Proxy Statement for Annual Meeting of Stockholders to be held on March 21, 2013 (certain parts as indicated herein) (Part III).
PART I
Forward-Looking Statements
This Annual Report on Form 10-K of Urstadt Biddle Properties Inc. (the "Company") contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements can generally be identified by such words as "anticipate", "believe", "can", "continue", "could", "estimate", "expect", "intend", "may", "plan", "seek", "should", "will" or variations of such words or other similar expressions and the negatives of such words. All statements, other than statements of historical facts, included in this report that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future, including such matters as future capital expenditures, dividends and acquisitions (including the amount and nature thereof), business strategies, expansion and growth of the Company's operations and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate. Such statements are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, performance or achievements, financial and otherwise, may differ materially from the results, performance or achievements expressed or implied by the forward-looking statements. Risks, uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to; economic and other market conditions; financing risks, such as the inability to obtain debt or equity financing on favorable terms; the level and volatility of interest rates; financial stability of tenants; the inability of the Company's properties to generate revenue increases to offset expense increases; governmental approvals, actions and initiatives; environmental/safety requirements; risks of real estate acquisitions (including the failure of acquisitions to close); risks of disposition strategies; as well as other risks identified in this Annual Report on Form 10-K under Item 1A. Risk Factors and in the other reports filed by the Company with the Securities and Exchange Commission (the "SEC").
Organization
The Company, a Maryland Corporation, is a real estate investment trust engaged in the acquisition, ownership and management of commercial real estate. The Company was organized as an unincorporated business trust (the "Trust") under the laws of the Commonwealth of Massachusetts on July 7, 1969. In 1997, the shareholders of the Trust approved a plan of reorganization of the Trust from a Massachusetts business trust to a corporation organized in Maryland. The plan of reorganization was effected by means of a merger of the Trust into the Company. As a result of the plan of reorganization, the Trust was merged with and into the Company, the separate existence of the Trust ceased, the Company was the surviving entity in the merger and each issued and outstanding common share of beneficial interest of the Trust was converted into one share of Common Stock, par value $.01 per share, of the Company.
Tax Status – Qualification as a Real Estate Investment Trust
The Company elected to be taxed as a real estate investment trust ("REIT") under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code"), beginning with its taxable year ended October 31, 1970. Pursuant to such provisions of the Code, a REIT which distributes at least 90% of its real estate investment trust taxable income to its shareholders each year and which meets certain other conditions regarding the nature of its income and assets will not be taxed on that portion of its taxable income which is distributed to its shareholders. Although the Company believes that it qualifies as a real estate investment trust for federal income tax purposes, no assurance can be given that the Company will continue to qualify as a REIT.
Description of Business
The Company's sole business is the ownership of real estate investments, which consist principally of investments in income-producing properties, with primary emphasis on properties in the northeastern part of the United States with a concentration in Fairfield County, Connecticut, Westchester and Putnam Counties, New York and Bergen County, New Jersey. The Company's core properties consist principally of neighborhood and community shopping centers, five office buildings and one office/retail mixed-use property. The remaining properties consist of two industrial properties. The Company seeks to identify desirable properties for acquisition, which it acquires in the normal course of business. In addition, the Company regularly reviews its portfolio and from time to time may sell certain of its properties.
The Company intends to continue to invest substantially all of its assets in income-producing real estate, with an emphasis on neighborhood and community shopping centers, although the Company will retain the flexibility to invest in other types of real property. While the Company is not limited to any geographic location, the Company's current strategy is to invest primarily in properties located in the northeastern region of the United States with a concentration in Fairfield County, Connecticut, Westchester and Putnam Counties, New York, and Bergen County, New Jersey.
At October 31, 2012, the Company owned or had equity interests in fifty-four properties comprised of neighborhood and community shopping centers, office buildings, office/retail mixed use and industrial facilities located in seven states throughout the United States, containing a total of 4.9 million square feet of gross leasable area ("GLA"). For a description of the Company's individual investments, see Item 2 – Properties.
Investment and Operating Strategy
The Company's investment objective is to increase the cash flow and consequently the value of its properties. The Company seeks growth through (1) the strategic re-tenanting, renovation and expansion of its existing properties, and (2) the selective acquisition of income-producing properties, primarily neighborhood and community shopping centers, in its targeted geographic region. The Company may also invest in other types of real estate in the targeted geographic region. For a discussion of key elements of the Company's growth strategies and operating policies, see Item 7 – Management's Discussion and Analysis of Financial Condition and Results of Operations.
The Company invests in properties where cost effective renovation and expansion programs, combined with effective leasing and operating strategies, can improve the properties' values and economic returns. Retail properties are typically adaptable for varied tenant layouts and can be reconfigured to accommodate new tenants or the changing space needs of existing tenants. In determining whether to proceed with a renovation or expansion, the Company considers both the cost of such expansion or renovation and the increase in rent attributable to such expansion or renovation. The Company believes that certain of its properties provide opportunities for future renovation and expansion.
When evaluating potential acquisitions, the Company considers such factors as (1) economic, demographic, and regulatory conditions in the property's local and regional market; (2) the location, construction quality, and design of the property; (3) the current and projected cash flow of the property and the potential to increase cash flow; (4) the potential for capital appreciation of the property; (5) the terms of tenant leases, including the relationship between the property's current rents and market rents and the ability to increase rents upon lease rollover; (6) the occupancy and demand by tenants for properties of a similar type in the market area; (7) the potential to complete a strategic renovation, expansion or re-tenanting of the property; (8) the property's current expense structure and the potential to increase operating margins; and (9) competition from comparable properties in the market area.
The Company may from time to time enter into arrangements for the acquisition of properties with unaffiliated property owners through the issuance of units of limited partnership interests in entities that the Company controls. These units may be redeemable for cash or for shares of the Company's Common stock or Class A Common stock. The Company believes that this acquisition method may permit it to acquire properties from property owners wishing to enter into tax-deferred transactions.
Core Properties
The Company considers those properties that are directly managed by the Company, concentrated in the retail sector and located close to the Company's headquarters in Fairfield County, Connecticut, to be core properties. Of the fifty-four properties the Company owns or has an equity interest in, fifty-two properties (three of which are accounted for under the equity method of accounting) are considered core properties, consisting of forty-six retail properties, five office buildings (including the Company's executive headquarters) and one mixed use office/retail property. At October 31, 2012, these properties contained in the aggregate 4.4 million square feet of GLA. The Company's core properties collectively had 636 tenants providing a wide range of products and services. Tenants include regional supermarkets, national and regional discount department stores, other local retailers and office tenants. At October 31, 2012, the forty-nine consolidated core properties were 89.2% leased. At October 31, 2012, the Company had equity investments in three core properties, which it does not consolidate; those properties were approximately 96.4% leased. The Company believes the core properties are adequately covered by property and liability insurance.
A substantial portion of the Company's operating lease income is derived from tenants under leases with terms greater than one year. Certain of the leases provide for the payment of fixed base rentals monthly in advance and for the payment by the tenant of a pro-rata share of the real estate taxes, insurance, utilities and common area maintenance expenses incurred in operating the properties.
For the fiscal year ended October 31, 2012, no single tenant comprised more than 8.7% of the total annual base rents of the Company's core properties. The following table sets out a schedule of our ten largest tenants by percent of total annual base rent of our core properties as of October 31, 2012.
Tenant
|
|
Number
of
Stores
|
|
|
% of Total
Annual Base Rent of
Core Properties
|
|
|
|
|
|
|
|
|
Stop & Shop Supermarket
|
|
|
5
|
|
|
|
8.7%
|
|
TJX Companies
|
|
|
6
|
|
|
|
4.4%
|
|
Bed Bath & Beyond
|
|
|
3
|
|
|
|
4.1%
|
|
Big Y
|
|
|
3
|
|
|
|
3.2%
|
|
A&P Supermarkets
|
|
|
3
|
|
|
|
2.9%
|
|
Staples
|
|
|
4
|
|
|
|
2.7%
|
|
CVS
|
|
|
5
|
|
|
|
2.5%
|
|
Toys R Us
|
|
|
2
|
|
|
|
2.1%
|
|
BJ's
|
|
|
1
|
|
|
|
1.7%
|
|
ShopRite
|
|
|
2
|
|
|
|
1.5%
|
|
|
|
|
34
|
|
|
|
33.8%
|
|
See Item 2 – Properties for a complete list of the Company's core properties.
The Company's single largest real estate investment is its general and limited partnership interests in the Ridgeway Shopping Center ("Ridgeway"). In December of 2010 and January of 2011, the Company and a wholly owned subsidiary purchased the remaining 10% limited partner interests in the limited partnership that owns the Stamford property for $7.4 million. As a result of this transaction, the Company now has a 100% ownership interest in the property.
Ridgeway is located in Stamford, Connecticut and was developed in the 1950's and redeveloped in the mid 1990's. The property contains approximately 350,000 square feet of GLA. It is the dominant grocery anchored center and the largest non-mall shopping center located in the City of Stamford, Fairfield County, Connecticut. For the year ended October 31, 2012, Ridgeway revenues represented approximately 14% of the Company's total revenues and approximately 11% of the Company's total assets at October 31, 2012. As of October 31, 2012, Ridgeway was 99% leased. The property's largest tenants (by base rent) are:
The Stop & Shop Supermarket Company (19%), Bed, Bath and Beyond (14%) and Marshall's Inc., a division of the TJX Companies (10%). No other tenant accounts for more than 10% of Ridgeway's annual base rents.
The following table sets out a schedule of the annual lease expirations for retail leases at Ridgeway as of October 31, 2012 for each of the next ten years and thereafter (assuming that no tenants exercise renewal or cancellation options and that there are no tenant bankruptcies or other tenant defaults):
Year of
Expiration
|
|
Number of
Leases Expiring
|
|
|
Square Footage
|
|
|
Minimum
Base Rentals
|
|
|
Base Rent (%)
|
|
2013
|
|
|
8
|
|
|
|
18,846
|
|
|
$
|
691,743
|
|
|
|
7
|
%
|
2014
|
|
|
3
|
|
|
|
5,958
|
|
|
|
224,145
|
|
|
|
2
|
%
|
2015
|
|
|
4
|
|
|
|
40,740
|
|
|
|
893,376
|
|
|
|
9
|
%
|
2016
|
|
|
1
|
|
|
|
3,242
|
|
|
|
106,980
|
|
|
|
1
|
%
|
2017
|
|
|
3
|
|
|
|
61,196
|
|
|
|
2,071,720
|
|
|
|
20
|
%
|
2018
|
|
|
7
|
|
|
|
119,649
|
|
|
|
3,691,052
|
|
|
|
36
|
%
|
2019
|
|
|
1
|
|
|
|
2,950
|
|
|
|
96,706
|
|
|
|
1
|
%
|
2020
|
|
|
1
|
|
|
|
2,350
|
|
|
|
102,225
|
|
|
|
1
|
%
|
2021
|
|
|
1
|
|
|
|
42,700
|
|
|
|
826,195
|
|
|
|
8
|
%
|
2022
|
|
|
5
|
|
|
|
28,899
|
|
|
|
1,060,830
|
|
|
|
10
|
%
|
Thereafter
|
|
|
2
|
|
|
|
21,372
|
|
|
|
457,846
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
36
|
|
|
|
347,902
|
|
|
$
|
10,222,818
|
|
|
|
100
|
%
|
Non-Core Properties
In a prior year, the Board of Directors of the Company expanded and refined the strategic objectives of the Company to concentrate the real estate portfolio into one of primarily retail properties located in the Northeast and authorized the sale of the Company's non-core properties in the normal course of business over a period of years given prevailing market conditions and the characteristics of each property.
Through this strategy, the Company seeks to update its property portfolio by disposing of properties which have limited growth potential and redeploying capital into properties in its target geographic region and product type where the Company's management skills may enhance property values. The Company may engage from time to time in like-kind property exchanges, which allow the Company to dispose of properties and redeploy proceeds in a tax efficient manner.
At October 31, 2012, the Company's non-core properties consisted of two industrial facilities in St. Louis, Missouri and Dallas, Texas with a total of 447,000 square feet of GLA. The non-core properties collectively had 2 tenants and were 100% leased at October 31, 2012. The two industrial facilities consist of automobile and truck parts distribution warehouses. The facilities are net leased to Chrysler Group, LLC under lease arrangements whereby the tenant pays all taxes, insurance, maintenance and other operating costs of the property during the term of the lease. For the fiscal years ended October 31, 2012, 2011, and 2010 revenues billed and collected under the above leases amounted to approximately $1,565,000, $1,546,000 and $1,761,000 respectively.
At October 31, 2012, the Company also held one fixed rate first mortgage note receivable, secured by a shopping center, with a net book value of $898,000. We anticipate the mortgage note will be repaid at maturity on January 15, 2013.
Financing Strategy
The Company intends to continue to finance acquisitions and property improvements and/or expansions with the most advantageous sources of capital which it believes are available to the Company at the time, and which may include the sale of common or preferred equity through public offerings or private placements, the incurrence of additional indebtedness through secured or unsecured borrowings, investments in real estate joint ventures and the reinvestment of proceeds from the disposition of assets. The Company's financing strategy is to maintain a strong and flexible financial position by (1) maintaining a prudent level of leverage, and (2) minimizing its exposure to interest rate risk represented by floating rate debt.
Matters Relating to the Real Estate Business
The Company is subject to certain business risks arising in connection with owning real estate which include, among others, (1) the bankruptcy or insolvency of, or a downturn in the business of, any of its major tenants, (2) the possibility that such tenants will not renew their leases as they expire, (3) vacated anchor space affecting an entire shopping center because of the loss of the departed anchor tenant's customer drawing power, (4) risks relating to leverage, including uncertainty that the Company will be able to refinance its indebtedness, and the risk of higher interest rates, (5) potential liability for unknown or future environmental matters, and (6) the risk of uninsured losses. Unfavorable economic conditions could also result in the inability of tenants in certain retail sectors to meet their lease obligations and otherwise could adversely affect the Company's ability to attract and retain desirable tenants. The Company believes that its shopping centers are relatively well positioned to withstand adverse economic conditions since they typically are anchored by grocery stores, drug stores and discount department stores that offer day-to-day necessities rather than luxury goods. For a discussion of various business risks, see Item 1A – Risk Factors.
