Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion 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 Quarterly Report on Form 10-Q of Urstadt Biddle Properties Inc. (the “Company”), including this Item 2, contains
certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Such statements can generally be identified by such words as “anticipate”, “believe”, “can”, “continue”, “could”,
“estimate”, “expect”, “intend”, “may”, “plan”, “seek”, “should”, “will” or variations of such words or other similar expressions and the negatives of such words. All statements included in this report that address activities, events or
developments that we expect, believe or anticipate 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 our operations and other such matters, are forward-looking statements. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions,
expected future developments and other factors we believe are appropriate. Such statements are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be
anticipated. Future events and actual results, performance or achievements, financial and otherwise, may differ materially from the results, performance or achievements expressed or implied by the forward-looking statements. Risks, uncertainties
and other factors that might cause such differences, some of which could be material, include, but are not limited to:
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•
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economic and other market conditions, including local real estate and market conditions, that could impact
us, our properties or the financial stability of our tenants;
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•
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financing risks, such as the inability to obtain debt or equity financing on favorable terms, as well as the
level and volatility of interest rates;
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•
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any difficulties in renewing leases, filling vacancies or negotiating improved lease terms;
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•
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the inability of the Company’s properties to generate revenue increases to offset expense increases;
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•
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environmental risk and regulatory requirements;
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•
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risks of real estate acquisitions and dispositions (including the failure of transactions to close);
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•
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risks of operating properties through joint ventures that we do not fully control;
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•
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risks related to our status as a real estate investment trust, including the application of complex federal
income tax regulations that are subject to change;
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•
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as well as other risks identified in our Annual Report on Form 10-K for the fiscal year ended October 31,
2018 under Item 1A. Risk Factors and in the other reports filed by the Company with the Securities and Exchange Commission (the “SEC”).
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Executive Summary
Overview
We are a fully integrated, self-administered real estate company that has elected to be a REIT for federal income tax
purposes, engaged in the acquisition, ownership and management of commercial real estate, primarily neighborhood and community shopping centers, with a concentration in the metropolitan New York tri-state area outside of the City of New York. Other
real estate assets include office properties, single tenant retail or restaurant properties and office/retail mixed-use properties. Our major tenants include supermarket chains and other retailers who sell basic necessities.
At April 30, 2019, we owned or had equity interests in 84 properties, which include equity interests we own in six
consolidated joint ventures and seven unconsolidated joint ventures, containing a total of 5.3 million square feet of Gross Leasable Area (“GLA”). Of the properties owned by wholly-owned subsidiaries or joint venture entities that we
consolidate, approximately 92.3% of the GLA was leased (93.2% at October 31, 2018). Of the properties owned by unconsolidated joint ventures, approximately 96.0% of the GLA was leased (96.3% at October 31, 2018).
We have paid quarterly dividends to our stockholders continuously since our founding in 1969 and have increased the
level of dividend payments to our stockholders for 25 consecutive years.
We derive substantially all of our revenues from rents and operating expense reimbursements received pursuant to
long-term operating leases and focus our investment activities on community and neighborhood shopping centers, anchored principally by regional supermarket or pharmacy chains. We believe that because consumers need to purchase food and other types
of staple goods and services generally available at supermarket or pharmacy anchored shopping centers, the nature of our investments provides for relatively stable revenue flows even during difficult economic times.
We have a conservative capital structure, which includes permanent equity sources of Common Stock, Class A Common Stock
and two series of perpetual preferred stock, which are only redeemable at our option. In addition, we have mortgage debt. We have one $3.2 million mortgage maturing in October 2019, which we believe could easily be refinanced if we so choose or
repaid with available cash. For further information please see the Financing Strategy, Unsecured Revolving Credit Facility and other Financing Transactions section of this Item 2 below. Thereafter, we do not have any additional secured debt
maturing until March of 2022.
We focus on increasing cash flow, and consequently the value of our properties, and seek continued growth through
strategic re-leasing, renovations and expansions of our existing properties and selective acquisitions of income-producing properties. Key elements of our growth strategies and operating policies are to:
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•
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acquire quality neighborhood and community shopping centers in the northeastern part of the United States with
a concentration on properties in the metropolitan New York tri-state area outside of the City of New York, and unlock further value in these properties with selective enhancements to both the property and tenant mix, as well as
improvements to management and leasing fundamentals. Our hope is to grow our assets through acquisitions by 5% to 10% per year on a dollar value basis subject to the availability of acquisitions that meet our investment parameters;
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•
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selectively dispose of underperforming properties and re-deploy the proceeds into potentially higher
performing properties that meet our acquisition criteria;
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•
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invest in our properties for the long-term through regular maintenance, periodic renovations and capital
improvements, enhancing their attractiveness to tenants and customers, as well as increasing their value;
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•
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leverage opportunities to increase GLA at existing properties, through development of pad sites and
reconfiguring of existing square footage, to meet the needs of existing or new tenants;
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•
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proactively manage our leasing strategy by aggressively marketing available GLA, renewing existing leases with
strong tenants, and replacing weak ones when necessary, with an eye towards securing leases that include regular or fixed contractual increases to minimum rents, replacing below-market-rent leases with increased market rents when possible
and further improving the quality of our tenant mix at our shopping centers;
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•
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maintain strong working relationships with our tenants, particularly our anchor tenants;
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|
•
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maintain a conservative capital structure with low debt levels; and
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•
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control property operating and administrative costs.
