FREVS 10-Q Quarterly Report April 30, 2010 | Alphaminr
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
ALPHAMINR

FREVS 10-Q Quarter ended April 30, 2010

Balance Sheet
Cash Flow
Income Statement
FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
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10-Q 1 form10q-108793_freit.htm FORM 10Q form10q-108793_freit.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 2010
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ____________________
Commission File No. 000-25043

FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
(Exact name of registrant as specified in its charter)
New Jersey
22-1697095
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
505 Main Street, Hackensack, New Jersey
07601
(Address of principal executive offices)
(Zip Code)

201-488-6400
(Registrant's telephone number, including area code)


(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer o
Accelerated Filer x
Non-Accelerated Filer o Smaller Reporting Company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
As of June 9, 2010, the number of shares of beneficial interest outstanding was 6,942,143





FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY

IN D EX


Page
3
4
5
6
7
11
21
21
21
21
21
22




Page 2

Part I:  Financial Infor m ation
Item 1:  Unaudited Conde n sed Consolidated Financial Statements

FI R ST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
April 30,
October 31,
2010
2009
(In Thousands of Dollars)
ASSETS
Real estate, at cost, net of accumulated depreciation
$ 212,780 $ 214,283
Construction in progress and pre-development costs
9,745 9,694
Cash and cash equivalents
6,219 6,751
Investments in US Treasury Bills at amortized cost,
which approximates fair value
- 4,549
Tenants' security accounts
2,102 2,147
Sundry receivables
5,012 4,440
Secured loans receivable
3,326 3,326
Prepaid expenses and other assets
2,427 3,198
Acquired over market leases and in-place lease costs
594 670
Deferred charges, net
2,843 2,793
Total Assets
$ 245,048 $ 251,851
LIABILITIES & EQUITY
Liabilities:
Mortgages payable
$ 197,889 $ 202,260
Accounts payable and accrued expenses
7,028 7,496
Dividends payable
2,083 2,083
Tenants' security deposits
2,786 2,847
Acquired below market value leases and deferred revenue
3,120 3,049
Total liabilities
212,906 217,735
Commitments and contingencies
Equity:
Common equity:
Shares of beneficial interest without par value:
8,000,000 shares authorized; 6,993,152 shares issued
24,969 24,969
Treasury stock, at cost: 51,009 shares
(1,135 ) (1,135 )
Dividends in excess of net income
(4,975 ) (3,112 )
Total common equity
18,859 20,722
Noncontrolling interests in subsidiaries
13,283 13,394
Total equity
32,142 34,116
Total Liabilities & Equity
$ 245,048 $ 251,851
See Notes to Condensed Consolidated Financial Statements.



Page 3

FIRST REAL ESTA T E INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
SIX AND THREE MONTHS ENDED APRIL 30, 2010 AND 2009
(Unaudited)
Six Months Ended
Three Months Ended
April 30,
April 30,
2010
2009
2010
2009
(In Thousands of Dollars, Except Per Share Amounts)
Revenue:
Rental income
$ 19,122 $ 18,391 $ 9,788 $ 9,200
Reimbursements
2,890 2,641 1,456 1,236
Sundry income
197 287 116 134
Totals
22,209 21,319 11,360 10,570
Expenses:
Operating expenses
6,258 5,749 3,335 3,049
Management fees
973 934 504 471
Real estate taxes
3,315 3,184 1,659 1,592
Depreciation
3,065 2,937 1,543 1,463
Totals
13,611 12,804 7,041 6,575
Operating income
8,598 8,515 4,319 3,995
Investment income
66 130 30 51
Interest expense including amortization
of deferred financing costs
(5,781 ) (5,381 ) (2,919 ) (2,666 )
Net income
2,883 3,264 1,430 1,380
Net income attributable to noncontrolling interests in subsidiaries
(581 ) (658 ) (300 ) (295 )
Net income attributable to common equity
$ 2,302 $ 2,606 $ 1,130 $ 1,085
Earnings per share (attributable to common equity):
Basic
$ 0.33 $ 0.38 $ 0.16 $ 0.16
Weighted average shares outstanding
6,942 6,945 6,942 6,942
See Notes to Condensed Consolidated Financial Statements.


Page 4
FIRST REAL ESTATE INVESTME N T TRUST OF NEW JERSEY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)
Common Equity
Shares of
Beneficial
Interest
Treasury
Shares at
Cost
Dividends in
Excess of Net
Income
Total
Common
Equity
Noncontrolling
Interests
Total Equity
(In Thousands of Dollars)
Balance at October 31, 2009
$ 24,969 $ (1,135 ) $ (3,112 ) $ 20,722 $ 13,394 $ 34,116
Distributions to noncontrolling interests
(692 ) (692 )
Net income
2,302 2,302 581 2,883
Dividends declared ($0.60 per share)
(4,165 ) (4,165 ) (4,165 )
Balance at April 30, 2010
$ 24,969 $ (1,135 ) $ (4,975 ) $ 18,859 $ 13,283 $ 32,142
See Notes to Condensed Consolidated Financial Statements.





Page 5

FIRST REAL ESTATE INVES T MENT TRUST OF NEW JERSEY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 2010 AND 2009
(Unaudited)
Six Months Ended
April 30,
2010
2009
(In Thousands of Dollars)
Operating activities:
Net income
$ 2,883 $ 3,264
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation
3,065 2,937
Amortization
242 232
Net amortization of acquired leases
15 18
Deferred revenue
106 (237 )
Changes in operating assets and liabilities:
Tenants' security accounts
45 111
Sundry receivables, prepaid expenses and other assets
91 276
Accounts payable, accrued expenses and other liabilities
782 615
Tenants' security deposits
(61 ) (67 )
Net cash provided by operating activities
7,168 7,149
Investing activities:
Capital improvements - existing properties
(955 ) (1,048 )
Construction and pre-development costs
(1,813 ) (2,519 )
Decrease in investment in US Treasury Bills
4,549 -
Net cash provided by (used in) investing activities
1,781 (3,567 )
Financing activities:
Repayment of mortgages
(4,450 ) (1,160 )
Proceeds from mortgages and construction loans
- 1,628
Deferred financing costs
(174 ) 7
Repurchase of Company stock-Treasury shares
- (59 )
Dividends paid
(4,165 ) (4,166 )
Distributions to noncontrolling interests
(692 ) (563 )
Net cash used in financing activities
(9,481 ) (4,313 )
Net decrease in cash and cash equivalents
(532 ) (731 )
Cash and cash equivalents, beginning of period
6,751 8,192
Cash and cash equivalents, end of period
$ 6,219 $ 7,461
Supplemental disclosure of cash flow data:
Interest paid, including capitalized construction period interest
of $87 in fiscal 2009.
$ 5,416 $ 5,205
Supplemental schedule of non cash activities:
Investing activities:
Accrued capital expenditures, construction costs, pre-development costs and interest
$ 1 $ 1,477
Financing activities:
Dividends declared but not paid
$ 2,083 $ 2,083
See Notes to Condensed Consolidated Financial Statements.