Compliance with Governmental Regulations
The Company, like others in the commercial real estate industry, is subject to numerous environmental laws and regulations. Although potential liability could exist for unknown or future environmental matters, the Company believes that its tenants are operating in accordance with current laws and regulations.
Competition
The real estate investment business is highly competitive. The Company competes for real estate investments with investors of all types, including domestic and foreign corporations, financial institutions, other real estate investment trusts, real estate funds, individuals and privately owned companies. In addition, the Company's properties are subject to local competitors from the surrounding areas. The Company's shopping centers compete for tenants with other regional, community or neighborhood shopping centers in the respective areas where the Company's retail properties are located. In addition, the retail industry is seeing greater competition from internet retailers who do not need to establish "brick and mortar" locations for their businesses. This reduces the demand for traditional retail space in shopping centers like ours and other grocery anchored shopping center properties. The Company's office buildings compete for tenants principally with office buildings throughout the respective areas in which they are located. Leasing space to prospective tenants is generally determined on the basis of, among other things, rental rates, location, and physical quality of the property and availability of space.
The Company does not consider its real estate business to be seasonal in nature.
Property Management
The Company actively manages and supervises the operations and leasing at all of its core properties. The Company's remaining non-core industrial properties are net leased to tenants under lease arrangements whereby the tenant is obligated to manage the property.
Employees
The Company's executive offices are located at 321 Railroad Avenue, Greenwich, Connecticut. It occupies approximately 10,000 square feet in a two-story office building owned by the Company. The Company has 39 employees and believes that its relationship with its employees is good.
Company Website
All of the Company's filings with the SEC, including the Company's annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge at the Company's website at www.ubproperties.com as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. These filings can also be accessed through the SEC's website at www.sec.gov.
Code of Ethics and Whistleblower Policy
The Company's Board of Directors has adopted a Code of Ethics for Senior Financial Officers that applies to the Company's Chief Executive Officer, Chief Financial Officer and Controller. The Board also adopted a Code of Business Conduct and Ethics applicable to all employees as well as a "Whistleblower Policy". These are available free of charge by contacting the Company.
Financial Information About Industry Segments
The Company operates in one industry segment, ownership of commercial real estate properties, which are located principally in the northeastern United States. The Company does not distinguish its property operations for purposes of measuring performance. Accordingly, the Company believes it has a single reportable segment for disclosure purposes.
Risks related to our operations and properties
There are risks relating to investments in real estate and the value of our property interests depends on conditions beyond our control.
Real property investments are illiquid and we may be unable to change our property portfolio on a timely basis in response to changing market or economic conditions. Yields from our properties depend on their net income and capital appreciation. Real property income and capital appreciation may be adversely affected by general and local economic conditions, neighborhood values, competitive overbuilding, zoning laws, weather, casualty losses and other factors beyond our control. Since substantially all of the Company's income is rental income from real property, the Company's income and cash flow could be adversely affected if a large tenant is, or a significant number of tenants are, unable to pay rent or if available space cannot be rented on favorable terms.
Operating and other expenses of our properties, particularly significant expenses such as interest, real estate taxes and maintenance costs, generally do not decrease when income decreases and, even if revenues increase, operating and other expenses may increase faster than revenues.
Our business strategy is mainly concentrated in one type of commercial property and in one geographic location.
Our primary investment focus is neighborhood and community shopping centers located in the northeastern United States, with a concentration in Fairfield County, Connecticut, Westchester and Putnam Counties, New York and Bergen County, New Jersey. For the year ended October 31, 2012, approximately 87% of our total revenues were from properties located in these four counties. Various factors may adversely affect a shopping center's profitability. These factors include circumstances that affect consumer spending, such as general economic conditions, economic business cycles, rates of employment, income growth, interest rates and general consumer sentiment. These factors could have a more significant localized effect in the areas where our core properties are concentrated. Changes to the real estate market in our focus areas, such as an increase in retail space or a decrease in demand for shopping center properties, could adversely affect operating results. As a result, we may be exposed to greater risks than if our investment focus was based on more diversified types of properties and in more diversified geographic areas.
The Company's single largest real estate investment is its ownership of the Ridgeway Shopping Center ("Ridgeway") located in Stamford, Connecticut. For the year ended October 31, 2012, Ridgeway revenues represented approximately 14% of the Company's total revenues and approximately 11% of the Company's total assets at October 31, 2012. The loss of this center or a material decrease in revenues from the center could have a material adverse effect on the Company.
We are dependent on anchor tenants in many of our retail properties.
Most of our retail properties are dependent on a major or anchor tenant. If we are unable to renew any lease we have with the anchor tenant at one of these properties upon expiration of the current lease, or to re-lease the space to another anchor tenant of similar or better quality upon departure of an existing anchor tenant on similar or better terms, we could experience material adverse consequences such as higher vacancy, re-leasing on less favorable economic terms, reduced net income, reduced funds from operations and reduced property values. Vacated anchor space also could adversely affect an entire shopping center because of the loss of the departed anchor tenant's customer drawing power. Loss of customer drawing power also can occur through the exercise of the right that some anchors have to vacate and prevent re-tenanting by paying rent for the balance of the lease term. In addition, vacated anchor space could, under certain circumstances, permit other tenants to pay a reduced rent or terminate their leases at the affected property, which could adversely affect the future income from such property. There can be no assurance that our anchor tenants will renew their leases when they expire or will be willing to renew on similar economic terms. See Item 1 – Business – Core Properties in this Annual Report on Form 10-K for additional information on our ten largest tenants by percent of total annual base rent of our core properties.
Similarly, if one or more of our anchor tenants goes bankrupt, we could experience material adverse consequences like those described above. Under bankruptcy law, tenants have the right to reject their leases. In the event a tenant exercises this right, the landlord generally may file a claim for lost rent equal to the greater of either one year's rent (including tenant expense reimbursements) or 15% of the rent remaining under the balance of the lease term, not to exceed three years. Actual amounts received in satisfaction of those claims will be subject to the tenant's final plan of reorganization and the availability of funds to pay its creditors.
We face potential difficulties or delays in renewing leases or re-leasing space.
We derive most of our income from rent received from our tenants. Although substantially all of our properties currently have favorable occupancy rates, we cannot predict that current tenants will renew their leases upon the expiration of their terms. In addition, if current tenants attempt to terminate their leases prior to the scheduled expiration of such leases or might have difficulty in continuing to pay rent in full, if at all, in the event of a severe economic downturn. If this occurs, we may not be able to promptly locate qualified replacement tenants and, as a result, we would lose a source of revenue while remaining responsible for the payment of our obligations. Even if tenants decide to renew their leases, the terms of renewals or new leases, including the cost of required renovations or concessions to tenants, may be less favorable than current lease terms.
In some cases, our tenant leases contain provisions giving the tenant the exclusive right to sell particular types of merchandise or provide specific types of services within the particular retail center, or limit the ability of other tenants within the center to sell that merchandise or provide those services. When re-leasing space after a vacancy in a center with one of these tenants, such provisions may limit the number and types of prospective tenants for vacant space. The failure to re-lease space or to re-lease space on satisfactory terms could adversely affect our results from operations. Additionally, properties we may acquire in the future may not be fully leased and the cash flow from existing operations may be insufficient to pay the operating expenses and debt service associated with that property until the property is fully leased. As a result, our net income, funds from operations and ability to pay dividends to stockholders could be adversely affected.
Competition may adversely affect acquisition of properties and leasing operations.
We compete for the purchase of commercial property with many entities, including other publicly traded REITs. Many of our competitors have substantially greater financial resources than ours. In addition, our competitors may be willing to accept lower returns on their investments. If our competitors prevent us from buying the properties that we have targeted for acquisition, we may not be able to meet our property acquisition and development goals. We may incur costs on unsuccessful acquisitions that we will not be able to recover. The operating performance of our property acquisitions may also fall short of our expectations, which could adversely affect our financial performance.
If our competitors offer space at rental rates below our current rates or the market rates, we may lose current or potential tenants to other properties in our markets and we may need to reduce rental rates below our current rates in order to retain tenants upon expiration of their leases. As a result, our results of operations and cash flow may be adversely affected. In addition, our tenants face increasing competition from internet commerce, outlet malls, discount retailers, warehouse clubs and other sources which could hinder our ability to attract and retain tenants and/or cause us to reduce rents at our properties, which could have an adverse affect on our results of operations and cash flows.
We face risks associated with the use of debt to fund acquisitions and developments, including refinancing risk.
We have incurred, and expect to continue to incur, indebtedness to advance our objectives. The only restrictions on the amount of indebtedness we may incur are certain contractual restrictions and financial covenants contained in our unsecured revolving credit agreement and certain financial ratios and covenants contained in the terms of our Series C preferred stock. Using debt to acquire properties, whether with recourse to us generally or only with respect to a particular property, creates an opportunity for increased return on our investment, but at the same time creates risks. We use debt to fund investments only when we believe it will enhance our risk-adjusted returns. However, we cannot be sure that our use of leverage will prove to be beneficial. Moreover, when our debt is secured by our assets, we can lose those assets through foreclosure if we do not meet our debt service obligations. Incurring substantial debt may adversely affect our business and operating results by:
·
|
requiring us to use a substantial portion of our cash flow to pay interest and principal, which reduces the amount available for distributions, acquisitions and capital expenditures;
|
·
|
making us more vulnerable to economic and industry downturns and reducing our flexibility in response to changing business and economic conditions; or
|
·
|
requiring us to agree to less favorable terms, including higher interest rates, in order to incur additional debt; and otherwise limiting our ability to borrow for operations, capital or to finance acquisitions in the future.
|
We are obligated to comply with financial and other covenants in our debt that could restrict our operating activities, and failure to comply could result in defaults that accelerate the payment under our debt.
Our unsecured revolving credit agreement contains financial and other covenants which may limit our ability, without our lenders' consent, to engage in operating or financial activities that we may believe desirable. Our mortgage notes payable contain customary covenants for such agreements including, among others, provisions:
·
|
relating to the maintenance of the property securing the debt;
|
·
|
restricting our ability to assign or further encumber the properties securing the debt; and
|
·
|
restricting our ability to enter into certain new leases or to amend or modify certain existing leases without obtaining consent of the lenders.
|
Our unsecured revolving credit facility contains, among others, provisions restricting our ability to:
·
|
permit unsecured debt to exceed $150 million;
|
·
|
increase our overall secured and unsecured borrowing beyond certain levels;
|
·
|
consolidate, merge or sell all or substantially all of our assets;
|
·
|
permit secured debt to be more than 35% of gross asset value, as defined in the agreement; or
|
·
|
permit unsecured indebtedness to exceed, excluding preferred stock, 50% of eligible real estate asset value as defined in the agreement.
|
In addition, the unsecured revolving credit facility's covenants (i) limit the amount of debt we may incur, excluding preferred stock, as a percentage of gross asset value, as defined in the agreement, to less than 55% (leverage ratio), (ii) require earnings before interest, taxes, depreciation and amortization to be at least 175% of fixed charges, (iii) require net operating income from unencumbered properties to be at least 200% of unsecured interest expenses. (iv) require not more than 15% of gross asset value, as defined in the agreement, to be attributable to the Company's pro rata share of the value of unencumbered properties owned by non-wholly owned subsidiaries or unconsolidated joint ventures, and (v) require at least 10 un-mortgaged properties in the unencumbered asset pool.
If we were to breach any of our debt covenants and did not cure the breach within any applicable cure period, our lenders could require us to repay the debt immediately, and, if the debt is secured, could immediately begin proceedings to take possession of the property securing the loan. As a result, a default under our debt covenants could have an adverse effect on our financial condition, our results of operations, our ability to meet our obligations and the market value of our shares.
Our ability to grow will be limited if we cannot obtain additional capital.
Our growth strategy includes the redevelopment of properties we already own and the acquisition of additional properties. Because we are required to distribute to our stockholders at least 90% of our taxable income each year to continue to qualify as a real estate investment trust, or REIT, for federal income tax purposes, in addition to our undistributed operating cash flow, we rely upon the availability of debt or equity capital to fund our growth, which financing may or may not be available on favorable terms or at all. The debt could include mortgage loans from third parties or the sale of debt securities. Equity capital could include our common stock or preferred stock. Additional financing, refinancing or other capital may not be available in the amounts we desire or on favorable terms.
Our access to debt or equity capital depends on a number of factors, including the general state of the capital markets, the market's perception of our growth potential, our ability to pay dividends, and our current and potential future earnings. Depending on the outcome of these factors, we could experience delay or difficulty in implementing our growth strategy on satisfactory terms, or be unable to implement this strategy.
Market interest rates could adversely affect the share price of our stock and increase the cost of refinancing debt.
A variety of factors may influence the price of our common equities in the public trading markets. We believe that investors generally perceive REITs as yield-driven investments and compare the annual yield from dividends by REITs with yields on various other types of financial instruments. An increase in market interest rates may lead purchasers of stock to seek a higher annual dividend rate from other investments, which could adversely affect the market price of the shares. In addition, we are subject to the risk that we will not be able to refinance existing indebtedness on our properties. We anticipate that a portion of the principal of our debt will not be repaid prior to maturity. Therefore, we likely will need to refinance at least a portion of our outstanding debt as it matures. A change in interest rates may increase the risk that we will not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of the existing debt.
If principal payments due at maturity cannot be refinanced, extended or repaid with proceeds from other sources, such as new equity capital or sales of properties, our cash flow will not be sufficient to repay all maturing debt in years when significant "balloon" payments come due. As a result, our ability to retain properties or pay dividends to stockholders could be adversely affected and we may be forced to dispose of properties on unfavorable terms, which could adversely affect our business and net income.
Construction and renovation risks could adversely affect our profitability.
