for 90 days from a maturity date of February 1, 2025 to a maturity date of May 1, 2025 under the same terms and conditions of the existing loan agreement. Management expects this loan to be further extended, however, until such time as a definitive agreement providing for an extension of this loan is entered into, there can be no assurance this loan will be extended. (See Note 9 to FREIT’s condensed consolidated financial statements for further details.)
Interest rate swap contracts: To reduce interest rate volatility, FREIT uses a “pay fixed, receive floating” interest rate swap to convert floating interest rates to fixed interest rates over the term of a certain loan. FREIT enters into these interest rate swap contracts with a counterparty that is usually a high-quality commercial bank. In essence, FREIT agrees to pay its counterparties a fixed rate of interest on a dollar amount of notional principal (which generally corresponds to FREIT’s mortgage debt) over a term equal to the term of the mortgage notes. FREIT’s counterparties, in return, agree to pay FREIT a short-term rate of interest - generally SOFR (“Secured Overnight Financing Rate”) - on that same notional amount over the same term as the mortgage notes.
FREIT has a variable interest rate loan secured by its Station Place property. To reduce interest rate fluctuations, FREIT entered into an interest rate swap contract for this loan, which effectively converted variable interest rate payments to fixed interest rate payments. The interest rate swap contract was based on a notional amount of approximately $12,350,000 ($11,220,000 at January 31, 2025). FREIT had a variable interest rate loan secured by its Regency property. On December 15, 2024, the Regency loan and its corresponding interest rate swap contract matured with no settlement due at maturity. (See Note 9 to FREIT’s condensed consolidated financial statements for further details.)
In accordance with ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities to Accounting Standards Codification Topic 815, Derivatives and Hedging ("ASC 815")”, FREIT marks-to-market its interest rate swap contract. As the floating interest rate varies from time-to-time over the term of the contract, the value of the contract will change upward or downward. If the floating rate is higher than the fixed rate, the value of the contract goes up and there is a gain and an asset. If the floating rate is less than the fixed rate, there is a loss and a liability. The interest rate swap contract is accounted for as a cash flow hedge with the corresponding gain or loss on this contract not affecting FREIT’s condensed consolidated statement of operations; changes in the fair value of this cash flow hedge will be reported in other comprehensive income (loss) and appear in the equity section of the condensed consolidated balance sheet. This gain or loss represents the economic consequence of liquidating a fixed interest rate swap and replacing it with like-duration funding at current market rates, something we would likely never do. Periodic cash settlements of this contract will be accounted for as an adjustment to interest expense.
FREIT has the following derivative-related risks with its interest rate swap contract (“contract”): 1) early termination risk, and 2) counterparty credit risk.
Early Termination Risk: If FREIT wants to terminate its contract before maturity, it would be bought out or terminated at market value; i.e., the difference in the present value of the anticipated net cash flows from each of the contract’s parties. If current variable interest rates are significantly below FREIT’s fixed interest rate payments, this could be costly. Conversely, if interest rates rise above FREIT’s fixed interest payments and FREIT elected early termination, FREIT would realize a gain on termination. At January 31, 2025, the contract for Station Place was in FREIT’s favor. If FREIT had terminated this contract at that date, it would have realized a gain of approximately $464,000 for the Station Place swap, which amount has been included in FREIT’s condensed consolidated balance sheet as at January 31, 2025. The change in the fair value for the contract (gain or loss) during such period has been included in comprehensive income (loss) and for the three months ended January 31, 2025 and 2024, FREIT recorded an unrealized loss of approximately $42,000 and $530,000, respectively, in the condensed consolidated statements of comprehensive income (loss).
Counterparty Credit Risk: Each party to a contract bears the risk that its counterparty will default on its obligation to make a periodic payment. FREIT reduces this risk by entering into a contract only with major financial institutions that are experienced market makers in the derivatives market.
