United
States
Securities
And Exchange Commission
Washington,
DC 20549
Form
10-Q
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For
the
quarterly period ended July 31, 2006
OR
oTRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For
the
transition period from _____to_____
Commission
File Number 1-12803
Urstadt
Biddle Properties Inc.
(Exact
Name of Registrant in its Charter)
Maryland
|
04-2458042
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
|
321
Railroad Avenue, Greenwich, CT
|
06830
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant's
telephone number, including area code: (203)
863-8200
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes x No o
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of accelerated
filer and non-accelerated filer in Rule 12b-2 of the Exchange Act (Check
one):
Large
accelerated filer o
|
Accelerated
filer x
|
Non-accelerated
filer o
|
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No x
As
of
September 5, 2006, the number of shares of the Registrant's classes of Common
Stock and Class A Common Stock was:
7,628,339
Common Shares, par value $.01 per share and 18,801,971 Class A Common Shares,
par value $.01 per share
The
Form
10-Q Filed Herewith, Contains 26 Pages, Numbered Consecutively From 1 To
26
Inclusive, Of Which
This
Page
Is 1.
Index
|
|
|
Urstadt
Biddle Properties Inc.
|
|
|
|
Part
I. Financial
Information
|
|
Item
1.
|
Financial
Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
2.
|
|
|
|
Item
3.
|
|
|
|
Item
4.
|
|
|
|
|
|
Part
II. Other
Information
|
|
|
Item
1.
|
Legal
Proceedings
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
|
|
Item
6.
|
Exhibits
|
|
|
Signatures
|
URSTADT
BIDDLE PROPERTIES
INC.
CONSOLIDATED
BALANCE SHEETS
(In
thousands, except share data)
|
|
July
31,
|
|
October
31,
|
|
|
|
2006
|
|
2005
|
|
ASSETS
|
|
|
(Unaudited
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate Investments:
|
|
|
|
|
|
|
|
Core
properties - at cost
|
|
$
|
487,189
|
|
$
|
468,444
|
|
Non-core
properties - at cost
|
|
|
6,383
|
|
|
6,383
|
|
|
|
|
493,572
|
|
|
474,827
|
|
Less: accumulated
depreciation
|
|
|
(74,105
|
)
|
|
(65,253
|
)
|
|
|
|
419,467
|
|
|
409,574
|
|
Mortgage
notes receivable
|
|
|
1,374
|
|
|
2,024
|
|
|
|
|
420,841
|
|
|
411,598
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
4,183
|
|
|
26,494
|
|
Restricted
cash
|
|
|
588
|
|
|
1,200
|
|
Marketable
securities
|
|
|
2,678
|
|
|
2,453
|
|
Tenant
receivables, net of allowances of $1,519 and $1,409
|
|
|
17,017
|
|
|
14,442
|
|
Prepaid
expenses and other assets
|
|
|
6,076
|
|
|
4,526
|
|
Deferred
charges, net of accumulated amortization
|
|
|
4,641
|
|
|
3,726
|
|
Total
Assets
|
|
$
|
456,024
|
|
$
|
464,439
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Secured
revolving credit line
|
|
$
|
3,000
|
|
$
|
-
|
|
Mortgage
notes payable
|
|
|
104,923
|
|
|
111,786
|
|
Accounts
payable and accrued expenses
|
|
|
2,605
|
|
|
3,991
|
|
Deferred
compensation - officers
|
|
|
1,121
|
|
|
1,051
|
|
Other
liabilities
|
|
|
5,019
|
|
|
4,699
|
|
Total
Liabilities
|
|
|
116,668
|
|
|
121,527
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
5,318
|
|
|
5,318
|
|
|
|
|
|
|
|
|
|
Redeemable
Preferred Stock, par value $.01 per share; 20,000,000 shares
authorized;
|
|
|
|
|
|
|
|
8.99%
Series B Senior Cumulative Preferred Stock (liquidation preference
of $100
per
share);
150,000 shares issued and outstanding
|
|
|
14,341
|
|
|
14,341
|
|
8.50%
Series C Senior Cumulative Preferred Stock (liquidation preference
of $100
per
share);
400,000 shares issued and outstanding
|
|
|
38,406
|
|
|
38,406
|
|
Total
Preferred Stock
|
|
|
52,747
|
|
|
52,747
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity:
|
|
|
|
|
|
|
|
7.5%
Series D Senior Cumulative Preferred Stock (liquidation preference
of $25
per share);
2,450,000
shares issued and outstanding
|
|
|
61,250
|
|
|
61,250
|
|
Excess
stock, par value $.01 per share; 10,000,000 shares
authorized;
none
issued and outstanding
|
|
|
-
|
|
|
-
|
|
Common
stock, par value $.01 per share; 30,000,000 shares
authorized;
|
|
|
|
|
|
|
|
7,628,339
and 7,429,331 shares issued and outstanding
|
|
|
76
|
|
|
74
|
|
Class
A Common stock, par value $.01 per share; 40,000,000 shares
authorized;
|
|
|
|
|
|
|
|
18,801,971
and 18,705,800 shares issued and outstanding
|
|
|
188
|
|
|
187
|
|
Additional
paid in capital
|
|
|
261,329
|
|
|
267,365
|
|
Cumulative
distributions in excess of net income
|
|
|
(40,876
|
)
|
|
(35,007
|
)
|
Accumulated
other comprehensive income
|
|
|
624
|
|
|
499
|
|
Unamortized
restricted stock compensation
|
|
|
-
|
|
|
(8,221
|
)
|
Officer
note receivable
|
|
|
(1,300
|
)
|
|
(1,300
|
)
|
Total
Stockholders’ Equity
|
|
|
281,291
|
|
|
284,847
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
456,024
|
|
$
|
464,439
|
|
The
accompanying notes to consolidated financial statements are an integral part
of
these statements.
URSTADT
BIDDLE PROPERTIES
INC.
CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
(In
thousands, except per share data)
|
|
Nine
Months Ended
|
|
Three
Months Ended
|
|
|
|
July
31,
|
|
July
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Base
rents
|
|
$
|
41,552
|
|
$
|
38,656
|
|
$
|
13,841
|
|
$
|
13,206
|
|
Recoveries
from tenants
|
|
|
13,216
|
|
|
12,392
|
|
|
4,112
|
|
|
3,682
|
|
Lease
termination income
|
|
|
-
|
|
|
184
|
|
|
-
|
|
|
184
|
|
Interest
and other
|
|
|
1,055
|
|
|
657
|
|
|
236
|
|
|
275
|
|
|
|
|
55,823
|
|
|
51,889
|
|
|
18,189
|
|
|
17,347
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating
|
|
|
9,286
|
|
|
8,249
|
|
|
2,680
|
|
|
2,380
|
|
Property
taxes
|
|
|
7,602
|
|
|
6,763
|
|
|
2,610
|
|
|
2,304
|
|
Interest
|
|
|
6,301
|
|
|
6,402
|
|
|
2,057
|
|
|
2,080
|
|
Depreciation
and amortization
|
|
|
9,949
|
|
|
8,918
|
|
|
3,447
|
|
|
3,081
|
|
General
and administrative
|
|
|
3,903
|
|
|
3,690
|
|
|
1,415
|
|
|
1,581
|
|
Directors’
fees and expenses
|
|
|
195
|
|
|
205
|
|
|
51
|
|
|
78
|
|
|
|
|
37,236
|
|
|
34,227
|
|
|
12,260
|
|
|
11,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
18,587
|
|
|
17,662
|
|
|
5,929
|
|
|
5,843
|
|
Minority
Interests
|
|
|
(141
|
)
|
|
(291
|
)
|
|
(47
|
)
|
|
(107
|
)
|
Income
from Continuing Operations
|
|
|
18,446
|
|
|
17,371
|
|
|
5,882
|
|
|
5,736
|
|
Discontinued
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operating properties
|
|
|
-
|
|
|
469
|
|
|
-
|
|
|
153
|
|
Gains
on sales of properties
|
|
|
-
|
|
|
7,031
|
|
|
-
|
|
|
1,397
|
|
Income
from Discontinued Operations
|
|
|
-
|
|
|
7,500
|
|
|
-
|
|
|
1,550
|
|
Net
Income
|
|
|
18,446
|
|
|
24,871
|
|
|
5,882
|
|
|
7,286
|
|
Preferred
Stock Dividends
|
|
|
(7,007
|
)
|
|
(4,673
|
)
|
|
(2,336
|
)
|
|
(2,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Applicable to Common and Class A Common
Stockholders
|
|
$
|
11,439
|
|
$
|
20,198
|
|
$
|
3,546
|
|
$
|
5,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
.42
|
|
$
|
.48
|
|
$
|
.13
|
|
$
|
.13
|
|
Income
from discontinued operations
|
|
$
|
-
|
|
$
|
.28
|
|
$
|
-
|
|
$
|
.06
|
|
Net
Income Applicable to Common Stockholders
|
|
$
|
.42
|
|
$
|
.76
|
|
$
|
.13
|
|
$
|
.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Class A Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
.47
|
|
$
|
.52
|
|
$
|
.15
|
|
$
|
.15
|
|
Income
from discontinued operations
|
|
$
|
-
|
|
$
|
.31
|
|
$
|
-
|
|
$
|
.06
|
|
Net
Income Applicable to Class A Common Stockholders
|
|
$
|
.47
|
|
$
|
.83
|
|
$
|
.15
|
|
$
|
.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
.41
|
|
$
|
.47
|
|
$
|
.13
|
|
$
|
.13
|
|
Income
from discontinued operations
|
|
$
|
-
|
|
$
|
.27
|
|
$
|
-
|
|
$
|
.06
|
|
Net
Income Applicable to Common Stockholders
|
|
$
|
.41
|
|
$
|
.74
|
|
$
|
.13
|
|
$
|
.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Class A Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
.46
|
|
$
|
.51
|
|
$
|
.14
|
|
$
|
.14
|
|
Income
from discontinued operations
|
|
$
|
-
|
|
$
|
.30
|
|
$
|
-
|
|
$
|
.06
|
|
Net
Income Applicable to Class A Common Stockholders
|
|
$
|
.46
|
|
$
|
.81
|
|
$
|
.14
|
|
$
|
.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
$
|
.6075
|
|
$
|
.60
|
|
$
|
.2025
|
|
$
|
.20
|
|
Class
A Common
|
|
$
|
.6750
|
|
$
|
.66
|
|
$
|
.2250
|
|
$
|
.22
|
|
The
accompanying notes to consolidated financial statements are an integral part
of
these statements.