We currently are renovating some of our properties and may in the future renovate other properties, including tenant i
m
provements required under leases. Our renovation and related construction activities may expose us to certain risks. We may incur renovation costs for a property which exceed our original estimates due to increased costs for materials or labor or other costs that are unexpected. We also may be unable to complete renovation of a property on schedule, which could result in increased debt service expense or construction costs. Additionally, some tenants may have the right to terminate their leases if a renovation project is not completed on time. The time frame required to recoup our renovation and construction costs and to realize a return on such costs can often be significant.
We are dependent on key personnel.
We depend on the services of our existing senior management to carry out our business and investment strategies. We do not have employment agreements with any of our existing senior management. As we expand, we may continue to need to recruit and retain qualified additional senior management. The loss of the services of any of our key management personnel or our inability to recruit and retain qualified personnel in the future could have an adverse effect on our business and financial results.
Uninsured and underinsured losses may affect the value of, or return from, our property interests.
We maintain comprehensive insurance on our properties, including the properties securing our loans, in amounts which we believe are sufficient to permit replacement of the properties in the event of a total loss, subject to applicable deductibles. There are certain types of losses, such as losses resulting from wars, terrorism, earthquakes, floods, hurricanes or other acts of God that may be uninsurable or not economically insurable. Should an uninsured loss or a loss in excess of insured limits occur, we could lose capital invested in a property, as well as the anticipated future revenues from a property, while remaining obligated for any mortgage indebtedness or other financial obligations related to the property. In addition, changes in building codes and ordinances, environmental considerations and other factors might make it impracticable for us to use insurance proceeds to replace a damaged or destroyed property. If any of these or similar events occur, it may reduce our return from an affected property and the value of our investment.
Properties with environmental problems may create liabilities for us.
Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, as an owner of real property, we may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under our properties, as well as certain other potential costs relating to hazardous or toxic substances (including government fines and penalties and damages for injuries to persons and adjacent property). These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those substances. This liability may be imposed on us in connection with the activities of an operator of, or tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages and our liability therefore could exceed the value of the property and/or our aggregate assets. In addition, the presence of those substances, or the failure to properly dispose of or remove those substances, may adversely affect our ability to sell or rent that property or to borrow using that property as collateral, which, in turn, would reduce our revenues and ability to make distributions.
A property can be adversely affected either through direct physical contamination or as the result of hazardous or toxic substances or other contaminants that have or may have emanated from other properties. Although our tenants are primarily responsible for any environmental damages and claims related to the leased premises, in the event of the bankruptcy or inability of any of our tenants to satisfy any obligations with respect to the property leased to that tenant, we may be required to satisfy such obligations. In addition, we may be held directly liable for any such damages or claims irrespective of the provisions of any lease.
Prior to the acquisition of any property and from time to time thereafter, we obtain Phase I environmental reports and, when deemed warranted, Phase II environmental reports concerning the Company's properties. Management is not aware of any environmental condition with respect to any of our property interests that we believe would be reasonably likely to have a material adverse effect on the Company. There can be no assurance, however, that (a) the discovery of environmental conditions that were previously unknown, (b) changes in law, (c) the conduct of tenants, or (d) activities relating to properties in the vicinity of the Company's properties, will not expose the Company to material liability in the future. Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of our tenants, which could adversely affect our financial condition and results of operations.
Risks Related to our Organization and Structure
We will be taxed as a regular corporation if we fail to maintain our REIT status.
Since our founding in 1969, we have operated, and intend to continue to operate, in a manner that enables us to qualify as a REIT for federal income tax purposes. However, the federal income tax laws governing REITs are complex. The determination that we qualify as a REIT requires an analysis of various factual matters and circumstances that may not be completely within our control. For example, to qualify as a REIT, at least 95% of our gross income must come from specific passive sources, such as rent, that are itemized in the REIT tax laws. In addition, to qualify as a REIT, we cannot own specified amounts of debt and equity securities of some issuers. We also are required to distribute to our stockholders at least 90% of our REIT taxable income (excluding capital gains) each year. Our continued qualification as a REIT depends on our satisfaction of the asset, income, organizational, distribution and stockholder ownership requirements of the Internal Revenue Code on a continuing basis. At any time, new laws, interpretations or court decision may change the federal tax laws or the federal tax consequences of qualification as a REIT. If we fail to qualify as a REIT in any taxable year and do not qualify for certain Internal Revenue Code relief provisions, we will be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. In addition, distributions to stockholders would not be deductible in computing our taxable income. Corporate tax liability would reduce the amount of cash available for distribution to stockholders which, in turn, would reduce the market price of our stock. Unless entitled to relief under certain Internal Revenue Code provisions, we also would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT.
We will pay federal taxes if we do not distribute 100% of our taxable income.
To the extent that we distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any year are less than the sum of:
·
|
85% of our ordinary income for that year;
|
·
|
95% of our capital gain net income for that year; and
|
·
|
100% of our undistributed taxable income from prior years.
|
We have paid out, and intend to continue to pay out, our income to our stockholders in a manner intended to satisfy the distribution requirement and to avoid corporate income tax and the 4% nondeductible excise tax. Differences in timing between the recognition of income and the related cash receipts or the effect of required debt amortization payments could require us to borrow money or sell assets to pay out enough of our taxable income to satisfy the distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year.
Gain on disposition of assets deemed held for sale in the ordinary course of business is subject to 100% tax.
If we sell any of our assets, the IRS may determine that the sale is a disposition of an asset held primarily for sale to customers in the ordinary course of a trade or business. Gain from this kind of sale generally will be subject to a 100% tax. Whether an asset is held "primarily for sale to customers in the ordinary course of a trade or business" depends on the particular facts and circumstances of the sale. Although we will attempt to comply with the terms of safe-harbor provisions in the Internal Revenue Code prescribing when asset sales will not be so characterized, we cannot assure you that we will be able to do so.
Our ownership limitation may restrict business combination opportunities.
To qualify as a REIT under the Internal Revenue Code, no more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals during the last half of each taxable year. To preserve our REIT qualification, our charter generally prohibits any person from owning shares of any class with a value of more than 7.5% of the value of all of our outstanding capital stock and provides that:
·
|
a transfer that violates the limitation is void;
|
·
|
shares transferred to a stockholder in excess of the ownership limitation are automatically converted, by the terms of our charter, into shares of "Excess Stock;"
|
·
|
a purported transferee gets no rights to the shares that violate the limitation except the right to designate a transferee of the Excess Stock held in trust; and
|
·
|
the Excess Stock will be held by us as trustee of a trust for the exclusive benefit of future transferees to whom the shares of capital stock ultimately will be transferred without violating the ownership limitation.
|
We may also redeem Excess Stock at a price which may be less than the price paid by a stockholder. Pursuant to authority under our charter, our board of directors has determined that the ownership limitation does not apply to Mr. Charles J. Urstadt, our Chairman and Chief Executive Officer, who beneficially owns 47.2%
of our outstanding Common Stock and 0.1% of our outstanding Class A common stock as of the date of this Annual Report on Form 10-K. Such holdings represent approximately 41.7% of our outstanding voting interests. Together with Mr. Urstadt, Mr. Biddle, our President and the other directors and executive officers, as a group, hold approximately 66.2% of our outstanding voting interests through their beneficial ownership of our Common Stock and Class A common stock. The ownership limitation may discourage a takeover or other transaction that our stockholders believe to be desirable.
Certain provisions in our charter and bylaws and Maryland law may prevent or delay a change of control or limit our stockholders from receiving a premium for their shares.
Among the provisions contained in our charter and bylaws and Maryland law are the following:
·
|
Our board of directors is divided into three classes, with directors in each class elected for three-year staggered terms.
|
·
|
Our directors may be removed only for cause upon the vote of the holders of two-thirds of the voting power of our common equity securities.
|
·
|
Our stockholders may call a special meeting of stockholders only if the holders of a majority of the voting power of our common equity securities request such a meeting in writing.
|
·
|
Any consolidation, merger, share exchange or transfer of all or substantially all of our assets must be approved by (a) a majority of our directors who are currently in office or who are approved or recommended by a majority of our directors who are currently in office (the "Continuing Directors") and (b) the holders of two-thirds of the voting power of our common equity securities.
|
·
|
Certain provisions of our charter may only be amended by (a) a vote of a majority of our Continuing Directors and (b) the holders of two-thirds of the voting power of our common equity securities. These provisions relate to the election, classification and removal of directors, the ownership limit and the stockholder vote required for certain business combination transactions
.
|
·
|
The number of directors may be increased or decreased by a vote of our board of directors.
|
In addition, we are subject to various provisions of Maryland law that impose restrictions and require affected persons to follow specified procedures with respect to certain takeover offers and business combinations, including combinations with persons who own 10% or more of our outstanding shares. These provisions of Maryland law could delay, defer or prevent a transaction or a change of control that our stockholders might deem to be in their best interests. Furthermore, shares acquired in a control share acquisition have no voting rights, except to the extent approved by the affirmative vote of two-thirds of all votes entitled to be cast on the matter, excluding all interested shares. Under Maryland law, "control shares" are those which, when aggregated with any other shares held by the acquiror, allow the acquiror to exercise voting power within specified ranges. The control share provisions of Maryland law also could delay, defer or prevent a transaction or a change of control which our stockholders might deem to be in their best interests. As permitted by Maryland law, our charter and bylaws provide that the "control shares" and "business combinations" provisions of Maryland law described above will not apply to acquisitions of those shares by Mr. Charles J. Urstadt or Mr. Willing L. Biddle or to transactions between the Company and Mr. Urstadt or Mr. Biddle or any of their respective affiliates. Consequently, unless such exemptions are amended or repealed, we may in the future enter into business combinations or other transactions with Mr. Urstadt, Mr. Biddle or any of their respective affiliates without complying with the requirements of Maryland anti-takeover laws. In view of the common equity securities controlled by Mr. Charles J. Urstadt, Mr. Urstadt may control a sufficient percentage of the voting power of our common equity securities to effectively block approval of any proposal which requires a vote of our stockholders.
Our stockholder rights plan could deter a change of control.
We have adopted a stockholder rights plan. This plan may deter a person or a group from acquiring more than 10% of the combined voting power of our outstanding shares of common stock and Class A common stock because, after (i) the person or group acquires more than 10% of the combined voting power of our outstanding common stock and Class A common stock, or (ii) the commencement of a tender offer or exchange offer by any person (other than us, any one of our wholly owned subsidiaries or any of our employee benefit plans, or certain exempt persons), if, upon consummation of the tender offer or exchange offer, the person or group would beneficially own 30% or more of the combined voting power of our outstanding shares of common stock and Class A common stock, all other stockholders will have the right to purchase securities from us at a price that is less than their fair market value. This would substantially reduce the value of the stock owned by the acquiring person. Our board of directors can prevent the plan from operating by approving the transaction and redeeming the rights. This gives our board of directors significant power to approve or disapprove of the efforts of a person or group to acquire a large interest in us. The rights plan exempts acquisitions of common stock and Class A common stock by Mr. Charles J. Urstadt, members of his family and certain of his affiliates.
Item 1B.
Unresolved Staff Comments
None.
Core Properties
The following table sets forth information concerning each core property at October 31, 2012. Except as otherwise noted, all core properties are 100% owned by the Company.
|
Year
Renovated
|
Year
Completed
|
Year
Acquired
|
Gross
Leasable
Sq Feet
|
Acres
|
Number
of
Tenants
|
%
Leased
|
Principal Tenant
|
Retail Properties:
|
|
|
|
|
|
|
|
|
Stamford, CT
|
1997
|
1950
|
2002
|
350,000
|
13.6
|
36
|
99
|
Stop & Shop Supermarket
|
Springfield, MA
|
1996
|
1970
|
1970
|
328,000
|
26.0
|
28
|
88
|
Big Y Supermarket
|
Meriden, CT
|
2001
|
1989
|
1993
|
316,000
|
29.2
|
21
|
76
|
Big Y Supermarket
|
Stratford, CT
|
1988
|
1978
|
2005
|
273,000
|
29.0
|
17
|
95
|
Stop & Shop Supermarket
|
Scarsdale, NY (1)
|
2004
|
1958
|
2010
|
247,000
|
14.0
|
31
|
100
|
ShopRite Supermarket
|
New Milford, CT
|
2002
|
1972
|
2010
|
231,000
|
20.0
|
10
|
92
|
Walmart
|
Yorktown, NY
|
1997
|
1973
|
2005
|
200,000
|
16.4
|
8
|
62
|
Staples
|
Danbury, CT
|
-
|
1989
|
1995
|
194,000
|
19.3
|
21
|
98
|
Christmas Tree Shops
|
White Plains, NY
|
1994
|
1958
|
2003
|
191,000
|
3.5
|
9
|
65
|
Toys "R" Us
|
Carmel, NY (2)
|
2006
|
1971
|
2010
|
189,000
|
22.0
|
33
|
85
|
Hannaford Brothers
|
Ossining, NY
|
2000
|
1978
|
1998
|
137,000
|
11.4
|
24
|
97
|
Stop & Shop Supermarket
|
Somers, NY
|
-
|
2002
|
2003
|
135,000
|
26.0
|
24
|
92
|
Home Goods
|
Carmel, NY
|
1999
|
1983
|
1995
|
129,000
|
19.0
|
16
|
95
|
ShopRite Supermarket
|
Newark, NJ (3)
|
-
|
1995
|
2008
|
108,000
|
8.4
|
13
|
87
|
Pathmark
|
Wayne, NJ
|
1992
|
1959
|
1992
|
102,000
|
9.0
|
42
|
94
|
A&P Supermarket
|
Newington, NH
|
1994
|
1975
|
1979
|
102,000
|
14.3
|
7
|
94
|
Savers
|
Darien, CT
|
1992
|
1955
|
1998
|
96,000
|
9.5
|
18
|
86
|
Stop & Shop Supermarket
|
Emerson, NJ
|
-
|
1981
|
2007
|
93,000
|
7.0
|
15
|
89
|
ShopRite Supermarket
|
New Milford, CT
|
-
|
1966
|
2008
|
81,000
|
7.6
|
4
|
90
|
Big Y Supermarket
|
Somers, NY
|
-
|
1991
|
1999
|
80,000
|
10.8
|
30
|
87
|
CVS
|
Orange, CT
|
-
|
1990
|
2003
|
77,000
|
10.0
|
9
|
83
|
Trader Joe's Supermarket
|
Orangeburg, NY (4)
|
-
|
1966
|
2012
|
74,000
|
10.6
|
27
|
94
|
CVS
|
New Milford, CT
|
-
|
2003
|
2011
|
72,000
|
8.8
|
8
|
90
|
TJ Maxx
|
Eastchester, NY
|
2002
|
1978
|
1997
|
70,000
|
4.0
|
14
|
100
|
A&P Fresh
|
Fairfield, CT
|
-
|
1995
|
2011
|
63,000
|
7.0
|
3
|
100
|
Marshall's
|
Ridgefield, CT
|
1999
|
1930
|
1998
|
52,000
|
2.1
|
32
|
76
|
Keller Williams
|
Westport, CT
|
-
|
1986
|
2003
|
40,000
|
3.0
|
7
|
80
|
Pier One Imports
|
Rye, NY
|
-
|
Various
|
2004
|
39,000
|
1.0
|
19
|
90
|
Cosi
|
Briarcliff Manor, NY
|
-
|
1975
|
2001
|
38,000
|
1.0
|
16
|
77
|
Dress Barn
|
Danbury, CT
|
-
|
1988
|
2002
|
33,000
|
2.7
|
5
|
100
|
Chuck E Cheese
|
Ossining, NY
|
2001
|
1981
|
1999
|
29,000
|
4.0
|
4
|
100
|
Westchester Community College
|
Katonah, NY
|
1986
|
Various
|
2010
|
28,000
|
1.7
|
23
|
86
|
Squires
|
Pelham, NY
|
-
|
1975
|
2006
|
26,000
|
1.0
|
9
|
97
|
Gristede's Supermarket
|
Queens, NY
|
-
|
1960
|
2006
|
26,000
|
1.0
|
13
|
94
|
Various
|
Eastchester, NY
|
-
|
1963
|
2012
|
24,000
|
2.1
|
2
|
68
|
CVS
|
Waldwick, NJ
|
-
|
1961
|
2008
|
20,000
|
1.8
|
1
|
100
|
RiteAid
|
Somers, NY
|
-
|
1987
|
1992
|
19,000
|
4.9
|
11
|
95
|
Putnam County Savings Bank
|
Monroe, CT
|
-
|
2005
|
2007
|
10,000
|
2.0
|
6
|
100
|
Starbucks
|
|
|
|
|
|
|
|
|
|
Office Properties and
Bank Branches
|
|
|
|
|
|
|
|
|
Greenwich, CT
|
-
|
various
|
various
|
59,000
|
2.8
|
16
|
90
|
Prescott Investors
|
Bronxville and Yonkers, NY
|
-
|
1960
|
2008 & 2009
|
22,000
|
0.7
|
4
|
88
|
People's United Bank, JP Morgan Chase
|
|
|
|
|
4,403,000
|
|
636
|
|
|
(1)
Two wholly owned subsidiaries of the Company own an 11.642% economic ownership interest in Midway.
