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, the "Special Note Regarding Forward-Looking Statements" in Part I and "Item 1A. Risk Factors." Executive Summary Overview We are a fully integrated, self-administered real estate company that has elected to be a Real Estate Investment Trust ("REIT") for federal income tax purposes, engaged in the acquisition, ownership and management of commercial real estate, primarily neighborhood and community shopping centers, anchored by supermarkets, pharmacy/drug-stores and wholesale clubs, with a concentration in the metropolitan tri-state area outside of theCity of New York . Other real estate assets include office properties, two self-storage facilities, 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. AtOctober 31, 2021 , we owned or had equity interests in 79 properties, which include equity interests we own in five consolidated joint ventures and six unconsolidated joint ventures, containing a total of 5.1 million square feet of Gross Leasable Area ("GLA"). Of the properties owned by wholly-owned subsidiaries or joint venture entities that we consolidate, approximately 91.9% of the GLA was leased (90.4% atOctober 31, 2020 ). Of the properties owned by unconsolidated joint ventures, approximately 93.9% of the GLA was leased (91.1% atOctober 31, 2020 ). In addition, we own and operate self-storage facilities at two of our retail properties. Both self-storage facilities are managed for us by Extra Space Storage, a publicly-traded REIT. One of the self-storage facilities is located in the back of ourYorktown Heights, NY shopping center in below grade space. As ofOctober 31, 2021 , this self-storage facility had 57,389 square feet of available GLA, which was 93.0% leased. The rent per available square foot was$27.69 . As discussed later in this Item 7, we have also developed a second self-storage facility located inStratford, CT with 90,000 square feet of available GLA. This facility has been operational for approximately 9 months and is 52.3% leased.
We have paid quarterly dividends to our stockholders continuously since our founding in 1969.
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Impact of COVID-19
The spread of COVID-19 has had and may continue to have a significant impact on the global economy, theU.S. economy, the economies of the local markets throughout the northeast region in which our properties are located, and the broader financial markets. Nearly every industry was impacted directly or indirectly, and the U.S. market came under severe pressure due to numerous factors, including preventive measures taken by local, state and federal authorities to alleviate the public health crisis, such as mandatory business closures, quarantines, restrictions on travel and "shelter-in-place" or "stay-at-home" orders. During the early part of the pandemic, these containment measures, as implemented by the tri-state area ofConnecticut ,New York andNew Jersey , generally permitted businesses designated as "essential" to remain open, thereby limiting the operations of different categories of our tenants to varying degrees. Most of these restrictions have been lifted as the COVID-19 situation in the tri-state area has significantly improved since the early days of the pandemic as a result of various factors, including a large portion of the population getting vaccinated, with most businesses now permitted to open at full capacity, but under other limitations intended to control the spread of COVID-19.
During these early days of the pandemic and beyond, we took a number of proactive measures, including:
• implementing a work-from-home policy during the first few months of the
pandemic for the health and safety of our staff, with employees returning to
the office at less than 50% capacity in late
capacity as of the summer of 2021;
• providing assistance to tenants in identifying local, state and federal
resources, such as that provided under the Coronavirus Aid, Relief, and
Economic Security Act of 2020, as well as providing deferrals, and in some
cases, abatements of rent to tenants on a case-by-case basis as discussed in
more detail under "Rent Deferrals, Abatements and Lease Restructurings";
• launching a program designating dedicated parking spots for curbside pick-up at
our shopping centers for use by all tenants and their customers, assisting
restaurant tenants in securing municipal approvals for outdoor seating, and
otherwise assisting tenants in many other ways to improve their business prospects; and
• enhancing our liquidity position by borrowing
Revolving Credit Facility ("Facility") during March and
subsequently repaid, reducing our dividends paid in
25% of pre-pandemic levels, then raising them to approximately 75% of
pre-pandemic levels in
condition and prospects warranted such an increase, with a further increase in
the first quarter of fiscal 2022.
Compared to the early days of the COVID-19 pandemic, we have seen substantial improvement in foot traffic, retail activity and general business conditions for our tenants. However, such improvements have not been consistent across all tenants. For a number of our tenants that operate businesses involving high contact interactions with their customers, such as spas and salons, the negative impact of COVID-19 has been more severe and the recovery more difficult. Dry cleaners have also suffered as a result of many workers continuing to work from home. Gyms and fitness tenants have experienced varying results, but are beginning to return to pre-pandemic normalcy. The following information is intended to provide certain information regarding the impact of the COVID-19 pandemic on our portfolio and our tenants. As a result of the rapid development, fluidity and uncertainty surrounding this situation, we expect that the following statistical and other information could change going forward, potentially significantly:
• As of
restaurants and stand-alone bank branches are open and operating, with
approximately 99.6% of our tenants (based on Annualized Base Rent ("ABR")) open
and fully or partially operating and approximately 0.4% of our tenants currently closed.
• As of
tenants, with approximately 70.4% of our tenants (based on ABR) designated as
"essential businesses" during the early stay-at-home period of the pandemic in
the tri-state area or otherwise permitted to operate through curbside pick-up
and other modified operating procedures in accordance with state guidelines.
• As of
anchored or shadow-anchored by grocery stores, pharmacies or wholesale clubs,
4% of our GLA is located in outdoor retail shopping centers adjacent to
regional malls and 8% of our GLA is located in outdoor neighborhood convenience
retail, with the remaining 2% of our GLA consisting of six suburban office
buildings located in
retail bank branches and one childcare center. All six suburban office buildings are open and all of the retail bank branches are open.
• As of
and 92.6% of lease income, consisting of contractual base rent (leases in place
without consideration of any deferral or abatement agreements), common area
maintenance reimbursement and real estate tax reimbursement billed for April
2020 through
and the month ofNovember 2021 , respectively, not including the application of any security deposits. 16
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Rent Deferrals, Abatements and Lease Restructurings
Similar to other retail landlords acrossthe United States , we received a number of requests for rent relief from tenants, with most requests received during the early days of the pandemic when stay-at-home orders were in place and many businesses were required to close. We evaluated each request on a case-by-case basis to determine the best course of action, recognizing that in many cases some type of concession may be appropriate and beneficial to our long-term interests. In evaluating these requests, we considered many factors, including the tenant's financial strength, the tenant's operating history, potential co-tenancy impacts, the tenant's contribution to the shopping center in which it operates, our assessment of the tenant's long-term viability, the difficulty or ease with which the tenant could be replaced, and other factors. Although each negotiation has been specific to that tenant, most concessions have been in the form of deferred rent for some portion of rents due in April throughDecember 2020 or longer, to be paid back over the later part of the lease, preferably within a period of one year or less. Some of these concessions have been in the form of rent abatements for some portion of tenant rents due in April throughDecember 2020 or longer. In addition, we have continued to receive a small number of follow-on requests from tenants to whom we had already provided temporary rent relief in the early days of the pandemic. These tenants are generally ones whose businesses have been slower to recover from the pandemic, as discussed above, due to the high touch nature of their services or the impact of the remote workforce. These requests, however, have been tapering off, and we received only four new requests during the quarter endedOctober 31, 2021 from tenants who had not previously requested rent relief. As ofOctober 31, 2021 , since the beginning of the pandemic, we had received 402 rent relief requests from the approximately 832 tenants in our consolidated portfolio. Subsequently, approximately 117 of the 402 tenants withdrew their requests for rent relief or paid their rent in full. Since the onset of COVID-19 throughOctober 31, 2021 , we have completed 288 lease modifications, consisting of base rent deferrals totaling$3.9 million or 4.0% of our ABR and rent abatements totaling$4.4 million , or 4.5% of our ABR. Each reporting period, we must make estimates as to the collectability of our tenants' accounts receivable related to base rent, straight-line rent, expense reimbursements and other revenues. Management analyzes accounts receivable by considering tenant creditworthiness, current economic trends, including the impact of the COVID-19 pandemic on tenants' businesses, and changes in tenants' payment patterns when evaluating the adequacy of the allowance for doubtful accounts. As a result, in accordance with ASC Topic 842, we revised our collectability assumptions for many of our tenants that were most significantly impacted by COVID-19. This amount includes changes in our collectability assessments for certain tenants in our portfolio from probable to not probable, which requires that revenue recognition for those tenants be converted to cash basis accounting, with previously uncollected billed rents reversed in the current period. From the beginning of the COVID-19 pandemic through the end of our second quarter of fiscal 2021, we converted 89 tenants to cash basis accounting in accordance with ASC Topic 842. We did not convert any additional tenants to cash basis accounting in the third and fourth quarters of 2021. As ofOctober 31, 2021 , 27 of the 89 tenants are no longer tenants in the Company's properties. In addition, when one of the Company's tenants is converted to cash basis accounting in accordance with ASC Topic 842, all previously recorded straight-line rent receivables need to be reversed in the period that the tenant is converted to cash basis revenue recognition. In continuing to evaluate the collectability of tenant lease income billings, during the three months endedOctober 31, 2021 , we determined that lease payments for 13 tenants, who had previously been converted to cash-basis accounting as a result of our earlier assessment that their future lease payments were not probable of collection, lease payments were now probable of collection and they were restored to accrual basis accounting. Our criteria for restoring a cash-basis tenant to accrual accounting required the tenant to demonstrate their ability to make current rental payments over the last 6 months and for that tenant to have no significant receivables as ofOctober 31, 2021 . As a result of the change in assessment for these 13 tenants, we recorded$582,000 in lease income in the three months endedOctober 31, 2021 as a result of restoring those tenants' straight-line rents.