URSTADT
BIDDLE PROPERTIES INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
(In
thousands)
|
|
Nine
Months Ended
|
|
|
|
July
31,
|
|
|
|
2006
|
|
2005
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
18,446
|
|
$
|
24,871
|
|
Adjustments
to reconcile net income to net cash provided
|
|
|
|
|
|
|
|
by
operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization from continuing operations
|
|
|
9,949
|
|
|
8,918
|
|
Discontinued
operations
|
|
|
-
|
|
|
(469
|
)
|
Straight-line
rent adjustments
|
|
|
(898
|
)
|
|
(975
|
)
|
Gains
on sale of properties
|
|
|
-
|
|
|
(7,031
|
)
|
Change
in value of deferred compensation arrangement
|
|
|
4
|
|
|
332
|
|
Restricted
stock compensation expense
|
|
|
1,493
|
|
|
1,200
|
|
Gain
on repayment of mortgage note receivable
|
|
|
(102
|
)
|
|
-
|
|
Minority
interests
|
|
|
141
|
|
|
291
|
|
Increase
in tenant receivables
|
|
|
(1,677
|
)
|
|
(2,443
|
)
|
Decrease
in accounts payable and accrued expenses
|
|
|
(1,386
|
)
|
|
(343
|
)
|
Increase
in other assets and other liabilities, net
|
|
|
(1,205
|
)
|
|
(1,218
|
)
|
Decrease
(Increase) in restricted cash
|
|
|
612
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
Net
Cash Flow Provided by Continuing Operating Activities
|
|
|
25,377
|
|
|
23,122
|
|
Operating
Cash from Discontinued Operations
|
|
|
-
|
|
|
814
|
|
Net
Cash Flow Provided by Operating Activities
|
|
|
25,377
|
|
|
23,936
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
Acquisitions
of real estate investments
|
|
|
(16,711
|
)
|
|
(71,720
|
)
|
Acquisition
of limited partner interests in consolidated joint venture
|
|
|
-
|
|
|
(2,078
|
)
|
Net
proceeds received from sales of properties
|
|
|
-
|
|
|
17,767
|
|
(Purchases)
sales of marketable securities - net
|
|
|
(100
|
)
|
|
(13,102
|
)
|
Improvements
to properties and deferred charges
|
|
|
(4,004
|
)
|
|
(2,973
|
)
|
Payments
received on mortgage notes receivable
|
|
|
751
|
|
|
63
|
|
Distributions
to limited partners of consolidated joint ventures
|
|
|
(141
|
)
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
Net
Cash Flow Used in Investing Activities
|
|
|
(20,205
|
)
|
|
(72,334
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
Proceeds
from revolving credit line borrowings
|
|
|
3,000
|
|
|
19,500
|
|
Repayments
on revolving credit line borrowings
|
|
|
-
|
|
|
(19,500
|
)
|
Proceeds
from sales of Series D Preferred Stock
|
|
|
-
|
|
|
59,441
|
|
Dividends
paid on Common and Class A Common Shares
|
|
|
(17,308
|
)
|
|
(16,795
|
)
|
Dividends
paid on Preferred shares
|
|
|
(7,007
|
)
|
|
(4,673
|
)
|
Sales
of additional Common and Class A Common Shares
|
|
|
695
|
|
|
1,053
|
|
Principal
payments on mortgage notes payable
|
|
|
(6,863
|
)
|
|
(3,546
|
)
|
|
|
|
|
|
|
|
|
Net
Cash (Used In) Provided by Financing Activities
|
|
|
(27,483
|
)
|
|
35,480
|
|
|
|
|
|
|
|
|
|
Net
Decrease In Cash and Cash Equivalents
|
|
|
(22,311
|
)
|
|
(12,918
|
)
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
26,494
|
|
|
25,940
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents at End of Period
|
|
$
|
4,183
|
|
$
|
13,022
|
|
|
|
|
|
|
|
|
|
Supplemental
Cash Flow Disclosures:
|
|
|
|
|
|
|
|
Interest
Paid
|
|
$
|
6,301
|
|
$
|
6,402
|
|
The
accompanying notes to consolidated financial statements are an integral part
of
these statements
URSTADT
BIDDLE PROPERTIES INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In
thousands, except shares and per share data)
|
|
7.5%
Series D
Preferred
Stock
|
|
Common
Stock
|
|
Class
A Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
Amount
|
|
Issued
|
|
Amount
|
|
Issued
|
|
Amount
|
|
Additional
Paid In
Capital
|
|
Cumulative
Distributions In Excess of Net Income
|
|
Accumulated
Other Comprehensive Income
|
|
Unamortized
Restricted Stock Compensation And Officer Note Receivable
|
|
Total
Stockholders’
Equity
|
|
Balances
- October 31, 2005
|
|
|
2,450,000
|
|
$
|
61,250
|
|
|
7,429,331
|
|
$
|
74
|
|
|
18,705,800
|
|
$
|
187
|
|
$
|
267,365
|
|
$
|
(35,007
|
)
|
$
|
499
|
|
$
|
(9,521
|
)
|
$
|
284,847
|
|
Reversal
of unamortized stock compensation upon adoption of SFAS No.
123R
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(8,221
|
)
|
|
-
|
|
|
-
|
|
|
8,221
|
|
|
-
|
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income applicable to Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
Class A common stockholders
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11,439
|
|
|
-
|
|
|
-
|
|
|
11,439
|
|
Change
in unrealized gains in marketable securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
125
|
|
|
-
|
|
|
125
|
|
Total
comprehensive income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11,564
|
|
Cash
dividends paid :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock ($0.6075 per share)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,624
|
)
|
|
-
|
|
|
-
|
|
|
(4,624
|
)
|
Class
A common stock ($0.6750 per share)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(12,684
|
)
|
|
-
|
|
|
-
|
|
|
(12,684
|
)
|
Issuance
of shares under dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reinvestment
plan
|
|
|
-
|
|
|
-
|
|
|
23,708
|
|
|
-
|
|
|
12,621
|
|
|
-
|
|
|
588
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
588
|
|
Exercise
of stock options
|
|
|
-
|
|
|
-
|
|
|
9,500
|
|
|
-
|
|
|
4,500
|
|
|
-
|
|
|
107
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
107
|
|
Shares
issued under restricted stock plan
|
|
|
-
|
|
|
-
|
|
|
165,800
|
|
|
2
|
|
|
79,050
|
|
|
1
|
|
|
(3
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Restricted
stock compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,493
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,493
|
|
Balances
- July 31, 2006
|
|
|
2,450,000
|
|
$
|
61,250
|
|
|
7,628,339
|
|
$
|
76
|
|
|
18,801,971
|
|
$
|
188
|
|
$
|
261,329
|
|
$
|
(40,876
|
)
|
$
|
624
|
|
$
|
(1,300
|
)
|
$
|
281,291
|
|
The
accompanying notes to consolidated financial statements are an integral part
of
these statements.
NOTES
TO CONSOLIDATED FINANCIAL
STATEMENTS
(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. Non-core assets include a retail building and industrial
properties. The Company's major tenants include supermarket chains and other
retailers who sell basic necessities. At July 31, 2006, the Company owned
or had
interests in 37 properties containing a total of 3.7 million square feet
of
leasable area.