The Company accounts for this joint venture under the equity method of accounting and does not consolidate the entity owning the property.
(2) A wholly owned subsidiary of the Company has a 66.67% tenant in common interest in the property. The Company accounts for this joint venture under the equity method of accounting and does not consolidate its interest in the property.
(3)
A wholly owned subsidiary of the Company is the sole general partner of a partnership that owns this property (84% Ownership Interest)
(4) A wholly owned subsidiary of the Company is the sole managing member of a limited liability company that owns this property (2% Ownership Interest)
Non-Core Properties
In a prior year, the Board of Directors of the Company expanded and refined the strategic objectives of the Company to concentrate the real estate portfolio into one of primarily retail properties located in the Northeast and authorized the sale of the Company's non-core properties in the normal course of business over a period of years given prevailing market conditions and the characteristics of each property.
At October 31, 2012, the Company's non-core properties consisted of two industrial facilities with a total of 447,000 square feet of GLA. The non-core properties collectively had 2 tenants and were 100% leased at October 31, 2012.
The following table sets forth information concerning each non-core property at October 31, 2012. The non-core properties are 100% owned by the Company.
Location
|
Year
Renovated
|
Year
Completed
|
Year
Acquired
|
|
Rentable
Square Feet
|
|
|
Acres
|
|
|
# of
Tenants
|
|
|
Leased
|
|
Principal Tenant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dallas, TX
|
1989
|
1970
|
1970
|
|
|
255,000
|
|
|
|
14.5
|
|
|
|
1
|
|
|
|
100
|
%
|
Chrysler Group, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
St. Louis, MO
|
2000
|
1970
|
1970
|
|
|
192,000
|
|
|
|
16.0
|
|
|
|
1
|
|
|
|
100
|
%
|
Chrysler Group, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
447,000
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Portfolio
|
|
|
|
|
|
4,850,000
|
|
|
|
|
|
|
|
638
|
|
|
|
|
|
|
Lease Expirations – Total Portfolio
The following table sets forth a summary schedule of the annual lease expirations for the consolidated core and non-core properties for leases in place as of October 31, 2012, assuming that none of the tenants exercise renewal or cancellation options, if any, at or prior to the scheduled expirations.
Year of Lease
Expiration
|
|
Number of Leases
Expiring
|
|
|
Square Footage of
Expiring Leases
|
|
|
Minimum Base
Rentals
|
|
|
Percentage of Total
Leased Square Feet
|
|
2013 (1)
|
|
|
108
|
|
|
|
288,548
|
|
|
$
|
6,108,441
|
|
|
|
9
|
%
|
2014
|
|
|
77
|
|
|
|
382,055
|
|
|
|
6,046,800
|
|
|
|
9
|
%
|
2015
|
|
|
69
|
|
|
|
422,762
|
|
|
|
8,415,053
|
|
|
|
12
|
%
|
2016
|
|
|
59
|
|
|
|
289,404
|
|
|
|
6,528,591
|
|
|
|
10
|
%
|
2017
|
|
|
67
|
|
|
|
830,089
|
|
|
|
10,123,833
|
|
|
|
15
|
%
|
2018
|
|
|
33
|
|
|
|
412,517
|
|
|
|
7,832,075
|
|
|
|
12
|
%
|
2019
|
|
|
36
|
|
|
|
165,482
|
|
|
|
3,056,977
|
|
|
|
5
|
%
|
2020
|
|
|
26
|
|
|
|
178,637
|
|
|
|
2,987,895
|
|
|
|
4
|
%
|
2021
|
|
|
32
|
|
|
|
202,858
|
|
|
|
4,534,107
|
|
|
|
7
|
%
|
2022
|
|
|
36
|
|
|
|
298,273
|
|
|
|
5,567,459
|
|
|
|
8
|
%
|
Thereafter
|
|
|
30
|
|
|
|
535,879
|
|
|
|
6,382,116
|
|
|
|
9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
573
|
|
|
|
4,006,504
|
|
|
$
|
67,583,347
|
|
|
|
100
|
%
|
(1)
|
Represents lease expirations from November 1, 2012 to October 31, 2013 and month-to-month leases.
|
Item 3.
Legal Proceedings.
In the ordinary course of business, the Company is involved in legal proceedings. There are no material legal proceedings presently pending against the Company.
Item 4.
Mine Safety Disclosures.
Not Applicable
The accompanying notes to consolidated financial statements are an integral part of these statements.
The accompanying notes to consolidated financial statements are an integral part of these statements.
The accompanying notes to consolidated financial statements are an integral part of these statements.
ThThe accompanying notes to consolidated financial statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2012
(1) ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Urstadt Biddle Properties Inc. ("Company"), a real estate investment trust ("REIT"), is engaged in the acquisition, ownership and management of commercial real estate, primarily neighborhood and community shopping centers in the northeastern part of the United States. The Company's major tenants include supermarket chains and other retailers who sell basic necessities. At October 31, 2012, the Company owned or had equity interests in 54 properties containing a total of 4.9 million square feet of gross leasable area ("GLA").
Principles of Consolidation and Use of Estimates
The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and joint ventures in which the Company meets certain criteria of a sole general partner in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 810, "Consolidation" and ASC Topic 970-810 "Real Estate-General-Consolidation". The Company has determined that such joint ventures should be consolidated into the consolidated financial statements of the Company. In accordance with ASC Topic 970-323 "Real Estate-General-Equity Method and Joint Ventures", joint ventures that the Company does not control but otherwise exercises significant influence in, are accounted for under the equity method of accounting. See Note 10 for further discussion of the unconsolidated joint ventures. All significant intercompany transactions and balances have been eliminated in consolidation.
The accompanying financial statements are prepared on the accrual basis in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the disclosure of contingent assets and liabilities, the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the periods covered by the financial statements. The most significant assumptions and estimates relate to the valuation of real estate, depreciable lives, revenue recognition, fair value measurements and the collectability of tenant and notes receivable and other assets. Actual results could differ from these estimates.
Federal Income Taxes
The Company has elected to be treated as a real estate investment trust under Sections 856-860 of the Internal Revenue Code (Code). Under those sections, a REIT that, among other things, distributes at least 90% of real estate trust taxable income and meets certain other qualifications prescribed by the Code will not be taxed on that portion of its taxable income that is distributed. The Company believes it qualifies as a REIT and intends to distribute all of its taxable income for fiscal 2012 in accordance with the provisions of the Code. Accordingly, no provision has been made for Federal income taxes in the accompanying consolidated financial statements.
The Company follows the provisions of ASC Topic 740, "Income Taxes," that, among other things, defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Based on its evaluation, the Company determined that it has no uncertain tax positions and no unrecognized tax benefits as of October 31, 2012. As of October 31, 2012, the fiscal tax years 2009 through and including 2012 remain open to examination by the Internal Revenue Service. There are currently no federal tax examinations in progress.
Real Estate Investments
All capitalizable costs related to the improvement or replacement of real estate properties is capitalized. Additions, renovations and improvements that enhance and/or extend the useful life of a property are also capitalized. Expenditures for ordinary maintenance, repairs and improvements that do not materially prolong the normal useful life of an asset are charged to operations as incurred.
Upon the acquisition of real estate properties, the fair value of the real estate purchased is allocated to the acquired tangible assets (consisting of land, buildings and building improvements), and identified intangible assets and liabilities (consisting of above-market and below-market leases and in-place leases), in accordance with
ASC Topic 805, "Business Combinations."
The Company utilizes methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities. The fair value of the tangible assets of an acquired property considers the value of the property "as-if-vacant." The fair value reflects the depreciated replacement cost of the asset. In allocating purchase price to identified intangible assets and liabilities of an acquired property, the value of above-market and below-market leases are estimated based on the differences between (i) contractual rentals and the estimated market rents over the applicable lease term discounted back to the date of acquisition utilizing a discount rate adjusted for the credit risk associated with the respective tenants and (ii) the estimated cost of acquiring such leases giving effect to the Company's history of providing tenant improvements and paying leasing commissions, offset by a vacancy period during which such space would be leased. The aggregate value of in-place leases is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property "as-if-vacant," determined as set forth above.
45
Above and below-market leases acquired are recorded at their fair value. The capitalized above-market lease values are amortized as a reduction of rental revenue over the remaining term of the respective leases and the capitalized below-market lease values are amortized as an increase to rental revenue over the remaining term of the respective leases. The value of in-place leases is based on the Company's evaluation of the specific characteristics of each tenant's lease. Factors considered include estimates of carrying costs during expected lease-up periods, current market conditions, and costs to execute similar leases. The value of in-place leases are amortized over the remaining term of the respective leases. If a tenant vacates its space prior to its contractual expiration date, any unamortized balance of their related intangible asset is recorded in the consolidated statement of income.
Depreciation and Amortization
The Company uses the straight‑line method for depreciation and amortization. Core and non-core properties are depreciated over the estimated useful lives of the properties, which range from 30 to 40 years. Property improvements are depreciated over the estimated useful lives that range from 10 to 20 years. Furniture and fixtures are depreciated over the estimated useful lives that range from 3 to 10 years. Tenant improvements are amortized over the shorter of the life of the related leases or their useful life.
Property Held for Sale and Discontinued Operations
The Company follows the provisions of ASC Topic 360, "Property, Plant, and Equipment," and ASC Topic 205, "Presentation of Financial Statements." ASC Topic 360 and ASC Topic 205 require, among other things, that the assets and liabilities and the results of operations of the Company's properties that have been sold or otherwise qualify as held for sale be classified as discontinued operations and presented separately in the Company's consolidated financial statements. If significant to financial statement presentation, the Company classifies properties as held for sale that are under contract for sale and are expected to be sold within the next 12 months.
Deferred Charges
Deferred charges consist principally of leasing commissions (which are amortized ratably over the life of the tenant leases) and financing fees (which are amortized over the terms of the respective agreements). Deferred charges in the accompanying consolidated balance sheets are shown at cost, net of accumulated amortization of $3,015,000 and $2,867,000 as of October 31, 2012 and 2011, respectively.
Asset Impairment
On a periodic basis, management assesses whether there are any indicators that the value of its real estate investments may be impaired. A property value is considered impaired when management's estimate of current and projected operating cash flows (undiscounted and without interest) of the property over its remaining useful life is less than the net carrying value of the property. Such cash flow projections consider factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors. To the extent impairment has occurred, the loss is measured as the excess of the net carrying amount of the property over the fair value of the asset. Changes in estimated future cash flows due to changes in the Company's plans or market and economic conditions could result in recognition of impairment losses which could be substantial. Management does not believe that the value of any of its real estate investments is impaired at October 31, 2012.
