EDGAR 10-K Filing

Company CIK: 1029800
Filing Year: 2021
Filename: 1029800_10-K_2021_0001029800-21-000016.json

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ITEM 1. BUSINESS
Item 1. Business.
Organization
We are a real estate investment trust, organized as a Maryland corporation, engaged in the acquisition, ownership and management of commercial real estate. We were organized as an unincorporated business trust (the “Trust”) under the laws of the Commonwealth of Massachusetts on July 7, 1969. In 1997, the shareholders of the Trust approved a plan of reorganization of the Trust from a Massachusetts business trust to a Maryland corporation. As a result of the plan of reorganization, the Trust was merged with and into the Company, the separate existence of the Trust ceased, the Company was the surviving entity in the merger and each issued and outstanding common share of beneficial interest of the Trust was converted into one share of Common Stock, par value $.01 per share, of the Company.
Tax Status - Qualification as a Real Estate Investment Trust
We elected to be taxed as a real estate investment trust (“REIT”) under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the “Code”), beginning with our taxable year ended October 31, 1970. Pursuant to such provisions of the Code, a REIT that distributes at least 90% of its real estate investment trust taxable income to its shareholders each year and meets certain other conditions regarding the nature of its income and assets will not be taxed on that portion of its taxable income that is distributed to its shareholders. Although we believe that we qualify as a real estate investment trust for federal income tax purposes, no assurance can be given that we will continue to qualify as a REIT.
Description of Business
Our business is the ownership of real estate investments, which consist principally of investments in income-producing properties, with primary emphasis on neighborhood and community shopping centers in the metropolitan New York tri-state area outside of the City of New York. We believe that our geographic focus allows us to take advantage of the strong demographic profiles of the areas that surround the City of New York and the natural barriers to entry that such density and limitations on developable land provide. We also believe that our ability to directly operate and manage all of our properties within the tri-state area reduces overhead costs and affords us efficiencies that a more dispersed portfolio would make difficult.
At October 31, 2020, the Company owned or had equity interests in 81 properties comprised of neighborhood and community shopping centers, office buildings, single tenant retail or restaurant properties and office/retail mixed use properties located in four states, containing a total of 5.3 million square feet of gross leasable area (“GLA”). We seek to identify desirable properties, typically neighborhood and community shopping centers, for acquisition, which we acquire in the normal course of business. In addition, we regularly review our portfolio and, from time to time, may sell certain of our properties. For a description of the Company's properties and information about the carrying amount of the properties at October 31, 2020 and encumbrances, see Item 2. Properties and Schedule III located in Item 15.
We actively manage and supervise the operations and leasing of all of our properties. We also derive income from the management of 6 properties owned by third parties and in which we have no equity interest.
In addition to our business of owning and managing real estate, we are also involved in the beer, wine and spirits retail business, through our ownership of five subsidiary corporations formed as taxable REIT subsidiaries. Each subsidiary corporation owns and operates a beer, wine and spirits retail store at one of our shopping centers. To manage our operations, we have engaged an experienced third-party, retail beer, wine and spirits manager, which also owns many stores of its own. Each of these stores occupies space at one of our shopping centers, fulfilling a strategic need for a beer, wine and spirits business at such shopping center. These five stores are not currently providing material earnings in excess of what the Company would have earned from leasing the space to unrelated tenants at market rents. However, these businesses are continuing to mature, and net sales and earnings may eventually become material to our financial position and net income. Nevertheless, our primary business remains the ownership and management of real estate, and we expect that the beer, wine and spirts business will remain an ancillary aspect of our business model. However, if the right opportunity presents itself, we may open additional beer, wine and spirits stores at other shopping centers if we determine that any such store would be a strategic fit for our overall business and the investment return analysis supports such a determination.
We derive other ancillary income from property related sources such as solar array installations and electrical vehicle charging stations.
Impact of COVID-19
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. The COVID-19 pandemic has caused, and could continue to cause, significant disruptions to the U.S. and global economy, as well as significant volatility and negative pressure in the financial markets. During the early days of the pandemic, the tri-state area surrounding New York City was particularly hard hit. As a result, like many U.S. states and cities, the tri-state area composed of Connecticut, New York and New Jersey imposed rules and regulations intended to control the spread of COVID-19, such as instituting “shelter-in-place” and “social distancing” orders, which forced many businesses, including some of our tenants, to temporarily close, reduce their hours or significantly limit service for several months or more. Since early summer, many (but not all) of these restrictions have been gradually lifted as the COVID-19 situation in the tri-state area has significantly improved, with most businesses now permitted to open at reduced capacity and under other limitations intended to control the spread of COVID-19. The situation, however, has been evolving as we head deeper into the winter months. See “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information.
Growth Strategy
We have a conservative capital structure, which includes permanent equity sources of Common Stock, Class A Common Stock and two series of perpetual preferred stock, which are only redeemable at our option. In addition, we have mortgage debt secured by some of our properties. We do not have any secured debt maturing until January of 2022. Key elements of our growth strategies and operating policies are to:
● maintain our focus on community and neighborhood shopping centers, anchored principally by regional supermarkets, pharmacy chains or wholesale clubs, which we believe can provide a more stable revenue flow even during difficult economic times because of the focus on food and other types of staple goods;
● acquire quality neighborhood and community shopping centers in the northeastern part of the United States with a concentration on properties in the metropolitan tri-state area outside of the City of New York, and unlock further value in these properties with selective enhancements to both the property and tenant mix, as well as improvements to management and leasing fundamentals, with hopes to grow our assets through acquisitions subject to the availability of acquisitions that meet our investment parameters;
● selectively dispose of underperforming properties and re-deploy the proceeds into potentially higher performing properties that meet our acquisition criteria;
● invest in our properties for the long-term through regular maintenance, periodic renovations and capital improvements, enhancing their attractiveness to tenants and customers (e.g. curbside pick-up), as well as increasing their value;
● leverage opportunities to increase GLA at existing properties, through development of pad sites and reconfiguring of existing square footage, to meet the needs of existing or new tenants;
● proactively manage our leasing strategy by aggressively marketing available GLA, renewing existing leases with strong tenants, anticipating tenant weakness when necessary by pre-leasing their spaces and replacing below-market-rent leases with increased market rents, with an eye towards securing leases that include regular or fixed contractual increases to minimum rents;
● improve and refine the quality of our tenant mix at our shopping centers;
● maintain strong working relationships with our tenants, particularly our anchor tenants;
● maintain a conservative capital structure with low leverage levels, ample liquidity and diverse sources of capital; and
● control property operating and administrative costs.
Renovations, Expansions and Improvements
We invest in properties where cost effective renovation and expansion programs, combined with effective leasing and operating strategies, can improve the properties’ values and economic returns. Retail properties are typically adaptable for varied tenant layouts and can be reconfigured to accommodate new tenants or the changing space needs of existing tenants. We also seek to leverage existing shopping center assets through pad site development. In determining whether to proceed with a renovation, expansion or pad, we consider both the cost of such expansion or renovation and the increase in rent attributable to such expansion or renovation. We believe that certain of our properties provide opportunities for future renovation and expansion. We generally do not engage in ground-up development projects.
Environmental Initiatives
We also seek to improve our properties in ways that provide additional ancillary revenue or value, while benefiting the environment and communities in which we have a presence. For example, we have a robust alternative energy program, pursuant to which we have placed a number of solar panel installations on the roofs of our shopping centers and are working on additional installations. We have also installed electric vehicle charging stations at a number of our properties, which we believe will not only benefit the environment but enhance customer experience at our shopping centers. Other initiatives include converting incandescent and florescent lighting to LED at various properties and upgrading parking lot lighting systems to operate more efficiently. While we are committed to environmental responsibility, we also believe that these initiatives need to be financially feasible and beneficial to the Company, which may require that these projects be completed over a period of time. The Company will continue to seek financially responsible opportunities to reduce our carbon footprint and lower our energy usage, while improving the value of our properties.
Acquisitions and Dispositions
When evaluating potential acquisitions, we consider such factors as (i) economic, demographic, and regulatory conditions in the property’s local and regional market; (ii) the location, construction quality, and design of the property; (iii) the current and projected cash flow of the property and the potential to increase cash flow; (iv) the potential for capital appreciation of the property; (v) the terms of tenant leases, including the relationship between the property’s current rents and market rents and the ability to increase rents upon lease rollover; (vi) the occupancy and demand by tenants for properties of a similar type in the market area; (vii) the potential to complete a strategic renovation, expansion or re-tenanting of the property; (viii) the property’s current expense structure and the potential to increase operating margins; (ix) competition from comparable properties in the market area; and (x) vulnerability of the property's tenants to competition from e-commerce.
We may, from time to time, enter into arrangements for the acquisition of properties with property owners through the issuance of non-managing member units or partnership units in joint venture entities that we control, which we refer to as our DownREIT entities. The limited partners and non-managing members of each of these joint ventures are entitled to receive annual or quarterly cash distributions payable from available cash of the joint venture. The limited partners and non-managing members of these joint ventures have the right to require the Company to repurchase or redeem all or a portion of their limited partner or non-managing member interests for cash or Class A Common Stock of the Company, at our election, at prices and on terms set forth in the partnership or operating agreements. We also have the right to redeem all or a portion of the limited partner and non-managing member interests for cash or Class A Common Stock of the Company, at our election, under certain circumstances, at prices and on terms set forth in the partnership or operating agreements. We believe that this acquisition method may permit us to acquire properties from property owners wishing to enter into tax-deferred transactions.
From time to time, we selectively dispose of underperforming properties and re-deploy the proceeds into potentially higher performing properties that meet our acquisition criteria.
Leasing Results
At October 31, 2020, our properties collectively had 987 leases with tenants providing a wide range of products and services. Tenants include regional supermarkets, national and regional discount stores, other local retailers and office tenants. In addition, at our Yorktown, NY property, we have developed a portion of below grade space to a storage facility which currently has 557 storage tenants. At October 31, 2020, the 75 consolidated properties were 90.4% leased and 88.5% occupied (see Results of Operations discussion in Item 7). At October 31, 2020, we had equity investments in six properties which we do not consolidate; those properties were 91.1% leased. We believe the properties are adequately covered by property and liability insurance.
A substantial portion of our operating lease income is derived from tenants under leases with terms greater than one year. Most of the leases provide for the payment of monthly fixed base rentals and for the payment by the tenant of a pro-rata share of the real estate taxes, insurance, utilities and common area maintenance expenses incurred in operating the properties.
For the fiscal year ended October 31, 2020, no single tenant comprised more than 8.2% of the total annual base rents of our properties. The following table sets forth a schedule of our ten largest tenants by percent of total annual base rent of our properties to total annual base rent for the year ended October 31, 2020.
Tenant
Number
of Stores
% of Total Annual
Base Rent of Properties
Stop & Shop
8.2
%
CVS
4.7
%
The TJX Companies
3.4
%
Bed Bath & Beyond
2.8
%
Acme
2.6
%
ShopRite
2.0
%
BJ's
1.6
%
Staples
1.4
%
Kings Supermarkets
1.2
%
Walgreens
1.1
%
29.0
%
See Item 2. Properties for a complete list of the Company’s properties.
The Company’s single largest real estate investment is its 100% ownership of the general and limited partnership interests in the Ridgeway Shopping Center (“Ridgeway”).
Ridgeway is located in Stamford, Connecticut and was developed in the 1950s and redeveloped in the mid-1990s. The property contains approximately 374,000 square feet of GLA. It is the dominant grocery-anchored center and the largest non-mall shopping center located in the City of Stamford, Fairfield County, Connecticut. For the year ended October 31, 2020, Ridgeway revenues represented approximately 11.2% of the Company’s total revenues and its assets represented approximately 6.4% of the Company’s total assets at October 31, 2020. As of October 31, 2020, Ridgeway was 92% leased. The property’s largest tenants (by base rent) are: The Stop & Shop Supermarket Company (20%), Bed, Bath & Beyond (14%) and Marshall’s Inc., a division of the TJX Companies (10%). No other tenant accounts for more than 10% of Ridgeway’s annual base rents.
The following table sets forth a schedule of the annual lease expirations for retail leases at Ridgeway as of October 31, 2020 for each of the next ten years and thereafter (assuming that no tenants exercise renewal or cancellation options and that there are no tenant bankruptcies or other tenant defaults):
Year of Expiration
Number of
Leases Expiring
Square Footage
of Expiring Leases
Minimum
Base Rentals
Percentage of
Total Annual
Base Rent that is
Represented by
the Expiring Leases
51,087
$
1,107,000
9.9
%
95,112
3,156,000
28.2
%
83,159
2,858,000
25.5
%
9,000
210,000
1.9
%
61,832
1,790,000
16.0
%
10,282
390,000
3.5
%
6,341
214,000
1.9
%
38,060
1,315,000
11.7
%
4,000
89,000
0.8
%
2,347
68,000
0.6
%
Thereafter
-
-
-
-
Total
361,220
$
11,197,000
%
For further financial information about our only reportable operating segment, Ridgeway, see note 1 of our financial statements in Item 8 included in this Annual Report on Form 10-K.
Financing Strategy
We intend to continue to finance acquisitions and property improvements and/or expansions with the most advantageous sources of capital which we believe are available to us at the time, and which may include the sale of common or preferred equity through public offerings or private placements, the incurrence of additional indebtedness through secured or unsecured borrowings, investments in real estate joint ventures and the reinvestment of proceeds from the disposition of assets. Our financing strategy is to maintain a strong and flexible financial position by (i) maintaining a prudent level of leverage, and (ii) minimizing our exposure to interest rate risk represented by floating rate debt.
Compliance with Governmental Regulations
We, like others in the commercial real estate industry, are subject to numerous federal, state and local laws and regulations, including environmental laws and regulations. We may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under our properties, as well as certain other potential costs relating to hazardous or toxic substances (including government fines and penalties and damages for injuries to persons and adjacent property). These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those substances. This liability may be imposed on us in connection with the activities of an operator of, or tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages and our liability therefore could exceed the value of the property and/or our aggregate assets. In addition, the presence of those substances, or the failure to properly dispose of or remove those substances, may adversely affect our ability to sell or rent that property or to borrow using that property as collateral, which, in turn, would reduce our revenues and ability to make distributions.
Our existing properties, as well as properties we may acquire, as commercial facilities, are required to comply with Title III of the Americans with Disabilities Act of 1990. The requirements of this Act, or of other federal, state or local laws or regulations, also may change in the future and restrict further renovations of our properties with respect to access for disabled persons. Future compliance with the Americans with Disabilities Act of 1990 and similar regulations may require expensive changes to the properties.
Competition
The real estate investment business is highly competitive. We compete for real estate investments with investors of all types, including domestic and foreign corporations, financial institutions, other real estate investment trusts, real estate funds, individuals and privately owned companies. In addition, our properties are subject to local competition from the surrounding areas. Our shopping centers compete for tenants with other regional, community or neighborhood shopping centers in the respective areas where our retail properties are located. In addition, the retail industry is seeing greater competition from internet retailers who may not need to establish “brick and mortar” retail locations for their businesses. This may reduce the demand for traditional retail space in shopping centers like ours and other grocery-anchored shopping center properties. Our few office buildings compete for tenants principally with office buildings throughout the respective areas in which they are located. Leasing decisions are generally determined by prospective tenants on the basis of, among other things, rental rates, location, and the physical quality of the property and availability of space.
Human Capital
We believe that our employees are one of our greatest resources. In order to attract and retain high performing individuals, we are committed to partnering with our employees to provide opportunities for their professional development and promote their well-being. To that end, we have undertaken various initiatives, including the following:
•
providing department-specific training, access to online training seminars and opportunities to participate in industry conferences, as well as “Urstadtversity,” a company-wide training program that educates employees about various aspects of the real estate business through a regular speaker series;
•
introducing the next generation of real estate leaders through summer internship programs;
•
providing annual reviews and regular feedback to assist in employee development and providing opportunities for employees to provide suggestions to management and safely register complaints;
•
providing family leave, for example, for the birth or adoption of a child, as well as sick leave, that exceeds minimum regulatory requirements;
•
focusing on creating a workplace that values employee health and safety, and to that end providing expanded paid sick leave during the COVID-19 pandemic;
•
committing to the full inclusion of all qualified employees and applicants and providing equal employment opportunities to all persons, in accordance with the principles and requirements of the Equal Employment Opportunities Commission and the principles and requirements of the Americans with Disabilities Act; and
•
appreciating the many contributions of a diverse workforce, understanding that diverse backgrounds bring diverse perspectives, resulting in unique insights.
Our executive offices are located at 321 Railroad Avenue, Greenwich, Connecticut. Urstadt Biddle Properties Inc. has 57 employees, all located at the Company’s executive offices. Subsidiaries of the Company also employ an additional 38 full-time and part-time employees at other locations, and we believe our relationship with our employees is good.
Company Website
All of the Company’s filings with the SEC, including the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge at the Company’s website at www.ubproperties.com as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. These filings can also be accessed through the SEC’s website at www.sec.gov.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Risks Related to COVID-19
The current pandemic of the novel coronavirus ("COVID-19") is expected to, and the future outbreak of other highly infectious or contagious diseases may, materially and adversely impact the businesses of many of our tenants and materially and adversely impact and disrupt our business, income, cash flow, results of operations, financial condition, liquidity, prospects and ability to service our debt obligations, and our ability to pay dividends and other distributions to our stockholders.
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. The COVID-19 pandemic has caused, and could continue to cause, significant disruptions to the U.S. and global economy, as well as significant volatility and negative pressure in the financial markets. During the early days of the pandemic, the tri-state area surrounding New York City was particularly hard hit. As a result, like many U.S. states and cities, the tri-state area composed of Connecticut, New York and New Jersey imposed rules and regulations intended to control the spread of COVID-19, such as instituting “shelter-in-place” and “social distancing” orders, which forced many businesses to temporarily close, reduce their hours or significantly limit service for several months or more. The COVID-19 outbreak and measures taken to prevent its spread have already resulted in significant negative economic impacts on many of our tenants, including inability to pay rent, and as a result, on our business. It continues to have a significant impact on the larger U.S. and global economies as well, including a dramatic increase in national unemployment.
Since early summer, many (but not all) of these restrictions have been gradually lifted as the COVID-19 situation in the tri-state area has significantly improved, with most businesses now permitted to open at reduced capacity and under other limitations intended to control the spread of COVID-19. While many of our tenants saw a surge in business during the initial weeks and months following re-opening, it is unclear whether this level of business activity is likely to be sustained, especially if the areas in which our properties are located experience a resurgence in COVID-19 cases and/or are subject to a re-imposition of previously lifted business restrictions. As the tri-state area heads deeper into winter, it has been experiencing micro-clusters of heightened infections, which has led to the re-imposition of temporary restrictions in these targeted areas, although none of these re-imposed restrictions have thus far required businesses to completely shut down. Also, not all tenants experienced the same level of recovery. For a number of our tenants that operate service and retail businesses involving high contact interactions with their customers, the negative impact of COVID-19 on their business has been particularly severe and the recovery more difficult.
Many of our tenants also availed themselves of stimulus funds made available under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the "CARES Act”). A second COVID-19 federal stimulus package was enacted as part of the Consolidated Appropriations Act, 2021 (the "COVID Supplemental Appropriations Act") on December 27, 2020. However, even with this additional stimulus, some businesses may be unable to continue. A number of tenants have already filed for bankruptcy protection, failed to re-open after stay-at-home and similar restrictions were lifted, or indicated their inability to continue their business for the long-term.
Tenants that experience deteriorating financial conditions may be unwilling or unable to pay rent on a timely basis, or at all. In some cases, we have deferred or abated tenants’ rent obligations, but may need to further restructure tenant rent obligations if their businesses continue to suffer. We may be unable to fully collect on deferred rents as a result of the tenant’s deteriorating business condition. In other cases, state, local, federal and industry-initiated efforts may also affect our ability to collect rent or enforce remedies for the failure to pay rent, including, among others, limitations, prohibitions and moratoriums on evicting tenants unwilling or unable to pay rent. In the event of tenant nonpayment, default or bankruptcy, we may incur costs in protecting our investment and re-leasing our properties, and have limited ability to renew existing leases or sign new leases at projected rents. We currently anticipate the above circumstances to negatively impact our revenues until a medical solution is achieved for COVID-19.
Moreover, the ongoing COVID-19 pandemic and continuing restrictions intended to prevent and mitigate its spread could have additional adverse effects on our business, including with regards to:
•
a deterioration in consumer sentiment and its impact on discretionary spending, which could negatively impact our tenants’ businesses;
•
negative public perception of the COVID-19 health risk, which may result in decreased foot traffic to our shopping centers and tenant businesses for an extended period of time;
•
an acceleration of changes in consumer behavior in favor of e-commerce, negatively impacting many of our tenants who rely heavily on their brick-and-mortar sales for profitability;
•
the inability of our tenants to meet their lease obligations or other obligations (including repayment of deferred rents) to us in full, or at all, or to otherwise seek modifications of such obligations or declare bankruptcy due to economic and business conditions, including high unemployment and reduced consumer discretionary spending;
•
the ability and willingness of new tenants to enter into leases during what is perceived to be uncertain times, the ability and willingness of our existing tenants to renew their leases upon expiration, and our ability to re-lease the properties on the same or better terms in the event of nonrenewal or in the event we exercise our right to replace an existing tenant;
•
the failure of certain of our tenants to reopen, resulting in co-tenancy claims as a result of the failure to satisfy occupancy thresholds;
•
The unavailability of further stimulus funds or economic assistance beyond that provided under the COVID Supplemental Appropriations Act, the CARES Act and similar programs or the insufficiency of such funds to cover all of the tenant’s financial results, including rent;
•
disruptions to the supply chain or lack of employees available or willing to work due to perceptions of COVID-19 health risk that could make it difficult for our tenants to operate, as well as to pay rent;
•
the adverse impact of current economic conditions on the market value of our real estate portfolio and the resulting impact on our ability or desire to make strategic acquisitions or dispositions;
•
state, local or industry-initiated efforts, such as a rent freeze for tenants or a suspension of a landlord’s ability to enforce evictions, which may affect our ability to collect rent or enforce remedies for the failure to pay rent;
•
the scaling back or delay of a significant amount of planned capital expenditures, which could adversely affect the value of our properties;
•
severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions, which could make it difficult for us to access debt and equity capital on attractive terms, or at all, and impact our ability to fund business activities and repay liabilities on a timely basis;
•
our ability to draw on our credit facility or obtain additional indebtedness or pay down, refinance, restructure or extend our indebtedness as it becomes due, and the negative impact of reductions in rent on financial covenants on corporate and/or property-level debt; and
•
issues related to remote working, including increased cybersecurity risk and other technology and communication issues, although our offices re-opened in late May in accordance with state guidelines and upon implementation of appropriate safety measures;
•
the event that a significant number of our employees, particularly senior members of our management team, become unable to work as a result of health issues related to COVID-19; and
•
the continued volatility of the trading prices of our Common Stock and Class A Common Stock.
Our operating results depend, in large part, on the ability of our tenants to generate sufficient income to pay their rents in a timely manner. Therefore, we reduced our quarterly dividend on our Class A Common stock and Common stock in the third and fourth quarters when compared with pre-pandemic levels in an effort to preserve cash due to current economic uncertainty, and we may choose to do the same in the future. Additionally, we may in the future choose to pay distributions in our stock rather than solely in cash, which may result in our stockholders having a tax liability with respect to such distributions that exceeds the amount of cash received, if any.
The extent to which COVID-19, or any future pandemic or health crisis, impacts our business, operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity, duration of such pandemic, actions taken to contain the pandemic or mitigate its impact, and the progress of science and the medical community in addressing the health risks. The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of COVID-19. To the extent any of these risks and uncertainties adversely impact us in the ways described above or otherwise, they may also have the effect of heightening many of the other risks described in this Annual Report on Form 10-K.
Risks Related to our Operations and Properties
There are risks relating to investments in real estate and the value of our property interests depends on conditions beyond our control. Yields from our properties depend on their net income and capital appreciation. Real property income and capital appreciation may be adversely affected by general and local economic conditions, neighborhood values, competitive overbuilding, zoning laws, weather, casualty losses and other factors beyond our control. Since substantially all of our income is rental income from real property, our income and cash flow could be adversely affected if a large tenant is, or a significant number of tenants are, unable to pay rent or if available space cannot be rented on favorable terms.
Operating and other expenses of our properties, particularly significant expenses such as interest, real estate taxes and maintenance costs, generally do not decrease when income decreases and, even if revenues increase, operating and other expenses may increase faster than revenues.
We may be unable to sell properties when appropriate because real estate investments are illiquid. Real estate investments generally cannot be sold quickly. In addition, there are some limitations under federal income tax laws applicable to real estate and to REITs in particular that may limit our ability to sell our assets. With respect to each of our five consolidated joint ventures, McLean, Orangeburg, High Ridge, Dumont and New City, which we refer to as our DownREITs, we may not sell or transfer the contributed property through contractually agreed upon protection periods other than as part of a tax-deferred transaction under the Code or if the conditions exist which would give us the right to call all of the non-managing member units or partnership units, as applicable, following the death or dissolution of certain non-managing members or, in connection with the exercise of creditor's rights and remedies under the existing mortgage or any refinancing by the holder thereof (which will not constitute a violation of this restriction). Because of these market, regulatory and contractual conditions, we may not be able to alter our portfolio promptly in response to changes in economic or other conditions. Our inability to respond quickly to adverse changes in the performance of our investments could have an adverse effect on our ability to meet our obligations and make distributions to our stockholders.
Our business strategy is mainly concentrated in one type of commercial property and in one geographic location. Our primary investment focus is neighborhood and community shopping centers, with a concentration in the metropolitan New York tri-state area outside of the City of New York. For the year ended October 31, 2020, approximately 98.8% of our total revenues were from properties located in this area. Various factors may adversely affect a shopping center's profitability. These factors include circumstances that affect consumer spending, such as general economic conditions, economic business cycles, rates of employment, income growth, interest rates and general consumer sentiment. They also include weather patterns and natural disasters that could have a more significant localized effect in the areas where our properties are concentrated. The occurrence of natural disasters or severe weather conditions can delay new development projects, increase investment costs to repair or replace damaged properties, increase operation costs, increase future property insurance costs, and negatively impact the tenant demand for lease space. Changes to the real estate market in our focus areas, such as an increase in retail space or a decrease in demand for shopping center properties, could also adversely affect operating results. As a result, we may be exposed to greater risks than if our investment focus was based on more diversified types of properties and in more diversified geographic areas.
The Company's single largest real estate investment is its ownership of the Ridgeway Shopping Center ("Ridgeway") located in Stamford, Connecticut. For the year ended October 31, 2020, Ridgeway revenues represented approximately 11.2% of the Company's total revenues and approximately 6.4% of the Company's total assets at October 31, 2020. The loss of Ridgeway or a material decrease in revenues from Ridgeway could have a material adverse effect on the Company.
We are dependent on anchor tenants in many of our retail properties. Most of our retail properties are dependent on a major or anchor tenant, often a supermarket anchor. If we are unable to renew any lease we have with the anchor tenant at one of these properties upon expiration of the current lease on favorable terms, or to re-lease the space to another anchor tenant of similar or better quality upon departure of an existing anchor tenant on similar or better terms, we could experience material adverse consequences with respect to such property such as higher vacancy, re-leasing on less favorable economic terms, reduced net income, reduced funds from operations and reduced property values. Vacated anchor space also could adversely affect a property because of the loss of the departed anchor tenant's customer drawing power. Loss of customer drawing power also can occur through the exercise of the right that some anchors have to vacate and prevent re-tenanting by paying rent for the balance of the lease term. In addition, vacated anchor space could, under certain circumstances, permit other tenants to pay a reduced rent or terminate their leases at the affected property, which could adversely affect the future income from such property. There can be no assurance that our anchor tenants will renew their leases when they expire or will be willing to renew on similar economic terms. See Item 1. Business in this Annual Report on Form 10-K for additional information on our ten largest tenants by percent of total annual base rent of our properties.
Similarly, if one or more of our anchor tenants goes bankrupt, we could experience material adverse consequences like those described above. Under bankruptcy law, tenants have the right to reject their leases. In the event a tenant exercises this right, the landlord generally may file a claim for a portion of its unpaid and future lost rent. Actual amounts received in satisfaction of those claims, however, are typically very limited and will be subject to the tenant's final plan of reorganization and the availability of funds to pay its creditors. We can provide no assurance that we will not experience impactful bankruptcies by anchor tenants in the future. See Item 7. Management’s Discussion of Operations and Financial Condition in this Annual Report on Form 10-K for additional information.
We face potential difficulties or delays in renewing leases or re-leasing space. We derive most of our income from rent received from our tenants. Although substantially all of our properties currently have favorable occupancy rates, we cannot predict that current tenants will renew their leases upon expiration of their terms. In addition, current tenants could attempt to terminate their leases prior to the scheduled expiration of such leases or might have difficulty in continuing to pay rent in full, if at all, in the event of a severe economic downturn. If this occurs, we may not be able to promptly locate qualified replacement tenants and, as a result, we would lose a source of revenue while remaining responsible for the payment of our obligations. Even if tenants decide to renew their leases, the terms of renewals or new leases, including the cost of required renovations or concessions to tenants, may be less favorable than current lease terms.
In some cases, our tenant leases contain provisions giving the tenant the exclusive right to sell particular types of merchandise or provide specific types of services within the particular retail center, or limit the ability of other tenants within the center to sell that merchandise or provide those services. When re-leasing space after a vacancy in a center with one of these tenants, such provisions may limit the number and types of prospective tenants for the vacant space. The failure to re-lease space or to re-lease space on satisfactory terms could adversely affect our results from operations. Additionally, properties we may acquire in the future may not be fully leased and the cash flow from existing operations may be insufficient to pay the operating expenses and debt service associated with that property until the property is fully leased. As a result, our net income, funds from operations and ability to pay dividends to stockholders could be adversely affected.
