* Represents the issuance of treasury shares to retired Trustee for share units earned.
* Represents the issuance of treasury shares to consultant and retired Trustee for share units earned.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Basis of presentation:
The accompanying interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and pursuant to the rules of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnotes required by GAAP for complete financial statements have been omitted. It is the opinion of management that all adjustments considered necessary for a fair presentation have been included, and that all such adjustments are of a normal recurring nature.
The consolidated results of operations for the six and three-month periods ended April 30, 2021 are not necessarily indicative of the results to be expected for the full year or any other period. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended October 31, 2020 of First Real Estate Investment Trust of New Jersey (“FREIT”, “Trust”, “us”, “we”, “our” or the “Company”).
Reclassification:
Certain prior year cash flow line items have been reclassified to conform to the current year presentation.
Note 2 – Recently issued accounting standards:
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-13 "Financial Instruments – Credit Losses (Topic 326)", which amends the current approach to estimate credit losses on certain financial assets, including trade and other receivables, available-for-sale securities, and other financial instruments. Generally, this amendment requires entities to establish a valuation allowance for the expected lifetime losses of these certain financial assets. Subsequent changes in the valuation allowance are recorded in current earnings and reversal of previous losses are permitted. Currently, U.S. GAAP requires entities to write down credit losses only when losses are probable and loss reversals are not permitted. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. In November 2018, the FASB issued ASU 2018-19 “Codification Improvements to Topic 326, Financial Instruments—Credit Losses”, which clarifies that operating lease receivables are outside the scope of the new standard. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, “Leases (Topic 842)”. FREIT does not expect the adoption of this new accounting guidance to have a significant impact on its consolidated financial statements and footnote disclosures.
Note 3 – Dividends and earnings per share:
The Board of Trustees (“Board”) declared a second quarter dividend of $0.05 per share which will be paid on June 15, 2021 to shareholders of record on June 1, 2021. The Board will continue to evaluate the dividend on a quarterly basis.
Basic earnings per share is calculated by dividing net income attributable to common equity (numerator) by the weighted average number of shares and vested share units (See Note 14 to FREIT’s condensed consolidated financial statements) outstanding during each period (denominator). The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include the number of additional shares that would have been outstanding if all potentially dilutive shares, such as those issuable upon the exercise of stock options, were issued during the period using the Treasury Stock method. Under the Treasury Stock method, the assumption is that the proceeds received upon exercise of the options, including the unrecognized stock option compensation expense attributable to future services, are used to repurchase FREIT’s stock at the average market price during the period, thereby increasing the number of shares to be added in computing diluted earnings per share. For the six months ended April 30, 2021, the outstanding stock options were anti-dilutive with no impact on earnings per share. For the three months ended April 30, 2021, the outstanding stock options increased the average dilutive shares outstanding by approximately 2,000 shares with no impact on earnings per share. For the six months ended April 30, 2020, the outstanding stock options increased the average dilutive shares outstanding by approximately 19,000 shares with a $0.01 impact on earnings per share. For the three months ended April 30, 2020, the outstanding stock options increased the average dilutive shares outstanding by approximately 37,000 shares with a $0.01 impact on earnings per share. There were approximately 311,000 and 268,000 anti-dilutive shares for the six and three months ended April 30, 2021, respectively. There were approximately 38,000 anti-dilutive shares for the six and three months ended April 30, 2020. Anti-dilutive shares consist of out-of-the money stock options under the Equity Incentive Plan.
Note 4 – Interest rate cap and swap contracts:
In accordance with “Accounting Standards Codification Topic 815, Derivatives and Hedging ("ASC 815")”, FREIT is accounting for the Damascus Centre, LLC (“Damascus Centre”), FREIT Regency, LLC (“Regency”), Wayne PSC, LLC (“Wayne PSC”) and Station Place on Monmouth (“Station Place”) interest rate swaps and the Grande Rotunda, LLC (“Grande Rotunda”) interest rate cap as cash flow hedges marking these contracts to market, taking into account present interest rates compared to the contracted
fixed rate over the life of the contract and recording the unrealized gain or loss on the swaps and cap in comprehensive income. For the six and three months ended April 30, 2021, FREIT recorded an unrealized gain of approximately $1,675,000 and $1,177,000, respectively, in the condensed consolidated statements of comprehensive income representing the change in the fair value of these cash flow hedges during such period. For the six and three months ended April 30, 2020, FREIT recorded an unrealized loss of approximately $3,372,000 and $2,982,000, respectively, in the condensed consolidated statements of comprehensive income representing the change in the fair value of these cash flow hedges during such period. As of April 30, 2021, there was a liability of approximately $459,000 for the Damascus Centre swaps, $616,000 for the Wayne PSC swap, $1,068,000 for the Regency swap, $1,106,000 for the Station Place swap and $0 for the Grande Rotunda interest rate cap. As of October 31, 2020, FREIT recorded a liability of approximately $610,000 for the Damascus Centre swaps, $1,260,000 for the Wayne PSC swap, $1,385,000 for the Regency swap, $1,669,000 for the Station Place swap and $0 for the Grande Rotunda interest rate cap.
The fair values are based on observable inputs (level 2 in the fair value hierarchy as provided by authoritative guidance).
Note 5 – Investment in tenancy-in-common:
On February 28, 2020, FREIT reorganized its subsidiary S and A Commercial Associates Limited Partnership (“S&A”) from a partnership into a tenancy-in-common form of ownership (“TIC”). Prior to this reorganization, FREIT owned a 65% membership interest in S&A, which owned 100% of the Pierre Towers property located in Hackensack, NJ through its 100% interest in Pierre Towers, LLC. Accordingly, FREIT consolidated the financial statements of S&A and its subsidiary to include 100% of the subsidiary’s assets, liabilities, operations and cash flows with the interest not owned by FREIT reflected as “noncontrolling interests in subsidiary” and all significant intercompany accounts and transactions were eliminated in consolidation.
Pursuant to the TIC agreement, FREIT ultimately acquired a 65% undivided interest in the Pierre Towers property which was formerly owned by S&A. Based on the guidance of Accounting Standards Codification 810, “Consolidation”, FREIT’s investment in the TIC is accounted for under the equity method of accounting. While FREIT’s effective ownership percentage interest in the Pierre Towers property remains unchanged after the reorganization to a TIC, FREIT no longer has a controlling interest as the TIC is now under joint control. Since FREIT retained a noncontrolling financial interest in the TIC, and the deconsolidation of the subsidiary (as of February 28, 2020) is not the result of a nonreciprocal transfer to owners, FREIT recognized a gain in the amount of approximately $27.7 million in the accompanying condensed consolidated statements of income for the six and three months ended April 30, 2020. This gain was measured at the date of deconsolidation as the difference between the fair value of the investment in the TIC at the date the entity was deconsolidated and the carrying amount of the former subsidiary’s assets and liabilities.