Revenue Recognition
Revenues from operating leases include revenues from core properties and non-core properties. Rental income is generally recognized based on the terms of leases entered into with tenants. In those instances in which the Company funds tenant improvements and the improvements are deemed to be owned by the Company, revenue recognition will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. When the Company determines that the tenant allowances are lease incentives, the Company commences revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin. Minimum rental income from leases with scheduled rent increases is recognized on a straight-line basis over the lease term. At October 31, 2012 and 2011, approximately $13,507,000 and $12,752,000, respectively, has been recognized as straight-line rents receivable (representing the current net cumulative rents recognized prior to when billed and collectible as provided by the terms of the leases), all of which is included in tenant receivables in the accompanying consolidated financial statements. Percentage rent is recognized when a specific tenant's sales breakpoint is achieved. Property operating expense recoveries from tenants of common area maintenance, real estate taxes and other recoverable costs are recognized in the period the related expenses are incurred. Lease incentives are amortized as a reduction of rental revenue over the respective tenant lease terms. Lease termination amounts are recognized in operating revenues when there is a signed termination agreement, all of the conditions of the agreement have been met, the tenant is no longer occupying the property and the termination consideration is probable of collection. Lease termination amounts are paid by tenants who want to terminate their lease obligations before the end of the contractual term of the lease by agreement with the Company. There is no way of predicting or forecasting the timing or amounts of future lease termination fees. Interest income is recognized as it is earned. Gains or losses on disposition of properties are recorded when the criteria for recognizing such gains or losses under GAAP have been met.
The Company provides an allowance for doubtful accounts against the portion of tenant receivables (including an allowance for future tenant credit losses of approximately 10% of the deferred straight-line rents receivable) which is estimated to be uncollectible. Such allowances are reviewed periodically. At October 31, 2012 and 2011, tenant receivables in the accompanying consolidated balance sheets are shown net of allowances for doubtful accounts of $3,686,000 and $3,229,000, respectively. During the years ended October 31, 2012, 2011 and 2010, the Company provided $665,000, $1,009,000 and $671,000, respectively, for uncollectible amounts, which is recorded in the accompanying consolidated statement of income as a reduction of base rental revenue.
Cash Equivalents
Cash and cash equivalents consist of cash in banks and short-term investments with original maturities of less than three months.
Restricted Cash
Restricted cash consists of those tenant security deposits and replacement and other reserves required by agreement with certain of the Company's mortgage lenders for property level capital requirements that are required to be held in separate bank accounts. In addition, in fiscal 2012 restricted cash includes $63.1 million related to cash that was on deposit at the Company's transfer agent for the redemption of the Company's Series E Preferred stock in the first quarter of fiscal 2013. (See Note 8 for further discussion of the above)
Marketable Securities
Marketable securities consist of short-term investments and marketable equity securities. Short-term investments (consisting of investments with original maturities of greater than three months when purchased) and marketable equity securities are carried at fair value. The Company has classified marketable securities as available for sale. Unrealized gains and (losses) on available for sale securities are recorded as other comprehensive income (loss) in stockholders' equity.
During the fiscal year ended October
31
, 2012 the Company sold 24,264 shares of REIT common stocks for an aggregate sales price, net of commissions, of $416,000. The securities had a purchase cost of $378,000. The Company realized a gain on the transaction using the specific identification method of $38,000. The gain is included in i
nterest, dividends and other investment income
in the consolidated statement of income.
There were no realized gains or losses on sales of marketable securities in fiscal 2011 or 2010.
As of October 31, 2012, all of the Company's marketable securities consisted of REIT Common and Preferred Stocks. At October 31, 2012, the Company has recorded a net unrealized gain on available for sale securities in the amount of $38,000. The Company analyzes unrealized losses, if any, to determine if the unrealized losses are temporary. If and when the Company deems unrealized losses to be other than temporary, unrealized losses will be realized and reclassified into earnings. The net unrealized gain at October 31, 2012 is detailed below (in thousands):
Description:
|
|
Fair Market
Value
|
|
|
Cost
Basis
|
|
|
Net Unrealized
Gain/(Loss)
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross Unrealized
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REIT Common and Preferred Stocks
|
|
$
|
994
|
|
|
$
|
956
|
|
|
$
|
38
|
|
|
$
|
38
|
|
|
$
|
-
|
|
Derivative Financial Instruments
The Company occasionally utilizes derivative financial instruments, such as interest rate swaps, to manage its exposure to fluctuations in interest rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instruments. Derivative financial instruments must be effective in reducing the Company's interest rate risk exposure in order to qualify for hedge accounting. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income for each period until the derivative instrument matures or is settled. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market with the changes in value included in net income. The Company has not entered into, and does not plan to enter into, derivative financial instruments for trading or speculative purposes. Additionally, the Company has a policy of entering into derivative contracts only with major financial institutions.
As of October 31, 2012, the Company believes it has no significant risk associated with non-performance of the financial institution which is the counterparty to its derivative contract. At October 31, 2012, the Company had approximately $11.6 million borrowed under its unsecured revolving line of credit subject to an interest rate swap. Such interest rate swap converted the LIBOR-based variable rate on the unsecured line of credit to a fixed annual rate of 1.22% per annum (plus a 1.50% credit spread or a total fixed interest rate of 2.72%). As of October 31, 2012, the Company had an accrued liability of $29,000 (included in accounts payable and accrued expenses on the consolidated balance sheet) relating to the fair value of the Company's interest rate swap applicable to the unsecured revolving line of credit. Charges and/or credits relating to the changes in fair values of such interest rate swaps are made to accumulated other comprehensive income (loss) as the swap is deemed effective and is classified as a cash flow hedge. The swap terminated in January 2013.
Comprehensive Income
Comprehensive income is comprised of net income applicable to Common and Class A Common stockholders and other comprehensive income (loss). Other comprehensive income (loss) includes items that are otherwise recorded directly in stockholders' equity, such as unrealized gains or losses on marketable securities and unrealized gains and losses on interest rate swaps designated as cash flow hedges. At October 31, 2012, accumulated other comprehensive income (loss) consisted of net unrealized gains on marketable securities of approximately $38,000 and net unrealized losses on an interest rate swap agreement of approximately $55,000. At October 31, 2011, accumulated other comprehensive income (loss) consisted of net unrealized losses on marketable securities of approximately $26,000 and net unrealized losses on an interest rate swap agreement of approximately $128,000. Unrealized gains and losses included in other comprehensive income (loss) will be reclassified into earnings as gains and losses are realized.
Comprehensive income consisted of the following (in thousands):
|
|
Year Ended October 31
,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Net income applicable to Common and Class A Common Stockholders
|
|
$
|
12,966
|
|
|
$
|
18,549
|
|
|
$
|
14,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains/(losses) in marketable equity securities
|
|
|
64
|
|
|
|
-
|
|
|
|
190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized (loss) on interest rate swap
|
|
|
73
|
|
|
|
75
|
|
|
|
(203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
$
|
13,103
|
|
|
$
|
18,624
|
|
|
$
|
14,435
|
|
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, and tenant receivables. The Company places its cash and cash equivalents in excess of insured amounts with high quality financial institutions. The Company performs ongoing credit evaluations of its tenants and may require certain tenants to provide security deposits or letters of credit. Though these security deposits and letters of credit are insufficient to meet the terminal value of a tenant's lease obligation, they are a measure of good faith and a source of funds to offset the economic costs associated with lost rent and the costs associated with re-tenanting the space. There is no dependence upon any single tenant.
Earnings Per Share
The Company calculates basic and diluted earnings per share in accordance with the provisions of ASC Topic 260, "Earnings Per Share." Basic earnings per share ("EPS") excludes the impact of dilutive shares and is computed by dividing net income applicable to Common and Class A Common stockholders by the weighted average number of Common shares and Class A Common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue Common shares or Class A Common shares were exercised or converted into Common shares or Class A Common shares and then shared in the earnings of the Company. Since the cash dividends declared on the Company's Class A Common stock are higher than the dividends declared on the Common Stock, basic and diluted EPS have been calculated using the "two-class" method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to the weighted average of the dividends declared, outstanding shares per class and participation rights in undistributed earnings.
The following table sets forth the reconciliation between basic and diluted EPS (in thousands):
|
|
Year Ended October 31,
|
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
Net income applicable to common stockholders – basic
|
|
$
|
3,166
|
|
|
$
|
4,536
|
|
|
$
|
3,795
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock awards
|
|
|
236
|
|
|
|
265
|
|
|
|
175
|
|
Net income applicable to common stockholders – diluted
|
|
$
|
3,402
|
|
|
$
|
4,801
|
|
|
$
|
3,970
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic EPS-weighted average common shares
|
|
|
7,370
|
|
|
|
7,306
|
|
|
|
7,176
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock and other awards
|
|
|
834
|
|
|
|
655
|
|
|
|
519
|
|
Denominator for diluted EPS – weighted average common equivalent shares
|
|
|
8,204
|
|
|
|
7,961
|
|
|
|
7,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to Class A common stockholders – basic
|
|
$
|
9,800
|
|
|
$
|
14,013
|
|
|
$
|
10,653
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock awards
|
|
|
(236
|
)
|
|
|
(265
|
)
|
|
|
(175
|
)
|
Net income applicable to Class A common stockholders – diluted
|
|
$
|
9,564
|
|
|
$
|
13,748
|
|
|
$
|
10,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic EPS – weighted average Class A common shares
|
|
|
20,740
|
|
|
|
20,496
|
|
|
|
18,273
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock and other awards
|
|
|
224
|
|
|
|
208
|
|
|
|
150
|
|
Denominator for diluted EPS – weighted average Class A common
|
|
|
|
|
|
|
|
|
|
|
|
|
equivalent shares
|
|
|
20,964
|
|
|
|
20,704
|
|
|
|
18,423
|
|
Stock-Based Compensation
The Company accounts for its stock-based compensation plans under the provisions of ASC Topic 718, "Stock Compensation," which requires that compensation expense be recognized based on the fair value of the stock awards less estimated forfeitures. The fair value of stock awards is equal to the fair value of the Company's stock on the grant date.
Segment Reporting
The Company operates in one industry segment, ownership of commercial real estate properties, which are located principally in the northeastern United States. The Company does not distinguish its property operations for purposes of measuring performance. Accordingly, the Company believes it has a single reportable segment for disclosure purposes.
Reclassification
Certain fiscal 2010 and 2011 amounts have been reclassified to conform to current period presentation.
New Accounting Standards
Newly Adopted
In May 2011, the FASB issued Accounting Standards Update ("ASU") 2011-04, "Fair Value Measurement (ASC Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards ("IFRS")". The pronouncement was issued to provide a uniform framework for fair value measurements and related disclosures between U.S. GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements (valuation derived from valuation techniques in which significant value drivers are unobservable). This pronouncement became effective for us in fiscal 2012 and did not have a significant impact on our consolidated financial statements.
To be adopted
In June 2011, the FASB issued ASU 2011-05, "Comprehensive Income (ASC Topic 220): Presentation of Comprehensive Income." ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of shareholders' equity and requires the presentation of components of net income and components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This pronouncement is effective for us in the first quarter of fiscal 2013 and is not expected to have a significant impact on our consolidated financial statements.
(2) REAL ESTATE INVESTMENTS
The Company's investments in real estate, net of depreciation, were composed of the following at October 31, 2012 and 2011 (in thousands):
|
|
Core Properties
|
|
|
Non-Core Properties
|
|
|
Unconsolidated Joint Venture
|
|
|
Mortgage Notes Receivable
|
|
|
2012
Totals
|
|
|
2011
Totals
|
|
Retail
|
|
$
|
511,662
|
|
|
$
|
-
|
|
|
$
|
26,708
|
|
|
$
|
898
|
|
|
$
|
539,268
|
|
|
$
|
523,481
|
|
Office
|
|
|
7,649
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,649
|
|
|
|
7,792
|
|
Industrial
|
|
|
-
|
|
|
|
553
|
|
|
|
-
|
|
|
|
-
|
|
|
|
553
|
|
|
|
584
|
|
|
|
$
|
519,311
|
|
|
$
|
553
|
|
|
$
|
26,708
|
|
|
$
|
898
|
|
|
$
|
547,470
|
|
|
$
|
531,857
|
|
The Company's investments at October 31, 2012 consisted of equity interests in 54 properties, which are located in various regions throughout the United States and one mortgage note receivable. The Company's primary investment focus is neighborhood and community shopping centers located in the northeastern United States. These properties are considered core properties of the Company. The remaining properties are located outside of the northeastern United States and are considered non-core properties. Since a significant concentration of the Company's properties are in the northeast, market changes in this region could have an effect on the Company's leasing efforts and ultimately its overall results of operations. The following is a summary of the geographic locations of the Company's investments at October 31, 2012 and 2011 (in thousands):
|
|
2012
|
|
|
2011
|
|
Northeast
|
|
$
|
546,019
|
|
|
$
|
530,274
|
|
Midwest
|
|
|
303
|
|
|
|
324
|
|
Southwest
|
|
|
1,148
|
|
|
|
1,259
|
|
|
|
$
|
547,470
|
|
|
$
|
531,857
|
|
(3) CORE PROPERTIES
The components of the core properties consolidated in the financial statements are as follows (in thousands):
|
|
2012
|
|
|
2011
|
|
Land
|
|
$
|
121,382
|
|
|
$
|
116,220
|
|
Buildings and improvements
|
|
|
538,398
|
|
|
|
514,352
|
|
|
|
|
659,780
|
|
|
|
630,572
|
|
Accumulated depreciation
|
|
|
(140,469
|
)
|
|
|
(126,682
|
)
|
|
|
$
|
519,311
|
|
|
$
|
503,890
|
|
Space at the Company's core properties is generally leased to various individual tenants under short and intermediate-term leases which are accounted for as operating leases.
Minimum rental payments on non-cancelable operating leases in the consolidated core properties totaling $389,172,000 become due as follows: 2013 - $66,448,000; 2014 - $59,950,000; 2015 - $52,704,000; 2016 - $46,285,000; 2017 - $38,324,000 and thereafter – $125,461,000.
Certain of the Company's leases provide for the payment of additional rent based on a percentage of the tenant's revenues. Such additional percentage rents are included in operating lease income and were less than 1% of consolidated revenues in each of the three years ended October 31, 2012.