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Highlights of Fiscal 2019; Recent Developments
Set forth below are highlights of our recent property acquisitions, potential acquisitions under contract, other
investments, property dispositions and financings:
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•
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In December 2018, we purchased the Lakeview Plaza Shopping Center (“Lakeview”) for $12 million, exclusive of
closing costs. Lakeview is a 177,000 square foot grocery-anchored shopping center located in Brewster, NY. When we purchased the property we anticipated having to invest up to $8 million for capital improvements and for re-tenanting at
the property. We purchased the property with available cash and a borrowing on our Unsecured Revolving Credit Facility (“Facility”). As of the date of this report, we have expended approximately $3.6 million of the $8 million
anticipated additional investment.
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•
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In March 18, 2019, we completed the refinancing of our $14.9 million mortgage secured by our Darien, CT
shopping center. The new mortgage principal balance is $25 million, and the note has a term of ten years and requires payments of principal and interest at the rate of LIBOR plus 1.65%. We also entered into an interest rate swap with
the new lender, which converts the variable interest rate (based on LIBOR) to a fixed rate of 4.815% per annum. The fixed interest rate on the refinanced mortgage was 6.55%.
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•
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In March 2019, we completed the refinancing of our existing $9.1 million mortgage secured by our Newark, NJ
shopping center. The new mortgage principal balance is $10 million, and the note has a term of ten years and requires payments of principal and interest at the fixed rate of 4.63%, which is a reduction from the fixed interest rate of
6.15% on the refinanced mortgage.
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•
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In March 2019, we sold Plaza 59, a commercial real estate property located in Spring Valley, NY. Plaza 59 is
a property that we owned a 50% undivided tenancy-in-common interest, and accounted for under the equity method of accounting. The total loss on sale was $913,600, of which our 50% share was $456,700. This resulted in our equity in net
income from Plaza 59 being reduced by $363,000 in the first quarter of fiscal 2019, when that property was classified as held-for-sale in accordance with Generally Accepted Accounting Principles (or "GAAP") and an additional $94,000
reduction in the second quarter of fiscal 2019, when the property sale closed and the asset was de-recognized in accordance with GAAP. This loss has been added back to our Funds from Operations (“FFO”) as discussed below in this Item 2.
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Known Trends; Outlook
We believe that shopping center REITs face opportunities and challenges that are both common to and unique from other
REITs and real estate companies. As a shopping center REIT, we are focused on certain challenges that are unique to the retail industry. In particular, we recognize the challenges presented by e-commerce to brick-and-mortar retail establishments,
including our tenants. However, we believe that because consumers prefer to purchase food and other staple goods and services available at supermarkets in person, the nature of our properties makes them less vulnerable to the encroachment of
e-commerce than other properties whose tenants may more directly compete with the internet. Moreover, we believe the nature of our properties makes them less susceptible to economic downturns than other retail properties whose anchor tenants are
not supermarkets or other staple goods providers. We note, however, that many prospective in-line tenants are seeking smaller spaces than in the past, as a result, in part, of internet encroachment on their brick-and-mortar business. When
feasible, we actively work to place tenants that are less susceptible to internet encroachment, such as restaurants, fitness centers, healthcare and personal services. We continue to be sensitive to these considerations when we establish the
tenant mix at our shopping centers, and believe that our strategy of focusing on supermarket anchors is a strong one.
In the metropolitan tri-state area outside of New York City, demographics (income, density, etc.) remain strong and
opportunities for new development, as well as acquisitions, are competitive, with high barriers to entry. We believe that this will remain the case for the foreseeable future, and have focused our growth strategy accordingly.
As a REIT, we are susceptible to changes in interest rates, the lending environment, the availability of capital markets
and the general economy. The impact of such changes are difficult to predict.
Leasing
Rollovers
For the three months ended April 30, 2019, we signed leases for a total of 335,000 square feet of retail space in our
consolidated portfolio. New leases for vacant spaces were signed for 63,000 square feet at an average rental decrease of 12.5% on a cash basis. Renewals for 272,000 square feet of space previously occupied were signed at an average rental
increase of 1.5% on a cash basis.