Page 6

FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND S UBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


Note 1 - Basis of presentation:
The accompanying condensed consolidated financial statements have been prepared without audit, in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and pursuant to the rules of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnotes required by GAAP for complete financial statements have been omitted. It is the opinion of management that all adjustments considered necessary for a fair presentation have been included, and that all such adjustments are of a normal recurring nature.
The consolidated results of operations for the six and three-month periods ended April 30, 2010 are not necessarily indicative of the results to be expected for the full year. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended October 31, 2009 of First Real Estate Investment Trust of New Jersey (“FREIT”).

Note 2 – Significant accounting policies:
Real estate development costs:
It is FREIT's policy to capitalize pre-development costs, which generally include legal and professional fees and other directly related third-party costs. Real estate taxes and interest costs incurred during the development and construction phases are also capitalized. FREIT ceases capitalization of these costs, when the project or portion thereof becomes operational, or when construction has been postponed. Capitalization of these costs will recommence once construction on the project resumes.
Adopted and recently issued accounting standards:
On December 4, 2007, the FASB issued two new accounting standards, “Business Combinations” (ASC 805-10), and “Non-Controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (ASC 810-10). The standards are effective for fiscal years beginning after December 15, 2008 and earlier adoption was prohibited.
·
The objective of ASC 805 is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. To accomplish that, this Statement establishes principles and requirements for how the acquirer:
a.)
Recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree;
b.)
Recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase;
c.)
Determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.
The effect of the adoption of ASC 805 will be dependent upon FREIT’s future acquisition activity, if any.
·
The objective of ASC 810 is to improve the relevance, comparability and transparency of financial information provided to investors by: (i) requiring entities to report non-controlling interests (minority interests) as equity in the consolidated financial statements and separate from the parent’s equity; (ii) requiring that the amount of net income attributable to the parent and non-controlling interest be clearly identified and presented on the face of the consolidated statement of income; and (iii) expanding the disclosure requirements with respect to the parent and its non-controlling interests. FREIT adopted ASC 810 effective November 1, 2009, and as required, has retrospectively applied the presentation and disclosure requirements to prior periods presented in this Form 10-Q.
a.)
Prior to the adoption of ASC 810, FREIT could not record a negative minority interest in its consolidated financial statements if the minority members had no obligation to restore their negative capital accounts. As a result, FREIT was accounting for the minority members’ capital deficit of its Westwood Hills subsidiary as a charge to income and a reduction to undistributed earnings. As of November 1, 2009, the amount of the minority members’ capital deficit that was booked as a reduction to FREIT’s undistributed earnings was approximately $2.3 million.
b.)
In accordance with the provisions of ASC 810, FREIT is required to disclose the pro forma impact on its consolidated net income and earnings per share, had the requirements of ASC 810 not been applied for the current quarter. As such, FREIT’s pro forma consolidated net income attributable to common equity for the six and three-month periods ended April 30, 2010 would have been $2,425,000 ($0.35 per share basic) and $1,182,000 ($0.17 per share basic), respectively.

Page 7

In June 2009, the FASB issued “Amendments to FASB Interpretation No. 46(R)” (ASC topic 810), which changes guidance for variable interest entities that are insufficiently capitalized or not controlled through voting or similar rights and requires that a variable interest entity (“VIE”) be consolidated by the company that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The new standard will be effective for fiscal years beginning after November 15, 2009. The adoption of this standard is not expected to have any impact on our financial statements.

Note 3 - Earnings per share:
Basic earnings per share is calculated by dividing net income (numerator) by the weighted average number of shares outstanding during each period (denominator). The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include the number of additional shares that would have been outstanding if all potentially dilutive shares, such as those issuable upon the exercise of stock options and warrants, were issued during the period.
Since FREIT does not have any dilutive securities, only basic earnings per share is presented for the six and three-month periods ended April 30, 2010 and 2009. Basic earnings per share, based on the weighted average number of shares outstanding during each period, is comprised of ordinary income for the six and three-month periods ended April 30, 2010 and the prior year’s comparable period.

Note 4 - Share repurchase program:
On April 9, 2008, FREIT’s Board of Trustees authorized up to $2 million for the repurchase of FREIT shares. The share repurchase plan provided for the repurchase of FREIT shares on or before March 31, 2009. Share repurchases under this program were made from time to time in the open market or through privately negotiated transactions. As of March 31, 2009, FREIT repurchased 50,920 shares of common stock at a cost of $1,133,545.
On March 31, 2009, FREIT announced the adoption of a new share repurchase plan to replace the repurchase plan that expired on March 31, 2009. The new plan complied with Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934 and provided for the repurchase of up to $1,000,000 in value of FREIT’s shares for the period beginning April 14, 2009 through June 30, 2009, subject to certain price limitations and other conditions established under the Plan. Share repurchases under the new plan could have been made, from time to time, through privately negotiated transactions or in the open market. The new plan could have been terminated at any time and without prior notice. Rule 10b5-1 permits the implementation of a written plan for repurchasing shares of company stock through a repurchasing agent at times when the issuer is not in possession of material, nonpublic information and allows issuers adopting such plans to repurchase shares on a regular basis, regardless of any subsequent material, nonpublic information it receives. UBS Financial Services, Inc. was engaged as FREIT’s repurchasing agent, pursuant to the terms and conditions set forth in the share repurchase plan.
The new share repurchase plan expired on June 30, 2009. Through June 30, 2009, FREIT repurchased a total of 51,009 shares of common stock under both repurchase plans at a cost of $1,135,026, which is reflected in the Equity section of FREIT’s condensed consolidated balance sheets.

Note 5 - Segment information:
FREIT has determined that it has two reportable segments: commercial properties and residential properties. These reportable segments offer different types of space, have different types of tenants, and are managed separately because each requires different operating strategies and management expertise. The commercial segment contains ten (10) separate properties and the residential segment contains nine (9) properties. The accounting policies of the segments are the same as those described in Note 1 in FREIT’s Annual Report on Form 10-K for the fiscal year ended October 31, 2009.
The chief operating and decision-making group of FREIT's commercial segment, residential segment and corporate/other is comprised of FREIT’s Board of Trustees.