During the fiscal years ended
As of
Each reporting period, management assesses whether there are any indicators that the value of its real estate investments may be impaired and has concluded that none of its investment properties are impaired atOctober 31, 2021 . We will continue to monitor the economic, financial, and social conditions resulting from the COVID-19 pandemic and will assess our real estate asset portfolio for any impairment indicators as required under GAAP. If we determine that any of our real estate assets are impaired, we would be required to take impairment charges and such amounts could be material. See Footnote 1 to the Notes to the Company's Consolidated Financial Statements for additional discussion regarding our policies on impairment charges. 17 -------------------------------------------------------------------------------- Table Of Contents
Strategy, Challenges and Outlook
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 secured by some of our properties and a$125 million Facility. We do not have any secured debt maturing until March of 2022.
Key elements of our growth strategy and operating policies are to:
• maintain our focus on community and neighborhood shopping centers, anchored
principally by regional supermarkets, pharmacy chains or wholesale clubs, which
we believe can provide a more stable revenue flow even during difficult
economic times because of the focus on food and other types of staple goods;
• acquire quality neighborhood and community shopping centers in the northeastern
part of
metropolitan tri-state area outside of the
value in these properties with selective enhancements to both the property and
tenant mix, as well as improvements to management and leasing fundamentals,
with hopes to grow our assets through acquisitions subject to the availability
of acquisitions that meet our investment parameters;
• selectively dispose of underperforming properties and re-deploy the proceeds
into potentially higher performing properties that meet our acquisition criteria;
• invest in our properties for the long term through regular maintenance,
periodic renovations and capital improvements, enhancing their attractiveness
to tenants and customers (e.g. curbside pick-up), as well as increasing their
value;
• 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;
• proactively manage our leasing strategy by aggressively marketing available
GLA, renewing existing leases with strong tenants, anticipating tenant weakness
when necessary by pre-leasing their spaces and replacing below-market-rent
leases with increased market rents, with an eye towards securing leases that
include regular or fixed contractual increases to minimum rents;
• improve and refine the quality of our tenant mix at our shopping centers;
• maintain strong working relationships with our tenants, particularly our anchor
tenants;
• maintain a conservative capital structure with low debt levels; and
• control property operating and administrative costs.
We believe our strategy of focusing on community and neighborhood shopping centers, anchored principally by regional supermarkets, pharmacy chains or wholesale clubs, has been validated during the COVID-19 pandemic. We believe the nature of our properties makes them less susceptible to economic downturns than other retail properties whose anchor tenants do not supply basic necessities. During normal conditions, we believe that consumers generally prefer to purchase food and other staple goods and services in person, and even during the COVID-19 pandemic our supermarkets, pharmacies and wholesale clubs have been posting strong in-person sales. Moreover, most of our grocery stores implemented or expanded curbside pick-up or partnered with delivery services to cater to the needs of their customers during the COVID-19 pandemic. We recognize, however, that the pandemic may have accelerated a movement towards e-commerce that may be challenging for weaker tenants that lack an omni-channel sales or micro-fulfillment strategy. We launched a program designating dedicated parking spots for curbside pick-up and are assisting tenants in many other ways to help them quickly adapt to these changing circumstances. Many tenants have adapted to the new business environment through use of our curbside pick-up program, and early industry data seems to indicate that micro-fulfillment from retailers with physical locations may be a new competitive alternative to e-commerce. It is too early to know which tenants will or will not be successful in making any changes that may be necessary.
It
is also too early to determine whether these changes in consumer behavior are temporary or reflect long-term changes.
Moreover, due to the disruptions that have taken place in the economy and our marketplace as a result of the COVID-19 pandemic and resulting changes to the short-term and possibly even long-term landscape for brick-and-mortar retail, we anticipate that it will be more difficult to actively pursue and achieve certain elements of our growth strategy. For example, it could be more difficult for us to acquire or sell properties in fiscal 2022 (or possibly beyond), as it may be difficult to correctly value a property given changing circumstances. Additionally, parties may be unwilling to enter into transactions during such uncertainty. However, as the COVID-19 pandemic eases and the economy improves, some commercial properties are starting to trade in the marketplace. We may also be less willing to enter into developments or capital improvements that require large amounts of upfront capital if the expected return is perceived as delayed or uncertain. While we believe we still maintain a conservative capital structure and low debt levels, particularly relative to our peers, our profile may evolve based on changing needs. While we have seen substantial improvement in general business conditions, the pandemic is still ongoing, with existing and new variants making the situation difficult to predict. We expect that our rent collections could continue to be below our tenants' contractual rent obligations during this business recovery and potentially beyond. We will continue to accrue rental revenue during the deferral period, except for tenants for which revenue recognition was converted to cash basis accounting in accordance with ASC Topic 842. However, we anticipate that some tenants eventually will be unable to pay amounts due, and we will incur losses against our rent receivables, the timing of which is not predictable. As a REIT, we are susceptible to changes in interest rates, the lending environment, the availability of capital markets and the general economy. The impacts of any changes are difficult to predict, particularly during the course of the current COVID-19 pandemic. 18 -------------------------------------------------------------------------------- Table Of Contents
Highlights of Fiscal 2021; Recent Developments
Set forth below are highlights of our recent property acquisitions, potential acquisitions under contract, other investments, property dispositions and financings:
• In
portion of our property, which was recently converted into a condominium,
located in
sale price of
in
portion of the property met all the criteria to be classified as held for sale
in September of fiscal 2020, and accordingly, we recorded a loss on property
held for sale of
in the consolidated statement of income for the year ended
The amount of the loss represented the net carrying amount of that portion of
the property over the fair value of that portion of the property, less the
estimated cost to sell. This loss has been added back to our FFO as discussed
below in this Item 7. Lidl operates a grocery store (opened
its portion of the property. The 29,000 square foot portion of the property
sold was approximately half of a vacant space that was previously leased and
occupied by
remained vacant. In considering many options for the use of this space, we
determined that the best course of action for the company to maximize the value
of the space was to sell this portion of the property to a leading grocery
store company and to re-develop the balance of the 63,000 square foot space
into 4,000 square feet of additional retail and a 50,000 square foot
self-storage facility, which will be managed by Extra Space Storage. The
square footage of the self-storage facility reflects the intended vertical
expansion of our retained space. We believe that once completed and leased, the
self-storage facility will add approximately$7 million in value to the shopping center over and above our development costs.
• In
noncontrolling member. The total cash price paid for the redemption was
increased to 17.0% from 16.3%.