Tenant improvements and leasing commissions averaged $25.05 per square foot for new leases and $0.15 per square foot for
renewals for the six months ended April 30, 2019. The average term for new leases was 6 years and the average term for renewal leases was 4 years.
The rental increases/decreases associated with new and renewal leases generally include all leases signed in arms-length
transactions reflecting market leverage between landlords and tenants during the period. The comparison between average rent for expiring leases and new leases is determined by including minimum rent paid on the expiring lease and minimum rent to
be paid on the new lease in the first year. In some instances, management exercises judgment as to how to most effectively reflect the comparability of spaces reported in this calculation. The change in rental income on comparable space leases is
impacted by numerous factors including current market rates, location, individual tenant creditworthiness, use of space, market conditions when the expiring lease was signed, the age of the expiring lease, capital investment made in the space and
the specific lease structure. Tenant improvements include the total dollars committed for the improvement (fit-out) of a space as it relates to a specific lease but may also include base building costs (i.e. expansion, escalators or new entrances)
that are required to make the space leasable. Incentives (if applicable) include amounts paid to tenants as an inducement to sign a lease that do not represent building improvements.
The leases signed in 2019 generally become effective over the following one to two years. There is risk that some new
tenants will not ultimately take possession of their space and that tenants for both new and renewal leases may not pay all of their contractual rent due to operating, financing or other matters.
In 2019, we believe our leasing volume will be in-line with our historical averages, with overall positive increases in
rental income for renewal leases and flat to small decreases for new leases. However, changes in rental income associated with individual signed leases on comparable spaces may be positive or negative, and we can provide no assurance that the rents
on new leases will continue to increase at the above described levels, if at all.
Significant Events with Impacts on Leasing
In July 2015, one of our largest tenants, A&P, filed a voluntary petition under chapter 11 of title 11 of the United
States Bankruptcy Code (the “Bankruptcy Code”). Subsequently, A&P determined that it would be liquidating the company. Prior to A&P filing for bankruptcy, A&P leased and occupied nine spaces totaling 365,000 square feet in our
portfolio. The bankruptcy process relating to our nine spaces is complete, with eight of the nine A&P leases having been assumed by new operators in the bankruptcy process or re-leased by us to new operators. The remaining lease, located in
our Pompton Lakes shopping center, totaling 63,000 square feet, was rejected by A&P in bankruptcy, and we are continuing to market that space for re-lease. In July 2018, one other 36,000 square foot space formerly occupied by A&P that we
had released to a local grocery operator became vacant, as that operator failed to perform under its lease and was evicted. We have signed a lease with Whole Foods Market for this location, and we expect to deliver the space to the lessee by the
end of fiscal 2019.
In May 2018, the grocery tenant occupying 30,600 square feet at our Passaic, NJ property went vacant, the tenant was
evicted, and the lease was terminated. In May 2019, we signed two leases to re-lease a large portion of this space at a rental rate that is 12% below the rent we received from the prior grocery tenant.
In April 2018, we reached agreement with the grocery tenant at our Newark, NJ property to terminate its 63,000 square
foot lease in exchange for a $3.7 million lease termination payment, which was recorded as revenue in the second quarter of fiscal year ended October 31, 2018. Also in April 2018, we leased that same space to a new grocery store operator who took
possession in May 2018. While the rental rate on the new lease is 30% less than the rental rate on the terminated lease, we hope that part of this decreased rental rate will be recaptured with the receipt of percentage rent in subsequent years as
the store matures and its sales increase. The new lease required no tenant improvements or tenant allowances.
In 2017, Toys R’ Us and Babies R’ Us (“Toys”) filed a voluntary petition under chapter 11 of title 11 of the United
States Bankruptcy Code. Subsequently, Toys determined that it would be liquidating the company. Toys ground leased 65,700 square feet of space in our Danbury, CT shopping center. In August 2018, this lease was purchased out of bankruptcy from
Toys and assumed by a new owner. The base lease rate for the 65,700 square foot space was and remains at $0 for the duration of the lease, and we did not have any other leases with Toys R’ Us or Babies R’ Us, so the Company’s cash flow was not
impacted by the bankruptcy of Toys R’ Us and Babies R’ Us. As of the date of this report, we have not been informed by the new owner of the lease which operator will occupy the space.
Impact of Inflation on Leasing
Our long-term leases contain provisions to mitigate the adverse impact of inflation on our operating results. Such
provisions include clauses entitling us to receive (a) scheduled base rent increases and (b) percentage rents based upon tenants’ gross sales, which could increase as prices rise. In addition, many of our non-anchor leases are for terms of less
than ten years, which permits us 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 our leases require tenants to pay a share of operating
expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation.
Critical Accounting Policies
Critical accounting policies are those that are both important to the presentation of our financial condition and
results of operations and require management’s most difficult, complex or subjective judgments. For a further discussion about our critical accounting policies, please see Note 1 in our consolidated financial statements included in Item 1 of this
Quarterly Report on Form 10-Q.