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ADJUSTED FUNDS FROM OPERATIONS
Funds From Operations (“FFO”) is a non-GAAP measure defined by the National Association of Real Estate Investment Trusts (“NAREIT”). FREIT does not include distributions from equity/debt/capital gain sources in its computation of FFO. Although many consider FFO as the standard measurement of a REIT’s performance, FREIT modified the NAREIT computation of FFO to include other adjustments to GAAP net income that are not considered by management to be the primary drivers of its decision making process. These adjustments to GAAP net income are straight-line rents and recurring capital improvements on FREIT’s residential apartments. The modified FFO computation is referred to as Adjusted Funds From Operations (“AFFO”). FREIT believes that AFFO is a superior measure of its operating performance. FREIT computes FFO and AFFO as follows:
| For the Three Months Ended January 31, | ||||||||
| 2025 | 2024 | |||||||
| (In Thousands, Except Per Share) | ||||||||
| Funds From Operations ("FFO") (a) | ||||||||
| Net income (loss) | $ | 501 | $ | (666 | ) | |||
| Depreciation of consolidated properties | 723 | 725 | ||||||
| Amortization of deferred leasing costs | 26 | 26 | ||||||
| Distributions to non-controlling interests | (360 | )(b) | (180 | ) | ||||
| Net loss on sale of Maryland properties | — | 79 | ||||||
| Adjustment to loss on investment in tenancy-in-common for depreciation | 365 | 362 | ||||||
| FFO | $ | 1,255 | $ | 346 | ||||
| Per Share - Basic and Diluted | $ | 0.17 | $ | 0.05 | ||||
| (a) As prescribed by NAREIT. | ||||||||
| (b) FFO excludes the additional distribution of proceeds to non-controlling interests in the amount of approximately $0.1 million related to the sale of the Rotunda property located in Maryland in a prior year. | ||||||||
| Adjusted Funds From Operations ("AFFO") | ||||||||
| FFO | $ | 1,255 | $ | 346 | ||||
| Deferred rents (Straight lining) | 28 | 29 | ||||||
| Capital Improvements - Apartments | (77 | ) | (96 | ) | ||||
| AFFO | $ | 1,206 | $ | 279 | ||||
| Per Share - Basic and Diluted | $ | 0.16 | $ | 0.04 | ||||
| Weighted Average Shares Outstanding: | ||||||||
| Basic and Diluted | 7,463 | 7,450 | ||||||
FFO and AFFO do not represent cash generated from operating activities in accordance with GAAP, 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 and AFFO by certain other REITs may vary materially from that of FREIT, and therefore FREIT’s FFO and AFFO may not be directly comparable to those of other REITs.
INFLATION
Inflation can impact the financial performance of FREIT in various ways. FREIT’s commercial tenant leases normally provide that the tenants bear all or a portion of most operating expenses, which can reduce the impact of inflationary increases on FREIT. Apartment leases are normally for one to two-years in term, which may allow FREIT to seek increased rents as leases renew or when new tenants are obtained, subject to prevailing market conditions.
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Item 3: Quantitative and Qualitative Disclosures About Market Risk
See “Commercial Segment”, “Residential Segment” and “Liquidity and Capital Resources” under Item 2 above for a detailed discussion of FREIT’s quantitative and qualitative market risk disclosures.
Item 4: Controls and Procedures
At the end of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of FREIT’s disclosure controls and procedures. This evaluation was carried out under the supervision and with participation of FREIT’s management, including FREIT’s Chief Executive Officer and Chief Financial Officer, who concluded that FREIT’s disclosure controls and procedures are effective as of January 31, 2025. There has been no change in FREIT’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, FREIT’s internal control over financial reporting.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in FREIT’s reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in FREIT’s reports filed under the Exchange Act is accumulated and communicated to management, including FREIT’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
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Part II:
Item 1: Legal Proceedings
None.
Item 1A: Risk Factors
There were no material changes in any risk factors previously disclosed in FREIT’s Annual Report on Form 10-K for the year ended October 31, 2024, that was filed with the Securities and Exchange Commission on January 29, 2025.
Item 6: Exhibits
Exhibit Index
Exhibit 31.1 - Section 302 Certification of Chief Executive Officer
Exhibit 31.2 - Section 302 Certification of Chief Financial Officer
Exhibit 32.1 - Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
Exhibit 32.2 - Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
Exhibit 101 - The following materials from FREIT’s quarterly report on Form 10-Q for the period ended January 31, 2025, are formatted in Inline Extensible Business Reporting Language (“iXBRL”): (i) condensed consolidated balance sheets; (ii) condensed consolidated statements of operations; (iii) condensed consolidated statements of comprehensive income (loss); (iv) condensed consolidated statements of equity; (v) condensed consolidated statements of cash flows; and (vi) notes to condensed consolidated financial statements.
SIGNATURES
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.
| FIRST REAL ESTATE INVESTMENT | |
| TRUST OF NEW JERSEY, INC. | |
| (Registrant) | |
| Date: March 14, 2025 | |
| /s/ Robert S. Hekemian, Jr. | |
| (Signature) | |
| Robert S. Hekemian, Jr. | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) | |
| /s/ Allan Tubin | |
| (Signature) | |
| Allan Tubin | |
| Chief Financial Officer and Treasurer | |
| (Principal Financial/Accounting Officer) |