Page 8

FREIT assesses and measures segment operating results based on net operating income ("NOI"). NOI, a standard used by real estate professionals, is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes deferred rents (straight lining), lease amortization, depreciation, financing costs and other non-operating activity. NOI is not a measure of operating results or cash flows from operating activities as measured by GAAP, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity.
Real estate rental revenue, operating expenses, NOI and recurring capital improvements for the reportable segments are summarized below and reconciled to condensed consolidated net income for the six and three months ended April 30, 2010 and 2009. Asset information is not reported since FREIT does not use this measure to assess performance.
Six Months Ended
Three Months Ended
April 30,
April 30,
2010
2009
2010
2009
(In Thousands of Dollars)
(In Thousands of Dollars)
Real estate rental revenue:
Commercial
$ 12,605 $ 11,491 $ 6,510 $ 5,675
Residential
9,510 9,742 4,801 4,851
Totals
22,115 21,233 11,311 10,526
Real estate operating expenses:
Commercial
5,003 4,721 2,629 2,414
Residential
4,702 4,266 2,456 2,232
Totals
9,705 8,987 5,085 4,646
Net operating income:
Commercial
7,602 6,770 3,881 3,261
Residential
4,808 5,476 2,345 2,619
Totals
$ 12,410 $ 12,246 $ 6,226 $ 5,880
Recurring capital improvements-residential
$ 120 $ 106 $ 35 $ 27
. .
Reconciliation to consolidated net income:
Segment NOI
$ 12,410 $ 12,246 $ 6,226 $ 5,880
Deferred rents - straight lining
109 104 56 53
Amortization of acquired leases
(15 ) (18 ) (7 ) (9 )
Investment income
66 130 30 51
General and administrative expenses
(841 ) (880 ) (413 ) (466 )
Depreciation
(3,065 ) (2,937 ) (1,543 ) (1,463 )
Financing costs
(5,781 ) (5,381 ) (2,919 ) (2,666 )
Net income
2,883 3,264 1,430 1,380
Net income attributable to noncontrolling interests
(581 ) (658 ) (300 ) (295 )
Net income attributable to common equity
$ 2,302 $ 2,606 $ 1,130 $ 1,085
Note 6 - Management agreement, fees and transactions with related party:
Hekemian & Co., Inc. (“Hekemian”) currently manages all the properties owned by FREIT, except for The Rotunda, a mixed-use office and retail facility located in Baltimore, Maryland, which is managed by an independent third party management company. The management agreement with Hekemian, effective November 1, 2001, requires the payment of management fees equal to a percentage of rents collected. Such fees were approximately $898,000 and $862,000 for the six-months ended April 30, 2010 and 2009, respectively. For the three-month period ended April 30, 2010 and 2009, such fees were approximately $463,000 and $436,000, respectively. In addition, the management agreement provides for the payment to Hekemian of leasing commissions, as well as the reimbursement of operating expenses incurred on behalf of FREIT. Such fees amounted to approximately $180,000 and $233,000 for the six-months ended April 30, 2010 and 2009, respectively, and $95,000 and $86,000 for the three-months ended April 30, 2010 and 2009, respectively. The management agreement expires on October 31, 2011, and is automatically renewed for periods of two years unless either party gives notice of non-renewal.

Page 9

FREIT also uses the resources of the Hekemian insurance department to secure various insurance coverages for its properties and subsidiaries. Hekemian is paid a commission for these services. Such commissions amounted to approximately $64,000 and $69,000 for the six-months ended April 30, 2010 and 2009, respectively, and $34,000 and $39,000 for the three-months ended April 30, 2010 and 2009, respectively.
From time to time, FREIT engages Hekemian to provide certain additional services, such as consulting services related to development and financing activities of FREIT. Separate fee arrangements are negotiated between Hekemian and FREIT with respect to such additional services. Such fees paid to Hekemian for the six months ended April 30, 2010 and 2009, were $1,000,000 and $0, respectively.
Mr. Robert S. Hekemian, Chairman of the Board, Chief Executive Officer and a Trustee of FREIT, is the Chairman of the Board and Chief Executive Officer of Hekemian. Mr. Robert S. Hekemian, Jr, a Trustee of FREIT, is the President of Hekemian.

Note 7 – Litigation:
On August 6, 2009, a complaint was filed against Damascus Centre, LLC, a 70% owned affiliate of FREIT, Hekemian, and others (the “Defendants”) in the Circuit Court of Montgomery County, Maryland (the “Court”).  The plaintiffs leased commercial office space at the Damascus Shopping Center located in Damascus, Maryland and owned by Damascus Centre, LLC.  The complaint alleged a number of causes of action in connection with alleged interference with plaintiffs’ business allegedly caused by Damascus Centre, LLC’s development activities at the Damascus Center. The complaint sought compensatory damages of $500,000 for the alleged interference with the plaintiffs’ business and $5,000,000 in punitive damages. In addition, the plaintiffs sought to enjoin the demolition of the shopping center. FREIT received notice of the lawsuit on September 2, 2009. On February 19, 2010, a voluntary stipulation of dismissal of the complaint, with prejudice, was filed with the Court. This stipulation with prejudice has the same effect as a final adjudication on the merits of the complaint favorable to the Defendants, and relieves the Defendants of any liability to the plaintiffs based on the relevant facts set forth in the complaint. The stipulation also bars the plaintiffs from pursuing any subsequent action based on any relevant facts in the complaint.

Note 8 – Fair value of long-term debt:
The following table shows the estimated fair value and carrying value of FREIT's long-term debt at April 30, 2010 and October 31, 2009:
April 30,
October 31,
($ in Millions)
2010
2009
Fair Value
$ 191.5 $ 198.1
Carrying Value
$ 197.9 $ 202.3
Fair values are estimated based on market interest rates at April 30, 2010 and October 31, 2009 and on discounted cash flow analysis. Changes in assumptions or estimation methods may significantly affect these fair value estimates.

Note 9 - Subsequent events:
As a result of a reevaluation of the future funding needs of the Damascus Center redevelopment project in Damascus, MD, on May 6, 2010, Damascus Centre, LLC entered into a modification of its construction loan agreement, which reduced the amount of the construction loan facility from $27.3 million to $21.3 million. In addition, the construction completion due date was extended until November 11, 2011. All other terms of the construction loan remain unchanged. As of April 30, 2010, $9.9 million of this loan was drawn down to cover construction costs.