• In
property was sold for
in the amount of$435,000 . This gain has been subtracted from our FFO as discussed below in this Item 7.
• In
extension at our option. Please see note 4 in our financial statements included in Item 8 for more information.
• In
noncontrolling member. The total cash price paid for the redemption was
million. As a result of the redemption, our ownership percentage of High Ridge
increased to 23.7% from 17.0%.
• In
third party for a sale price of
our investment objectives and recorded a gain on sale in the amount of
million on our consolidated income statements for the year ended
2021. This gain has been subtracted from our FFO as discussed below in this
Item 7.
• In July, September and
A Common stock at an average price of
Common stock at an average price per share of
on this investment was higher than the return we would get acquiring new grocery-anchored shopping centers in the marketplace at that time.
• In
noncontrolling member. The total cash price paid for the redemption was
increased to 24.6% from 23.7%.
• In
property located in
accordance with ASC Topic 360-10-45, the property met all the criteria to be
classified as held for sale in the fourth quarter of fiscal 2021, and
accordingly the Company recorded a loss on property held for sale of
which loss was included in continuing operations in the consolidated statement
of income for the year ended
our FFO as discussed below in this Item 7. The amount of the loss represented
the net carrying amount of the property over the fair value of the asset less
estimated cost to sell. In
completed and we realized an additional loss on sale of property of
which loss is included in continuing operations in the consolidated statement
of income for the year ended
• In
payable secured by our
principal balance of
interest at a fixed interest rate of 3.5%. The new mortgage matures in
• In
noncontrolling members. The total cash price paid for the redemptions was
million. As a result of the redemption, our ownership percentage of High Ridge
increased to 26.9% from 24.6%.
• In
grocery-anchored shopping center located in our stated geographic marketplace.
The purchase price is
title to the property sometime in our first or second quarter of fiscal 2022.
We plan on funding the purchase price with available cash or borrowings on our
Facility.
• In
payable secured by our
balance of
fixed interest rate of 3.45%. The new mortgage matures in
19
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Table Of Contents Leasing Overview With significant progress made in vaccinating theU.S. public and signs of business improvement, we have observed a marked increase in leasing activity, including interest from potential new tenants and tenants interested in renewing their leases. However, some of our tenants are in the early stages of a potential recovery and many of them may still face an uncertain future. As a result, we may continue to experience higher than typical vacancy rates, take longer to fill vacancies and suffer potentially lower rental rates until the recovery becomes more robust. For the fiscal year 2021, we signed leases for a total of 742,000 square feet of predominantly retail space in our consolidated portfolio. New leases for vacant spaces were signed for 142,000 square feet at an average rental decrease of 5.4% on a cash basis, Renewals for 600,000 square feet of currently occupied space were signed at an average rental increase of 1.3% on a cash basis. Tenant improvements and leasing commissions averaged$29.82 per square foot for new leases for the fiscal year endedOctober 31, 2021 . There was no significant cost related to our lease renewals for the fiscal year ended 2021. There is risk that some new tenants may be delayed in taking possession of their space or opening their businesses due to supply chain issues that result in construction delays or labor shortages. In the event we are responsible for all or a portion of the construction resulting in the delay, some tenants may have the right to terminate their leases. 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. The change in rental income 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 does not represent building improvements. New leases signed in 2021 generally become effective over the following one to two years and have an average term of 6 years. Renewals also have an average term of 4 years.
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 Estimates
Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation and uncertainty and are reasonably likely to have a material impact on the financial condition or results of operations of the Company and require management's most difficult, complex or subjective judgments. Our most significant accounting estimates are as follows:
• Valuation of investment properties
• Revenue recognition
• Determining the amount of our allowance for doubtful accounts
Valuation of Investment Properties At each reporting period management must assess whether the value of any of its investment properties are impaired. The judgement of impairment is subjective and requires management to make assumptions about future cash flows of an investment property and to consider other factors. The estimation of these factors has a direct effect on valuation of investment properties and consequently net income. As ofOctober 31, 2021 , management does not believe that any of our investment properties are impaired based on information available to us atOctober 31, 2021 . In the future, almost any level of impairment would be material to our net income. Revenue Recognition Our main source of revenue is lease income from our tenants to whom we lease space at our 79 shopping centers. The COVID-19 pandemic has caused distress for many of our tenants as some of those tenant businesses were forced to close early in the pandemic, and although most have been allowed to re-open and operate, some categories of tenants have been slower to recover. As a result, we have many tenants who have had difficulty paying all of their contractually obligated rents and we have reached agreements with many of them to defer or abate portions of the contractual rents due under their leases with the Company. In accordance with ASC Topic 842, where appropriate, we will continue to accrue rental revenue during the deferral period, except for tenants for which revenue recognition was converted to cash basis accounting in accordance with ASC Topic 842. However, we anticipate that some tenants eventually will be unable to pay amounts due, and we will incur losses against our rent receivables, which would reduce lease income. The extent and timing of the recognition of such losses will depend on future developments, which are highly uncertain and cannot be predicted and these future losses could be material. Allowance for Doubtful Accounts GAAP requires us to bill our tenants based on the terms in their leases and to record lease income on a straight-line basis. When a tenant does not pay a billed amount due under their lease, it becomes a tenant account receivable, or an asset of the Company. GAAP requires that receivables, like most assets, be recorded at their realizable value. Each reporting period we analyze our tenant accounts receivable, and based on the information available to management at the time, record an allowance for doubtful account for any unpaid tenant receivable that we believe is uncollectable. This analysis is subjective and the conclusions reached have a direct impact on net income. As ofOctober 31, 2021 , the portion of our billed but unpaid tenant receivables, excluding straight-line rent receivables that we believe are collectable, amounts to$2.7 million . For a further discussion of our accounting estimates and critical accounting policies, please see Note 1 in our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. 20 -------------------------------------------------------------------------------- Table Of Contents
Liquidity and Capital Resources
Overview
AtOctober 31, 2021 , we had cash and cash equivalents of$24.1 million , compared to$40.8 million atOctober 31, 2020 . 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. In fiscal 2021, 2020 and 2019, net cash flow provided by operations amounted to$73.7 million ,$61.9 million and$72.3 million , respectively. 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. Cash dividends paid on Common and Class A Common stock for fiscal years endedOctober 31, 2021 , 2020 and 2019 totaled$29.0 million ,$30.0 million and$42.6 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. As a result of the COVID-19 pandemic, we have made a number of concessions in the form of deferred rents and rent abatements, as more extensively discussed under the "Impact of Covid-19" and the "Rent Deferrals, Abatements and Lease Restructurings" sections earlier in this Item 7. To the extent rent deferral arrangements remain collectible, it will reduce operating cash flow in the near term but most likely increase operating cash flow in future periods. As ofOctober 31, 2021 , we have collected 93% of all deferred rents billed byOctober 31, 2021 . During the first two quarters of fiscal 2021, the Board of Directors declared and the Company paid quarterly dividends that were reduced from pre-pandemic levels, as more extensively discussed under the "Impact of COVID-19" section earlier in this Item 7. Subsequent to the end of the second quarter, the Board of Directors increased our Common and Class A Common stock dividends when compared to the reduced dividends that have been paid during the pandemic. InDecember 2021 , the Board of Directors further increased the annualized dividend by$0.03 per Common and Class A Common share beginning with ourJanuary 2022 dividend, which will be paid onJanuary 14, 2022 . Future determinations regarding quarterly dividends will impact the Company's short-term liquidity requirements.