Liquidity and Capital Resources
Overview
At April 30, 2019, we had cash and cash equivalents of $8.8 million, compared to $10.3 million at October 31, 2018. Our
sources of liquidity and capital resources include operating cash flows from real estate operations, proceeds from bank borrowings and long-term mortgage debt, capital financings and sales of real estate investments. Substantially all of our
revenues are derived from rents paid under existing leases, which means that our operating cash flow depends on the ability of our tenants to make rental payments. For the six months ended April 30, 2019 and 2018, net cash flows from operating
activities amounted to $33.2 million and $36.8 million, respectively. The six month period ended 2018 net cash flows from operations included a one-time $3.7 million lease termination payment received from a grocery store tenant in our Newark, NJ
property (see Significant Events with Impacts on Leasing section earlier in this Item 2 for more information).
Our short-term liquidity requirements consist primarily of normal recurring operating expenses and capital expenditures,
debt service, management and professional fees, cash distributions to certain limited partners and non-managing members of our consolidated joint ventures, and regular dividends paid to our Common and Class A Common stockholders, which we expect to
continue. Cash dividends paid on Common and Class A Common stock for the six months ended April 30, 2019 and 2018 totaled $21.3 million and $20.8 million, respectively. Historically, we have met short-term liquidity requirements, which is defined
as a rolling twelve month period, primarily by generating net cash from the operation of our properties. We believe that our net cash provided by operations will continue to be sufficient to fund our short-term liquidity requirements, including
payment of dividends necessary to maintain our federal income tax REIT status.
Our long-term liquidity requirements consist primarily of obligations under our long-term debt, dividends paid to our
preferred stockholders, capital expenditures and capital required for acquisitions. In addition, the limited partners and non-managing members of our six consolidated joint venture entities, UB Ironbound, L.P., UB McLean, LLC, UB Orangeburg, LLC,
UB High Ridge, LLC, UB Dumont I, LLC and UB New City I, LLC, have the right to require us to repurchase all or a portion of their limited partner or non-managing member interests at prices and on terms as set forth in the governing agreements. See
Note 4 to the financial statements included in Item 1 of this Report on Form 10-Q. Historically, we have financed the foregoing requirements through operating cash flow, borrowings under our Facility, debt refinancings, new debt, equity offerings
and other capital market transactions, and/or the disposition of under-performing assets, with a focus on keeping our debt level low. We expect to continue doing so in the future. We cannot assure you, however, that these sources will always be
available to us when needed, or on the terms we desire.
Capital Expenditures
We invest in our existing properties and regularly make capital expenditures in the ordinary course of business to
maintain our properties. We believe that such expenditures enhance the competitiveness of our properties. For the six months ended April 30, 2019, we paid approximately $9.6 million for land improvements, property improvements, tenant improvements
and leasing commission costs (approximately $4.4 million representing land improvements (see Highlights of Fiscal 2019 earlier in this Item 2 for more information on our purchase of Lakeview Plaza Shopping Center), $2.4 million representing
property improvements and approximately $2.8 million related to new tenant space improvements, leasing costs and capital improvements as a result of new tenant spaces). The amount of these expenditures can vary significantly depending on tenant
negotiations, market conditions and rental rates. We expect to incur approximately $6.7 million for anticipated capital improvements, tenant improvements/allowances and leasing costs related to new tenant leases and property improvements during the
remainder of fiscal 2019. This amount is inclusive of the remaining investment needed on Lakeview (see Highlights section above). These expenditures are expected to be funded from operating cash flows, bank borrowings or other financing sources.
Financing Strategy, Unsecured Revolving Credit Facility and other Financing Transactions
Our strategy is to maintain a conservative capital structure with low leverage levels by commercial real estate
standards. Mortgage notes payable and other loans of $301.3 million consist of $1.7 million in variable rate debt with an interest rate of 5.00% as of April 30, 2019 and $298.2 million in fixed-rate mortgage loans with a weighted average interest
rate of 4.1% at April 30, 2019. The mortgages are secured by 26 properties with a net book value of $552 million and have fixed rates of interest ranging from 3.5% to 4.9%. The $1.7 million in variable rate debt is unsecured. We may refinance
our 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 re-financings can be achieved.
At April 30, 2019, we had $26.3 million in additional variable-rate debt consisting of draws on our Facility (see below)
that was not fixed through an interest rate swap or otherwise. See “Item 3. Quantitative and Qualitative Disclosures about Market Risk” included in this Report on Form 10-Q for additional information on our interest rate risk.