We may acquire properties or acquire other real estate related companies, and this may create risks. We may acquire properties or acquire other real estate related companies when we believe that an acquisition is consistent with our business strategies. We may not succeed in consummating desired acquisitions on time or within budget. When we do pursue a project or acquisition, we may not succeed in leasing newly acquired properties at rents sufficient to cover the costs of acquisition and operations. Acquisitions in new markets or industries where we do not have the same level of market knowledge may result in poorer than anticipated performance. We may also abandon acquisition opportunities that management has begun pursuing and consequently fail to recover expenses already incurred and will have devoted management’s time to a matter not consummated. Furthermore, our acquisitions of new properties or companies will expose us to the liabilities of those properties or companies, some of which we may not be aware of at the time of the acquisition. In addition, redevelopment of our existing properties presents similar risks.
Newly acquired properties may have characteristics or deficiencies currently unknown to us that affect their value or revenue potential. It is also possible that the operating performance of these properties may decline under our management. As we acquire additional properties, we will be subject to risks associated with managing new properties, including lease-up and tenant retention. In addition, our ability to manage our growth effectively will require us to successfully integrate our new acquisitions into our existing management structure. We may not succeed with this integration or effectively manage additional properties, particularly in secondary markets. Also, newly acquired properties may not perform as expected.
Competition may adversely affect our ability to acquire new properties. We compete for the purchase of commercial property with many entities, including other publicly traded REITs and private equity funded entities. Many of our competitors have substantially greater financial resources than ours. In addition, our competitors may be willing to accept lower returns on their investments. If we are unable to successfully compete for the properties we have targeted for acquisition, we may not be able to meet our growth and investment objectives. We may incur costs on unsuccessful acquisitions that we will not be able to recover. The operating performance of our property acquisitions may also fall short of our expectations, which could adversely affect our financial performance.
Competition may limit our ability to generate sufficient income from tenants and may decrease the occupancy and rental rates for our properties. Our properties consist primarily of open-air shopping centers and other retail properties. Our performance, therefore, is generally linked to economic conditions in the market for retail space. In the future, the market for retail space could be adversely affected by:
● weakness in the national, regional and local economies;
● the adverse financial condition of some large retailing companies;
● the impact of internet sales on the demand for retail space;
● ongoing consolidation in the retail sector; and
● the excess amount of retail space in a number of markets.
In addition, numerous commercial developers and real estate companies compete with us in seeking tenants for our existing properties. If our competitors offer space at rental rates below our current rates or the market rates, we may lose current or potential tenants to other properties in our markets and we may need to reduce rental rates below our current rates in order to retain tenants upon expiration of their leases. Increased competition for tenants may require us to make tenant and/or capital improvements to properties beyond those that we would otherwise have planned to make. As a result, our results of operations and cash flow may be adversely affected.
In addition, our tenants face increasing competition from internet commerce, outlet malls, discount retailers, warehouse clubs and other sources which could hinder our ability to attract and retain tenants and/or cause us to reduce rents at our properties, which could have an adverse effect on our results of operations and cash flows. We may fail to anticipate the effects of changes in consumer buying practices, particularly of growing online sales and the resulting retailing practices and space needs of our tenants or a general downturn in our tenant’s businesses, which may cause tenants to close their stores or default in payment of rent.
Property ownership through joint ventures could limit our control of those investments, restrict our ability to operate and finance the property on our terms, and reduce their expected return. As of October 31, 2020, we owned five of our operating properties through consolidated joint ventures and six through unconsolidated joint ventures. Our joint ventures, and joint ventures we may enter into in the future, may involve risks not present with respect to our wholly-owned properties, including the following:
● We may share decision-making authority with our joint venture partners regarding certain major decisions affecting the ownership or operation of the joint venture and the joint venture property, such as, but not limited to, (i) additional capital contribution requirements, (ii) obtaining, refinancing or paying off debt, and (iii) obtaining consent prior to the sale or transfer of our interest in the joint venture to a third party, which may prevent us from taking actions that are opposed by our joint venture partners;
● Our joint venture partners may have business interests or goals with respect to the property that conflict with our business interests and goals, which could increase the likelihood of disputes regarding the ownership, management or disposition of the property;
● Disputes may develop with our joint venture partners over decisions affecting the property or the joint venture, which may result in litigation or arbitration that would increase our expenses and distract our officers from focusing their time and effort on our business, disrupt the day-to-day operations of the property such as by delaying the implementation of important decisions until the conflict is resolved, and possibly force a sale of the property if the dispute cannot be resolved; and
● The activities of a joint venture could adversely affect our ability to qualify as a REIT.
In addition, with respect to our five consolidated joint ventures, McLean, Orangeburg, High Ridge, Dumont and New City, we have additional obligations to the limited partners and non-managing members and additional limitations on our activities with respect to those joint ventures. The limited partners and non-managing members of each of these joint ventures are entitled to receive annual or quarterly cash distributions payable from available cash of the joint venture, with the Company required to provide such funds if the joint venture is unable to do so. The limited partners and non-managing members of these joint ventures have the right to require the Company to repurchase all or a portion of their limited partner or non-managing member interests for cash or Class A Common Stock of the Company, at our election, at prices and on terms set forth in the partnership or operating agreements. We also have the right to redeem all or a portion of the limited partner and non-managing member interests for cash or Class A Common Stock of the Company, at our election, under certain circumstances, at prices and on terms set forth in the partnership or operating agreements. The right of these limited partners and non-managing members to put their equity interest to us could require us to expend cash, or issue Class A Common Stock of the REIT, at a time or under circumstances that are not desirable to us.
In addition, the partnership agreement or operating agreements with our partners in McLean, Orangeburg, UB High Ridge, Dumont and New City include certain restrictions on our ability to sell the property and to pay off the mortgage debt on these properties before their maturity, although refinancings are generally permitted. These restrictions could prevent us from taking advantage of favorable interest rate environments and limit our ability to best manage the debt on these properties.
Although we have historically used moderate levels of leverage, if we employed higher levels of leverage, it would result in increased risk of default on our obligations and in an increase in debt service requirements, which could adversely affect our financial condition and results of operations and our ability to pay dividends and make distributions. In addition, the viability of the interest rate hedges we use is subject to the strength of the counterparties. We have incurred, and expect to continue to incur, indebtedness to advance our objectives. The only restrictions on the amount of indebtedness we may incur are certain contractual restrictions and financial covenants contained in our unsecured revolving credit agreement. Accordingly, we could become more highly leveraged, resulting in increased risk of default on our financial obligations and in an increase in debt service requirements. This, in turn, could adversely affect our financial condition, results of operations and our ability to make distributions.
Using debt to acquire properties, whether with recourse to us generally or only with respect to a particular property, creates an opportunity for increased return on our investment, but at the same time creates risks. Our goal is to use debt to fund investments only when we believe it will enhance our risk-adjusted returns. However, we cannot be sure that our use of leverage will prove to be beneficial. Moreover, when our debt is secured by our assets, we can lose those assets through foreclosure if we do not meet our debt service obligations. Incurring substantial debt may adversely affect our business and operating results by:
● requiring us to use a substantial portion of our cash flow to pay interest and principal, which reduces the amount available for distributions, acquisitions and capital expenditures;
● making us more vulnerable to economic and industry downturns and reducing our flexibility to respond to changing business and economic conditions;
● requiring us to agree to less favorable terms, including higher interest rates, in order to incur additional debt, and otherwise limiting our ability to borrow for operations, working capital or to finance acquisitions in the future; or
● limiting our flexibility in conducting our business, which may place us at a disadvantage compared to competitors with less debt or debt with less restrictive terms.
In addition, variable rate debt exposes us to changes in interest rates. As of October 31, 2020, we had an outstanding balance of $35 million on our Unsecured Revolving Credit Facility ("Facility"). If interest rates were to rise, it would increase the amount of interest expense that we would have to pay. This exposure would increase if we seek additional variable rate financing based on pricing and other commercial and financial terms. In addition, we enter into interest rate hedging transactions, including interest rate swaps. There can be no guarantee that the future financial condition of these counterparties will enable them to fulfill their obligations under these agreements.
We may be adversely affected by changes in LIBOR reporting practices, the method by which LIBOR is determined or the use of alternative reference rates. As of October 31, 2020, we had approximately $126.6 million of mortgage notes outstanding that are indexed to the London Interbank Offered Rate (“LIBOR”). All of these mortgages are subject to interest rate swaps that convert the floating rates in the notes to a fixed interest rate. In July 2017, the United Kingdom regulator that regulates LIBOR announced its intention to phase out LIBOR rates by the end of 2021. However, the ICE Benchmark Administration, in its capacity as administrator of USD LIBOR, has announced that it intends to extend publication of USD LIBOR (other than one-week and two-month tenors) by 18 months to June 2023. Notwithstanding this possible extension, a joint statement by key regulatory authorities calls on banks to cease entering into new contracts that use USD LIBOR as a reference rate by no later than December 31, 2021. The Alternative Reference Rates Committee ("ARRC"), a steering committee comprised of large U.S. financial institutions, has proposed replacing USD-LIBOR with a new index calculated by short-term repurchase agreements - the Secured Overnight Financing Rate ("SOFR"). At this time, no consensus exists as to what rate or rates may become accepted alternatives to LIBOR, and it is impossible to predict whether and to what extent banks will continue to provide LIBOR submissions to the administrator of LIBOR, whether LIBOR rates will cease to be published or supported before or after 2021 or whether any additional reforms to LIBOR may be enacted in the United Kingdom or elsewhere. Such developments and any other legal or regulatory changes in the method by which LIBOR is determined or the transition from LIBOR to a successor benchmark may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, and changes in the rules or methodologies in LIBOR, which may discourage market participants from continuing to administer or to participate in LIBOR’s determination and, in certain situations, could result in LIBOR no longer being determined and published. If a published U.S. dollar LIBOR rate is unavailable after 2021 or June 2023, as applicable, the interest rates on our mortgage notes, which is indexed to LIBOR will be determined using various alternative methods, any of which may result in interest obligations which are more than or do not otherwise correlate over time with the payments that would have been made on such debt if U.S. dollar LIBOR was available in its current form. Further, the same costs and risks that may lead to the unavailability of U.S. dollar LIBOR may make one or more of the alternative methods impossible or impracticable to determine. Any of these proposals or consequences could have a material adverse effect on our financing costs, and as a result, our financial condition, operating results and cash flows.
We are obligated to comply with financial and other covenants in our debt that could restrict our operating activities, and failure to comply could result in defaults that accelerate the payment under our debt. Our mortgage notes payable contain customary covenants for such agreements including, among others, provisions:
● restricting our ability to assign or further encumber the properties securing the debt; and
● restricting our ability to enter into certain new leases or to amend or modify certain existing leases without obtaining consent of the lenders.
Our unsecured revolving credit agreement contains financial and other covenants which may limit our ability, without our lenders' consent, to engage in operating or financial activities that we may believe desirable. Our unsecured revolving credit facility contains, among others, provisions restricting our ability to:
● permit unsecured debt to exceed $400 million;
● create certain liens;
● increase our overall secured and unsecured borrowing beyond certain levels;
● consolidate, merge or sell all or substantially all of our assets;
● permit secured debt to be more than 40% of gross asset value, as defined in the agreement; and
● permit unsecured indebtedness, excluding preferred stock, to exceed 60% of eligible real estate asset value as defined in the agreement.
In addition, covenants included in our unsecured revolving credit facility (i) limit the amount of debt we may incur, excluding preferred stock, as a percentage of gross asset value, as defined in the agreement, to less than 60% (leverage ratio), (ii) require earnings before interest, taxes, depreciation and amortization to be at least 150% of fixed charges, (iii) require net operating income from unencumbered properties to be at least 200% of unsecured interest expenses, (iv) require not more than 15% of gross asset value and unencumbered asset pool, each term as defined in the agreement, to be attributable to the Company's pro rata share of the value of unencumbered properties owned by non-wholly owned subsidiaries or unconsolidated joint ventures, and (v) require at least 10 unencumbered properties in the unencumbered asset pool, with at least 10 properties owned by the company or a wholly-owned subsidiary.
If we were to breach any of our debt covenants and did not cure the breach within any applicable cure period, our lenders could require us to repay the debt immediately, and, if the debt is secured, could immediately begin proceedings to take possession of the property securing the loan. As a result, a default under our debt covenants could have an adverse effect on our financial condition, our results of operations, our ability to meet our obligations and the market value of our shares.
We may be required to incur additional debt to qualify as a REIT. As a REIT, we must generally make annual distributions to shareholders of at least 90% of our taxable income. We are subject to income tax on amounts of undistributed taxable income and net capital gain. In addition, we would be subject to a 4% excise tax if we fail to distribute sufficient income to meet a minimum distribution test based on our ordinary income, capital gain and aggregate undistributed income from prior years. We intend to make distributions to shareholders to comply with the Code’s distribution provisions and to avoid federal income and excise tax. We may need to borrow funds to meet our distribution requirements because:
● our income may not be matched by our related expenses at the time the income is considered received for purposes of determining taxable income; and
● non-deductible capital expenditures, creation of reserves, or debt service requirements may reduce available cash but not taxable income.
In these circumstances, we might have to borrow funds on terms we might otherwise find unfavorable and we may have to borrow funds even if our management believes the market conditions make borrowing financially unattractive. Current tax law also allows us to pay a portion of our distributions in shares instead of cash.
Our ability to grow will be limited if we cannot obtain additional capital. Our growth strategy includes the redevelopment of properties we already own and the acquisition of additional properties. We are required to distribute to our stockholders at least 90% of our taxable income each year to continue to qualify as a REIT for federal income tax purposes. Accordingly, in addition to our undistributed operating cash flow, we rely upon the availability of debt or equity capital to fund our growth, which financing may or may not be available on favorable terms or at all. The debt could include mortgage loans from third parties or the sale of debt securities. Equity capital could include our common stock or preferred stock. Additional financing, refinancing or other capital may not be available in the amounts we desire or on favorable terms.
Our access to debt or equity capital depends on a number of factors, including the general state of the capital markets, the markets perception of our growth potential, our ability to pay dividends, and our current and potential future earnings. Depending on the outcome of these factors, we could experience delay or difficulty in implementing our growth strategy on satisfactory terms, or be unable to implement this strategy.
We cannot assure you we will continue to pay dividends at historical rates. Our ability to continue to pay dividends on our shares of Class A Common stock or Common stock at historical rates or to increase our dividend rate, and our ability to pay preferred share dividends will depend on a number of factors, including, among others, the following:
● our financial condition and results of future operations;
● the performance of lease terms by tenants;
● the terms of our loan covenants;
● payment obligations on debt; and
● our ability to acquire, finance or redevelop and lease additional properties at attractive rates.
If we do not maintain or increase the dividend on our common shares, it could have an adverse effect on the market price of our shares of Class A Common Stock or Common Stock and other securities. Any preferred shares we may offer may have a fixed dividend rate that would not increase with any increases in the dividend rate of our common shares. Conversely, payment of dividends on our common shares may be subject to payment in full of the dividends on any preferred shares and payment of interest on any debt securities we may offer.
Market interest rates could adversely affect the share price of our stock and increase the cost of refinancing debt. A variety of factors may influence the price of our common and preferred equities in the public trading markets. We believe that investors generally perceive REITs as yield-driven investments and compare the annual yield from dividends by REITs with yields on various other types of financial instruments. An increase in market interest rates may lead purchasers of stock to seek a higher annual dividend rate from other investments, which could adversely affect the market price of the stock. In addition, we are subject to the risk that we will not be able to refinance existing indebtedness on our properties. We anticipate that a portion of the principal of our debt will not be repaid prior to maturity. Therefore, we likely will need to refinance at least a portion of our outstanding debt as it matures. A change in interest rates may increase the risk that we will not be able to refinance existing debt or that the terms of any refinancing will not be as favorable as the terms of the existing debt.
If principal payments due at maturity cannot be refinanced, extended or repaid with proceeds from other sources, such as new equity capital or sales of properties, our cash flow will not be sufficient to repay all maturing debt in years when significant “balloon” payments come due. As a result, our ability to retain properties or pay dividends to stockholders could be adversely affected and we may be forced to dispose of properties on unfavorable terms, which could adversely affect our business and net income.
Construction and renovation risks could adversely affect our profitability. We currently are renovating some of our properties and may in the future renovate other properties, including tenant improvements required under leases. Our renovation and related construction activities may expose us to certain risks. We may incur renovation costs for a property which exceed our original estimates due to increased costs for materials or labor or other costs that are unexpected. We also may be unable to complete renovation of a property on schedule, which could result in increased debt service expense or construction costs. Additionally, some tenants may have the right to terminate their leases if a renovation project is not completed on time. The time frame required to recoup our renovation and construction costs and to realize a return on such costs can often be significant.
We are dependent on key personnel. We depend on the services of our existing senior management to carry out our business and investment strategies. We do not have employment agreements with any of our existing senior management. As we expand, we may continue to need to recruit and retain qualified additional senior management. The loss of the services of any of our key management personnel or our inability to recruit and retain qualified personnel in the future could have an adverse effect on our business and financial results.
Our insurance coverage on our properties may be inadequate. We currently carry comprehensive insurance on all of our properties, including insurance for liability, fire, flood, earthquake, and rental loss. All of these policies contain coverage limitations. We believe these coverages are of the types and amounts customarily obtained for or by an owner of similar types of real property assets located in the areas where our properties are located. We intend to obtain similar insurance coverage on subsequently acquired properties.
The availability of insurance coverage may decrease and the prices for insurance may increase as a consequence of significant losses incurred by the insurance industry and other factors outside our control. As a result, we may be unable to renew or duplicate our current insurance coverage in adequate amounts or at reasonable prices. In addition, insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts and toxic mold, or, if offered, the expense of obtaining these types of insurance may not be justified. We therefore may cease to have insurance coverage against certain types of losses and/or there may be decreases in the limits of insurance available. If an uninsured loss or a loss in excess of our insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property, but still remain obligated for any mortgage debt or other financial obligations related to the property. We cannot guarantee that material losses in excess of insurance proceeds will not occur in the future. If any of our properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. Also, due to inflation, changes in codes and ordinances, environmental considerations and other factors, it may not be feasible to use insurance proceeds to replace a building after it has been damaged or destroyed. Further, we may be unable to collect insurance proceeds if our insurers are unable to pay or contest a claim. Events such as these could adversely affect our results of operations and our ability to meet our obligations, including distributions to our shareholders.
Properties with environmental problems may create liabilities for us. Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, as an owner of real property, we may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under our properties, as well as certain other potential costs relating to hazardous or toxic substances (including government fines and penalties and damages for injuries to persons and adjacent property). A property can be adversely affected either through direct physical contamination or as the result of hazardous or toxic substances or other contaminants that have or may have emanated from other properties. These laws may impose liability without regard to whether we knew of, or were responsible for, the presence or disposal of those substances. This liability may be imposed on us in connection with the activities of an operator of, or tenant at, the property. The cost of any required remediation, removal, fines or personal or property damages and our liability therefore could exceed the value of the property and/or our aggregate assets. In addition, the presence of those substances, or the failure to properly dispose of or remove those substances, may adversely affect our ability to sell or rent that property or to borrow using that property as collateral, which, in turn, would reduce our revenues and ability to make distributions.
Prior to the acquisition of any property and from time to time thereafter, we obtain Phase I environmental reports, and, when deemed warranted, Phase II environmental reports concerning the Company's properties. There can be no assurance, however, that (i) the discovery of environmental conditions that were previously unknown, (ii) changes in law, (iii) the conduct of tenants or neighboring property owner, or (iv) activities relating to properties in the vicinity of the Company's properties, will not expose the Company to material liability in the future. Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of our tenants, which could adversely affect our financial condition and results of operations.
We face risks relating to cybersecurity attacks that could cause loss of confidential information and other business disruptions. We rely extensively on computer systems to process transactions and manage our business, and our business is at risk from and may be impacted by cybersecurity attacks. These could include attempts to gain unauthorized access to our data and computer systems. Attacks can be both individual and/or highly organized attempts organized by very sophisticated hacking organizations. We employ a number of measures to prevent, detect and mitigate these threats, which include password encryption, frequent password change events, firewall detection systems, anti-virus software and frequent backups; however, there is no guarantee such efforts will be successful in preventing a cyber-attack. A cybersecurity attack could compromise the confidential information of our employees, tenants and vendors. A successful attack could disrupt and otherwise adversely affect our business operations and financial prospects, damage our reputation and involve significant legal and/or financial liabilities and penalties, including through lawsuits by third-parties.
The Americans with Disabilities Act of 1990 could require us to take remedial steps with respect to existing or newly acquired properties. Our existing properties, as well as properties we may acquire, as commercial facilities, are required to comply with Title III of the Americans with Disabilities Act of 1990. Investigation of a property may reveal non-compliance with this Act. The requirements of this Act, or of other federal, state or local laws or regulations, also may change in the future and restrict further renovations of our properties with respect to access for disabled persons. Future compliance with this Act may require expensive changes to the properties.
Risks Related to our Organization and Structure
We will be taxed as a regular corporation if we fail to maintain our REIT status. Since our founding in 1969, we have operated, and intend to continue to operate, in a manner that enables us to qualify as a REIT for federal income tax purposes. However, the federal income tax laws governing REITs are complex. The determination that we qualify as a REIT requires an analysis of various factual matters and circumstances that may not be completely within our control. For example, to qualify as a REIT, at least 95% of our gross income must come from specific passive sources, such as rent, that are itemized in the REIT tax laws. In addition, to qualify as a REIT, we cannot own specified amounts of debt and equity securities of some issuers. We also are required to distribute to our stockholders at least 90% of our REIT taxable income (excluding capital gains) each year. Our continued qualification as a REIT depends on our satisfaction of the asset, income, organizational, distribution and stockholder ownership requirements of the Internal Revenue Code on a continuing basis. At any time, new laws, interpretations or court decisions may change the federal tax laws or the federal tax consequences of qualification as a REIT. If we fail to qualify as a REIT in any taxable year and do not qualify for certain Internal Revenue Code relief provisions, we will be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. In addition, distributions to stockholders would not be deductible in computing our taxable income. Corporate tax liability would reduce the amount of cash available for distribution to stockholders which, in turn, would reduce the market price of our stock. Unless entitled to relief under certain Internal Revenue Code provisions, we also would be disqualified from taxation as a REIT for the four taxable years following the year during which we ceased to qualify as a REIT.
We will pay federal taxes if we do not distribute 100% of our taxable income. To the extent that we distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed income. In addition, we will incur a 4% nondeductible excise tax on the amount, if any, by which our distributions in any year are less than the sum of:
● 85% of our ordinary income for that year;
● 95% of our capital gain net income for that year; and
● 100% of our undistributed taxable income from prior years.
We have paid out, and intend to continue to pay out, our income to our stockholders in a manner intended to satisfy the distribution requirement and to avoid corporate income tax and the 4% nondeductible excise tax. Differences in timing between the recognition of income and the related cash receipts or the effect of required debt amortization payments could require us to borrow money or sell assets to pay out enough of our taxable income to satisfy the distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year.
Gain on disposition of assets deemed held for sale in the ordinary course of business is subject to 100% tax. If we sell any of our assets, the IRS may determine that the sale is a disposition of an asset held primarily for sale to customers in the ordinary course of a trade or business. Gain from this kind of sale generally will be subject to a 100% tax. Whether an asset is held "primarily for sale to customers in the ordinary course of a trade or business" depends on the particular facts and circumstances of the sale. Although we will attempt to comply with the terms of safe-harbor provisions in the Internal Revenue Code prescribing when asset sales will not be so characterized, we cannot assure you that we will be able to do so.
Our ownership limitation may restrict business combination opportunities.
To qualify as a REIT under the Internal Revenue Code, no more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals during the last half of each taxable year. To preserve our REIT qualification, our charter generally prohibits any person from owning shares of any class with a value of more than 7.5% of the value of all of our outstanding capital stock and provides that:
● a transfer that violates the limitation is void;
● shares transferred to a stockholder in excess of the ownership limitation are automatically converted, by the terms of our charter, into shares of "Excess Stock;"
● a purported transferee receives no rights to the shares that violate the limitation except the right to designate a transferee of the Excess Stock held in trust; and
● the Excess Stock will be held by us as trustee of a trust for the exclusive benefit of future transferees to whom the shares of capital stock ultimately will be transferred without violating the ownership limitation.
We may also redeem Excess Stock at a price which may be less than the price paid by a stockholder. Pursuant to authority under our charter, our board of directors has determined that the ownership limit does not apply to any shares of our stock beneficially owned by Elinor F. Urstadt (spouse of late Mr. Charles J. Urstadt, the Company’s former Chairman Emeritus), Willing L. Biddle (President & Chief Executive Officer), Catherine U. Biddle (director and spouse of Willing L. Biddle), Elinor P. Biddle (non-executive employee and daughter of Mr. & Mrs. Biddle), Dana C. Biddle (daughter of Mr. & Mrs. Biddle) and Charles D. Urstadt (son of Mr. & Mrs. Urstadt and brother of Mrs. Biddle) (together, the “Urstadt and Biddle Family Members”), but only to the extent that the aggregate value of all such stock does not exceed nineteen and ninety one-hundredth percent (19.9%) of the value of all of the company’s outstanding common stock, Class A common stock and preferred stock at any date of determination, unless at least two of the Urstadt and Biddle Family Members would separately be considered as among the five largest shareholders (which for this purpose requires ownership of at least 7.5%) based on value of shares (and determined after applying the ownership rules in Sections 542, 544 and 856(h) of the Code), in which case the maximum aggregate value of all shares of our stock beneficially owned by the Urstadt and Biddle Family Members is increased to twenty-seven percent (27.00%). Together, the Urstadt and Biddle Family Members hold approximately 67.6% of our outstanding voting interests through their beneficial ownership of our Common Stock and Class A Common Stock. Directors and executive officers of the Company, excluding any Urstadt and Biddle Family Member, hold approximately 0.2%. The ownership limitation may delay or discourage someone from taking control of us, even though a change of control might involve a premium price for our stockholders or might otherwise be in their best interest.
Certain provisions in our charter and bylaws and Maryland law may prevent or delay a change of control or limit our stockholders from receiving a premium for their shares. Among the provisions contained in our charter and bylaws and Maryland law are the following:
● Our Board of Directors is divided into three classes, with directors in each class elected for three-year staggered terms.
● Our directors may be removed only for cause upon the vote of the holders of two-thirds of the voting power of our common equity securities.
● Our stockholders may call a special meeting of stockholders only if the holders of a majority of the voting power of our common equity securities request such a meeting in writing.
● Any consolidation, merger, share exchange or transfer of all or substantially all of our assets must be approved by (i) a majority of our directors who are currently in office or who are approved or recommended by a majority of our directors who are currently in office (the "Continuing Directors") and (ii) the affirmative vote of holders of our stock representing a majority of all votes entitled to be cast on the matter.
● Certain provisions of our charter may only be amended by (i) a vote of a majority of our Continuing Directors and (ii) the affirmative vote of holders of our stock representing a majority of all votes entitled to be cast on the matter.
● The number of directors may be increased or decreased by a vote of our Board of Directors.
In addition, we are subject to various provisions of Maryland law that impose restrictions and require affected persons to follow specified procedures with respect to certain takeover offers and business combinations, including combinations with persons who own 10% or more of our outstanding shares. These provisions of Maryland law could delay, defer or prevent a transaction or a change of control that our stockholders might deem to be in their best interests. As permitted by Maryland law, our charter provides that the “business combination” provisions of Maryland law described above do not apply to acquisitions of shares by the late Charles J. Urstadt, and our Board of Directors has determined that the provisions do not apply to Willing L. Biddle, or to Willing L. Biddle’s or the late Charles J. Urstadt’s spouses and descendants and any of their affiliates. Consequently, unless such exemptions are amended or repealed, we may in the future enter into business combinations or other transactions with Mr. Willing L. Biddle or any of Mr. Willing L. Biddle’s or the late Mr. Charles J. Urstadt’s respective affiliates without complying with the requirements of the Maryland business combination statute. Furthermore, shares acquired in a control share acquisition have no voting rights, except to the extent approved by the affirmative vote of two-thirds of all votes entitled to be cast on the matter, excluding all interested shares. Under Maryland law, "control shares" are those which, when aggregated with any other shares held by the acquiror, allow the acquiror to exercise voting power within specified ranges. The control share provisions of Maryland law also could delay, defer or prevent a transaction or a change of control which our stockholders might deem to be in their best interests. As permitted by Maryland law, our bylaws provide that the "control shares" provisions of Maryland law described above will not apply to acquisitions of our stock. As permitted by Maryland law, our Board of Directors has exclusive power to amend the bylaws and the board could elect to make acquisitions of our stock subject to the “control shares” provisions of Maryland law as to any or all of our stockholders. In view of the common equity securities controlled by Elinor F. Urstadt, for herself and in her capacity as the executor of Charles J. Urstadt’s estate, and Willing L. Biddle, either may control a sufficient percentage of the voting power of our common equity securities to effectively block approval of any proposal which requires a vote of our stockholders.