Principles
of Consolidation and Use of Estimates
The
accompanying unaudited 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
Emerging Issues Task Force (“EITF”) Issue 04-5, “Investor’s Accounting for an
Investment in a Limited Partnership when the Investor is the Sole General
Partner and the Limited Partners Have Certain Rights.” The joint ventures are
consolidated into the consolidated financial statements of the Company. All
significant intercompany transactions and balances have been eliminated in
consolidation.
The
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information
and footnote disclosures normally included in financial statements prepared
in
accordance with generally accepted accounting principles have been omitted.
In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Results of operations for the nine month period ended July 31, 2006, are
not
necessarily indicative of the results that may be expected for the year ending
October 31, 2006. It is suggested that these financial statements be read
in
conjunction with the financial statements and notes thereto included in the
Company’s annual report on Form 10-K for the fiscal year ended October 31, 2005.
The
preparation of financial statements requires management to make use of estimates
and assumptions that affect amounts reported in the financial statements
as well
as certain disclosures. Actual results could differ from those estimates.
The
balance sheet at October 31, 2005 has been derived from audited financial
statements at that date.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the current year
presentation.
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 2006 in accordance with the provisions of the code.
Accordingly, no provision has been made for Federal income taxes in the
accompanying consolidated financial statements.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents, mortgage notes receivable
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 retenanting the space. There is no dependence upon any single
tenant.
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 in Stockholders’ Equity. At
July
31,
2006, accumulated other comprehensive income consists of net unrealized gains
of
$624,000. Unrealized gains included in accumulated other comprehensive income
will be reclassified into earnings as gains are realized. For the nine month
and
three month period ended July 31, 2005, gains on sales of marketable securities
amounted to $35,000 (none in fiscal 2006).
Earnings
Per Share
The
Company calculates basic and diluted earnings per share in accordance with
SFAS
No. 128, “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 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):
|
|
Nine
Months Ended
|
|
Three
Months Ended
|
|
|
|
July
31,
|
|
July
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income applicable to common stockholders - basic
|
|
$
|
2,820
|
|
$
|
4,967
|
|
$
|
875
|
|
$
|
1,254
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
partnership units
|
|
|
158
|
|
|
217
|
|
|
51
|
|
|
67
|
|
Net
income applicable to common stockholders - diluted
|
|
$
|
2,978
|
|
$
|
5,184
|
|
$
|
926
|
|
$
|
1,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic EPS weighted average common shares
|
|
|
6,657
|
|
|
6,557
|
|
|
6,671
|
|
|
6,580
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock and other awards
|
|
|
468
|
|
|
434
|
|
|
478
|
|
|
463
|
|
Operating
partnership units
|
|
|
55
|
|
|
55
|
|
|
55
|
|
|
55
|
|
Denominator
for diluted EPS - weighted average common equivalent
shares
|
|
|
7,180
|
|
|
7,046
|
|
|
7,204
|
|
|
7,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income applicable to Class A common stockholders-basic
|
|
$
|
8,619
|
|
$
|
15,231
|
|
$
|
2,671
|
|
$
|
3,832
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
partnership units
|
|
|
(17
|
)
|
|
74
|
|
|
(3
|
)
|
|
40
|
|
Net
income applicable to Class A common stockholders - diluted
|
|
$
|
8,602
|
|
$
|
15,305
|
|
$
|
2,668
|
|
$
|
3,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic EPS - weighted average Class A common shares
|
|
|
18,309
|
|
|
18,278
|
|
|
18,315
|
|
|
18,283
|
|
Effect
of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
stock and other awards
|
|
|
299
|
|
|
310
|
|
|
305
|
|
|
325
|
|
Operating
partnership units
|
|
|
55
|
|
|
310
|
|
|
55
|
|
|
310
|
|
Denominator
for diluted EPS - weighted average Class A common equivalent
shares
|
|
|
18,663
|
|
|
18,898
|
|
|
18,675
|
|
|
18,918
|
|
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.
(2) CORE
PROPERTIES
In
March
2006, the Company acquired three retail properties aggregating 47,300 square
feet of leasable space located in Pelham, New York and Flushing, New York.
The
three properties were acquired for an aggregate purchase price of $16.7 million
(including closing costs of approximately $58,000) which was funded from
available cash.
In
June
2005, the Company acquired Staples Plaza (“Staples Plaza”), a 200,000 square
foot shopping center located in Yorktown, New York for $28.5 million (including
the assumption of a mortgage loan at its estimated fair value of $8.5 million
and closing costs of approximately $113,000.) The assumption of the mortgage
loan represents a non-cash financing activity and is therefore not included
in
the accompanying 2005 consolidated statement of cash flows.
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 SFAS No. 141 “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.
During
the second quarter of fiscal 2006, the Company completed its evaluation of
Staples Plaza. As a result of its evaluation, the Company allocated $77,000
to a
liability associated with the net fair value assigned to the acquired leases
at
the property.
The
Company is currently in the process of analyzing the fair value of in-place
leases for the three retail properties acquired in March 2006 and consequently,
no value has yet been assigned to the leases. Accordingly, the purchase price
allocation is preliminary and may be subject to change.
The
net
amortization of above-market and below-market leases amounted to $79,000
and
$459,000 for the nine months ended July 31, 2006 and 2005, respectively,
which
amounts are included in base rents in the accompanying consolidated statements
of income.
The
Company is the general partner in a consolidated limited partnership which
owns
a shopping center. The limited partnership has a defined termination date
of
December 31, 2097. Upon liquidation of the partnership, proceeds from the
sale
of partnership assets are to be distributed in accordance with the respective
partner’s interest. If termination of the partnership occurred on July 31, 2006
the amount payable to the limited partners is estimated to be
$3,300,000.
The
Company has retained an affiliate of one of the limited partners to provide
management and leasing services to the property at an annual fee of $125,000
through June 2007. For the nine months and three months ended July 31, 2006
and
2005, the affiliate received payments of $93,750 and $31,250 respectively
for
such services rendered.
In
June
2006, the Company made a payment of $1.5 million to a tenant at its Towne
Centre
at Somers Shopping Center in exchange for the tenant’s agreement to terminate
its lease effective June 30, 2006. The termination of the lease permitted
the
Company to enter into a new lease with an unrelated tenant for the vacated
space. The Company will account for the $1.5 million payment as a lease
incentive and amortize the payment over the new lease term.
(3)
DISCONTINUED OPERATIONS
In
fiscal
2005, the Company sold, in separate transactions, two properties for an
aggregate sales price of approximately $19 million, resulting in gains on
sales
of properties of approximately $7.0 million.
The
Company follows the provisions of Statement of Financial Accounting Standards
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS
No. 144). SFAS No. 144 requires, among other things, that the assets and
liabilities and the results of operations of the Company’s properties which 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.
The
operating results for the two properties sold have been reclassified as
discontinued operations in the accompanying 2005 consolidated statements
of
income. The following table summarizes revenues and expenses for the Company’s
discontinued operations (amounts in thousands):
|
|
Nine
months Ended
|
|
Three
Months Ended
|
|
|
|
July
31, 2005
|
|
July
31, 2005
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,736
|
|
$
|
458
|
|
Property
operating expenses
|
|
|
(922
|
)
|
|
(237
|
)
|
Depreciation
and amortization
|
|
|
(345
|
)
|
|
(68
|
)
|
Income
from discontinued operations
|
|
$
|
469
|
|
$
|
153
|
|
(4)
MORTGAGE NOTES PAYABLE AND BANK LINES OF CREDIT
Mortgage
notes payable are due in installments over various periods to fiscal 2012
at
effective rates of interest ranging from 5.75% to 7.99% and are collateralized
by real estate investments having a net carrying value of $178,689,000 at
July
31, 2006. In May 2006, the Company repaid a mortgage note payable in the
principal amount of $4.975 million from available cash.
The
Company has a secured revolving credit facility with a commercial bank (the
“Secured Credit Facility”) which provides for borrowings of up to $30 million.
The Secured Credit Facility expires in April 2008 and is collateralized by
first
mortgage liens on two of the Company’s properties. Interest on outstanding
borrowings is at prime + ½% or LIBOR + 1.5%. The Secured Credit Facility
requires the Company to maintain certain debt service coverage ratios during
its
term. The Company pays an annual fee of 0.25% on the unused portion of the
Secured Credit Facility. The Secured Credit Facility is available to fund
acquisitions, capital expenditures, mortgage repayments, working capital
and
other general corporate purposes. At July 31, 2006 there were $3 million
in
outstanding borrowings under the secured revolving credit facility. Outstanding
borrowings bear interest at a current rate of 6.6875% per annum.
Prior
to
June 30, 2006, the Company had a $30 million unsecured line of credit
(“Unsecured Credit Line”) arrangement with the same bank. On June 30, 2006, the
Company exercised its right to cancel the Unsecured Credit Line. There were
no
outstanding borrowings under the Unsecured Credit Line on June 30,
2006.