We currently maintain a ratio of total debt to total assets below 32.7% and a fixed charge coverage ratio of over 3.6 to
1 (excluding preferred stock dividends), which we believe will allow us to obtain additional secured mortgage loans or other types of borrowings, if necessary. We own 52 properties in our consolidated portfolio that are not encumbered by secured
mortgage debt. At April 30, 2019, we had borrowing capacity of $73 million on our Facility. Our Facility includes financial covenants that limit, among other things, our ability to incur unsecured and secured indebtedness. See Note 3 in our
consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for additional information on these and other restrictions.
We have a $100 million unsecured revolving credit facility with a syndicate of three banks, BNY Mellon, Bank of Montreal
and Wells Fargo N.A. with the ability under certain conditions to additionally increase the capacity to $150 million, subject to lender approval. The maturity date of the Facility is August 23, 2020 with a one-year extension at our option.
Borrowings under the Facility can be used for general corporate purposes and the issuance of up to $10 million of letters of credit. Borrowings will bear interest at our option of Eurodollar rate plus 1.35% to 1.95% or The Bank of New York
Mellon's prime lending rate plus 0.35% to 0.95%, based on consolidated indebtedness, as defined. We pay a quarterly commitment fee on the unused commitment amount of 0.15% to 0.25% per annum, based on outstanding borrowings during the year. As of
April 30, 2019, $73 million was available to be drawn on the Facility. Our ability to borrow under the Facility is subject to its compliance with the covenants and other restrictions on an ongoing basis. The principal financial covenants limit
our level of secured and unsecured indebtedness and additionally require us to maintain certain debt coverage ratios. We were in compliance with such covenants at April 30, 2019.
During the six months ended April 30, 2019, we borrowed $21.5 million on our Facility for property acquisitions, to fund
capital improvements to our properties and for general corporate purposes. For the six months ended April 30, 2019 we repaid $23.8 million of borrowings on our Facility, with available cash, proceeds from mortgage financings and proceeds from the
sale of marketable securities.
Net Cash Flows from:
Operating Activities
Net cash flows provided by operating activities amounted to $33.2 million for the
six months ended April 30, 2019 compared to $36.8 million in the comparable period of fiscal 2018. The decrease in operating cash flows when compared with the corresponding prior period was due primarily to our receiving a $3.7 million lease
termination payment in the second quarter of fiscal 2018 from one of our grocery store tenants who wanted to terminate its lease early (see Significant Events with Impacts on Leasing earlier in this Item 2 for more information). This decrease was
partially offset by our properties generating additional operating income in the six months ended April 30, 2019 when compared with the corresponding prior period. This additional operating income was predominantly from properties acquired after
the first six months of fiscal 2018 and in the first six months of fiscal 2019. In addition, our net income increased as a result of increased base rent from a grocery store tenant amending and extending its lease at the beginning of fiscal 2019
at a significantly higher base rent than in the prior period.
Investing Activities
Net cash flows used in investing activities amounted to $12.8 million for the six
months ended April 30, 2019 compared to $17.3 million in the comparable period of fiscal 2018. The decrease in net cash flows used in investing activities in fiscal 2019 when compared to the corresponding prior period was the result of selling our
marketable security portfolio in the second quarter of fiscal 2019 and realizing proceeds on that sale of $6 million. The marketable securities were purchased in the first half of fiscal 2018. These transactions created an $11 million positive
variance in cash flows from investing activities for the six month period ended April 30, 2019 compared with the corresponding prior period. In addition, the decrease in cash flows used in investing activities was the result of one of our
unconsolidated joint ventures selling a property it owned in the second quarter of fiscal 2019 and distributing $5 million in sales proceeds to us. This positive variance was partially offset by us acquiring one property for $12 million in the
first six months of fiscal 2019 versus purchasing two properties in the first six months of fiscal 2018 for $4.8 million and expending $5.6 million more for improvements to properties and deferred charges in the first six months of fiscal 2019
versus the corresponding prior period.
We regularly make capital investments in our properties for property improvements, tenant improvements costs and leasing
commissions.
Financing Activities
The $10.2 million increase in net cash flows used by financing activities for the
six months ended April 30, 2019 when compared to the corresponding prior period was predominantly the result of repaying $20.0 million more on our Facility in the first six months of fiscal 2019 when compared with the corresponding period of fiscal
2018. This increase was partially offset by generating net cash of $11.1 million from two mortgage refinancings in the first six months of fiscal 2019.