Our stockholder rights plan could deter a change of control. We have adopted a stockholder rights plan. This plan may deter a person or a group from acquiring more than 10% of the combined voting power of our outstanding shares of Common Stock and Class A Common Stock because, after (i) the person or group acquires more than 10% of the total combined voting power of our outstanding Common Stock and Class A Common Stock, or (ii) the commencement of a tender offer or exchange offer by any person (other than us, any one of our wholly owned subsidiaries or any of our employee benefit plans, or certain exempt persons), if, upon consummation of the tender offer or exchange offer, the person or group would beneficially own 30% or more of the combined voting power of our outstanding Common Stock and Class A Common Stock, number of outstanding Common Stock, or the number of outstanding Class A Common Stock, and upon satisfaction of certain other conditions, all other stockholders will have the right to purchase Common Stock and Class A Common Stock of the Company having a value equal to two times the exercise price of the right. This would substantially reduce the value of the stock owned by the acquiring person. Our board of directors can prevent the plan from operating by approving the transaction and redeeming the rights. This gives our board of directors significant power to approve or disapprove of the efforts of a person or group to acquire a large interest in us. The rights plan exempts acquisitions of Common Stock and Class A Common Stock by Willing L. Biddle, as well as members of Willing L. Biddle’s and the late Charles J. Urstadt’s families and certain of their affiliates.
The concentration of our stock ownership or voting power limits our stockholders’ ability to influence corporate matters. Each share of our Common Stock entitles the holder to one vote. Each share of our Class A Common Stock entitles the holder to 1/20 of one vote per share. Each share of Common Stock and Class A Common Stock have identical rights with respect to dividends except that each share of Class A Common Stock will receive not less than 110% of the regular quarterly dividends paid on each share of Common Stock. As of October 31, 2020, Elinor F. Urstadt, for herself and in her capacity as the executor of Charles J. Urstadt’s estate and Willing L. Biddle, our President and Chief Executive Officer, beneficially owned approximately 19.9% of the value of our outstanding Common Stock and Class A Common Stock, which together represented approximately 67.2% of the voting power of our outstanding common stock. They therefore have significant influence over management and affairs and over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or our assets, for the foreseeable future. This concentrated control limits or restricts our stockholders’ ability to influence corporate matters.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments.
None.

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ITEM 2. PROPERTIES
Item 2. Properties.
Properties
The following table sets forth information concerning each property at October 31, 2020. Except as otherwise noted, all properties are 100% owned by the Company.
Retail Properties:
Year Renovated
Year Completed
Year Acquired
Gross Leasable Sq Feet
Acres
Number of Tenants
% Leased
Principal Tenant
Stamford, CT
374,000
13.6
92%
Stop & Shop
Stratford, CT
279,000
29.0
99%
Stop & Shop, BJ's
Scarsdale, NY (1)
242,000
14.0
96%
ShopRite
New Milford, CT
235,000
20.0
99%
Walmart
Riverhead, NY (2)
198,000
20.7
100%
Walmart
Danbury, CT
194,000
19.3
96%
Christmas Tree Shops
Carmel, NY (3)
189,000
22.0
88%
Tops Markets
Brewster, NY
176,000
23.0
73%
Acme Supermarket
Carmel, NY
145,000
19.0
93%
ShopRite
Ossining, NY
137,000
11.4
100%
Stop & Shop
Somers, NY
135,000
26.0
96%
Home Goods
Midland Park, NJ
130,000
7.9
89%
Kings Supermarket
Pompton Lakes, NJ
125,000
12.0
46%
Planet Fitness
Yorktown, NY
121,000
16.4
83%
Staples
New Providence, NJ
109,000
7.8
100%
Acme Markets
Newark, NJ
108,000
8.4
100%
Seabra Supermarket
Wayne, NJ
105,000
9.0
94%
Whole Foods Market
Newington, NH
102,000
14.3
81%
JoAnns Fabrics/Savers
Darien, CT
96,000
9.5
99%
Stop & Shop
Emerson, NJ
93,000
7.0
80%
ShopRite
Stamford, CT (7)
1963 & 1968
87,000
6.7
98%
Trader Joes
New Milford, CT
81,000
7.6
92%
Big Y
Somers, NY
80,000
10.8
99%
CVS
Montvale, NJ (2)
77,000
9.9
58%
The Fresh Market
Orange, CT
77,000
10.0
92%
Trader Joes/TJ Maxx
Kinnelon, NJ
76,000
7.5
100%
Marshalls
Orangeburg, NY (4)
74,000
10.6
85%
CVS
Dumont, NJ (8)
74,000
5.5
97%
Stop & Shop
Stamford, CT
74,000
9.7
98%
ShopRite (Grade A)
New Milford, CT
72,000
8.8
51%
Staples
Eastchester, NY
70,000
4.0
100%
DeCicco's Market
Boonton, NJ
63,000
5.4
100%
Acme Markets
Ridgefield, CT
62,000
3.0
92%
Keller Williams
Fairfield, CT
62,000
7.0
100%
Marshalls
Bloomfield, NJ
59,000
5.1
96%
Superfresh Supermarket
Yonkers, NY (6)
58,000
5.0
95%
Acme Markets
Cos Cob, CT
48,000
1.1
90%
CVS
Briarcliff Manor, NY
47,000
1.0
96%
CVS
Wyckoff, NJ
43,000
5.2
96%
Walgreens
Westport, CT
40,000
3.0
27%
Julian's Pizza Kitchen & Bar
Old Greenwich, CT
39,000
1.4
92%
Kings Supermarket
Rye, NY
Various
39,000
1.0
100%
A&S Deli
Derby, CT
39,000
5.3
94%
Aldi Supermarket
Passaic, NJ
37,000
2.9
73%
Dollar Tree/Family Dollar
Danbury, CT
33,000
2.7
91%
Buffalo Wild Wings
Bethel, CT
31,000
4.0
55%
Rite Aid
Ossining, NY
29,000
4.0
88%
Westchester Community College
Katonah, NY
Various
28,000
1.7
59%
Squires
Stamford, CT
27,000
1.1
92%
Federal Express
Waldwick, NJ
27,000
1.8
95%
United States Post Office
Yonkers, NY
27,000
2.7
100%
AutoZone
Harrison, NY
26,000
1.6
93%
Key Foods
Pelham, NY
25,000
1.0
100%
Manor Market
Eastchester, NY
24,000
2.1
91%
CVS
Ridgefield, CT
23,000
2.7
97%
Asian Fusion Restaurant
Waldwick, NJ
20,000
1.8
100%
Rite Aid
Somers, NY
19,000
4.9
78%
Putnam County Savings Bank
Cos Cob, CT
15,000
0.9
73%
AT&T Wireless
Riverhead, NY (2)
13,000
2.7
100%
Applebee's
Various (5)
Various
11,000
3.0
100%
Restaurants
Greenwich, CT
10,000
0.8
100%
Wells Fargo Bank
Old Greenwich, CT (7)
8,000
0.8
100%
CVS
Fort Lee, NJ
7,000
0.4
100%
H-Mart
Office Properties & Banks Branches
Greenwich, CT
Various
Various
58,000
2.8
100%
UBP
Bronxville & Yonkers
2008 & 2009
19,000
0.7
100%
Peoples Bank , Chase Bank
Chester, NJ
9,000
2.0
-
0%
Vacant
Stamford, CT (7)
4,000
0.5
100%
Chase Bank
New City, NY (9)
3,000
1.0
100%
Putnam County Savings Bank
5,267,000
495.5
(1) Two wholly owned subsidiaries of the Company own an 11.7917% economic ownership interest in the property. The Company accounts for this joint venture under the equity method of accounting and does not consolidate the entity owning the property.
(2) A wholly owned subsidiary of the Company has a 50% tenant in common interest in the property. The Company accounts for this joint venture under the equity method of accounting and does not consolidate its interest in the property.
(3) A wholly owned subsidiary of the Company has a 66.67% tenant in common interest in the property. The Company accounts for this joint venture under the equity method of accounting and does not consolidate its interest in the property.
(4) A wholly owned subsidiary of the Company is the sole managing member of a limited liability company that owns this property (44.6% ownership interest).
(5) The Company owns four separate free standing properties, two of which are occupied 100% by a Friendly's Restaurant and two by other restaurants. The properties are located in New York, New Jersey and Connecticut.
(6) A wholly owned subsidiary of the Company is the sole managing member of a limited liability company that owns this property (53.0% ownership interest).
(7) A wholly owned subsidiary of the Company is the sole managing member of a limited liability company that owns this property (16.3% ownership interest).
(8) A wholly owned subsidiary of the Company is the sole managing member of a limited liability company that owns this property (36.4% ownership interest).
(9) A wholly owned subsidiary of the Company is the sole managing member of a limited liability company that owns this property (84.3% ownership interest).
Lease Expirations - Total Portfolio
The following table sets forth a summary schedule of the annual lease expirations for the consolidated properties for leases in place as of October 31, 2020, assuming that none of the tenants exercise renewal or cancellation options, if any, at or prior to the scheduled expirations.
Year of Expiration
Number of
Leases Expiring
Square Footage
of Expiring Leases
Minimum Base Rents
Percentage of Total
Annual Base Rent
that is Represented
by the Expiring Leases
2021 (1)
466,252
$
12,757,000
%
688,156
16,548,000
%
565,243
14,992,000
%
318,546
9,280,000
%
489,521
12,019,000
%
219,433
6,054,000
%
169,597
4,402,000
%
251,249
5,772,000
%
234,495
5,500,000
%
155,955
3,360,000
%
Thereafter
525,130
8,835,000
%
4,083,577
$
99,519,000
%
(1) Represents lease expirations from November 1, 2020 to October 31, 2021 and month-to-month leases.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
In the ordinary course of business, the Company is involved in legal proceedings. There are no material legal proceedings presently pending against the Company.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not Applicable
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for the Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
Market Information
Shares of Common Stock and Class A Common Stock of the Company are traded on the New York Stock Exchange under the symbols "UBP" and "UBA," respectively.
Holders
At December 31, 2020 (latest date practicable), there were 519 shareholders of record of the Company's Common Stock and 585 shareholders of record of the Class A Common Stock.
Although the Company intends to continue to declare quarterly dividends on its Common shares and Class A Common shares, no assurances can be made as to the amounts of any future dividends. The declaration of any future dividends by the Company is within the discretion of the Board of Directors and will be dependent upon, among other things, the earnings, financial condition and capital requirements of the Company, as well as any other factors deemed relevant by the Board of Directors. Two principal factors in determining the amounts of dividends are (i) the requirement of the Internal Revenue Code that a real estate investment trust distribute to shareholders at least 90% of its real estate investment trust taxable income, and (ii) the amount of the Company's available cash. For more information please see Item 7 included in this Annual Report on Form 10-K.
Each share of Common Stock entitles the holder to one vote. Each share of Class A Common Stock entitles the holder to 1/20 of one vote per share. Each share of Common Stock and Class A Common Stock have identical rights with respect to dividends except that each share of Class A Common Stock will receive not less than 110% of the regular quarterly dividends paid on each share of Common Stock.
Purchases of Equity Securities By the Issuer and Affiliated Purchasers
The Board of Directors of the Company has approved a share repurchase program ("Program") for the repurchase of up to 2,000,000 shares, in the aggregate, of Common Stock and Class A Common Stock in open market transactions. For the three and twelve month periods ending October 31, 2020, the Company did not repurchase shares of any class of stock under the Program. The Company has repurchased 195,413 shares of Class A Common Stock since the inception the Program.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data.
(In thousands, except per share data)
Year Ended October 31,
Balance Sheet Data:
Total Assets
$
1,010,179
$
1,072,304
$
1,008,233
$
996,713
$
931,324
Revolving Credit Line
$
35,000
$
-
$
28,595
$
4,000
$
8,000
Mortgage Notes Payable and Other Loans
$
299,434
$
306,606
$
293,801
$
297,071
$
273,016
Preferred Stock Called For Redemption
$
-
$
75,000
$
-
$
-
$
-
Operating Data:
Total Revenues
$
126,745
$
136,882
$
134,722
$
123,191
$
115,814
Total Expenses and payments to noncontrolling interests
$
100,604
$
101,630
$
99,690
$
91,404
$
84,359
Net Income
$
26,070
$
41,613
$
42,183
$
55,432
$
34,605
Per Share Data:
Net Income from Continuing Operations - Basic:
Class A Common Stock
$
0.23
$
0.59
$
0.68
$
0.92
$
0.57
Common Stock
$
0.20
$
0.53
$
0.61
$
0.82
$
0.50
Net Income from Continuing Operations - Diluted:
Class A Common Stock
$
0.22
$
0.58
$
0.67
$
0.90
$
0.56
Common Stock
$
0.20
$
0.52
$
0.60
$
0.80
$
0.49
Cash Dividends Paid on:
Class A Common Stock
$
0.77
$
1.10
$
1.08
$
1.06
$
1.04
Common Stock
$
0.69
$
0.98
$
0.96
$
0.94
$
0.92
Other Data:
Net Cash Flow Provided by (Used in):
Operating Activities
$
61,883
$
72,317
$
71,584
$
62,995
$
62,081
Investing Activities
$
(18,820
)
$
(14,739
)
$
(20,540
)
$
18,761
$
(82,072
)
Financing Activities
$
(96,347
)
$
26,216
$
(49,433
)
$
(80,353
)
$
20,639
Funds from Operations (1)
$
45,172
$
51,955
$
55,171
$
43,203
$
43,603
(1) The Company has adopted the definition of Funds from Operations (FFO) suggested by the National Association of Real Estate Investment Trusts (NAREIT) and defines FFO as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of properties plus real estate related depreciation and amortization and after adjustments for unconsolidated joint ventures. For a reconciliation of net income and FFO, see Management's Discussion and Analysis of Financial Condition and Results of Operations on page 14. FFO does not represent cash flows from operating activities in accordance with generally accepted accounting principles and should not be considered an alternative to net income as an indicator of the Company's operating performance. The Company considers FFO a meaningful, additional measure of operating performance because it primarily excludes the assumption that the value of its real estate assets diminishes predictably over time and industry analysts have accepted it as a performance measure. FFO is presented to assist investors in analyzing the performance of the Company. It is helpful as it excludes various items included in net income that are not indicative of the Company's operating performance. However, comparison of the Company's presentation of FFO, using the NAREIT definition, to similarly titled measures for other REITs may not necessarily be meaningful due to possible differences in the application of the NAREIT definition used by such REITs. For a further discussion of FFO, see Management's Discussion and Analysis of Financial Condition and Results of Operations on page 14.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements of the Company and the notes thereto included elsewhere in this report, the “Special Note Regarding Forward-Looking Statements” in Part I and “Item 1A. Risk Factors.”
Executive Summary
Overview
We are a fully integrated, self-administered real estate company that has elected to be a Real Estate Investment Trust ("REIT") for federal income tax purposes, engaged in the acquisition, ownership and management of commercial real estate, primarily neighborhood and community shopping centers, anchored by supermarkets, pharmacy/drug-stores and wholesale clubs, with a concentration in the metropolitan tri-state area outside of the City of New York. Other real estate assets include office properties, single tenant retail or restaurant properties and office/retail mixed-use properties. Our major tenants include supermarket chains and other retailers who sell basic necessities.
At October 31, 2020, we owned or had equity interests in 81 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 90.4% was leased (92.9% at October 31, 2019). Of the properties owned by unconsolidated joint ventures, approximately 91.1% was leased (96.1% at October 31, 2019).
We have paid quarterly dividends to our shareholders continuously since our founding in 1969.
Impact of COVID-19
The following discussion is intended to provide stockholders with certain information regarding the impacts of the COVID-19 pandemic on our business and management’s efforts to respond to those impacts. Unless otherwise specified, the statistical and other information regarding our property portfolio and tenants are estimates based on information available to us as of December 10, 2020. As a result of the rapid development, fluidity and uncertainty surrounding this situation, we expect that such statistical and other information will change going forward, potentially significantly, and may not be indicative of the actual impact of the COVID-19 pandemic on our business, operations, cash flows and financial condition for fiscal 2021 and future periods.
The spread of COVID-19 is having a significant impact on the global economy, the U.S. economy, the economies of the local markets throughout the northeast region in which our properties are located, and the broader financial markets. Nearly every industry has been impacted directly or indirectly, and the U.S. retail market has come under severe pressure due to numerous factors, including preventive measures taken by local, state and federal authorities to alleviate the public health crisis, such as mandatory business closures, quarantines, restrictions on travel and “shelter-in-place” or “stay-at-home” orders. During the early part of the pandemic, these containment measures, as implemented by the tri-state area of Connecticut, New York and New Jersey, generally permitted businesses designated as “essential” to remain open, although limiting the operations of different categories of our tenants to varying degrees. Since early summer, many (but not all) of these restrictions have been gradually lifted as the COVID-19 situation in the tri-state area significantly improved, with most businesses now permitted to open at reduced capacity and under other limitations intended to control the spread of COVID-19. The situation, however, has been evolving as we head deeper into the winter months.
Moreover, not all tenants have been impacted in the same way or to the same degree by the pandemic and the measures adopted to control the spread of COVID-19. For example, grocery stores, pharmacies and wholesale clubs have been permitted to remain fully open throughout the pandemic and have generally performed well given their focus on food and necessities. Many restaurants have also been considered essential, although social distancing and group gathering limitations have generally prevented or limited dine-in activity, forcing them to evaluate alternate means of operations, such as outdoor dining, delivery and pick-up. The large majority of our restaurant tenants are fast casual, rather than full-service restaurants. For a number of our tenants that operate businesses involving high contact interactions with their customers, such as spas and salons, the negative impact of COVID-19 on their business has been more severe and the recovery more difficult. Gyms and fitness tenants have experienced varying results. Dry cleaners have also suffered as a result of many workers continuing to work from home. The following additional information reflects the impact of COVID-19 on our portfolio and tenants:
•
All 74 of our shopping centers or free-standing, net-leased retail bank or restaurant properties are open and operating, with 99.1% of our total tenants open and operating based on Annualized Base Rent (“ABR”).
•
All of our shopping centers include necessity-based tenants, with approximately 71.4% of our tenants (based on ABR) designated as “essential businesses” during the early stay-at-home period of the pandemic in the tri-state area or otherwise permitted to operate through curbside pick-up and other modified operating procedures in accordance with state guidelines. These essential businesses are 99.0% open based on ABR.
•
Approximately 84% of our GLA is located in properties anchored by grocery stores, pharmacies and wholesale clubs, 6% of our GLA is located in outdoor retail shopping centers adjacent to regional malls and 8% of our GLA is located in outdoor neighborhood convenience retail, with the remaining 2% of our GLA consisting of six suburban office buildings located in Greenwich, Connecticut and Bronxville, New York, three retail bank branches and one childcare center. All six suburban office buildings are open with some restrictions on capacity based on state mandates and all of the retail bank branches are open.
•
As of December 10, 2020, we have received payment of approximately 86.0%, 83.3% and 89.8% of lease income, consisting of contractual base rent (leases in place without consideration of any deferral or abatement agreements), common area maintenance reimbursement and real estate tax reimbursement billed, respectively, for April 2020 through October 2020, the third quarter (May through July) of fiscal 2020 and the fourth quarter (August through October) of fiscal 2020, not including the application of any security deposits.
•
Similar to other retail landlords across the United States, we received a number of requests for rent relief from tenants, with most requests received during the early days of the pandemic when stay-at-home orders were in place and many businesses were required to close, but we have continued to receive a smaller number of new requests even after businesses have re-opened, and in some cases, follow-on requests from tenants to whom we had already provided temporarily rent relief. We have been evaluating each request on a case-by-case basis to determine the best course of action, recognizing that in many cases some type of concession may be appropriate and beneficial to our long-term interests. In evaluating these requests, we have been considering many factors, including the tenant’s financial strength, the tenant’s operating history, potential co-tenancy impacts, the tenant’s contribution to the shopping center in which it operates, our assessment of the tenant’s long-term viability, the difficult or ease with which the tenant could be replaced, and other factors. Although each negotiation has been specific to that tenant, most of these concessions have been in the form of deferred rent for some portion of rents due in April through December 2020, or longer, to be paid back over the later part of the lease, preferably within a period of one year or less. In addition, some of these concessions have been in the form of rent abatements for some portion of tenant rents due in April through December or longer.
•
As of October 31, 2020, we had received 396 rent relief requests from our approximately 900 tenants in our consolidated portfolio. Subsequently, approximately 118 of the 396 tenants withdrew their request for rent relief or paid their rent in full. These remaining requests represent 35.0% of our ABR. As of October 31, 2020, we had completed lease amendments with approximately 234 of the tenants that had requested rent relief, representing deferments of approximately $3.4 million in lease income ($854,000 of our fourth quarter lease income) or approximately 3.5% of our ABR and abatements of approximately $1.4 million in lease income ($934,000 of our fourth quarter lease income) or approximately 1.4% of ABR. The weighted average payback period for the $3.4 million of deferred rents is 8.5 months.
Each reporting period we must make estimates as to the collectability of our tenants’ accounts receivable related to base rent, straight-line rent, expense reimbursements and other revenues. Management analyzes accounts receivable by considering tenant creditworthiness, current economic trends, including the impact of the COVID-19 pandemic on tenants’ businesses, and changes in tenants’ payment patterns when evaluating the adequacy of the allowance for doubtful accounts. As a result of this analysis, we have increased our allowance for doubtful accounts by $426,000 and $3.9 million in the three and twelve months ended October 31, 2020, respectively. For the year ended October 31, 2020, this increase of $3.9 million represented approximately 4.0% of ABR. Management has every intention of collecting as much of our billed rents, to the extent feasible, regardless of the requirement under Generally Accepted Accounting Principles ("GAAP") to reserve for uncollectable accounts. In addition, the GAAP accounting standard governing leases requires, among other things, that if a specific tenant’s future lease payments as contracted are not probable of collection, revenue recognition for that tenant must be converted to cash-basis accounting and be limited to the lesser of the amount billed or collected from that tenant, and any straight-line rental receivables would need to be reversed in the period that the collectability assessment is changed to not probable. As a result of analyzing our entire tenant base, in the fiscal year ended October 31, 2020, we determined that 64 tenants’ future lease payments were no longer probable of collection (7.1% of our approximate 900 tenants) and, as a result of this assessment, in the three and twelve months ended October 31, 2020 we reversed previously billed lease income in the amount of $551,000 and $2.3 million, respectively. For the year ended October 31, 2020, this $2.3 million represented approximately 2.4% of ABR. In addition, as a result of this assessment, we reversed $179,000 and $1.1 million in the three and twelve months ended October 31, 2020, respectively, of accrued straight-line rent receivables related to these 64 tenants. For the year ended October 31, 2020, this $1.1 million represented approximately 1.1% of ABR. Both of these reversals, totaling $730,000 and $3.4 million in the three and twelve months ended October 31, 2020, respectively, result in a direct reduction of lease income on our consolidated income statement.
Each reporting period management assesses whether there are any indicators that the value of its real estate investments may be impaired and has concluded that none of its investment properties are impaired at October 31, 2020. The COVID-19 pandemic has however, significantly impacted many of the retail sectors in which our tenants operate, and if the effects of the pandemic are prolonged, it could have a significant adverse impact on the underlying industries of many of our tenants. We will continue to monitor the economic, financial, and social conditions resulting from the COVID-19 pandemic and will assess our real estate asset portfolio for any impairment indicators as required under GAAP. If we determine that any of our real estate assets are impaired, we would be required to take impairment charges and such amounts could be material. See Footnote 1 to the Notes to the Company’s Consolidated Financial Statements for additional discussion regarding impairment charges.
Actions Taken in Response to COVID-19
We have taken a number of proactive measures to maintain the strength of our business and manage the impact of COVID-19 on our operations and liquidity, including the following:
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Along with our tenants and the communities we together serve, the health and safety of our employees is our top priority. We have adapted our operations to protect employees, including by implementing a work-from-home policy in March 2020, which worked seamlessly with no disruption in our service to tenants and other business partners. On May 20, 2020, in response to a change in the State of Connecticut's mandates, we re-opened our office at less than 50% capacity, with employees encouraged to continue working from home when feasible consistent with business needs. We continue to closely monitor the recommendations and mandates of federal, state and local governments and health authorities to ensure the safety of our own employees as well as our properties.
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We are in regular communication with our tenants, providing assistance in identifying local, state and federal resources that may be available to support their businesses and employees during the pandemic, including stimulus funds that may be available under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the "CARES Act”). We compiled a robust set of tenant materials explaining these and other programs, which have been posted to the tenant portal on our website, disseminated by e-mail to all of our tenants through the tenant portal of our general ledger system and communicated directly by telephone through our leasing agents. Each of our tenants was also assigned a leasing agent to whom the tenant can turn with questions and concerns during these uncertain times.
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In addition, we launched a program designating dedicated parking spots for curbside pick-up at our shopping centers for use by all tenants and their customers, assisted restaurant tenants in securing municipal approvals for outdoor seating, and are assisting tenants in many other ways to improve their business prospects.
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To enhance our liquidity position and maintain financial flexibility, we borrowed $35 million under our Unsecured Revolving Credit Facility ("Facility") during March and April 2020 to fund capital improvements and for general corporate purposes.
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At October 31, 2020, we had $40.8 million in cash and cash equivalents on our consolidated balance sheet, and an additional $64 million available under our Facility (excluding the $50 million accordion feature).
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We do not have any unsecured debt maturing until August 2021. Additionally, we do not have any secured debt maturing until January 2022. All maturing secured debt is generally below a 55% loan-to-value ratio, and we believe we will be able to refinance that debt. Construction related to three large re-tenanting projects, two for grocery stores and one for a national junior anchor, was completed during the second quarter and all three tenants are open and operating as of the date of this report. We do not have any other material re-tenanting projects ongoing.
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We have taken proactive measures to manage costs, including reducing, where possible, our common area maintenance spending. We have one ongoing construction project at one of our properties, with approximately $4.3 million remaining to complete the project. Otherwise, only minimal construction is underway. Further, we expect that the only material capital expenditures at our properties in the near term will be tenant improvements and/or other leasing costs associated with existing and new leases.
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Although we continue to seek opportunities to acquire high-quality neighborhood and community shopping centers, we have temporarily redirected the executives in our acquisition department to help with lease negotiations.
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On March 27, 2020, the President of the United States signed into law the CARES Act. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. The Company has availed itself of some of the above benefits afforded by the CARES Act (other than what are commonly referred to as PPP loans).
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On December 27, 2020, a second COVID-19 federal stimulus package was enacted as part of the Consolidated Appropriations Act, 2021 (the "COVID Supplemental Appropriations Act"). Among other things, the COVID Supplemental Appropriations Act will enhance various support features of the previously enacted CARES Act, increase unemployment payments and extend the time frame for unemployment benefits, and re-implement a modified version of the Paycheck Protection Program for small businesses and eligible non-profits. As with the CARES Act, the Company has disseminated information about the COVID Supplemental Appropriations Act to our tenants through our website and general ledger system.
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On December 15, 2020, our Board of Directors declared a quarterly dividend of $0.125 per Common share and $0.14 per Class A Common share to be paid on January 15, 2021 to holders of record on January 5, 2021, reduced approximately 50% from pre-pandemic dividend levels of $0.25 per Common share and $0.28 per Class A Common share. The announced dividend level will preserve approximately $5.5 million of cash in the first quarter of fiscal 2021 when compared to our pre-pandemic dividend levels. Given the reduction of operating cash flow and taxable income caused by tenants’ nonpayment of rent during the period from April through December 2020, the overall uncertainty of the COVID-19 pandemic’s near and potential long-term impact on our business, and the importance of preserving our liquidity position, among other considerations, the Board determined after careful consideration of all information available to them at the time that reducing the quarterly dividend, when compared with the pre-pandemic level, is in the best interests of stockholders. Based on the Company’s updated taxable income projections for the fiscal year ending 2021, we will most likely need to pay dividends over the remainder of the fiscal year at higher levels in order to meet the distribution requirements necessary for it to continue qualifying as a REIT for U.S. federal income tax requirements. The Board may determine that the increased level would be more appropriate towards the latter part of fiscal 2021 once, hopefully, a vaccine has become widely disseminated, the pandemic has begun to wane and the economy and our properties have returned to some normalcy. We cannot, however, be certain as to the level or timing of any such dividend increase. The Board declared the full contractual dividend on both our Series H and Series K Cumulative Preferred Stock, payable on January 29, 2021, to holders of record on January 15, 2021. Going forward, our Board of Directors will continue to evaluate our dividend policy.
We derive revenues primarily from rents and reimbursement payments received from tenants under leases at our properties. Our operating results therefore depend materially on the ability of our tenants to make required rental payments. The extent to which the COVID-19 pandemic impacts the businesses of our tenants, and therefore our operations and financial condition, will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the COVID-19 pandemic, the actions taken to contain the COVID-19 pandemic or mitigate its impact, and the direct and indirect economic effects of the COVID-19 pandemic and such mitigation measures, among others. See “Risk Factors.”
Strategy, Challenges and Outlook
We have a conservative capital structure, which includes permanent equity sources of Common Stock, Class A Common Stock and two series of perpetual preferred stock, which are only redeemable at our option. In addition, we have mortgage debt secured by some of our properties. As mentioned earlier, we do not have any secured debt maturing until January of 2022.
Key elements of our growth strategies and operating policies are to:
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maintain our focus on community and neighborhood shopping centers, anchored principally by regional supermarkets, pharmacy chains or wholesale clubs, which we believe can provide a more stable revenue flow even during difficult economic times because of the focus on food and other types of staple goods;
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acquire quality neighborhood and community shopping centers in the northeastern part of the United States with a concentration on properties in the metropolitan tri-state area outside of the City of New York, and unlock further value in these properties with selective enhancements to both the property and tenant mix, as well as improvements to management and leasing fundamentals, with hopes to grow our assets through acquisitions subject to the availability of acquisitions that meet our investment parameters;
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selectively dispose of underperforming properties and re-deploy the proceeds into potentially higher performing properties that meet our acquisition criteria;
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invest in our properties for the long term through regular maintenance, periodic renovations and capital improvements, enhancing their attractiveness to tenants and customers (e.g. curbside pick-up), as well as increasing their value;
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leverage opportunities to increase GLA at existing properties, through development of pad sites and reconfiguring of existing square footage, to meet the needs of existing or new tenants;
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proactively manage our leasing strategy by aggressively marketing available GLA, renewing existing leases with strong tenants, anticipating tenant weakness when necessary by pre-leasing their spaces and replacing below-market-rent leases with increased market rents, with an eye towards securing leases that include regular or fixed contractual increases to minimum rents;
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improve and refine the quality of our tenant mix at our shopping centers;
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maintain strong working relationships with our tenants, particularly our anchor tenants;
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maintain a conservative capital structure with low debt levels; and
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control property operating and administrative costs.