(5)
STOCKHOLDERS’ EQUITY
In
fiscal
2005, the Company sold 2,450,000 shares of a new 7.5% Series D Senior Cumulative
Preferred Stock issue (“Series D Preferred Stock”) in a public offering. 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 redeemable at the
Company’s option on or after April 12, 2010 at a price of $25.00 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.
In
fiscal
2005, the Board of Directors of the Company approved a stock repurchase program
for the repurchase of up to 500,000 shares of Common Stock and Class A common
stock in the aggregate. As of July 31, 2006, the Company had repurchased
3,600
shares of Common Stock and 41,400 shares of Class A Common Stock at an aggregate
repurchase cost of $686,000. There were no repurchases during the first nine
months of fiscal 2006.
Stock
Plans and Stock-based Compensation
At
July
31, 2006, the Company had two stock-based employee compensation plans which
are
described more fully below. Prior to November 1, 2005, the Company accounted
for
those plans under the recognition and measurement provisions of APB Opinion
No.
25, “Accounting
for Stock Issued to Employees,”
(“APB
No.25”) and related Interpretations, as permitted by FASB Statement No. 123,
“Accounting
for Stock-Based Compensation.” Effective
November 1, 2005, the Company adopted the fair value recognition provisions
of
FASB Statement No.123(R), “Share-Based
Payment,”
(“SFAS
No.123R”) using the modified-prospective-transition method. Under that
transition method, compensation expense recognized in fiscal 2006, for all
share-based payments granted subsequent to November 1, 2005, is based on
the
fair value of the stock awards less estimated forfeitures in accordance with
the
provisions of SFAS No. 123(R). The fair value of stock awards is equal to
the
fair value of the Company’s stock on the grant date. Results for prior periods
have not been restated.
Restricted
Stock Plan
The
Company has a restricted stock plan (the “Plan”) for key employees and directors
of the Company. The Plan, as amended, permits the grant of up to 2,000,000
shares of the Company’s common equity consisting of 350,000 Common shares,
350,000 Class A Common shares and 1,300,000 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.
Prior
to
November 1, 2005, the grant date fair value of nonvested restricted stock
awards
was expensed over the explicit vesting periods. Such awards provided for
continued vesting after retirement. Upon adoption of SFAS No. 123R, the Company
changed its policy for recognizing compensation expense for restricted stock
awards to the earlier of the explicit vesting period or the date a participant
first becomes eligible for retirement. For nonvested restricted stock awards
granted prior to the adoption of SFAS No.123R, the Company will continue
to
recognize compensation expense over the explicit vesting periods and accelerate
any remaining unrecognized compensation cost when a participant actually
retires. Had compensation expense for nonvested restricted stock awards issued
prior to November 1, 2005 been determined based on the date a participant
first
becomes eligible for retirement, the Company’s net income in the nine month
period ended July 31, 2006 would have increased by $414,000 and, in the nine
month period ended July 31, 2005, would have decreased by $859,000.
Consistent
with the provisions of APB No.25, the Company recorded the fair value of
nonvested restricted stock grants and an offsetting unearned compensation
amount
within stockholders equity. Under SFAS No.123R an equity instrument is not
considered to be issued until the instrument vests. Accordingly, the Company
has
reversed $8,221,000 of restricted stock compensation included in stockholders
equity as of November 1, 2005 representing the nonvested portions of restricted
stock grants awarded prior to the effective date of SFAS No.123R.
In
January 2006, the Company awarded 165,800 shares of Common Stock and 79,050
shares of Class A Common Stock to participants in the Plan. The grant date
fair
value of restricted stock grants awarded to participants in January 2006
was
$3.9 million. As of July 31, 2006, there remained a total of $10.6 million
of
unrecognized restricted stock compensation related to nonvested restricted
stock
grants awarded under the Plan. The restricted stock compensation is expected
to
be expensed over a remaining weighted average period of 8 years. For the
nine
months ended July 31, 2006 and 2005 amounts charged to compensation expense
totaled $1,493,000 and $1,200,000, respectively.
A
summary
of the status of the Company’s nonvested restricted stock awards as of July 31,
2006, and changes during the nine months ended July 31, 2006 are presented
below:
|
|
Common
Shares
|
|
Class
A Common Shares
|
|
|
|
Shares
|
|
Weighted-Average
Grant Date Fair
Value
|
|
Shares
|
|
Weighted-Average
Grant Date Fair
Value
|
|
Nonvested
at November 1, 2005
|
|
|
823,175
|
|
$
|
12.19
|
|
|
435,925
|
|
$
|
11.16
|
|
Granted
|
|
|
165,800
|
|
$
|
15.90
|
|
|
79,050
|
|
$
|
16.42
|
|
Vested
|
|
|
(49,000
|
)
|
$
|
7.06
|
|
|
(49,000
|
)
|
$
|
7.25
|
|
Nonvested
at July 31, 2006
|
|
|
939,975
|
|
$
|
13.10
|
|
|
465,975
|
|
$
|
12.46
|
|
Stock
Option Plan
The
Company also has a stock option plan whereby shares were reserved for issuance
to key employees and Directors of the Company. Options are granted at fair
market value on the date of the grant, have a duration of ten years from
the
date of grant, and vest over a maximum period of four years from the date
of
grant. There were no grants of stock options in fiscal 2006 or 2005. At July
31,
2006, there were outstanding stock options to purchase 7,898 shares of Common
Stock and 7,859 shares of Class A Common Stock and all stock options granted
by
the Company were fully vested; as such, future years will not reflect any
option-related compensation expense under SFAS No. 123R unless additional
stock
options are granted.
Dividend
Reinvestment and Share Purchase Plan
The
Company has a Dividend Reinvestment and Share Purchase Plan, as amended,
which
permits shareholders to acquire additional shares of Common Stock and Class
A
Common Stock by automatically reinvesting dividends. During the nine months
ended July 31, 2006, the Company issued 23,708 shares of Common Stock and
12,621
shares of Class A Common Stock through the Plan. At July 31, 2006, there
remained 216,809 shares of Common Stock and 496,840 shares of Class A Common
Stock available for issuance under the Plan.
(6)
MORTGAGE NOTES RECEIVABLE
In
January 2006, a mortgage note receivable in the principal amount of $707,000
was
fully paid by the borrower. For financial reporting purposes, the mortgage
note
was recorded at a discounted amount which reflected the market rates at the
time
of acceptance of the note. Upon repayment of the note, the Company recorded
a
gain on the repayment of $102,000, which amount is included in other income
in
the accompanying consolidated statement of income in the nine months ended
July
31, 2006.
(7) PRO
FORMA FINANCIAL INFORMATION (UNAUDITED)
The
unaudited pro forma financial information set forth below is based upon the
Company’s historical consolidated statements of income for the nine months ended
July 31, 2005 adjusted to give effect to the acquisitions of two properties
in
fiscal 2005 and the issuance of Series D Preferred Stock as though these
transactions were completed on November 1, 2004.
The
pro
forma financial information is presented for informational purposes only
and may
not be indicative of what the actual results of operations would have been
had
the transactions occurred as of the beginning of the period nor does it purport
to represent the results of future operations. (Amounts in thousands, except
per
share figures).
|
|
Nine
months Ended
|
|
|
|
July
31, 2005
|
|
|
|
|
|
Pro
forma revenues
|
|
$
|
54,800
|
|
|
|
|
|
|
Pro
forma income from continuing operations
|
|
$
|
18,886
|
|
|
|
|
|
|
Pro
forma income from continuing operations applicable to Common and
Class A
Common stockholders
|
|
$
|
12,687
|
|
|
|
|
|
|
Pro
forma basic shares outstanding:
|
|
|
|
|
Common
and Common Equivalent
|
|
|
6,557
|
|
Class
A Common and Class A Common Equivalent
|
|
|
18,278
|
|
Pro
forma diluted shares outstanding:
|
|
|
|
|
Common
and Common Equivalent
|
|
|
7,046
|
|
Class
A Common and Class A Common Equivalent
|
|
|
18,898
|
|
|
|
|
|
|
Pro
forma earnings per share from continuing operations:
|
|
|
|
|
Basic:
|
|
|
|
|
Common
|
|
$
|
0.48
|
|
Class
A Common
|
|
$
|
0.52
|
|
Diluted:
|
|
|
|
|
Common
|
|
$
|
0.47
|
|
Class
A Common
|
|
$
|
0.51
|
|
(8)
REDEEMABLE PREFERRED STOCK
The
8.99%
Series B Senior Cumulative Preferred Stock (“Series B Preferred Stock”) and
8.50% Series C Senior Cumulative Preferred Stock (“Series C Preferred Stock”)
have no stated maturity, are not subject to any sinking fund or mandatory
redemption and are not convertible into other securities or property of the
Company. Commencing May 2008 (Series B Preferred Stock) and May 2013 (Series
C
Preferred Stock), the Company, at its option, may redeem the preferred stock
issues, in whole or in part, at a redemption price of $100 per share, plus
all
accrued dividends. Upon a change in control of the Company (as defined),
each
holder of Series B Preferred Stock and 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 of $100 per share, plus all
accrued and unpaid dividends.