FREIT’s investment in the TIC was approximately $19.5 million and $20.1 million at April 30, 2021 and October 31, 2020, respectively. For the six and three months ended April 30, 2021, FREIT recognized a loss on investment in TIC of approximately $145,000 and $118,000, respectively, in the accompanying condensed consolidated statements of income. For the six and three months ended April 30, 2020, FREIT recognized a loss on investment in TIC of approximately $18,000 and $18,000, respectively, in the accompanying condensed consolidated statements of income.
Hekemian & Co., Inc. (“Hekemian”) currently manages the Pierre Towers property based on a management agreement between the owners of the TIC and Hekemian dated as of February 28, 2020, which expires on February 28, 2022, and is automatically renewed for successive periods of one year unless either party gives not less than sixty (60) days prior notice of non-renewal. The management agreement requires the payment of management fees equal to 5% of rents collected. Management fees, charged to operations, were approximately $187,000 and $95,000 for the six and three months ended April 30, 2021, respectively, and $62,000 for the period from February 28, 2020 through April 30, 2020. The Pierre Towers property also uses the resources of the Hekemian insurance department to secure various insurance coverages for its property. Hekemian is paid a commission for these services. Such commissions were charged to operations and amounted to approximately $10,000 and $0 for the six and three months ended April 30, 2021, respectively, and $0 for the period from February 28, 2020 through April 30, 2020.
The following table summarizes the balance sheets of the Pierre Towers property as of April 30, 2021 and October 31, 2020, accounted for by the equity method:
|
|
|
April 30,
|
|
|
October 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
(In Thousands of Dollars)
|
|
|
|
|
|
|
|
Real estate, net
|
|
$
|
79,052
|
|
$
|
80,041
|
Cash and cash equivalents
|
|
|
580
|
|
|
754
|
Tenants' security accounts
|
|
|
510
|
|
|
523
|
Receivables and other assets
|
|
|
601
|
|
|
468
|
Total assets
|
|
$
|
80,743
|
|
$
|
81,786
|
|
|
|
|
|
|
|
Mortgages payable, net of unamortized debt issuance costs
|
|
$
|
49,823
|
|
$
|
49,956
|
Accounts payable and accrued expenses
|
|
|
280
|
|
|
314
|
Tenants' security deposits
|
|
|
507
|
|
|
535
|
Deferred revenue
|
|
|
82
|
|
|
56
|
Equity
|
|
|
30,051
|
|
|
30,925
|
Total liabilities & equity
|
|
$
|
80,743
|
|
$
|
81,786
|
|
|
|
|
|
|
|
FREIT's investment in TIC (65% interest)
|
|
$
|
19,533
|
|
$
|
20,101
|
The following table summarizes the statements of operations of the Pierre Towers property for the six and three months ended April 30, 2021 and for the period from February 28, 2020 through April 30, 2020, accounted for by the equity method:
|
|
|
|
|
|
|
|
For the period from
|
|
|
Six Months Ended
|
|
Three Months Ended
|
|
February 28, 2020
|
|
|
April 30, 2021
|
|
April 30, 2021
|
|
through April 30, 2020
|
|
|
|
(In Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,774
|
|
$
|
1,883
|
|
$
|
1,242
|
Operating expenses
|
|
|
2,114
|
|
|
1,123
|
|
|
643
|
Net operating income
|
|
|
1,660
|
|
|
760
|
|
|
599
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,081
|
|
|
541
|
|
|
358
|
Interest expense including amortization of deferred financing costs
|
|
|
802
|
|
|
401
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(223)
|
|
$
|
(182)
|
|
$
|
(27)
|
|
|
|
|
|
|
|
|
|
|
FREIT's loss on investment in TIC (65% interest)
|
|
$
|
(145)
|
|
$
|
(118)
|
|
$
|
(18)
|
Note 6 – Termination of Purchase and Sale Agreement:
On January 14, 2020, FREIT and certain of its affiliates (collectively, the “Sellers”), entered into a Purchase and Sale Agreement (as subsequently amended, the “Purchase and Sale Agreement”) with Sinatra Properties LLC (the “Purchaser”), which as subsequently amended, provided for the sale by the Sellers to the Purchaser of 100% of the Sellers’ ownership interests in six real properties held by the Sellers in exchange for the purchase price described therein, subject to the terms and conditions of the Purchase and Sale Agreement. On April 30, 2020, the Sellers delivered written notice to the Purchaser of the Sellers’ termination of the Purchase and Sale Agreement in accordance with its terms due to the occurrence of a “Purchaser Default” thereunder, based on the Purchaser’s failure to perform its obligations under the Purchase and Sale Agreement and close the transactions contemplated therein.
Upon the execution of the Purchase and Sale Agreement, the Purchaser delivered into escrow a deposit in the amount of $15 million (the “Deposit”), in the form of an unconditional, irrevocable letter of credit in such amount (the “Letter of Credit”). The Purchase and Sale Agreement provides that the Sellers’ exclusive remedy, in the event of a “Purchaser Default” and the termination of the Purchase and Sale Agreement, is the forfeiture of the Deposit to the Sellers as liquidated damages. Accordingly, contemporaneously with the Sellers’ delivery of the termination notice to the Purchaser, the Sellers delivered written notice to the escrow agent requesting that the escrow agent release the Letter of Credit from escrow and deliver same to the Sellers.
On May 6, 2020, the Purchaser filed a complaint (the “Complaint”) against the Sellers in the Superior Court of New Jersey, in which, among other things, the Purchaser alleges breach of contract and breach of the covenant of good faith and fair dealing against the Sellers in connection with the Sellers’ termination of the Purchase and Sale Agreement. The Purchaser seeks (a) a judgment of specific performance compelling the Sellers to convey the properties under the Purchase and Sale Agreement to the Purchaser; (b) declaratory judgment from the court that (i) the Purchase and Sale Agreement is not terminated, (ii) the Purchaser is not in default under the Purchase and Sale Agreement, and (iii) the Sellers are in default under the Purchase and Sale Agreement, subject to a right to cure; (c) an order for injunctive relief compelling the Sellers to perform the Purchase and Sale Agreement; (d)
in the event that the court does not order specific performance, a judgment directing that the Purchaser’s $15 million deposit under the Purchase and Sale Agreement be returned to the Purchaser, and compensatory, consequential and incidental damages in an amount to be determined at trial; and (e) attorneys’ fees and costs.