We believe our strategy of focusing on community and neighborhood shopping centers, anchored principally by regional supermarkets, pharmacy chains or wholesale clubs, is being validated during the COVID-19 pandemic. We believe the nature of our properties makes them less susceptible to economic downturns than other retail properties whose anchor tenants do not supply basic necessities. During normal conditions, we believe that consumers generally prefer to purchase food and other staple goods and services in person, and even during the COVID-19 pandemic our supermarkets, pharmacies and wholesale clubs have been posting strong in-person sales. Moreover, most of our grocery stores have also implemented or expanded curbside pick-up or partnered with delivery services to cater to the needs of their customers during this pandemic.
We recognize, however, that the pandemic may have accelerated a movement towards e-commerce that may be challenging for weaker tenants that lack an omni-channel sales or micro-fulfillment strategy. We launched a program designating dedicated parking spots for curbside pick-up and are assisting tenants in many other ways to help them quickly adapt to these changing circumstances. Many tenants have adapted to the new business environment through use of our curbside pick-up program and early industry data seems to indicate that micro-fulfillment from retailers with physical locations may be a new competitive alternative to e-commerce. It is too early to know which tenants will or will not be successful in making any changes that may be necessary. It is also too early to determine whether these changes in consumer behavior are temporary or reflect long-term changes.
Moreover, due to the current disruptions in the economy and our marketplace as a result of the COVID-19 pandemic and resulting changes to the short-term and possibly even long-term landscape for brick-and-mortar retail, we anticipate that it will be more difficult to actively pursue and achieve certain elements of our growth strategy. For example, it will likely be more difficult for us to acquire or sell properties in fiscal 2021 (or possibly beyond), as it may be difficult to value a property correctly given changing circumstances. Additionally, parties may be unwilling to enter into transactions during such uncertainty. We may also be less willing to enter into developments or capital improvements that require large amounts of upfront capital if the expected return is perceived as delayed or uncertain. We choose to borrow $35 million under our Facility during March and April 2020 to enhance our liquidity position and maintain financial flexibility, which is an approach consistent with many of our peers. While we believe we still maintain a conservative capital structure and low debt levels, particularly relative to our peers, our profile may evolve based on changing needs.
We expect that our rent collections will continue to be below our tenants’ contractual rent obligations at least for as long as governmental orders require non-essential businesses to restrict business operations and individuals to adhere to social distancing policies, or potentially until a medical solution is achieved for COVID-19. We will continue to accrue rental revenue during the deferral period, except for tenants for which revenue recognition was converted to cash basis accounting in accordance with ASC Topic 842. However, we anticipate that some tenants eventually will be unable to pay amounts due, and we will incur losses against our rent receivables. The extent and timing of the recognition of such losses will depend on future developments, which are highly uncertain and cannot be predicted. April through November 2020 rental income collections and rent relief requests to date may not be indicative of collections or requests in any future period.
We continue to have active discussions with existing and potential new tenants for new and renewed leases. However, the uncertainty relating to the COVID-19 pandemic has slowed the pace of leasing activity and could result in higher vacancy rates than we otherwise would have experienced, a longer amount of time to fill vacancies and potentially lower rental rates.
As a REIT, we are susceptible to changes in interest rates, the lending environment, the availability of capital markets and the general economy. The impacts of any changes are difficult to predict, particularly during the course of the current COVID-19 pandemic.
Highlights of Fiscal 2020; Recent Developments
Set forth below are highlights of our recent property acquisitions, other investments, property dispositions and financings:
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On November 1, 2019, we redeemed all of the outstanding shares of our Series G Cumulative Preferred Stock for $25 per share with proceeds from our sale of our Series K Cumulative Preferred Stock in October 2019. The total redemption amount was $75 million.
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In December 2019, we closed on the sale of our property located in Bernardsville, NJ to an unrelated third party for a sale price of $2.7 million, pursuant to a contract we had entered into in August 2019, as that property no longer met our investment objectives. In accordance with GAAP, the property met all the criteria to be classified as held for sale in the fourth quarter of fiscal 2019, and, accordingly, we recorded a loss on property held for sale of $434,000, which loss was included in continuing operations in the consolidated statement of income for the year ended October 31, 2019. The amount of the loss represented the net carrying amount of the property over the fair value of the asset less estimated cost to sell. Upon completion of the sale in December 2019, we realized an additional loss on sale of property of $86,000, which loss is included in continuing operations in the consolidated statement of income for the year ended October 31, 2020. This loss has been added back to our Funds from Operations (“FFO”) as discussed below in this Item 7.
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In January 2020, we sold for $1.3 million a retail property located in Carmel, NY, as that property no longer met our investment objectives. In conjunction with the sale, we realized a loss on sale of property in the amount of $242,000, which loss is included in continuing operations in the consolidated statement of income for the year ended October 31, 2020. This loss has been added back to FFO as discussed below in this Item 7.
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In January 2020, we redeemed 2,250 units of UB New City I, LLC from the noncontrolling member. The total cash price paid for the redemption was $49,500. As a result of the redemption, our ownership percentage of New City increased to 79.7% from 78.2%.
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In January 2020, we redeemed 23,829 units of UB High Ridge, LLC from the noncontrolling member. The total cash price paid for the redemption was $560,000. As a result of the redemption, our ownership percentage of High Ridge increased to 14.2% from 13.3%.
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In March and April 2020, we borrowed an aggregate $35 million on our Facility to fund capital improvements and for general corporate purposes.
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In June 2020, we redeemed 6,750 units of UB New City I, LLC from the noncontrolling member. The total cash price paid for the redemption was $148,500. As a result of the redemption, our ownership percentage of New City increased to 84.3% from 79.7%.
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In December 2020 (fiscal 2021), we closed on the sale of a 29,000 square foot portion of our property, which was recently converted into a condominium, located in Pompton Lakes, NJ to Lidl, a national grocery store company, for a sale price of $2.8 million. We had entered into a purchase and sale agreement in January 2020, subject to various conditions. In accordance with GAAP, that portion of the property met all the criteria to be classified as held for sale in September of fiscal 2020, and accordingly, we recorded a loss on property held for sale of $5.7 million, which loss is included in continuing operations in the consolidated statement of income for the year ended October 31, 2020. The amount of the loss represented the net carrying amount of that portion of the property over the fair value of that portion of the property, less the estimated cost to sell. This loss has been added back to our FFO as discussed below in this Item 7. Lidl will operate a grocery store on its portion of the property. The 29,000 square foot portion of the property sold was approximately half of a vacant space that was previously leased and occupied by A&P. A&P went bankrupt several years ago and the space had remained vacant. In considering many options for the use of this space, we determined that the best course of action for the Company to maximize the value of the space was to sell this portion of the property to a leading grocery store company and to re-develop the balance of the 63,000 square foot space into 4,000 square feet of additional retail and a 50,000 square foot self-storage facility, which will be managed by Extra Space Storage. The square footage of the self-storage facility reflects the intended vertical expansion of our retained space. We believe that once completed and leased, the self-storage facility will add approximately $7 million in value to the shopping center over and above our development costs.
Leasing
Rollovers
For the fiscal year 2020, we signed leases for a total of 405,000 square feet of predominantly retail space in our consolidated portfolio. New leases for vacant spaces were signed for 63,000 square feet at an average rental decrease of 10.8% on a cash basis, excluding 5,400 square feet of new leases for which there was no prior rent history available. Renewals for 342,000 square feet of space previously occupied were signed at an average rental increase of 1.5% on a cash basis.
Tenant improvements and leasing commissions averaged $29 per square foot for new leases and $0.45 per square foot for renewals for the fiscal year ended 2020. The average term for new leases was 4 years and the average term for renewal leases was 4 years.
The rental increases/decreases associated with new and renewal leases generally include all leases signed in arms-length transactions reflecting market leverage between landlords and tenants during the period. The comparison between average rent for expiring leases and new leases is determined by including minimum rent paid on the expiring lease and minimum rent to be paid on the new lease in the first year. In some instances, management exercises judgment as to how to most effectively reflect the comparability of spaces reported in this calculation. The change in rental income on comparable space leases is impacted by numerous factors including current market rates, location, individual tenant creditworthiness, use of space, market conditions when the expiring lease was signed, the age of the expiring lease, capital investment made in the space and the specific lease structure. Tenant improvements include the total dollars committed for the improvement (fit-out) of a space as it relates to a specific lease but may also include base building costs (i.e. expansion, escalators or new entrances) that are required to make the space leasable. Incentives (if applicable) include amounts paid to tenants as an inducement to sign a lease that do not represent building improvements.
The leases signed in 2020 generally become effective over the following one to two years. There is risk that some new tenants will not ultimately take possession of their space and that tenants for both new and renewal leases may not pay all of their contractual rent due to operating, financing or other reasons.
Traditionally, we have seen overall positive increases in rental income for renewal leases. With the uncertainty of the COVID-19 pandemic and the many unknown factors that we, our tenants and the commercial real estate industry face from the pandemic, it is difficult to predict leasing trends for new leases into the near future.
Significant Events with Impacts on Leasing
In March 2020, we delivered two spaces to Dollar Tree and Family Dollar, to replace a grocery tenant that had previously occupied a 30,600 square foot space at our Passaic, NJ property. We signed new leases with these tenants in May 2019 for a large portion of the original 30,600 square foot space. Both of these stores are now open.
In April 2020, we delivered a 26,800 square foot junior anchor space at the Orange Meadows Shopping Center to the TJX Companies, Inc., which will operate a TJ Maxx store that is expected to open in March of 2021. The space was delivered pursuant to a lease we signed in January 2019.
In January 2020, we delivered a 40,000 square foot grocery-store space at the Valley Ridge Shopping Center to Whole Foods Market, which opened in September 2020. The space was delivered pursuant to a lease we signed in April 2018.
In December 2019, we delivered a 30,000 square foot grocery-store space at one of our Eastchester, NY properties to DeCicco’s Supermarket, which opened in October 2020. The space was delivered pursuant to a lease we signed in August 2017.
In 2017, Toys R’ Us and Babies R’ Us (“Toys”) filed a voluntary petition under chapter 11 of title 11 of the United States Bankruptcy Code, and subsequently liquidated the company. Toys ground leased 65,700 square feet of space at our Danbury, CT shopping center. In August 2018, this lease was purchased out of bankruptcy from Toys and assumed by a new owner. The base lease rate for the 65,700 square foot space was and remains at $0 for the duration of the lease, and we did not have any other leases with Toys, so our cash flow was not impacted by the bankruptcy of Toys. As of the date of this report, the new owner of this ground lease has informed us that they are selling the lease to a national retailer, however the transaction has not closed yet.
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.
Liquidity and Capital Resources
Overview
At October 31, 2020, we had cash and cash equivalents of $40.8 million (see below), compared to $94.1 million at October 31, 2019. Our sources of liquidity and capital resources include operating cash flows from real estate operations, proceeds from bank borrowings and long-term mortgage debt, capital financings and sales of real estate investments. Substantially all of our revenues are derived from rents paid under existing leases, which means that our operating cash flow depends on the ability of our tenants to make rental payments. As a result of state mandates forcing many non-essential businesses to close or restricting store operations to help prevent the spread of COVID-19, many of our tenants are suffering. Please see the "Impact of COVID-19" section earlier in this Item 7 for more information. In fiscal 2020, 2019 and 2018, net cash flow provided by operations amounted to $61.9 million, $72.3 million and $71.6 million, respectively.
On November 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 on October 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, cash distributions to certain limited partners and non-managing members of our consolidated joint ventures, and regular dividends paid to our Common and Class A Common stockholders. Cash dividends paid on Common and Class A Common stock for fiscal years ended October 31, 2020, 2019 and 2018 totaled $30.0 million, $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. As a result of the COVID-19 pandemic, we have made a number of concessions in the form of deferred rents and rent abatements, as more extensively discussed under the “Impact of Covid-19” section earlier in this Item 7. To the extent rent deferral arrangements remain collectible, it will reduce operating cash flow in the near term but most likely increase operating cash flow in future periods. This process is ongoing.
On December 15, 2020, our Board of Directors declared a quarterly dividend of $0.125 per Common share and $0.14 per Class A Common share to be paid on January 15, 2021 to holders of record on January 5, 2021, reduced approximately 50% from pre-pandemic levels. The announced dividend level will preserve approximately $5.5 million of cash in the first quarter of fiscal 2021 when compared to our pre-pandemic dividend levels. The Board declared the full contractual dividend on both our Series H and Series K Cumulative Preferred Stock, payable on January 29, 2021 to holders of record on January 15, 2021. Going forward, our Board of Directors will continue to evaluate our dividend policy and adjust the levels accordingly based on their assessment of how the pandemic is affecting the cash flow of the Company and the level of distributions required to allow the Company to continue to qualify as a REIT for Federal Income tax purposes.
Our long-term liquidity requirements consist primarily of obligations under our long-term debt, dividends paid to our preferred stockholders, capital expenditures and capital required for acquisitions. In addition, the limited partners and non-managing members of our five consolidated joint venture entities, McLean Plaza Associates, LLC, UB Orangeburg, LLC, UB High Ridge, LLC, UB Dumont I, LLC and UB New City I, LLC, have the right to require us to repurchase all or a portion of their limited partner or non-managing member interests at prices and on terms as set forth in the governing agreements. See Note 5 to the financial statements included in Item 8 of this Report on Annual Report on Form 10-K. Historically, we have financed the foregoing requirements through operating cash flow, borrowings under our Facility, debt refinancings, new debt, equity offerings and other capital market transactions, and/or the disposition of under-performing assets, with a focus on keeping our debt level low. We expect to continue doing so in the future. We cannot assure you, however, that these sources will always be available to us when needed, or on the terms we desire.
Capital Expenditures
We invest in our existing properties and regularly make capital expenditures in the ordinary course of business to maintain our properties. We believe that such expenditures enhance the competitiveness of our properties. For the fiscal year ended October 31, 2020, we paid approximately $22.3 million for property improvements, tenant improvements and leasing commission costs ($1.9 million representing property improvements, $11.3 million in property improvements related to our Stratford project (see paragraph below) and approximately $9.1 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 $7.6 million for anticipated capital improvements, tenant improvements/allowances and leasing costs related to new tenant leases and property improvements during fiscal 2021. This amount is inclusive of commitments for the Stratford, CT development discussed directly below. These expenditures are expected to be funded from operating cash flows, bank borrowings or other financing sources. As a result of the ongoing COVID-19 pandemic, we have suspended all significant capital improvement projects other than the completion of our Stratford, CT project discussed below.
We are currently in the process of developing 3.4 acres of recently-acquired land adjacent to a shopping center we own in Stratford, CT. We completed one pad-site building totaling approximately 3,200 square feet, which is 75% leased to Chipotle, and a self-storage facility of approximately 131,000 square feet, which will be managed for us by Extra Space Storage. In addition, we will be building a second pad site, which is leased to a national restaurant company but construction has not begun while we complete a billboard relocation on the site. We anticipate the total development cost will be approximately $18.2 million (excluding land acquisition cost), of which we have already funded $13.4 million as of October 31, 2020 and plan on funding the balance with available cash, borrowings on our Facility or other sources, as more fully described earlier in this Item 7.
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 $299.4 million primarily consist of $1.7 million in variable rate debt with an interest rate of 5.0% as of October 31, 2020 and $297.7 million in fixed-rate mortgage loan and unsecured note indebtedness with a weighted average interest rate of 4.1% at October 31, 2020. The mortgages are secured by 24 properties with a net book value of $540 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 are not 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. At October 31, 2020, we had $35 million outstanding on our Facility.
We currently maintain a ratio of total debt to total assets below 33% and a fixed charge coverage ratio of over 3.28 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 51 properties in our consolidated portfolio that are not encumbered by secured mortgage debt. At October 31, 2020, we had borrowing capacity of $64 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, Bank of Montreal and Wells Fargo N.A. with the ability under certain conditions to additionally increase the capacity to $150 million, subject to lender approval. The maturity date of the Facility is August 23, 2021. 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 of October 31, 2020, we had $35 million in 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 at October 31, 2020. We are currently in the process of working on an extension of our revolver, which we hope to complete in our first or second quarter of fiscal 2021.
During the year ended October 31, 2020, we borrowed $35 million on our Facility to fund capital improvements to our properties and for general corporate purposes.
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 2020 and 2019.
Net Cash Flows from Operating Activities
Variance from fiscal 2019 to 2020:
The decrease in operating cash flows when compared with the corresponding prior period was primarily related to an increase in our tenant accounts receivable, or a reduction of lease income related to the impact of the COVID-19 pandemic and increase in other assets offset by an increase in accounts payable and accrued expenses.
Variance 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 ended October 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.
Net Cash Flows from Investing Activities
Variance from 2019 to 2020:
The increase in net cash flows used in investing activities in the year ended October 31, 2020 when compared to the corresponding prior period was the result of one of our unconsolidated joint ventures selling a property in fiscal 2019 and distributing our share of the sales proceeds to us in the amount of $6.0 million. The increase was further accentuated by our investing an additional $3.7 million in our properties in fiscal 2020 when compared with fiscal 2019. In addition, we generated $5.7 million less in net proceeds from the purchase and sale of marketable securities in fiscal 2020 when compared to the corresponding period of fiscal 2019. This net increase was offset by our purchasing one property in fiscal 2019 for $11.8 million. We did not purchase any properties in fiscal 2020.
Variance from 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.
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 2020: (Total $35.2 million)
● Proceeds from revolving credit line borrowings in the amount of $35.0 million.
Fiscal 2019: (Total $178.9 million)
● Proceeds from revolving credit line borrowings in the amount of $25.5 million.
● Proceeds from mortgage financing of $47 million.
● Proceeds from the issuance of a new series of preferred stock totaling $106.2 million.
Fiscal 2018: (Total $43.8 million)
● Proceeds from revolving credit line borrowings in the amount of $33.6 million.
● Proceeds from mortgage financing of $10 million.
Cash used:
Fiscal 2020: (Total $131.5 million)
● Dividends to shareholders in the amount of $44.2 million.
● Repayment of mortgage notes payable in the amount of $7.1 million.
● Acquisitions of noncontrolling interests in the amount of $3.9 million.
● Redemption of preferred stock series in the amount of $75.0 million.
Fiscal 2019: (Total $152.7 million)
● Dividends to shareholders in the amount of $55.4 million.
● Repayment of mortgage notes payable in the amount of $33.4 million.
● Repayment of revolving credit line borrowings in the amount of $54.1 million.
● Additional acquisitions and distributions to noncontrolling interests of $9.5 million.
Fiscal 2018: (Total $87.3 million)
● Dividends to shareholders in the amount of $53.9 million.
● Repayment of mortgage notes payable in the amount of $24.1 million.
● Repayment of revolving credit line borrowings in the amount of $9 million.
Results of Operations
Fiscal 2020 vs. Fiscal 2019
The following information summarizes our results of operations for the years ended October 31, 2020 and 2019 (amounts in thousands):
Year Ended October 31,
Change Attributable to:
Revenues
Increase
(Decrease)
%
Change
Property
Acquisitions/Sales
Properties Held in
Both Periods (Note 1)
Base rents
$
99,387
$
100,459
$
(1,072
)
(1.1
)%
$
(351
)
$
(721
)
Recoveries from tenants
28,889
32,784
(3,895
)
(11.9
)%
(9
)
(3,886
)
Uncollectable amounts in lease income
(3,916
)
(956
)
2,960
309.6
%
-
2,960
ASC Topic 842 cash basis lease income reversal
(3,419
)
-
(3,419
)
(100.0
)%
(9
)
(3,410
)
Lease termination
219.0
%
-
Other income
5,099
4,374
16.6
%
(241
)
Operating Expenses
Property operating
19,542
22,151
(2,609
)
(11.8
)%
(264
)
(2,345
)
Property taxes
23,464
23,363
0.4
%
(74
)
Depreciation and amortization
29,187
27,930
1,257
4.5
%
(99
)
1,356
General and administrative
10,643
9,405
1,238
13.2
%
n/a
n/a
Non-Operating Income/Expense
Interest expense
13,508
14,102
(594
)
(4.2
)%
(897
)
Interest, dividends, and other investment income
(5
)
(1.2
)%
n/a
n/a
Note 1 - Properties held in both periods includes only properties owned for the entire periods of 2020 and 2019 and for interest expense the amount also includes parent company interest expense. All other properties are included in the property acquisition/sales column. There are no properties excluded from the analysis.
Base rents decreased by 1.1% to $99.4 million for the fiscal year ended October 31, 2020 as compared with $100.5 million in the comparable period of 2019. The change in base rent and the changes in other income statement line items analyzed in the table above were attributable to:
Property Acquisitions and Properties Sold:
In fiscal 2019, we purchased one property totaling 177,000 square feet, and sold one property totaling 10,100 square feet. In fiscal 2020, we sold two properties totaling 18,100 square feet. These properties accounted for all of the revenue and expense changes attributable to property acquisitions and sales in the year ended October 31, 2020 when compared with fiscal 2019.
Properties Held in Both Periods:
Revenues
Base Rent
The net decrease in base rents for the fiscal year ended October 31, 2020, when compared to the corresponding prior period was predominantly caused by a decrease in base rent revenue at seven properties related to tenant vacancies. The most significant of these vacancies were the vacating of TJ Maxx at our New Milford, CT property, the vacancy of two tenants at our Bethel, CT property, the vacancy of three tenants at our Cos Cob, CT property, the vacancy of two tenants at our Orange, CT property, the vacancy of five tenants at our Katonah, NY property and the vacancy caused by the bankruptcy of Modell's at our Ridgeway shopping center in Stamford, CT. In addition, base rent decreased as a result of providing a rent reduction for the grocery store tenant at our Bloomfield, NJ property. This net decrease was partially offset by an increase in base rents at most properties related to normal base rent increases provided for in our leases, new leasing at some properties and base rent revenue related to two new grocery store leases and one junior anchor lease for which rental recognition began in fiscal 2020. The new grocery tenants are Whole Foods at our Valley Ridge shopping center in Wayne, NJ and DeCicco's at our Eastchester, NY property. The new junior anchor tenant is TJX at our property located in Orange, CT.
In fiscal 2020, we leased or renewed approximately 405,000 square feet (or approximately 8.9% of total GLA). At October 31, 2020, the Company’s consolidated properties were 90.4% leased (92.9% leased at October 31, 2019).
Tenant Recoveries
For the fiscal year ended October 31, 2020, recoveries from tenants (which represent reimbursements from tenants for operating expenses and property taxes) decreased by a net $3.9 million when compared with the corresponding prior period. The decrease was the result of having lower common area maintenance expenses in fiscal 2020 when compared with fiscal 2019. This decrease was caused by significantly lower snow removal costs in the winter of 2020 when compared with the winter of 2019. In addition, throughout our third and fourth quarters of fiscal 2020, in response to the COVID-19 pandemic we made a conscious effort to reduce common area maintenance costs at our shopping centers to help reduce the overall tenant reimbursement rents charged to our tenants. In addition, the reduction was caused by a negative variance relating to reconciliation of the accruals for real estate tax recoveries billed to tenants in the first half of fiscal 2019 and 2020. The decrease was further accentuated by accruing a lower percentage of recovery at most of our properties as a result of our assessment that many of our smaller local tenants will have difficulty paying the full amounts required under their leases as a result of the COVID-19 pandemic. This assessment was based on the fact that many smaller tenants' businesses were deemed non-essential by the states where they operate and were forced to close for a portion of fiscal 2020. These net decreases were offset by increased tax assessments at our other properties held in both periods, which increases the amount of tax due and the amount billed back to tenants for those billings.
Uncollectable Amounts in Lease Income
In the fiscal year ended October 31, 2020, uncollectable amounts in lease income increased by $3.0 million when compared to fiscal 2019. This increase was predominantly the result of our assessment of the collectability of existing non-credit small shop tenants' receivables given the on-going COVID-19 pandemic. Many non-credit small shop tenants' businesses were deemed non-essential by the states where they operate and were forced to close for a portion of fiscal 2020. Our assessment was based on the premise that as we emerge from the COVID-19 pandemic, our non-credit small shop tenants will need to use most of their resources to re-establish their business footing and any existing accounts receivable attributable to these tenants would most likely be uncollectable.
ASC Topic 842 Cash Basis Lease Income Reversals
The Company adopted ASC Topic 842 "Leases" at the beginning of fiscal 2020. ASC Topic 842 requires amongst other things, that if the collectability of a specific tenant’s future lease payments as contracted are not probable of collection, revenue recognition for that tenant must be converted to cash-basis accounting and be limited to the lesser of the amount billed or collected from that tenant and in addition, any straight-line rental receivables would need to be reversed in the period that the collectability assessment changed to not probable. As a result of analyzing our entire tenant base, we determined that as a result of the COVID-19 pandemic 64 tenants' future lease payments were no longer probable of collection (7.1% of our approximate 900 tenants), and as a result of this assessment in fiscal 2020, we reversed $2.3 million of previously billed lease income that was uncollected, which represented 2.4% of our ABR. In addition, as a result of this assessment, we reversed $1.1 million of accrued straight-line rent receivables related to these 64 tenants, which equated to an additional 1.1% of our ABR. These reductions are a direct reduction of lease income in fiscal 2020.
Expenses
Property Operating
In the fiscal year ended October 31, 2020, property operating expenses decreased by $2.3 million as a result of a large decrease in snow removal costs and parking lot repairs in fiscal 2020 when compared with fiscal 2019 and an overall reduction of other common area maintenance expenses as a result of COVID-19 pandemic as discussed above.
Property Taxes
In the fiscal year ended October 31, 2020, property tax expense was relatively unchanged when compared with the corresponding prior period. In the first half of fiscal 2020, one of our properties received a large real estate tax expense reduction as a result of a successful tax reduction proceeding. This decrease was offset by increased tax assessments at our other properties held in both periods, which increased the amount of tax due.
Interest
In fiscal year ended October 31, 2020, interest expense decreased by $897,000 when compared with the corresponding prior period, as a result of a reduction in interest expense related to our Facility. In October 2019, we used a portion of the proceeds from a new series of preferred stock to repay all amounts outstanding on our Facility. In addition, the decrease was caused by our repayment of a mortgage secured by our Rye, NY properties at the end of fiscal 2019 with available cash, which reduced interest expense by $183,000.
Depreciation and Amortization
In the fiscal year ended October 31, 2020, depreciation and amortization increased by $1.4 million when compared with the prior period, primarily as a result of a write-off of tenant improvements related to tenants that vacated our Danbury, CT, Newington, NH, Derby, CT and Stamford, CT properties in fiscal 2020 and increased depreciation for tenant improvements for large re-tenanting projects at our Orange, CT and Wayne, NJ properties.
General and Administrative Expenses
In the fiscal year ended October 31, 2020, general and administrative expenses increased by $1.2 million when compared with the corresponding prior period, primarily as a result of an increase of $1.4 million in restricted stock compensation expense in the second quarter of fiscal 2020 for the accelerated vesting of the grant value of restricted stock for our former Chairman Emeritus when he passed away in the second quarter of fiscal 2020.
Fiscal 2019 vs. Fiscal 2018
The following information summarizes our results of operations for the years ended October 31, 2019 and 2018 (amounts in thousands):
Year Ended October 31,
Change Attributable to:
Revenues
Increase
(Decrease)
%
Change
Property
Acquisitions/Sales
Properties Held in
Both Periods (Note 2)
Base rents
$
100,459
$
96,943
$
3,516
3.6
%
$
2,816
$
Recoveries from tenants
32,784
31,144
1,640
5.3
%
1,091
Uncollectable amounts in lease income
(956
)
(857
)
(99
)
11.6
%
-
(99
)
Lease termination
3,795
(3,574
)
(94.2
)%
-
(3,574
)
Other income
4,374
3,697
18.3
%
Operating Expenses
Property operating
22,151
22,235
(84
)
(0.4
)%
(1,074
)
Property taxes
23,363
21,167
2,196
10.4
%
1,376
Depreciation and amortization
27,930
28,327
(397
)
(1.4
)%
(809
)
General and administrative
9,405
9,223
2.0
%
n/a
n/a
Non-Operating Income/Expense
Interest expense
14,102
13,678
3.1
%
Interest, dividends, and other investment income
15.1
%
n/a
n/a
Note 2 - Properties held in both periods includes only properties owned for the entire periods of 2019 and 2018 and for interest expense the amount also includes parent company interest expense. All other properties are included in the property acquisition/sales column. There are no properties excluded from the analysis.
Base rents increased by 3.6% to $100.5 million in fiscal 2019, as compared with $96.9 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). At October 31, 2019, the Company’s consolidated properties were 92.9% leased (93.2% leased at October 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 in Stamford, 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
In April 2018, we reached agreement with the grocery tenant at our Newark, NJ property to terminate its 63,000 square foot lease in exchange for a one-time $3.7 million lease termination payment, which we received and recorded as revenue in the second quarter of fiscal 2018. Also in March 2018, we leased that same space to a new grocery store operator who took possession in May 2018. While the rental rate on the new lease is 30% less than the rental rate on the terminated lease, we hope that part of this decreased rental rate will be recaptured with the receipt of percentage rent in subsequent years as the store matures and its sales increase. The new lease required no tenant improvement allowance.
Expenses
Property Operating
In the fiscal year ended October 31, 2019, property operating expenses decreased by $1.1 million when compared with the corresponding prior period, predominantly as a result of a decrease in snow removal costs at our properties owned in both periods.
Property Taxes
In the fiscal year ended October 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 in Stamford, CT.