The
Series B Preferred Stock and Series C Preferred Stock contain covenants,
which
require the Company to maintain certain financial coverages relating to fixed
charge and capitalization ratios. Shares of both Preferred Stock series are
non-voting; however, under certain circumstances (relating to non-payment
of
dividends or failure to comply with the financial covenants) the preferred
stockholders will be entitled to elect two directors. The Company was in
compliance with such covenants at July 31, 2006.
As
the
holders of the Series B Preferred Stock and Series C Preferred Stock only
have a
contingent right to require the Company to repurchase all or part of such
holders shares upon a change of control of the Company (as defined), the
Series
B Preferred Stock and Series C Preferred Stock are classified as redeemable
equity instruments as a change in control is not certain to occur.
(9)
COMMITMENTS AND CONTINGENCIES
At
July
31, 2006, the Company had commitments of approximately $1 million for tenant
related obligations.
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 may ultimately 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.
(10)
SUBSEQUENT EVENTS
On
September 7, 2006, the Board of Directors of the Company declared cash dividends
of $0.2025 for each share of Common Stock and $0.2250 for each share of Class
A
Common Stock. The dividends are payable on October 20, 2006 to shareholders
of
record on October 6, 2006.
The
following discussion is based on our consolidated financial statements as
of
July 31, 2006 and 2005 and for the nine month and three month periods then
ended. This information should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto included elsewhere
in
this report.
Forward
Looking Statements
This
Item
2 includes certain statements that may be deemed to be “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.
All
statements, other than statements of historical facts, included in this Item
2
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 subject to a number of assumptions, risks
and
uncertainties, including general economic and business conditions, the business
opportunities that may be presented to and pursued by the Company, changes
in
laws or regulations and other factors, many of which are beyond the control
of
the Company. For a discussion of some of these factors, see the risk factors
set
forth in “Item 1A Risk Factors” of the Company’s Form 10-K for the year ended
October 31, 2005. Any such statements are not guarantees of future performance
and actual results or developments may differ materially from those anticipated
in the forward-looking statements.
Executive
Summary
The
Company, a REIT, is a fully integrated, self-administered real estate company,
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. Non core assets include office and retail buildings
and
industrial properties. The Company’s major tenants include supermarket chains
and other retailers who sell basic necessities. At July 31, 2006, the Company
owned or had controlling interests in 37 properties containing a total of
3.7
million square feet of gross leasable area (“GLA”) of which approximately 97%
was leased.
The
Company derives substantially all of its revenues from rents and operating
expense reimbursements received pursuant to long-term leases and focuses
its
investment activities on community and neighborhood shopping centers, anchored
principally by regional supermarket chains. The Company believes, because
of the
need of consumers to purchase food and other staple goods and services generally
available at supermarket-anchored shopping centers, that the nature of its
investments provide for relatively stable revenue flows even during difficult
economic times.
The
Company focuses on increasing cash flow, and consequently the value of its
properties, and seeks continued growth through strategic re-leasing, renovations
and expansion of its existing properties and selective acquisition of income
producing properties, primarily neighborhood and community shopping centers
in
the northeastern part of the United States.
Key
elements of the Company’s growth strategies and operating policies are
to:
§ |
Acquire
neighborhood and community shopping centers in the northeastern part
of
the United States with a concentration in Fairfield County, Connecticut,
and Westchester and Putnam Counties, New
York
|
§ |
Hold
core properties for long-term investment and enhance their value
through
regular maintenance, periodic renovation and capital
improvement
|
§ |
Selectively
dispose of non-core assets and re-deploy the proceeds into properties
located in the Company’s preferred region
|
§ |
Increase
property values by aggressively marketing available GLA and renewing
existing leases
|
§ |
Renovate,
reconfigure or expand existing properties to meet the needs of existing
or
new tenants
|
§ |
Negotiate
and sign leases which provide for regular or fixed contractual increases
to minimum rents
|
§ |
Control
property operating and administrative
costs
|
A
significant portion of the Company’s historic growth has come through
acquisitions. However, the acquisition environment has become more competitive
over the last several years and it has become increasingly difficult to find
acquisitions that meet the Company’s financial return objectives. Given the
difficult acquisition market and our current expectations, we anticipate
a
slower growth rate in the foreseeable future.
Critical
Accounting Policies
Critical
accounting policies are those that are both important to the presentation
of the
Company’s financial condition and results of operations and require management’s
most difficult, complex or subjective judgments. Set forth below is a summary
of
the accounting policies that management believes are critical to the preparation
of the consolidated financial statements. This summary should be read in
conjunction with the more complete discussion of the Company’s accounting
policies included in Note 1 to the consolidated financial statements of the
Company for the year ended October 31, 2005.
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.
The
Company records base rents on a straight-line basis over the term of each
lease.
The excess of rents recognized over amounts contractually due pursuant to
the
underlying leases is included in tenant receivables on the accompanying balance
sheets. Most leases contain provisions that require tenants to reimburse
a
pro-rata share of real estate taxes and certain common area expenses.
Adjustments
are also made throughout the year to tenant receivables and the related cost
recovery income based upon the Company’s best estimate of the final amounts to
be billed and collected.
Allowance
for Doubtful Accounts
The
allowance for doubtful accounts is established based on a quarterly analysis
of
the risk of loss on specific accounts. The analysis places particular emphasis
on past-due accounts and considers information such as the nature and age
of the
receivables, the payment history of the tenants or other debtors, the financial
condition of the tenants and any guarantors and management’s assessment of their
ability to meet their lease obligations, the basis for any disputes and the
status of related negotiations, among other things. Management’s estimates of
the required allowance is subject to revision as these factors change and
is
sensitive to the effects of economic and market conditions on tenants,
particularly those at retail centers. Estimates are used to establish
reimbursements from tenants for common area maintenance, real estate tax
and
insurance costs. The Company analyzes the balance of its estimated accounts
receivable for real estate taxes, common area maintenance and insurance for
each
of its properties by comparing actual recoveries versus actual expenses and
any
actual write-offs. Based on its analysis, the Company may record an additional
amount in its allowance for doubtful accounts related to these items.
It
is
also the Company’s policy to maintain an allowance of approximately 10% of the
deferred straight-line rents receivable balance for future tenant credit
losses.
Real
Estate
Land,
buildings, property improvements, furniture/fixtures and tenant improvements
are
recorded at cost. Expenditures for maintenance and repairs are charged to
operations as incurred. Renovations and/or replacements, which improve or
extend
the life of the asset, are capitalized and depreciated over their estimated
useful lives.
The
amounts to be capitalized as a result of an acquisition and the periods over
which the assets are depreciated or amortized are determined based on estimates
as to fair value and the allocation of various costs to the individual assets.
The Company allocates the cost of an acquisition based upon the estimated
fair
value of the net assets acquired. The Company also estimates the fair value
of
intangibles related to its acquisitions. The valuation of the fair value
of
intangibles involves estimates related to market conditions, probability
of
lease renewals and the current market value of in-place leases. This market
value is determined by considering factors such as the tenant’s industry,
location within the property and competition in the specific region in which
the
property operates. Differences in the amounts attributed to the intangible
assets can be significant based upon the assumptions made in calculating
these
estimates.
The
Company is required to make subjective assessments as to the useful life
of its
properties for purposes of determining the amount of depreciation. These
assessments have a direct impact on the Company’s net income.
Properties
are depreciated using the straight-line method over the estimated useful
lives
of the assets. The estimated useful lives are as follows:
Buildings
|
30-40
years
|
Property
Improvements
|
10-20
years
|
Furniture/Fixtures
|
3-10
years
|
Tenant
Improvements
|
Shorter
of lease term or their useful life
|
Asset
Impairment
On
a
periodic basis, management assesses whether there are any indicators that
the
value of the real estate properties and mortgage notes receivable 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 rental properties or mortgage note
receivable is impaired at July 31, 2006.
Liquidity
and Capital Resources
At
July
31, 2006, the Company had unrestricted cash and cash equivalents of $4.2
million
compared to $26.5 million at October 31, 2005. The Company's sources of
liquidity and capital resources include its cash and cash equivalents, bank
borrowings and long-term mortgage debt, capital financings and sales of real
estate investments. Payments of expenses related to real estate operations,
debt
service, management and professional fees, and dividend requirements place
demands on the Company's short-term liquidity.
Cash
Flows
The
Company expects to meet its short-term liquidity requirements primarily by
generating net cash from the operations of its properties. The Company believes
that its net cash provided by operations will be sufficient to fund its
short-term liquidity requirements for fiscal 2006 and to meet its dividend
requirements necessary to maintain its REIT status. The Company expects to
continue paying regular dividends to its stockholders. These dividends will
be
paid from operating cash flows which are expected to increase principally
from
property acquisitions and growth in operating income in the existing portfolio.