In
InNovember 2021 , we entered into a contract to purchase a 186,400 square foot grocery-anchored shopping center located in our stated geographic marketplace. The purchase price is$34 million . We anticipate that we will close and take title to the property sometime in our first or second quarter of fiscal 2022. We plan on funding the purchase price with available cash or borrowings on our Facility. 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 five consolidated joint venture entities,McLean Plaza Associates, LLC ,UB Orangeburg, LLC ,UB High Ridge, LLC ,UB Dumont I, LLC andUB 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 5 to the financial statements included in Item 8 of this Report on Annual Report on Form 10-K. 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 fiscal year endedOctober 31, 2021 , we paid approximately$15.5 million for property improvements, tenant improvements and leasing commission costs ($6.3 million representing property improvements,$5.2 million in property improvements related to ourStratford project (see paragraph below) and approximately$4.0 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$6.5 million for anticipated capital improvements, tenant improvements/allowances and leasing costs related to new tenant leases and property improvements during fiscal 2022. This amount is inclusive of commitments for theStratford, CT development discussed directly below. These expenditures are expected to be funded from operating cash flows, bank borrowings or other financing sources. The above amounts do not include a potential new self-storage development at ourPompton Lakes, NJ property. The cost for this development is still in the planning stages but the anticipated cost is estimated to be$7 million , which will be funded with available cash or borrowings on our Facility. We are currently in the process of developing 3.4 acres of recently-acquired land adjacent to a shopping center we own inStratford, CT . We built one pad-site building that is leased to two retail chains and will be building another pad-site building once the owner of a billboard receives approvals to build a cell tower on an alternate site on our adjacent shopping center property. These two pad sites total approximately 5,200 square feet. In addition, at this property we built a recently opened self-storage facility with approximately 90,000 square feet of GLA, which is managed for us by a national self-storage company. The total project cost of the completed pad site and the completed self-storage facility was approximately$18.8 million (excluding land cost). The storage building is approximately 52.3% leased as ofOctober 31, 2021 . We plan on funding the development cost for the second pad site with available cash, borrowings on our Facility or other sources, as more fully described earlier in this Item 2.
Financing Strategy
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$296.4 million primarily consist of$1.7 million in variable rate debt with an interest rate of 4.18% as ofOctober 31, 2021 and$294.7 million in fixed-rate mortgage loan with a weighted average interest rate of 4.0% atOctober 31, 2021 . The mortgages are secured by 24 properties with a net book value of$509 million and have fixed rates of interest ranging from 3.5% to 4.9%. 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. AtOctober 31, 2021 , we had 49 properties in the consolidated portfolio that were unencumbered by mortgages. Included in the mortgage notes discussed above, we have eight promissory notes secured by properties we consolidate and three promissory notes secured by properties in joint ventures that we do not consolidate. The interest rate on these 11 notes is based on some variation of the London Interbank Offered Rate ("LIBOR") plus some amount of credit spread. In addition, on the day these notes were executed by us, we entered into derivative interest rate swap contracts, the counterparty of which was either the lender on the aforementioned promissory notes or an affiliate of that lender. These swap contracts are in accordance with theInternational Swaps and Derivatives Association, Inc ("ISDA"). These swap contracts convert the variable interest rate in the notes, which are based on LIBOR, to a fixed rate of interest for the life of each note. InJuly 2017 , theUnited Kingdom regulator that regulates LIBOR announced its intention to phase out LIBOR rates by the end of 2021. However, theICE Benchmark Administration , in its capacity as administrator of USD LIBOR, has announced that it extended publication of USD LIBOR (other than one-week and two-month tenors) by 18 months toJune 2023 . Notwithstanding this possible extension, a joint statement by key regulatory authorities calls on banks to cease entering into new contracts that use USD LIBOR as a reference rate by no later thanDecember 31, 2021 . At some point, all contracts, including our 11 promissory notes and 11 swap contracts that use LIBOR, will no longer have the reference rate available and the reference rate will need to be replaced. We have good working relationships with all of our lenders to our notes, who are also the counterparties to our swap contracts. All indications we have received from our lenders and counterparties is that their goal is to have the replacement reference rate under the notes match the replacement rates in the swaps. If this were to happen, we believe there would be no material effect on our financial position or results of operations. However, because this will be the first time any of the reference rates for our promissory notes or swap contracts will stop being published, we cannot be sure how the replacement rate event will conclude. Until we have more clarity from our lenders and counterparties on how they plan on dealing with this replacement rate event, we cannot be certain of the impact on the Company. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk" included in this Annual Report on Form 10-K for additional information on our interest rate risk. We currently maintain a ratio of total debt to total assets below 30.0% and a fixed charge coverage ratio of over 3.5 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. AtOctober 31, 2021 , we had borrowing capacity of$124 million on our Facility (exclusive of the accordion feature discussed in the following paragraph). Our Facility includes financial covenants that limit, among other things, our ability to incur unsecured and secured indebtedness.
Unsecured Revolving Credit Facility and Other Property Financings
Until it was terminated onMarch 30, 2021 , we had a$100 million unsecured revolving credit facility with a syndicate of three banks led byThe Bank of New York Mellon , as administrative agent. The syndicate also included Wells FargoBank N.A . and Bank of Montreal (co-syndication agents). The credit facility gave us the option, under certain conditions, to increase the Facility's borrowing capacity up to$150 million (subject to lender approval). The maturity date of the credit facility wasAugust 23, 2021 . OnMarch 30, 2021 , we refinanced our existing credit facility with the same syndicate of three banks led byThe Bank of New York Mellon , as administrative agent, increasing the capacity to$125 million from$100 million , with the ability under certain conditions to additionally increase the capacity to$175 million (subject to lender approval). The maturity date of the new Facility isMarch 29, 2024 with a one-year extension at our option. Borrowings under the Facility can be used for general corporate purposes and the issuance of letters of credit (up to$10 million ). Borrowings will bear interest at our option of Eurodollar rate plus 1.45% to 2.20% orThe Bank of New York's Prime Lending Rate plus 0.45% to 1.20% based on consolidated total indebtedness, as defined. We pay a quarterly commitment fee on the unused commitment amount of 0.15% to 0.25% based on outstanding borrowings during the year. Our ability to borrow under the Facility is subject to our compliance with the covenants and other restrictions on an ongoing basis. The principal financial covenants limit the level of secured and unsecured indebtedness we can incur, including preferred stock and additionally requires us to maintain certain debt coverage ratios. The Facility includes market standard provisions for determining the benchmark replacement rate for LIBOR. The Company was in compliance with such covenants atOctober 31, 2021 . The Facility contains representations and financial and other affirmative and negative covenants usual and customary for this type of agreement. So long as any amounts remain outstanding or unpaid under the Facility, we must satisfy certain financial covenants:
• unsecured indebtedness may not exceed
• secured indebtedness may not exceed 40% of gross asset value, as determined
under the Facility;
• total secured and unsecured indebtedness, excluding preferred stock, may not be
more than 60% of gross asset value;
• total secured and unsecured indebtedness, plus preferred stock, may not be more
than 70% of gross asset value;
• unsecured indebtedness may not exceed 60% of the eligible real asset value of
unencumbered properties in the unencumbered asset pool as defined under the
Facility;
• earnings before interest, taxes, depreciation and amortization must be at least
175% of fixed charges, which exclude preferred stock dividends;
• the net operating income from unencumbered properties must be 200% of unsecured
interest expenses;
• not more than 25% of the gross asset value and unencumbered asset pool may be
attributable to the Company's pro rata share of the value of unencumbered properties owned by non-wholly owned subsidiaries or unconsolidated joint ventures; and
• the number of un-mortgaged properties in the unencumbered asset pool must be at
least 10 and at least 10 properties must be owned by the Company or a wholly
owned subsidiary. For purposes of these covenants, eligible real estate value is calculated as the sum of the Company's properties annualized net operating income for the prior four fiscal quarters capitalized at 6.75% and the purchase price of any eligible real estate asset acquired during the prior four fiscal quarters. Gross asset value is calculated as the sum of eligible real estate value, the Company's pro rata share of eligible real estate value of eligible joint venture assets, cash and cash equivalents, marketable securities, the book value of the Company's construction projects and the Company's pro rata share of the book value of construction projects owned by unconsolidated joint ventures, and eligible mortgages and trade receivables, as defined in the agreement.
During the year ended
See Note 4 to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for a further description of mortgage financing transactions in fiscal 2021 and 2020.