Interest
In the fiscal year ended October 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 ended October 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 ended October 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 ended October 31, 2019 when compared with the corresponding prior period.
Funds from Operations
We consider Funds from Operations (“FFO”) to be an additional measure of our operating performance. We report FFO in addition to net income applicable to common stockholders and net cash provided by operating activities. Management has adopted the definition suggested by The National Association of Real Estate Investment Trusts (“NAREIT”) and defines FFO to mean net income (computed in accordance with GAAP) excluding gains or losses from sales of property, plus real estate-related depreciation and amortization and after adjustments for unconsolidated joint ventures.
Management considers FFO a meaningful, additional measure of operating performance because it primarily excludes the assumption that the value of our real estate assets diminishes predictably over time and industry analysts have accepted it as a performance measure. FFO is presented to assist investors in analyzing our performance. It is helpful as it excludes various items included in net income that are not indicative of our operating performance, such as gains (or losses) from sales of property and depreciation and amortization. However, FFO:
● does not represent cash flows from operating activities in accordance with GAAP (which, unlike FFO, generally reflects all cash effects of transactions and other events in the determination of net income); and
● should not be considered an alternative to net income as an indication of our performance.
FFO as defined by us may not be comparable to similarly titled items reported by other real estate investment trusts due to possible differences in the application of the NAREIT definition used by such REITs. The table below provides a reconciliation of net income applicable to Common and Class A Common Stockholders in accordance with GAAP to FFO for each of the three years in the period ended October 31, 2020, 2019 and 2018 (amounts in thousands):
Year Ended October 31,
Net Income Applicable to Common and Class A Common Stockholders
$
8,533
$
22,128
$
25,217
Real property depreciation
22,662
22,668
22,139
Amortization of tenant improvements and allowances
4,694
3,521
4,039
Amortization of deferred leasing costs
1,737
1,652
2,057
Depreciation and amortization on unconsolidated joint ventures
1,499
1,505
1,719
(Gain)/loss on sale of properties
6,047
-
Loss on sale of property of unconsolidated joint venture
-
-
Funds from Operations Applicable to Common and Class A Common Stockholders
$
45,172
$
51,955
$
55,171
FFO amounted to $45.2 million in fiscal 2020 compared to $52.0 million in fiscal 2019 and $55.2 million in fiscal 2018.
The net decrease in FFO in fiscal 2020 when compared with fiscal 2019 was predominantly attributable, among other things, to:
Decreases:
•
A net decrease in base rents for the fiscal year ended October 31, 2020, when compared to the corresponding prior period caused by a decrease in base rent revenue at seven properties related to tenant vacancies offset by an increase in base rents at most properties related to normal base rent increases provided for in our leases, new leasing at some properties and base rent revenue related to two new grocery store leases and one junior anchor lease for which rental recognition began in fiscal 2020. Please see operating expense variance explanations earlier in this Item 7.
•
An increase in uncollectable amounts in lease income of $3.0 million. This increase was the result of our assessment of the collectability of existing non-credit small shop tenants' receivables given the ongoing COVID-19 pandemic. Many non-credit, small shop tenants' businesses were deemed non-essential by the states where they operate and were forced to close for a portion of our fiscal year, until states loosened their restrictions and allowed almost all businesses to re-open, although some with operational restrictions. Our assessment was based on the premise that as we emerge from the COVID-19 pandemic, our non-credit, small shop tenants will need to use most of their resources to re-establish their business footing, and any existing accounts receivable attributable to those tenants would most likely be uncollectable.
•
An increase in the write-off of lease income for tenants in our portfolio whose future lease payments were deemed to be not probable of collection, requiring us under GAAP to convert revenue recognition for those tenants to cash-basis accounting. This caused a write off of previously billed but unpaid lease income of $2.3 million and the reversal of accrued straight-line rents receivable for these aforementioned tenants of $1.1 million.
•
A decrease in variable lease income (cost recovery income) related to the COVID-19 pandemic. In fiscal 2020, we lowered our percentage of recovery at most of our properties as a result of our assessment that many of our non-credit, small shop tenants will have difficulty paying the amounts required under their leases as a result of the COVID 19 pandemic. This assessment was based on the fact that many smaller tenants' businesses were deemed non-essential by the states where they operate and temporarily forced to close.
•
A decrease in variable lease income (cost recovery income) related to an over-accrual adjustment in recoveries from tenants for real estate taxes in the first quarter of fiscal 2020 versus an under-accrual adjustment in recoveries from tenants for real estate taxes in the first quarter of fiscal 2019, which when combined, resulted in a negative variance in the first nine months of fiscal 2020 when compared to the same period of fiscal 2019.
•
A net increase in general and administrative expenses of $1.4 million, predominantly related to an increase in compensation and benefits expense for the accelerated vesting of restricted stock grant value upon the death of our former Chairman Emeritus in the second quarter of fiscal 2020.
•
A net increase in preferred stock dividends of $861,000 as a result of issuing a new series of preferred stock in fiscal 2019 and redeeming an existing series. The new series has a principal value $35 million higher than the redeemed series which increased preferred stock dividends by $1.5 million, which included one month of dividends in fiscal 2019 and a full year in fiscal 2020. The new series has a lower coupon rate of 5.875% versus 6.75% on the redeemed series, which reduced preferred stock dividends by $656,000 in fiscal 2020 when compared with fiscal 2019.
Increases:
•
A $484,000 increase in lease termination income in fiscal 2020 when compared with the corresponding prior period.
•
A $594,000 decrease in interest expense as a result of fully repaying our Facility in the fourth quarter of fiscal 2019 with proceeds from our new series of preferred stock.
•
A $446,000 decrease in payments to noncontrolling interests as a result of redeeming units valued at $768,000 in fiscal 2020 and a reduction in the amount of distributions to noncontrolling interests for distributions based on the reduced dividend on our Class A Common stock.
•
In fiscal 2019 we issued notice of redemption of our Series G preferred stock and realized preferred stock redemption charges of $2.4 million.
The net decrease in FFO in fiscal 2019 when compared with fiscal 2018 was predominantly attributable, among other things, to:
Decreases:
•
The receipt of a $3.7 million one-time lease termination payment in the second quarter of fiscal 2018 from a grocery store tenant that wanted to terminate its lease early.
•
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 our Passaic property.
•
An increase in interest expense as a result of having a greater amount outstanding on our Facility in the fiscal year ended 2019 when compared with the corresponding prior periods.
•
$2.4 million in preferred stock redemption charges relating to our calling our Series G preferred stock for redemption on October 1, 2019.
•
An increase of $539,000 in preferred stock dividends as a result of having a new series of preferred stock outstanding for the month of October 2019. We redeemed our Series G preferred stock on November 1, 2019.
Increases:
•
$403,000 gain on sale of marketable securities in fiscal 2019 when we sold all of our marketable securities.
•
Additional net income generated from properties acquired in fiscal 2018 and fiscal 2019.
•
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.
Off-Balance Sheet Arrangements
We have six off-balance sheet investments in real property through unconsolidated joint ventures:
● a 66.67% equity interest in the Putnam Plaza Shopping Center,
● an 11.792% equity interest in the Midway Shopping Center L.P.,
● a 50% equity interest in the Chestnut Ridge Shopping Center,
● a 50% equity interest in the Gateway Plaza shopping center and the Riverhead Applebee’s Plaza, and
● a 20% 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 Description
Location
Original Balance
At October 31, 2020
Fixed Interest Rate Per Annum
Maturity Date
Midway Shopping Center
Scarsdale, NY
$
32,000
$
25,700
4.80
%
Dec-2027
Putnam Plaza Shopping Center
Carmel, NY
$
18,900
$
18,300
4.81
%
Oct-2028
Gateway Plaza
Riverhead, NY
$
14,000
$
11,600
4.18
%
Feb-2024
Applebee's Plaza
Riverhead, NY
$
2,300
$
1,800
3.38
%
Aug-2026
Contractual Obligations
Our contractual payment obligations as of October 31, 2020 were as follows (amounts in thousands):
Payments Due by Period
Total
Thereafter
Mortgage notes payable and other loans
$
299,434
$
7,252
$
55,986
$
6,233
$
25,000
$
86,295
$
118,668
Interest on mortgage notes payable
66,652
13,043
11,775
10,281
8,832
6,252
16,469
Capital improvements to properties*
7,649
7,649
-
-
-
-
-
Total Contractual Obligations
$
373,735
$
27,944
$
67,761
$
16,514
$
33,832
$
92,547
$
135,137
*Includes committed tenant-related obligations based on executed leases as of October 31, 2020.
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.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to interest rate risk primarily through our borrowing activities, which include fixed-rate mortgage debt and, in limited circumstances, variable rate debt. As of October 31, 2020, we had total mortgage debt and other notes payable of $299.4 million, $297.7 million for which interest was based on fixed-rate, inclusive of variable rate mortgages that have been swapped to fixed interest rates using interest rate swap derivatives contracts, and $1.7 million of which interest was based on a variable rate (see below).
Our fixed-rate debt presents inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and our future financing requirements.
To reduce our exposure to interest rate risk on variable-rate debt, we use interest rate swap agreements, for example, to convert some of our variable-rate debt to fixed-rate debt. As of October 31, 2020, we had eight open derivative financial instruments. These interest rate swaps are cross collateralized with mortgages on properties in Ossining, NY, Yonkers, NY, Orangeburg, NY, Brewster, NY, Stamford, CT, Greenwich CT, Darien, CT and Dumont, NJ. The Ossining swap expires in August 2024, the Yonkers swap expires in November 2024, the Orangeburg swap expires in October 2024, the Brewster swap expires in July 2029, the Stamford swap expires in July 2027, the Greenwich swaps expire in October 2026, the Darien swap expires in April 2029 and the Dumont, NJ swap expires in August 2028, in each case concurrent with the maturity of the respective mortgages. All of the aforementioned derivatives contracts are adjusted to fair market value at each reporting period. We have concluded that all of the aforementioned derivatives contracts are effective cash flow hedges as defined in ASC Topic 815. We are required to evaluate the effectiveness at inception and at each reporting date. As a result of the aforementioned derivatives contracts being effective cash flow hedges all changes in fair market value are recorded directly to stockholders equity in accumulated comprehensive income and have no effect on our earnings.
Under existing guidance, the publication of the LIBOR reference rate was to be discontinued beginning on or around the end of 2021. However, the ICE Benchmark Administration, in its capacity as administrator of USD LIBOR, has announced that it intends to extend publication of USD LIBOR (other than one-week and two-month tenors) by 18 months to June 2023. Notwithstanding this possible extension, a joint statement by key regulatory authorities calls on banks to cease entering into new contracts that use USD LIBOR as a reference rate by no later than December 31, 2021. We have good working relationships with each of the lenders to our notes, who are also the counterparties to our swap contracts. We understand from our lenders and counterparties that their goal is to have the replacement reference rate under the notes match the replacement rates in the swaps. If this were achieved, we believe there would be no effect on our financial position or results of operations. However, because this will be the first time any of the reference rates for our promissory notes or our swap contracts will cease to be published, we cannot be sure how the replacement rate event will conclude. Until we have more clarity from our lenders and counterparties, we cannot be certain of the impact on the Company. See “We may be adversely affected by changes in LIBOR reporting practices, the method in which LIBOR is determined or the use of alternative reference rates” under Item 1A of our annual report on Form 10-K for more information.
At October 31, 2020, we had $35.0 million outstanding on our Facility, which bears interest at LIBOR plus 1.35%. If interest rates were to rise 1%, our interest expense as a result of the variable rate would increase by any amount outstanding multiplied by 1% annum.
In addition, we purchased a property in March of fiscal 2018 and financed a portion of the purchase price with unsecured notes held by the seller of the property. The unsecured notes require the payment of interest only. $1.5 million of the notes bear interest at a fixed rate of 5.05% and $1.7 million of the notes bear interest at a variable rate of interest based on the level of our Class A Common stock dividend, currently 2.88% as of October 31, 2020. If the level of our Class A Common dividend rises, it will increase the interest rate on the $1.7 million in notes.
The following table sets forth the Company’s long-term debt obligations by principal cash payments and maturity dates, weighted average fixed interest rates and estimated fair value at October 31, 2020 (amounts in thousands, except weighted average interest rate):
For the Fiscal Year Ended October 31,
Thereafter
Total
Estimated Fair Value
Mortgage notes payable and other loans
$
7,252
$
55,986
$
6,233
$
25,000
$
86,295
$
118,668
$
299,434
$
316,483
Weighted average interest rate for debt maturing
n/a
4.42
%
n/a
4.14
%
3.95
%
4.00
%
4.07
%

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements required by this Item, together with the reports of the Company's independent registered public accounting firm thereon and the supplementary financial information required by this Item 8 are included under Item 15 of this Annual Report.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There were no changes in, or any disagreements with, the Company's independent registered public accounting firm on accounting principles and practices or financial disclosure during the years ended October 31, 2020 and 2019.

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
At the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. During the fourth quarter of 2020, there were no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
(a) Management's Report on Internal Control over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is a process designed by, or under the supervision of, the Company's Chief Executive Officer and Chief Financial Officer and effected by the Company's Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles.
The Company's internal control over financial reporting includes policies and procedures that: relate to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company; provide reasonable assurance of the recording of all transactions necessary to permit the preparation of the Company's consolidated financial statements in accordance with generally accepted accounting principles and the proper authorization of receipts and expenditures in accordance with authorization of the Company's management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the Company's consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting as of October 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control - Integrated Framework (2013). Based on its assessment, management determined that the Company's internal control over financial reporting was effective as of October 31, 2020. The Company's independent registered public accounting firm, PKF O'Connor Davies, LLP has audited the effectiveness of the Company's internal control over financial reporting, as indicated in their attestation report which is included in (b) below.
(b) Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Urstadt Biddle Properties Inc.
Opinion on Internal Control over Financial Reporting
We have audited Urstadt Biddle Properties Inc.’s (the “Company”) internal control over financial reporting as of October 31, 2020, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 31, 2020, based on criteria established in Internal Control-Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of October 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended October 31, 2020, and our report dated January 12, 2021, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PKF O'Connor Davies, LLP
New York, New York
January 12, 2021

---

ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None
PART III

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
The Company will file its definitive Proxy Statement for its Annual Meeting of Stockholders to be held on March 17, 2021 within the period required under the applicable rules of the SEC. The additional information required by this Item is included under the captions “Election of Directors”, “Information Concerning Continuing Directors and Executive Officers”, “Corporate Governance and Board Matters”, “Delinquent Section 16(a) Reports” and other information included in the Proxy Statement and is incorporated herein by reference.
The Company has adopted a Code of Ethics for Senior Financial Officers (the “Code of Ethics”) that is available at the Investors/Governance/Governance Documents section of our website at www.ubproperties.com. A copy of the Code of Ethics is available in print, free of charge, to stockholders upon request to us at the following address:
Attention: Corporate Secretary
321 Railroad Avenue
Greenwich, CT 06830
We intend to satisfy the disclosure requirements under the Securities and Exchange Act of 1934, as amended, regarding an amendment to or waiver from a provision of our Code of Ethics by posting such information on our web site.

---

ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The Company will file its definitive Proxy Statement for its Annual Meeting of Stockholders to be held on March 17, 2021 within the period required under the applicable rules of the SEC. The information required by this Item is included under the captions “Compensation Discussion and Analysis”, “Executive Compensation”, “Director Compensation”, “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report”, and as part of the executive compensation and director related compensation tables and other information included in the Proxy Statement, and is incorporated herein by reference.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The Company will file its definitive Proxy Statement for its Annual Meeting of Stockholders to be held on March 17, 2021 within the period required under the applicable rules of the SEC. The information required by this Item is included under the captions, “Equity Compensation Plans”, “Security Ownership of Certain Beneficial Owners and Management” and other information included in the Proxy Statement and is incorporated herein by reference.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions and Director Independence.
The Company will file its definitive Proxy Statement for its Annual Meeting of Stockholders to be held on March 17, 2021 within the period required under the applicable rules of the SEC. The information required by this Item is included under the captions “Corporate Governance and Board Matters”, “Certain Relationships and Related Party Transactions” and other information included in the Proxy Statement and is incorporated herein by reference.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
The Company will file its definitive Proxy Statement for its Annual Meeting of Stockholders to be held on March 17, 2021 within the period required under the applicable rules of the SEC. The information required by this Item is included under the caption “Fees Billed by Independent Registered Public Accounting Firm” of such Proxy Statement and is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedule
A. Index to Financial Statements and Financial Statement Schedule
1. Financial Statements
The consolidated financial statements listed in the accompanying index to financial statements on Page 30 are filed as part of this Annual Report.
2. Financial Statement Schedule --
The financial statement schedule required by this Item is filed with this report and are listed in the accompanying index to financial statements on Page 30. All other financial statement schedules are not applicable.
B. Exhibits.
Listed below are all Exhibits filed as part of this report. Certain Exhibits are incorporated by reference to documents previously filed by the Company with the SEC pursuant to Rule 12b-32 under the Securities Exchange Act of 1934, as amended.
Exhibit
3.1
(a) Amended Articles of Incorporation of the Company dated December 30, 1996 (incorporated by reference to Exhibit 3.1(a) of the Company's Quarterly Report on Form 10-Q for the period ended April 30, 2013 (SEC File No. 001-12803)).
(b) Articles Supplementary of the Company dated March 12, 1997, classifying the Company's Series A Participating Preferred Shares (incorporated by reference to Exhibit 3.1(b) of the Company's Quarterly Report on Form 10-Q for the period ended April 30, 2013 (SEC File No. 001-12803)).
(c) Articles of Amendment with Name Change dated March 11, 1998 to the Company's Amended Articles of Incorporation (incorporated by reference to Exhibit 3.1(c) of the Company's Quarterly Report on Form 10-Q for the period ended April 30, 2013 (SEC File No. 001-12803)).
(d) Articles Supplementary of the Company dated June 16, 1998, classifying the Company's Class A Common Stock (incorporated by reference to Exhibit 3.1(d) of the Company's Quarterly Report on Form 10-Q for the period ended April 30, 2013 (SEC File No. 001-12803)).
(e) Articles Supplementary of the Company dated April 7, 2005, classifying the Company's Series D Senior Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1(e) of the Company's Quarterly Report on Form 10-Q for the period ended April 30, 2013 (SEC File No. 001-12803)).
(f) Certificate of Correction dated April 29, 2005 to the Articles Supplementary of the Company dated April 7, 2005 (incorporated by reference to Exhibit 3.1(f) of the Company's Quarterly Report on Form 10-Q for the period ended April 30, 2013 (SEC File No. 001-12803)).
(g) Articles Supplementary of the Company dated April 29, 2005, classifying 850,000 additional shares of the Company's Series D Senior Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1(g) of the Company's Quarterly Report on Form 10-Q for the period ended April 30, 2013 (SEC File No. 001-12803)).
(h) Articles Supplementary of the Company dated June 3, 2005, classifying 450,000 additional shares of the Company's Series D Senior Cumulative Preferred Stock (incorporated by reference to Exhibit 3.1(h) of the Company's Quarterly Report on Form 10-Q for the period ended April 30, 2013 (SEC File No. 001-12803)).
(i) Articles Supplementary of the Company dated October 22, 2012, classifying the Company's Series F Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1(i) of the Company's Quarterly Report on Form 10-Q for the period ended April 30, 2013 (SEC File No. 001-12803)).
(j) Articles of Amendment dated March 21, 2013 to the Company's Amended Articles of Incorporation (incorporated by reference to Exhibit 3.1(j) of the Company's Quarterly Report on Form 10-Q for the period ended April 30, 2013 (SEC File No. 001-12803)).
(k) Articles Supplementary of the Company dated October 23, 2014, classifying the Company's Series G Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K filed on October 27, 2014 (SEC File No. 001-12803)).
(l) Articles Supplementary of the Company dated December 12, 2014, reclassifying several series of the Company's preferred stock (incorporated by reference to Exhibit 99.2 of the Company's Current Report on Form 8-K filed on December 16, 2014 (SEC File No. 001-12803)).
(m) Articles Supplementary of the Company dated September 13, 2017, classifying the Company's 6.250% Series H Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1(m)) of the Company's Registration Statement on Form 8-A filed on September 15, 2017 (SEC File No. 001-12803).
(n) Articles Supplementary of the Company, dated August 13, 2018, classifying the Company’s Series I Participating Preferred Shares (incorporated by reference to Exhibit 3.1(a) of the Company’s Current Report on Form 8-K filed on August 13, 2018 (SEC File No. 001-12803)).
(o) Articles Supplementary of the Company, dated August 13, 2018, classifying the Company’s Series J Participating Preferred Shares (incorporated by reference to Exhibit 3.1(b) of the Company’s Current Report on Form 8-K filed on August 13, 2018 (SEC File No. 001-12803)).
(p) Articles Supplementary of the Company, dated September 27, 2019, classifying the Company’s 5.875% Series K Cumulative Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1(p) of the Company’s Registration Statement on Form 8-A filed on September 27, 2019 (SEC File No. 001-12803)).
3.2
Bylaws of the Company, Amended and Restated as of December 11, 2014 (incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K filed on December 16, 2014 (SEC File No. 001-12803)).
4.1
Common Stock: See Exhibits 3.1 (a)-(p) hereto.
4.2
Rights Agreement between the Company and Computershare Inc., as Rights Agent, dated as of August 13, 2018 (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed on August 13, 2018 (SEC File No. 001-12803)).
4.3
Series H Preferred Shares: See Exhibits 3.1 (a)-(p) hereto.
4.4
Series I Preferred Shares: See Exhibits 3.1 (a)-(p) hereto.
4.5
Series J Preferred Shares: See Exhibits 3.1 (a)-(p) hereto.
4.6
Series K Preferred Shares: See Exhibits 3.1 (a)-(p) hereto.
4.7
Description of Registrant’s Securities.*
10.1
Amended and Restated Restricted Stock Award Plan as approved by the Company's stockholders on March 24, 2016 (incorporated by reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the period ended April 30, 2016 (SEC File No. 001-12803)).#
10.2
First Amendment to Amended and Restated Restricted Stock Award Plan as approved by the Company’s stockholders on March 21, 2019 (incorporated by reference to Exhibit 4.2 of the Company’s Registration Statement on Form S-8 filed on March 28, 2019 (SEC File No. 333-230571). #
10.3
Form of Restricted Stock Award Agreement with Restricted Stock Plan Participants (Non-Director Employees) (incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the year ended October 31, 2017 (SEC File No. 001-12803)).#
10.4
Form of Restricted Stock Award Agreement with Restricted Stock Plan Participants (Employee Director) (incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for the year ended October 31, 2017 (SEC File No. 001-12803)).#
10.5
Forms of Restricted Stock Award Agreements with Restricted Stock Plan Participants (Non-Employee Director)(incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for the year ended October 31, 2017 (SEC File No. 001-12803)).#
10.6
Amended and Restated Dividend Reinvestment and Share Purchase Plan (incorporated herein by reference to the Company's Registration Statement on Form S-3 filed on March 31, 2010 (SEC File No. 333-64381)).
10.7
Amended and Restated Excess Benefit and Deferred Compensation Plan dated December 10, 2008 (incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K filed on December 15, 2008 (SEC File No. 001-12803)).#
10.8
Change in Control Agreement dated December 16, 2008 between the Company and John T. Hayes (incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K filed on December 17, 2008 (SEC File No. 001-12803)).#
10.9
Change in Control Agreement dated March 27, 2014 between the Company and Stephan A. Rapaglia (incorporated by reference to Exhibit 99.2 of the Company's Current Report on Form 8-K filed on March 31, 2014 (SEC File No. 001-12803)). #
10.10
Change in Control Agreement, dated June 7, 2016, between the Company and Miyun Sung (incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K filed on January 11, 2019 (SEC File No. 001-12803).#
10.11
Change in Control Agreement, dated January 9, 2020, between the Company and Charles D. Urstadt (incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on form 10-K filed on January 10, 2020 (SEC File No. 001-12803).#
10.12
Form of Amended and Restated Change of Control Agreements dated as of December 19, 2007 between the Company and Charles J. Urstadt and Willing L. Biddle (incorporated by reference to Exhibit 99.1 of the Company's Current Report on Form 8-K filed on December 26, 2007 (SEC File No. 001-12803)).#
10.13
Amended and Restated Credit Agreement, dated August 23, 2016, by and among the Company, The Bank of New York Mellon, as Administrative Agent, and BMO Capital Markets, as Co-Syndication Agent, and Wells Fargo Bank, N.A., as Co-Syndication Agent, and the Lenders named therein (incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K filed on August 26, 2016 (SEC File No. 001-12803)).
10.14
First Amendment, dated February 28, 2018, to the Amended and Restated Credit Agreement dated August 23, 2016 by and among the Company, The Bank of New York Mellon, as Administrative Agent, and BMO Capital Markets, as Co-Syndication Agent, and Wells Fargo Bank, N.A., as Co-Syndication Agent, and the lenders named therein (incorporated by reference to Exhibit 10.15 of the Company’s Quarterly Report on Form 10-Q filed on March 9, 2018 (SEC File No. 001-12803)).
List of the Company's subsidiaries.*
Consent of PKF O'Connor Davies, LLP.*
31.1
Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, signed and dated by Willing L. Biddle.*
31.2
Certification pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, signed and dated by John T. Hayes.*
Certification pursuant to 18 U.S.C. Section 1350, as adopted, pursuant to section 906 of the Sarbanes-Oxley Act of 2002, signed and dated by Willing L. Biddle and John T. Hayes.**
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
101.SCH
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
# Management contract, compensation plan arrangement.
* Filed herewith.
** Furnished herewith.
URSTADT BIDDLE PROPERTIES INC.
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
Item 15.
Page
Consolidated Balance Sheets at October 31, 2020 and 2019
Consolidated Statements of Income for each of the three years in the period ended October 31, 2020
Consolidated Statements of Comprehensive Income for each of the three years in the period ended October 31, 2020
Consolidated Statements of Cash Flows for each of the three years in the period ended October 31, 2020
Consolidated Statements of Stockholders' Equity for each of the three years in the period ended October 31, 2020
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Schedule
III
Real Estate and Accumulated Depreciation - October 31, 2020
55-56
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
October 31, 2020
October 31, 2019
ASSETS
Real Estate Investments:
Real Estate - at cost
$
1,149,182
$
1,141,770
Less: Accumulated depreciation
(261,325
)
(241,154
)
887,857
900,616
Investments in and advances to unconsolidated joint ventures
28,679
29,374
916,536
929,990
Cash and cash equivalents
40,795
94,079
Tenant receivables
25,954
22,854
Prepaid expenses and other assets
18,263
15,513
Deferred charges, net of accumulated amortization
8,631
9,868
Total Assets
$
1,010,179
$
1,072,304
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Revolving credit lines
$
35,000
$
-
Mortgage notes payable and other loans
299,434
306,606
Preferred stock called for redemption
-
75,000
Accounts payable and accrued expenses
18,033
11,416
Deferred compensation - officers
Other liabilities
24,550
21,629
Total Liabilities
377,037
414,704
Redeemable Noncontrolling Interests
62,071
77,876
Commitments and Contingencies
Stockholders' Equity:
6.25% Series H Cumulative Preferred Stock (liquidation preference of $25 per share); 4,600,000 shares issued and outstanding
115,000
115,000
5.875% Series K Cumulative Preferred Stock (liquidation preference of $25 per share) 4,400,000 shares issued and outstanding
110,000
110,000
Excess Stock, par value $0.01 per share; 20,000,000 shares authorized; none issued and outstanding
-
-
Common Stock, par value $0.01 per share; 30,000,000 shares authorized; 10,073,652 and 9,963,751 shares issued and outstanding
Class A Common Stock, par value $0.01 per share; 100,000,000 shares authorized; 29,996,305 and 29,893,241 shares issued and outstanding
Additional paid in capital
526,027
520,988
Cumulative distributions in excess of net income
(164,651
)
(158,213
)
Accumulated other comprehensive income (loss)
(15,707
)
(8,451
)
Total Stockholders' Equity
571,071
579,724
Total Liabilities and Stockholders' Equity
$
1,010,179
$
1,072,304
The accompanying notes to consolidated financial statements are an integral part of these statements.
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year Ended October 31,
Revenues
Lease income
$
120,941
$
132,287
$
127,230
Lease termination
3,795
Other
5,099
4,374
3,697
Total Revenues
126,745
136,882
134,722
Expenses
Property operating
19,542
22,151
22,235
Property taxes
23,464
23,363
21,167
Depreciation and amortization
29,187
27,930
28,327
General and administrative
10,643
9,405
9,223
Directors' fees and expenses
Total Operating Expenses
83,209
83,195
81,296
Operating Income
43,536
53,687
53,426
Non-Operating Income (Expense):
Interest expense
(13,508
)
(14,102
)
(13,678
)
Equity in net income from unconsolidated joint ventures
1,433
1,241
2,085
Gain on sale of marketable securities
-
Interest, dividends and other investment income
Gain (loss) on sale of properties
(6,047
)
(19
)
-
Net Income
26,070
41,613
42,183
Noncontrolling interests:
Net income attributable to noncontrolling interests
(3,887
)
(4,333
)
(4,716
)
Net income attributable to Urstadt Biddle Properties Inc.
22,183
37,280
37,467
Preferred stock dividends
(13,650
)
(12,789
)
(12,250
)
Redemption of preferred stock
-
(2,363
)
-
Net Income Applicable to Common and Class A Common Stockholders
$
8,533
$
22,128
$
25,217
Basic Earnings Per Share:
Per Common Share:
$
0.20
$
0.53
$
0.61
Per Class A Common Share:
$
0.23
$
0.59
$
0.68
Diluted Earnings Per Share:
Per Common Share:
$
0.20
$
0.52
$
0.60
Per Class A Common Share:
$
0.22
$
0.58
$
0.67
The accompanying notes to consolidated financial statements are an integral part of these statements.