The Purchaser has filed lis pendens with respect to each of the six properties that were subject to the Purchase and Sale Agreement. The lis pendens provides notice to the public of the Complaint. Pending the resolution of this litigation, the filing of the lis pendens will adversely affect the future sale or financing of those properties.
On June 17, 2020, the Sellers filed their answer, separate defenses, and counterclaims (the “Answer”) in response to the Complaint, in which, among other things, the Sellers (a) deny the Purchaser’s claim that the Sellers’ termination of the Purchase and Sale Agreement was wrongful, and assert that there was no contractual basis in the Purchase and Sale Agreement to relieve the Purchaser from its obligation to perform thereunder, or to defer or postpone the Purchaser’s obligation to perform, (b) assert certain defenses to the allegations set forth in the Complaint without admitting any liability, and (c) request relief from the Court in the form of (i) judgment in the Sellers’ favor dismissing all of the Purchaser’s claims against them with prejudice and denying all of the Purchaser’s requests for relief, (ii) reasonable attorneys’ fees and costs, and (iii) such other and further relief as the Court deems just.
In addition, the Answer asserts counterclaims by the Sellers against the Purchaser for breach of contract due to the Purchaser’s failure to close the Purchase and Sale Agreement in accordance with its terms, and the Sellers seek a declaratory judgment from the Court that the Sellers properly terminated the Purchase and Sale Agreement in accordance with its terms due to the Purchaser’s default and an order from the Court that the Purchaser authorize the escrow agent to release the $15 million deposit under the Purchase and Sale Agreement to the Sellers. On April 28, 2021, the Sellers amended the Answer to include (1) counterclaims against the Purchaser for breach of contract due to the Purchaser’s breach of confidentiality and non-disclosure obligations contained in the Purchase and Sale Agreement, and (2) third-party claims against Purchaser’s affiliate Kushner Realty Acquisition LLC for breach of its confidentiality and non-disclosure obligations contained in the non-disclosure agreement entered into by the parties in connection with the negotiation of the transactions contemplated by the Purchase and Sale Agreement, based on the conduct of the Purchaser and its affiliates after the Sellers terminated the Purchase and Sale Agreement.
In connection with these counterclaims and third-party claims, the Answer seeks the following relief from the Court: (a) liquidated damages in the amount of $15 million, as provided in the Purchase and Sale Agreement; (b) in the alternative to the liquidated damages provided for in the Purchase and Sale Agreement, money damages in an amount to be determined at trial; (c) interest, attorneys’ fees and costs associated with the defense of the Purchaser’s claims and the prosecution of the Sellers’ counterclaims against the Purchaser, as provided for in the Purchase and Sale Agreement; (d) judgment declaring that the Sellers properly terminated the Purchase and Sale Agreement due to the Purchaser’s default thereunder; (e) judgment declaring that the Purchaser must authorize the escrow agent to release the $15 million deposit to the Sellers; (f) an order enjoining the Purchaser and its affiliates from engaging in further breaches of the Purchase and Sale Agreement and non-disclosure agreement, and compelling the Purchaser and its affiliates to return the Sellers’ confidential information and materials and to use best efforts to ensure the return of the Sellers’ confidential information and materials from third parties to whom the Purchaser and/or its affiliates provided such materials; and (g) such other relief as the Court deems just and equitable.
In the Answer filed by the Purchaser on September 15, 2020 and the Answer and Affirmative Defenses filed by the Purchaser and Kushner Realty Acquisition LLC on June 7, 2021, the Purchaser and Kushner Realty Acquisition LLC have generally denied the claims, counterclaims and allegations contained in the Sellers’ original and amended Answer, and asserted affirmative defenses to the Sellers’ claims and counterclaims.
The Sellers believe that the allegations set forth in the Complaint and Answer filed by the Purchaser and in the Answer and Affirmative Defenses filed by the Purchaser and Kushner Realty Acquisition LLC are without merit and intend to vigorously defend the action and enforce the Sellers’ rights and remedies under the Purchase and Sale Agreement in connection with the “Purchaser Default” thereunder, including the Purchaser’s forfeiture of its $15 million deposit to the Sellers as liquidated damages as provided in the Purchase and Sale Agreement. As of the quarter ended April 30, 2021, the $15 million deposit has not been included in income in the accompanying condensed consolidated statements of income.
For the six and three months ended April 30, 2020, the Special Committee of the Board (“Special Committee”) incurred on behalf of the Company third party transaction costs for advisory, legal and other expenses primarily related to the Purchase and Sale Agreement and the Plan of Liquidation discussed in Note 7 in the amount of approximately $4,519,000 and $1,137,000, respectively, compared to $0 and $0, respectively, for the six and three months ended April 30, 2021. On April 30, 2020, the Sellers delivered written notice to the Purchaser of the Sellers' termination of the Purchase and Sale Agreement and on May 7, 2020, the Board approved the elimination of the Special Committee. No further transaction costs were incurred thereafter. Legal costs attributed to the legal proceedings between FREIT and certain of its affiliates and Sinatra Properties, LLC have been incurred in the amount of approximately $1,108,000 and $628,000 for the six and three months ended April 30, 2021, respectively, and $0 and $0, for the six and three months ended April 30, 2020, respectively, and are included in operating expenses on the condensed consolidated statements of income.
Note 7 – Termination of Plan of Liquidation:
On January 14, 2020, the Trust’s Board of Trustees adopted a Plan of Voluntary Liquidation with respect to the Trust (the “Plan of Liquidation”), which provided for the voluntary dissolution, termination and liquidation of the Trust by the sale, conveyance, transfer or delivery of all of the Trust’s remaining assets in accordance with the terms and conditions of the Plan of Liquidation and the Internal Revenue Code of 1986, as amended, and the Treasury regulations thereunder. The Plan of Liquidation provided that it would become effective upon (i) approval by a majority of the votes cast by Trust’s shareholders present in person or represented by proxy at a duly called meeting of the Trust’s shareholders at which a quorum is present and (ii) the consummation of the transactions contemplated by the Purchase and Sale Agreement.