Results of Operations
The following information summarizes our results of operations for the six months and three months ended April 30, 2019 and
2018 (amounts in thousands):
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|
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Six months ended
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
|
|
|
|
|
Change Attributable to
|
|
|
Revenues
|
|
2019
|
|
|
2018
|
|
|
Increase (Decrease)
|
|
|
% Change
|
|
|
Property Acquisitions/Sales
|
|
|
Properties Held In Both Periods (Note 1)
|
|
|
Base rents
|
|
$
|
49,706
|
|
|
$
|
47,494
|
|
|
$
|
2,212
|
|
|
|
4.7
|
%
|
|
$
|
1,672
|
|
|
$
|
540
|
|
|
Recoveries from tenants
|
|
|
16,825
|
|
|
|
16,316
|
|
|
|
509
|
|
|
|
3.1
|
%
|
|
|
763
|
|
|
|
(254
|
)
|
|
Lease termination
|
|
|
17
|
|
|
|
3,754
|
|
|
|
(3,737
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)
|
|
|
(99.5
|
)%
|
|
|
-
|
|
|
|
(3,737
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)
|
|
Other income
|
|
|
2,200
|
|
|
|
2,436
|
|
|
|
(236
|
)
|
|
|
(9.7
|
)%
|
|
|
42
|
|
|
|
(278
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating
|
|
|
11,715
|
|
|
|
12,046
|
|
|
|
(331
|
)
|
|
|
(2.7
|
)%
|
|
|
713
|
|
|
|
(1,044
|
)
|
|
Property taxes
|
|
|
11,718
|
|
|
|
10,304
|
|
|
|
1,414
|
|
|
|
13.7
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%
|
|
|
419
|
|
|
|
995
|
|
|
Depreciation and amortization
|
|
|
13,925
|
|
|
|
13,917
|
|
|
|
8
|
|
|
|
0.1
|
%
|
|
|
266
|
|
|
|
(258
|
)
|
|
General and administrative
|
|
|
4,919
|
|
|
|
4,702
|
|
|
|
217
|
|
|
|
4.6
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating Income/Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
7,110
|
|
|
|
6,739
|
|
|
|
371
|
|
|
|
5.5
|
%
|
|
|
72
|
|
|
|
299
|
|
|
Interest, dividends, and other investment income
|
|
|
184
|
|
|
|
142
|
|
|
|
42
|
|
|
|
29.6
|
%
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
April 30,
|
|
|
|
|
|
|
|
|
Change Attributable to
|
|
|
Revenues
|
|
2019
|
|
|
2018
|
|
|
Increase (Decrease)
|
|
|
% Change
|
|
|
Property Acquisitions/Sales
|
|
|
Properties Held In Both Periods (Note 1)
|
|
|
Base rents
|
|
$
|
24,928
|
|
|
$
|
23,910
|
|
|
$
|
1,018
|
|
|
|
4.3
|
%
|
|
$
|
841
|
|
|
$
|
177
|
|
|
Recoveries from tenants
|
|
|
8,373
|
|
|
|
8,109
|
|
|
|
264
|
|
|
|
3.3
|
%
|
|
|
367
|
|
|
|
(103
|
)
|
|
Lease termination
|
|
|
-
|
|
|
|
3,754
|
|
|
|
(3,754
|
)
|
|
|
(100.0
|
)%
|
|
|
-
|
|
|
|
(3,754
|
)
|
|
Other income
|
|
|
992
|
|
|
|
1,232
|
|
|
|
(240
|
)
|
|
|
(19.5
|
)%
|
|
|
5
|
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating
|
|
|
5,851
|
|
|
|
5,740
|
|
|
|
111
|
|
|
|
1.9
|
%
|
|
|
371
|
|
|
|
(260
|
)
|
|
Property taxes
|
|
|
5,805
|
|
|
|
5,157
|
|
|
|
648
|
|
|
|
12.6
|
%
|
|
|
222
|
|
|
|
426
|
|
|
Depreciation and amortization
|
|
|
6,985
|
|
|
|
6,968
|
|
|
|
17
|
|
|
|
0.2
|
%
|
|
|
126
|
|
|
|
(109
|
)
|
|
General and administrative
|
|
|
2,265
|
|
|
|
2,283
|
|
|
|
(18
|
)
|
|
|
(0.8
|
)%
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Operating Income/Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
3,532
|
|
|
|
3,316
|
|
|
|
216
|
|
|
|
6.5
|
%
|
|
|
32
|
|
|
|
184
|
|
|
Interest, dividends, and other investment income
|
|
|
55
|
|
|
|
62
|
|
|
|
(7
|
)
|
|
|
(11.3
|
)%
|
|
|
n/a
|
|
|
|
n/a
|
|
Note 1 – Properties held in both periods includes only properties owned for the entire periods of
2019 and 2018 and for interest expense the amount also includes parent company interest expense. All other properties are included in the property acquisition/sales column. There are no properties excluded from the analysis.
Base rents increased by 4.7% to $49.7 million for the six month period ended April
30, 2019 as compared with $47.5 million in the comparable period of 2018. Base rents increased by 4.3% to $24.9 million for the three month period ended April 30, 2019 as compared with $23.9 million in the comparable period of 2018. The change in
base rent and the changes in other income statement line items analyzed in the table above were attributable to:
Property Acquisitions and Properties Sold:
In fiscal 2018, we purchased three properties totaling 53,700 square feet of GLA. In the first six months of fiscal
2019, we purchased one property totaling 177,000 square feet. These properties accounted for all of the revenue and expense changes attributable to property acquisitions and sales in the six months ended April 30, 2019 when compared with fiscal
2018.