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Year Ended October 31,
Net Income
$
26,070
$
41,613
$
42,183
Other comprehensive income:
Change in unrealized gain on marketable equity securities
-
-
Change in unrealized gain (loss) on interest rate swaps
(6,546
)
(13,651
)
4,155
Change in unrealized gain (loss) on interest rate swaps-equity investees
(710
)
(1,697
)
-
Total comprehensive income
18,814
26,265
46,907
Comprehensive income attributable to noncontrolling interests
(3,887
)
(4,333
)
(4,716
)
Total comprehensive income attributable to Urstadt Biddle Properties Inc.
14,927
21,932
42,191
Preferred stock dividends
(13,650
)
(12,789
)
(12,250
)
Redemption of preferred stock
-
(2,363
)
-
Total comprehensive income applicable to Common and Class A Stockholders
$
1,277
$
6,780
$
29,941
The accompanying notes to consolidated financial statements are an integral part of these statements.
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended October 31,
Cash Flows from Operating Activities:
Net income
$
26,070
$
41,613
$
42,183
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization
29,187
27,930
28,327
Straight-line rent adjustment
(2,641
)
(914
)
(957
)
Provisions for tenant credit losses
6,244
(Gain) on sale of marketable securities
(258
)
(403
)
-
Restricted stock compensation expense and other adjustments
5,448
4,381
4,085
Deferred compensation arrangement
(33
)
(19
)
(24
)
(Gain) loss on sale of properties
6,047
-
Equity in net (income) of unconsolidated joint ventures
(1,433
)
(1,241
)
(2,085
)
Distributions of operating income from unconsolidated joint ventures
1,433
1,241
2,085
Changes in operating assets and liabilities:
Tenant receivables
(6,715
)
(314
)
(956
)
Accounts payable and accrued expenses
(8,142
)
Other assets and other liabilities, net
(2,075
)
7,210
(2,094
)
Net Cash Flow Provided by Operating Activities
61,883
72,317
71,584
Cash Flows from Investing Activities:
Acquisitions of real estate investments
-
(11,751
)
(6,910
)
Investments in and advances to unconsolidated joint ventures
-
(574
)
-
Deposits on acquisition of real estate investments
(1,030
)
-
-
Deposits on real estate investments
-
(1,000
)
Improvements to properties and deferred charges
(22,336
)
(18,681
)
(8,184
)
Net proceeds from sale of properties
3,732
3,372
-
Purchases of securities available for sale
(6,983
)
-
(4,999
)
Proceeds from the sale of available for sale securities
7,240
5,970
-
Return of capital from unconsolidated joint ventures
6,925
Net Cash Flow (Used in) Investing Activities
(18,820
)
(14,739
)
(20,540
)
Cash Flows from Financing Activities:
Dividends paid -- Common and Class A Common Stock
(30,018
)
(42,600
)
(41,626
)
Dividends paid -- Preferred Stock
(14,188
)
(12,789
)
(12,250
)
Amortization payments on mortgage notes payable
(7,089
)
(6,441
)
(6,427
)
Proceeds from mortgage note payable and other loans
-
47,000
10,000
Repayment of mortgage notes payable and other loans
-
(27,001
)
(17,624
)
Proceeds from revolving credit line borrowings
35,000
25,500
33,595
Sales of additional shares of Common and Class A Common Stock
Repayments on revolving credit line borrowings
-
(54,095
)
(9,000
)
Acquisitions of noncontrolling interests
(758
)
(5,134
)
(1,220
)
Distributions to noncontrolling interests
(3,887
)
(4,333
)
(4,716
)
Repurchase of shares of Class A Common Stock
-
-
(120
)
Payment of taxes on shares withheld for employee taxes
(573
)
(270
)
(241
)
Net proceeds from issuance of Preferred Stock
106,186
-
Redemption of preferred stock
(75,000
)
-
-
Net Cash Flow Provided by (Used in) Financing Activities
(96,347
)
26,216
(49,433
)
Net Increase/(Decrease) In Cash and Cash Equivalents
(53,284
)
83,794
1,611
Cash and Cash Equivalents at Beginning of Year
94,079
10,285
8,674
Cash and Cash Equivalents at End of Year
$
40,795
$
94,079
$
10,285
The accompanying notes to consolidated financial statements are an integral part of these statements
URSTADT BIDDLE PROPERTIES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except shares and per share data)
6.75%
Series G
Preferred
Stock
Issued
6.75%
Series G
Preferred
Stock
Amount
6.25%
Series H
Preferred
Stock
Issued
6.25%
Series H
Preferred
Stock
Amount
5.875% Series K
Preferred
Stock
Issued
5.875% Series K
Preferred
Stock
Amount
Common
Stock
Issued
Common
Stock
Amount
Class A
Common
Stock
Issued
Class A
Common
Stock
Amount
Additional
Paid In
Capital
Cumulative
Distributions
In Excess of
Net Income
Accumulated
Other
Comprehensive
Income (Loss)
Total
Stockholders
Equity
Balances - October 31, 2017
3,000,000
$
75,000
4,600,000
$
115,000
-
$
-
9,664,778
$
29,728,744
$
$
514,217
$
(120,123
)
$
2,742
$
587,230
Net income applicable to Common and Class A common stockholders
-
-
-
-
-
-
-
-
-
-
-
25,217
-
25,217
Change in unrealized gains on marketable securities
-
-
-
-
-
-
-
-
-
-
-
-
Change in unrealized (loss) on interest rate swap
-
-
-
-
-
-
-
-
-
-
-
-
4,155
4,155
Cash dividends paid :
Common stock ($0.96 per share)
-
-
-
-
-
-
-
-
-
-
-
(9,426
)
-
(9,426
)
Class A common stock ($1.08 per share)
-
-
-
-
-
-
-
-
-
-
-
(32,200
)
-
(32,200
)
Issuance of shares under dividend reinvestment plan
-
-
-
-
-
-
4,528
-
5,766
-
-
-
Shares issued under restricted stock plan
-
-
-
-
-
-
152,700
102,800
(3
)
-
-
-
Shares withheld for employee taxes
-
-
-
-
-
-
-
-
(10,886
)
-
(240
)
-
-
(240
)
Forfeiture of restricted stock
-
-
-
-
-
-
-
-
(4,950
)
-
-
-
-
-
Repurchase of Class A Common stock
-
-
-
-
-
-
-
-
(6,660
)
-
(120
)
-
-
(120
)
Restricted stock compensation and other adjustment
-
-
-
-
-
-
-
-
-
-
4,085
-
-
4,085
Adjustments to redeemable noncontrolling interests
-
-
-
-
-
-
-
-
-
-
-
2,674
-
2,674
Balances - October 31, 2018
3,000,000
75,000
4,600,000
115,000
-
-
9,822,006
29,814,814
518,136
(133,858
)
7,466
582,141
November 1, 2018 adoption of new accounting standard
-
-
-
-
-
-
-
-
-
-
-
(569
)
-
Net income applicable to Common and Class A common stockholders
-
-
-
-
-
-
-
-
-
-
-
22,128
-
22,128
Change in unrealized gain (loss) on interest rate swap
-
-
-
-
-
-
-
-
-
-
-
-
(15,348
)
(15,348
)
Cash dividends paid :
Common stock ($0.98 per share)
-
-
-
-
-
-
-
-
-
-
-
(9,762
)
-
(9,762
)
Class A common stock ($1.10 per share)
-
-
-
-
-
-
-
-
-
-
-
(32,838
)
-
(32,838
)
Issuance of shares under dividend reinvestment plan
-
-
-
-
-
-
4,545
-
5,417
-
-
-
Shares issued under restricted stock plan
-
-
-
-
-
-
137,200
111,450
(3
)
-
-
-
Shares withheld for employee taxes
-
-
-
-
-
-
-
-
(14,290
)
-
(269
)
-
-
(269
)
Forfeiture of restricted stock
-
-
-
-
-
-
-
-
(24,150
)
-
-
-
-
-
Issuance of Series K Preferred Stock
-
-
-
-
4,400,000
110,000
-
-
-
-
(3,465
)
-
-
106,535
Reclassification of preferred stock
(3,000,000
)
(75,000
)
-
-
-
-
-
-
-
-
2,363
-
-
(72,637
)
Restricted stock compensation and other adjustment
-
-
-
-
-
-
-
-
-
-
4,033
-
-
4,033
Adjustments to redeemable noncontrolling interests
-
-
-
-
-
-
-
-
-
-
-
(4,452
)
-
(4,452
)
Balances - October 31, 2019
-
-
4,600,000
115,000
4,400,000
110,000
9,963,751
29,893,241
520,988
(158,213
)
(8,451
)
579,724
Net income applicable to Common and Class A common stockholders
-
-
-
-
-
-
-
-
-
-
-
8,533
-
8,533
Change in unrealized gains on interest rate swap
-
-
-
-
-
-
-
-
-
-
-
-
(7,256
)
(7,256
)
Cash dividends paid :
Common stock ($0.6875 per share)
-
-
-
-
-
-
-
-
-
-
-
(6,923
)
-
(6,923
)
Class A common stock ($0.77 per share)
-
-
-
-
-
-
-
-
-
-
-
(23,095
)
-
(23,095
)
Issuance of shares under dividend reinvestment plan
-
-
-
-
-
-
4,451
-
6,837
-
-
-
Shares issued under restricted stock plan
-
-
-
-
-
-
105,450
120,800
(2
)
-
-
-
Shares withheld for employee taxes
-
-
-
-
-
-
-
-
(23,873
)
-
(573
)
-
-
(573
)
Forfeiture of restricted stock
-
-
-
-
-
-
-
-
(700
)
-
-
-
-
-
Restricted stock compensation and other adjustments
-
-
-
-
-
-
-
-
-
-
5,465
-
-
5,465
Adjustments to redeemable noncontrolling interests
-
-
-
-
-
-
-
-
-
-
-
15,047
-
15,047
Balances - October 31, 2020
-
$
-
4,600,000
$
115,000
4,400,000
$
110,000
10,073,652
$
29,996,305
$
$
526,027
$
(164,651
)
$
(15,707
)
$
571,071
The accompanying notes to consolidated financial statements are an integral part of these statements.
URSTADT BIDDLE PROPERTIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
October 31, 2020
(1) ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Urstadt Biddle Properties Inc. (“Company”), a Maryland Corporation, is a real estate investment trust (REIT), engaged in the acquisition, ownership and management of commercial real estate, primarily neighborhood and community shopping centers in the northeastern part of the United States with a concentration in the metropolitan New York tri-state area outside of the City of New York. The Company's major tenants include supermarket chains and other retailers who sell basic necessities. At October 31, 2020, the Company owned or had equity interests in 81 properties containing a total of 5.3 million square feet of gross leasable area ("GLA").
COVID-19 Pandemic
On March 11, 2020, the novel coronavirus disease (“COVID-19”) was declared a pandemic (“COVID-19 pandemic”) by the World Health Organization as the disease spread throughout the world. During March 2020, measures to prevent the spread of COVID-19 were initiated, primarily focused on social distancing practices. The virus continued to spread among more populated cities and communities resulting in federal, state and local government agencies issuing regulatory orders enforcing social distancing and limiting group gatherings in order to further prevent the spread of COVID-19. While laws vary by state, generally, businesses deemed essential to the public have been able to operate while non-essential businesses were initially not allowed to operate, but, in most instances, have now been allowed to operate at various operational levels. Grocery stores, pharmacies and wholesale clubs, which anchor properties that make up 84% of our GLA, are considered essential businesses and have remained open and operational to serve the residents of their communities throughout the entire pandemic. Many restaurants are also considered essential, although social distancing and group gathering limitations generally prevent or limit dine-in activity, forcing them to evaluate alternate means of operations, such as outdoor dining, delivery and pick-up, or to elect to remain closed during this pandemic. As of October 31, most non-essential businesses have also been permitted to operate, in some cases subject to modified operation procedures. The duration and severity of this pandemic are still uncertain and continue to evolve.
As done every reporting period, management assesses whether there are any indicators that the value of its real estate investments may be impaired and has concluded that none of its investment properties are impaired at October 31, 2020. However, the COVID-19 pandemic has significantly impacted many of the retail sectors in which the Company’s tenants operate and if the effects of the pandemic are prolonged, it could have a significant adverse impact to the underlying businesses of many of the Company’s tenants. The Company will continue to monitor the economic, financial, and social conditions resulting from the COVID-19 pandemic and will continue to assess its asset portfolio for any impairment indicators. In addition, the extent to which the COVID-19 pandemic impacts the Company’s financial condition, results of operations and cash flows, in the near term, will depend on future developments, which are highly uncertain and cannot be predicted at this time.
Principles of Consolidation and Use of Estimates
The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and joint ventures in which the Company meets certain criteria of a sole general partner in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 810, "Consolidation." The Company has determined that such joint ventures should be consolidated into the consolidated financial statements of the Company. In accordance with ASC Topic 970-323, "Real Estate-General-Equity Method and Joint Ventures;" joint ventures that the Company does not control but otherwise exercises significant influence in, are accounted for under the equity method of accounting. See Note 6 for further discussion of the unconsolidated joint ventures. All significant intercompany transactions and balances have been eliminated in consolidation.
The accompanying financial statements are prepared on the accrual basis in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the disclosure of contingent assets and liabilities, the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the periods covered by the financial statements. The most significant assumptions and estimates relate to the valuation of real estate, depreciable lives, revenue recognition, fair value measurements and the collectability of tenant receivables. Actual results could differ from these estimates.
Federal Income Taxes
The Company has elected to be treated as a real estate investment trust under Sections 856-860 of the Internal Revenue Code ("Code"). Under those sections, a REIT that, among other things, distributes at least 90% of real estate trust taxable income and meets certain other qualifications prescribed by the Code will not be taxed on that portion of its taxable income that is distributed. The Company believes it qualifies as a REIT and intends to distribute all of its taxable income for fiscal 2020 in accordance with the provisions of the Code. Accordingly, no provision has been made for Federal income taxes in the accompanying consolidated financial statements.
The Company follows the provisions of ASC Topic 740, “Income Taxes,” that, among other things, defines a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Based on its evaluation, the Company determined that it has no uncertain tax positions and no unrecognized tax benefits as of October 31, 2020. As of October 31, 2020, the fiscal tax years 2016 through and including 2019 remain open to examination by the Internal Revenue Service. There are currently no federal tax examinations in progress.
Acquisitions of Real Estate Investments and Capitalization Policy
Acquisition of Real Estate Investments:
The Company evaluates each acquisition of real estate or in-substance real estate (including equity interests in entities that predominantly hold real estate assets) to determine if the integrated set of assets and activities acquired meet the definition of a business and need to be accounted as a business combination. If either of the following criteria is met, the integrated set of assets and activities acquired would not qualify as a business:
● Substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets; or
● The integrated set of assets and activities is lacking, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs (i.e. revenue generated before and after the transaction).
An acquired process is considered substantive if:
● The process includes an organized workforce (or includes an acquired contract that provides access to an organized workforce), that is skilled, knowledgeable, and experienced in performing the process;
● The process cannot be replaced without significant cost, effort, or delay; or
● The process is considered unique or scarce.
Generally, the Company expects that acquisitions of real estate or in-substance real estate will not meet the definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets) or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.
Acquisitions of real estate and in-substance real estate which do not meet the definition of a business are accounted for as asset acquisitions. The accounting model for asset acquisitions is similar to the accounting model for business combinations except that the acquisition consideration (including acquisition costs) is allocated to the individual assets acquired and liabilities assumed on a relative fair value basis. As a result, asset acquisitions do not result in the recognition of goodwill or a bargain purchase gain. The relative fair values used to allocate the cost of an asset acquisition are determined using the same methodologies and assumptions as the Company utilizes to determine fair value in a business combination.
The value of tangible assets acquired is based upon our estimation of value on an “as if vacant” basis. The value of acquired in-place leases includes the estimated costs during the hypothetical lease-up period and other costs that would have been incurred in the execution of similar leases under the market conditions at the acquisition date of the acquired in-place lease. We assess the fair value of tangible and intangible assets based on numerous factors, including estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors, including the historical operating results, known trends, and market/economic conditions that may affect the property.
The values of acquired above and below-market leases, which are included in prepaid expenses and other assets and other liabilities, respectively, are amortized over the terms of the related leases and recognized as either an increase (for below-market leases) or a decrease (for above-market leases) to rental revenue. The values of acquired in-place leases are classified in other assets in the accompanying consolidated balance sheets and amortized over the remaining terms of the related leases.
Capitalization Policy:
Land, buildings, property improvements, furniture/fixtures and tenant improvements are recorded at cost. Expenditures for maintenance and repairs are charged to operations as incurred. Renovations and/or replacements, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives.
Depreciation and Amortization
The Company uses the straight-line method for depreciation and amortization. Real estate investment properties are depreciated over the estimated useful lives of the properties, which range from 30 to 40 years. Property improvements are depreciated over the estimated useful lives that range from 10 to 20 years. Furniture and fixtures are depreciated over the estimated useful lives that range from 3 to 10 years. Tenant improvements are amortized over the shorter of the life of the related leases or their useful life.
Sale of Investment Property and Property Held for Sale
The Company reports properties that are either disposed of or are classified as held for sale in continuing operations in the consolidated statement of income if the removal, or anticipated removal, of the asset(s) from the reporting entity does not represent a strategic shift that has or will have a major effect on an entity's operations and financial results when disposed of.
In January 2020, the Company entered into a purchase and sale agreement, subject to certain conditions, to sell a 29,000 square foot portion of its property located in Pompton Lakes, NJ (the "Pompton Lakes Property") to an unrelated third party for a sale price of $2.8 million. In accordance with ASC Topic 360-10-45, that portion of the property met all the criteria to be classified as held for sale in September of fiscal 2020, and accordingly the Company recorded a loss on property held for sale of $5.7 million, which loss was included in continuing operations in the consolidated statement of income for the year ended October 31, 2020. The amount of the loss represented the net carrying amount of that portion of the property over the fair value of that portion of the asset less estimated cost to sell. The net book value of that portion of the Pompton Lakes Property was insignificant to financial statement presentation and, as a result, the Company did not include that portion of the asset as held for sale on its consolidated balance sheet at October 31, 2020. In December 2020, the sale of that portion of the property was completed.
In January 2020, the Company sold for $1.3 million its retail property located in Carmel, NY (the "Carmel Property"), as that property no longer met the Company's investment objectives. In conjunction with the sale, the Company realized a loss on sale of the Carmel property in the amount of $242,000, which loss is included in continuing operations in the consolidated statement of income for the year ended October 31, 2020.
In August 2019, the Company entered into a purchase and sale agreement to sell its property located in Bernardsville, NJ (the "Bernardsville Property"), to an unrelated third party for a sale price of $2.7 million as that property no longer met its investment objectives. In accordance with ASC Topic 360-10-45, the property met all the criteria to be classified as held for sale in the fourth quarter of fiscal 2019, and accordingly the Company recorded a loss on property held for sale of $434,000, which loss was included in continuing operations in the consolidated statement of income for the year ended October 31, 2019. The amount of the loss represented the net carrying amount of the property over the fair value of the asset less estimated cost to sell. The net book value of the Bernardsville Property was insignificant to financial statement presentation and as a result the Company did not include the asset as held for sale on its consolidated balance sheet at October 31, 2019. In December 2019 (fiscal 2020), the Bernardsville Property sale was completed and the Company realized an additional loss on sale of property of $86,000, which loss is included in continuing operations in the consolidated statement of income for the year ended October 31, 2020.
In June 2019, the Company sold for $3.7 million its property located in Monroe, CT (the "Monroe Property"), as that property no longer met the Company's investment objectives. In conjunction with the sale the Company realized a gain on sale of property in the amount of $416,000, which is included in continuing operations in the consolidated statement of income for the year ended October 31, 2019.
The combined operating results of the Monroe Property, the Bernardsville Property, the Carmel Property and the sold portion of the Pompton Lakes properties, which are included in continuing operations, were as follows (amounts in thousands):
Year Ended October 31,
Revenues
$
$
$
Property operating expense
(282
)
(629
)
(691
)
Depreciation and amortization
(219
)
(393
)
(417
)
Net Income (loss)
$
(484
)
$
(410
)
$
(442
)
Deferred Charges
Deferred charges consist principally of leasing commissions (which are amortized ratably over the life of the tenant leases). Deferred charges in the accompanying consolidated balance sheets are shown at cost, net of accumulated amortization of $5,115,000 and $4,861,000 as of October 31, 2020 and 2019, respectively.
Asset Impairment
On a periodic basis, management assesses whether there are any indicators that the value of its real estate investments may be impaired. A property value is considered impaired when management’s estimate of current and projected operating cash flows (undiscounted and without interest) of the property over its remaining useful life is less than the net carrying value of the property. Such cash flow projections consider factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors. To the extent impairment has occurred, the loss is measured as the excess of the net carrying amount of the property over the fair value of the asset. Changes in estimated future cash flows due to changes in the Company’s plans or market and economic conditions could result in recognition of impairment losses which could be substantial. As of October 31, 2020, management does not believe that the value of any of its real estate investments is impaired. However, as described above, the COVID-19 pandemic has significantly impacted many of the retail sectors in which the Company’s tenants operate and if the effects of the pandemic are prolonged, it could have a significant adverse impact to the underlying businesses of many of the Company’s tenants. The Company will continue to monitor the economic, financial, and social conditions resulting from the COVID-19 pandemic and will continue to assess its asset portfolio for any impairment indicators.
Lease Income, Revenue Recognition and Tenant Receivables
Lease Income:
The Company leases space to tenants under agreements with varying terms that generally provide for fixed payments of base rent, with designated increases over the term of the lease. Some of the lease agreements contain provisions that provide for additional rents based on tenants' sales volume ("percentage rent"). Percentage rents are recognized when the tenants achieve the specified targets as defined in their lease agreements. Additionally, most all lease agreements contain provisions for reimbursement of the tenants' share of actual real estate taxes, insurance and Common Area Maintenance ("CAM") costs (collectively, "Recoverable Costs") incurred.
Lease terms generally range from 1 to 5 years for tenant spaces under 10,000 square feet (“Shop Space”) and in excess of 5 years for spaces greater than 10,000 square feet (“Anchor Spaces”). Many leases also provide the option for the tenants to extend their lease beyond the initial term of the lease. If the tenants do not exercise renewal options and the leases mature, the tenants must relinquish their space so it can be leased to a new tenant, which generally involves some level of cost to prepare the space for re-leasing. These costs are capitalized and depreciated over the shorter of the life of the subsequent lease or the life of the improvement.
On November 1, 2019, the Company adopted the new accounting guidance in ASC Topic 842, "Leases," including all related Accounting Standard Updates (“ASU's”). The Company elected to use the modified retrospective transition method provided in ASU 2018-11 (the "adoption date method"). Under this method, the effective date of November 1, 2019 is the date of initial application. In connection with the adoption of ASC Topic 842, the Company elected a package of practical expedients, transition options, and accounting policy elections as follows:
● Package of practical expedients - applied to all leases, allowing the Company not to reassess (i) whether expired or existing contracts contain leases under the new definition of a lease, (ii) lease classification for expired or existing leases, and (iii) whether previously capitalized initial direct costs would qualify for capitalization under Topic 842; and
● Lessor separation and allocation practical expedient - the Company elected, as lessor, to aggregate non-lease components with the related lease component if certain conditions are met, and account for the combined component based on its predominant characteristic, which generally results in combining lease and non-lease components of its tenant lease contracts to a single line shown as lease income in the accompanying consolidated statements of income.
The Company's existing leases were not re-evaluated and continue to be classified as operating leases, as per the practical expedient package elected above. New and modified leases will now require evaluation of specific classification criteria, which, based on the customary terms of the Company's leases, should continue to be classified as operating leases. However, certain longer-term leases (both lessee and lessor leases) may be classified as direct financing or sales type leases, which may result in selling profit and an accelerated pattern of earnings recognition.
CAM is a non-lease component of the lease contract under ASC Topic 842, and therefore would be accounted for under ASC Topic 606, "Revenue from Contracts with Customers," and presented separate from lease income in the accompanying consolidated statements of income, based on an allocation of the overall contract price, which is not necessarily the amount that would be billable to the tenants for CAM reimbursements per the terms of the lease contract. As the timing and pattern of providing the CAM service to the tenant is the same as the timing and pattern of the tenants' use of the underlying lease asset, the Company elected, as part of the package of practical expedients, to combine CAM with the remaining lease components, along with tenants' reimbursement of real estate taxes and insurance, and recognize them together as lease income in the accompanying Statements of Income.
Lease income for operating leases with fixed payment terms is recognized on a straight-line basis over the expected term of the lease for all leases for which collectability is considered probable at the commencement date. At lease commencement, the Company expects that collectability is probable for all of its leases due to the Company’s credit checks on tenants and other creditworthiness analysis undertaken before entering into a new lease; therefore, income from all operating leases is initially recognized on a straight-line basis. Lease income each period is reduced by amounts considered uncollectable on a lease-by-lease basis, with any changes in collectability assessments recognized as a current period adjustment to lease income. For operating leases in which collectability of lease income is not considered probable, lease income is recognized on a cash basis and all previously recognized uncollectable lease income, including straight-line rental income, is reversed in the period in which the lease income is determined not to be probable of collection.
ASC Topic 842 also changes the treatment of leasing costs, such that non-contingent internal leasing and legal costs associated with leasing activities can no longer be capitalized. The Company, as a lessor, may only defer as initial direct costs the incremental costs of a tenant operating lease that would not have been incurred if the lease had not been obtained. These costs generally include third-party broker payments, which are capitalized to deferred costs in the accompanying consolidated balance sheets and amortized over the expected term of the lease to depreciation and amortization expense in the accompanying consolidated statements of income.
There was no change to operating income upon the adoption of ASC Topic 842 and related ASU's.
COVID-19 Pandemic
Beginning in March 2020, many of the Company's properties were, and continue to be, negatively impacted by the COVID-19 pandemic, as state governments mandated the closure of non-essential businesses to prevent the spread of COVID-19, forcing many of our tenants’ businesses to close or reduce operations. As a result, 396 of approximately 900 tenants in the Company's consolidated portfolio, representing 1.5 million square feet and approximately 43.8% of the Company's annualized base rent, have asked for some type of rent deferral or concession. Subsequently, approximately 118 of the 396 tenants withdrew their requests for rent relief or paid their rent in full. The Company has, and will continue to evaluate each request on a case-by-case basis to determine an appropriate course of action, recognizing that in many cases some type of concession may be appropriate and beneficial to the long-term interests of the Company. In evaluating these requests, the Company has been and will continue to consider many factors, including the tenant's financial strength, the tenant's operating history, potential co-tenancy impacts, the tenant's contribution to the shopping center in which it operates, the Company's assessment of the tenant's long-term viability, the difficulty or ease with which the tenant could be replaced and other factors. Each negotiation is specific to the tenant making the request. The primary strategy of the Company is that most of these concessions will be in the form of deferred rent for some portion of rents due in April through December 2020 to be paid over a later part of the lease, preferably within a period of one year or less, but in some instances the Company determined that it was more appropriate to abate some portion of base rents for some tenants between April and December, or potentially portions of fiscal 2021 rent. As of October 31, 2020, the Company has completed 234 lease modifications, consisting of base rent deferrals totaling $3.4 million and rent abatements totaling $1.4 million as of October 31, 2020. The Company has increased its uncollectable amounts in lease income for the year ended October 31, 2020 for tenants it felt were affected by the COVID-19 pandemic (see below and in Note 7).
In April 2020, in response to the COVID-19 pandemic, the FASB staff issued guidance that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how those concessions would be accounted for under Topic 842, as if enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the lease contract). Consequently, for concessions related to the effects of the COVID-19 pandemic, an entity will not have to analyze each lease contract to determine whether enforceable rights and obligations for concessions exist in the lease contract and may elect to apply or not apply the lease modification guidance in Topic 842 to those contracts.
This election is available for concessions related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the lessor or the obligations of the lessee. For example, this election is available for concessions that result in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract. The FASB staff expects that reasonable judgment will be exercised in making those determinations.
Some concessions will provide a deferral of payments with no substantive changes to the consideration in the original lease contract. A deferral affects the timing, but the amount of the consideration is substantially the same as that required by the original lease contract. The FASB staff expects that there will be multiple ways to account for those deferrals, none of which the staff believes are preferable over others. The Company has made the election not to analyze each lease contract, and believes that, based on FASB guidance, the appropriate way to account for the concessions as described above is to account for such concessions as if no change to the lease contracts were made. Under that accounting, a lessor would increase its lease receivable (straight-line rents receivable) and would continue to recognize income during the deferral period, assuming that the collectability of the future rents under the lease contract are considered collectable. If it is determined that the future rents of any lease contract are not collectable, the Company would treat that lease contract on a cash basis as defined in ASC Topic 842.
When collection of substantially all lease payments during the lease term is not considered probable, total lease revenue is limited to the lesser of revenue recognized under accrual accounting or cash received. Determining the probability of collection of substantially all lease payments during a lease term requires significant judgment. This determination is impacted by numerous factors, including our assessment of the tenant’s credit worthiness, economic conditions, tenant sales productivity in that location, historical experience with the tenant and tenants operating in the same industry, future prospects for the tenant and the industry in which it operates, and the length of the lease term. If leases currently classified as probable are subsequently reclassified as not probable, any outstanding lease receivables (including straight-line rent receivables) would be written-off with a corresponding decrease in lease income.
The Company anticipates that its variable lease income represented by the reimbursement of CAM and real estate taxes will not be materially affected for most national tenants and tenants with higher levels of credit and balance sheet resources. For smaller local tenants and tenants with fewer resources, the Company has reduced its accruals for CAM and real estate taxes in anticipation of potentially having to reduce the amounts billed to these tenants at the end of calendar 2020. This has had the effect of reducing this portion of lease income for the year ended October 31, 2020.
