Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
URSTADT BIDDLE PROPERTIES INC.
The accompanying notes to consolidated financial statements are an integral part of these statements.
URSTADT BIDDLE PROPERTIES INC.
The accompanying notes to consolidated financial statements are an integral part of these statements.
The accompanying notes to consolidated financial statements are an integral part of these statements.
URSTADT BIDDLE PROPERTIES INC.
The accompanying notes to consolidated financial statements are an integral part of these statements.
URSTADT BIDDLE PROPERTIES INC.
The accompanying notes to consolidated financial statements are an integral part of these statements
Acquisitions of Real Estate Investments, Capitalization Policy and Depreciation
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 for 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 that 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:
The Company is required to make subjective assessments as to the useful life of its properties for purposes of determining the amount of depreciation. These assessments have a direct impact on the Company’s net income.
Properties are depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives are as follows:
| Buildings | 30-40 years |
| Property Improvements | 10-20 years |
| Furniture/Fixtures | 3-10 years |
| Tenant Improvements | Shorter of lease term 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 March 2021, the Company sold its property located in Hillsdale, NJ (the "Hillsdale Property") to an unrelated third party for a sale price of $1.3 million, as that property no longer met the Company's investment objectives. In accordance with ASC Topic 840, Contracts with Customers, the Company recorded a gain on sale in the amount of $435,000 in its consolidated income statements for the six months and three months ended April 30, 2021, when the Company's performance obligation was met, the transfer of the property's title to the buyer and when consideration was received from the buyer for that performance obligation.
In March 2021, the Company entered into a purchase and sale agreement to sell its property located in Newington, NH (the "Newington Property") to an unrelated third party for a sale price of $13.4 million as that property no longer met the Company's 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 second quarter of fiscal 2021. The net book value of the Newington 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 April 30, 2021.
In accordance with ASC Topic 840, Contracts with Customers, the Company anticipates it will record a gain on sale of the Newington Property in the approximate amount of $11.9 million, when the Company's performance obligation is met, the transfer of the property's title to the buyer and when consideration is received from the buyer for that performance obligation. The Company expects this to occur later in fiscal 2021.
The operating results of the Hillsdale Property and Newington Property, which are included in continuing operations are as follows (amounts in thousands):
| | Six Months Ended April 30, | | | Three Months Ended April 30, | |
| | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
| Revenues | | $ | 777 | | | $ | 962 | | | $ | 294 | | | $ | 462 | |
| Property operating expense | | | (244 | ) | | | (307 | ) | | | (134 | ) | | | (135 | ) |
| Depreciation and amortization | | | (36 | ) | | | (95 | ) | | | (16 | ) | | | (42 | ) |
| Net Income (Loss) | | $ | 497 | | | $ | 560 | | | $ | 144 | | | $ | 285 | |
Lease Income, Revenue Recognition and Tenant Receivables
Lease Income:
The Company accounts for lease income in accordance with ASC Topic 842 "Leases".
The Company's existing leases are generally 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.
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 sbeyondbeyond 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.
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, in accordance with ASC Topic 842, combines 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 consolidated 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 uncollectableuncollected 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.
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.
COVID-19 Pandemic
Beginning in March 2020, many of the Company's properties were, and some continue to be, negatively impacted by the COVID-19 pandemic, as state governments mandated restrictions on the operation 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, 401 of approximately 870863 tenants in the Company's consolidated portfolio, representing 1.6 million square feet and approximately 44.7%45.0% of the Company's annualized base rent, have asked for some type of rent deferral or concession. Subsequently, approximately 116118 of the 401 tenants withdrew their requests for rent relief or paid their rent in full. We continued to receive a smaller number of new requests even after businesses began to re-open, and in some cases, follow-on requests from tenants to whom we had already provided rent relief, but these requests are beginning to taper off and no new requests from tenants who had not previously requested rent relief were received during the quarter ended April 30, 2021. The Company has evaluated, and will continue to evaluate any requests 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 considering, 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 for the months of April 2020 through December 2020 or potentially for a portion of fiscal 2021, to be paid over a later part of the lease, preferably within a period of one year or less. In some instances, however, the Company determined that it was more appropriate to abate some portion of base rents for the months of April 2020 through December 2020, or potentially for a portion of fiscal 2021 and for one tenant, through fiscal 2023.2023. From the onset of COVID-19 through January 31,April 30, 2021, the Company has completed 266274 lease modifications, consisting of base rent deferrals totaling $3.8$3.8 million and rent abatements totaling $3.4$3.7 million. Included in the aforementioned amounts were the40 and 8 rent deferrals and abatements completed in the six and three months ended January 31,April 30, 2021 amounting to 32 rent deferrals or abatements,, respectively, which deferred $399,000$426,000 and $26,000 of base rents and abated $2.0$2.3 million and $287,000 of base rents.rents in the six and three months ended April 30, 2021, respectively. The $2.0 million$287,000 in rent abatements completed in the three months ended January 31,April 30, 2021 included $1.0 million$84,000 in base rents due for periods after January 31, 2021.April 30, 2021.
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.
Most 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.
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 hadhas 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. During the six and three months ended January 31,April 30, 2021, we recognized collectability related adjustments totaling $1.7 million.$3.3 million and $1.6 million, respectively. 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 six and three months ended January 31,April 30, 2021 in the amount of $999,000$1.9 million and $893,000, respectively, related to tenants whose assessment of collectability was changed from probable to not probable, either in a prior period or in the current period. In addition, the Company wrote-off $441,000$1.3 million and $814,000 of previously recorded straight-line rent receivables related to tenants whose assessment of collectability was changed from probable to not probable in the six and three months ended January 31, 2021.April 30, 2021, respectively. As of January 31,April 30, 2021, the revenue from approximately 9.2%10.3% of our tenants (based on total commercial leases) is being recognized on a cash basis.
At January 31,April 30, 2021 and October 31, 2020, $21,699,000$19,740,000 and $22,330,000, respectively, have been recognized as straight-line rents receivable (representing the current cumulative rents recognized prior to when billed and collectable 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 January 31,April 30, 2021 and October 31, 2020, tenant receivables in the accompanying consolidated balance sheets are shown net of allowances for doubtful accounts of $8,582,000$8,638,000 and $8,769,000, 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.
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):
| | Three Months Ended January 31, | |
| | | 2021 | | | 2020 | |
| Numerator | | | | | | |
| Net income applicable to common stockholders – basic | | $ | 977 | | | $ | 1,082 | |
| Effect of dilutive securities: | | | | | | | | |
| Restricted stock awards | | | 12 | | | | 41 | |
| Net income applicable to common stockholders – diluted | | $ | 989 | | | $ | 1,123 | |
| | | | | | | | | |
| Denominator | | | | | | | | |
| Denominator for basic EPS – weighted average common shares | | | 9,250 | | | | 8,968 | |
| Effect of dilutive securities: | | | | | | | | |
| Restricted stock awards | | | 143 | | | | 479 | |
| Denominator for diluted EPS – weighted average common equivalent shares | | | 9,393 | | | | 9,447 | |
| | | | | | | | | |
| Numerator | | | | | | | | |
| Net income applicable to Class A common stockholders-basic | | $ | 3,502 | | | $ | 3,989 | |
| Effect of dilutive securities: | | | | | | | | |
| Restricted stock awards | | | (12 | ) | | | (41 | ) |
| Net income applicable to Class A common stockholders – diluted | | $ | 3,490 | | | $ | 3,948 | |
| | | | | | | | | |
| Denominator | | | | | | | | |
| Denominator for basic EPS – weighted average Class A common shares | | | 29,590 | | | | 29,508 | |
| Effect of dilutive securities: | | | | | | | | |
| Restricted stock awards | | | 0 | | | | 140 | |
| Denominator for diluted EPS – weighted average Class A common equivalent shares | | | 29,590 | | | | 29,648 | |
| | April 30, | | | Three Months Ended April 30, | |
| | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
| Numerator | | | | | | | | | | | | |
| Net income applicable to common stockholders – basic | | $ | 1,986 | | | $ | 1,705 | | | $ | 1,009 | | | $ | 607 | |
| Effect of dilutive securities: | | | | | | | | | | | | | | | | |
| Restricted stock awards | | | 37 | | | | 51 | | | | 25 | | | | 13 | |
| Net income applicable to common stockholders – diluted | | $ | 2,023 | | | $ | 1,756 | | | $ | 1,034 | | | $ | 620 | |
| | | | | | | | | | | | | | | | | |
| Denominator | | | | | | | | | | | | | | | | |
| Denominator for basic EPS – weighted average common shares | | | 9,250 | | | | 9,143 | | | | 9,250 | | | | 9,144 | |
| Effect of dilutive securities: | | | | | | | | | | | | | | | | |
| Restricted stock awards | | | 248 | | | | 391 | | | | 353 | | | | 303 | |
| Denominator for diluted EPS – weighted average common equivalent shares | | | 9,498 | | | | 9,534 | | | | 9,603 | | | | 9,447 | |
| | | | | | | | | | | | | | | | | |
| Numerator | | | | | | | | | | | | | | | | |
| Net income applicable to Class A common stockholders-basic | | $ | 7,114 | | | $ | 6,165 | | | $ | 3,612 | | | $ | 2,192 | |
| Effect of dilutive securities: | | | | | | | | | | | | | | | | |
| Restricted stock awards | | | (37 | ) | | | (51 | ) | | | (25 | ) | | | (13 | ) |
| Net income applicable to Class A common stockholders – diluted | | $ | 7,077 | | | $ | 6,114 | | | $ | 3,587 | | | $ | 2,179 | |
| | | | | | | | | | | | | | | | | |
| Denominator | | | | | | | | | | | | | | | | |
| Denominator for basic EPS – weighted average Class A common shares | | | 29,583 | | | | 29,508 | | | | 29,576 | | | | 29,500 | |
| Effect of dilutive securities: | | | | | | | | | | | | | | | | |
| Restricted stock awards | | | 84 | | | | 135 | | | | 188 | | | | 131 | |
| Denominator for diluted EPS – weighted average Class A common equivalent shares | | | 29,667 | | | | 29,643 | | | | 29,764 | | | | 29,631 | |
Segment Reporting
The Company's primary business is the acquisition, ownership and management of commercial real estate, primarily neighborhood and redevelopmentcommunity shopping centers, anchored by supermarkets, pharmacy/drug-stores and wholesale clubs, with a concentration in the metropolitan tri-state area of retail properties.the City of New York. 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 1 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 its 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:
| | Three Months Ended January 31, | | | Six Months Ended April 30, | | | Three Months Ended April 30, | |
| | | 2021 | | | 2020 | | | | | | 2020 | | | 2021 | | | 2020 | |
| Ridgeway Revenues | | | 10.0 | % | | | 11.1 | % | | | 10.4 | % | | | 11.3 | % | | | 10.7 | % | | | 11.4 | % |
| All Other Property Revenues | | | 90.0 | % | | | 88.9 | % | | | 89.6 | % | | | 88.7 | % | | | 89.3 | % | | | 88.6 | % |
| Consolidated Revenue | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
| | January 31, 2021 | | | October 31, 2020 | | | | | | | |
| Ridgeway Assets | | | 6.3 | % | | | 6.4 | % | | | 6.3 | % | | | 6.4 | % |
| All Other Property Assets | | | 93.7 | % | | | 93.6 | % | | | 93.7 | % | | | 93.6 | % |
| Consolidated Assets (Note 1) | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
Note 1 - Ridgeway did not have any significant expenditures for additions to long lived assets in the three and six months ended January 31,April 30, 2021 or the year ended October 31, 2020.
