URSTADT BIDDLE PROPERTIES INC. 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 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 metropolitanNew York tri-state area outside of theCity 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. AtOctober 31, 2019 , we owned or had equity interests in 83 properties, which include equity interests we own in five consolidated joint ventures and six 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 92.9% was leased (93.2% atOctober 31, 2018 ). Of the properties owned by unconsolidated joint ventures, approximately 96.1% was leased (96.3% atOctober 31, 2018 ).
We have paid quarterly dividends to our shareholders continuously since our founding in 1969 and have increased the level of dividend payments to our shareholders for 26 consecutive years.
We derive substantially all of our revenues from rents and operating expense reimbursements received pursuant to long-term 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 as ofOctober 31, 2019 , three series of perpetual preferred stock, which is only redeemable at our option. We redeemed our Series G preferred stock onNovember 1, 2019 . In addition, we have mortgage debt secured by some of our properties. We do not have any secured debt maturing until January 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:
? acquire quality neighborhood and community shopping centers in the northeastern
part of
metropolitan
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;
? 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, 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, and replacing weak ones when
necessary, with an eye toward 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;
? 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.
Highlights of Fiscal 2019; Recent Developments
Set forth below are highlights of our recent property acquisitions, other investments, property dispositions and financings:
? In
million, exclusive of closing costs. Lakeview is a 177,000 square foot
grocery-anchored shopping center located in
the property, we anticipated having to invest up to
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
? In
secured by our
is
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%.
? In
mortgage secured by our
balance is
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.
? In
which we accounted for under the equity method of accounting. The total loss
on sale was
our equity in net income from Plaza 59 being reduced by
has been added back to our Funds from Operations ("FFO") as discussed below in
this Item 7.
? In
mortgage has a principal balance of
requires payments of principal and interest at the rate of LIBOR plus 1.75%.
Concurrent with entering into the mortgage, we also entered into an interest
rate swap contract with the new lender, which converts the variable interest
rate (based on LIBOR) to a fixed rate of 3.6325% per annum.
? In
as that property did not meet our stated investment objective of owning grocery
or pharmacy-anchored shopping centers in the suburban communities that surround
property for
is not included in our Funds from Operations ("FFO") as discussed below in this
Item 7.
? In
the noncontrolling member. The total cash price paid for the redemption was
increased to 78.2% from 75.3%.
? In
("High Ridge") from the noncontrolling member. The total cash price paid for
the redemption was
percentage of High Ridge increased to 13.3% from 10.9%.
? In
partnership interest in
grocery-anchored shopping center located in
we own 100% of the limited partnership, through two wholly-owned subsidiaries.
? In
Series K Cumulative Preferred Stock at a price of
proceeds of
expenses.
? On
2019, all of the outstanding shares of our Series G Cumulative Preferred Stock
for
amount was
charge of
year ended
value of the stock and carrying value net of original deferred stock issuance
costs. 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 ofNew 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.
13
--------------------------------------------------------------------------------
Table Of Contents
Leasing
Rollovers
For the fiscal year 2019, we signed leases for a total of 676,000 square feet of
predominantly retail space in our consolidated portfolio. New leases for vacant
spaces were signed for 179,000 square feet at an average rental increase of 1.3%
on a cash basis, excluding 2,500 square feet of new leases for which there was
no prior rent history available. Renewals for 494,000 square feet of space
previously occupied were signed at an average rental increase of 1.4% on a cash
basis.
Tenant improvements and leasing commissions averaged $36 per square foot for new
leases and $1.58 per square foot for renewals for the fiscal year ended 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. 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, however, 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, financial or other
reasons.
In 2020, we believe our leasing volume will be in-line with our historical
averages with overall positive increases in rental income for renewal leases and
a range of positive 5% to negative 5% for new leases, although that is difficult
to predict because it depends on the many factors that can influence the
variance. 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
Since the 2015 bankruptcy ofA&P , its former grocery store space at ourPompton Lakes shopping center, totaling 63,000 square feet, has remained vacant. We are continuing to market that space for re-lease and are considering other redevelopment options at that shopping center. InJuly 2018 , one other 36,000 square foot space formerly occupied byA&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 withWhole Foods Market for this location, and we expect to deliver the space to the lessee early in 2020.