Page 10



Item 2 : Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Statement Identifying Important Factors That Could Cause FREIT's Actual Results to Differ From Those Projected in Forward Looking Statements.
Readers of this discussion are advised that the discussion should be read in conjunction with the unaudited condensed consolidated financial statements of FREIT (including related notes thereto) appearing elsewhere in this From 10-Q, and the consolidated financial statements including FREIT's most recently filed Form 10-K. Certain statements in this discussion may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect FREIT's current expectations regarding future results of operations, economic performance, financial condition and achievements of FREIT, and do not relate strictly to historical or current facts. FREIT has tried, wherever possible, to identify these forward-looking statements by using words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," or words of similar meaning.
Although FREIT believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statement are subject to risks and uncertainties, which may cause the actual results to differ materially from those projected. Such factors include, but are not limited to the following: general economic and business conditions, which will, among other things, affect demand fro rental space, the availability of prospective tenants, lease rents, the financial condition of tenants and the default rate on leases, operating and administrative expenses and the availability of financing; adverse changes in FREIT's real estate markets, including, among other things, competition with other real estate owners, competition confronted by tenants at FREIT's commercial properties; governmental actions and intiatives; environmental/safety requirements; and risks of real estate development and acquisitions. The risks with respect to the development of real estate include: increased construction cost, inability to obtain construction financing, or unfavorable terms of financing that may be available, unforeseen construction delays and the failure to complete construction within budget.
OVERVIEW
FREIT is an equity real estate investment trust ("REIT") that owns a portfolio of residential apartment and commercial properties. Our revenues consist primarily of fixed rental income from our residential and commercial properties and additional rent in the form of expense reimbursements derived from our income producing commercial properties. Our properties are primarily located in northern New Jersey and Maryland. We acquire existing properties for investment. We also acquire properties, which we feel have redevelopment potential, and make changes and capital improvements to these properties. We develop and construct properties on our vacant land. Our policy is to acquire and develop real property for long-term investment.
The global economic and financial environment: The U. S. economy has been showing signs of recovery from the recession, and continued economic recovery is expected throughout 2010. However, job growth remains sluggish, and sustained high unemployment can hinder economic growth.  While bank earnings and liquidity are on the rebound, the potential of significant future credit losses cloud the lending outlook. Credit availability still lags pre-recession levels hampering business expansion and new development activities.
Residential Properties: Occupancy and rental rates in our areas of operation are showing signs of being on the up swing reversing a year-long downward movement. We expect the recovery of rental rates to lag occupancy rates. The speed of recovery at our residential properties will likely mirror job growth and reduced unemployment in our areas of operation.
Commercial Properties: The retail outlook is brightening for 2010 as consumer confidence increases and retail sales are expected to increase modestly although consumers remain frugal with their discretionary spending. Tenant fall-out and rent reductions are expected to abate. However, re-leasing of space vacated during the recession will be challenging and at rates below pre-recession levels.

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Development Projects and Capital Expenditures: We are concentrating only on those capital expenditures that are absolutely necessary. We continue to pursue the completion of the development and construction activities started at the Damascus Center. Because of reduced demand from residential rental tenants and buyers, curtailed business expansion, and the current state of the credit markets, no date has been determined for the commencement of construction at our Rotunda and South Brunswick projects.
Debt Financing Availability: The dislocations in the credit markets have caused significant price volatility and liquidity disruptions. High pricing spreads and very conservative debt service ratio requirements have made certain financing unattractive and, in certain instances, unavailable. Additionally, construction financing for large, mixed use projects is virtually unavailable, or too costly. As a result of this difficult financing environment and reduced end user demand (see above), FREIT has not determined a date for the commencement of construction at its Rotunda Project.
The $22.5 million mortgage loan entered into by Grande Rotunda, LLC, a 60% owned affiliate of FREIT (“Grande Rotunda”), for the acquisition of the Rotunda was scheduled to come due on July 19, 2009, and was extended by the bank until February 1, 2010. The original loan amount of $22.5 million was reduced to $19.5 million and the due date extended until February 1, 2013. Under the restructured terms, the interest rate is now 350 basis points above the BBA LIBOR rate with a floor of 4%, and monthly principal payments of $10,000 are required. An additional principal payment may be required on February 1, 2012 in an amount necessary to reduce the loan to achieve a certain debt service coverage ratio.
Operating Cash Flow and Dividend Distributions: FREIT’s cash position remains strong. We expect that cash provided by operating activities will be adequate to cover mandatory debt service payments, necessary capital improvements and dividends necessary to retain qualification as a REIT. It is FREIT’s intention to maintain its quarterly dividend at $.30 per share until the economic climate indicates a change is appropriate, but not less than the level required to maintain its REIT status for Federal income tax purposes.

SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES
Pursuant to the Securities and Exchange Commission ("SEC") disclosure guidance for "Critical Accounting Policies," the SEC defines Critical Accounting Policies as those that require the application of management's most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, the preparation of which takes into account estimates based on judgments and assumptions that affect certain amounts and disclosures. Accordingly, actual results could differ from these estimates. The accounting policies and estimates used, which are outlined in Note 1 to our Condensed Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended October 31, 2009, have been applied consistently as at April 30, 2010 and October 31, 2009, and for the six and three months ended April 30, 2010 and 2009. We believe that the following accounting policies or estimates require the application of management's most difficult, subjective, or complex judgments:
Revenue Recognition: Base rents, additional rents based on tenants' sales volume and reimbursement of the tenants' share of certain operating expenses are generally recognized when due from tenants. The straight-line basis is used to recognize base rents under leases if they provide for varying rents over the lease terms. Straight-line rents represent unbilled rents receivable to the extent straight-line rents exceed current rents billed in accordance with lease agreements. Before FREIT can recognize revenue, it is required to assess, among other things, its collectibility. If we incorrectly determine the collectibility of revenue, our net income and assets could be overstated.
Valuation of Long-Lived Assets: We periodically assess the carrying value of long-lived assets whenever we determine that events or changes in circumstances indicate that their carrying amount may not be recoverable. When FREIT determines that the carrying value of long-lived assets may be impaired, the measurement of any impairment is based on a projected discounted cash flow method determined by FREIT's management. While we believe that our discounted cash flow methods are reasonable, different assumptions regarding such cash flows may significantly affect the measurement of impairment.
Real Estate Development Costs: It is FREIT's policy to capitalize pre-developent costs, which generally include legal and professional fees and other directly related third-party costs. Real estate taxes and interest costs incurred during the development and construction phases are also capitalized. FREIT ceases capitalization of these costs, when the project or portion thereof becomes operational, or when construction has been postponed. Capitalization of these costs will recommence once construction on the project resumes.

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Adopted and recently issued accounting standards:
On December 4, 2007, the FASB issued two new accounting standards, SFAS No. 141R, “Business Combinations” (ASC 805-10), and SFAS No. 160, “Non-Controlling Interests in Consolidated Financial Statements – an amendment of ARB No. 51” (ASC 810-10). The standards are effective for fiscal years beginning after December 15, 2008 and earlier adoption was prohibited.
·
The objective of ASC 805 is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. To accomplish that, this Statement establishes principles and requirements for how the acquirer:
a.)
Recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree;
b.)
Recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase;
c.)
Determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.
The effect of the adoption of ASC 805 will be dependent upon future acquisition activity, if any, of FREIT.
·
The objective of ASC 810 is to improve the relevance, comparability and transparency of financial information provided to investors by: (i) requiring entities to report non-controlling interests (minority interests) as equity in the consolidated financial statements and separate from the parent’s equity; (ii) requiring that the amount of net income attributable to the parent and non-controlling interest be clearly identified and presented on the face of the consolidated statement of income; and (iii) expanding the disclosure requirements with respect to the parent and its non-controlling interests. The Company adopted ASC 810 effective November 1, 2009, and as required, has retrospectively applied the presentation and disclosure requirements to prior periods presented in this 10-Q.
In June 2009, The FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (ASC topic 810), which changes guidance for variable interest entities that are insufficiently capitalized or not controlled through voting or similar rights. SFAS No.167 amends FIN 46(R) to require that a variable interest entity (“VIE”) be consolidated by the company that has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The new standard will be effective for fiscal years beginning after November 15, 2009, or January 1, 2010 for calendar year companies. The adoption of SFAS 167 is not expected to have a material impact on our financial statements.