Revenue Recognition
In those instances in which the Company funds tenant improvements and the improvements are deemed to be owned by the Company, revenue recognition on operating leases will commence when the improvements are substantially completed and possession or control of the space is turned over to the tenant. When the Company determines that the tenant allowances are lease incentives, the Company commences revenue recognition when possession or control of the space is turned over to the tenant for tenant work to begin.
Lease termination amounts are recognized in operating revenues when there is a signed termination agreement, all of the conditions of the agreement have been met, the tenant is no longer occupying the property and the termination consideration is probable of collection. Lease termination amounts are paid by tenants who want to terminate their lease obligations before the end of the contractual term of the lease by agreement with the Company. There is no way of predicting or forecasting the timing or amounts of future lease termination fees. Interest income is recognized as it is earned. Gains or losses on disposition of properties are recorded when the criteria for recognizing such gains or losses under U.S. GAAP have been met.
Percentage rent is recognized when a specific tenant’s sales breakpoint is achieved.
Tenant Receivables
The actions taken by federal, state and local governments to mitigate the spread of COVID-19, initially by ordering closures of non-essential businesses and ordering residents to generally stay at home, and subsequent phased re-openings have resulted in many of our tenants temporarily or even permanently closing their businesses, and for some, it had impacted their ability to pay rent.
As a result, in accordance with ASC Topic 842, we revised our collectability assumptions for many of our tenants that were most significantly impacted by COVID-19. Accordingly, during the year ended October 31, 2020, we recognized collectability related adjustments totaling $7.3 million. This amount includes changes in our collectability assessments for certain tenants in our portfolio from probable to not probable, which requires that revenue recognition for those tenants be converted to cash basis accounting with previously uncollected billed rents reversed in the current period. This resulted in a reduction of lease income for the year ended October 31, 2020 in the amount of $2.3 million related to tenants whose assessment of collectability was changed from probable to not probable. In addition, the Company wrote-off $1.1 million of previously recorded straight-line rent receivables related to tenants whose assessment of collectability was changed from probable to not probable. As of October 31, 2020, the revenue from approximately 7.1% of our tenants (based on total commercial leases) is being recognized on a cash basis.
At October 31, 2020 and October 31, 2019, $22,330,000 and $19,395,000, respectively, have been recognized as straight-line rents receivable (representing the current cumulative rents recognized prior to when billed and collectible as provided by the terms of the leases), all of which is included in tenant receivables in the accompanying consolidated financial statements.
The Company provides an allowance for doubtful accounts against the portion of tenant receivables that is estimated to be uncollectable. Such allowances are reviewed periodically. At October 31, 2020 and October 31, 2019, tenant receivables in the accompanying consolidated balance sheets are shown net of allowances for doubtful accounts of $8,769,000 and $5,454,000, respectively. Included in the aforementioned allowance for doubtful accounts is an amount for future tenant credit losses of approximately 10% of the deferred straight-line rents receivable which is estimated to be uncollectable.
Cash Equivalents
Cash and cash equivalents consist of cash in banks and short-term investments with original maturities of less than three months.
Marketable Securities
Marketable equity securities are carried at fair value based upon quoted market prices in active markets.
In March 2020, the Company purchased REIT securities in the amount of $7.0 million. In May 2020, the Company sold all of its REIT securities for $7.3 million and realized a gain on sale of $258,000, which is included in the consolidated statement of income for the year ended October 31, 2020.
In February and March 2018, the Company purchased REIT securities in the amount of $5.0 million. In January 2019, the Company sold all of its REIT securities for $6.0 million and realized a gain on sale of $403,000, which is included in the consolidated statement of income for the year ended October 31, 2019.
Derivative Financial Instruments
The Company occasionally utilizes derivative financial instruments, such as interest rate swaps, to manage its exposure to fluctuations in interest rates. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instruments. Derivative financial instruments must be effective in reducing the Company's interest rate risk exposure in order to qualify for hedge accounting. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income for each period until the derivative instrument matures or is settled. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market with the changes in value included in net income. The Company has not entered into, and does not plan to enter into, derivative financial instruments for trading or speculative purposes. Additionally, the Company has a policy of entering into derivative contracts only with major financial institutions.
As of October 31, 2020, the Company believes it has no significant risk associated with non-performance of the financial institutions that are the counterparty to its derivative contracts. At October 31, 2020, the Company had approximately $126.7 million in secured mortgage financings subject to interest rate swaps. Such interest rate swaps converted the LIBOR-based variable rates on the mortgage financings to a fixed annual rate of 3.93% per annum. As of October 31, 2020 and 2019, the Company had a deferred liability of $13.3 million and $6.8 million, respectively, (included in accounts payable and accrued expenses on the consolidated balance sheets) relating to the fair value of the Company’s interest rate swaps applicable to secured mortgages.
Charges and/or credits relating to the changes in fair values of such interest rate swap are made to other comprehensive (loss) as the swap is deemed effective and is classified as a cash flow hedge.
Comprehensive Income
Comprehensive income is comprised of net income applicable to Common and Class A Common stockholders and other comprehensive income (loss). Other comprehensive income (loss) includes items that are otherwise recorded directly in stockholders’ equity, such as unrealized gains and losses on interest rate swaps designated as cash flow hedges, including the Company's share from entities accounted for under the equity method of accounting. At October 31, 2020, accumulated other comprehensive loss consisted of net unrealized losses on interest rate swap agreements of $15.7 million, inclusive of the Company's share of accumulated comprehensive income/(loss) from joint ventures accounted for by the equity method of accounting. At October 31, 2019, accumulated other comprehensive loss consisted of net unrealized losses on interest rate swap agreements of $8.5 million inclusive of the Company's share of accumulated comprehensive income/(loss) from joint ventures accounted for by the equity method of accounting. Unrealized gains and losses included in other comprehensive income/(loss) will be reclassified into earnings when gains and losses are realized.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, and tenant receivables. The Company places its cash and cash equivalents in excess of insured amounts with high quality financial institutions. The Company performs ongoing credit evaluations of its tenants and may require certain tenants to provide security deposits or letters of credit. Though these security deposits and letters of credit are insufficient to meet the terminal value of a tenant's lease obligation, they are a measure of good faith and a source of funds to offset the economic costs associated with lost rent and the costs associated with re-tenanting the space. There is no dependence upon any single tenant.
Earnings Per Share
The Company calculates basic and diluted earnings per share in accordance with the provisions of ASC Topic 260, "Earnings Per Share." Basic earnings per share ("EPS") excludes the impact of dilutive shares and is computed by dividing net income applicable to Common and Class A Common stockholders by the weighted average number of Common shares and Class A Common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue Common shares or Class A Common shares were exercised or converted into Common shares or Class A Common shares and then shared in the earnings of the Company. Since the cash dividends declared on the Company's Class A Common stock are higher than the dividends declared on the Common Stock, basic and diluted EPS have been calculated using the "two-class" method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to the weighted average of the dividends declared, outstanding shares per class and participation rights in undistributed earnings.
The following table sets forth the reconciliation between basic and diluted EPS (in thousands):
Year Ended October 31,
Numerator
Net income applicable to common stockholders - basic
$
1,849
$
4,659
$
5,173
Effect of dilutive securities:
Restricted stock awards
Net income applicable to common stockholders - diluted
$
1,883
$
4,852
$
5,432
Denominator
Denominator for basic EPS-weighted average common shares
9,144
8,813
8,517
Effect of dilutive securities:
Restricted stock awards
Denominator for diluted EPS - weighted average common equivalent shares
9,385
9,349
9,114
Numerator
Net income applicable to Class A common stockholders - basic
$
6,684
$
17,469
$
20,044
Effect of dilutive securities:
Restricted stock awards
(34
)
(193
)
(259
)
Net income applicable to Class A common stockholders - diluted
$
6,650
$
17,276
$
19,785
Denominator
Denominator for basic EPS - weighted average Class A common shares
29,506
29,438
29,335
Effect of dilutive securities:
Restricted stock awards
Denominator for diluted EPS - weighted average Class A common equivalent shares
29,576
29,654
29,513
Stock-Based Compensation
The Company accounts for its stock-based compensation plans under the provisions of ASC Topic 718, “Stock Compensation,” which requires that compensation expense be recognized, based on the fair value of the stock awards less estimated forfeitures. The fair value of stock awards is equal to the fair value of the Company’s stock on the grant date. The Company recognizes compensation expense for its stock awards by amortizing the fair value of stock awards over the requisite service periods of such awards. In certain cases as defined in the participant agreements, the vesting of stock awards can be accelerated, which will result in the Company charging to compensation expense the remaining unamortized restricted stock compensation related to those stock awards.
Segment Reporting
The Company's primary business is the ownership, management, and redevelopment of retail properties. The Company reviews operating and financial information for each property on an individual basis and therefore, each property represents an individual operating segment. The Company evaluates financial performance using property operating income, which consists of base rental income and tenant reimbursement income, less rental expenses and real estate taxes. Only one of the Company’s properties, located in Stamford, CT (“Ridgeway”), is considered significant as its revenue is in excess of 10% of the Company’s consolidated total revenues and accordingly is a reportable segment. The Company has aggregated the remainder of our properties as they share similar long-term economic characteristics and have other similarities including the fact that they are operated using consistent business strategies, are typically located in the same major metropolitan area, and have similar tenant mixes.
Ridgeway is located in Stamford, Connecticut and was developed in the 1950’s and redeveloped in the mid 1990’s. The property contains approximately 374,000 square feet of GLA. It is the dominant grocery-anchored center and the largest non-mall shopping center located in the City of Stamford, Fairfield County, Connecticut.
Segment information about Ridgeway as required by ASC Topic 280 is included below:
Year Ended October 31,
Ridgeway Revenues
11.2
%
10.9
%
10.4
%
All Other Property Revenues
88.8
%
89.1
%
89.6
%
Consolidated Revenue
100.0
%
100.0
%
100.0
%
Year Ended October 31,
Ridgeway Assets
6.4
%
6.0
%
All Other Property Assets
93.6
%
94.0
%
Consolidated Assets (Note 1)
100.0
%
100.0
%
Note 1 - Ridgeway did not have any significant expenditures for additions to long-lived assets in any of the fiscal years ended October 31, 2020, 2019 and 2018.
Year Ended October 31,
Ridgeway Percent Leased
%
%
%
Year Ended October 31,
Ridgeway Significant Tenants (by base rent):
The Stop & Shop Supermarket Company
%
%
%
Bed, Bath & Beyond
%
%
%
Marshall’s Inc., a division of the TJX Companies
%
%
%
All Other Tenants at Ridgeway (Note 2)
%
%
%
Total
%
%
%
Note 2 - No other tenant accounts for more than 10% of Ridgeway’s annual base rents in any of the three years presented. Percentages are calculated as a ratio of the tenants' base rent divided by total base rent of Ridgeway.
Year Ended October 31, 2020
Income Statement (In Thousands):
Ridgeway
All Other
Operating Segments
Total Consolidated
Revenues
$
14,180
$
112,565
$
126,745
Operating Expenses
$
4,424
$
38,582
$
43,006
Interest Expense
$
1,673
$
11,835
$
13,508
Depreciation and Amortization
$
2,494
$
26,693
$
29,187
Income from Continuing Operations
$
5,589
$
20,481
$
26,070
Year Ended October 31, 2019
Ridgeway
All Other
Operating Segments
Total Consolidated
Revenues
$
14,859
$
122,023
$
136,882
Operating Expenses
$
4,376
$
41,138
$
45,514
Interest Expense
$
1,704
$
12,398
$
14,102
Depreciation and Amortization
$
2,350
$
25,580
$
27,930
Income from Continuing Operations
$
6,428
$
35,185
$
41,613
Year Ended October 31, 2018
Ridgeway
All Other
Operating Segments
Total Consolidated
Revenues
$
14,015
$
120,707
$
134,722
Operating Expenses
$
4,094
$
39,308
$
43,402
Interest Expense
$
1,869
$
11,809
$
13,678
Depreciation and Amortization
$
2,616
$
25,711
$
28,327
Income from Continuing Operations
$
5,436
$
36,747
$
42,183
Reclassification
Certain fiscal 2018 and 2019 amounts have been reclassified to conform to current period presentation.
New Accounting Standards
In February 2016, the FASB issued ASU 2016-02, "Leases," ASU 2018-10, "Codification improvements to Topic 842, leases," ASU 2018-11, "Leases," and ASU 2018-20, "Leases, Narrow Scope Improvements for Lessors," together ASC Topic 842 - Leases. ASC Topic 842 significantly changes the accounting for leases by requiring lessees to recognize assets and liabilities for leases greater than 12 months on their balance sheet. The lessor model stays substantially the same; however, there were modifications to conform lessor accounting with the lessee model, eliminate real estate specific guidance, further define certain lease and non-lease components, and change the definition of initial direct costs of leases requiring significantly more leasing related costs to be expensed upfront. The Company adopted ASC Topic 842 on November 1, 2019, the first day of its fiscal year 2020. The Company has elected to apply the transition provisions of ASC Topic 842 at the beginning of the period of adoption, and therefore, the Company has not retrospectively adjusted prior periods presented. The Company elected to apply certain adoption related practical expedients for all leases that commenced prior to the effective date. These practical expedients include not reassessing whether any expired or existing contracts are or contain leases; not reassessing the lease classification for any expired or existing leases; and not reassessing initial direct costs for any existing leases. The adoption of this standard did not have a material effect on our financial statements or disclosures therein. See Lease Income, Revenue Recognition and Tenant Receivables earlier in Note 1 for a more detailed explanation of the adoption.
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848).” ASU No. 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU No. 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the three months ended April 30, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
The Company has evaluated all other new ASU's issued by FASB, and has concluded that these updates do not have a material effect on the Company's consolidated financial statements as of October 31, 2020.
(2) REAL ESTATE INVESTMENTS
The Company's investments in real estate, net of depreciation, were composed of the following at October 31, 2020 and 2019 (in thousands):
Consolidated
Investment Properties
Unconsolidated
Joint Ventures
Totals
Totals
Retail
$
880,838
$
28,679
$
909,517
$
920,261
Office
7,019
-
7,019
9,729
Total
$
887,857
$
28,679
$
916,536
$
929,990
The Company's investments at October 31, 2020 consisted of equity interests in 81 properties. The 81 properties are located in various regions throughout the northeastern part of the United States with a concentration in the metropolitan New York tri-state area outside of the City of New York. The Company's primary investment focus is neighborhood and community shopping centers located in the region just described. Since a significant concentration of the Company's properties are in the northeast, market changes in this region could have an effect on the Company's leasing efforts and ultimately its overall results of operations.
(3) INVESTMENT PROPERTIES
The components of the properties consolidated in the financial statements are as follows (in thousands):
October 31,
Land
$
236,654
$
238,766
Buildings and improvements
912,528
903,004
1,149,182
1,141,770
Accumulated depreciation
(261,325
)
(241,154
)
$
887,857
$
900,616
Space at the Company's properties is generally leased to various individual tenants under short and intermediate-term leases which are accounted for as operating leases.
Certain of the Company's leases provide for the payment of additional rent based on a percentage of the tenant's revenues. Such additional percentage rents are included in operating lease income and were less than 1.00% of consolidated revenues in each of the three years ended October 31, 2020.
Significant Investment Property Acquisition Transactions
In December 2018, the Company purchased Lakeview Plaza Shopping Center ("Lakeview") for $12.0 million (exclusive of closing costs). Lakeview is a 177,000 square foot grocery-anchored shopping center located in Putnam County, NY. In addition, the Company invested an additional $5.8 million for capital improvements, predominantly related to re-building a retaining wall at the back of the property, which has been added to the cost of the property. The Company funded the purchase and capital improvements made subsequent to the purchase with available cash and borrowings on its unsecured revolving credit facility (the "Facility").
The Company accounted for the purchase of Lakeview as an asset acquisition and allocated the total consideration transferred for the acquisition, including transaction costs, to the individual assets and liabilities acquired on a relative fair value basis.
The financial information set forth below summarizes the Company’s purchase price allocation for the properties acquired during the fiscal year ended October 31, 2019 (in thousands).
Lakeview
Assets:
Land
$
2,025
Building and improvements
$
10,620
In-place leases
$
Above market leases
$
Liabilities:
In-place leases
$
-
Below market leases
$
1,123
The value of above and below market leases are amortized as a reduction/increase to base rental revenue over the term of the respective leases. The value of in-place leases described above are amortized as an expense over the terms of the respective leases.
For the fiscal year ended October 31, 2020, 2019 and 2018, the net amortization of above-market and below-market leases was approximately $706,000, $614,000 and $1,209,000, respectively, which is included in base rents in the accompanying consolidated statements of income.
In Fiscal 2020, the Company incurred costs of approximately $22.3 million related to capital improvements and leasing costs to its properties. Included in the aforementioned amount were $11.3 million in capital improvement costs related to the construction of the Company's ongoing development in Stratford, Connecticut.
(4) MORTGAGE NOTES PAYABLE, BANK LINES OF CREDIT AND OTHER LOANS
At October 31, 2020, the Company has mortgage notes payable and other loans that are due in installments over various periods to fiscal 2031. The mortgage loans bear interest at rates ranging from 3.5% to 4.9% and are collateralized by real estate investments having a net carrying value of approximately $540.1 million.
Combined aggregate principal maturities of mortgage notes payable during the next five years and thereafter are as follows (in thousands):
Principal
Repayments
Scheduled
Amortization
Total
$
-
$
7,252
$
7,252
49,486
6,500
55,986
-
6,233
6,233
18,710
6,289
24,999
82,243
4,052
86,295
Thereafter
105,224
10,282
115,506
$
255,663
$
40,608
$
296,271
The Company has a $100 million unsecured revolving credit facility with a syndicate of three banks led by The Bank of New York Mellon, as administrative agent. The syndicate also includes Wells Fargo Bank N.A. and Bank of Montreal (co-syndication agents). The Facility gives the Company the option, under certain conditions, to increase the Facility’s borrowing capacity up to $150 million (subject to lender approval). The maturity date of the Facility is August 23, 2021. Borrowings under the Facility can be used for general corporate purposes and the issuance of letters of credit (up to $10 million). Borrowings will bear interest at the Company’s option of Eurodollar rate plus 1.35% to 1.95% or The Bank of New York Mellon's prime lending rate plus 0.35% to 0.95% based on consolidated indebtedness, as defined. The Company pays a quarterly fee on the unused commitment amount of 0.15% to 0.25% per annum based on outstanding borrowings during the year. The Facility contains certain representations, financial and other covenants typical for this type of facility. The Company's ability to borrow under the Facility is subject to its compliance with the covenants and other restrictions on an ongoing basis. The principal financial covenants limit the Company's level of secured and unsecured indebtedness and additionally require the Company to maintain certain debt coverage ratios. The Company was in compliance with such covenants at October 31, 2020.
As of October 31, 2020, $64 million was available to be drawn on the Facility.
During the fiscal years ended October 31, 2020 and 2019, the Company borrowed $35.0 million and $25.5 million, respectively, on its Facility to fund capital improvements to our properties, property acquisitions and for general corporate purposes. During the fiscal years ended 2019, the Company re-paid $54.1 million on its Facility with available cash, cash proceeds from mortgage refinancings, proceeds from the sale of marketable securities, investment property sales and proceeds from the issuance of preferred stock. There were no repayments in the fiscal year ended October 31, 2020.
In March 2019, the Company refinanced its existing $14.9 million first mortgage secured by its Darien, CT property. The new mortgage has a principal balance of $25.0 million and has a term of 10 years and requires payments of principal and interest at the rate of LIBOR plus 1.65%. The Company 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 4.815% per annum.
In March 2019, the Company refinanced its existing $9.1 million first mortgage secured by our Newark, NJ property. The new mortgage has a principal balance of $10.0 million, has a term of 10 years, and requires payments of principal and interest at a fixed rate of 4.63%.
In June 2019, the Company placed a first mortgage on its Brewster, NY property. The new mortgage has a principal balance of $12.0 million, has a term of 10 years and requires payments of principal and interest at the rate of LIBOR plus 1.75%. Concurrent with entering into the mortgage, the Company 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.
Interest paid in the years ended October 31, 2020, 2019, and 2018 was approximately $13.3 million, $13.7 million and $13.4 million, respectively.
(5) CONSOLIDATED JOINT VENTURES AND REDEEMABLE NONCONTROLLING INTERESTS
The Company has an investment in five joint ventures, UB Orangeburg, LLC ("Orangeburg"), McLean Plaza Associates, LLC ("McLean"), UB Dumont I, LLC ("Dumont") and UB New City, LLC, each of which owns a commercial retail property, and UB High Ridge, LLC ("UB High Ridge"), which owns three commercial real estate properties. The Company has evaluated its investment in these five joint ventures and has concluded that these joint ventures are fully controlled by the Company and that the presumption of control is not offset by any rights of any of the limited partners or non-controlling members in these ventures and that the joint ventures should be consolidated into the consolidated financial statements of the Company in accordance with ASC Topic 810, "Consolidation." The Company’s investment in these consolidated joint ventures is more fully described below:
UB Ironbound, L.P. ("Ironbound")
In August 2019, the Company redeemed the remaining noncontrolling interest in Ironbound for $3.0 million. After the redemption the Company's ownership of Ironbound increased from 84% to 100%. Ironbound owns the Ferry Plaza grocery-anchored shopping center, located in Newark, NJ.
Orangeburg
The Company, through a wholly-owned subsidiary, is the managing member and owns a 44.6% interest in Orangeburg, which owns a drug store-anchored shopping center. The other member (non-managing) of Orangeburg is the prior owner of the contributed property who, in exchange for contributing the net assets of the property, received units of Orangeburg equal to the value of the contributed property less the value of the assigned first mortgage payable. The Orangeburg operating agreement provides for the non-managing member to receive an annual cash distribution equal to the regular quarterly cash distribution declared by the Company for one share of the Company’s Class A Common stock, which amount is attributable to each unit of Orangeburg ownership. The annual cash distribution is paid from available cash, as defined, of Orangeburg. The balance of available cash, if any, is fully distributable to the Company. Upon liquidation, proceeds from the sale of Orangeburg assets are to be distributed in accordance with the operating agreement. The non-managing member is not obligated to make any additional capital contributions to the partnership. Orangeburg has a defined termination date of December 31, 2097. Since purchasing this property, the Company has made additional investments in the amount of $6.8 million in Orangeburg and as a result as of October 31, 2020 its ownership percentage has increased to 44.6% from approximately 2.92% at inception.
McLean Plaza
The Company, through a wholly-owned subsidiary, is the managing member and owns a 53% interest in McLean Plaza Associates, LLC, a limited liability company ("McLean"), which owns a grocery-anchored shopping center. The McLean operating agreement provides for the non-managing members to receive a fixed annual cash distribution equal to 5.05% of their invested capital. The annual cash distribution is paid from available cash, as defined, of McLean. The balance of available cash, if any, is fully distributable to the Company. Upon liquidation, proceeds from the sale of McLean assets are to be distributed in accordance with the operating agreement. The non-managing members are not obligated to make any additional capital contributions to the entity.
UB High Ridge
The Company is the managing member and owns a 16.3% interest in UB High Ridge, LLC. The Company's initial investment was $5.5 million, and the Company has purchased additional interests totaling $3.2 million and contributed $1.5 million in additional equity to the venture through October 31, 2020. UB High Ridge, either directly or through a wholly-owned subsidiary, owns three commercial real estate properties, High Ridge Shopping Center, a grocery-anchored shopping center ("High Ridge"), and two single tenant commercial retail properties, one leased to JP Morgan Chase ("Chase Property") and one leased to CVS ("CVS Property"). Two properties are located in Stamford, CT and one property is located in Greenwich, CT. High Ridge is a shopping center anchored by a Trader Joe's grocery store. The properties were contributed to the new entities by the former owners who received units of ownership of UB High Ridge equal to the value of properties contributed less liabilities assumed. The UB High Ridge operating agreement provides for the non-managing members to receive an annual cash distribution, currently equal to 4.58% of their invested capital.
UB Dumont I, LLC
The Company is the managing member and owns a 36.4% interest in UB Dumont I, LLC. The Company's initial investment was $3.9 million, and the Company has purchased additional interests totaling $630,000 through October 31, 2020. Dumont owns a retail and residential real estate property, which retail portion is anchored by a Stop & Shop grocery store. The property is located in Dumont, NJ. The property was contributed to the new entity by the former owners who received units of ownership of Dumont equal to the value of contributed property less liabilities assumed. The Dumont operating agreement provides for the non-managing members to receive an annual cash distribution, currently equal to 4.92% of their invested capital.
UB New City I, LLC
The Company is the managing member and owns an 84.3% equity interest in a joint venture, UB New City I, LLC. The Company's initial investment was $2.4 million, and the Company has purchased additional interests totaling $289,300 through October 31, 2020. New City owns a single tenant retail real estate property located in New City, NY, which is leased to a savings bank. In addition, New City rents certain parking spaces on the property to the owner of an adjacent grocery-anchored shopping center. The property was contributed to the new entity by the former owners who received units of ownership of New City equal to the value of contributed property. The New City operating agreement provides for the non-managing member to receive an annual cash distribution, currently equal to 5.00% of his invested capital.
Noncontrolling interests:
The Company accounts for noncontrolling interests in accordance with ASC Topic 810, “Consolidation.” Because the limited partners or noncontrolling members in Orangeburg, McLean, UB High Ridge, Dumont and New City have the right to require the Company to redeem all or a part of their limited partnership or limited liability company units for cash, or at the option of the Company shares of its Class A Common stock, at prices as defined in the governing agreements, the Company reports the noncontrolling interests in the consolidated joint ventures in the mezzanine section, outside of permanent equity, of the consolidated balance sheets at redemption value which approximates fair value. The value of the Orangeburg, McLean and a portion of the UB High Ridge and Dumont redemptions are based solely on the price of the Company’s Class A Common stock on the date of redemption. For the years ended October 31, 2020 and 2019, the Company increased/(decreased) the carrying value of the non-controlling interests by $(15.0) million and $4.5 million, respectively, with the corresponding adjustment recorded in stockholders' equity.
The following table sets forth the details of the Company's redeemable non-controlling interests (amounts in thousands):
October 31,
Beginning Balance
$
77,876
$
78,258
Partial redemption of UB High Ridge Noncontrolling Interest
(560
)
(1,413
)
Partial redemption of Dumont Noncontrolling Interest
-
(630
)
Partial redemption of New City Noncontrolling Interest
(198
)
(91
)
Redemption of Ironbound Noncontrolling Interest
-
(2,700
)
Change in Redemption Value
(15,047
)
4,452
Ending Balance
$
62,071
$
77,876
(6) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES
At October 31, 2020 and 2019, investments in and advances to unconsolidated joint ventures consisted of the following (with the Company's ownership percentage in parentheses) (amounts in thousands):
October 31,
Chestnut Ridge Shopping Center (50.0%)
$
12,252
$
12,048
Gateway Plaza (50%)
6,929
6,847
Putnam Plaza Shopping Center (66.67%)
2,599
3,446
Midway Shopping Center, L.P. (11.792%)
4,233
4,384
Applebee's at Riverhead (50%)
1,943
1,926
81 Pondfield Road Company (20%)
Total
$
28,679
$
29,374
Chestnut Ridge
The Company, through a wholly owned subsidiary, owns a 50% undivided tenancy-in-common equity interest in the 76,000 square foot Chestnut Ridge Shopping Center located in Montvale, New Jersey (“Chestnut”), which is anchored by a Fresh Market grocery store.
Plaza 59 Shopping Center
In fiscal 2019, the Company's wholly owned subsidiary that owned a 50% undivided tenancy-in-common interest in Plaza 59 and the other 50% tenancy-in-common owner of Plaza 59 sold the property to an unrelated third party for a sale price of $10.0 million. In accordance with ASC Topic 610-20, the property was de-recognized and the Company's 50% share of the loss on sale amounted to $462,000, which is included as a reduction of equity in net income from unconsolidated joint ventures on the Company's consolidated statement of income for the year ended October 31, 2019.
Gateway Plaza and Applebee's at Riverhead
The Company, through two wholly owned subsidiaries, owns a 50% undivided tenancy-in-common equity interest in the Gateway Plaza Shopping Center ("Gateway") and Applebee's at Riverhead ("Applebee's"). Both properties are located in Riverhead, New York (together the “Riverhead Properties”). Gateway, a 198,500 square foot shopping center anchored by a 168,000 square foot Walmart which also has 27,000 square feet of in-line space that is leased and a 3,500 square foot outparcel that is leased. Applebee's has a 5,400 square foot free standing Applebee’s restaurant with a 7,200 square foot pad site that is leased.
Gateway is subject to an $11.6 million non-recourse first mortgage. The mortgage matures on March 1, 2024 and requires payments of principal and interest at a fixed rate of interest of 4.2% per annum.
Putnam Plaza Shopping Center
The Company, through a wholly owned subsidiary, owns a 66.67% undivided tenancy-in-common equity interest in the 189,000 square foot Putnam Plaza Shopping Center (“Putnam Plaza”), which is anchored by a Tops grocery store.
Putnam Plaza has a first mortgage payable in the amount of $18.3 million. The mortgage requires monthly payments of principal and interest at a fixed rate of 4.81% and will mature in 2028.
Midway Shopping Center, L.P.
The Company, through a wholly owned subsidiary, owns an 11.792% equity interest in Midway Shopping Center L.P. (“Midway”), which owns a 247,000 square foot grocery-anchored shopping center in Westchester County, New York. Although the Company only has an 11.792% equity interest in Midway, it controls 25% of the voting power of Midway, and as such, has determined that it exercises significant influence over the financial and operating decisions of Midway but does not control the venture and accounts for its investment in Midway under the equity method of accounting.