In
In
InMarch 2018 , we reached agreement with the grocery tenant at ourNewark, 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 endedOctober 31, 2018 . Also, inApril 2018 , we leased that same space to a new grocery store operator which took possession inMay 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 andBabies 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 at ourDanbury, CT shopping center. InAugust 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 orBabies R' Us , so our cash flow was not impacted by the bankruptcy of Toys R' Us andBabies 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. In the fourth quarter of fiscal 2019, we leased a 29,800 square foot grocery store space located in ourEastchester, NY property to a new operator at a rental rate that is 120% higher than the rent the prior grocery store operator was paying.
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 generally 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 the Company's financial condition and results of operations and
require management's most difficult, complex or subjective judgments. For a
further discussion about the Company's critical accounting policies, please see
Note 1 to our consolidated financial statements included in Item 8 of this
Annual Report on Form 10-K.
14
--------------------------------------------------------------------------------
Table Of ContentsLiquidity and Capital Resources
Overview
AtOctober 31, 2019 , we had cash and cash equivalents of$94.1 million (see below), compared to$10.3 million atOctober 31, 2018 . Our sources of liquidity and capital resources include operating cash flow 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 2019, 2018 and 2017, net cash flow provided by operations amounted to$72.3 million ,$71.6 million and$63.0 million , respectively. OnNovember 1, 2019 , we redeemed all 3,000,000 outstanding shares of our 6.75% Series G Cumulative Preferred Stock for$25 per share, which included all accrued and unpaid dividends. The total amount of the redemption amounted to$75 million . The redemption was funded with proceeds from our recently completed sale of 4,400,000 shares of 5.875% Series K Cumulative preferred stock. We issued the Series K shares onOctober 1, 2019 and raised proceeds of$106.5 million . Our short-term liquidity requirements consist primarily of normal recurring operating expenses and capital expenditures, debt service, management and professional fees, 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 years endedOctober 31, 2019 and 2018 totaled$42.6 million and$41.6 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. 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 five consolidated joint venture entities,UB McLean, LLC ,UB Orangeburg, LLC ,UB High Ridge, LLC ,UB Dumont I, LLC andUB New City I, LLC , have the right to require the Company 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 our consolidated financial statements included in Item 8 of this 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 leverage 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. In fiscal 2019, we paid approximately$18.7 million for land improvements, property improvements, tenant improvements and leasing commission costs (approximately$5.2 million representing land improvements (see Highlights of Fiscal 2019 earlier in this Item 7 for more information on our purchase of Lakeview),$6.8 million representing property improvements and approximately$6.7 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$8.6 million predominantly for anticipated capital improvements and leasing costs related to new tenant leases and property improvements during fiscal 2020. These expenditures are expected to be funded from operating cash flows, bank borrowings or other financing sources. 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 are building two pad site buildings totaling approximately 5,260 square feet, which are pre-leased to national restaurant chains and a self-storage facility of approximately 131,000 square feet, which will be managed for us by a national self-storage company. We anticipate the total development cost will be approximately$15 million over the next two years, which we plan on funding with available cash, by borrowing on our Facility or by using other sources of equity as more fully described earlier in this Item 7. We expect to complete the construction of one of the retail pads and the self-storage building in the fall of 2020.
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$306.6 million primarily consist of$1.7 million in variable rate debt with an interest rate of 5.0% as ofOctober 31, 2019 and$303.4 million in fixed-rate mortgage loan and unsecured note indebtedness with a weighted average interest rate of 4.1% atOctober 31, 2019 . The mortgages are secured by 24 properties with a net book value of$559 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. In addition, from time to time we have amounts outstanding on our Facility (see below) that arenot fixed through an interest rate swap or otherwise. See "Item 7.A. Quantitative and Qualitative Disclosures about Market Risk" included in this Annual Report on Form 10-K for additional information on our interest rate risk. AtOctober 31, 2019 , we had no draws outstanding on our Facility. We currently maintain a ratio of total debt to total assets below 29% and a fixed charge coverage ratio of over 3.49 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 53 properties in our consolidated portfolio that are not encumbered by secured mortgage debt. AtOctober 31, 2019 , we had borrowing capacity of$99 million on our Facility.
Our
Facility includes financial covenants that limit, among other things, our ability to incur unsecured and secured indebtedness. See Note 4 to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for additional information on these and other restrictions.