While the Plan of Liquidation received shareholder approval, the Plan of Liquidation did not become effective as the Sellers terminated the Purchase and Sale Agreement by written notice delivered to the Purchaser on April 30, 2020, and the transactions
contemplated thereby were not consummated. Accordingly, the Trust did not proceed with the sale, conveyance, transfer or delivery of all of the Trust’s remaining assets as contemplated by the Plan of Liquidation that was adopted by the Board on January 14, 2020.
Note 8 – Management agreement, fees and transactions with related party:
Hekemian currently manages all the properties owned by FREIT and its affiliates, except for the office building at The Rotunda located in Baltimore, Maryland, which is managed by an independent third party management company. The management agreement between FREIT and Hekemian dated as of November 1, 2001 (“Management Agreement”) has been renewed and will expire on October 31, 2023. The Management Agreement is automatically renewed for successive periods of two years unless either party gives not less than six (6) months prior notice of non-renewal.
The Management Agreement requires the payment of management fees equal to 4% to 5% of rents collected. Such fees, charged to operations, were approximately $1,062,000 and $1,198,000 for the six months ended April 30, 2021 and 2020, respectively, and $549,000 and $499,000 for the three months ended April 30, 2021 and 2020, respectively. In addition, the management agreement provides for the payment to Hekemian of leasing commissions, as well as the reimbursement of operating expenses incurred on behalf of FREIT. Such commissions and reimbursements amounted to approximately $255,000 and $704,000 for the six months ended April 30, 2021 and 2020, respectively, and $126,000 and $229,000 for the three months ended April 30, 2021 and 2020, respectively. FREIT also uses the resources of the Hekemian insurance department to secure various insurance coverages for its properties and subsidiaries. Hekemian is paid a commission for these services. Such commissions were charged to operations and amounted to approximately $71,000 and $56,000 for the six months ended April 30, 2021 and 2020, respectively, and $2,000 and $4,000 for the three months ended April 30, 2021 and 2020, respectively.
From time to time, FREIT engages Hekemian, or certain affiliates of Hekemian, to provide additional services, such as consulting services related to development, property sales and financing activities of FREIT. Separate fee arrangements are negotiated between Hekemian and FREIT with respect to such additional services. Such fees incurred for the six and three months ended April 30, 2021 were approximately $236,500 and $236,500, respectively. Fees incurred during Fiscal 2021 related to commissions to Hekemian for the following: $150,000 for the extension of the Grande Rotunda, LLC loan; $54,000 for the extension and modification of the WestFREIT, Corp. loan; $32,500 for the renewal of FREIT’s line of credit. There were no such fees incurred for the six and three months ended April 30, 2020.
Robert S. Hekemian, Jr., Chief Executive Officer, President and a Trustee of the Trust, is the President and Chief Operating Officer of Hekemian. David B. Hekemian, a Trustee of the Trust, is the Principal/Broker – Salesperson and Director of Commercial Brokerage of Hekemian. Robert S. Hekemian, the former Chairman and Chief Executive Officer of the Trust, served as a consultant to the Trust and Chairman of the Board and Chief Executive Officer of Hekemian prior to his death in December 2019. Allan Tubin, Chief Financial Officer and Treasurer of the Trust, is the Chief Financial Officer of Hekemian.
Trustee fee expense and/or executive compensation (including interest and dividends) incurred by FREIT for the six months ended April 30, 2021 and 2020 was approximately $0 and $21,000, respectively, for Robert S. Hekemian, $232,000 and $236,000, respectively, for Robert S. Hekemian, Jr., $15,000 and $15,000, respectively, for Allan Tubin and $27,000 and $31,000, respectively, for David Hekemian. Trustee fee expense and/or executive compensation (including interest and dividends) incurred by FREIT for the three months ended April 30, 2021 and 2020 was approximately $0 and $0, respectively, for Robert S. Hekemian, $116,000 and $117,000, respectively, for Robert S. Hekemian, Jr., $8,000 and $8,000, respectively, for Allan Tubin and $10,000 and $15,000, respectively, for David Hekemian (See Note 14 to FREIT’s condensed consolidated financial statements).
Effective upon the late Robert S. Hekemian’s retirement as Chairman, Chief Executive Officer and as a Trustee on April 5, 2018, FREIT entered into a Consulting Agreement with Mr. Hekemian, pursuant to which Mr. Hekemian provided consulting services to the Trust through December 2019. The Consulting Agreement obliged Mr. Hekemian to provide advice and consultation with respect to matters pertaining to the Trust and its subsidiaries, affiliates, assets and business, for no fewer than 30 hours per month during the term of the agreement. FREIT paid Mr. Hekemian a consulting fee of $5,000 per month during the term of the Consulting Agreement, which was payable in the form of Shares on a quarterly basis (i.e. in quarterly installments of $15,000). The number of Shares to be issued for each quarterly installment of the consulting fee was determined by dividing the dollar amount of the consulting fee by the closing price of one Share on the OTC Pink Open Market as of the close of trading on the last trading day of the calendar quarter with respect to which such consulting fee was payable. For the six and three months ended April 30, 2021, there were no consulting fee expenses for Robert S. Hekemian. For the six and three months ended April 30, 2020, consulting fee expense for Robert S. Hekemian was approximately $8,000 and $0, respectively.
The equity owners of Rotunda 100, LLC (“Rotunda 100”), which owns a 40% minority equity interest in Grande Rotunda, are principally employees of Hekemian. To incentivize the employees of Hekemian, FREIT advanced, only to employees of Hekemian, up to 50% of the amount of the equity contributions that the Hekemian employees were required to invest in Rotunda 100. These advances were in the form of secured loans that bear interest at rates that float at 225 basis points over the ninety (90) day LIBOR, as adjusted each November 1, February 1, May 1 and August 1. These loans are secured by the Hekemian employees’ interests in Rotunda 100 and are full recourse loans. On December 7, 2017, the Board approved a further extension of the
previously amended maturity dates of these loans to the date or dates upon which distributions of cash are made by Grande Rotunda to its members as a result of a refinancing or sale of Grande Rotunda or the Rotunda property.
The aggregate outstanding principal balance of the Rotunda 100 notes was $4,000,000 at both April 30, 2021 and October 31, 2020. The accrued but unpaid interest related to these notes as of April 30, 2021 and October 31, 2020 amounted to approximately $1,244,000 and $1,194,000, respectively, and is included in secured loans receivable on the accompanying condensed consolidated balance sheets.