The Company derives substantially all of its revenues from tenants under
existing leases at its properties. The Company’s operating cash flow therefore
depends on the rents
that
it is able to charge to its tenants, and the ability of its tenants to make
rental payments. The Company believes that the nature of the properties in
which
it typically invests ― primarily grocery-anchored neighborhood and community
shopping centers ― provides a more stable revenue flow in uncertain economic
times, in that consumers still need to purchase basic staples and convenience
items. However, even in the geographic areas in which the Company owns
properties, general economic downturns may adversely
impact the ability of the Company’s tenants to make lease payments and the
Company’s ability to re-lease space as leases expire. In either of these cases,
the Company’s cash flow could be adversely affected.
Net
Cash Flows From:
Operating
Activities
Net
cash
flows provided by operating activities amounted to $25.4 million in the nine
months ended July 31, 2006, compared to $23.9 million in the comparable period
of fiscal 2005. The changes in operating cash flows are primarily the result
of
the additional operating cash flows from new properties acquired in 2006
and
2005.
.
Investing
Activities
Net
cash
flows used in investing activities were $20.2 million in the nine months
ended
July 31, 2006 compared to $72.3 million in the same period in fiscal 2005.
The
net cash flows in fiscal 2005 reflect the acquisitions of two retail properties
for approximately $71.7 million and the sales of two properties for net proceeds
of $17.8 million. Sale proceeds were used to purchase marketable securities
in
fiscal 2005. In fiscal 2006, the Company acquired three retail properties
at an
aggregate purchase price of $16.7 million. The Company also spent $4.0 million
on property improvements and tenant costs in fiscal 2006 compared to $3.0
million in fiscal 2005.
Financing
Activities
Net
cash
flows used in financing activities amounted to $27.5 million in fiscal
2006 and
net cash flows provided by financing activities amounted to $35.5 million
in
2005. In fiscal 2005, the Company borrowed $19.5 million under its bank
lines of
credit, which amounts were fully repaid during the year and received net
proceeds of $59.4 million from sales of Series D Preferred Stock. Quarterly
distributions paid to shareholders totaled $24.3 million during the first
nine
months in fiscal 2006 compared to $21.5 million for the same period in
fiscal
2005. The increase in distributions reflects dividends paid on shares of
Series
D Preferred Stock issued in fiscal 2005.
Capital
Resources
The
Company expects to fund its long-term liquidity requirements such as property
acquisitions, repayment of indebtedness and capital expenditures through
other
long-term indebtedness (including indebtedness assumed in acquisitions),
proceeds from sales of properties and/or the issuance of equity securities.
The
Company believes that these sources of capital will continue to be available
to
it in the future to fund its long-term capital needs; however, there are
certain
factors that may have a material adverse effect on its access to capital
sources. The Company’s ability to incur additional debt is dependent upon its
existing leverage, the value of its unencumbered assets and borrowing
limitations imposed by existing lenders. The Company’s ability to raise funds
through sales of equity securities is dependent on, among other things, general
market conditions for REITs, market perceptions about the Company and its
stock
price in the market. The Company’s ability to sell properties in the future to
raise cash will be dependent upon market conditions at the time of sale.
Financings
and Debt
In
fiscal
2005 the Company publicly announced that its Board of Directors approved
a share
repurchase program of up to 500,000 shares, in the aggregate, of the Company’s
Common and Class A Common Stock. The program does not have a specific expiration
date and may be discontinued at any time. There is no assurance that the
Company
will repurchase the full amount of shares authorized. There were no repurchases
of shares under this program in the first nine months of fiscal 2006. As
of July
31, 2006, the Company repurchased a total of 3,600 shares of common stock
and
41,400 shares of Class A Common Stock at an aggregate cost of
$686,000.
In
fiscal
2005, the Company sold 2,450,000 shares of 7.5% Series D Senior Cumulative
Preferred Stock (“Series D Preferred Stock”) in a public offering for net
proceeds of approximately $59.4 million. The Company utilized the net proceeds
from the Series D Preferred Stock sales to repay all of its then outstanding
revolving credit line indebtedness of $19.5 million and to fund the cash
portion
of the purchase price of properties acquired in fiscal 2006 and 2005.
The
Company is exposed to interest rate risk primarily through its borrowing
activities. There is inherent rollover risk for borrowings as they mature
and
are renewed at current market rates. The extent of this risk is not quantifiable
or predictable because of the variability of future interest rates and the
Company’s future financing requirements.
Mortgage
notes payable of $104.9 million consist of fixed rate mortgage loan indebtedness
with a weighted average interest rate of 7.3% at July 31, 2006. The mortgage
loans are secured by sixteen properties with a net book value of $179.0 million
and have fixed rates of interest ranging from 5.75% to 7.99%. In May 2006,
the
Company fully repaid a mortgage note payable in the principal amount of $4.975
million. There are no other mortgage notes which mature prior to fiscal 2007.
The Company may refinance any or all of its mortgage loans, at or prior to
scheduled maturity, through replacement mortgage loans. The ability to do
so,
however, is dependent upon various factors, including the income level of
the
properties, interest rates and credit conditions within the commercial real
estate market. Accordingly, there can be no assurance that such refinancings
can
be achieved.
The
Company has a secured revolving credit facility with a commercial bank which
provides for borrowings of up to $30 million for a three year period ending
in
fiscal 2008. The secured credit line is available to finance the acquisition,
management and/or development of commercial real estate, refinance indebtedness
and for working capital purposes. The secured revolving credit facility is
collateralized by two properties having a net book value of $27.3 million
at
July 31, 2006. In May 2006, the Company borrowed $3 million under the secured
revolving credit facility, which amount remained outstanding at July 31,
2006.
The
Company also had an unsecured revolving line of credit with the same bank
for
$30 million. Effective June 30, 2006, the Company cancelled the unsecured
credit
line. There were no borrowings on this line of credit.
Off-Balance
Sheet Arrangements
During
the quarter ended July 31, 2006 the Company did not have any off-balance
sheet
arrangements.
Capital
Expenditures
The
Company invests in its existing properties and regularly incurs capital
expenditures in the ordinary course of business to maintain its properties.
The
Company believes that such expenditures enhance the competitiveness of its
properties. During the nine months ended July 31, 2006, the Company incurred
approximately $4.0 million for capital expenditures which consisted of
$1,435,000 for property improvements, $864,000 for tenant improvements and
$1,778,000 for leasing commissions and tenant buyouts. The amounts of these
expenditures can vary significantly depending on tenant negotiations, market
conditions and rental rates. The Company expects to incur approximately $3.8
million for anticipated capital improvements and leasing costs during the
next
twelve months. These expenditures are expected to be funded from operating
cash
flows or borrowings.
Acquisitions
The
Company seeks to acquire properties (primarily shopping centers) located
in the
northeastern part of the United States with a concentration in Fairfield
County,
Connecticut and Westchester and Putnam Counties, New York. In March 2006,
the
Company acquired three retail properties in its preferred region totaling
47,300
square feet of leasable space at an aggregate purchase price of $16.7 million
(including closing costs).
Sales
In
fiscal
2005, the Company sold two properties, in separate transactions, for sale
prices
totaling approximately $19 million and recorded gains on the sales of
approximately $7.0 million. There were no sales of properties in fiscal 2006.
Non-Core
Assets
In
a
prior year, the Company's Board of Directors expanded and refined the strategic
objectives of the Company to refocus its real estate portfolio into one of
self-managed 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 several years. The non-core properties consist of two distribution
service facilities and one retail property (all of which are located outside
of
the northeast region of the United States). The Company intends to sell its
non-core properties as opportunities become available. The Company’s ability to
generate cash from asset sales is dependent upon market conditions and will
necessarily be limited if market conditions make such sales unattractive.
There
were no sales of non-core assets during the nine months ended July 31, 2006.
At
July 31, 2006, the three remaining non-core properties have a net book value
of
approximately $2.7 million.
Funds
from Operations
The
Company reports Funds from Operations (“FFO”) in addition to its net income
applicable to common stockholders and net cash provided by operating activities.
The Company considers Funds from Operations to be an additional measure of
an
equity REIT’s operating performance. Management has adopted the definition
suggested by The National Association of Real Estate Investment Trusts
(“NAREIT”) and defines FFO to mean net income (computed in accordance with
generally accepted accounting principles (“GAAP”)) excluding gains (or losses)
from sales of property, plus real estate related depreciation and amortization
and after adjustments for unconsolidated joint ventures.