Unsecured Revolving Credit Facility and Other Property Financings
We have a$100 million unsecured revolving credit facility with a syndicate of three banks, BNY Mellon,BMO 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 isAugust 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 BNY 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 ofOctober 31, 2019 , we had no outstanding borrowings on the Facility. Our ability to borrow under the Facility is subject to our compliance with the covenants and other restrictions on an ongoing basis. As discussed above, 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 atOctober 31, 2019 . During the year endedOctober 31, 2019 , we borrowed$25.5 million on our Facility for property acquisitions, to fund capital improvements to our properties and for general corporate purposes. For the year endedOctober 31, 2019 , we repaid$54.1 million of borrowings on our Facility with available cash, proceeds from mortgage financings, proceeds from investment property sales and proceeds from the issuance of a new Series of preferred stock.
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 2019.
Net Cash Flows from Operating Activities
Increase from fiscal 2018 to 2019:
The increase in operating cash flows was primarily due to our properties generating additional operating income in the fiscal year endedOctober 31, 2019 when compared with the corresponding prior period. This additional operating income was predominantly from properties acquired in fiscal 2018 and fiscal 2019 offset by a decrease in lease termination income of$3.6 million in fiscal 2019 when compared with fiscal 2018. In fiscal 2018 one of our grocery store tenants paid us$3.7 million to terminate its lease early.
Increase from fiscal 2017 to 2018:
The increase in operating cash flows was primarily due to our properties generating additional operating income in the fiscal year endedOctober 31, 2018 when compared with the corresponding prior period. This additional operating income was predominantly from properties acquired in fiscal 2017 and fiscal 2018 and lease termination income of$3.8 million received in fiscal 2018 versus$2.4 million in fiscal 2017.
Net Cash Flows from Investing Activities
Decrease from fiscal 2018 to 2019:
The decrease in net cash flows used in investing activities in fiscal 2019 when compared to fiscal 2018 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 in fiscal 2019 when 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. In addition, this decrease in net cash used by investing activities was the result of us selling one property in fiscal 2019 that provided$3.4 million in sales proceeds versus having no property sales in the corresponding prior period. This decrease in net cash used by investing activities was partially offset by us acquiring one property for$12 million in fiscal 2019 versus purchasing three properties in fiscal 2018 that required$6.8 million in equity and expending$10.5 million more for improvements to properties and deferred charges in fiscal 2019 versus the corresponding prior period.
Increase from fiscal 2017 to 2018:
The increase in net cash flows used in investing activities in fiscal 2018 when compared to net cash provided by investing activities in fiscal 2017 was the result of our selling two properties in fiscal 2017, which generated proceeds of$45.3 million . We did not sell any properties in fiscal 2018. In addition, we had provided$13.5 million in mortgage financing to a shopping center we did not own in fiscal 2016. That loan was repaid to us in fiscal 2017. This net increase in cash used in investing activities was offset by expending$23.7 million less on property acquisitions in fiscal 2018 when compared with the corresponding prior period.
We regularly make capital investments in our properties for property improvements, tenant improvements costs and leasing commissions.
Net Cash Flows from Financing Activities
Cash generated:
Fiscal 2019: (Total
? Proceeds from revolving credit line borrowings in the amount of
? Proceeds from mortgage financing of
? Proceeds from the issuance of a new series of preferred stock totaling
million.
Fiscal 2018: (Total
? Proceeds from revolving credit line borrowings in the amount of
? Proceeds from mortgage financing of
Fiscal 2017: (Total
? Proceeds from mortgage note payable in the amount of
? Proceeds from revolving credit line borrowings in the amount of
? Proceeds from the issuance of Series H Preferred Stock in the amount of
million. Cash used:
Fiscal 2019: (Total
? Dividends to shareholders in the amount of
? Repayment of mortgage notes payable in the amount of
? Repayment of revolving credit line borrowings in the amount of
? Additional acquisitions and distributions to noncontrolling interests of
million.