In Fiscal 2017, Grande Rotunda incurred substantial expenditures at the Rotunda property related to retail tenant improvements, leasing costs and operating expenditures which, in the aggregate, exceeded revenues as the property was still in the rent up phase and the construction loan held with Wells Fargo at that time was at its maximum level, with no additional funding available to draw. Accordingly, during Fiscal 2017 the equity owners in Grande Rotunda (FREIT with a 60% ownership and Rotunda 100 with a 40% ownership) contributed their respective pro-rata share of any cash needs through loans to Grande Rotunda, LLC. In the second quarter of Fiscal 2021, Grande Rotunda repaid $2 million to the equity owners in Grande Rotunda based on their respective pro-rata share resulting in a loan repayment to Rotunda 100 of approximately $0.8 million. As of April 30, 2021 and October 31, 2020, Rotunda 100 has funded Grande Rotunda with approximately $5.2 million and $5.9 million (including interest), respectively, which is included in “Due to affiliate” on the accompanying condensed consolidated balance sheets.
Note 9 – Mortgage financings and line of credit:
On September 30, 2020, Westwood Hills, LLC (“Westwood Hills”), a consolidated subsidiary, refinanced its $19.2 million loan (which would have matured on November 1, 2020) with a new loan held by ConnectOne Bank in the amount of $25,000,000, with additional funding available in the amount of $250,000 for legal fees potentially incurred by the lender related to the lis pendens on this property. (See Note 6 to FREIT’s condensed consolidated financial statements for additional details in regards to the lis pendens.) This loan, secured by an apartment building in Westwood, New Jersey, is interest-only based on a floating rate at 400 basis points over the one-month LIBOR rate with a floor of 4.15% and has a maturity date of October 1, 2022 with the option of Westwood Hills to extend for two (2) additional six (6)-month periods from the maturity date, subject to certain provisions of the loan agreement. This refinancing resulted in: (i) a change in the annual interest rate from a fixed rate of 4.62% to a variable rate with a floor of 4.15% and (ii) net refinancing proceeds of approximately $5.6 million that were distributed to the partners in Westwood Hills with FREIT receiving approximately $2.2 million based on its 40% membership interest in Westwood Hills. As of April 30, 2021, $25,000,000 of this loan was drawn and outstanding and the interest rate was based on the floor of 4.15%.
On April 3, 2019, WestFREIT Corp. (owned 100% by FREIT) exercised its option to extend its loan secured by the Westridge Square shopping center in Frederick, Maryland, held by M&T Bank, with a then outstanding balance of approximately $22.5 million, for twelve months. Effective beginning on June 1, 2019, the extension of this loan required monthly principal payments of $47,250 plus interest based on a floating interest rate equal to 240 basis points over the one-month LIBOR and had a maturity date of May 1, 2020. This loan was extended to November 1, 2020 and further extended to January 31, 2021 under the same terms and conditions of the existing agreement. WestFREIT Corp. entered into a loan extension and modification agreement with M&T Bank, effective beginning on February 1, 2021, which requires monthly principal payments of $49,250 plus interest based on a floating interest rate equal to 255 basis points over the one-month LIBOR and has a maturity date of January 31, 2022, with the option of WestFREIT Corp. to extend for an additional one-year period through January 31, 2023, subject to certain requirements as provided for in the loan agreement including the lease-up of certain space. As of April 30, 2021, approximately $21.5 million of this loan was outstanding and the interest rate was approximately 2.68%.
On February 7, 2018, Grande Rotunda refinanced its construction loan with a new loan held by Aareal Capital Corporation in the amount of approximately $118.5 million with additional funding which was available through February 6, 2021 for retail tenant improvements and leasing costs in the amount of $3,380,000. This loan bears a floating interest rate at 285 basis points over the one-month LIBOR rate and had a maturity date of February 6, 2021 with two one-year options of Grande Rotunda to extend the maturity of this loan, subject to certain requirements as provided for in the loan agreement. Grande Rotunda had purchased an interest rate cap on LIBOR for the full amount that could have been drawn on this loan of $121.9 million, capping the one-month LIBOR rate at 3% for the first two years of this loan which matured on March 5, 2020. On February 28, 2020, Grande Rotunda had purchased an interest rate cap on LIBOR, with an effective date of March 5, 2020, for the full amount that could have been drawn on this loan of $121.9 million, capping the one-month LIBOR rate at 3% for one year, which matured on March 5, 2021. Effective February 6, 2021, Grande Rotunda exercised the first extension option on this loan with a balance in the amount of approximately $118.5 million, extending the loan one year with a new maturity date of February 6, 2022, which may be extended further for an additional one-year term at Grande Rotunda’s option. Principal payments in the amount of $500,000 were required upon exercise of the first loan extension option and per calendar quarter thereafter. If the second loan extension option is exercised, principal payments in the amount of $750,000 will be required upon exercise of the second loan extension option and per calendar quarter thereafter. Additionally, Grande Rotunda purchased an interest rate cap on LIBOR, with an effective date of March 5, 2021, for the loan amount of approximately $118.5 million, capping the one-month LIBOR rate at 3% for one year expiring on February 6, 2022. At April 30, 2021, the total amount outstanding on this loan was approximately $117.5 million and the interest rate was approximately 2.96%.
FREIT’s revolving line of credit provided by the Provident Bank was renewed for a three-year term ending on October 31, 2023. Draws against the credit line can be used for working capital needs and standby letters of credit. Draws against the credit line are secured by mortgages on FREIT’s Franklin Crossing Shopping Center in Franklin Lakes, New Jersey and retail space in Glen Rock, New Jersey. The total line of credit is $13 million and the interest rate on the amount outstanding is based on a floating interest rate of prime minus 25 basis points with a floor of 3.75%. As of April 30, 2021 and October 31, 2020, there was no amount outstanding and $13 million was available under the line of credit.
The lis pendens filed in connection with the legal proceeding between FREIT and certain of its affiliates and Sinatra Properties, LLC may adversely affect FREIT’s ability to refinance certain of its residential properties. (See Note 6 to FREIT’s condensed consolidated financial statements for additional details.)
As a result of the negative impact of the COVID-19 pandemic at our commercial properties, in Fiscal 2020 we were granted debt payment relief from certain of our lenders on such properties in the form of deferral of principal and/or interest payments for a three-month period, resulting in total deferred payments of approximately $1,013,000 which will become due at the maturity of the loans. As of April 30, 2021 and October 31, 2020, approximately $162,000 of this amount has been repaid. There will be no further deferrals of principal and/or interest payments on these loans and the balance due has been included in mortgages payable on the condensed consolidated balance sheets as of April 30, 2021 and October 31, 2020.