Properties Held in Both Periods:
Revenues
Base Rent
The increase in base rents for the six month and three month periods ended April 30, 2019, when compared to the
corresponding prior periods, was predominantly caused by new leasing activity at several properties held in both periods and a lease renewal with a grocery-store tenant at a significantly higher rent than the expiring period rent, both of which
created a positive variance in base rent.
In the first six months of fiscal 2019, we leased or renewed approximately 335,000 square feet (or approximately 7.3% of
total consolidated property leasable area). At April 30, 2019, the Company’s consolidated properties were 92.3% leased (93.2% leased at October 31, 2018).
Tenant Recoveries
In the six month and three month periods ended April 30, 2019, recoveries from tenants (which represent reimbursements
from tenants for operating expenses and property taxes) decreased by $254,000 and $103,000, respectively, when compared with the corresponding prior periods. This decrease was a result of a decrease in property operating expenses predominantly
related to a decrease in snow removal costs at our properties owned in both periods, partially offset by an increase in property tax expense as a result of an increase in property tax assessments in both periods.
Lease Termination Income
In April 2018, we reached agreement with the grocery tenant at our Newark, NJ property to terminate its 63,000 square
foot lease in exchange for a one-time $3.7 million lease termination payment, which we received and recorded as revenue in the six month and three month periods ended April 30, 2018. Also in March 2018, we leased that same space to a new grocery
store operator who took possession in May 2018. While the rental rate on the new lease is 30% less than the rental rate on the terminated lease, we hope that part of this decreased rental rate will be recaptured with the receipt of percentage rent
in subsequent years as the store matures and its sales increase. The new lease required no tenant improvement allowance.
Expenses
Property
Operating
In the six month and three month periods ended April 30, 2019, property operating
expenses decreased by $1.0 million and $260,000, respectively, when compared with the corresponding prior periods, predominantly as a result of a decrease in snow removal costs at our properties owned in both periods.
Property
Taxes
In the six month and three month periods ended April 30, 2019, property taxes
increased by $995,000 and $426,000, respectively when compared with the corresponding prior periods, as a result of an increase in property tax assessments for a number of our properties owned in both periods, specifically in the City of Stamford,
CT.
Interest
In the six month and three month periods ended April 30, 2019, interest expense
increased by $299,000 and $184,000, respectively when compared with the corresponding prior periods as a result of the Company having a larger balance drawn on its Facility in both the six month and three month periods ended April 30, 2019 when
compared with the corresponding prior periods.
Depreciation
and Amortization
Depreciation and amortization was relatively unchanged in the six month and three month periods ended April 30, 2019,
when compared with the corresponding prior periods.
General and Administrative Expenses
General and administrative expense increased by $217,000 in the six month period
ended April 30, 2019 when compared with the corresponding prior period predominantly as a result of normal salary increases and bonuses for our employees being larger than the prior period. General and administrative expense was relatively
unchanged in the three month period ended April 30, 2019 when compared with the corresponding prior period.
Funds from Operations
We consider Funds from Operations (“FFO”) to be an additional measure of our operating performance. We report FFO in
addition to net income applicable to common stockholders and net cash provided by operating activities. 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 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 our 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 our performance. It is helpful as it excludes
various items included in net income that are not indicative of our operating performance, such as gains (or losses) from sales of property and depreciation 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 our 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 six months
and three months ended April 30, 2019 and 2018 (amounts in thousands):
|
Reconciliation of Net Income Available to Common and Class A Common Stockholders To Funds From Operations:
|
|
Six months ended
|
|
|
Three Months Ended
|
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Net Income Applicable to Common and Class A Common Stockholders
|
|
$
|
11,652
|
|
|
$
|
14,519
|
|
|
$
|
5,798
|
|
|
$
|
9,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real property depreciation
|
|
|
11,333
|
|
|
|
10,996
|
|
|
|
5,669
|
|
|
|
5,538
|
|
|
Amortization of tenant improvements and allowances
|
|
|
1,732
|
|
|
|
2,079
|
|
|
|
849
|
|
|
|
1,037
|
|
|
Amortization of deferred leasing costs
|
|
|
812
|
|
|
|
798
|
|
|
|
419
|
|
|
|
372
|
|
|
Depreciation and amortization on unconsolidated joint ventures
|
|
|
753
|
|
|
|
808
|
|
|
|
373
|
|
|
|
405
|
|
|
Loss on sale of property in unconsolidated joint venture
|
|
|
457
|
|
|
|
-
|
|
|
|
94
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from Operations Applicable to Common and Class A Common Stockholders
|
|
$
|
26,739
|
|
|
$
|
29,200
|
|
|
$
|
13,202
|
|
|
$
|
16,950
|
|
FFO amounted to $26.7 million in the first six months of fiscal 2019 compared to $29.2 million in the comparable period
of fiscal 2018. The net decrease in FFO is attributable, among other things, to: (i) the receipt of a $3.7 million one-time lease termination payment in the second quarter of fiscal 2018 from a grocery store tenant who wanted to terminate its
lease early (see Significant Events with an Impact on Leasing section earlier in this Item 2); (ii) an increase in interest expense as a result of having more outstanding on our Facility in the six month and three month periods ended April 30, 2019
when compared with the corresponding prior periods; offset by (iii) a $403,000 gain on sale of marketable securities in the first six months of fiscal 2019 when we sold all of our marketable securities; (iv)
the additional net income generated from properties acquired in fiscal 2018 and the first six months of fiscal 2019; (v) additional net income generated from increased base rent revenue for our
existing properties, specifically related to a property where the grocery store tenant renewed their lease at a significantly higher rent than the current rent.