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RESULTS OF OPERATIONS
Real Estate revenue for the six months ended April 30, 2010 (“Current Six Months”) increased 4.2% to $22,209,000 compared to $21,319,000 for the six months ended April 30, 2009 (“Prior Six Months”). Real Estate revenue for the three months ended April 30, 2010 (“Current Quarter”) increased 7.5% to $11,360,000 compared to $10,570,000 for the three months ended April 30, 2009 (“Prior Year’s Quarter”). The increase in real estate revenues for the Current Quarter was attributable to FREIT’s commercial operations, primarily related to higher base rental income, a lease termination fee amounting to approximately $250,000, and a percentage rent payment of $123,000 relating to a tenant coming off of a percentage rent holiday.
Net income attributable to common equity (“Net Income”) for the Current Six Months was $2,302,000 ($0.33 per share basic) compared to $2,606,000 ($0.38 per share basic) for the Prior Six Months. Net Income for the Current Quarter was $1,130,000 ($0.16 per share basic) compared to $1,085,000 ($0.16 per share basic) for the Prior Year’s Quarter. The schedule below provides a detailed analysis of the major changes that impacted Net Income for the six and three months ended April 30, 2010 and 2009:
NET INCOME COMPONENTS
Six Months Ended
Three Months Ended
April 30,
April 30,
2010
2009
Change
2010
2009
Change
(thousands of dollars)
(thousands of dollars)
Income from real estate operations:
Commercial properties
$ 7,696 $ 6,856 $ 840 $ 3,930 $ 3,305 $ 625
Residential properties
4,808 5,476 (668 ) 2,345 2,619 (274 )
Total income from real estate operations
12,504 12,332 172 6,275 5,924 351
Financing costs:
Fixed rate mortgages
(5,391 ) (5,155 ) (236 ) (2,726 ) (2,573 ) (153 )
Floating rate - Rotunda
(390 ) (226 ) (164 ) (193 ) (93 ) (100 )
Total financing costs
(5,781 ) (5,381 ) (400 ) (2,919 ) (2,666 ) (253 )
Investment income
66 130 (64 ) 30 51 (21 )
General & administrative expenses:
Accounting fees
(340 ) (257 ) (83 ) (173 ) (157 ) (16 )
Legal & professional fees
(44 ) (82 ) 38 (27 ) (32 ) 5
Trustee fees
(257 ) (264 ) 7 (127 ) (140 ) 13
Corporate expenses
(200 ) (277 ) 77 (86 ) (137 ) 51
Total general & administrative expenses
(841 ) (880 ) 39 (413 ) (466 ) 53
Depreciation:
Same properties (1)
(2,953 ) (2,937 ) (16 ) (1,483 ) (1,463 ) (20 )
Damascus center - Safeway portion of Phase II becoming operational in Sept 2009.
(112 ) - (112 ) (60 ) - (60 )
Total depreciation
(3,065 ) (2,937 ) (128 ) (1,543 ) (1,463 ) (80 )
Net income
$ 2,883 $ 3,264 $ (381 ) $ 1,430 $ 1,380 $ 50
Net income attributable to noncontrolling interests in subsidiaries
(581 ) (658 ) 77 (300 ) (295 ) (5 )
Net Income attributable to common equity
$ 2,302 $ 2,606 $ (304 ) $ 1,130 $ 1,085 $ 45
(1) Properties operated since the beginning of Fiscal 2009.
The consolidated results of operations for the Current Six Months and Current Quarter are not necessarily indicative of the results to be expected for the full year.

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SEGMENT INFORMATION
The following table sets forth comparative net operating income ("NOI") data for FREIT’s real estate segments and reconciles the NOI to consolidated net income for the Current Six Months and Current Quarter, as compared to the prior year’s comparable periods:
Commercial
Residential
Combined
Six Months Ended
Six Months Ended
Six Months Ended
April 30,
Increase (Decrease)
April 30,
Increase (Decrease)
April 30,
2010
2009
$
%
2010
2009
$
%
2010
2009
(in thousands)
(in thousands)
(in thousands)
Rental income
$ 9,633 $ 8,746 $ 887 10.1 % $ 9,395 $ 9,559 $ (164 ) -1.7 % $ 19,028 $ 18,305
Reimbursements
2,890 2,641 249 9.4 % - - - 2,890 2,641
Other
82 104 (22 ) -21.2 % 115 183 (68 ) -37.2 % 197 287
Total revenue
12,605 11,491 1,114 9.7 % 9,510 9,742 (232 ) -2.4 % 22,115 21,233
Operating expenses
5,003 4,721 282 6.0 % 4,702 4,266 436 10.2 % 9,705 8,987
Net operating income
$ 7,602 $ 6,770 $ 832 12.3 % $ 4,808 $ 5,476 $ (668 ) -12.2 % 12,410 12,246
Average
Occupancy %
90.1 % 89.7 % 0.4 % 93.8 % 93.3 % 0.5 %
Reconciliation to consolidated net income:
Deferred rents - straight lining
109 104
Amortization of acquired leases
(15 ) (18 )
Investment income
66 130
General and administrative expenses
(841 ) (880 )
Depreciation
(3,065 ) (2,937 )
Financing costs
(5,781 ) (5,381 )
Net income
2,883 3,264
Net income attributable to noncontrolling interests
(581 ) (658 )
Net income attributable to common equity
$ 2,302 $ 2,606
Commercial
Residential
Combined
Three Months Ended
Three Months Ended
Three Months Ended
April 30,
Increase (Decrease)
April 30,
Increase (Decrease)
April 30,
2010
2009
$
%
2010
2009
$
%
2010
2009
(in thousands)
(in thousands)
(in thousands)
Rental income
$ 4,996 $ 4,387 $ 609 13.9 % $ 4,743 $ 4,769 $ (26 ) -0.5 % $ 9,739 $ 9,156
Reimbursements
1,456 1,236 220 17.8 % - - - 1,456 1,236
Other
58 52 6 11.5 % 58 82 (24 ) -29.3 % 116 134
Total revenue
6,510 5,675 835 14.7 % 4,801 4,851 (50 ) -1.0 % 11,311 10,526
Operating expenses
2,629 2,414 215 8.9 % 2,456 2,232 224 10.0 % 5,085 4,646
Net operating income
$ 3,881 $ 3,261 $ 620 19.0 % $ 2,345 $ 2,619 $ (274 ) -10.5 % 6,226 5,880
Average
Occupancy %
89.5 % 90.4 % -0.9 % 94.6 % 92.6 % 2.0 %
Reconciliation to consolidated net income:
Deferred rents - straight lining
56 53
Amortization of acquired leases
(7 ) (9 )
Investment income
30 51
General and administrative expenses
(413 ) (466 )
Depreciation
(1,543 ) (1,463 )
Financing costs
(2,919 ) (2,666 )
Net income
1,430 1,380
Net income attributable to noncontrolling interests
(300 ) (295 )
Net income attributable to common equity
$ 1,130 $ 1,085
NOI is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes deferred rents (straight lining), lease amortization, depreciation, financing costs and other non-operating activity. FREIT assesses and measures segment operating results based on NOI. NOI is not a measure of operating results or cash flow as measured by generally accepted accounting principles, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity.