Owned Properties
In December 2011, a subsidiary of the Company acquired the Eastchester Plaza Shopping Center ("Eastchester") in the Town of Eastchester, Westchester County, New York for a purchase price of $9 million. In connection with the purchase, the Company assumed a first mortgage encumbering the property at its estimated fair value of $3.6 million. The assumption of the mortgage loan represents a non-cash financing activity and is therefore not included in the accompanying consolidated statement of cash flows for the year ended October 31, 2012. The mortgage matured in April 2012 and was repaid. The remaining equity needed to complete the acquisition was funded with available cash and borrowings on the Company's unsecured revolving credit facility. In conjunction with the purchase, the Company incurred acquisition costs totaling $33,000, which have been expensed in the year ended October 31, 2012 consolidated statement of income.
In October 2011, the Company, through a wholly owned subsidiary, completed the purchase of the 63,000 square foot Fairfield Centre Shopping Center, in Fairfield, Connecticut ("Fairfield Centre"), for a purchase price of $17.0 million. The Company financed its net investment in the property with available cash and a borrowing on its unsecured revolving credit facility. In conjunction with the purchase, the Company incurred acquisition costs totaling $19,000 which have been expensed in the year ended October 31, 2011 consolidated statement of income.
In April 2011, the Company, through a wholly owned subsidiary, completed the purchase of the 72,000 square foot Fairfield Plaza Shopping Center, in New Milford, Connecticut ("Fairfield Plaza"), for a purchase price of $10.8 million, subject to an existing first mortgage secured by the property at its estimated fair value of approximately $5.0 million. The assumption of the mortgage loan represents a non-cash financing activity and is therefore not included in the accompanying consolidated statement of cash flows for the year ended October 31, 2011.
The Company financed its net investment in the property with available cash and a borrowing on its unsecured revolving credit facility. In conjunction with the purchase, the Company incurred acquisition costs totaling $53,000 which have been expensed in year ended October 31, 2011 consolidated statement of income.
In December 2010, the Company reached a lease termination settlement ("Settlement") with a former tenant in its Meriden shopping center in Meriden, Connecticut. In accordance with the Settlement agreement the prior tenant was released from all of its obligations under the aforementioned lease in exchange for a settlement payment to the Company. The Settlement agreement provides that the former tenant will pay the Company $3.3 million in 41 equal monthly payments of $80,000 and one final monthly payment of $20,000 without interest beginning on January 1, 2011. The Company has recorded the lease termination in the consolidated statement of income for the fiscal year ended October 31, 2011 in the amount of $2,988,000, which amount represents the present value of the 42 payments due to the Company under the Settlement agreement at a discount rate of 5.75% per annum. The Company will record the remaining $312,000 as interest income over the remaining payment term though June 1, 2014 in accordance with the effective yield method. With the exception of the ten $80,000 payments received by the Company in fiscal 2011, the remaining $2.99 million in lease termination income represents a non-cash activity and is not shown in the investing section of the consolidated statement of cash flows for the year ended October 31, 2011.
In April 2010, the Company, through a wholly owned subsidiary, acquired three buildings containing 28,000 square feet of retail and office space in Katonah, New York ("Katonah Village Commons") for a cash purchase price of $8.5 million. The Company financed its net investment in the property with available cash and a borrowing on its unsecured revolving credit facility. In conjunction with the purchase, the Company incurred acquisition costs totaling $47,000, which have been expensed in the year ended October 31, 2010 consolidated statement of income.
In May 2010, the Company, through a wholly owned subsidiary, completed the purchase of the New Milford Plaza Shopping Center, in New Milford, Connecticut ("New Milford"), for a purchase price of $22.3 million, subject to an existing first mortgage secured by the property at its estimated fair value of approximately $9.2 million. The assumption of the mortgage loan represents a non-cash financing activity and is therefore not included in the accompanying 2010 consolidated cash flow statement.
The Company financed its net investment in the property with available cash and a $13.2 million borrowing on its unsecured revolving credit facility. In conjunction with the purchase, the Company incurred acquisition costs totaling $29,000 which have been expensed on the fiscal 2010 consolidated statement of income.
During fiscal 2012, the Company completed its evaluation of the acquired leases for Eastchester Plaza, which was acquired at the beginning of fiscal 2012, and its Fairfield Centre Property and Fairfield Plaza properties, which were acquired in fiscal 2011. As a result of its evaluation, the Company has allocated $392,000 to a liability associated with the net fair value assigned to the acquired leases at Eastchester and $765,000 to a liability associated with the net fair value assigned to the acquired leases at Fairfield Centre. The Company determined that no purchase price adjustment was necessary in order to ascribe value to the in-place leases at Fairfield Plaza. These amounts represents a non-cash investing activity and are therefore not included in the accompanying consolidated statement of cash flows for the year ended October 31, 2012. The Company is currently in the process of evaluating the fair value of the in-place leases for UB Orangeburg, LLC ("Orangeburg") (see note 9). Consequently, no value has yet been assigned to those leases at that property and the purchase price allocation is preliminary and may be subject to change.
During fiscal 2011, the Company completed its evaluation of the acquired leases for its New Milford Plaza Property and its Katonah Property, which properties were acquired in fiscal 2010. As a result of its evaluation, the Company has allocated $396,000 to a liability associated with the net fair value assigned to the acquired leases at the properties, which amounts represent a non-cash investing activity and are therefore not included in the accompanying consolidated statement of cash flows for the fiscal year ended October 31, 2011.
During fiscal 2010, the Company completed its evaluation of the acquired leases at three bank properties which were acquired in fiscal 2009. As a result of its evaluation, the Company has allocated $1.7 million to a liability associated with the net fair value assigned to the acquired leases at the properties, which amounts represent a non-cash investing activity and are therefore not included in the accompanying consolidated statement of cash flows for the fiscal year ended October 31, 2010.
For the years ended October 31, 2012, 2011 and 2010, the net amortization of above-market and below-market leases amounted to $515,000, $262,000 and $300,000, respectively, which amounts are included in base rents in the accompanying consolidated statements of income.
In fiscal 2012, the Company incurred costs of approximately $6.5 million related to capital improvements to its properties and leasing costs.
(4) NON-CORE PROPERTIES
At October 31, 2012, the non-core properties consist of two industrial properties ("the St. Louis" property and "the Dallas" property) located outside of the Northeast region of the United States. The Board of Directors has authorized management, subject to its approval of any contract for sale, to sell the non-core properties of the Company over a period of several years in furtherance of the Company's objectives to focus on northeast properties.
The components of non-core properties were as follows (in thousands):
|
|
2012
|
|
|
2011
|
|
Land
|
|
$
|
450
|
|
|
$
|
450
|
|
Buildings and improvements
|
|
|
145
|
|
|
|
145
|
|
|
|
|
595
|
|
|
|
595
|
|
Accumulated depreciation
|
|
|
(42
|
)
|
|
|
(11
|
)
|
|
|
$
|
553
|
|
|
$
|
584
|
|
Minimum rental payments on non-cancelable operating leases of the non-core properties totaling $7,121,000 become due as follows: 2013 – $1,597,000; 2014 – $1,597,000; 2015 – $1,792,000; 2016 - $1,831,000; 2017 - $304,000.
(5) DISCONTINUED OPERATIONS
In fiscal 2010, the Company completed the negotiations on a contract to sell two properties for a sales price, including closing costs, of $7.8 million. In accordance with ASC Topic 205 and 360, the Company adjusted the carrying value of the property to $7.8 million and realized a loss on asset held for sale of approximately $300,000. The $300,000 in fiscal 2010 is included in other expense on the accompanying consolidated statement of income as the Company determined that the amount of loss, operations and revenue of the properties were insignificant to disclose separately as discontinued operations.
(6) MORTGAGE NOTE RECEIVABLE
At October 31, 2012, mortgage note receivable consisted of one fixed rate mortgage with a contractual interest rate of 9%. The mortgage note matures on January 15, 2013 and is secured by a retail property. Interest is recognized on the effective yield method. The mortgage note is recorded at a discounted amount which reflects the market interest rate at the time of acceptance of the note. At October 31, 2012, the remaining unamortized discount was $6,000.
At October 31, 2012, principal payments on the mortgage note receivable become due as follows: 2013 – $898,000.
(7) MORTGAGE NOTES PAYABLE, BANK LINES OF CREDIT AND OTHER LOANS
At October 31, 2012, mortgage notes payable and other loans are due in installments over various periods to fiscal 2027 at effective rates of interest ranging from 2.8% to 11.3% and are collateralized by real estate investments having a net carrying value of approximately $220 million.
Combined aggregate principal maturities of mortgage notes payable during the next five years and thereafter are as follows (in thousands):
|
|
Principal
Repayments
|
|
|
Scheduled
Amortization
|
|
|
Total
|
|
2013
|
|
$
|
3,191
|
|
|
$
|
2,900
|
|
|
$
|
6,091
|
|
2014
|
|
|
-
|
|
|
|
2,987
|
|
|
|
2,987
|
|
2015
|
|
|
4,480
|
|
|
|
3,127
|
|
|
|
7,607
|
|
2016
|
|
|
-
|
|
|
|
3,207
|
|
|
|
3,207
|
|
2017
|
|
|
49,623
|
|
|
|
3,140
|
|
|
|
52,763
|
|
Thereafter
|
|
|
64,471
|
|
|
|
6,110
|
|
|
|
70,581
|
|
|
|
$
|
121,765
|
|
|
$
|
21,471
|
|
|
$
|
143,236
|
|
In September of fiscal 2012, the Company entered into a new $80 million Unsecured Revolving Credit Facility (the "Facility") with a syndicate of four banks led by The Bank of New York Mellon, as administrative agent. The syndicate also includes Wells Fargo Bank N.A. (syndication agent), Bank of Montreal and Regions Bank (co-documentation agents). This new unsecured revolving credit facility replaced the Company's existing $50 million Unsecured Revolving Credit Agreement which was scheduled to mature in February of 2013. The new Facility gives the Company the option, under certain conditions, to increase the Facility's borrowing capacity up to $125 million. The maturity date of the Facility is September 21, 2016 with a one-year extension at the Company's option. Borrowings under the Facility can be used for, among other things, acquisitions, working capital, capital expenditures, and repayment of other indebtedness and the issuance of letters of credit (up to $10 million). Borrowings will bear interest at the Company's option of Eurodollar rate plus 1.5% to 2.0% or The Bank of New York Mellon's prime lending rate plus 0.50% based on consolidated indebtedness, as defined. The Company will pay an annual fee on the unused commitment amount of up to 0.25% to 0.35% based on outstanding borrowings during the year. The Facility contains certain representations, financial and other covenants typical for this type of facility. The Company's ability to borrow under the Facility is subject to its compliance with the covenants and other restrictions on an ongoing basis. The principal financial covenants limit the Company's level of secured and unsecured indebtedness and additionally require the Company to maintain certain debt coverage ratios. The Company was in compliance with such covenants at October 31, 2012. In conjunction with the execution of the new Facility the Company terminated its existing $30 million secured revolving credit facility with Bank of New York Mellon.
During fiscal 2012, the Company borrowed a total of $8 million on its Facility to fund its equity for a property acquisition and to make an additional investment in one of its unconsolidated joint ventures; this amount was repaid in October 2012.
In December 2011 (fiscal 2012), the Company, through a wholly owned subsidiary, assumed a first mortgage payable secured by Eastchester Plaza with an estimated fair value of approximately of $3.6 million. The mortgage matured in April 2012 and was repaid.
In March 2012, the Company assumed a first mortgage payable in the amount of $7.4 million in conjunction with its investment in Orangeburg (see note 9 below). The loan requires payments of principal and interest at a fair market value interest rate of 2.04% (6.19% contractual rate). Subsequent to the assumption, Orangeburg extended the loan with the current lender for an additional five years, leaving all terms unchanged, except the interest rate that was adjusted to a fixed rate of 2.78%. The loan now matures in October 2017. The operating agreement for Orangeburg requires that the loan be refinanced and not repaid at maturity.
In February 2012, the Company borrowed $28 million by placing a non-recourse first mortgage on one of its unencumbered properties. The loan is for a term of ten years and will require payments of principal and interest based on a thirty-year amortization schedule at the fixed interest rate of 4.85%. The proceeds of the loan were used to repay approximately $28 million in borrowing on the Company's revolving credit facility.
In October of 2012, the Company repaid, at maturity, its first mortgage payable secured by its New Milford property in the amount of $8.3 million.
In August 2012, a wholly owned subsidiary of the Company completed the installation of a solar power system (the "Ferry System") at the Company's Ferry Plaza Shopping Center in Newark, New Jersey at a total cost of approximately $1.7 million. The subsidiary of the Company financed a portion of the project with a loan in the amount of $1.1 million from The Public Service Electric and Gas Company of New Jersey ("PSE&G"), through PSE&G's "Solar Loan Program II". The loan requires monthly payments of principal and interest at 11.3% per annum through its maturity date of August 31, 2027. The subsidiary of the Company has the option of repaying all or part of the PSE&G loan, including interest, with Solar Renewable Energy Credits ("SREC's") that are expected to be generated by the Ferry System. The remaining cost of the Ferry System was funded by a renewable energy grant from the federal government.
In fiscal 2011, the Company, through a wholly owned subsidiary, assumed a first mortgage payable with an estimated fair value of approximately $5.0 million in conjunction with its purchase of Fairfield Plaza. The mortgage requires payments of principal and interest at a fixed rate of interest of 5.0% with a maturity of August 2015.
In October of 2011, the Company repaid, at maturity, its first mortgage payable secured by its Carmel property in the amount of $4.0 million.
In May 2011, a wholly owned subsidiary of the Company completed the installation of a solar power system (the "Emerson System") at the Company's Emerson Shopping Center in Emerson, New Jersey at a total cost of approximately $1.2 million. The subsidiary of the Company financed a portion of the project with a loan in the amount of $819,000 from PSE&G, through PSE&G's "Solar Loan Program II". The loan requires monthly payments of principal and interest at 11.3% per annum through its maturity date of May 31, 2026. The subsidiary of the Company has the option of repaying all or part of the PSE&G loan, including interest, with SREC's that are expected to be generated by the Emerson System. The remaining cost of the Emerson System was funded by a renewable energy grant from the federal government.