| | January 31, 2021 | | | October 31, 2020 | |
| Ridgeway Percent Leased | | | 92 | % | | | 92 | % |
| | | | | | |
| Ridgeway Percent Leased | | | 92 | % | | | 92 | % |
| Ridgeway Significant Tenants by Annual Base Rents | | Three Months Ended January 31, | |
| | | 2021 | | | 2020 | |
| The Stop & Shop Supermarket Company | | | 21 | % | | | 20 | % |
| Bed, Bath & Beyond | | | 15 | % | | | 14 | % |
| Marshall’s Inc., a division of the TJX Companies | | | 11 | % | | | 10 | % |
| All Other Tenants at Ridgeway (Note 2) | | | 53 | % | | | 56 | % |
| Total | | | 100 | % | | | 100 | % |
Ridgeway Significant Tenants (Percentage of Base Rent Billed):
| | Six Months Ended April 30, | | | Three Months Ended April 30, | |
| | | | | | 2020 | | | 2021 | | | 2020 | |
| The Stop & Shop Supermarket Company | | | 21 | % | | | 20 | % | | | 21 | % | | | 19 | % |
| Bed, Bath & Beyond | | | 15 | % | | | 14 | % | | | 15 | % | | | 14 | % |
| Marshall’s Inc. | | | 11 | % | | | 10 | % | | | 11 | % | | | 10 | % |
| All Other Tenants at Ridgeway (Note 2) | | | 53 | % | | | 56 | % | | | 53 | % | | | 57 | % |
| Total | | | 100 | % | | | 100 | % | | | 100 | % | | | 100 | % |
Note 2 - No other tenant accounts for more than 10% of Ridgeway’s annual base rents in any of the periods presented. Percentages are calculated as a ratio of the tenants' base rent divided by total base rent of Ridgeway.
| Income Statement (In Thousands): | | January 31, 2021 | | |
Income Statements (In Thousands): | | | Six Months Ended April 30, 2021 | | | Three Months Ended April 30, 2021 | |
| | | Ridgeway | | | All Other Operating Segments | | | Total Consolidated | | | Ridgeway | | | All Other Operating Segments | | | Total Consolidated | | | Ridgeway | | | All Other Operating Segments | | | Total Consolidated | |
| Revenues | | $ | 3,461 | | | $ | 30,816 | | | $ | 34,277 | | | $ | 6,989 | | | $ | 60,214 | | | $ | 67,203 | | | $ | 3,528 | | | $ | 29,398 | | | $ | 32,926 | |
| Operating Expenses and Property Taxes | | $ | 1,154 | | | $ | 11,021 | | | $ | 12,175 | | |
| Property Operating Expenses | | | $ | 2,301 | | | $ | 21,924 | | | $ | 24,225 | | | $ | 1,147 | | | $ | 10,903 | | | $ | 12,050 | |
| Interest Expense | | $ | 428 | | | $ | 2,964 | | | $ | 3,392 | | | $ | 819 | | | $ | 5,914 | | | $ | 6,733 | | | $ | 391 | | | $ | 2,950 | | | $ | 3,341 | |
| Depreciation and Amortization | | $ | 580 | | | $ | 6,938 | | | $ | 7,518 | | | $ | 1,172 | | | $ | 13,538 | | | $ | 14,710 | | | $ | 592 | | | $ | 6,600 | | | $ | 7,192 | |
| Net Income | | $ | 1,299 | | | $ | 7,505 | | | $ | 8,804 | | | $ | 2,697 | | | $ | 15,065 | | | $ | 17,762 | | | $ | 1,398 | | | $ | 7,560 | | | $ | 8,958 | |
| Income Statement (In Thousands): | | January 31, 2020 | |
| | | Ridgeway | | | All Other Operating Segments | | | Total Consolidated | |
| Revenues | | $ | 3,823 | | | $ | 30,525 | | | $ | 34,348 | |
| Operating Expenses and Property Taxes | | $ | 1,130 | | | $ | 10,609 | | | $ | 11,739 | |
| Interest Expense | | $ | 428 | | | $ | 2,911 | | | $ | 3,339 | |
| Depreciation and Amortization | | $ | 587 | | | $ | 6,548 | | | $ | 7,135 | |
| Net Income | | $ | 1,678 | | | $ | 7,843 | | | $ | 9,521 | |
| Income Statements (In Thousands): | | Six Months Ended April 30, 2020 | | | Three Months Ended April 30, 2020 | |
| | | Ridgeway | | | All Other Operating Segments | | | Total Consolidated | | | Ridgeway | | | All Other Operating Segments | | | Total Consolidated | |
| Revenues | | $ | 7,385 | | | $ | 58,243 | | | $ | 65,628 | | | $ | 3,562 | | | $ | 27,718 | | | $ | 31,280 | |
| Property Operating Expenses | | $ | 2,218 | | | $ | 20,230 | | | $ | 22,448 | | | $ | 1,088 | | | $ | 9,621 | | | $ | 10,709 | |
| Interest Expense | | $ | 841 | | | $ | 5,807 | | | $ | 6,648 | | | $ | 413 | | | $ | 2,896 | | | $ | 3,309 | |
| Depreciation and Amortization | | $ | 1,197 | | | $ | 13,086 | | | $ | 14,283 | | | $ | 610 | | | $ | 6,538 | | | $ | 7,148 | |
| Net Income | | $ | 3,129 | | | $ | 13,632 | | | $ | 16,761 | | | $ | 1,451 | | | $ | 5,789 | | | $ | 7,240 | |
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.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period’s presentation.
New Accounting Standards
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 ASUs issued by FASB, and has concluded that these updates do not have a material effect on the Company's consolidated financial statements as of January 31,April 30, 2021.
(2) UNSECURED REVOLVING CREDIT FACILITY
TheUntil it was terminated on March 30, 2021, the Company hashad a $100 million unsecured revolving credit facility (the "Facility") with a syndicate of 3 banks led by The Bank of New York Mellon, as administrative agent. The syndicate also includesincluded Wells Fargo Bank N.A.N.A and Bank of Montreal (co-syndication agents). The Facility givesgave the Company the option, under certain conditions, to increase the Facility’sFacility's borrowing capacity up to $150 million (subject to lender approval). The maturity date of the Facility iswas August 23, 2021.