Fiscal 2018: (Total
? Dividends to shareholders in the amount of
? Repayment of mortgage notes payable in the amount of
? Repayment of revolving credit line borrowings in the amount of
Fiscal 2017: (Total
? Dividends to shareholders in the amount of
? Repayment of mortgage notes payable in the amount of
? Repayment of revolving credit line borrowings in the amount of
? Redemption of preferred stock in the amount of
15
--------------------------------------------------------------------------------
Table Of Contents
Results of Operations
Fiscal 2019 vs. Fiscal 2018
The following information summarizes our results of operations for the years
ended
Year Ended October 31, Change Attributable to:
Properties
Held in
Increase % Property Both Periods
Revenues 2019 2018 (Decrease) Change Acquisitions/Sales (Note 1)Base rents$ 99,270 $ 95,902 $ 3,368 3.5 % $ 2,816 $ 552 Recoveries from tenants 32,784 31,144 1,640 5.3 % 1,091 549 Lease termination 221 3,795 (3,574 ) -94.2 % - (3,574 ) Other income 5,310 4,511 799 17.7 % 270 529 Operating Expenses Property operating 21,901 22,009 (108 ) -0.5 % 990 (1,098 ) Property taxes 23,363 21,167 2,196 10.4 % 820 1,376 Depreciation and amortization 27,927 28,324 (397 ) -1.4 % 412 (809 ) General and administrative 9,405 9,223 182 2.0 % n/a n/a Non-Operating Income/Expense Interest expense 14,102 13,678 424 3.1 % 213 211 Interest, dividends, and other investment income 403 350 53 15.1 % 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. Revenues Base rents increased by 3.5% to$99.3 million in fiscal 2019, as compared with$95.9 million in the comparable period of 2018. The increase in base rents and the changes in other income statement line items were attributable to:
Property Acquisitions and Properties Sold:
In fiscal 2018, we purchased three properties totaling 53,700 square feet of GLA. In fiscal 2019, we purchased one property totaling 177,000 square feet and sold one property totaling 10,100 square feet. These properties accounted for all of the revenue and expense changes attributable to property acquisitions and sales in the fiscal year ended 2019 when compared with fiscal 2018.
Properties Held in Both Periods:
Revenues
Base Rent The net increase in base rents for the fiscal year ended 2019 when compared to the corresponding prior period, was predominantly caused by positive leasing activity at several properties held in both periods accentuated by 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 fiscal 2019, we leased or renewed approximately 676,000 square feet (or approximately 14.8% of total consolidated property leasable area). AtOctober 31, 2019 , the Company's consolidated properties were 92.9% leased (93.2% leased atOctober 31, 2018 ). Tenant Recoveries In the fiscal year ended 2019, recoveries from tenants (which represent reimbursements from tenants for operating expenses and property taxes) increased by$549,000 when compared with the corresponding prior period. This increase was a result of an increase in property tax expense caused by an increase in property tax assessments predominantly related to properties the Company owns inStamford, CT . This increase was partially offset by a decrease in property operating expenses mostly related to a decrease in snow removal costs at our properties owned in both periods. Lease Termination Income InApril 2018 , we reached agreement with the grocery tenant at ourNewark, 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 second quarter of fiscal 2018. Also inMarch 2018 , we leased that same space to a new grocery store operator who took possession inMay 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 fiscal year endedOctober 31, 2019 , property operating expenses decreased by$1.1 million 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 fiscal year endedOctober 31, 2019 property taxes increased by$1.4 million when compared with the corresponding prior period, as a result of an increase in property tax assessments for a number of our properties owned in both periods, specifically those located inStamford, CT .