Note 10 – Fair value of long-term debt:
The following table shows the estimated fair value and net carrying value of FREIT’s long-term debt at April 30, 2021 and October 31, 2020:
($ in Millions)
|
|
April 30, 2021
|
|
October 31, 2020
|
|
|
|
|
|
Fair Value
|
|
$303.8
|
|
$311.4
|
|
|
|
|
|
Carrying Value, Net
|
|
$302.4
|
|
$305.4
|
Fair values are estimated based on market interest rates at April 30, 2021 and October 31, 2020 and on a discounted cash flow analysis. Changes in assumptions or estimation methods may significantly affect these fair value estimates. The fair value is based on observable inputs (level 2 in the fair value hierarchy as provided by authoritative guidance).
Note 11 – Segment information:
FREIT has determined that it has two reportable segments: commercial properties and residential properties. These reportable segments offer different types of space, have different types of tenants, and are managed separately because each requires different operating strategies and management expertise. The commercial segment is comprised of eight (8) properties and the residential segment is comprised of seven (7) properties, excluding the Pierre Towers property which was converted into a TIC and deconsolidated from FREIT’s operating results as of February 28, 2020 (See Note 5 to FREIT’s condensed consolidated financial statements for further details).
The accounting policies of the segments are the same as those described in Note 1 in FREIT’s Annual Report on Form 10-K for the fiscal year ended October 31, 2020. The chief operating and decision-making group of FREIT's commercial segment, residential segment and corporate/other is comprised of FREIT’s Board of Trustees.
FREIT assesses and measures segment operating results based on net operating income ("NOI"). NOI, a standard used by real estate professionals, is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes: deferred rents (straight lining), depreciation, financing costs and other items. NOI is not a measure of operating results or cash flows from operating activities as measured by GAAP, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity.
Real estate rental revenue, operating expenses, NOI and recurring capital improvements for the reportable segments are summarized below and reconciled to condensed consolidated net income attributable to common equity for the six and three month periods ended April 30, 2021 and 2020. Asset information is not reported since FREIT does not use this measure to assess performance.
|
|
Six Months Ended
|
|
Three Months Ended
|
|
|
April 30,
|
|
April 30,
|
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
(In Thousands of Dollars)
|
|
(In Thousands of Dollars)
|
Real estate rental revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
12,414
|
|
|
$
|
13,548
|
|
|
$
|
6,063
|
|
|
$
|
6,534
|
|
Residential
|
|
|
13,357
|
|
|
|
15,612
|
|
|
|
6,748
|
|
|
|
7,096
|
|
Total real estate rental revenue
|
|
|
25,771
|
|
|
|
29,160
|
|
|
|
12,811
|
|
|
|
13,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
5,811
|
|
|
|
5,896
|
|
|
|
3,184
|
|
|
|
3,172
|
|
Residential
|
|
|
5,390
|
|
|
|
6,348
|
|
|
|
2,726
|
|
|
|
2,707
|
|
Total real estate operating expenses
|
|
|
11,201
|
|
|
|
12,244
|
|
|
|
5,910
|
|
|
|
5,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
6,603
|
|
|
|
7,652
|
|
|
|
2,879
|
|
|
|
3,362
|
|
Residential
|
|
|
7,967
|
|
|
|
9,264
|
|
|
|
4,022
|
|
|
|
4,389
|
|
Total net operating income
|
|
$
|
14,570
|
|
|
$
|
16,916
|
|
|
$
|
6,901
|
|
|
$
|
7,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recurring capital improvements - residential
|
|
$
|
(180
|
)
|
|
$
|
(226
|
)
|
|
$
|
(98
|
)
|
|
$
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to condensed consolidated net income attributable to common equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment NOI
|
|
$
|
14,570
|
|
|
$
|
16,916
|
|
|
$
|
6,901
|
|
|
$
|
7,751
|
|
Deferred rents - straight lining
|
|
|
(213
|
)
|
|
|
121
|
|
|
|
(7
|
)
|
|
|
58
|
|
Investment income
|
|
|
59
|
|
|
|
136
|
|
|
|
29
|
|
|
|
64
|
|
General and administrative expenses
|
|
|
(2,730
|
)
|
|
|
(1,828
|
)
|
|
|
(1,470
|
)
|
|
|
(1,056
|
)
|
Third party transaction costs
|
|
|
-
|
|
|
|
(4,519
|
)
|
|
|
-
|
|
|
|
(1,137
|
)
|
Gain on deconsolidation of subsidiary
|
|
|
-
|
|
|
|
27,680
|
|
|
|
-
|
|
|
|
27,680
|
|
Loss on investment in tenancy-in-common
|
|
|
(145
|
)
|
|
|
(18
|
)
|
|
|
(118
|
)
|
|
|
(18
|
)
|
Depreciation
|
|
|
(4,633
|
)
|
|
|
(5,462
|
)
|
|
|
(2,338
|
)
|
|
|
(2,530
|
)
|
Financing costs
|
|
|
(6,192
|
)
|
|
|
(7,911
|
)
|
|
|
(3,060
|
)
|
|
|
(3,676
|
)
|
Net income (loss)
|
|
|
716
|
|
|
|
25,115
|
|
|
|
(63
|
)
|
|
|
27,136
|
|
Net (income) loss attributable to noncontrolling interests in subsidiaries
|
|
|
(149
|
)
|
|
|
(157
|
)
|
|
|
72
|
|
|
|
84
|
|
Net income attributable to common equity
|
|
$
|
567
|
|
|
$
|
24,958
|
|
|
$
|
9
|
|
|
$
|
27,220
|
|
Note 12 – Income taxes:
FREIT has elected to be treated as a REIT for federal income tax purposes and as such intends to distribute 100% of its ordinary taxable income to its shareholders as dividends for the fiscal year ending October 31, 2021. Accordingly, no provision for federal or state income taxes related to such ordinary taxable income was recorded in FREIT’s condensed consolidated financial statements.
There was no ordinary taxable income for the fiscal year ending October 31, 2020 and no dividends were made/declared for Fiscal 2020. Accordingly, no provision for federal or state income taxes related to such ordinary taxable income was recorded in FREIT’s condensed consolidated financial statements.