On March 30, 2021, the Company refinanced its existing Facility with a syndicate of 3 banks led by The Bank of New York Mellon, as administrative agent. The syndicate also included Wells Fargo Bank N.A. and Bank of Montreal (co-syndication agents), increasing the capacity to $125 million from $100 million, with the ability under certain conditions to additionally increase the capacity to $175 million (subject to lender approval). The maturity date of the new Facility is March 29, 2024, with a one year extension at the Company's option. Borrowings under the Facility can be used for general corporate purposes and the issuance of letters of credit (up to $10 million). Borrowings will bear interest at the Company’sCompany's option of the Eurodollar rate plus 1.35%1.45% to 1.95%2.20% or The Bank of New York Mellon's prime lending rate plus 0.35%0.45% to 0.95%,1.20% based on consolidated indebtedness.total indebtedness, as defined. The Company pays a quarterly commitment 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 ourits compliance with the covenants and other restrictions included in the Facility on an ongoing basis. The principal financial covenants limit the Company's level of secured and unsecured indebtedness, including preferred stock, and additionally requirerequires the Company to maintain certain debt coverage ratios. The Company was in compliance with such covenants at January 31,April 30, 2021. The Facility includes market standard provisions for determining the benchmark replacement rate for LIBOR.
(3) CONSOLIDATED JOINT VENTURES AND REDEEMABLE NONCONTROLLING INTERESTS
The Company has an investment in 5 joint ventures, UB Orangeburg, LLC ("Orangeburg"), McLean Plaza Associates, LLC ("McLean"), UB Dumont I, LLC ("Dumont") and UB New City I, LLC ("New City"), each of which owns a commercial retail property, and UB High Ridge, LLC ("High Ridge"), which owns three commercial real estate properties. The Company has evaluated its investment in these 5 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:
Orangeburg
The Company, through a wholly-owned subsidiary, is the managing member and owns a 44.6% interest in Orangeburg, which owns a CVS-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 a quarterly cash distribution equal to the regular quarterly cash distribution declared by the Company for 1 share of the Company’s Class A Common stock, which amount is attributable to each unit of Orangeburg ownership. The quarterly 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,acquiring its initial interest in Orangeburg, the Company has made additional investments in the amount of $6.8 million in Orangeburg, and as a result, as of January 31,April 30, 2021 the Company's ownership percentage has increased to 44.6% from approximately 2.92% at inception.
McLean
The Company, through a wholly-owned subsidiary, is the managing member and owns a 53% interest in McLean, which owns an Acme 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.
High Ridge
The Company is the managing member and owns a 17.0%23.7% interest in High Ridge. The Company's initial investment was $5.5 million, and the Company has purchased additional interests from non-managing members totaling $3.6$7.8 million and has contributed $1.5 million in additional equity to the venture through January 31,April 30, 2021. High Ridge, either directly or through a wholly-owned subsidiary, owns 3 commercial real estate properties, High Ridge Shopping Center, a grocery-anchored shopping center ("High Ridge Center"), and two single tenant commercial retail properties, one leased to JP Morgan Chase and one leased to CVS. Two properties are located in Stamford, CT and one property is located in Greenwich, CT. High Ridge Center 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 High Ridge equal to the value of properties contributed less liabilities assumed. The High Ridge operating agreement provides for the non-managing members to receive an annual cash distribution, currently equal to 4.76%4.72% of their invested capital.
Dumont
The Company is the managing member and owns a 36.4% interest in Dumont. The Company's initial investment was $3.9 million, and the Company has purchased additional interests totaling $630,000 through January 31,April 30, 2021. 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 5.0% of their invested capital.
New City
The Company is the managing member and owns aan 84.3% equity interest in a joint venture, New City. The Company's initial investment was $2.4 million, and the Company has purchased additional interests totaling $289,300 through January 31,April 30, 2021. 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, 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 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 threesix months ended January 31,April 30, 2021 and 2020, the Company increased/(decreased) the carrying value of the noncontrolling interests by $4.9$8.6 million and $(546,000),$(11.0) 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 for the threesix months ended January 31,April 30, 2021 and the fiscal year ended October 31, 2020 (amounts in thousands):
| | January 31, 2021 | | | October 31, 2020 | | | April 30, 2021 | | | October 31, 2020 | |
| Beginning Balance | | $ | 62,071 | | | $ | 77,876 | | | $ | 62,071 | | | $ | 77,876 | |
| Change in Redemption Value | | | | | | | (15,047 | ) | | | | | | | (15,047 | ) |
| Partial Redemption of High Ridge Noncontrolling Interest | | | | | | | (560 | ) | | | | | | | (560 | ) |
| Partial Redemption of New City Noncontrolling Interest | | | | | | | (198 | ) | | | | | | | (198 | ) |
| | | | | | | | | | | | | | | | | |
| Ending Balance | | $ | 66,592 | | | $ | 62,071 | | | $ | 66,081 | | | $ | 62,071 | |
(4) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES
At January 31,April 30, 2021 and October 31, 2020 investments in and advances to unconsolidated joint ventures consisted of the following (with the Company’s ownership percentage in parentheses) (amounts in thousands):
| | January 31, 2021 | | | October 31, 2020 | | | April 30, 2021 | | | October 31, 2020 | |
| Chestnut Ridge Shopping Center (50%) | | $ | 12,377 | | | $ | 12,252 | | | $ | 12,389 | | | $ | 12,252 | |
| Gateway Plaza (50%) | | | 6,853 | | | | 6,929 | | | | 6,784 | | | | 6,929 | |
| Putnam Plaza Shopping Center (66.67%) | | | 2,977 | | | | 2,599 | | | | 3,189 | | | | 2,599 | |
| Midway Shopping Center, L.P. (11.79%) | | | 4,169 | | | | 4,233 | | | | 4,166 | | | | 4,233 | |
| Applebee's at Riverhead (50%) | | | 1,951 | | | | 1,943 | | | | 1,996 | | | | 1,943 | |
| 81 Pondfield Road Company (20%) | | | 723 | | | | 723 | | | | 723 | | | | 723 | |
| Total | | $ | 29,050 | | | $ | 28,679 | | | $ | 29,247 | | | $ | 28,679 | |
Chestnut Ridge Shopping Center
The Company, through a wholly-owned subsidiary, owns a 50% undivided tenancy-in-common 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.
Gateway Plaza and Applebee's at Riverhead
The Company, through 2 wholly-owned subsidiaries, owns a 50% undivided tenancy-in-common interest in the Gateway Plaza Shopping Center ("Gateway") and Applebee's at Riverhead ("Applebee's"). Both properties are located in Riverhead, New York. Gateway, a 198,500 square foot shopping center, is 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 and a 7,200 square foot pad site that is leased.
Gateway is subject to an $11.5$11.4 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.
Midway Shopping Center, L.P.
The Company, through a wholly-owned subsidiary, owns an 11.79% equity interest in Midway Shopping Center L.P. (“Midway”), which owns a 247,000 square foot ShopRite-anchored shopping center in Westchester County, New York. Although the Company only has an approximate 12% 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 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 is subject to a non-recourse first mortgage in the amount of $25.5$25.2 million. The loan requires payments of principal and interest at the rate of 4.80% per annum and will mature in 2027.
Putnam Plaza Shopping Center
The Company, through a wholly-owned subsidiary, owns a 66.67% (noncontrolling) undivided tenancy-in-common interest in the 189,000 square foot Tops-anchored Putnam Plaza Shopping Center (“Putnam Plaza”) located in Carmel, New York.
Putnam Plaza is subject to a non-recourse first mortgage payable in the amount of $18.3$18.2 million. The mortgage requires monthly payments of principal and interest at a fixed rate of 4.81% and will mature in 2028.
81 Pondfield Road Company
The Company’s other investment in an unconsolidated joint venture is a 20% interest in a retail and office building in Westchester County, New York.
Equity Method of Accounting
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.
(5) 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.
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 six and three months ended January 31,April 30, 2021 and 2020, under ASC Topic 842, Leases, as either fixed or variable lease income based on the criteria specified in ASC Topic 842 (In thousands):
| | Three Months Ended January 31, | | | Six Months Ended April 30, | | | Three Months Ended April 30, | |
| | | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
| Operating lease income: | | | | | | | | | | | | | | | | | | |
| Fixed lease income (Base Rent) | | $ | 24,064 | | | $ | 25,115 | | | $ | 48,468 | | | $ | 50,533 | | | $ | 24,404 | | | $ | 25,418 | |
| Variable lease income (Cost Recoveries) | | | 9,978 | | | | 7,995 | | |
| Variable lease income (Recoverable Costs) | | | | 18,792 | | | | 14,110 | | | | 8,814 | | | | 6,115 | |
| Other lease related income, net: | | | | | | | | | | | | | | | | | | | | | | | | |
| Above/below market rent amortization | | | 95 | | | | 177 | | | | 289 | | | | 350 | | | | 194 | | | | 173 | |
| Uncollectable amounts in lease income | | | (655 | ) | | | (342 | ) | |
| Uncollectible amounts in lease income | | | | (1,379 | ) | | | (1,845 | ) | | | (724 | ) | | | (1,503 | ) |
| ASC Topic 842 cash basis lease income reversal | | | (999 | ) | | | 0 | | | | (1,892 | ) | | | 0 | | | | (893 | ) | | | 0 | |
| | | | | | | | | | | | | | | | | | |
| Total lease income | | $ | 32,483 | | | $ | 32,945 | | | $ | 64,278 | | | $ | 63,148 | | | $ | 31,795 | | | $ | 30,203 | |
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) | | $ | 71,814 | | | $ | 47,709 | |
| 2022 | | | 83,356 | | | | 85,447 | |
| 2023 | | | 67,821 | | | | 69,814 | |
| 2024 | | | 57,492 | | | | 59,360 | |
| 2025 | | | 46,509 | | | | 48,775 | |
| Thereafter | | | 204,238 | | | | 207,961 | |
| Total | | $ | 531,230 | | | $ | 519,066 | |
(a) The future minimum rental income for fiscal 2021 includes amounts due between FebruaryMay 1, 2021 through October 31, 2021.