Interest
In the fiscal year endedOctober 31, 2019 interest expense increased by a net$211,000 when compared with the corresponding prior period as a result of the Company having a larger balance drawn on its Facility for a large portion of fiscal 2019 when compared with the corresponding prior periods, offset by mortgage refinancings at lower interest rates than the refinanced mortgage notes. Depreciation and Amortization In the fiscal year endedOctober 31, 2019 , depreciation and amortization decreased by$809,000 when compared with the prior period primarily as a result of increased ASC Topic 805 amortization expense for lease intangibles in fiscal year endedOctober 31, 2018 for a tenant who vacated the property and whose lease was terminated. General and Administrative Expenses General and administrative expense was relatively unchanged in the fiscal year endedOctober 31, 2019 when compared with the corresponding prior period. 16 -------------------------------------------------------------------------------- Table Of Contents
Fiscal 2018 vs. Fiscal 2017
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 2018 2017 (Decrease) Change Acquisitions/Sales (Note 2)
Base rents $ 95,902 $ 88,383 $ 7,519 8.5 % $ 5,624 $ 1,895
Recoveries from tenants 31,144 28,676 2,468 8.6 % 1,444 1,024
Lease termination 3,795 2,432 1,363 56.0 % (2,148 ) 3,511
Other income 4,511 4,069 442 10.9 % (198 ) 640
Operating Expenses
Property operating 22,009 20,074 1,935 9.6 % 1,133 802
Property taxes 21,167 19,621 1,546 7.9 % 833 713
Depreciation and
amortization 28,324 26,512 1,812 6.8 % 1,895 (83 )
General and
administrative 9,223 9,183 40 0.4 % n/a n/a
Non-Operating
Income/Expense
Interest expense 13,678 12,981 697 5.4 % 646 51
Interest, dividends, and
other investment income 350 356 (6 ) -1.7 % n/a n/a
Note 2 - Properties held in both periods includes only properties owned for the
entire periods of 2018 and 2017 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.
Revenues
Base rents increased by 8.5% to $95.9 million in fiscal 2018, as compared with
$88.4 million in the comparable period of 2017. The increase in base rents and
the changes in other income statement line items were attributable to:
Property Acquisitions and Properties Sold:
In fiscal 2017, we purchased four properties totaling 114,700 square feet of GLA, invested in two joint ventures that own four properties totaling 173,600 square feet, whose operations we consolidate, and sold two properties totaling 203,800 square feet. In fiscal 2018, we purchased three properties totaling 53,700 square feet. These properties accounted for all of the revenue and expense changes attributable to property acquisitions and sales in fiscal year endedOctober 31, 2018 when compared with fiscal 2017.
Properties Held in Both Periods:
Revenues
Base Rents The increase in base rents for properties owned in both periods was predominantly attributable to new leasing activity at several properties held in both periods that created a positive variance in base rents. This positive variance in base rents was accentuated by our writing off$633,000 in accrued straight-line rent in the third quarter of fiscal 2017 relating to a tenant who had occupied a 36,000 square foot grocery space at ourValley Ridge property. This tenant failed to perform under its lease, and the lease was terminated in the third quarter of fiscal 2017. In fiscal 2018, the Company leased or renewed approximately 707,000 square feet (or approximately 16% of total consolidated property leasable area). AtOctober 31, 2018 , the Company's consolidated properties were approximately 93.2% leased (92.7% leased atOctober 31, 2017 ). Tenant Recoveries For the year endedOctober 31, 2018 , recoveries from tenants for properties owned in both periods, which represents reimbursements from tenants for operating expenses and property taxes, increased by$1.0 million . This increase was the result of increases in both property operating expenses and property tax expense in the consolidated portfolio for properties owned in fiscal 2018 when compared with the corresponding prior period. The increases in property operating expenses were related to increased costs for snow removal, roof repairs and parking lot repairs at our properties, and the increases in property tax expenses were related to increases in property tax assessments. Lease Termination Income InApril 2018 , we reached agreement with the grocery tenant at ourNewark, 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 fiscal year endedOctober 31, 2018 . Also, inMarch 2018 , we leased that same space to a new grocery store operator who took possession inMay 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 allowances or landlord work.
Expenses
Property operating expenses for properties owned in both fiscal year 2018 and 2017 increased by$802,000 . This increase was predominantly the result of increased costs for snow removal, roof repairs and parking lot repairs at our properties.
Real estate taxes for properties owned in both fiscal year 2018 and 2017
increased by
Interest expense for properties owned in both fiscal year 2018 and 2017 increased by$51,000 as a result of an increase in corporate interest expense on the Company's Facility as a result of having more principal outstanding in fiscal 2018 versus fiscal 2017. This increase was partially offset by the recapitalizing of our largest mortgage, which is secured by ourRidgeway Shopping Center , after the second quarter of fiscal 2017. The Ridgeway interest rate was reduced from 5.52% to 3.398%, which caused a reduction of interest expense, this reduction was partially offset by the Company increasing the principal outstanding on the mortgage from$44 million to$50 million . Depreciation and amortization expense for properties owned in both fiscal year 2018 and 2017 was relatively unchanged in fiscal 2018 when compared with fiscal 2017.