Contractual Obligations
Our contractual payment obligations as of
Payments Due by Period Total 2022 2023 2024 2025 2026 Thereafter Mortgage notes payable and other loans$ 296,449 $ 39,889 $ 6,628 $ 25,419 $ 86,472 $ 11,913 $ 126,128 Interest on mortgage notes payable 61,283 12,243 11,017 10,675 7,241 5,918 14,189 Capital improvements to properties* 6,536 6,536 - - - - - Property Acquisitions 33,500 33,500 - - - - - Total Contractual Obligations$ 397,768 $ 92,168 $ 17,645 $ 36,094 $ 93,713 $ 17,831 $ 140,317
*Includes committed tenant-related obligations based on executed leases as of
We have various standing or renewable service contracts with vendors related to property management. In addition, we also have certain other utility contracts entered into in the ordinary course of business which may extend beyond one year, which vary based on usage. These contracts include terms that provide for cancellation with insignificant or no cancellation penalties. Contract terms are generally one year or less.
Unconsolidated Joint Venture Debt
We have six investments in real property through unconsolidated joint ventures:
? a 66.67% equity interest in the
? an 11.792% equity interest in the
? a 50% equity interest in the
? a 50% equity interest in the
Applebee's Plaza, and
? a 20% economic interest in a partnership that owns 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 6 to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. 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 At October
Fixed Interest
Description Location Original Balance 31, 2021 Rate Per Annum Maturity Date
Midway Shopping
Center
4.80 % Dec-2027
Shopping Center
4.81 % Oct-2028
4.18 % Feb-2024 Applebee's Plaza Riverhead, NY $ 2,300$ 1,800 3.38 % Aug-2026 21
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Net Cash Flows from Operating Activities
Variance from fiscal 2020 to 2021:
The net increase in operating cash flows when compared with the corresponding prior period was primarily related to an increase of lease income related to the collection of rents that were deferred in fiscal 2020 and the collection of lease income from tenants that we account for on a cash basis in accordance with ASC Topic 842.
Variance from fiscal 2019 to 2020:
The decrease in operating cash flows when compared with the corresponding prior period was primarily related to an increase in our tenant accounts receivable, or a reduction of lease income related to the impact of the COVID-19 pandemic and increase in other assets offset by an increase in accounts payable and accrued expenses.
Net Cash Flows from Investing Activities
Variance from 2020 to 2021:
The decrease in net cash flows used in investing activities for the fiscal year endedOctober 31, 2021 when compared to the corresponding prior period was the result of selling two properties in fiscal 2021, which generated$13.0 million more in cash flow in fiscal 2021 versus fiscal 2020 and expending$6.9 million less on property improvements in fiscal 2021 when compared with the corresponding prior period.
Variance from 2019 to 2020:
The increase in net cash flows used in investing activities in the year endedOctober 31, 2020 when compared to the corresponding prior period was the result of one of our unconsolidated joint ventures selling a property in fiscal 2019 and distributing our share of the sales proceeds to us in the amount of$6.0 million . The increase was further accentuated by our investing an additional$3.7 million in our properties in fiscal 2020 when compared with fiscal 2019. In addition, we generated$5.7 million less in net proceeds from the purchase and sale of marketable securities in fiscal 2020 when compared to the corresponding period of fiscal 2019. This net increase was offset by our purchasing one property in fiscal 2019 for$11.8 million . We did not purchase any properties in fiscal 2020.
We regularly make capital investments in our properties for property improvements, tenant improvements costs and leasing commissions.
Net Cash Flows from Financing Activities
Cash generated:
Fiscal 2021: (Total$39.4 million ) • Proceeds from mortgage financings in the amount of$39.2 million .
Fiscal 2020: (Total
• Proceeds from revolving credit line borrowings in the amount of
Fiscal 2019: (Total
• Proceeds from revolving credit line borrowings in the amount of
• Proceeds from mortgage financing of
• Proceeds from the issuance of a new series of preferred stock totaling
million. Cash used: Fiscal 2021: (Total$129.3 million ) • Dividends to shareholders in the amount of$42.7 million .
• Repayment of mortgage notes payable
• Amortization of mortgage notes payable
• Repayments of revolving credit line borrowings
• Acquisitions of noncontrolling interests of
• Distributions to noncontrolling interests of
• Repurchase of Common and Class A Common stock in the amount of
Fiscal 2020: (Total
• Dividends to shareholders in the amount of
• Repayment of mortgage notes payable in the amount of
• Acquisitions of noncontrolling interests in the amount of
• Redemption of preferred stock series in the amount of
Fiscal 2019: (Total
• Dividends to shareholders in the amount of
• Repayment of mortgage notes payable in the amount of
• Repayment of revolving credit line borrowings in the amount of
• Additional acquisitions and distributions to noncontrolling interests of
million. 22
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Table Of Contents Results of Operations Fiscal 2021 vs. Fiscal 2020
The following information summarizes our results of operations for the years
ended
Year Ended October 31, Change Attributable to: Properties Held in Increase % Property Both Periods Revenues 2021 2020 (Decrease) Change Acquisitions/Sales (Note 1) Base rents$ 99,488 $ 99,387 $ 101 0.1 % $ (113 ) $ 214 Recoveries from tenants 35,090 28,889 6,201 21.5 % (105 ) 6,306 Less uncollectable amounts in lease income 1,529 3,916 (2,387 ) (61.0 )% - (2,387 ) Less ASC Topic 842 cash basis lease income reversal 2,685 3,419 (734 ) (21.5 )% (158 ) (576 ) Total lease income 130,364 120,941 Lease termination 967 705 262 37.2 % - 262 Other income 4,250 5,099 (849 ) (16.7 )% (10 ) (839 ) Operating Expenses Property operating 22,938 19,542 3,396 17.4 % 220 3,176 Property taxes 23,674 23,464 210 0.9 % 52 158 Depreciation and amortization 29,032 29,187 (155 ) (0.5 )% 73 (228 ) General and administrative 8,985 10,643 (1,658 ) (15.6 )% n/a n/a Non-Operating Income/Expense Interest expense 13,087 13,508 (421 ) (3.1 )% - (421 ) Interest, dividends, and other investment income 231 398 (167 ) (42.0 )% n/a n/a Note 1 - Properties held in both periods includes only properties owned for the entire periods of 2021 and 2020 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 0.1% to$99.5 million for the fiscal year endedOctober 31, 2021 as compared with$99.4 million in the comparable period of 2020. 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 2020, we sold two properties totaling 18,100 square feet. In fiscal 2021 we sold two properties totaling 105,800 square feet. These properties accounted for all of the revenue and expense changes attributable to property acquisitions and sales in the fiscal year endedOctober 31, 2021 when compared with fiscal 2020.
Properties Held in Both Periods:
Revenues
Base Rent In the fiscal year endedOctober 31, 2021 , base rent for properties held in both periods increased by$214,000 when compared with the corresponding prior periods as a result of additional leasing in the portfolio in fiscal 2021 when compared to the corresponding prior period.
In fiscal 2021, we leased or renewed approximately 742,000 square feet (or
approximately 16.8% of total consolidated GLA). At
Tenant Recoveries In the fiscal year endedOctober 31, 2021 , recoveries from tenants (which represent reimbursements from tenants for operating expenses and property taxes) increased by a net$6.3 million when compared with the corresponding prior period. The increase in tenant recoveries was the result of having higher common area maintenance expenses in the fiscal year endedOctober 31, 2021 when compared with the corresponding prior period related to snow removal, landscaping and parking lot repairs. In addition, we completed the 2020 annual reconciliations for both common area maintenance and real estate taxes in the first half of fiscal 2021 and those reconciliations resulted in us billing our tenants more than we had anticipated and accrued for in the prior period, which increased tenant reimbursement income in fiscal 2021. In addition, the percentage of common area maintenance and real estate tax costs that we recover from our tenants generally increased in fiscal 2021 when compared with fiscal 2020 as the effects of the pandemic on our tenants businesses is lessening. Uncollectable Amounts in Lease Income In the fiscal year endedOctober 31, 2021 , uncollectable amounts in lease income decreased by$2.4 million when compared with the prior year. In the second quarter of fiscal 2020, we significantly increased our uncollectable amounts in lease income based on our assessment of the collectability of existing non-credit small shop tenants' receivables given the on-set of the COVID-19 pandemic inMarch 2020 . A number of non-credit small shop tenants' businesses were deemed non-essential by the states where they operate and were forced to close for a portion of the second and third quarters of fiscal 2020. This placed stress on our small shop tenants and made it difficult for many of them to pay their rents when due. Our assessment was that any billed but unpaid rents would likely be uncollectable. During the fiscal year ended 2021, many of our tenants saw early signs of business improvement as regulatory restrictions were relaxed and individuals began returning to pre-pandemic activities following significant progress made in vaccinating theU.S. public. As a result, the uncollectable amounts in lease income have been declining. ASC Topic 842 Cash Basis Lease Income ReversalsThe Company adopted ASC Topic 842 "Leases" at the beginning of fiscal 2020.