(b) The amounts above are based on existing leases in place at April 30, 2021.
(6) STOCKHOLDERS’ EQUITY
Authorized Stock
The Company's Charter authorizes 200,000,000 shares 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.
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. 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.
During the threesix months ended January 31,April 30, 2021, the Company awarded 105,850 shares of Common Stock and 125,800 shares of Class A Common Stock to participants in the Plan. The grant date fair value of restricted stock grants awarded to participants in 2021 was approximately $3.0 million.
A summary of the status of the Company’s non-vested Common and Class A Common shares as of January 31,April 30, 2021, and changes during the threesix months ended January 31,April 30, 2021 is presented below:
| | Common Shares | | | Class A Common Shares | | | Common Shares | | | Class A Common Shares | |
| Non-vested Shares | | Shares | | | Weighted-Average Grant-Date Fair Value | | | Shares | | | Weighted-Average Grant-Date Fair Value | | | Shares | | | Weighted-Average Grant-Date Fair Value | | | Shares | | | Weighted-Average Grant-Date Fair Value | |
| Non-vested at October 31, 2020 | | | 924,550 | | | $ | 17.69 | | | | 490,950 | | | $ | 21.56 | | | | 924,550 | | | $ | 17.69 | | | | 490,950 | | | $ | 21.56 | |
| Granted | | | 105,850 | | | $ | 11.68 | | | | 125,800 | | | $ | 13.75 | | | | 105,850 | | | $ | 11.68 | | | | 125,800 | | | $ | 13.75 | |
| Vested | | | (102,600 | ) | | $ | 17.06 | | | | (91,800 | ) | | $ | 19.14 | | | | (102,600 | ) | | $ | 17.06 | | | | (91,800 | ) | | $ | 19.14 | |
| Forfeited | | | 0 | | | $ | 0 | | | | 0 | | | $ | 0 | | | | 0 | | | $ | 0 | | | | (400 | ) | | $ | 18.85 | |
| Non-vested at January 31, 2021 | | | 927,800 | | | $ | 17.08 | | | | 524,950 | | | $ | 20.11 | | |
| Non-vested at April 30, 2021 | | | | 927,800 | | | $ | 17.08 | | | | 524,550 | | | $ | 20.12 | |
As of January 31,April 30, 2021, there was $14.6$13.7 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 5.04.8 years. For the threesix months ended January 31,April 30, 2021 and 2020 amounts charged to compensation expense totaled $985,000$1,949,000 and $1,047,000,$3,515,000, respectively.For the three months ended April 30, 2021 and 2020, amounts charged to compensation expense totaled $964,000 and $2,468,000, respectively. Both the three and six months ended April 30, 2020 amounts charged to compensation expense include $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.
Share Repurchase Program
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.
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.
Preferred Stock
The 6.25% Series H Senior Cumulative Preferred Stock ("Series H Preferred Stock") is non-voting, has no stated maturity and is redeemable for cash at $25.00 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 6 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 2 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 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 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 $25.00 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 6 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 2 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 November 1, 2019, we redeemed all of the outstanding shares of our Series G Cumulative Preferred Stock for $25.00 per share with proceeds from our sale of our Series K Cumulative Preferred Stock in October 2019. The total redemption amount was $75 million.
(7) 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 January 31,April 30, 2021, 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 (amount in thousands):
| | | | | Fair Value Measurements at Reporting Date Using | | | | | | Fair Value Measurements at Reporting Date Using | |
| | | Total | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Total | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | |
| January 31, 2021 | | | | | | | | | | | | | |
| April 30, 2021 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest Rate Swap Agreement | | $ | 11,800 | | | $ | 0 | | | $ | 11,800 | | | $ | 0 | | | $ | 8,294 | | | $ | 0 | | | $ | 8,294 | | | $ | 0 | |
| Redeemable noncontrolling interests | | $ | 66,592 | | | $ | 14,718 | | | $ | 51,328 | | | $ | 546 | | | $ | 66,081 | | | $ | 18,409 | | | $ | 47,126 | | | $ | 546 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| October 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest Rate Swap Agreement | | $ | 13,300 | | | $ | 0 | | | $ | 13,300 | | | $ | 0 | | | $ | 13,300 | | | $ | 0 | | | $ | 13,300 | | | $ | 0 | |
| Redeemable noncontrolling interests | | $ | 62,071 | | | $ | 9,921 | | | $ | 51,604 | | | $ | 546 | | | $ | 62,071 | | | $ | 9,921 | | | $ | 51,604 | | | $ | 546 | |
(8) 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 January 31,April 30, 2021, the Company had commitments of approximately $4.9$2.7 million for capital improvements to its properties and tenant-related obligations.
During and subsequent to the first quartersix months of fiscal 2021, 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,time. While it appears that the COVID-19 pandemic has begun to ease in the U.S. and businesses, 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, are in the early stages of recovery, many of them may still face an uncertain future and their businesses, the abilitylong-term impacts of tenantsthe COVID-19 pandemic are unclear.
(9) SUBSEQUENT EVENTS
On June 4, 2021, the Board of Directors of the Company declared cash dividends of $0.207 for each share of Common Stock and $0.23 for each share of Class A Common Stock. The dividends are payable on July 16, 2021 to make their rental payments and any additional closuresstockholders of tenants’ businesses. Any of these events could materially adversely impact the Company’s business, financial condition, results of operations or stock price.record on July 2, 2021.
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements of the company and the notes thereto included elsewhere in this report.
Forward Looking Statements:
This Quarterly Report on Form 10-Q of Urstadt Biddle Properties Inc. (the "Company") contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Such statements can generally be identified by such words as “anticipate”, “believe”, “can”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “seek”, “should”, “will” or variations of such words or other similar expressions and the negatives of such words. All statements included in this report that address activities, events or developments that we expect, believe or anticipate will or may occur in the future, including such matters as future capital expenditures, dividends and acquisitions (including the amount and nature thereof), business strategies, expansion and growth of our operations and other such matters, are forward-looking statements. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate. Such statements are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, performance or achievements, financial and otherwise, may differ materially from the results, performance or achievements expressed or implied by the forward-looking statements. We caution not to place undue reliance upon any forward-looking statements, which speak only as of the date made. We do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based.
Important factors that we think could cause our actual results to differ materially from expected results are summarized below. One of the most significant factors, however, is the ongoing impact of the current outbreak of the novel coronavirus ("COVID-19") on the U.S., regional and global economies, the U.S. retail market and the broader financial markets. The current outbreak of COVID-19 has also impacted, and is likely to continue to impact, directly or indirectly, many of the other important factors listed below.
New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. In particular, it is difficult to fully assess the impact of COVID-19 at this time due to, among other factors, uncertainty regarding the severity and duration of the outbreak domestically and internationally, uncertainty regarding the effectiveness of federal, state and local governments’ efforts to contain the spread of COVID-19 and respond to its direct and indirect impact on the U.S. economy and economic activity, and the uncertainty regarding the efficacy and timing of vaccines and other medical responses to the pandemic.There is, however, reason to believe that the success of vaccination efforts in the U.S. is leading to a decline in COVID-19 cases and having a positive impact on businesses, as federal, state and local restrictions are lifted and individuals begin returning to pre-pandemic activities.