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COMMERCIAL SEGMENT
The commercial segment contains ten (10) separate properties during the 2010 and 2009 fiscal years. Seven are multi-tenanted retail or office centers, and one is a single tenanted store. In addition, FREIT owns land in Rockaway, NJ and Rochelle Park, NJ from which it receives monthly rental income, from tenants who have built and operate bank branches on the land.
As indicated in the table above under the caption Segment Information, total revenue and NOI from FREIT’s commercial segment for the Current Six Months increased by 9.7% and 12.3%, respectively, over the Prior Six Months. For the Current Quarter, total revenue and NOI increased by 14.7% and 19.0%, respectively, over the Prior Year’s Quarter. The primary reasons for the increase in both revenue and NOI for the Current Six Months, as well as the Current Quarter were higher base rental income, primarily at the Damascus Center, and a lease termination fee, which amounted to approximately $250,000, related to a tenant at the Rotunda shopping center, and a percentage rent payment of $123,000 relating to a tenant coming off of a percentage rent holiday.
The economic recovery in the U.S. has resulted in modest increases in retail sales, although among the retailers results have been mixed. This gives us a modicum of guarded optimism. To date, our tenant fall-out has been minor, as average occupancy (exclusive of the Damascus Center, which is undergoing a major redevelopment project) for the Current Six Months was at 94.6%, a decrease of 0.6% from last year’s comparable period, and decreased 1.4% for the Current Quarter to 93.9% compared to 95.3% for the Prior Year’s Quarter. However, we may experience additional fall-out if the economic recovery is slow.

DEVELOPMENT ACTIVITIES
A modernization and expansion is in progress at our Damascus Center in Damascus, MD (owned by our 70% owned affiliate, Damascus Centre, LLC). Total construction costs are expected to approximate $21.9 million. The building plans incorporate an expansion of retail space from its current configuration of approximately 140,000 sq. ft. to approximately 150,000 sq. ft., which will be anchored by a modern 58,000 sq. ft. Safeway supermarket. Construction on Phase I began in June 2007, and was completed in June 2008. Phase I construction costs were approximately $6.2 million, of which $1.1 million related to tenant improvements. Phase II, which comprises a new 58,000 sq. ft. Safeway supermarket, was started in December 2008. The new Safeway supermarket was completed and the tenant opened for business in September 2009. As of April 30, 2010, construction and other costs for Phase II approximated $9.8 million. The Phase III construction is expected to begin towards the end of this year. Total construction costs will be funded from a $27.3 million construction loan entered into on February 12, 2008. As a result of a reevaluation of the future funding needs for this project, on May 6, 2010, Damascus Centre, LLC reduced the amount of the construction loan facility to $21.3 million. The construction loan is secured by the shopping center owned by Damascus Centre, LLC. This loan will be drawn upon as needed to fund already expended and future construction costs at the Damascus Center. As of April 30, 2010, $9.9 million of this loan was drawn down to cover construction costs. (See “Liquidity and Capital Resources” for additional information regarding this loan.) Because of this expansion, leases for certain tenants have been allowed to expire, which has caused occupancy to decline, on a temporary basis, during the construction phase. However, with the completion of the Phase I and Phase II (Safeway) construction, certain tenant leases have been renewed and occupancy is beginning to increase.
Development plans and studies for the expansion and renovation of our Rotunda property in Baltimore, MD (owned by our 60% owned affiliate, Grande Rotunda, LLC) were completed during the 2008 fiscal year. The Rotunda property, on an 11.5-acre site, currently consists of an office building containing 138,000 sq. ft. of office space and 78,000 sq. ft. of retail space on the lower floor of the main building. The building plans incorporate an expansion of approximately 180,500 sq. ft. of retail space, approximately 302 residential rental apartments, 56 condominium units and 120 hotel rooms, and structured parking. Development costs for this project are expected to approximate $200 million. City Planning Board approval has been received. As of April 30, 2010, we have expended approximately $7.5 million for planning and feasibility studies. Due to the adverse economic and credit conditions, the start date for the construction has not yet been determined.


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RESIDENTIAL SEGMENT
FREIT operates nine (9) multi-family apartment communities totaling 1,075 apartment units. As indicated in the table above under the caption Segment Information, total revenue and NOI from FREIT’s residential segment for the Current Six Months decreased by 2.4% and 12.2%, respectively, as compared to the Prior Six Months. For the Current Quarter, total revenue and NOI decreased by 1.0% and 10.5%, respectively, over the Prior Year’s Quarter. The current year’s poorer operating results reflect the downward movement of occupancy and rents over the past year. The effect of lower revenues was exacerbated by losses approximating $260,000 relative to recent storm damage costs at the Pierre Towers apartment complex, and overall higher operating costs, particularly utility costs caused by the colder winter this year. The revenue declines are attributable to higher than normal unemployment in our areas of operation over the past year. However, it should be noted that over the last several months, occupancy is showing signs of improvement, as evidenced by average occupancy for the Current Six Months and Current Quarter increasing by 0.5% and 2.0%, respectively, over last year’s comparable periods.
Our residential revenue is principally composed of monthly apartment rental income. Total rental income is a factor of occupancy and monthly apartment rents. Monthly average residential rents at the end of the Current Six Months and the Prior Six Months were $1,530 and $1,557, respectively. A 1% decline in annual average occupancy, or a 1% decline in average rents from current levels, results in an annual revenue decline of approximately $197,000 and $187,000, respectively.
Capital expenditures: Since all of our apartment communities, with the exception of The Boulders, were constructed more than 25 years ago, we tend to spend more in any given year on maintenance and capital improvements than may be spent on newer properties. A major renovation program is ongoing at The Pierre Towers apartment complex (“The Pierre”). We have substantially completed modernizing, where required, all apartments and some of the buildings’ mechanical services. This renovation is expected to cost approximately $4 - $6 million, and apartments were renovated as they became temporarily vacant.  It is anticipated that this renovation will be completed within the next 12 months. These costs are being financed from operating cash flow and cash reserves. Through April 30, 2010, we expended approximately $4.0 million in capital improvements at The Pierre.