General and Administrative Expenses
General and administrative expense for the year ended
17
--------------------------------------------------------------------------------
Table Of ContentsFunds 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 each of the three years in the period endedOctober 31, 2019 , 2018 and 2017 (amounts in thousands): Year Ended October 31, 2019 2018 2017 Net Income Applicable to Common and Class A Common Stockholders$ 22,128 $ 25,217 $ 33,898 Real property depreciation 22,668 22,139 20,505 Amortization of tenant improvements and allowances 3,521 4,039 4,448 Amortization of deferred leasing costs 1,652 2,057 1,468 Depreciation and amortization on unconsolidated joint ventures 1,505 1,719 1,618 (Gain)/loss on sale of properties 19 - (18,734 ) Loss on sale of property of unconsolidated joint venture 462 - - Funds from Operations Applicable to Common and Class A Common Stockholders$ 51,955 $ 55,171 $ 43,203
FFO amounted to
The net decrease in FFO in fiscal 2019 when compared with fiscal 2018 was predominantly 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 7); (ii) an increase of$725,000 in base rent in the third quarter of fiscal 2018 related to the amortization of a below market rent in accordance with ASC Topic 805 for a grocery store tenant who was evicted and whose lease was terminated at ourPassaic property and (iii) an increase in interest expense as a result of having more outstanding on our Facility in the fiscal year ended 2019 when compared with the corresponding prior periods; (iv)$2.4 million in preferred stock redemption charges relating to our calling our Series G preferred stock for redemption onOctober 1, 2019 ; (v) an increase of$539,000 in preferred stock dividends as a result of having a new series of preferred stock outstanding for the month ofOctober 2019 . We redeemed our Series G preferred stock onNovember 1, 2019 ; offset by (vi) a$403,000 gain on sale of marketable securities in the fiscal 2019 when we sold all of our marketable securities; (vii) the additional net income generated from properties acquired in fiscal 2018 and fiscal 2019; (viii) additional net income generated from increased base rent revenue for our existing properties, specifically related to a property where the grocery store tenant renewed its lease at a significantly higher rent than the current rent. The net increase in FFO in fiscal 2018 when compared with fiscal 2017 was predominantly attributable, among other things, to: (i) the additional net income generated from properties acquired in fiscal 2017 and fiscal 2018; (ii) a decrease in preferred stock dividends of$2.7 million as a result of redeeming our Series F preferred stock inOctober 2017 and replacing it with Series H preferred stock, which has a lower dividend rate and a smaller issuance amount by$14.4 million ; and (iii)$3.7 million in lease termination income in the second quarter of fiscal 2018 for a tenant that terminated its lease with us early versus$2.4 million in lease termination income in fiscal 2017 for a tenant that terminated its lease with us early. This increase was partially offset by (iv) a$548,000 decrease in interest income generated as a result of the one mortgage receivable we had outstanding for most of fiscal 2017, which was repaid inOctober 2017 . 18 -------------------------------------------------------------------------------- Table Of Contents
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
? 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, 2019 Rate Per Annum Maturity Date
Midway Shopping
Center Scarsdale, NY $ 32,000 $ 26,600 4.80 % Dec-2027
Putnam Plaza
Shopping Center Carmel, NY $ 18,900 $ 18,600 4.81 % Oct-2028
Gateway Plaza Riverhead, NY $ 14,000 $ 12,000 4.18 % Feb-2024
Applebee's Plaza Riverhead, NY $ 2,300 $ 1,900 3.38 % Aug-2026
Contractual Obligations
Our contractual payment obligations as of
Payments Due by Period
Total 2020 2021 2022 2023 2024 Thereafter
Mortgage
notes
payable and
other loans $ 306,606 $ 6,917 $ 7,321 $ 56,056 $ 6,305 $ 12,369 $ 217,638
Interest on
mortgage
notes
payable 98,079 13,417 13,012 11,745 10,248 10,061 39,596
Capital
improvements
to
properties* 8,597 8,597 - - - - -
Total
Contractual
Obligations $ 413,282 $ 28,931 $ 20,333 $ 67,801 $ 16,553 $ 22,430 $ 257,234 *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.
19
--------------------------------------------------------------------------------
Table Of Contents© Edgar Online, source