Important factors, among others, that may affect our actual results include:
negative impacts from the continued spread of COVID-19 or from the emergence of a new strain of novel corona virus, including on the U.S. or global economy or on our business, financial position or results of operations;
economic and other market conditions, including real estate and market conditions, that could impact us, our properties or the financial stability of our tenants;
consumer spending and confidence trends, as well as our ability to anticipate changes in consumer buying practices and the space needs of tenants;
our relationships with our tenants and their financial condition and liquidity;
any difficulties in renewing leases, filling vacancies or negotiating improved lease terms;
the inability of our properties to generate increased, or even sufficient, revenues to offset expenses, including amounts we are required to pay to municipalities for real estate taxes, payments for common area maintenance expenses at our properties and salaries for our management team and other employees;
the market value of our assets and the supply of, and demand for, retail real estate in which we invest;
risks of real estate acquisitions and dispositions, including our ability to identify and acquire retail real estate that meet our investment standards in our markets, as well as the potential failure of transactions to close;
risks of operating properties through joint ventures that we do not fully control;
financing risks, such as the inability to obtain debt or equity financing on favorable terms or the inability to comply with various financial covenants included in our Unsecured Revolving Credit Facility (the "Facility") or other debt instruments we currently have or may subsequently obtain, as well as the level and volatility of interest rates, which could impact the market price of our common stock and the cost of our borrowings;
environmental risk and regulatory requirements;
risks related to our status as a real estate investment trust, including the application of complex federal income tax regulations that are subject to change;
legislative and regulatory changes generally that may impact us or our tenants; and
| • | other risks identified in our Annual Report on Form 10-K under Item 1A. Risk Factors for the fiscal year ended October 31, 2020 and in the other reports filed by the Company with the Securities and Exchange Commission (the “SEC”). |
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, one self-storage facility, 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 January 31,April 30, 2021, we owned or had equity interests in 8180 properties, which include equity interests we own in five consolidated joint ventures and six unconsolidated joint ventures, containing a total of 5.2 million square feet of Gross Leasable Area (“GLA”). Of the properties owned by wholly-owned subsidiaries or joint venture entities that we consolidate, approximately 89.8%90.1% of the GLA was leased (90.4% at October 31, 2020). Of the properties owned by unconsolidated joint ventures, approximately 91.1%94.2% of the GLA was leased (91.1% at October 31, 2020). In addition, we own and operate a self-storage facilityfacilities at onetwo of our retail properties. This business isBoth self-storage facilities are managed for us by Extra Space Storage, a publicly traded REIT. TheOne of the self-storage facilityfacilities is located in the back of our Yorktown Heights, NY shopping center in below grade space. As of January 31,April 30, 2021, the self-storage facility had 57,414 of available GLA, which was 98.6% leased. The rent per available square foot was $24.21.$24.98. As discussed later in this Item 2, we have also developed a second self-storage facility located in Stratford, CT with 131,000 square feet of available GLA. The facility has been operational for approximately 3 months and is 25% leased.
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 fivesix 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 have paid quarterly dividends to our stockholders continuously since our founding in 1969.
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 FebruaryMay 20, 2021. 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, thereby limiting the operations of different categories of our tenants to varying degrees. Since early summer, manyMany (but not all) of these restrictions have been gradually lifted as the COVID-19 situation in the tri-state area has significantly improved as a result of various factors, including a large portion of the population getting vaccinated, with most businesses now permitted to open at reducedfull or close to full capacity, andbut under other limitations intended to control the spread of COVID-19.
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 generallyuntil recently, prevented or limited dine-in activity, forcing tenants 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. There is, however, reason to believe that the success of vaccination efforts in the U.S. is leading to a decline in COVID-19 cases and having a positive impact on businesses, as federal, state and local restrictions are lifted and individuals begin returning to pre-pandemic activities. The following additional information reflects the impact of COVID-19 on our portfolio and tenants:
As of January 31, 2021, we have received 401 rent relief requests from our approximately 870 tenants in our consolidated portfolio. Subsequently, approximately 116 of the 401 tenants withdrew their request for rent relief or paid their rent in full. These requests represent 44.7% of our ABR and 35.0% of our GLA. Since the on-set of COVID-19 through January 31, 2021, we have completed 266 lease modifications, consisting of base rent deferrals totaling $3.8 million or 3.9% of our ABR and rent abatements totaling $3.4 million, or 3.5% of our ABR. Included in the aforementioned amounts were the rent deferrals and abatements completed in the three months ended January 31, 2021, which amounted to 32 rent deferrals or abatements, which deferred $399,000 of base rents, or 0.4% of our ABR and abated $2.0 million of base rents or 2.0% of our ABR. Included in the $2.0 million in abatement this quarter were for $1.0 million base rents due in periods after January 31,| • | As of April 30, 2021, we have received 401 rent relief requests from the approximately 863 tenants in our consolidated portfolio. Subsequently, approximately 118 of the 401 tenants withdrew their request for rent relief or paid their rent in full. These requests represent 45.0% of our ABR and 35.0% of our GLA. Since the on-set of COVID-19 through April 30, 2021, we have completed 274 lease modifications, consisting of base rent deferrals totaling $3.8 million or 3.9% of our ABR and rent abatements totaling $3.7 million, or 3.8% of our ABR. Included in the aforementioned amounts were the rent deferrals and abatements completed in the three months ended April 30, 2021, which amounted to 8 rent deferrals or abatements, which deferred $26,000 of base rents, or 0.1% of our ABR and abated $287,000 of base rents, or 0.3% of our ABR. The $287,000 in rent abatements completed in the three months ended April 30, 2021 included $84,000 in base rents due for periods after April 30, 2021. |
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 $654,000$1.4 million and $725,000 in the six and three months ended January 31,April 30, 2021, respectively, which on an annualized basis represents approximately 0.7%2.9% 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 the continuing analysis of our entire tenant base, we have determined as of April 30, 2021 that 80 tenants’89 tenants future lease payments were no longer probable of collection (9.2%(10.3% of our approximate 870863 tenants), which included 16 tenants'9 tenants converted to cash-basis accounting in the three months ended January 31,April 30, 2021 in accordance with ASC Topic 842. As a result of this assessment, in the six and three months ended January 31,April 30, 2021, we reversed lease income in the amount of $999,000,$1.9 million and $893,000, respectively, which represented a reversal of prior billed but unpaid accounts receivablerents related to the tenants converted to cash-basis accounting in the current quarter and billed but unpaid rents for three months ended January 31, 2021 related to all 8089 tenants converted to cash basis accounting at January 31,through April 30, 2021. The reduction to lease income was approximately 1.0%3.9% of ABR. In addition, as a result of this assessment, we reversed $441,000$1.3 million and $814,000 in the six and three months ended January 31,April 30, 2021, respectively, of accrued straight-line rent receivables related to the 16 tenants converted to cash-basiscash basis accounting this quarter, which represents approximately 0.5% of ABR. Bothin the two respective periods. All of these reversals, totaling $1.4 million in the three months ended January 31, 2021, resultscharges 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 January 31,April 30, 2021. 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 thetheir underlying industries of many of our tenants.industries. 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
Moreover, 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:
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. Thereafter, we have been gradually increasing our office capacity in accordance with applicable state guidance. We continue to closely monitor 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.
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 beenwere posted when relevant 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 cancould turn with questions and concerns during these uncertain times.
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.
To enhance our liquidity position and maintain financial flexibility, we borrowed $35 million under our Facility during March and April 2020.
At January 31,April 30, 2021, we had approximately $37.1$38.4 million in cash and cash equivalents on our consolidated balance sheet, and an additional $64$89 million available under our Facility (excluding the $50 million accordion feature).
The only unsecured debt we have outstanding are draws on our Facility. TheIn March 2021, we refinanced our Facility, matures in August 2021. We are currently close to completing the refinancing of the Facility that will increasewhich increased the capacity to $125 million and extendextended the maturity for three yearsyears. The new maturity date is March 29, 2024, with an additional one-year company extension option. We hope to have the Facility refinanced by our second quarter of fiscal 2021. Additionally, we do not have any secured debt maturing until January 2022. All maturing secured debt in fiscal 2022 is generally below a 45% loan-to-value ratio, and we believe we will be able to refinance that debt.
We have taken proactive measures to manage costs, including reducing, where possible, our common area maintenance spending. We have onean ongoing construction project at one of our properties, with approximately $2.0 million$300,000 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.
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.
| • | On March 27, 2020, the President of the United States signed into law 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. We believe that many of our tenants have also availed themselves of one or more of the benefits afforded by The Cares Act. |
On December 27, 2020, a secondSubsequently, additional COVID-19 federal stimulus package was enacted as part ofpackages, including the Consolidated Appropriations Act, 2021 (the "COVID Supplemental Appropriations Act").and the America Rescue Plan of 2021 have been enacted. 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 unemploymentthese stimulus packages have enhanced, extended or supplemented benefits and re-implement a modified versionprograms provided under The CARES Act, for which some of the Paycheck Protection Program for small businesses and eligible non-profits.our tenants qualify. As with the Cares Act, the Company has disseminated information about the COVID Supplemental Appropriations Actthese programs to our tenants through our website and general ledger system.
On June 4, 2021, the company’s Board of Directors declared a quarterly dividend of $0.207 per Common share and $0.23 per Class A Common share that will be paid on July 16, 2021 to holders of record on July 2, 2021. The Board determined that the increased level is appropriate, after taking into account the improved liquidity position of the Company, the significant progress made in vaccinating the U.S. public, the resulting decline in COVID-19 cases, and the early signs of business improvement as operating restrictions are relaxed and individuals begin returning to pre-pandemic activities. Also, as a REIT, we are required to distribute at least 90% of our taxable income to our stockholders. Based on our estimates, this level of Common Stock dividend, when combined with our preferred stock dividends, will satisfy that requirement (excluding gains on sales of property). The Board declared the full contractual dividend on both our Series H and Series K Cumulative Preferred Stock, which will be paid on July 30, 2021, to holders of record on July 16, 2021. Going forward, our Board of Directors will continue to evaluate our dividend policy.
| • | 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 that was 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 preserved 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 2020 through the date of this report, the overall uncertaintyFor most of the pandemic, we redirected our acquisitions department to assist with lease negotiations as there were few commercial real estate property transactions taking place. As 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 it 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 waneeases and the economy improves, some commercial properties are starting to trade in the marketplace. We always seek opportunities to acquire high-quality neighborhood and community shopping centers, and as a result of our propertiesstrong liquidity position and access to various forms of capital, we have returnedthe ability to some normalcy. We cannot, however, be certain as toexecute on potential acquisitions should 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, which was paid 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. The next dividend payment determination will be made at our regular Board of Directors meeting, which will be held on March 17, 2021.right opportunity arise.
|
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 included in our October 31, 2020 Annual Report on Form 10-K.”