INVESTMENT INCOME
Investment income for the Current Six Months and Current Quarter decreased 49.2% and 41.2% to $66,000 and $30,000, respectively, as compared to the prior year’s comparable periods. Investment income is principally derived from interest earned from cash on deposit in institutional money market funds and interest earned from secured loans receivable (loans made to employees of Hekemian, including certain members of the immediate family of Robert S. Hekemian, FREIT CEO and Chairman of the Board, and Robert S. Hekemian, Jr., a trustee of FREIT, for their equity investment in Grande Rotunda, LLC and Damascus Centre, LLC). The decrease in investment income was primarily attributable to lower interest income on FREIT’s investments in cash and cash equivalents, and lower interest income relative to secured loans made to Hekemian employees in connection with the sale of equity interests in the Rotunda and the Damascus Center, due in part to lower interest rates.








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FINANCING COSTS
Six Months Ended
Three Months Ended
April 30,
April 30,
2010
2009
2010
2009
($ in thousands)
($ in thousands)
Fixed rate mortgages:
1st Mortgages
Existing
$ 4,250 $ 4,477 $ 2,116 $ 2,230
New (1)
607 182 303 91
2nd Mortgages
Existing
169 252 84 126
Variable rate mortgages:
Acquisition loan-Rotunda
390 294 193 119
Construction loan-Damascus
79 73 39 25
Other
180 145 91 73
5,675 5,423 2,826 2,664
Amortization of Mortgage Costs
106 118 53 59
Total Financing Costs
5,781 5,541 2,879 2,723
Less amount capitalized
- (160 ) 40 (57 )
Financing costs expensed
$ 5,781 $ 5,381 $ 2,919 $ 2,666
(1) Mortgages not in place at beginning of Fiscal 2009.
Total financing costs, before capitalized amounts, for the Current Six Months and Current Quarter increased 4.3% and 5.7%, respectively, compared to the prior year’s comparable periods.
Our acquisition loan for The Rotunda property of $22.5 million, which was reduced to $19.5 million on February 1, 2010, bears a floating interest rate. An increase in interest rates over the course of the Current Six Months increased the level of interest expense for The Rotunda by approximately $96,000 and $74,000, to $390,000 and $193,000 for the Current Six Months and Current Quarter, respectively.

GENERAL AND ADMINISTRATIVE EXPENSES (“G & A”)
G&A expense for the Current Six Months and Current Quarter was $841,000 and $413,000, respectively, as compared to $880,000 and $466,000 for the prior year’s comparable periods. The primary components of G&A are accounting fees, legal & professional fees and Trustees’ fees amounting in the aggregate to $641,000 and $327,000, for the Current Six Months and the Current Quarter, respectively, as compared to $603,000 and $329,000 for the prior year’s periods.

DEPRECIATION
Depreciation expense from operations for the Current Six Months and Current Quarter was $3,065,000 and $1,543,000, respectively, as compared to $2,937,000 and $1,463,000 for the prior year’s comparable periods.  The increase was primarily attributable to the current construction project at the Damascus Center becoming operational.
LIQUIDITY AND CAPITAL RESOURCES
Our financial condition remains strong. Net cash provided by operating activities was $7.2 million for the Current Six Months compared to $7.1 million for the Prior Six Months. We expect that cash provided by operating activities will be adequate to cover mandatory debt service payments, recurring capital improvements and dividends necessary to retain qualification as a REIT (90% of taxable income).
As at April 30, 2010, FREIT had cash and cash equivalents totaling $6.2 million, compared to $11.3 million at October 31, 2009.



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Credit Line: FREIT has an $18 million line of credit provided by the Provident Bank. The line of credit is for a two year term ending in January 2012, but can be cancelled by the bank, at its will, within 60 days before or after each anniversary date. The credit line will automatically be extended at the termination date of the current term and each subsequent term for an additional period of 24 months, provided there is no default and the credit line has not been cancelled. Draws against the credit line can be used for general corporate purposes, for property acquisitions, construction activities, and letters of credit. Draws against the credit line are secured by mortgages on FREIT’s Franklin Crossing Shopping Center, Franklin Lakes, NJ, retail space in Glen Rock, NJ, Palisades Manor Apartments, Palisades Park, NJ, and Grandview Apartments, Hasbrouck Heights, NJ. Interest rates on draws will be set at the time of each draw for 30, 60, or 90-day periods, based on our choice of the prime rate or at 175 basis points over the 30, 60, or 90-day LIBOR rates at the time of the draws. The interest rate on the line of credit has a floor of 4%.
As of April 30, 2010, approximately $18 million was available under the line of credit.
We are in the process of rebuilding the Damascus Center. The total capital required for this project is estimated at $21.9 million. On February 12, 2008, Damascus Centre, LLC closed on a $27.3 million construction loan that is available to fund already expended and future construction costs. This loan has a term of forty-eight (48) months, with one twelve (12) month extension option. FREIT has guaranteed 30% of the loan, and the minority interests, who have a 30% investment in Damascus Centre, LLC, have agreed to indemnify FREIT for their share of the guarantee. Draws against this loan bear interest at the BBA LIBOR daily floating rate plus 135 basis points. As of April 30, 2010, Damascus Centre, LLC drew down $9.9 million of this loan to cover construction costs. We expect this development project to add to revenues, income, cash flow, and shareholder value. As a result of a reevaluation of the future funding needs for this project, on May 6, 2010, Damascus Centre, LLC reduced the amount of the construction loan facility to $21.3 million.
We are planning a major expansion at The Rotunda in Baltimore, MD that will require capital estimated at $200 million. We expect financing for the Rotunda expansion will be, for the most part, from mortgage financing. During the 2008 fiscal year, we substantially completed the planning and feasibility studies and expended approximately $7.5 million during this phase, which adds to the value of the property. Due to the adverse economic and credit conditions, no date for the commencement of construction has been determined.
At April 30, 2010, FREIT’s aggregate outstanding mortgage debt was $197.9 million and bears a weighted average interest rate of 5.3%, and an average life of approximately 5.2 years. These fixed rate mortgages are subject to amortization schedules that are longer than the term of the mortgages. As such, balloon payments (unpaid principal amounts at mortgage due date) for all mortgage debt will be required as follows:
Fiscal Year
2012
2013
2014
2016
2017
2018
2019
2022
($ in millions)
Mortgage "Balloon" Payments
$9.9
$27.5
$25.9
$24.5
$22.0
$5.0
$45.0
$14.4
The following table shows the estimated fair value and carrying value of our long-term debt at April 30, 2010 and October 31, 2009:
April 30,
October 31,
($ in Millions)
2010
2009
Fair Value
$ 191.5 $ 198.1
Carrying Value
$ 197.9 $ 202.3
Fair values are estimated based on market interest rates at April 30, 2010 and October 31, 2009 and on discounted cash flow analysis. Changes in assumptions or estimation methods may significantly affect these fair value estimates.
FREIT expects to refinance the individual mortgages with new mortgages when their terms expire. To this extent we have exposure to interest rate risk. If interest rates, at the time any individual mortgage note is due, are higher than the current fixed interest rate, higher debt service may be required, and/or refinancing proceeds may be less than the amount of mortgage debt being retired. For example, at April 30, 2010, a 1% interest rate increase would reduce the fair value of our debt by $8.4 million, and a 1% decrease would increase the fair value by $9.0 million.