As of April 30, 2021, FREIT had no material uncertain income tax positions. The tax years subsequent to and including the fiscal year ended October 31, 2017 remain open to examination by the major taxing jurisdictions.
Note 13 – Equity incentive plan:
On September 4, 2014, the Board approved the grant of an aggregate of 246,000 non-qualified share options under FREIT’s Equity Incentive Plan (“the Plan”) to certain FREIT executive officers, the members of the Board and certain employees of Hekemian & Co., Inc., FREIT’s managing agent. The options have an exercise price of $18.45 per share, fully vested on September 3, 2019 and will expire 10 years from the date of grant, which will be September 3, 2024.
On November 10, 2016, the Board approved the grant of an aggregate of 38,000 non-qualified share options under the Plan to two members of the Board who were appointed to the Board during Fiscal 2016. The options have an exercise price of $21.00 per share, will vest in equal annual installments over a 5-year period and will expire 10 years from the date of grant, which will be November 9, 2026.
On May 3, 2018, the Board approved the grant of an aggregate of 38,000 non-qualified share options under the Plan to two members of the Board who were appointed to the Board during Fiscal 2018. The options have an exercise price of $15.50 per
share, will vest in equal annual installments over a 5-year period and will expire 10 years from the date of grant, which will be May 2, 2028.
On March 4, 2019, the Board approved the grant of an aggregate of 5,000 non-qualified share options under the Plan to the Chairman of the Board. The options have an exercise price of $15.00 per share, will vest in equal annual installments over a 5-year period and will expire 10 years from the date of grant, which will be March 3, 2029.
As of April 30, 2021, 442,060 shares are available for issuance under the Plan.
The following table summarizes stock option activity for the six month periods ended April 30, 2021 and 2020:
|
|
Six Months Ended
April 30, 2021
|
|
|
Six Months Ended
April 30, 2020
|
|
|
|
No. of Options
|
|
Exercise
|
|
|
No. of Options
|
|
Exercise
|
|
|
|
Outstanding
|
|
Price
|
|
|
Outstanding
|
|
Price
|
|
Options outstanding at beginning of period
|
|
|
310,740
|
|
$
|
18.35
|
|
|
|
310,740
|
|
$
|
18.35
|
|
Options granted during period
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
Options forfeited/cancelled during period
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
Options outstanding at end of period
|
|
|
310,740
|
|
$
|
18.35
|
|
|
|
310,740
|
|
$
|
18.35
|
|
Options vested and expected to vest
|
|
|
308,310
|
|
|
|
|
|
|
308,310
|
|
|
|
|
Options exercisable at end of period
|
|
|
277,340
|
|
|
|
|
|
|
261,140
|
|
|
|
|
For the six month periods ended April 30, 2021 and 2020, compensation expense related to stock options vested amounted to approximately $24,000 and $24,000, respectively. At April 30, 2021, there was approximately $48,000 of unrecognized compensation cost relating to outstanding non-vested stock options to be recognized over the remaining weighted average vesting period of approximately 1.8 years.
The aggregate intrinsic value of options vested and expected to vest and options exercisable at April 30, 2021 was approximately $115,000 and $47,000, respectively.
Note 14 – Deferred fee plan:
On September 4, 2014, the Board approved amendments, effective November 1, 2014, to the FREIT Deferred Fee Plan for its Executive Officers and Trustees, one of which provides for the issuance of share units payable in FREIT shares in respect of (i) deferred amounts of all Trustee fees on a prospective basis; (ii) interest on Trustee fees deferred prior to November 1, 2014 (payable at a floating rate, adjusted quarterly, based on the average 10-year Treasury Bond interest rate plus 150 basis points); and (iii) dividends payable in respect of share units allocated to participants in the Deferred Fee Plan as a result of deferrals described above. The number of share units credited to a participant’s account will be determined by the closing price of FREIT shares on the date as set forth in the Deferred Fee Plan.
All fees payable to Trustees for the six and three-month periods ended April 30, 2021 and 2020 were deferred under the Deferred Fee Plan except for fees payable to one Trustee, who elected to receive such fees in cash. As a result of the amendment to the Deferred Fee Plan described above, for the six-month periods ended April 30, 2021 and 2020, the aggregate amounts of deferred Trustee fees together with related interest and dividends were approximately $230,600 and $367,000, respectively, which have been paid through the issuance of 13,233 and 18,046 vested FREIT share units, respectively, based on the closing price of FREIT shares on the dates as set forth in the Deferred Fee Plan.
For the six-month periods ended April 30, 2021 and 2020, FREIT has charged as expense approximately $214,600 and $367,000, respectively, representing deferred Trustee fees and interest, and the balance of approximately $16,000 and $0, respectively, representing dividends payable in respect of share units allocated to Plan participants, has been charged to equity.
The Deferred Fee Plan, as amended, provides that cumulative fees together with accrued interest deferred as of November 1, 2014 will be paid in a lump sum or in annual installments over a period not to exceed 10 years, at the election of the Participant. As of April 30, 2021 and October 31, 2020, approximately $1,454,000 and $1,542,000, respectively, of fees has been deferred together with accrued interest of approximately $1,021,000 and $1,091,000, respectively.
Note 15 – Rental Income:
Commercial tenants:
Fixed lease income under our commercial operating leases generally includes fixed minimum lease consideration which is accrued on a straight-line basis over the terms of the leases. Variable lease income includes consideration based on sales, as well as reimbursements for real estate taxes, maintenance, insurance and certain other operating expenses of the properties.
Minimum fixed lease consideration (in thousands of dollars) under non-cancelable tenant operating leases for each of the next five years and thereafter, excluding variable lease consideration and rents from tenants for which collectability is deemed to be constrained, for the years ending October 31, as of April 30, 2021, is as follows:
Year Ending October 31,
|
|
Amount
|
|
2021*
|
|
$
|
17,006
|
|
2022
|
|
|
14,817
|
|
2023
|
|
|
12,479
|
|
2024
|
|
|
10,297
|
|
2025
|
|
|
8,723
|
|
Thereafter
|
|
|
27,043
|
|
Total
|
|
$
|
90,365
|
|
|
*Amount represents full fiscal year
|
The above amounts assume that all leases which expire are not renewed and, accordingly, neither month-to-month nor rentals from replacement tenants are included.
Minimum future rentals do not include contingent rentals, which may be received under certain leases on the basis of percentage of reported tenants' sales volume. Rental income that is contingent on future events is not included in income until the contingency is resolved. Contingent rentals included in income for the six and three-month periods ended April 30, 2021 and 2020 were not material.