Strategy, Challenges & 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 strategiesstrategy 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 debt levels; and
control property operating and administrative costs.
We believe our strategy of focusing on community and neighborhood shopping centers, anchored principally by regional supermarkets, pharmacy chains or wholesale clubs, 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 thisthe COVID-19 pandemic.
We recognize, however, that the pandemic may have accelerated a movement towards e-commerce that may be challenging for weaker tenants that lack an omni-channel sales or micro-fulfillment strategy. We launched a program designating dedicated parking spots for curbside pick-up and are assisting tenants in many other ways to help them quickly adapt to these changing circumstances. Many tenants have adapted to the new business environment through use of our curbside pick-up program and early industry data seems to indicate that micro-fulfillment from retailers with physical locations may be a new competitive alternative to e-commerce. It is too early to know which tenants will or will not be successful in making any changes that may be necessary. It is also too early to determine whether these changes in consumer behavior are temporary or reflect long-term changes.
Moreover, due to the 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 likelycould be more difficult for us to acquire or sell properties in fiscal 2021 (or possibly beyond), as it may be difficult to correctly value a property given changing circumstances. Additionally, parties may be unwilling to enter into transactions during such uncertainty. However, as the COVID-19 pandemic eases and the economy improves, some commercial properties are starting to trade in the marketplace. We may also be less willing to enter into developments or capital improvements that require large amounts of upfront capital if the expected return is perceived as delayed or uncertain. We chose 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.
WeWhile it appears that the COVID-19 pandemic has begun to ease in the U.S. and businesses are in the early stages of recovery, 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 operationsduring the early stages of such recovery and individuals to adhere to social distancing policies, or potentially until a medical solution is achieved for COVID-19. beyond. We will continue to accrue rental revenue during the deferral period, except for tenants for which revenue recognition was converted to cash basis accounting in accordance with ASC Topic 842. However, we anticipate that some tenants eventually will be unable to pay amounts due, and we will incur losses against our rent receivables. The extent and timing of the recognition of such losses will depend on future developments occurring after April 2021, which are highly uncertain and cannot be predicted. April 2020 through January 2021 rentalRental 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,With significant progress made in vaccinating the uncertainty relatingU.S. public, the resulting decline in COVID-19 cases, and the early signs of business improvement as operating restrictions are relaxed and individuals begin returning to the COVID-19 pandemic has slowed the pace ofpre-pandemic activities, we have observed a marked increase in leasing activity, including interest from potential new tenants and couldtenants interested in renewing their leases. However, our tenants and other businesses are in the early stages of a potential recovery and many of them may still face an uncertain future. As a result, inwe may continue to experience higher than typical vacancy rates, than we otherwise would have experienced, atake longer amount of time to fill vacancies and suffer potentially lower rental rates.rates until the recovery becomes more robust.
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.
Transaction Highlights of Fiscal 2021; Recent Developments
Set forth below are highlights of our recent property acquisitions, potential acquisitions under contract, other investments, property dispositions and financings:
In December 2020, we redeemed 17,995 units of UB High Ridge, LLC from thea noncontrolling member. The total cash price paid for the redemption was $364,000. As a result of the redemption, our ownership percentage of High Ridge increased to 17.0% from 16.3%.
20In March 2021, we sold one free standing restaurant retail property located in Hillsdale, NJ, as that property no longer met our investment objectives. The property was sold for $1.3 million and we recorded a gain on sale of property the six month and three month periods ended April 30, 2021 in the amount of $435,000.
In March 2021, we entered into a purchase and sale agreement to sell our property located in Newington, NH, to an unrelated third party for a sale price of $13.4 million, as that property no longer met our investment objectives. We anticipate the sale will close sometime later in fiscal 2021. When and if the sale closes, we anticipate that we will record a gain on sale of the property in the approximate amount of $11.9 million.
In March 2021, we refinanced our Facility, increasing the borrowing capacity to $125 million and extending the maturity date to March 29, 2024 with a one-year extension at our option. Please see note 2 in our financial statements included in Item 1 for more information.
In April 2021, we redeemed 178,804 units of UB High Ridge, LLC from a noncontrolling member. The total cash price paid for the redemption was $4.2 million. As a result of the redemption, our ownership percentage of High Ridge increased to 23.7% from 17.0%.
Leasing
For the threesix months ended January 31,April 30, 2021, we signed leases for a total of 189,000424,000 square feet of retail space in our consolidated portfolio. New leases for vacant spaces were signed for 18,00051,000 square feet at an average rental decrease of 12.3%13.5% on a cash basis. Renewals for 171,000373,000 square feet of space previously occupied were signed at an average rental decrease of 3.0%2.2% on a cash basis.
Tenant improvements and leasing commissions averaged $32.20$26.08 per square foot for new leases for the threesix months ended January 31,April 30, 2021. We did not pay any tenant improvements and leasing commissions on renewal leases for the threesix months ended January 31,April 30, 2021. The average term for new leases was 6 years and the average term for renewal leases was 43 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 2021 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,In the past, we havehad seen overall positive increases in rental income for renewal leases, and a range of positive 5% to negative 5% for new leases. However, withbut since the uncertaintyoutbreak of the COVID-19 pandemic and the many unknown factorsresulting regulatory restrictions on business operations, we have experienced average rental income decreases that we,exceed historic norms. Moreover, notwithstanding the significant progress made in vaccinating the U.S. public, the resulting decline in COVID-19 cases, and the early signs of business improvement as operating restrictions are relaxed and individuals begin returning to pre-pandemic activities, the long-term prospects of some of our tenants and the commercial real estate industry face from the pandemic, itoverall economic recovery is difficultstill uncertain. Therefore, our average rental rates on renewal and new leases may continue to predict leasing trends into the near future.suffer.
Significant Leasing Events
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 ground lease has been subsequently sold to a national retailer, Ocean State Job Lot, who plans to operateis operating a store in approximately 45,000 square feet of the 65,700 square feet covered by the lease.
Impact of Inflation on Leasing
Our long-term leases contain provisions to mitigate the adverse impact of inflation on our operating results. Such provisions include clauses entitling us to receive (a) scheduled base rent increases and (b) percentage rents based upon tenants’ gross sales, which could increase as prices rise. In addition, many of our non-anchor leases are for terms of less than ten years, which permits us to seek increases in rents upon renewal at then current market rates if rents provided in the expiring leases are below then existing market rates. Most of our leases require tenants to pay a share of operating expenses, including common area maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation.
Critical Accounting Estimates
Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation and uncertainty and are reasonably likely to have a material impact on the financial condition or results of operations of the Company and require management’s most difficult, complex or subjective judgments. Our most significant accounting estimates are as follows:
Valuation of investment properties
Determining the amount of our allowance for doubtful accounts
Valuation of investment properties
At each reporting period management must assess whether the value of any of its investment properties are impaired. The judgement of impairment is subjective and requires management to make assumptions about future cash flows of an investment property and to consider other factors. The estimation of these factors has a direct effect on valuation of investment properties and consequently net income. As of January 31,April 30, 2021, management does not believe that any of our investment properties are impaired based on information available to us at January 31,April 30, 2021. In the future, almost any level of impairment would be material to our net income.
Revenue Recognition
Our main source of revenue is lease income from our tenants forto whom we lease space to inat our 8180 shopping centers. The COVID-19 Pandemicpandemic has caused distress for many of our tenants as some of those tenant businesses were forced to close early in the pandemic, ,andand although most have been allowed to re-open and operate, many tenants like restaurants and fitness/gyms are operating at reduced capacity or operational efficiency. As a result we have many tenants who have had difficulty paying all of their contractually obligated rents and we have reached agreements with many of them to defer or abate portions of the contractual rents due under their leases with the Company. In accordance with ASC Topic 842, where appropriate, we will continue to accrue rental revenue during the deferral period, except for tenants for which revenue recognition was converted to cash basis accounting in accordance with ASC Topic 842. However, we anticipate that some tenants eventually will be unable to pay amounts due, and we will incur losses against our rent receivables, which would reduce lease income. The extent and timing of the recognition of such losses will depend on future developments, which are highly uncertain and cannot be predicted and these future losses could be material.
Allowance for doubtful accounts
GAAP requires us to bill our tenants based on the terms in their leases and to record lease income on a straight-line basis, whenbasis. When a tenant does not pay a billed amount due under their lease, it becomes a tenant account receivable, or an asset of the Company. GAAP requires that receivables, like most assets, be recorded at their realizable value. Each reporting period we analyze our tenant accounts receivable, and based on the information available to management at the time, and record an allowance for doubtful account for any unpaid tenant receivable that we believe is uncollectable. This analysis is subjective and the conclusions reached have a direct impact on net income. As of January 31,April 30, 2021, the portion of our billed but unpaid tenant receivables, excluding straight-line rent receivables that we believe are collectable, amounts to $1.7$2.2 million. In addition, we have an additional $3.4 million in unbilled accruals for tenant reimbursement income that we believe to be realizable at January 31, 2021.