In January 2011, a wholly owned subsidiary of the Company completed the installation of a solar power system (the "Valley Ridge System") at the Company's Valley Ridge Shopping Center in Wayne, New Jersey at a total cost of approximately $1.1 million. In conjunction with the solar installation the subsidiary of the Company financed a portion of the project with a loan in the amount of $726,000 from the PSE&G, through PSE&G's "Solar Loan Program I". The loan requires monthly payments of principal and interest at 11.11% per annum through its maturity date of January 31, 2026. The subsidiary of the Company has the option of repaying all or part of the PSE&G loan, including interest, with SREC's that are expected to be generated by the Valley Ridge System. The remaining cost of the Valley Ridge System was funded by a renewable energy grant from the federal government.
In fiscal 2010, the Company repaid, at maturity, its first mortgage payable secured by its Somers property in the amount of $5.2 million.
In fiscal 2010, the Company, through a wholly owned subsidiary, assumed a first mortgage payable with an estimated fair value of approximately $9.2 million in conjunction with its purchase of New Milford. The mortgage requires payments of principal and interest at a fixed rate of interest of 3.9% with a maturity of December 2012.
Interest paid in the years ended October 31, 2012, 2011, and 2010 was approximately $8.6 million, $7.6 million and $7.5 million, respectively.
(8) REDEEMABLE PREFERRED STOCK
The Company is authorized to issue up to 20,000,000 shares of Preferred Stock. At October 31, 2012, the Company had issued and outstanding 224,027 shares of Series C Senior Cumulative Preferred Stock (Series C Preferred Stock), 2,450,000 shares of Series D Senior Cumulative Preferred Stock (Series D Preferred Stock) (see Note 11), and 5,175,000 shares of Series F Cumulative Preferred Stock (see note 11).
The following table sets forth the details of the Company's redeemable preferred stock as of October 31, 2012 and 2011 (amounts in thousands, except share data):
|
|
October 31,
2012
|
|
|
October 31,
2011
|
|
8.50% Series C Senior Cumulative Preferred Stock; liquidation preference of $100 per share; issued and outstanding 224,027 and 400,000 shares
|
|
$
|
21,510
|
|
|
$
|
38,406
|
|
8.50% Series E Senior Cumulative Preferred Stock; liquidation preference of $25 per share; issued and outstanding -0- and 2,400,000 shares
|
|
|
-
|
|
|
|
57,797
|
|
Total Redeemable Preferred Stock
|
|
$
|
21,510
|
|
|
$
|
96,203
|
|
On October 22, 2012 the Company repurchased 175,973 shares of its Series C Preferred Stock for $103.50 per share ($18.2 million). As a result of the repurchase, the $1.3 million excess of the repurchase price of the preferred shares paid over the carrying amount of the shares is included as a reduction of income available to Common and Class A Common shareholders in the accompanying consolidated statement of income for year ended October 31, 2012.
On October 22, 2012, the Company called for the redemption on November 21, 2012 all of its 2,400,000 shares of Series E Senior Cumulative Preferred Stock at a make-whole price of $25.77 per share (liquidation value $25.00 per share). As a result, the Company has reclassified the $58.5 million net book value of the Series E Shares as a liability (from Redeemable Preferred Stock) at October 31, 2012. The difference between the redemption amount and the net book value of the Series E Shares is being accreted from the date the redemption became probable through the November 21, 2012 redemption date. As a result the Company included $710,600 as a reduction of income available to Common and Class A Common shareholders in the accompanying consolidated statement of income for year ended October 31, 2012.
The Series C Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into other securities or property of the Company. Commencing May 2013 the Company, at its option, may redeem the Series C Preferred Stock in whole or in part, at a redemption price equal to the liquidation preference per share, plus all accrued and unpaid dividends.
Upon a change in control of the Company (as defined), each holder of Series C Preferred Stock has the right, at such holder's option, to require the Company to repurchase all or any part of such holder's stock for cash at a repurchase price equal to the liquidation preference per share plus all accrued and unpaid dividends.
The Series C Preferred Stock contains covenants that require the Company to maintain certain financial coverages relating to fixed charge and capitalization ratios. Shares of the Series C Preferred Stock are non-voting; however, under certain circumstances (relating to non-payment of dividends or failure to comply with the financial covenants) the Series C preferred stockholders will be entitled to elect two directors. The Company was in compliance with such covenants at October 31, 2012.
As the holders of the Series C Preferred Stock only have a contingent right to require the Company to repurchase all or part of such holder's shares upon a change of control of the Company (as defined), the Series C Preferred Stock is classified as a redeemable equity instrument as a change in control is not certain to occur.
(9)
CONSOLIDATED
JOINT VENTURES AND REDEEMABLE NONCONTROLLING INTERESTS
.
The Company has an investment in two joint ventures, UB Ironbound, LP ("Ironbound") and Orangeburg, each of which owns a commercial retail real estate property. The Company has evaluated its investment in these two joint ventures and has concluded that both ventures are not Variable Interest Entities ("VIE or VIE's"), however both joint venture investments meet certain criteria of a sole general partner (or limited liability member) in accordance with ASC Topic 970-810 "Real Estate-Consolidation". The Company has determined that such joint ventures are fully controlled by the Company and that the presumption of control is not offset by any rights of any of the limited partners or non-controlling members in either venture and that both joint ventures should be consolidated into the consolidated financial statements of the Company. The Company's investment in both consolidated joint ventures is more fully described below:
Ironbound (Ferry Plaza)
The Company, through a wholly-owned subsidiary, is the general partner and owns 84% of one consolidated limited partnership, Ironbound, which owns a grocery anchored shopping center.
The Ironbound limited partnership has a defined termination date of December 31, 2097. The partners in Ironbound are entitled to receive an annual cash preference payable from available cash of the partnership. Any unpaid preferences accumulate and are paid from future cash, if any. The balance of available cash, if any, is distributed in accordance with the respective partner's interests.
The limited partners in Ironbound currently have the right to require the Company to repurchase all or a portion of their remaining limited partner interests at prices as defined in the Ironbound partnership agreement.
Upon liquidation of Ironbound, proceeds from the sale of partnership assets are to be distributed in accordance with the respective partnership interests. The limited partners are not obligated to make any additional capital contributions to the partnership. The Company retains an affiliate of one of the limited partners in Ironbound to provide management and leasing services to the property at an annual fee equal to two percent of rental income collected, as defined.
Orangeburg
In March 2012, the Company acquired an approximate 2% interest in Orangeburg, a newly formed limited liability company in which the Company is the sole managing member. Orangeburg acquired, by contribution, a 74,000 square foot shopping center in Orangeburg, New York, at its estimated fair value of $16.0 million and the assumption of an existing first mortgage loan on the property at its estimated fair value of $7.4 million bearing interest at a fixed rate of 2.04% (6.19% contractual rate). The Company's net investment in Orangeburg amounted to $186,000. The other member (non-managing) of Orangeburg is the prior owner of the contributed property who, in exchange for contributing the net assets of the property, received units of Orangeburg equal to the value of the contributed property less the value of the assigned first mortgage payable. The Orangeburg operating agreement provides for the non-managing member to receive an annual cash distribution equal to the regular quarterly cash distribution declared by the Company for one share of the Company's Class A Common stock, which amount is attributable to each unit of Orangeburg ownership. The annual cash distribution will be paid from available cash, as defined, of Orangeburg. If there is an available cash shortfall, the managing member must contribute or loan additional capital to fund the non-managing member's required cash distribution. The balance of available cash, if any, is fully distributable to the Company. Upon liquidation, proceeds from the sale of Orangeburg assets are to be distributed in accordance with operating agreement. The non-managing member is not obligated to make any additional capital contributions to the partnership. Orangeburg has a defined termination date of December 31, 2097.
The contribution of the property to Orangeburg and the assumption by Orangeburg of the $7.4 million first mortgage loan represents a non-cash activity and is therefore not included in the accompanying 2012 consolidated statement of cash flows. The Company incurred $211,000 in acquisition costs in conjunction with the purchase.
Noncontrolling interests:
The Company accounts for non-controlling interests in accordance with ASC Topic 810,
"Consolidation"
. Because the limited partners or non-controlling members in both Ironbound and Orangeburg have the right to require the Company to redeem all or a part of their limited partnership or limited liability company units at prices as defined in the governing agreements, the Company will report the noncontrolling interests in both consolidated joint ventures in the mezzanine section, outside of permanent equity, of the consolidated balance sheets at redemption value which approximates fair value. For the year ended October
31
, 2012 and 2011
, the Company adjusted the carrying value of the non-controlling interests by $(127,000) and $281,000, respectively, with the corresponding adjustment recorded in stockholders' equity.
The following table sets forth the details of the Company's redeemable non-controlling interests at
October 31, 2012 and 2011:
(amounts in thousands)
|
|
October 31,
2012
|
|
|
October 31,
2011
|
|
|
|
|
|
|
|
|
Beginning Balance
|
|
$
|
2,824
|
|
|
$
|
11,330
|
|
Initial Orangeburg noncontrolling interest
|
|
|
8,724
|
|
|
|
-
|
|
Purchase of Noncontrolling Interests
|
|
|
-
|
|
|
|
(8,787
|
)
|
Change in Redemption Value
|
|
|
(127
|
)
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
Ending Balance
|
|
$
|
11,421
|
|
|
$
|
2,824
|
|
(10) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES
At
October 31, 2012
and 2011, investments in and advances to unconsolidated joint ventures consisted of the following (with the Company's ownership percentage in parentheses) (amounts in thousands):
|
|
October 31, 2012
|
|
|
October 31, 2011
|
|
|
|
|
|
|
|
|
Midway Shopping Center, L.P. (11.642%)
|
|
$
|
19,165
|
|
|
$
|
18,904
|
|
Putnam Plaza Shopping Center (66.67%)
|
|
|
6,820
|
|
|
|
6,757
|
|
81 Pondfield Road Company (20%)
|
|
|
723
|
|
|
|
723
|
|
Total
|
|
$
|
26,708
|
|
|
$
|
26,384
|
|
|
|
|
|
|
|
|
|
|
Midway Shopping Center, L.P.
The Company, through two wholly owned subsidiaries, owns an 11.642% equity interest in Midway Shopping Center L.P. ("Midway"), which owns a 247,000 square foot shopping center in Westchester County, New York. In addition, the Company loaned Midway, in the form of an unsecured note, approximately $13.2 million, which Midway used to repay $11.6 million in mortgage and unsecured loans, to complete certain tenants improvements at the property and to fund $960,000 for a good faith deposit in relation to a future mortgage refinancing. The loans to Midway were repaid in January 2013. The Company has evaluated its investment in Midway and has concluded that the venture is not a VIE and should not be consolidated into the financial statements of the Company. Although the Company only has an approximate 12% equity interest in Midway, it controls 25% of the voting power of Midway and as such has determined that it exercises significant influence over the financial and operating decisions of Midway and accounts for its investment in Midway under the equity method of accounting. Under the equity method of accounting the initial investment is recorded at cost as an investment in unconsolidated joint venture, and subsequently adjusted for equity in net income (loss) and cash contributions and distributions from the venture. Any difference between the carrying amount of the investment on the Company's balance sheet and the underlying equity in net assets of the venture is evaluated for impairment at each reporting period.
The Company has allocated the $7.4 million excess of the carrying amount of its investment in and advances to Midway over the Company's share of Midway's net book value to real property and is amortizing the difference over the property's estimated useful life of 39 years.
Midway currently has a non-recourse first mortgage payable in the amount of $14 million. The loan bears interest only at the rate of 5.75% per annum and matures in January 2013. Midway's only other debt outstanding is its unsecured loan to the Company in the amount of $13.2 million. Midway has entered into a commitment with a new mortgage lender to borrow up to $32 million to refinance the existing first mortgage payable and Midway's unsecured debt owed to the Company. The new first mortgage payable will require monthly payments of principal and interest at a fixed rate of 4.80%. The new mortgage will mature in 2027.
Putnam Plaza Shopping Center
The Company, through a wholly owned subsidiary, owns a 66.67% undivided equity interest in the Putnam Plaza Shopping Center ("Putnam Plaza"). The Company accounts for its investment in the Putnam Plaza joint venture under the equity method of accounting since it exercises significant influence, but does not control the venture. The other venturer in Putnam Plaza has substantial participation rights in the financial decisions and operation of the property, which preclude the Company from consolidating the investment. The Company has evaluated its investment in Putnam Plaza and has concluded that the venture is not a VIE. Under the equity method of accounting the initial investment is recorded at cost as an investment in unconsolidated joint venture, and subsequently adjusted for equity in net income (loss) and cash contributions and distributions from the venture. Any difference between the carrying amount of the investment on the Company's balance sheet and the underlying equity in net assets of the venture is evaluated for impairment at each reporting period.
Putnam Plaza has a first mortgage payable in the amount of $21 million. In September 2012, Putnam Plaza modified its existing mortgage with the lender. The modified mortgage will require monthly payments of principal and interest at a fixed rate of 4.17% and will mature in 2019. In conjunction with the modification, Putnam Plaza paid the existing lender a $315,000 prepayment penalty.
81 Pondfield Road Company
The Company's other investment in an unconsolidated joint venture is a 20% economic interest in a partnership which owns a retail and office building in Westchester County, New York.
(11) STOCKHOLDERS' EQUITY
The Series D Preferred Stock has no maturity and is not convertible into any other security of the Company. The Series D Preferred Stock is currently redeemable at the Company's option at a price of $25 per share plus accrued and unpaid dividends. Underwriting commissions and costs incurred in connection with the sale of the Series D Preferred Stock are reflected as a reduction of additional paid in capital.
During fiscal 2012, the Company sold 2,500,000 shares of Class A Common Stock in an underwritten follow-on common stock offering for $19.16 per share and raised net proceeds of $47.5 million. The Company used the proceeds of the offering to repay an $8 million existing draw on its Facility and to repay an existing $8.3 million mortgage on one its properties when it matured. The balance of the proceeds has been temporarily invested in marketable securities.