The Company has allocated the $7.4 million excess of the carrying amount of its investment in and advances to Midway over the Company's share of Midway's net book value to real property and is amortizing the difference over the property's estimated useful life of 39 years.
Midway currently has a non-recourse first mortgage payable in the amount of $25.7 million. The loan requires payments of principal and interest at the rate of 4.80% per annum and will mature in 2027.
81 Pondfield Road Company
The Company's other investment in an unconsolidated joint venture is a 20% economic interest in a partnership which owns a retail and office building in Westchester County, New York.
The Company accounts for the above investments under the equity method of accounting since it exercises significant influence, but does not control the joint ventures. The other venturers in the joint ventures have substantial participation rights in the financial decisions and operation of the ventures or properties, which preclude the Company from consolidating the investments. The Company has evaluated its investment in the joint ventures and has concluded that the joint ventures are not VIE's. Under the equity method of accounting the initial investment is recorded at cost as an investment in unconsolidated joint venture, and subsequently adjusted for equity in net income (loss) and cash contributions and distributions from the venture. Any difference between the carrying amount of the investment on the Company’s balance sheet and the underlying equity in net assets of the venture is evaluated for impairment at each reporting period.
(7) LEASES
Lessor Accounting
The Company's Lease income is comprised of both fixed and variable income, as follows:
Fixed lease income includes stated amounts per the lease contract, which are primarily related to base rent. Income for these amounts is recognized on a straight-line basis for all leases for which collectability is considered probable at the commencement date of the lease. For operating leases in which collectability of the lease income is not considered probable, lease income is recognized on a cash basis and all previously recognized uncollectable lease income, including straight-line lease income is reversed in the period in which the lease income is determined not to be probable of collection.
Variable lease income includes recoveries from tenants, which represents amounts that tenants are contractually obligated to reimburse the Company for the tenants’ portion of Recoverable Costs. Generally, the Company’s leases provide for the tenants to reimburse the Company for Recoverable Costs based on the tenants’ share of the actual costs incurred in proportion to the tenants’ share of leased space in the property.
The following table provides a disaggregation of lease income recognized during the years ended October 31, 2020, 2019 and 2018, under ASC Topic 842, "Leases," as either fixed or variable lease income based on the criteria specified in ASC Topic 842 (in thousands):
October 31,
Operating lease income:
Fixed lease income (Base Rent)
$
98,678
$
99,845
$
95,734
Variable lease income (Recoverable Costs)
28,889
32,784
31,144
Other lease related income, net:
Above/below market rent amortization
1,209
Uncollectable amounts in lease income
(3,916
)
(956
)
(857
)
ASC Topic 842 cash basis lease income reversal
(3,416
)
-
-
Total lease income
$
120,941
$
132,287
$
127,230
Future minimum rents under non-cancelable operating leases for the next five years and thereafter, excluding variable lease payments, are as follows (in thousands):
Fiscal Year Ending
2021(a)
$
99,312
83,631
67,486
57,996
45,831
Thereafter
215,138
Total
$
569,394
(a) The amounts above are based on existing leases in place at October 31, 2020.
(8) STOCKHOLDERS' EQUITY
Authorized Stock
The Company's Charter authorizes up to 200,000,000 shares of various classes of stock. The total number of shares of authorized stock consists of 100,000,000 shares of Class A Common Stock, 30,000,000 shares of Common Stock, 50,000,000 shares of Preferred Stock, and 20,000,000 shares of Excess Stock.
Preferred Stock
The 6.25% Series H Senior Cumulative Preferred Stock (the "Series H Preferred Stock") is nonvoting, has no stated maturity and is redeemable for cash at $25 per share at the Company's option on or after September 18, 2022. The holders of our Series H Preferred Stock have general preference rights with respect to liquidation and quarterly distributions. Except under certain conditions, holders of the Series H Preferred Stock will not be entitled to vote on most matters. In the event of a cumulative arrearage equal to six quarterly dividends, holders of Series H Preferred Stock, together with all of the Company's other Series of preferred stock (voting as a single class without regard to series) will have the right to elect two additional members to serve on the Company's Board of Directors until the arrearage has been cured. Upon the occurrence of a Change of Control, as defined in the Company's Articles of Incorporation, the holders of the Series H Preferred Stock will have the right to convert all or part of the shares of Series H Preferred Stock held by such holder on the applicable conversion date into a number of the Company's shares of Class A common stock. Underwriting commissions and costs incurred in connection with the sale of the Series H Preferred Stock are reflected as a reduction of additional paid in capital.
The 5.875% Series K Senior Cumulative Preferred Stock ("Series K Preferred Stock") is non-voting, has no stated maturity and is redeemable for cash at $25 per share at the Company's option on or after October 1, 2024. The holders of our Series K Preferred Stock have general preference rights with respect to liquidation and quarterly distributions. Except under certain conditions, holders of the Series K Preferred Stock will not be entitled to vote on most matters. In the event of a cumulative arrearage equal to six quarterly dividends, holders of Series K Preferred Stock, together with all of the Company's other series of preferred stock (voting as a single class without regard to series) will have the right to elect two additional members to serve on the Company's Board of Directors until the arrearage has been cured. Upon the occurrence of a Change of Control, as defined in the Company's Articles of Incorporation, the holders of the Series K Preferred Stock will have the right to convert all or part of the shares of Series K Preferred Stock held by such holders on the applicable conversion date into a number of the Company's shares of Class A common stock. Underwriting commissions and costs incurred in connection with the sale of the Series K Preferred Stock are reflected as a reduction of additional paid in capital.
On October 1, 2019, we issued a notice of our intent to redeem, on November 1, 2019, all of the outstanding shares of our $25 per share Series G Cumulative Preferred Stock for $25 per share, which includes all unpaid dividends. As a result of our redemption notice we reduced net income applicable to Common and Class A Common stockholders by $2.4 million on our consolidated statement of income for the fiscal year ended October 31, 2019, which represents the difference between redemption value of the stock and carrying value, net of original deferred stock issuance costs. As of October 31, 2019, the Series G Preferred Stock was reclassified out of Stockholders' Equity to preferred stock called for redemption in the liability section of the Company's consolidated balance sheet. The Series G Cumulative Preferred Stock was redeemed on November 1, 2019.
Common Stock
The Class A Common Stock entitles the holder to 1/20 of one vote per share. The Common Stock entitles the holder to one vote per share. Each share of Common Stock and Class A Common Stock have identical rights with respect to dividends except that each share of Class A Common Stock will receive not less than 110% of the regular quarterly dividends paid on each share of Common Stock.
The following tables set forth the dividends declared per Common share and Class A Common share and tax status for Federal income tax purposes of the dividends paid during the fiscal years ended October 31, 2020 and 2019:
Common Shares
Class A Common Shares
Dividend Payment Date
Gross Dividend
Paid Per Share
Ordinary Income
Capital Gain
Non-Taxable Portion
Gross Dividend
Paid Per Share
Ordinary Income
Capital Gain
Non-Taxable Portion
January 17, 2020
$
0.2500
$
0.174386
$
(0.003376
)
$
0.07899
$
0.28
$
0.1953
$
(0.0038
)
$
0.0885
April 17, 2020
$
0.2500
$
0.174386
$
(0.003376
)
$
0.07899
$
0.28
$
0.1953
$
(0.0038
)
$
0.0885
July 17, 2020
$
0.0625
$
0.043597
$
(0.000844
)
$
0.019747
$
0.07
$
0.0488
$
(0.0009
)
$
0.0221
October 16, 2020
$
0.1250
$
0.087193
$
(0.001688
)
$
0.039495
$
0.14
$
0.0977
$
(0.0019
)
$
0.0442
$
0.6875
$
0.479562
$
(0.009284
)
$
0.217222
$
0.77
$
0.5371
$
(0.0104
)
$
0.2433
Common Shares
Class A Common Shares
Dividend Payment Date
Gross Dividend
Paid Per Share
Ordinary Income
Capital Gain
Non-Taxable Portion
Gross Dividend
Paid Per Share
Ordinary Income
Capital Gain
Non-Taxable Portion
January 18, 2019
$
0.245
$
0.173355
$
0.006156
$
0.065489
$
0.275
$
0.1946
$
0.0069
$
0.0735
April 18, 2019
$
0.245
$
0.173355
$
0.006156
$
0.065489
$
0.275
$
0.1946
$
0.0069
$
0.0735
July 19, 2019
$
0.245
$
0.173355
$
0.006156
$
0.065489
$
0.275
$
0.1946
$
0.0069
$
0.0735
October 18, 2019
$
0.245
$
0.173355
$
0.006156
$
0.065489
$
0.275
$
0.1946
$
0.0069
$
0.0735
$
0.98
$
0.69342
$
0.024624
$
0.261956
$
1.10
$
0.7784
$
0.0276
$
0.294
The Company has a Dividend Reinvestment and Share Purchase Plan (as amended, the "DRIP"), that permits stockholders to acquire additional shares of Common Stock and Class A Common Stock by automatically reinvesting dividends. During fiscal 2020, the Company issued 4,451 shares of Common Stock and 6,837 shares of Class A Common Stock (4,545 shares of Common Stock and 5,417 shares of Class A Common Stock in fiscal 2019) through the DRIP. As of October 31, 2020, there remained 329,410 shares of Common Stock and 380,896 shares of Class A Common Stock available for issuance under the DRIP.
The Company has adopted a stockholder rights plan, pursuant to which each holder of Common Stock received a Common Stock right and each holder of Class A Common Stock received a Class A Common Stock right. The rights are not exercisable until the Distribution Date and will expire on November 11, 2028, unless earlier redeemed by the Company. If the rights become exercisable, each holder of a Common Stock right will be entitled to purchase from the Company one one hundredth of a share of Series I Participating Preferred Stock, and each holder of a Class A Common Stock right will be entitled to purchase from the Company one one hundredth of a share of Series J Participating Preferred Stock, in each case, at a price of $85, subject to adjustment. The “Distribution Date” will be the earlier to occur of the close of business on the tenth business day following: (a) a public announcement that an acquiring person has acquired beneficial ownership of 10% or more of the total combined voting power of the outstanding Common Stock and Class A Common Stock, or (b) the commencement of a tender offer or exchange offer that would result in the beneficial ownership of 30% or more of the combined voting power of the outstanding Common Stock and Class A Common Stock, number of outstanding Common Stock, or the number of outstanding Class A Common Stock. Thereafter, if certain events occur, holders of Common Stock and Class A Common Stock, other than the acquiring person, will be entitled to purchase shares of Common Stock and Class A Common Stock, respectively, of the Company having a value equal to 2 times the exercise price of the right.
The Company's articles of incorporation provide that if any person acquires more than 7.5% of the aggregate value of all outstanding stock, except, among other reasons, as approved by the Board of Directors, such shares in excess of this limit automatically will be exchanged for an equal number of shares of Excess Stock. Excess Stock has limited rights, may not be voted and is not entitled to any dividends.
Stock Repurchase
The Board of Directors of the Company has approved a share repurchase program (“Current Repurchase Program”) for the repurchase of up to 2,000,000 shares, in the aggregate, of Common stock and Class A Common stock in open market transactions.
For the year ended year ended October 31, 2020 and 2019, the Company did not repurchase any shares under the Current Repurchase Program. The Company has repurchased 195,413 shares of Class A Common Stock under the Current Repurchase Program. From the inception of all repurchase programs, the Company has repurchased 4,600 shares of Common Stock and 919,991 shares of Class A Common Stock.
(9) STOCK COMPENSATION AND OTHER BENEFIT PLANS
Restricted Stock Plan
The Company has a Restricted Stock Plan, as amended (the "Plan") that provides a form of equity compensation for employees of the Company. In March 2019, the stockholders of the Company approved an increase in the number of shares available for grant under the Plan by 1,000,000 shares. The Plan, which is administered by the Company's compensation committee, authorizes grants of up to an aggregate of 5,500,000 shares of the Company’s common equity consisting of 350,000 Common shares, 350,000 Class A Common shares and 4,800,000 shares, which at the discretion of the compensation committee, may be awarded in any combination of Class A Common shares or Common shares.
In fiscal 2020, the Company awarded 105,450 shares of Common Stock and 120,800 shares of Class A Common Stock to participants in the Plan. The grant date fair value of restricted stock grants awarded to participants in 2020 was approximately $5.0 million. As of October 31, 2020, there was $12.7 million of unamortized restricted stock compensation related to non-vested restricted stock grants awarded under the Plan. The remaining unamortized expense is expected to be recognized over a weighted average period of 4.8 years. For the years ended October 31, 2020, 2019 and 2018, amounts charged to compensation expense totaled $5,523,000, $4,336,000 and $4,394,000, respectively. The year ended October 31, 2020 amount charged to compensation expense includes $1.4 million related to the accelerated vesting of previously unamortized restricted stock compensation as the result of the death of our Chairman Emeritus, Charles J. Urstadt, in March 2020.
A summary of the status of the Company's non-vested restricted stock awards as of October 31, 2020, and changes during the year ended October 31, 2020 is presented below:
Common Shares
Class A Common Shares
Shares
Weighted-Average
Grant Date Fair Value
Shares
Weighted-Average
Grant Date Fair Value
Non-vested at October 31, 2019
1,146,100
$
17.52
463,225
$
21.07
Granted
105,450
$
19.59
120,800
$
23.96
Vested
(327,000
)
$
17.71
(92,375
)
$
22.20
Forfeited
-
$
-
(700
)
$
23.23
Non-vested at October 31, 2020
924,550
$
17.69
490,950
$
21.56
Profit Sharing and Savings Plan
The Company has a profit sharing and savings plan (the "401K Plan"), which permits eligible employees to defer a portion of their compensation in accordance with the Internal Revenue Code. Under the 401K Plan, the Company made contributions on behalf of eligible employees. The Company made contributions to the 401K Plan of approximately $253,000, $224,000 and $220,000 in each of the three years ended October 31, 2020, 2019 and 2018, respectively. The Company also has an Excess Benefit and Deferred Compensation Plan that allows eligible employees to defer benefits in excess of amounts provided under the Company's 401K Plan and a portion of the employee's current compensation.
(10) FAIR VALUE MEASUREMENTS
ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants.
ASC Topic 820’s valuation techniques are based on observable or unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy:
• Level 1- Quoted prices for identical instruments in active markets
• Level 2- Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant value drivers are observable
• Level 3- Valuations derived from valuation techniques in which significant value drivers are unobservable
The Company calculates the fair value of the redeemable noncontrolling interests based on either quoted market prices on national exchanges for those interests based on the Company's Class A Common stock (level 1), contractual redemption prices per share as stated in governing agreements (level 2) or unobservable inputs considering the assumptions that market participants would make in pricing the obligations (level 3). The level 3 inputs used include an estimate of the fair value of the cash flow generated by the limited partnership or limited liability company in which the investor owns the joint venture units capitalized at prevailing market rates for properties with similar characteristics or located in similar areas.
The fair values of interest rate swaps are determined using widely accepted valuation techniques, including discounted cash flow analysis, on the expected cash flows of each derivative. The analysis reflects the contractual terms of the swaps, including the period to maturity, and uses observable market-based inputs, including interest rate curves ("significant other observable inputs.") The fair value calculation also includes an amount for risk of non-performance using "significant unobservable inputs" such as estimates of current credit spreads to evaluate the likelihood of default. The Company has concluded, as of October 31, 2020 and 2019, that the fair value associated with the "significant unobservable inputs" relating to the Company's risk of non-performance was insignificant to the overall fair value of the interest rate swap agreements and, as a result, the Company has determined that the relevant inputs for purposes of calculating the fair value of the interest rate swap agreements, in their entirety, were based upon "significant other observable inputs".
The Company measures its redeemable noncontrolling interests and interest rate swap derivatives at fair value on a recurring basis. The fair value of these financial assets and liabilities was determined using the following inputs at October 31, 2020 and 2019 (amounts in thousands):
Total
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
October 31, 2020
Liabilities:
Interest Rate Swap Agreements
$
13,300
$
-
$
13,300
$
-
Redeemable noncontrolling interests
$
62,071
$
9,921
$
51,604
$
October 31, 2019
Liabilities:
Interest Rate Swap Agreements
$
6,754
$
-
$
6,754
$
-
Redeemable noncontrolling interests
$
77,876
$
24,968
$
52,362
$
Fair market value measurements based upon Level 3 inputs changed (in thousands) from $2,768 at November 1, 2018 to $546 at October 31, 2019 as a result of a redemption of noncontrolling interest in Ironbound in August of fiscal 2019 in the amount of $2,700 and a $478 increase in the redemption value of the Company's noncontrolling interest in Ironbound in accordance with the application of ASC Topic 810.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, tenant receivables, prepaid expenses, other assets, accounts payable and accrued expenses, are reasonable estimates of their fair values because of the short-term nature of these instruments. The carrying value of the Facility is deemed to be at fair value since the outstanding debt is directly tied to monthly LIBOR contracts. Mortgage notes payable that were assumed in property acquisitions were recorded at their fair value at the time they were assumed.
The estimated fair value of mortgage notes payable and other loans was approximately $316 million and $311 million at October 31, 2020 and October 31, 2019, respectively. The estimated fair value of mortgage notes payable is based on discounting the future cash flows at a year-end risk adjusted borrowing rates currently available to the Company for issuance of debt with similar terms and remaining maturities. These fair value measurements fall within level 2 of the fair value hierarchy.
Although management is not aware of any factors that would significantly affect the estimated fair value amounts from October 31, 2019, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.
(11) COMMITMENTS AND CONTINGENCIES
In the normal course of business, from time to time, the Company is involved in legal actions relating to the ownership and operations of its properties. In management’s opinion, the liabilities, if any, that may ultimately result from such legal actions are not expected to have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. At October 31, 2020, the Company had commitments of approximately $7.6 million for tenant-related obligations.
During and subsequent to fiscal 2020, the world has continued to be impacted by the COVID-19 pandemic. It has created significant economic uncertainty and volatility. The extent to which the COVID-19 pandemic continues to impact the Company’s business, operations and financial results will depend on numerous evolving factors that the Company is not able to predict at this time, including the duration and scope of the pandemic, governmental, business and individual actions that have been and continue to be taken in response to the pandemic, the impact on economic activity from the pandemic and actions taken in response, the effect on the Company’s tenants and their businesses, the ability of tenants to make their rental payments and any additional closures of tenants’ businesses. Any of these events could materially adversely impact the Company’s business, financial condition, results of operations or stock price.
(12) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The unaudited quarterly results of operations for the years ended October 31, 2020 and 2019 are as follows (in thousands, except per share data):
Year Ended October 31, 2020
Year Ended October 31, 2019
Quarter Ended
Quarter Ended
Jan 31
Apr 30
Jul 31
Oct 31
Jan 31
Apr 30
Jul 31
Oct 31
Revenues
$
34,348
$
31,280
$
28,799
$
32,318
$
34,267
$
34,105
$
34,392
$
34,117
Income from Continuing Operations
$
9,521
$
7,240
$
5,923
$
3,386
$
10,018
$
9,960
$
11,427
$
10,208
Net Income Attributable to Urstadt Biddle Properties Inc.
$
8,483
$
6,212
$
4,988
$
2,500
$
8,917
$
8,860
$
10,333
$
9,170
Preferred Stock Dividends
(3,412
)
(3,413
)
(3,412
)
(3,413
)
(3,063
)
(3,062
)
(3,063
)
(3,601
)
Redemption of Preferred Stock
-
-
-
-
-
-
-
(2,363
)
Net Income (Loss) Applicable to Common and Class A Common Stockholders
$
5,071
$
2,799
$
1,576
$
(913
)
$
5,854
$
5,798
$
7,270
$
3,206
Per Share Data:
Basic:
Class A Common Stock
$
0.14
$
0.07
$
0.04
$
(0.02
)
$
0.16
$
0.16
$
0.19
$
0.09
Common Stock
$
0.12
$
0.07
$
0.04
$
(0.02
)
$
0.14
$
0.14
$
0.17
$
0.08
Diluted:
Class A Common Stock
$
0.13
$
0.07
$
0.04
$
(0.02
)
$
0.16
$
0.15
$
0.19
$
0.08
Common Stock
$
0.12
$
0.07
$
0.04
$
(0.02
)
$
0.14
$
0.14
$
0.17
$
0.07
Amounts may not equal full year results due to rounding.
Certain prior period amounts are reclassified to correspond to current period presentation.
(13) SUBSEQUENT EVENTS
On December 15, 2020, the Board of Directors of the Company declared cash dividends of $0.125 for each share of Common Stock and $0.14 for each share of Class A Common Stock. The dividends are payable on January 15, 2021 to stockholders of record on January 5, 2021. The Board of Directors also ratified the actions of the Company’s compensation committee authorizing awards of 105,850 shares of Common Stock and 125,800 shares of Class A Common Stock to certain officers, directors and employees of the Company effective January 4, 2021, pursuant to the Company’s restricted stock plan. The fair value of the shares awarded totaling $3.0 million will be charged to expense over the requisite service periods (see Note 1).
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Urstadt Biddle Properties Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Urstadt Biddle Properties Inc. (the “Company”) as of October 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended October 31, 2020, and the related notes and schedule listed in the Index at Item 15(A)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of October 31, 2020, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated January 12, 2021, expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PKF O'Connor Davies, LLP
We have served as the Company’s auditor since 2006.
New York, New York
January 12, 2021
URSTADT BIDDLE PROPERTIES INC.
October 31, 2020
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(In thousands)
COL. A
COL. B
COL. C
COL. D
COL. E
COL. F
COL G/H
COL. I
Initial Cost to Company
Cost Capitalized Subsequent to Acquisition
Amount at which Carried at Close of Period
Description and Location
Encumbrances
Land
Building &
Improvements
Land
Building &
Improvements
Land
Building &
Improvements
Totals
Accumulated Depreciation (b)
Date Constructed/Acquired
Life on which
depreciation for
building and
improvements
in latest income
statement is
computed (c)
Real Estate Subject to Operating Leases (a):
Office Buildings:
Greenwich, CT
$
-
$
$
1,641
$
-
$
$
$
1,899
$
2,607
$
31.5
Greenwich, CT
-
1,139
-
1,761
2,249
31.5
Greenwich, CT
-
2,359
-
1,219
3,578
4,148
1,607
31.5
Greenwich, CT
-
(1)
1,377
1,575
31.5
Greenwich, CT
-
31.5
-
2,076
6,378
-
3,012
2,076
9,390
11,466
4,448
Retail Properties:
Bronxville, NY
-
1,010
1,165
Yonkers, NY
-
1,068
Yonkers, NY
-
New Milford, CT
-
2,114
8,456
2,185
9,065
11,250
2,918
New Milford, CT
-
4,492
17,967
3,500
4,658
21,467
26,125
5,943
Newark, NJ
10,327
5,252
21,023
-
1,531
5,252
22,554
27,806
7,559
Waldwick, NJ
-
1,266
5,064
-
1,266
5,105
6,371
1,678
Emerson NJ
3,633
14,531
-
1,808
3,633
16,339
19,972
5,771
Pelham, NY
-
1,694
6,843
-
1,694
6,992
8,686
2,577
Stratford, CT
23,540
10,173
40,794
3,914
22,966
14,087
63,760
77,847
22,613
Yorktown Heights, NY
-
5,786
23,221
-
15,590
5,786
38,811
44,597
11,673
Rye, NY
-
3,637
-
4,013
4,922
1,726
Rye, NY
-
1,930
-
2,043
2,526
Rye, NY
-
-
1,022
1,261
Rye, NY
-
2,782
-
2,802
3,497
1,189
Somers, NY
-
4,318
17,268
-
4,318
17,680
21,998
7,800
Westport, CT
-
2,076
8,305
-
2,076
8,952
11,028
4,020
Orange, CT
-
2,320
10,564
-
6,008
2,320
16,572
18,892
5,395
Stamford, CT
46,456
17,964
71,859
-
6,650
17,964
78,509
96,473
38,849
Danbury, CT
-
2,459
4,566
-
2,459
5,469
7,928
2,784
Briarcliff, NY
-
2,222
5,185
1,234
8,881
3,456
14,066
17,522
4,215
Somers, NY
-
1,833
7,383
-
3,661
1,833
11,044
12,877
5,433
31.5
Briarcliff, NY
-
1,531
-
1,674
2,054
Briarcliff, NY
14,232
2,300
9,708
2,623
2,302
12,331
14,633
6,386
Ridgefield, CT
-
3,793
3,288
1,191
7,081
8,272
2,806
Darien, CT
24,227
4,260
17,192
-
4,260
17,892
22,152
9,910
Eastchester, NY
-
1,500
6,128
-
2,929
1,500
9,057
10,557
4,724
Danbury, CT
-
3,850
15,811
-
5,206
3,850
21,017
24,867
14,067
31.5
Carmel, NY
-
1,488
5,973
-
1,488
6,312
7,800
3,873
31.5
Somers, NY
-
2,600
-
3,246
4,067
1,892
31.5
Wayne, NJ
-
2,492
9,966
-
6,312
2,492
16,278
18,770
8,190
Newington, NH
-
1,997
-
(809)
1,188
1,916
Katonah, NY
-
1,704
6,816
-
1,704
6,872
8,576
1,863
Fairfield, CT
-
3,393
13,574
1,234
3,546
14,808
18,354
3,516
New Milford, CT
-
2,168
8,672
-
2,168
8,742
10,910
2,139
Eastchester, NY
-
1,800
7,200
1,878
7,670
9,548
1,741
Orangetown, NY
6,067
3,200
12,800
7,591
3,230
20,391
23,621
3,905
Greenwich, CT
4,342
1,600
6,401
1,628
7,078
8,706
1,485
Various
-
3,590
(59)
3,531
4,409
Greenwich, CT
5,415
1,998
7,994
2,051
8,277
10,328
1,589
New Providence, NJ
17,137
6,970
27,880
3,004
7,433
30,884
38,317
6,164
Chester, NJ
-
2,280
(34)
(137)
2,143
2,679
Bethel, CT
-
1,800
7,200
(18)
1,782
7,224
9,006
1,253
Bloomfield, NJ
-
2,201
8,804
2,023
2,419
10,827
13,246
1,804
Boonton, NJ
6,761
3,670
14,680
3,684
14,889
18,573
2,614
Yonkers, NY
5,000
3,060
12,240
1,331
3,393
13,571
16,964
2,098
Greenwich, CT
7,374
3,223
12,893
3,229
13,156
16,385
2,066
Greenwich, CT
14,313
6,257
25,029
6,284
25,915
32,199
4,021
Midland Park, NJ
19,308
8,740
34,960
(44)
8,696
35,528
44,224
5,490
Pompton Lakes, NJ
18,238
8,140
32,560
(1,250)
(4,083)
6,890
28,477
35,367
4,321
Wyckoff, NJ
7,665
3,490
13,960
3,507
14,166
17,673
2,152
Kinnelon, NJ
10,202
4,540
18,160
(28)
3,980
4,512
22,140
26,652
4,538
Fort Lee, NJ
-
3,192
(14)
(55)
3,137
3,921
Harrison, NY
-
2,000
8,000
(10)
1,405
1,990
9,405
11,395
1,174
Stamford, CT
20,773
12,686
32,620
-
12,686
33,551
46,237
3,643
Stamford, CT
-
3,691
9,491
-
3,691
9,577
13,268
1,007
Derby, CT
-
7,652
-
7,858
8,509
Passaic, NJ
3,224
2,039
5,616
1,568
2,040
7,184
9,224
Stamford, CT (HRC)
9,411
17,178
43,677
-
17,178
44,261
61,439
4,115
Stamford, CT (HRChase)
-
2,376
1,458
-
-
2,376
1,458
3,834
Old Greenwich , CT (HRCVS)
1,092
2,295
2,700
-
2,295
2,704
4,999
Waldwick, NJ
-
2,761
5,571
2,762
5,831
8,593
Dumont, NJ
9,438
6,646
15,341
6,649
15,625
22,274
1,305
Ridgefield, CT
-
2,782
-
3,223
3,516
Yonkers, NY
-
7,525
5,920
7,526
6,196
13,722
New City, NY
-
2,494
2,506
3,141
Brewster, NY
11,473
4,106
10,620
2,789
6,895
11,536
18,431
296,271
225,629
780,480
8,949
122,658
234,578
903,138
1,137,716
256,877
Total
$
296,271
$
227,705
$
786,858
$
8,949
$
125,670
$
236,654
$
912,528
$
1,149,182
$
261,325
URSTADT BIDDLE PROPERTIES INC.
October 31, 2020
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
(In thousands)
Year Ended October 31,
NOTES:
(a) RECONCILIATION OF REAL ESTATE-OWNED SUBJECT TO OPERATING LEASES
Balance at beginning of year
$
1,141,770
$
1,118,075
$
1,090,402
Property improvements during the year
24,443
18,372
7,781
Properties acquired during the year
-
12,643
22,517
Properties sold during the year
(11,335
)
(4,395
)
-
Property assets fully depreciated and written off
(5,696
)
(2,925
)
(2,625
)
Balance at end of year (e)
$
1,149,182
$
1,141,770
$
1,118,075
(b) RECONCILIATION OF ACCUMULATED DEPRECIATION
Balance at beginning of year
$
241,154
$
218,653
$
195,020
Provision during the year charged to income (d)
27,438
26,427
26,258
Property sold during the year
(1,571
)
(1,001
)
-
Property assets fully depreciated and written off
(5,696
)
(2,925
)
(2,625
)
Balance at end of year
$
261,325
$
241,154
$
218,653
(c) Tenant improvement costs are depreciated over the life of the related leases, which range from 5 to 20 years.
(d) The depreciation provision represents the expense calculated on real property only.
(e) The aggregate cost for Federal Income Tax purposes for real estate subject to operating leases was approximately $868 million at October 31, 2020.