For a further discussion aboutof our accounting estimates and critical accounting policies, please see Note 1 in our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q and Note 1 in our consolidated financial statements included in Item 8 of our October 31, 2020 Annual Report on From 10-K.
Liquidity and Capital Resources
Overview
At January 31,April 30, 2021, we had cash and cash equivalents of $37.1$38.4 million, compared to $40.8 million at October 31, 2020. Our sources of liquidity and capital resources include operating cash flows from real estate operations, proceeds from bank borrowings and long-term mortgage debt, capital financings and sales of real estate investments. Substantially all of our revenues are derived from rents paid under existing leases, which means that our operating cash flow depends on the ability of our tenants to make rental payments. 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 2 for more information. For the threesix months ended January 31,April 30, 2021 and 2020, net cash flows from operating activities amounted to $14.6$34.6 million and $15.8$30.7 million, respectively.
Our short-term liquidity requirements consist primarily of normal recurring operating expenses and capital expenditures, debt service, management and professional fees, cash distributions to certain limited partners and non-managing members of our consolidated joint ventures, and regular dividends paid to our Common and Class A Common stockholders. Cash dividends paid on Common and Class A Common stock for the threesix months ended January 31,April 30, 2021 and 2020 totaled $5.511.0 million and $10.921.8 million, respectively. Historically, we have met short-term liquidity requirements, which is defined as a rolling twelve month period, primarily by generating net cash from the operation of our properties. 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 2. 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.
During the first quartertwo quarters of fiscal 2021, the Board of Directors declared and the Company paid quarterly dividends that were reduced from pre-pandemic levels, as more extensively discussed under the "Impact of COVID-19" section earlier in this Item 2. Subsequent to the end of the second quarter the Board of Directors has increased our Common and Class A Common stock dividends when compared to the reduced dividends that have been paid during the pandemic. Future determinations regarding quarterly dividends will impact the Company's short-term liquidity requirements.
We are also in contract to sell our last non-core shopping center located in Newington, NH for a sale price of $13.4 million.
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 3 to the consolidated financial statements included in Item 1 of this Report on Form 10-Q. Historically, we have financed the foregoing requirements through operating cash flow, borrowings under our Facility, debt refinancings, new debt, equity offerings and other capital market transactions, and/or the disposition of under-performing assets, with a focus on keeping our debt level low. We expect to continue doing so in the future. We cannot assure you, however, that these sources will always be available to us when needed, or on the terms we desire.
Capital Expenditures
We invest in our existing properties and regularly make capital expenditures in the ordinary course of business to maintain our properties. We believe that such expenditures enhance the competitiveness of our properties. For the threesix months ended January 31,April 30, 2021, we paid approximately $6.7$11.6 million for property improvements, tenant improvements and leasing commission costs ($2.24.6 million representing property improvements, $3.4$4.8 million in property improvements related to our Stratford project (see paragraph below) and approximately $1.1$2.2 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 $4.9$2.7 million for anticipated capital improvements, tenant improvements/allowances and leasing costs related to new tenant leases and property improvements during the remainder of fiscal 2021 and fiscal 2022. 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. AsThe above amounts do not include a result ofpotential new self-storage development at our Pompton Lakes, NJ property. The cost for this development is still in the on-going COVID-19 pandemic, we have suspended all significant capital improvement projects other thanplanning stages but the completion ofanticipated cost is estimated to be $7 million, which will be funded with available cash or borrowings on our Stratford, CT project discussed below.Facility.
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 are building two pad-site buildings totaling approximately 5,200 square feet, which are pre-leased to national retail chains, and a self-storage facility of approximately 131,000 square feet, which will be managed for us by a national self-storage company. We anticipate the total development cost will be approximately $18.8$18.6 million (excluding land cost), of which we have already funded $16.8$18.3 million as of January 31,April 30, 2021 and plan on funding the balance with available cash, borrowings on our Facility or other sources, as more fully described earlier in this Item 2. We have completed the construction of one of the retail pads and the self-storage building as of January 31,April 30, 2021. The storage building is approximately 25.8% leased as of April 30, 2021.
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 $297.5$295.8 million consist of $1.7 million in variable rate debt with an interest rate of 5.09% as of January 31,April 30, 2021 and $295.8$294.1 million in fixed-rate mortgage loans with a weighted average interest rate of 4.1% at January 31,April 30, 2021. The mortgages are secured by 24 properties with a net book value of $517$514 million and have fixed rates of interest ranging from 3.5% to 4.9%. The $1.7 million in variable rate debt is unsecured. We may refinance our mortgage loans, at or prior to scheduled maturity, through replacement mortgage loans. The ability to do so, however, is dependent upon various factors, including the income level of the properties, interest rates and credit conditions within the commercial real estate market. Accordingly, there can be no assurance that such re-financings can be achieved. At January 31,April 30, 2021, we had 5150 properties in our consolidated portfolio that were unencumbered by mortgages.
Included in the mortgage notes discussed above, we have eight promissory notes secured by properties we consolidate and three promissory notes secured by properties in joint ventures that we do not consolidate. The interest rate on these 11 notes is based on some variation of the London Interbank Offered Rate (“LIBOR”) plus some amount of credit spread. In addition, on the day these notes were executed by us, we entered into derivative interest rate swap contracts, the counterparty of which was either the lender on the aforementioned promissory notes or an affiliate of that lender. These swap contracts are in accordance with the International Swaps and Derivatives Association, Inc ("ISDA"). These swap contracts convert the variable interest rate in the notes, which are based on LIBOR, to a fixed rate of interest for the life of each note. All indications areIn 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 willby no longer be published beginning on or around the yearlater than December 31, 2021. All At some point, all contracts, including our 11 promissory notes and 11 swap contracts that use LIBOR, will no longer have the reference rate available and the reference rate will need to be replaced. We have good working relationships with all of our lenders to our notes, who are also the counterparties to our swap contracts. All indications we have received from our lenders and counterparties is that their goal is to have the replacement reference rate under the notes match the replacement rates in the swaps. If this were to happen, we believe there would be no material effect on our financial position or results of operations. However, because this will be the first time any of the reference rates for our promissory notes or swap contracts will stop being published, we cannot be sure how the replacement rate event will conclude. Until we have more clarity from our lenders and counterparties on how they plan on dealing with this replacement rate event, we cannot be certain of the impact on the Company. See “Item 3. Quantitative and Qualitative Disclosures about Market Risk” included in this Report on Form 10-Q for additional information on our interest rate risk.
We currently maintain a ratio of total debt to total assets below 33.0% and a fixed charge coverage ratio of over 3.22.9 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 5150 properties in our consolidated portfolio that are not encumbered by secured mortgage debt. At January 31,April 30, 2021, we had borrowing capacity of $64.3$89.3 million on our Facility (exclusive of the accordion feature discussed in the following paragraph). Our Facility includes financial covenants that limit, among other things, our ability to incur unsecured and secured indebtedness. See Note 2 in our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for additional information on these and other restrictions.
We haveUntil it was terminated on March 30, 2021, we had a $100 million unsecured revolving credit facility with a syndicate of three banks BNYled by The Bank of New York Mellon, as administrative agent. The syndicate also included Wells Fargo Bank N.A. and Bank of Montreal and Wells Fargo N.A.(co-syndication agents). The Facility gave us the option, under certain conditions, to increase the Facility's borrowing capacity up $150 million (subject to lender approval). The maturity date of the Facility was August 23, 2021.
On March 30, 2021, we refinanced our existing Facility with the same syndicate of three banks led by The Bank of New York Mellon, as administrative agent, increasing the capacity to $125 million from $100 million, with the ability under certain conditions to additionally increase the capacity to $150$175 million subject(subject to lender approval.approval). The maturity date of the new Facility is August 23, 2021, following our exercise of theMarch 29, 2024 with a one-year extension option on May 26, 2020.at our option. Borrowings under the Facility can be used for general corporate purposes and the issuance of upletters of credit (up to $10 million of letters of credit.million). Borrowings will bear interest at our option of Eurodollar rate plus 1.35%1.45% to 1.95%2.20% or The Bank of New York Mellon's prime lending rateYork's Prime Lending Rate plus 0.35%0.45% to 0.95%,1.20% based on consolidated total indebtedness, as defined. We pay a quarterly commitment fee on the unused commitment amount of 0.15% to 0.25% per annum, based on outstanding borrowings during the year. As of January 31, 2021, $64.3 million was available to be drawn on the Facility. Our ability to borrow under the Facility is subject to itsour compliance with the covenants and other restrictions on an ongoing basis. The principal financial covenants limit ourthe level of secured and unsecured indebtedness we can incur, including preferred stock and additionally requirerequires us to maintain certain debt coverage ratios. We wereThe Facility includes market standard provisions for determining the benchmark replacement rate for LIBOR. The Company was in compliance with such covenants at January 31, 2021.