ASC
Topic 842 requires, amongst other things, that if the collectability of a specific tenant's future lease payments as contracted are not probable of collection, revenue recognition for that tenant must be converted to cash-basis accounting and be limited to the lesser of the amount billed or collected from that tenant, and in addition, any straight-line rental receivables would need to be reversed in the period that the collectability assessment changed to not probable. As a result of continuing to analyze our entire tenant base, we determined that as a result of the COVID-19 pandemic, 89 tenants' future lease payments were no longer probable of collection. All of these tenants were converted to cash basis after our second quarter of fiscal 2020 and prior to our third quarter of fiscal 2021. As ofOctober 31, 2021 , 27 of the 89 tenants are no longer tenants in the Company's properties. During the three months endedOctober 31, 2021 , we restored 13 of the 89 tenants to accrual-basis accounting as those tenants have now demonstrated their ability to service the payments due under their leases and have no arrears balances. As ofOctober 31, 2021 , 49 tenants continue to be accounted for on a cash-basis, or 5.9% of our approximate 832 tenants. As a result of this assessment, we reversed$576,000 more in billed but uncollected rent and straight-line rent for cash basis tenants in the fiscal year endedOctober 31, 2020 than we did in fiscal 2021.
Expenses
Property Operating In the fiscal year endedOctober 31, 2021 , property operating expenses increased by$3.2 million when compared to the prior period as a result of having higher common area maintenance expenses related to snow removal, landscaping and parking lot repairs. Property Taxes In the fiscal year endedOctober 31, 2021 , property tax expense was relatively unchanged when compared with the corresponding prior period.
Interest
In the fiscal year ended
Depreciation and Amortization In the fiscal year endedOctober 31, 2021 , depreciation and amortization was relatively unchanged when compared with the corresponding prior period. General and Administrative Expenses In the fiscal year endedOctober 31, 2021 , general and administrative expenses decreased by$1.7 million when compared with the corresponding prior period, predominantly related to a decrease in compensation and benefits expense. The decrease was the result of accelerated vesting of restricted stock grant value upon the death of our former Chairman Emeritus in the second quarter of fiscal 2020. 23 -------------------------------------------------------------------------------- Table Of Contents
Fiscal 2020 vs. Fiscal 2019
The following information summarizes our results of operations for the years
ended
Year Ended October 31, Change Attributable to: Properties Held in Increase % Property Both Periods Revenues 2020 2019 (Decrease) Change Acquisitions/Sales (Note 2) Base rents$ 99,387 $ 100,459 $ (1,072 ) (1.1 )% $ (351 ) $ (721 ) Recoveries from tenants 28,889 32,784 (3,895 ) (11.9 )% (9 ) (3,886 ) Less uncollectable amounts in lease income 3,916 956 2,960 309.6 % - 2,960 Less ASC Topic 842 cash basis lease income reversal 3,419 - 3,419 100.0 % 9 3,410 Total lease income 120,941 132,287 Lease termination 705 221 484 219.0 % - 484 Other income 5,099 4,374 725 16.6 % (241 ) 966 Operating Expenses Property operating 19,542 22,151 (2,609 ) (11.8 )% (264 ) (2,345 ) Property taxes 23,464 23,363 101 0.4 % (74 ) 175 Depreciation and amortization 29,187 27,930 1,257 4.5 % (99 ) 1,356 General and administrative 10,643 9,405 1,238 13.2 % n/a n/a Non-Operating Income/Expense Interest expense 13,508 14,102 (594 ) (4.2 )% 303 (897 ) Interest, dividends, and other investment income 398 403 (5 ) (1.2 )% n/a n/a Note 2 - Properties held in both periods includes only properties owned for the entire periods of 2020 and 2019 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 decreased by 1.1% to$99.4 million for the fiscal year endedOctober 31, 2020 as compared with$100.5 million in the comparable period of 2019. 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 2019, we purchased one property totaling 177,000 square feet, and sold one property totaling 10,100 square feet. In fiscal 2020, we sold two properties totaling 18,100 square feet. These properties accounted for all of the revenue and expense changes attributable to property acquisitions and sales in the year endedOctober 31, 2020 when compared with fiscal 2019.
Properties Held in Both Periods:
Revenues
Base Rent The net decrease in base rents for the fiscal year endedOctober 31, 2020 , when compared to the corresponding prior period was predominantly caused by a decrease in base rent revenue at seven properties related to tenant vacancies. The most significant of these vacancies were the vacating of TJ Maxx at ourNew Milford, CT property, the vacancy of two tenants at ourBethel, CT property, the vacancy of three tenants at ourCos Cob, CT property, the vacancy of two tenants at ourOrange, CT property, the vacancy of five tenants at ourKatonah, NY property and the vacancy caused by the bankruptcy of Modell's at ourRidgeway shopping center inStamford, CT . In addition, base rent decreased as a result of providing a rent reduction for the grocery store tenant at ourBloomfield, NJ property. This net decrease was partially offset by an increase in base rents at most properties related to normal base rent increases provided for in our leases, new leasing at some properties and base rent revenue related to two new grocery store leases and one junior anchor lease for which rental recognition began in fiscal 2020. The new grocery tenants areWhole Foods at our Valley Ridge shopping center inWayne, NJ and DeCicco's at ourEastchester, NY property. The new junior anchor tenant is TJX at our property located inOrange, CT .
In fiscal 2020, we leased or renewed approximately 405,000 square feet (or
approximately 8.9% of total GLA). At
Tenant Recoveries For the fiscal year endedOctober 31, 2020 , recoveries from tenants (which represent reimbursements from tenants for operating expenses and property taxes) decreased by a net$3.9 million when compared with the corresponding prior period. The decrease was the result of having lower common area maintenance expenses in fiscal 2020 when compared with fiscal 2019. This decrease was caused by significantly lower snow removal costs in the winter of 2020 when compared with the winter of 2019. In addition, throughout our third and fourth quarters of fiscal 2020, in response to the COVID-19 pandemic we made a conscious effort to reduce common area maintenance costs at our shopping centers to help reduce the overall tenant reimbursement rents charged to our tenants. In addition, the reduction was caused by a negative variance relating to reconciliation of the accruals for real estate tax recoveries billed to tenants in the first half of fiscal 2019 and 2020. The decrease was further accentuated by accruing a lower percentage of recovery at most of our properties as a result of our assessment that many of our smaller local tenants will have difficulty paying the full amounts required under their leases as a result of the COVID-19 pandemic. This assessment was based on the fact that many smaller tenants' businesses were deemed non-essential by the states where they operate and were forced to close for a portion of fiscal 2020. These net decreases were offset by increased tax assessments at our other properties held in both periods, which increases the amount of tax due and the amount billed back to tenants for those billings. Uncollectable Amounts in Lease Income In the fiscal year endedOctober 31, 2020 , uncollectable amounts in lease income increased by$3.0 million when compared to fiscal 2019. This increase was predominantly the result of our assessment of the collectability of existing non-credit small shop tenants' receivables given the on-going COVID-19 pandemic. Many non-credit small shop tenants' businesses were deemed non-essential by the states where they operate and were forced to close for a portion of fiscal 2020. Our assessment was based on the premise that as we emerge from the COVID-19 pandemic, our non-credit small shop tenants will need to use most of their resources to re-establish their business footing and any existing accounts receivable attributable to these tenants would most likely be uncollectable. ASC Topic 842 Cash Basis Lease Income ReversalsThe Company adopted ASC Topic 842 "Leases" at the beginning of fiscal 2020.