Management
considers FFO a meaningful, additional measure of operating performance because
it primarily excludes the assumption that the value of its real estate assets
diminishes predictably over time and industry analysts have accepted it as
a
performance measure. FFO is presented to assist investors in analyzing the
performance of the Company. It is helpful as it excludes various items included
in net income that are not indicative of the Company’s operating performance,
such as gains (or losses) from sales of property and deprecation and
amortization. However, FFO:
§ |
does
not represent cash flows from operating activities in accordance
with GAAP
(which, unlike FFO, generally reflects all cash effects of transactions
and other events in the determination of net income); and
|
§ |
should
not be considered an alternative to net income as an indication of
the
Company’s performance.
|
FFO,
as
defined by us, may not be comparable to similarly titled items reported by
other
real estate investment trusts due to possible differences in the application
of
the NAREIT definition used by such REITs. The table below provides a
reconciliation of net income applicable to Common and Class A Common
Stockholders in accordance with GAAP to FFO for the nine months and three
months
ended July 31, 2006 and 2005 (amounts in thousands).
|
|
Nine
months Ended
|
|
Three
Months Ended
|
|
|
|
July
31,
|
|
July
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income Applicable to Common and Class A Common
Stockholders
|
|
$
|
11,439
|
|
$
|
20,198
|
|
$
|
3,546
|
|
$
|
5,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plus:
Real property depreciation
|
|
|
7,571
|
|
|
6,747
|
|
|
2,561
|
|
|
2,414
|
|
Amortization
of tenant improvements and allowances
|
|
|
1,877
|
|
|
1,717
|
|
|
728
|
|
|
515
|
|
Amortization
of deferred leasing costs
|
|
|
436
|
|
|
456
|
|
|
137
|
|
|
159
|
|
Depreciation
and amortization on discontinued operations
|
|
|
-
|
|
|
345
|
|
|
-
|
|
|
68
|
|
Less:
Gains on sales of properties
|
|
|
-
|
|
|
(7,031
|
)
|
|
-
|
|
|
(1,397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
from Operations Applicable to Common and Class A Common Stockholders
|
|
$
|
21,323
|
|
$
|
22,432
|
|
$
|
6,972
|
|
$
|
6,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by (Used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
|
|
$
|
25,377
|
|
$
|
23,936
|
|
$
|
10,670
|
|
$
|
7,490
|
|
Investing
Activities
|
|
$
|
(20,205
|
)
|
$
|
(72,334
|
)
|
$
|
(2,420
|
)
|
$
|
(28,572
|
)
|
Financing
Activities
|
|
$
|
(27,483
|
)
|
$
|
35,480
|
|
$
|
(10,465
|
)
|
$
|
25,421
|
|
FFO
amounted to $21.3 million during the first nine months of fiscal 2006 compared
to $22.4 million in fiscal 2005. The change in FFO is attributable to a
slightly
lower occupancy level compared to a year ago and a flattening of rental
revenue
growth in 2006. In addition FFO decreased due to higher general and
administrative expenses and the effect of low yielding returns on the temporary
investment of proceeds remaining from the sales of the Company’s Series D
Preferred Stock in fiscal 2005. See discussion which follows.
Results
of Operations
The
following information summarizes the Company’s results of operations for the
nine month and three month periods ended July 31, 2006 and 2005 (amounts
in
thousand):
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
July
31,
|
|
|
|
|
|
Change
Attributable to:
|
|
Revenues
|
|
2006
|
|
2005
|
|
Increase
(Decrease)
|
|
%
Change
|
|
Property
Acquisitions
|
|
Properties
Held In
Both Periods
|
|
Base
rents
|
|
$
|
41,552
|
|
$
|
38,656
|
|
$
|
2,896
|
|
|
7.5
|
%
|
$
|
2,657
|
|
$
|
239
|
|
Recoveries
from tenants
|
|
|
13,216
|
|
|
12,392
|
|
|
824
|
|
|
6.6
|
%
|
|
872
|
|
|
(48
|
)
|
Interest
and other
|
|
|
1,055
|
|
|
657
|
|
|
398
|
|
|
60.6
|
%
|
|
n/a
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating
|
|
|
9,286
|
|
|
8,249
|
|
|
1,037
|
|
|
12.6
|
%
|
|
732
|
|
|
305
|
|
Property
taxes
|
|
|
7,602
|
|
|
6,763
|
|
|
839
|
|
|
12.4
|
%
|
|
652
|
|
|
187
|
|
Interest
|
|
|
6,301
|
|
|
6,402
|
|
|
(101
|
)
|
|
(1.6
|
%)
|
|
322
|
|
|
(423
|
)
|
Depreciation
and amortization
|
|
|
9,949
|
|
|
8,918
|
|
|
1,031
|
|
|
11.6
|
%
|
|
685
|
|
|
346
|
|
General
and administrative
|
|
|
3,903
|
|
|
3,690
|
|
|
213
|
|
|
5.8
|
%
|
|
n/a
|
|
|
n/a
|
|
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
July
31,
|
|
|
|
|
|
Change
Attributable to:
|
|
Revenues
|
|
2006
|
|
2005
|
|
Increase
(Decrease)
|
|
%
Change
|
|
Property
Acquisitions
|
|
Properties
Held In
Both Periods
|
|
Base
rents
|
|
$
|
13,841
|
|
$
|
13,206
|
|
$
|
635
|
|
|
4.8
|
%
|
$
|
607
|
|
$
|
28
|
|
Recoveries
from tenants
|
|
|
4,112
|
|
|
3,682
|
|
|
430
|
|
|
11.7
|
%
|
|
227
|
|
|
203
|
|
Interest
and other
|
|
|
236
|
|
|
275
|
|
|
(39
|
)
|
|
(14.2
|
%)
|
|
n/a
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
operating
|
|
|
2,680
|
|
|
2,380
|
|
|
300
|
|
|
12.6
|
%
|
|
248
|
|
|
52
|
|
Property
taxes
|
|
|
2,610
|
|
|
2,304
|
|
|
306
|
|
|
13.3
|
%
|
|
216
|
|
|
90
|
|
Interest
|
|
|
2,057
|
|
|
2,080
|
|
|
(23
|
)
|
|
(1.1
|
%)
|
|
86
|
|
|
(109
|
)
|
Depreciation
and amortization
|
|
|
3,447
|
|
|
3,081
|
|
|
366
|
|
|
11.9
|
%
|
|
186
|
|
|
180
|
|
General
and administrative
|
|
|
1,415
|
|
|
1,581
|
|
|
(166
|
)
|
|
(10.5
|
%)
|
|
n/a
|
|
|
n/a
|
|
Property
Acquisitions:
Differences
in results of operations between the nine months and three months ended
July 31,
2006 and 2005 were driven largely by recent property acquisitions. In fiscal
2005, the Company acquired The Dock Shopping Center containing 269,000
square
feet of gross leasable area (“GLA”) and Staples Plaza containing 200,000 square
feet of GLA. These two properties accounted for substantially all of the
changes
attributable to property acquisitions in fiscal 2006. In March 2006 the
Company
acquired three retail properties aggregating 47,300 square feet. In connection
with the acquisition of Staples Plaza the Company assumed at fair value
a $8.5
million mortgage at a market rate of interest of 5.75% which increased
interest
expense by $322,000 and $86,000 during the nine months and three months
ended
July 31, 2006, respectively compared to same periods a year
ago.
Properties
Held in Both Periods:
Revenues
For
the
nine month period ended July 31, 2006, base rents from properties held in
both
periods increased $239,000 compared to the same period in fiscal 2005. Base
rents increased principally from new leases and lease renewals signed during
fiscal 2005. However, rental increases were impacted by an increase in tenant
vacancies occurring during fiscal 2006. For the three months ended July 31,
2006, base rents from properties held in both periods was unchanged compared
to
the period a year ago. At July 31, 2006, the Company’s core properties were 96%
leased, a decrease of approximately 1% from the year ago period. In the first
nine months of fiscal 2006, the Company executed new leases or renewed leases
comprising approximately 165,000 square feet of space. However, during the
same
period, leases comprising approximately 204,000 square feet of space expired.
The Company is in discussions or negotiations to re-lease a majority of the
currently vacant space.
In
the
nine month period ended July 31, 2006, recoveries from tenants from properties
held in both periods (which represent reimbursements from tenants for operating
expenses and property taxes) was unchanged compared to the same period in
fiscal
2005. In the three month period ended July 31, 2006, recoveries from tenants
from properties held in both periods increased by $203,000 due to an increase
in
recoverable expenses.
Interest
and other income increased $398,000 during the nine month period ended July
31,
2006 from an increase in interest rates on short-term cash investments during
the period and a gain of $102,000 from the repayment of a mortgage note
receivable in fiscal 2006.
Operating
Expenses
Operating
expenses for properties held in both periods increased $305,000 in the nine
months ended July 31, 2006 compared to a year ago due to an increase in snow
removal and utility expenses. Property operating expenses were generally
unchanged during the three months ended July 31, 2006 compared to the same
period a year ago.