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The $22.5 million mortgage loan entered into by Grande Rotunda, LLC for the acquisition of the Rotunda was scheduled to come due on July 19, 2009, and was extended by the bank until February 1, 2010. On February 1, 2010, the original loan amount of $22.5 million was reduced to $19.5 million and the due date extended until February 1, 2013. Under the restructured terms, the interest rate is now 350 basis points above the BBA LIBOR rate with a floor of 4%, and monthly principal payments of $10,000 are required. An additional principal payment may be required on February 1, 2012 in an amount necessary to reduce the loan to achieve a certain debt service coverage ratio.
FREIT also has interest rate exposure on its floating rate loans. Currently, FREIT has $29.4 million in floating rate loans outstanding, of which $19.5 million relates to the acquisition loan for The Rotunda and $9.9 million relates to the construction loan for the Damascus Center redevelopment project. A 1% rate fluctuation would impact FREIT’s annual interest cost by approximately $294,000.
We believe that the values of our properties will be adequate to command refinancing proceeds equal to or higher than the mortgage debt to be refinanced. We continually review our debt levels to determine if additional debt can prudently be utilized for property acquisition additions to our real estate portfolio that will increase income and cash flow to our shareholders.

FUNDS FROM OPERATIONS (“FFO”):
Many consider FFO as the standard measurement of a REIT’s performance. We compute FFO as follows:
Six Months Ended
Three Months Ended
April 30,
April 30,
2010
2009
2010
2009
($ in thousands)
($ in thousands)
Net income
$ 2,883 $ 3,264 $ 1,430 $ 1,380
Depreciation
3,065 2,937 1,543 1,463
Amortization of deferred mortgage costs
106 118 53 59
Deferred rents (Straight lining)
(109 ) (104 ) (56 ) (53 )
Amortization of acquired leases
15 18 7 9
Capital Improvements - Apartments
(120 ) (106 ) (35 ) (27 )
Distributions to noncontrolling interests
(692 ) (563 ) (344 ) (443 )
FFO $ 5,148 $ 5,564 $ 2,598 $ 2,388
Per Share - Basic
$ 0.74 $ 0.80 $ 0.37 $ 0.34
Weighted Average Shares Outstanding
6,942 6,945 6,942 6,942
FFO does not represent cash generated from operating activities in accordance with accounting principles generally accepted in the United States of America, and therefore should not be considered a substitute for net income as a measure of results of operations or for cash flow from operations as a measure of liquidity. Additionally, the application and calculation of FFO by certain other REITs may vary materially from that of FREIT’s, and therefore FREIT’s FFO and the FFO of other REITs may not be directly comparable.

INFLATION
Inflation can impact the financial performance of FREIT in various ways. Our commercial tenant leases normally provide that the tenants bear all or a portion of most operating expenses, which can reduce the impact of inflationary increases on FREIT. Apartment leases are normally for a one-year term, which may allow us to seek increased rents as leases renew or when new tenants are obtained, subject to prevailing market conditions.



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Item 3: Quantitative and Q ualitative Disclosures About Market Risk
See “Commercial Segment”, “Residential Segment” and “Liquidity and Capital Resources” under Item 2 above for a detailed discussion of FREIT’s quantitative and qualitative market risk disclosures.

Item 4: Controls and Pro c edures
At the end of the period covered by this report, we carried out an evaluation of the effectiveness of the design and operation of FREIT’s disclosure controls and procedures. This evaluation was carried out under the supervision and with participation of FREIT’s management, including FREIT’s Chairman and Chief Executive Officer and Chief Financial Officer, who concluded that FREIT’s disclosure controls and procedures are effective. There has been no change in FREIT’s internal control over financial reporting during the three months ended April 30, 2010 that has materially affected, or is reasonably likely to materially affect, FREIT’s internal control over financial reporting.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in FREIT’s reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in FREIT’s reports filed under the Exchange Act is accumulated and communicated to management, including FREIT’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

Part II:  Other Informati o n

Item 1:  Legal Proceedin g s
On August 6, 2009, a complaint was filed against Damascus Centre, LLC, Hekemian (FREIT’s managing agent), and others (the “Defendants”) in the Circuit Court of Montgomery County, Maryland (the “Court”).  The plaintiffs leased commercial office space at the Damascus Center.  The complaint alleged a number of causes of action in connection with alleged interference with plaintiffs’ business allegedly caused by Damascus Centre, LLC’s development activities at the Damascus Center. The complaint sought compensatory damages of $500,000 for the alleged interference with the plaintiffs’ business and $5,000,000 in punitive damages. In addition, the plaintiffs sought to enjoin the demolition of the shopping center. FREIT received notice of the lawsuit on September 2, 2009. On February 19, 2010, a voluntary stipulation of dismissal of the complaint, with prejudice, was filed with the Court. This stipulation with prejudice has the same effect as a final adjudication on the merits of the complaint favorable to the Defendants, and relieves the Defendants of any liability to the plaintiffs based on the relevant facts set forth in the complaint. The stipulation also bars the plaintiffs from pursuing any subsequent action based on any relevant facts in the complaint.

Item 1A:  Ris k Factors
There were no material changes in any risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended October 31, 2009, that was filed with the Securities and Exchange Commission on January 14, 2010.

Item 6: Exhibi t s
Exhibit Index

Exhibit 10.1 - Agency Agreement dated November 10, 2009 between Grande Rotunda, LLC and Hekemian Resources Development, LLC.
Exhibit 31.1 - Section 302 Certification of Chief Executive Officer
Exhibit 31.2 - Section 302 Certification of Chief Financial Officer
Exhibit 32.1 - Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
Exhibit 32.2 - Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350


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SIG N ATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FIRST REAL ESTATE INVESTMENT
TRUST OF NEW JERSEY
(Registrant)
Date: June 9, 2010
/s/ Robert S. Hekemian
(Signature)
Robert S. Hekemian
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
/s/ Donald W. Barney
(Signature)
Donald W. Barney
President, Treasurer and Chief Financial Officer
(Principal Financial/Accounting Officer)


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