On October 24, 2012, the Company completed the public offering of 5,175,000 Series F Cumulative Preferred Stock (the "Series F Preferred Stock") at a price of $25.00 per share for net proceeds of $125.3 million after underwriting discounts but before offering expenses. These shares are nonvoting, have no stated maturity and are redeemable for cash at $25.00 per share at the Company's option on or after October 24, 2017. Holders of these shares are entitled to cumulative dividends, payable quarterly in arrears. Dividends accrue from the date of issue at the annual rate of $1.78125 per share per annum.
The holders of our Series F Preferred Stock have general preference rights with respect to liquidation and quarterly distributions. Except under certain conditions holders of the Series F Preferred Stock will not be entitled to vote on most matters. In the event of a cumulative arrearage equal to six quarterly dividends, holders of Series F Preferred Stock, together with all of the Company's other Series of preferred stock (voting as a single class without regard to series) will have the right to elect two additional members to serve on the Company's Board of Directors until the arrearage has been cured.
Upon the occurrence of a Change of Control, as defined in the Company's Articles of Incorporation, the holder of the Series F Preferred Stock will have the right to convert all or part of the shares of Series F Preferred Stock held by such holder on the applicable conversion date into a number of the Company's shares of Class A common stock.
Underwriting commissions and costs incurred in connection with the sale of the Series F Preferred Stock are reflected as a reduction of additional paid in capital.
During fiscal 2010, the Company sold 2,500,000 shares of Class A Common Stock in an underwritten follow-on common stock offering for $18.05 per share and raised net proceeds of $45.1 million. The Company used the proceeds of the offering to repay existing draws on its Facility that had been used to fund its equity investments in the four property acquisitions made in fiscal 2010.
The Class A Common Stock entitles the holder to 1/20 of one vote per share. The Common Stock entitles the holder to one vote per share. Each share of Common Stock and Class A Common Stock have identical rights with respect to dividends except that each share of Class A Common Stock will receive not less than 110% of the regular quarterly dividends paid on each share of Common Stock.
The Company has a Dividend Reinvestment and Share Purchase Plan, as amended (the "DRIP"), that permits stockholders to acquire additional shares of Common Stock and Class A Common Stock by automatically reinvesting dividends. During fiscal 2012, the Company issued 6,627 shares of Common Stock and 7,950 shares of Class A Common Stock (34,498 shares of Common Stock and 8,532 shares of Class A Common Stock in fiscal 2011) through the DRIP. As of October 31, 2012, there remained 370,097 shares of Common Stock and 429,808 shares of Class A Common Stock available for issuance under the DRIP.
The Company has a stockholder rights agreement that expires on November 11, 2018. The rights are not currently exercisable. When they are exercisable, the holder will be entitled to purchase from the Company one one‑hundredth of a share of a newly‑established Series A Participating Preferred Stock at a price of $65 per one one‑hundredth of a preferred share, subject to certain adjustments. The distribution date for the rights will occur 10 days after a person or group either acquires or obtains the right to acquire 10% ("Acquiring Person") or more of the combined voting power of the Company's Common Shares, or announces an offer, the consummation of which would result in such person or group owning 30% or more of the then outstanding Common Shares. Thereafter, shareholders other than the Acquiring Person will be entitled to purchase original common shares of the Company having a value equal to two times the exercise price of the right.
If the Company is involved in a merger or other business combination at any time after the rights become exercisable, and the Company is not the surviving corporation or 50% or more of the Company assets are sold or transferred, the rights agreement provides that the holder other than the Acquiring Person will be entitled to purchase a number of shares of common stock of the acquiring company having a value equal to two times the exercise price of each right.
The Company's articles of incorporation provide that if any person acquires more than 7.5% of the aggregate value of all outstanding stock, except, among other reasons, as approved by the Board of Directors, such shares in excess of this limit automatically will be exchanged for an equal number of shares of Excess Stock. Excess Stock has limited rights, may not be voted and is not entitled to any dividends.
In a prior year, the Board of Directors of the Company approved a share repurchase program ("Program") for the repurchase of up to 1,500,000 shares of Common Stock and Class A Common Stock in the aggregate and to repurchase shares of the Company's Series C and Series D Senior Cumulative Preferred Stock (Preferred Stock) in open-market transactions. The Company did not repurchase any shares of Common, Class A Common or preferred stock during fiscal 2012 and 2011. As of October 31, 2012, the Company had repurchased 3,600 shares of Common Stock and 724,578 shares of Class A Common Stock under the program. The Company has yet to repurchase any preferred stock under the Program.
(12) STOCK COMPENSATION AND OTHER BENEFIT PLANS
Restricted Stock Plan
The Company accounts for its Restricted Stock Plan in accordance with ASC Topic 718, "Stock Compensation." On March 10, 2011, the stockholders of the Company approved an amendment to the Company's restricted stock plan (the "Plan") to provide for an additional 500,000 Common Shares or Class A Common shares to be available for issuance under the Plan. As amended, the Plan authorizes grants of up to an aggregate of 3,150,000 shares of the Company's common equity consisting of 350,000 Common shares, 350,000 Class A Common shares and 2,450,000 shares, which at the discretion of the Company's compensation committee, may be awarded in any combination of Class A Common shares or Common shares.
In January 2012, the Company awarded 175,950 shares of Common Stock and 61,600 shares of Class A Common Stock to participants in the Plan. The grant date fair value of restricted stock grants awarded to participants in 2012 was approximately $4.1 million. As of October 31, 2012, there was $12.7 million of unamortized restricted stock compensation related to non-vested restricted stock grants awarded under the Plan. The remaining unamortized expense is expected to be recognized over a weighted average period of 4.74 years. For the years ended October 31, 2012, 2011 and 2010, amounts charged to compensation expense totaled $3,824,000, $3,822,000 and $3,200,000, respectively.
A summary of the status of the Company's non-vested restricted stock awards as of October 31, 2012, and changes during the year ended October 31, 2012 are presented below:
|
|
Common Shares
|
|
|
Class A Common Shares
|
|
|
|
Shares
|
|
|
Weighted-Average Grant Date
Fair Value
|
|
|
Shares
|
|
|
Weighted-Average Grant Date
Fair Value
|
|
Non-vested at October 31, 2011
|
|
|
1,343,250
|
|
|
$
|
15.18
|
|
|
|
386,700
|
|
|
$
|
16.51
|
|
Granted
|
|
|
175,950
|
|
|
$
|
17.04
|
|
|
|
61,600
|
|
|
$
|
18.35
|
|
Vested
|
|
|
(45,800
|
)
|
|
$
|
17.55
|
|
|
|
(48,400
|
)
|
|
$
|
17.95
|
|
Non-vested at October 31, 2012
|
|
|
1,473,400
|
|
|
$
|
15.33
|
|
|
|
399,900
|
|
|
$
|
16.62
|
|
Profit Sharing and Savings Plan
The Company has a profit sharing and savings plan (the "401K Plan"), which permits eligible employees to defer a portion of their compensation in accordance with the Internal Revenue Code. Under the 401K Plan, the Company made contributions on behalf of eligible employees. The Company made contributions to the 401K Plan of approximately $145,000 in each of the three years ended October 31, 2012, 2011 and 2010 The Company also has an Excess Benefit and Deferred Compensation Plan that allows eligible employees to defer benefits in excess of amounts provided under the Company's 401K Plan and a portion of the employee's current compensation.
(13) FAIR VALUE MEASUREMENTS
ASC Topic 820, "Fair Value Measurements and Disclosures," defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants.
ASC Topic 820's valuation techniques are based on observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs have created the following fair value hierarchy:
·
|
Level 1- Quoted prices for identical instruments in active markets
|
·
|
Level 2- Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant value drivers are observable
|
·
|
Level 3- Valuations derived from valuation techniques in which significant value drivers are unobservable
|
Marketable debt and equity securities are valued based on quoted market prices on national exchanges.
The Company calculates the fair value of the redeemable noncontrolling interests based on either quoted market prices on national exchanges or unobservable inputs considering the assumptions that market participants would make in pricing the obligations. The inputs used include an estimate of the fair value of the cash flow generated by the limited partnership in which the investor owns the partnership units.
The fair values of interest rate swaps are determined using widely accepted valuation techniques, including discounted cash flow analysis, on the expected cash flows of each derivative. The analysis reflects the contractual terms of the swaps, including the period to maturity, and uses observable market-based inputs, including interest rate curves ("significant other observable inputs.") The fair value calculation also includes an amount for risk of non-performance using "significant unobservable inputs" such as estimates of current credit spreads to evaluate the likelihood of default. The Company has concluded, as of October 31, 2012, that the fair value associated with the "significant unobservable inputs" relating to the Company's risk of non-performance was insignificant to the overall fair value of the interest rate swap agreements and, as a result, the Company has determined that the relevant inputs for purposes of calculating the fair value of the interest rate swap agreements, in their entirety, were based upon "significant other observable inputs".
The Company measures its redeemable noncontrolling interests, marketable equity and debt securities classified as available for sale securities and interest rate swap derivative at fair value on a recurring basis. The fair value of these financial assets and liabilities was determined using the following inputs at October 31, 2012 and 2011 (amounts in thousands):
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
Total
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
|
Significant Other Observable Inputs
(Level 2)
|
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Fiscal Year Ended October 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale Securities
|
|
$
|
994
|
|
|
$
|
994
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Agreement
|
|
$
|
55
|
|
|
$
|
-
|
|
|
$
|
55
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests
|
|
$
|
11,421
|
|
|
$
|
8,584
|
|
|
$
|
-
|
|
|
$
|
2,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended October 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale Securities
|
|
$
|
932
|
|
|
$
|
932
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap Agreement
|
|
$
|
128
|
|
|
$
|
-
|
|
|
$
|
128
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests
|
|
$
|
2,824
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,824
|
|
Fair market value measurements based upon Level 3 inputs changed from $3,911 at November 1, 2010 to $2,824 at October 31, 2011 as a result of a $281,000 increase in the redemption value of the Company's noncontrolling interest in Ironbound in accordance with the application of ASC Topic 810, offset by a $1.4 million redemption of a portion of the Company's noncontrolling interests in Ironbound. Fair market value measurements based upon Level 3 inputs changed from $2,824 at November 1, 2011 to $2,837 at
October 31
, 2012 as a result of a $13,000 increase in the redemption value of the Company's noncontrolling interest in Ironbound in accordance with the application of ASC Topic 810. (See note 9)
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, restricted cash, tenant receivables, prepaid expenses, other assets, accounts payable, accrued expenses, revolving lines of credit and other liabilities are reasonable estimates of their fair values because of the short-term nature of these instruments.
The estimated fair value of the mortgage note receivable collateralized by real property is based on discounting the future cash flows at a year-end risk adjusted lending rate that the Company would utilize for loans of similar risk and duration. At October 31, 2012 and October 31, 2011, the estimated aggregate fair value of the mortgage note receivable was approximately $900,000 and $ 1.1 million, respectively.
The estimated fair value of mortgage notes payable was approximately $139 million and $125 million at October 31, 2012 and October 31, 2011, respectively. The estimated fair value of mortgage notes payable is based on discounting the future cash flows at a year-end risk adjusted borrowing rate currently available to the Company for issuance of debt with similar terms and remaining maturities.
Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
(14) COMMITMENTS AND CONTINGENCIES
In the normal course of business, from time to time, the Company is involved in legal actions relating to the ownership and operations of its properties. In management's opinion, the liabilities, if any, that ultimately may result from such legal actions are not expected to have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company.
At October 31, 2012, the Company had commitments of approximately $1.8 million for tenant-related obligations.
(15) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The unaudited quarterly results of operations for the years ended October 31, 2012 and 2011 are as follows (in thousands, except per share data):
|
|
Year Ended October 31, 2012
|
|
|
Year Ended October 31, 2011
|
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
|
Jan 31
|
|
|
Apr 30
|
|
|
July 31
|
|
|
Oct 31
|
|
|
Jan 31
|
|
|
Apr 30
|
|
|
July 31
|
|
|
Oct 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
22,684
|
|
|
$
|
22,485
|
|
|
$
|
23,083
|
|
|
$
|
23,059
|
|
|
$
|
24,526
|
|
|
$
|
22,353
|
|
|
$
|
21,961
|
|
|
$
|
22,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Urstadt Biddle Properties Inc.
|
|
$
|
7,037
|
|
|
$
|
6,674
|
|
|
$
|
7,494
|
|
|
$
|
7,053
|
|
|
$
|
10,149
|
|
|
$
|
6,913
|
|
|
$
|
7,522
|
|
|
$
|
7,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Dividends
|
|
|
(3,273
|
)
|
|
|
(3,274
|
)
|
|
|
(3,273
|
)
|
|
|
(3,447
|
)
|
|
|
(3,273
|
)
|
|
|
(3,274
|
)
|
|
|
(3,273
|
)
|
|
|
(3,274
|
)
|
Redemption of Preferred Stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,027
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Applicable to Common and Class A Common Stockholders
|
|
$
|
3,764
|
|
|
$
|
3,400
|
|
|
$
|
4,221
|
|
|
$
|
1,579
|
|
|
$
|
6,876
|
|
|
$
|
3,639
|
|
|
$
|
4,249
|
|
|
$
|
3,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
.14
|
|
|
$
|
.12
|
|
|
$
|
.15
|
|
|
$
|
.06
|
|
|
$
|
.25
|
|
|
$
|
.13
|
|
|
$
|
.16
|
|
|
$
|
.14
|
|
Common Stock
|
|
$
|
.13
|
|
|
$
|
.11
|
|
|
$
|
.14
|
|
|
$
|
.05
|
|
|
$
|
.23
|
|
|
$
|
.12
|
|
|
$
|
.14
|
|
|
$
|
.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
.13
|
|
|
$
|
.12
|
|
|
$
|
.15
|
|
|
$
|
.05
|
|
|
$
|
.25
|
|
|
$
|
.13
|
|
|
$
|
.15
|
|
|
$
|
.14
|
|
Common Stock
|
|
$
|
.12
|
|
|
$
|
.11
|
|
|
$
|
.14
|
|
|
$
|
.05
|
|
|
$
|
.23
|
|
|
$
|
.12
|
|
|
$
|
.14
|
|
|
$
|
.12
|
|