Property
taxes for properties held in both periods increased in the nine months and
three
months ended July 31, 2006 by $187,000 and $90,000, respectively from
higher real estate tax assessment rates at several of the Company’s properties
during fiscal 2006.
Interest
expense decreased $423,000 and $109,000 in the nine months and three months
ended July 31, 2006 due to the repayment of mortgage notes payable of $4.975
million (May 2006) and $1.8 million (June 2005), and borrowings under the
revolving credit lines of $19.5 million in 2005 at an average interest rate
of
4.4% which increased interest expense by $208,000. Such borrowings were fully
repaid during the second quarter of 2005. In fiscal 2006, the Company borrowed
$3 million under its secured credit line at an interest rate of
6.6875%.
Depreciation
and amortization expense from properties held in both periods increased $346,000
and $180,000 in the nine month and three month period ended July 31, 2006,
respectively compared to corresponding periods in fiscal 2005 principally
from
the write off of unamortized tenant improvement costs of $319,000 and $189,000
in the nine month and three month periods ended July 31, 2006, respectively
related to several tenants that vacated their space during fiscal 2006.
General
and administrative expenses increased by $213,000 in the nine month period
ended
July 31, 2006 over the corresponding period in fiscal 2005 due to higher
compensation expense from an increase in the number of employees of the Company
and stock compensation expense from stock grants awarded in 2006. General
and
administrative expense decreased $166,000 in the three month period ended
July
31, 2006 over the corresponding period in fiscal 2005 due to the recording
of a
compensation charge of $332,000 in the third quarter of fiscal 2005 under
a
deferred compensation arrangement with certain officers of the
Company.
Adoption
of a New Accounting Pronouncement
Prior
to
November 1, 2005, the Company accounted for its stock based compensation
plans
under the recognition and measurement provisions of APB Opinion No. 25,
“Accounting
for Stock Issued to Employees”
(“APB
No. 25”), and related Interpretations, as permitted by FASB Statement No. 123,
“Accounting
for Stock-Based Compensation.” Effective
November 1, 2005, the Company adopted the fair value recognition provisions
of
FASB Statement No.123(R), “Share-Based
Payment,”
(“SFAS
No.123R”), using the modified-prospective-transition method. Under that
transition method, compensation cost recognized in fiscal 2006, for all
share-based payments granted subsequent to November 1, 2005, is based on
the
grant-date fair value of the stock grants estimated in accordance with the
provisions of SFAS No. 123R.
Prior
to
November 1, 2005, the grant date fair value of nonvested restricted stock
awards
was expensed over the explicit vesting periods. Such awards also provided
for
continued vesting after retirement. Upon adoption of SFAS No. 123R, the Company
changed its policy for recognizing compensation expense for restricted stock
awards to the earlier of the explicit vesting period or the date a participant
first becomes eligible for retirement. For nonvested restricted stock awards
granted prior to the adoption of SFAS No.123R, the Company will continue
to
recognize compensation expense over the explicit vesting periods and accelerate
any remaining unrecognized compensation cost when a participant actually
retires. Had compensation expense for nonvested restricted stock awards issued
prior to November 1, 2005 been determined based on the date a participant
first
becomes eligible for retirement, the Company’s net income in the nine month
period ended July 31, 2006 would have increased by $414,000 and in the nine
month period ended July 31, 2005, would have decreased by $859,000.
Consistent
with the provisions of APB No.25, the Company recorded the fair value of
nonvested restricted stock grants and an offsetting deferred compensation
amount
within stockholders equity. Under SFAS No.123R an equity instrument is not
considered to be issued until the instrument vests. The Company reversed
$8.2
million of restricted stock compensation included in stockholders equity
as of
November 1, 2005 representing the nonvested portions of restricted stock
grants
awarded prior to the effective date of SFAS No.123R. As of July 31, 2006,
there
was $10.6 million of restricted stock compensation related to nonvested
restricted stock grants awarded under the Plan. The remaining unamortized
stock
compensation is expected to be recognized over a weighted average period
of 8
years. For the nine months ended July 31, 2006 and 2005 amounts charged to
compensation expense totaled $1,493,000 and $1,200,000,
respectively.
Inflation
The
Company’s long-term leases contain provisions to mitigate the adverse impact of
inflation on its operating results. Such provisions include clauses entitling
the Company to receive (a) scheduled base rent increases and (b) percentage
rents based upon tenants’ gross sales, which generally increase as prices rise.
In addition, many of the Company’s non-anchor leases are for terms of less than
ten years, which permits the Company to seek increases in rents upon renewal
at
then current market rates if rents provided in the expiring leases are below
then existing market rates. Most of the Company’s leases require tenants to pay
a share of operating expenses, including common area maintenance, real estate
taxes, insurance and utilities, thereby reducing the Company’s exposure to
increases in costs and operating expenses resulting from inflation.
Environmental
Matters
Based
upon management’s ongoing review of its properties, management is not aware of
any environmental condition with respect to any of the Company’s properties that
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, which 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 the Company’s tenants, which would
adversely affect the Company’s financial condition and results of operations.
Market
risk is the exposure to loss resulting from changes in interest rates, foreign
currency exchange rates, commodity prices and equity prices. The primary
market
risk to which we are exposed is interest rate risk, which is sensitive to
many
factors, including governmental monetary and tax policies, domestic and
international economic and political considerations and other factors that
are
beyond the Company’s control.
Interest
Rate Risk
The
Company is exposed to interest rate risk primarily through its borrowing
activities. There is inherent rollover risk for borrowings as they mature
and
are renewed at current market rates. The extent of this risk is not quantifiable
or predictable because of the variability of future interest rates and the
Company’s future financing requirements.
As
of
July 31, 2006, the Company had outstanding variable rate debt totaling
$3,000,000. During the nine months ended July 31, 2006, the weighted average
interest rate on outstanding variable rate debt during the period was
approximately 6.9%. A hypothetical 1% increase in interest rates would have
had
an immaterial effect on the Company’s interest expense. The Company does not
enter into derivative financial instrument transactions for speculative or
trading purposes.
The
Company believes that its weighted average interest rate of 7.3% on its fixed
rate debt is not materially different from current fair market interest rates
for debt instruments with similar risks and maturities.
Evaluation
of Disclosure Controls and Procedures
The
Company’s Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Company’s disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)
as of
the end of the period covered by this report. Based on such evaluation, the
Company’s Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, the Company’s disclosure controls and
procedures are effective.
Changes
in Internal Controls
During
the quarter ended July 31, 2006, there were no changes in the Company’s internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Item
1. Legal
Proceedings
The
Company is not involved in any litigation, nor to its knowledge is any
litigation threatened against the Company or its subsidiaries, that in
management’s opinion, would result in a material adverse effect on the Company’s
ownership, management or operation of its properties, or which is not covered
by
the Company’s liability insurance.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
In
October 2005, the Company’s Board of Directors approved a share repurchase
program (“Program”) of up to 500,000 shares, in the aggregate, of the Company’s
Common and Class A Common Stock. The Program does not have a specific expiration
date and may be discontinued at any time. There were no purchases of either
Common or Class A Common Stock under the Program during any month in the
quarter
ended July
31,
2006 and there is no assurance that the Company will repurchase the full
amount
of shares authorized. Any combination of either Common Stock or Class A Common
Stock not exceeding 455,000 shares, in the aggregate, may yet be purchased
under
the Program.
Item
6. Exhibits
31.1
Certification of the Chief Executive Officer of Urstadt Biddle Properties
Inc.
pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.
31.2
Certification of the Chief Financial Officer of Urstadt Biddle Properties
Inc.
pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended.
32
Certification of the Chief Executive Officer and Chief Financial Officer
of
Urstadt Biddle Properties Inc. pursuant to Section 906 of Sarbanes-Oxley
Act of
2002.
S
I G N A T U R E S
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
URSTADT
BIDDLE PROPERTIES INC.
|
|
(Registrant)
|
|
|
|
/s/
Charles J. Urstadt
|
|
Charles
J. Urstadt
|
|
Chairman
and Chief Executive Officer
|
|
|
|
|
|
/s/
James R. Moore
|
|
James
R. Moore
|
|
Executive
Vice President and Chief Financial Officer
|
|
(Principal
Financial Officer
|
Dated:
September 8, 2006
|
and
Principal Accounting Officer)
|
EXHIBIT
INDEX
Exhibit
No.
31.1 |
Certification
of the Chief Executive Officer of Urstadt Biddle Properties Inc.
pursuant
to Rule 13a-14(a) of the
|
Securities
Exchange Act of 1934, as amended.
31.2 |
Certification
of the Chief Financial Officer of Urstadt Biddle Properties Inc.
pursuant
to Rule 13a-14(a) of the
|
Securities
Exchange Act of 1934, as amended.
32 |
Certification
of the Chief Executive Officer and Chief Financial Officer of Urstadt
Biddle Properties Inc.
|
pursuant
to Section 906 of Sarbanes-Oxley Act of 2002