ASC
Topic 842 requires, amongst other things, that if the collectability of a specific tenant's future lease payments as contracted are not probable of collection, revenue recognition for that tenant must be converted to cash-basis accounting and be limited to the lesser of the amount billed or collected from that tenant and in addition, any straight-line rental receivables would need to be reversed in the period that the collectability assessment changed to not probable. As a result of analyzing our entire tenant base, we determined that as a result of the COVID-19 pandemic 64 tenants' future lease payments were no longer probable of collection (7.1% of our approximate 900 tenants), and as a result of this assessment in fiscal 2020, we reversed$2.3 million of previously billed lease income that was uncollected, which represented 2.4% of our ABR. In addition, as a result of this assessment, we reversed$1.1 million of accrued straight-line rent receivables related to these 64 tenants, which equated to an additional 1.1% of our ABR. These reductions are a direct reduction of lease income in fiscal 2020. Expenses Property Operating In the fiscal year endedOctober 31, 2020 , property operating expenses decreased by$2.3 million as a result of a large decrease in snow removal costs and parking lot repairs in fiscal 2020 when compared with fiscal 2019 and an overall reduction of other common area maintenance expenses as a result of COVID-19 pandemic as discussed above. Property Taxes In the fiscal year endedOctober 31, 2020 , property tax expense was relatively unchanged when compared with the corresponding prior period. In the first half of fiscal 2020, one of our properties received a large real estate tax expense reduction as a result of a successful tax reduction proceeding. This decrease was offset by increased tax assessments at our other properties held in both periods, which increased the amount of tax due.
Interest
In fiscal year endedOctober 31, 2020 , interest expense decreased by$897,000 when compared with the corresponding prior period, as a result of a reduction in interest expense related to our Facility. InOctober 2019 , we used a portion of the proceeds from a new series of preferred stock to repay all amounts outstanding on our Facility. In addition, the decrease was caused by our repayment of a mortgage secured by ourRye, NY properties at the end of fiscal 2019 with available cash, which reduced interest expense by$183,000 . Depreciation and Amortization In the fiscal year endedOctober 31, 2020 , depreciation and amortization increased by$1.4 million when compared with the prior period, primarily as a result of a write off of tenant improvements related to tenants that vacated ourDanbury, CT ,Newington, NH ,Derby, CT andStamford, CT properties in fiscal 2020 and increased depreciation for tenant improvements for large re-tenanting projects at ourOrange, CT andWayne, NJ properties. General and Administrative Expenses In the fiscal year endedOctober 31, 2020 , general and administrative expenses increased by$1.2 million when compared with the corresponding prior period, primarily as a result of an increase of$1.4 million in restricted stock compensation expense in the second quarter of fiscal 2020 for the accelerated vesting of the grant value of restricted stock for our former Chairman Emeritus when he passed away in the second quarter of fiscal 2020. 24 -------------------------------------------------------------------------------- Table Of Contents
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 byThe 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 each of the three years in the period endedOctober 31, 2021 , 2020 and 2019 (amounts in thousands): Year Ended October 31, 2021 2020 2019 Net Income Applicable to Common and Class A Common Stockholders$ 33,633 $ 8,533 $ 22,128 Real property depreciation 22,936 22,662 22,668 Amortization of tenant improvements and allowances 4,429 4,694 3,521 Amortization of deferred leasing costs 1,599 1,737 1,652 Depreciation and amortization on unconsolidated joint ventures 1,518 1,499 1,505 (Gain)/loss on sale of properties (11,864 ) 6,047 19 Loss on sale of property of unconsolidated joint venture - - 462 Funds from Operations Applicable to Common and Class A Common Stockholders$ 52,251 $ 45,172 $ 51,955
FFO amounted to
The net increase in FFO in fiscal 2021 when compared with fiscal 2020 was predominantly attributable, among other things, to:
Increases:
• An increase in variable lease income (cost recovery income) related to an
under-accrual adjustment in recoveries from tenants for real estate taxes and
common area maintenance in fiscal 2021 and a general increase in the rate at
which we recover costs from our tenants as a result of the reduced impact of
the COVID-19 pandemic on our tenants businesses, which resulted in a positive
variance in fiscal 2021 when compared to the same period of fiscal 2020.
• A
with the corresponding prior period as a result of one tenant that occupied
multiple spaces in our portfolio ceasing operations and buying out the
remaining terms of its leases.
• A net decrease in general and administrative expenses of
predominantly related to a decrease in compensation and benefits expense in
fiscal 2021 when compared to the corresponding prior period. The decrease was
the result of accelerated vesting of restricted stock grant value upon the
death of our former Chairman Emeritus in the second quarter of fiscal 2020.
• A decrease in uncollectable amounts in lease income of
second quarter of fiscal 2020, we significantly increased our uncollectable
amounts in lease income based on our assessment of the collectability of
existing non-credit small shop tenants' receivables given the onset of the
COVID-19 pandemic in
businesses were deemed non-essential by the states where they operate and were
forced to close for a portion of the second and third quarters of fiscal 2020.
This placed stress on our small shop tenants and made it difficult for many of
them to pay their rents when due. Our assessment was that any billed but
unpaid rents for such tenants would likely be uncollectable. During the fiscal
year ended
improvement as regulatory restrictions were relaxed and individuals began
returning to pre-pandemic activities following significant progress made in
vaccinating the
income have been declining. We have even recovered receivables that were
previously reserved for.
• A decrease in the reversal of lease income as a result of the application of
ASC Topic 842 "Leases" in fiscal 2021 when compared with fiscal 2020. ASC
Topic 842 requires amongst other things, that if the collectability of a
specific tenant's future lease payments as contracted are not probable of
collection, revenue recognition for that tenant must be converted to cash-basis
accounting and be limited to the lesser of the amount billed or collected from
that tenant, and in addition, any straight-line rental receivables would need
to be reversed in the period that the collectability assessment changed to not
probable. As a result of continuing to analyze our entire tenant base, we
determined that as a result of the COVID-19 pandemic, 89 tenants' future lease
payments were no longer probable of collection. All of these tenants were
converted to cash basis after our second quarter of fiscal 2020 and prior to
our third quarter of fiscal 2021. As of
are no longer tenants in the Company's properties. During the three months
ended
accounting as those tenants have now demonstrated their ability to service the
payments due under their leases and have no significant arrears balances.
As
of
or 5.9% of our approximate 832 tenants. As a result of this assessment, we
reversed
for cash basis tenants in the fiscal year ended
fiscal 2021. In addition, as the effect of the pandemic has lessened, even
tenants accounted for on a cash-basis have paid more of their rents in fiscal
2021 than they did in fiscal 2020 and that created a positive variance in FFO
in fiscal 2021 when compared with fiscal 2020.
• A decrease of
decrease was caused by our redemption of noncontrolling units in fiscal 2020
and fiscal 2021. In addition, distributions decreased to noncontrolling unit
owners whose distributions per unit were based on the dividend rate of our
Class A Common stock, which was significantly reduced in the first half of
fiscal 2021 when compared to the corresponding prior period.
Decreases:
• A decrease in gain on marketable securities as we had invested excess cash in
marketable securities and sold them in fiscal 2020 realizing a gain of
in fiscal 2020. We did not have similar gains in fiscal 2021, which creates a
negative variance in fiscal 2021 when compared with fiscal 2020.
The net decrease in FFO in fiscal 2020 when compared with fiscal 2019 was predominantly attributable, among other things, to:
Decreases:
• A net decrease in base rents for the fiscal year ended
compared to the corresponding prior period caused by a decrease in base rent
revenue at seven properties related to tenant vacancies offset by an increase
in base rents at most properties related to normal base rent increases provided
for in our leases, new leasing at some properties and base rent revenue related
to two new grocery store leases and one junior anchor lease for which rental
recognition began in fiscal 2020. Please see operating expense variance
explanations earlier in this Item 7.