FFO amounted to $13.2 million in the three months ended April 30, 2019 compared to $17.0 million in the comparable
period of fiscal 2018. The net decrease in FFO is attributable, among other things, to: (i) the receipt of $3.7 million one-time lease termination payment in the second quarter of fiscal 2018 from a grocery store tenant who wanted to terminate its
lease early (see Significant Events with an Impact on Leasing section earlier in this Item 2); (ii) an increase in interest expense as a result of having more outstanding on our Facility in the three month period ended April 30, 2019 when compared
with the corresponding prior period; offset by (iii)
the additional net income generated from properties acquired in fiscal 2018 and the first six months of fiscal 2019;
(iv) additional net income generated from increased base rent revenue for our existing properties, specifically related to a property where the grocery store tenant renewed their lease at a significantly higher rent than the current rent.
Off-Balance Sheet Arrangements
We have six off-balance sheet investments in real property through unconsolidated joint ventures:
|
•
|
a 66.67% equity interest in the Putnam Plaza Shopping Center,
|
|
•
|
an 11.642% equity interest in the Midway Shopping Center, L.P.,
|
|
•
|
a 50% equity interest in the Chestnut Ridge Shopping Center,
|
|
•
|
a 50% equity interest in the Gateway Plaza shopping center and the Riverhead Applebee’s Plaza, and
|
|
•
|
a 20% interest in a suburban office building with ground level retail.
|
These unconsolidated joint ventures are accounted for under the equity method of accounting, as we have the ability to
exercise significant influence over, but not control of, the operating and financial decisions of these investments. Our off-balance sheet arrangements are more fully discussed in Note 5, “Investments in and Advances to Unconsolidated Joint
Ventures” in our financial statements in Item 1 of this Quarterly Report on Form 10-Q. Although we have not guaranteed the debt of these joint ventures, we have agreed to customary environmental indemnifications and nonrecourse carve-outs (e.g.
guarantees against fraud, misrepresentation and bankruptcy) on certain loans of the joint ventures. The below table details information about the outstanding non-recourse mortgage financings on our unconsolidated joint ventures (amounts in
thousands):
|
|
|
Principal Balance
|
|
|
|
|
|
Joint Venture Description
|
Location
|
Original Balance
|
|
At April 30, 2019
|
|
Fixed Interest Rate Per Annum
|
|
Maturity Date
|
|
|
|
|
|
|
|
|
|
|
|
Midway Shopping Center
|
Scarsdale, NY
|
|
$
|
32,000
|
|
|
$
|
27,100
|
|
|
|
4.80
|
%
|
Dec-2027
|
|
Putnam Plaza Shopping Center
|
Carmel, NY
|
|
$
|
18,900
|
|
|
$
|
18,800
|
|
|
|
4.81
|
%
|
Oct-2028
|
|
Gateway Plaza
|
Riverhead, NY
|
|
$
|
14,000
|
|
|
$
|
12,200
|
|
|
|
4.18
|
%
|
Feb-2024
|
|
Applebee's Plaza
|
Riverhead, NY
|
|
$
|
2,300
|
|
|
$
|
1,900
|
|
|
|
3.38
|
%
|
Aug-2026
|
Environmental Matters
Based upon management's ongoing review of its properties, management is not aware
of any environmental condition with respect to any of our properties that would be reasonably likely to have a material adverse effect on us. There can be no assurance, however, that (a) the discovery of environmental conditions that were
previously unknown, (b) changes in law, (c) the conduct of tenants or (d) activities relating to properties in the vicinity of our properties, will not expose us to material liability in the future. Changes in laws increasing the potential
liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of our tenants,
which could adversely affect our financial condition and results of operations.