Residential tenants:
Lease terms for residential tenants are usually one to two years.
Note 16 – COVID-19 Pandemic:
The international spread of COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020. The extent to which this pandemic could continue to affect our financial condition, liquidity, and results of operations is difficult to predict and depends on evolving factors, including: duration, scope, government actions, and other social responses. Beginning in March 2020, many states in the U.S., including New Jersey, New York and Maryland, where our properties are located, implemented stay-at-home and shutdown orders for all "non-essential" business and activity in an aggressive effort to mitigate the spread of COVID-19. These orders have continued to evolve resulting in a full or partial lifting of these restrictions at various points over the past year. Vaccinations for the COVID-19 virus have begun to be widely distributed among the general U.S. population which has resulted in loosened restrictions previously mandated on our tenants identified as nonessential. However, the potential emergence of vaccine-resistant variants of COVID-19 could trigger restrictions to be put back in place. Such restrictions may include mandatory business shut-downs, reduced business operations and social distancing requirements.
As the impact of the pandemic has been evolving, it continues to cause uncertainty and volatility in the financial markets. The COVID-19 pandemic and the actions taken by individuals, businesses and government authorities to reduce its spread have caused substantial lost business revenue, changes in consumer behavior and large reductions in liquidity and fair value of many assets. These and other adverse conditions that may unfold in the future are expected to continue until such time as government shutdown orders are fully lifted, and business operations and commercial activity can fully resume. The lifting of all government shutdown orders cannot be predicted with any certainty. Further, even after such orders are fully lifted, the resumption of business operations and commercial activity will depend on several factors, including prevailing sentiments among workers and consumers regarding the safety of resuming public activity, and cannot be predicted with any certainty.
Despite the COVID-19 pandemic and preventive measures taken to mitigate the spread, our residential properties continue to generate cash flow. At our commercial properties, with the exception of grocery stores and other "essential" businesses, many of our retail tenants have been and continue to be adversely affected by the mandated shutdowns or continued imposed restrictions as many of these tenants have not been able to open or resume operations at full capacity. While the overall average cash realization of monthly billings as compared to monthly cash collections for the commercial properties for the six months ended April 30, 2021 has resumed to pre-pandemic levels, the average annual occupancy rate has declined from approximately 81.0% for the six months ended April 30, 2020 to approximately 76.6% for the six months ended April 30, 2021. During the first quarter of Fiscal 2021, Pet Valu, Inc., a pet store tenant, vacated several stores located in shopping centers owned by FREIT affiliates (Wayne PSC, Damascus Centre and Grande Rotunda) and terminated the related leases early paying an aggregate lease termination fee in the amount of approximately $260,000 (with a consolidated impact to FREIT of approximately $140,000). Until the space is re-leased at each of these properties, FREIT’s operating results will be adversely impacted from the loss of base rent and additional rent of approximately $0.4 million (with a consolidated impact to FREIT of approximately $0.2 million) on an annualized basis. The Company is closely monitoring changes in the collectability assessment of its tenant receivables as a result of certain tenants suffering adverse financial consequences related to the COVID-19 pandemic. For the six and three months ended April 30, 2021, rental revenue deemed uncollectible of approximately $0.9 million and $0.3 million (with a consolidated impact to FREIT of approximately $0.6 million and $0.2 million), respectively, was classified as a reduction in rental revenue based on our assessment of the probability of collecting substantially all of the remaining rents for certain tenants. As of April 30, 2021, FREIT has applied, net of amounts subsequently paid back by tenants, an aggregate of approximately $402,000 of security deposits from its
commercial tenants to outstanding receivables due. For the six and three months ended April 30, 2021, on a case by case basis, FREIT has offered some commercial tenants rent abatements over a specified time period totaling approximately $101,000 and $51,000 (with a consolidated impact to FREIT of approximately $71,000 and $40,000), respectively. FREIT has not offered any significant new deferrals of rent over a specified time period during the six and three months ended April 30, 2021. FREIT currently remains in active discussions and negotiations with these impacted retail tenants.
As a result of the negative impact of the COVID-19 pandemic at our commercial properties, in Fiscal 2020 we were granted debt payment relief from certain of our lenders on such properties in the form of deferral of principal and/or interest payments for a three-month period, resulting in total deferred payments of approximately $1,013,000, which will become due at the maturity of the loans. As of April 30, 2021 and October 31, 2020, approximately $162,000 of this amount has been repaid, there will be no further deferrals of principal and/or interest payments on these loans and the balance due has been included in mortgages payable on the condensed consolidated balance sheets as of April 30, 2021 and October 31, 2020. (See Note 9 to FREIT’s condensed consolidated financial statements for additional details).
For the six months ended April 30, 2021, we have experienced a positive cash flow from operations with cash provided by operations of approximately $8.7 million. This could change based on the duration of the pandemic, which is uncertain. We believe that our cash balance as of April 30, 2021 of approximately $38.6 million coupled with a $13 million available line of credit (available through October 31, 2023, see Note 9) will provide us with sufficient liquidity for at least the next twelve months from the filing of this Form 10-Q.
The extent of the effects of COVID-19 on our business, results of operations, cash flows, value of our real estate assets and growth prospects is highly uncertain and will ultimately depend on future developments, none of which can be predicted with any certainty.
Note 17 – Reincorporation:
FREIT’s Board of Trustees has unanimously approved a proposal to change FREIT’s form of organization from a New Jersey real estate investment trust to a Maryland corporation (the “Reincorporation”). The effect of the Reincorporation will be to change the law applicable to our affairs from New Jersey law to Maryland law. The Reincorporation was approved by shareholders at the Annual Meeting of Shareholders on May 6, 2021 and FREIT is in the final stages of completing all items to finalize the reincorporation which will be accomplished by the merger of FREIT with and into its newly formed, wholly owned subsidiary, First Real Estate Investment Trust of New Jersey, Inc. (“FREIT Maryland”). On the effective date of the Reincorporation, the separate existence of FREIT will cease and FREIT Maryland, will succeed to all the business, properties, assets and liabilities of FREIT. Holders of shares of beneficial interest in FREIT will receive one newly issued share of common stock of FREIT Maryland for each share of FREIT that they own, without any action of shareholders required. We believe that after the Reincorporation, we will continue to be organized and will continue to operate in such a manner as to qualify for taxation as a REIT under the Internal Revenue Code of 1986, as amended.