• An increase in uncollectable amounts in lease income of
increase was the result of our assessment of the collectability of existing
non-credit small shop tenants' receivables given the ongoing COVID-19
pandemic. Many non-credit, small shop tenants' businesses were deemed
non-essential by the states where they operate and were forced to close for a
portion of our fiscal year, until states loosened their restrictions and
allowed almost all businesses to re-open, although some with operational
restrictions. Our assessment was based on the premise that as we emerge from
the COVID-19 pandemic, our non-credit, small shop tenants will need to use most
of their resources to re-establish their business footing, and any existing
accounts receivable attributable to those tenants would most likely be
uncollectable.
• An increase in the write-off of lease income for tenants in our portfolio whose
future lease payments were deemed to be not probable of collection, requiring
us under GAAP to convert revenue recognition for those tenants to cash-basis
accounting. This caused a write off of previously billed but unpaid lease
income of
receivable for these aforementioned tenants of
• A decrease in variable lease income (cost recovery income) related to the
COVID-19 pandemic. In fiscal 2020, we lowered our percentage of recovery at
most of our properties as a result of our assessment that many of our
non-credit, small shop tenants will have difficulty paying the amounts required
under their leases as a result of the COVID 19 pandemic. This assessment was
based on the fact that many smaller tenants' businesses were deemed
non-essential by the states where they operate and temporarily forced to close.
• A decrease in variable lease income (cost recovery income) related to an
over-accrual adjustment in recoveries from tenants for real estate taxes in the
first quarter of fiscal 2020 versus an under-accrual adjustment in recoveries
from tenants for real estate taxes in the first quarter of fiscal 2019, which
when combined, resulted in a negative variance in the first nine months of
fiscal 2020 when compared to the same period of fiscal 2019.
• A net increase in general and administrative expenses of
predominantly related to an increase in compensation and benefits expense for
the accelerated vesting of restricted stock grant value upon the death of our
former Chairman Emeritus in the second quarter of fiscal 2020.
• A net increase in preferred stock dividends of
a new series of preferred stock in fiscal 2019 and redeeming an existing
series. The new series has a principal value
redeemed series which increased preferred stock dividends by
which included one month of dividends in fiscal 2019 and a full year in fiscal
2020. The new series has a lower coupon rate of 5.875% versus 6.75% on the
redeemed series, which reduced preferred stock dividends by
2020 when compared with fiscal 2019.
Increases:
• A
with the corresponding prior period.
• A
Facility in the fourth quarter of fiscal 2019 with proceeds from our new series
of preferred stock.
• A
redeeming units valued at
of distributions to noncontrolling interests for distributions based on the
reduced dividend on our Class A Common stock.
• In fiscal 2019 we issued notice of redemption of our Series G preferred stock
and realized preferred stock redemption charges of
25 -------------------------------------------------------------------------------- Table Of Contents Same Property Net Operating Income We present Same Property Net Operating Income ("Same Property NOI"), which is a non-GAAP financial measure. Same Property NOI excludes from Net Operating Income ("NOI") properties that have not been owned for the full periods presented. The most directly comparable GAAP financial measure to NOI is operating income.
To
calculate NOI, operating income is adjusted to add back depreciation and amortization, general and administrative expense, interest expense, amortization of above and below-market lease intangibles and to exclude straight-line rent adjustments, interest, dividends and other investment income, equity in net income of unconsolidated joint ventures, and gain/loss on sale of operating properties. We use Same Property NOI internally as a performance measure and believe Same Property NOI provides useful information to investors regarding our financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level. Our management also uses Same Property NOI to evaluate property level performance and to make decisions about resource allocations. Further, we believe Same Property NOI is useful to investors as a performance measure because, when compared across periods, Same Property NOI reflects the impact on operations from trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective not immediately apparent from income from continuing operations. Same Property NOI excludes certain components from net income attributable toUrstadt Biddle Properties Inc. in order to provide results that are more closely related to a property's results of operations. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level as opposed to the property level. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. Same Property NOI presented by us may not be comparable to Same Property NOI reported by other REITs that define Same Property NOI differently. Twelve Months EndedOctober 31 , Three Months EndedOctober 31, 2021
2020 % Change 2021 2020 % Change Same Property Operating Results:
Number of Properties (Note 1) 74 74 Revenue (Note 2) Base Rent (Note 3)
(1,528) (3,802) (59.8)% (148) (342) (56.7)% ASC Topic 842 cash-basis lease income reversal-same property (2,011) (2,306) (12.8)% (129) (530) (75.7)% Recoveries from tenants 34,788 28,503 22.1% 8,046 7,646 5.2% Other property income 402 879 (54.3)% 98 92 6.5% 130,787 116,838 11.9% 32,376 29,757 8.8% Expenses Property operating 14,084 11,248 25.2% 3,107 2,639 17.7% Property taxes 23,522 23,343 0.8% 5,936 5,822 2.0% Other non-recoverable operating expenses 2,037 1,758 15.9% 573 443 29.3% 39,643 36,349 9.1% 9,616 8,904 8.0% Same Property Net Operating Income
Reconciliation of Same Property NOI to Most Directly Comparable GAAP Measure:
Other reconciling items: Other non same-property net operating income 884 1,284 80 196 Other Interest income 471 428 122 92 Other Dividend Income - 182 - - Consolidated lease termination income 967 705 166 245 Consolidated amortization of above and below market leases 632 706 177 183 Consolidated straight line rent income (2,396) 2,678 306 898 Equity in net income of unconsolidated joint ventures 1,323 1,433 298 273 Taxable REIT subsidiary income/(loss) 303 920 (116) 201 Solar income/(loss) (163) (72) (4) 19 Storage income/(loss) 1,236 979 431 265 Unrealized holding gains arising during the periods - - - - Gain on sale of marketable securities - 258 - - Interest expense (13,087) (13,508) (3,025) (3,385) General and administrative expenses (8,985) (10,643) (2,109) (2,148) Uncollectable amounts in lease income (1,529) (3,916) (149) (426) Uncollectable amounts in lease income - same property 1,529 3,802 149 342 ASC Topic 842 cash-basis lease income reversal (2,011) (2,327) (129) (551) ASC Topic 842 cash-basis lease income reversal-same property 2,011 2,306 129 530 Directors fees and expenses (355) (373) (78) (86) Depreciation and amortization (29,032) (29,187) (7,259) (7,600) Adjustment for intercompany expenses and other (3,878) (4,027) (908) (796) Total other -net (52,080) (48,372) (11,919) (11,748) Income from continuing operations
39,064 32,117 21.6% 10,841 9,105 19.1% Gain (loss) on sale of real estate
11,864 (6,047) (350) (5,719) Net income
50,928 26,070 95.4% 10,491 3,386 209.8% Net income attributable to noncontrolling interests
(3,645) (3,887) (921) (886) Net income attributable toUrstadt Biddle Properties Inc.
Same Property Operating Expense Ratio (Note 4) 92.5% 82.4% 10.1% 89.0% 90.4% (1.4)%
Note 1 - Includes only properties owned for the entire period of both periods presented.
Note 2 - Excludes straight line rent, above/below market lease rent, lease termination income.
Note 3 - Base rents for the three and twelve month periods endedOctober 31, 2021 are reduced by approximately$27,000 and$552,000 , respectively, in rents that were deferred and approximately$309,000 and$3.0 million , in rents that were abated because of COVID-19. Base rents for the three and twelve month periods endedOctober 31, 2021 , are increased by approximately$346,000 and$3.2 million , respectively, in COVID-19 deferred rents that were billed and collected in those periods. Base rents for the three and twelve month periods endedOctober 31, 2020 are reduced by approximately$854,000 and$3.4 million , respectively, in rents that were deferred and approximately$934,000 and$1.4 million , in rents that were abated because of COVID-19.
Note 4 -Represents the percentage of property operating expense and real estate tax.
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