We are currently in the process of renewing our Facility and hope to have it completed in the second quarter ofApril 30, 2021.
At January 31,April 30, 2021, we had $35.0 million in borrowings outstanding on our Facility.
Net Cash Flows from:
Operating Activities
Net cash flows provided by operating activities amounted to $14.6$34.6 million for the threesix months ended January 31,April 30, 2021 compared to $15.8$30.7 million in the comparable period of fiscal 2020. The decreasenet increase 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 impactcollection of the COVID-19 pandemic and increaserents that were deferred in other assets offset by an increase in accounts payable and accrued expenses.fiscal 2020.
Investing Activities
Net cash flows used in investing activities amounted to $6.2$9.1 million for the threesix months ended January 31,April 30, 2021 compared to $1.9$15.3 million in the comparable period of fiscal 2020. The increasedecrease in net cash flows used in investing activities in the threesix months ended January 31,April 30, 2021 when compared to the corresponding prior period was the result of our investing an additional $819,000 in our propertiespurchase of $7.0 million of marketable securities in the first threesix months of fiscal 2021 when compared with the first three months of fiscal 2020 and2020. The total decrease was offset by investing in a note receivable in the amount of $2.2 million. In addition, the increase was the result of receiving $983,000 more in proceeds from the sale of propertiesmillion in the first three months of fiscal 2020 versus the first threesix months of fiscal 2021.
We regularly make capital investments in our properties for improvements, and pursuant to our obligations for tenant improvements and leasing commissions.
Financing Activities
The $81.5$47.8 million decrease in net cash flows used by financing activities for the threesix months ended January 31,April 30, 2021 when compared to the corresponding prior period was predominantly the result of the redemption of our Series G preferred stock for $75 million in the first threesix months of fiscal 2020. In addition, for the first threesix months of fiscal 2021 when compared to corresponding prior period, we paid $5.4$10.9 million less in dividends on our Common and Class A Common stock in response to a loss of cash flow caused by the effects of the COVID-19 pandemic. This decrease was offset by our borrowing $35 million on our Facility in the first six months of fiscal 2020. We did not have any borrowing activity on our Facility in the first six months of fiscal 2021.
Results of Operations
The following information summarizes our results of operations for the six months and three months ended January 31,April 30, 2021 and 2020 (amounts in thousands):
| | Three Months Ended | | | | | | Change Attributable to | | | Six months ended | | | | | | Change Attributable to | |
| | | January 31, | | | Increase | | | | | | Property | | | Properties Held In | | | April 30, | | | Increase | | | | | | Property | | | Properties Held In | |
| Revenues | | 2021 | | | 2020 | | | (Decrease) | | | % Change | | | Acquisitions/Sales | | | Both Periods (Note 1) | | | 2021 | | | 2020 | | | (Decrease) | | | % Change | | | Acquisitions/Sales | | | Both Periods (Note 1) | |
| Base rents | | $ | 24,159 | | | $ | 25,292 | | | $ | (1,133 | ) | | | (4.5 | )% | | $ | 66 | | | $ | (1,199 | ) | | $ | 48,757 | | | $ | 50,883 | | | $ | (2,126 | ) | | | (4.2 | )% | | $ | 112 | | | $ | (2,238 | ) |
| Recoveries from tenants | | | 9,978 | | | | 7,995 | | | | 1,983 | | | | 24.8 | % | | | - | | | | 1,983 | | | | 18,792 | | | | 14,110 | | | | 4,682 | | | | 33.2 | % | | | 33 | | | | 4,649 | |
| Uncollectable amounts in lease income | | | (655 | ) | | | (342 | ) | | | (313 | ) | | | 91.5 | % | | | - | | | | (313 | ) | | | (1,379 | ) | | | (1,845 | ) | | | 466 | | | | (25.3 | )% | | | - | | | | 466 | |
| ASC Topic 842 cash basis lease income reversal | | | (999 | ) | | | - | | | | (999 | ) | | | 100.0 | % | | | - | | | | (999 | ) | | | (1,892 | ) | | | - | | | | (1,892 | ) | | | 100.0 | % | | | - | | | | (1,892 | ) |
| Lease termination | | | 705 | | | | 209 | | | | 496 | | | | 237.3 | % | | | - | | | | 496 | | | | 705 | | | | 348 | | | | 357 | | | | 102.6 | % | | | - | | | | 357 | |
| Other income | | | 1,089 | | | | 1,194 | | | | (105 | ) | | | (8.8 | )% | | | (24 | ) | | | (81 | ) | | | 2,220 | | | | 2,132 | | | | 88 | | | | 4.1 | % | | | (16 | ) | | | 104 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Property operating | | | 6,314 | | | | 5,929 | | | | 385 | | | | 6.5 | % | | | (7 | ) | | | 392 | | | | 12,449 | | | | 10,730 | | | | 1,719 | | | | 16.0 | % | | | 25 | | | | 1,694 | |
| Property taxes | | | 5,861 | | | | 5,810 | | | | 51 | | | | 0.9 | % | | | - | | | | 51 | | | | 11,776 | | | | 11,718 | | | | 58 | | | | 0.5 | % | | | 22 | | | | 36 | |
| Depreciation and amortization | | | 7,518 | | | | 7,135 | | | | 383 | | | | 5.4 | % | | | 76 | | | | 307 | | | | 14,710 | | | | 14,283 | | | | 427 | | | | 3.0 | % | | | 182 | | | | 245 | |
| General and administrative | | | 2,644 | | | | 2,777 | | | | (133 | ) | | | (4.8 | )% | | | n/a | | | | n/a | | | | 4,737 | | | | 6,384 | | | | (1,647 | ) | | | (25.8 | )% | | | n/a | | | | n/a | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-Operating Income/Expense | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | 3,392 | | | | 3,339 | | | | 53 | | | | 1.6 | % | | | - | | | | 53 | | | | 6,733 | | | | 6,648 | | | | 85 | | | | 1.3 | % | | | - | | | | 85 | |
| Interest, dividends, and other investment income | | | 43 | | | | 94 | | | | (51 | ) | | | (54.3 | )% | | | n/a | | | | n/a | | | | 96 | | | | 332 | | | | (236 | ) | | | (71.1 | )% | | | n/a | | | | n/a | |
| | | Three Months Ended | | | | | | Change Attributable to | |
| | | April 30, | | | Increase | | | | | | Property | | | Properties Held In | |
| Revenues | | 2021 | | | 2020 | | | (Decrease) | | | % Change | | | Acquisitions/Sales | | | Both Periods (Note 1) | |
| Base rents | | $ | 24,598 | | | $ | 25,591 | | | $ | (993 | ) | | $ | (3.9 | )% | | $ | 46 | | | $ | (1,039 | ) |
| Recoveries from tenants | | | 8,814 | | | | 6,115 | | | | 2,699 | | | | 44.1 | % | | | 33 | | | | 2,666 | |
| Uncollectible amounts in lease income | | | (724 | ) | | | (1,503 | ) | | | 779 | | | | (51.8 | )% | | | - | | | | 779 | |
| ASC Topic 842 cash basis lease income reversal | | | (893 | ) | | | - | | | | (893 | ) | | | 100.0 | % | | | - | | | | (893 | ) |
| Lease termination income | | | - | | | | 139 | | | | (139 | ) | | | (100.0 | )% | | | - | | | | (139 | ) |
| Other income | | | 1,131 | | | | 938 | | | | 193 | | | | 20.6 | % | | | 8 | | | | 185 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
| Property operating | | | 6,135 | | | | 4,801 | | | | 1,334 | | | | 27.8 | % | | | 32 | | | | 1,302 | |
| Property taxes | | | 5,915 | | | | 5,908 | | | | 7 | | | | 0.1 | % | | | 23 | | | | (16 | ) |
| Depreciation and amortization | | | 7,192 | | | | 7,148 | | | | 44 | | | | 0.6 | % | | | 106 | | | | (62 | ) |
| General and administrative | | | 2,093 | | | | 3,607 | | | | (1,514 | ) | | | (42.0 | )% | | | n/a | | | | n/a | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Non-Operating Income/Expense | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | 3,341 | | | | 3,309 | | | | 32 | | | | 1.0 | % | | | - | | | | 32 | |
| Interest, dividends, and other investment income | | | 53 | | | | 238 | | | | (185 | ) | | | (77.7 | )% | | | n/a | | | | n/a | |
Note 1 – Properties held in both periods includes only properties owned for the entire periods of 2021 and 2020 and for interest expense the amount also includes parent company interest expense. All other properties are included in the property acquisition/sales column. There are no properties excluded from the analysis.
Base rents decreased by 4.5%4.2% to $24.2$48.8 million for the six month period ended April 30, 2021 as compared with $50.9 million in the comparable period of 2020. Base rents decreased by 3.9% to $24.6 million for the three month periodmonths ended January 31,April 30, 2021 as compared with $25.3$25.6 million in the comparable period of 2020. The change in base rent and the changes in other income statement line items analyzed in the table above were attributable to:
Property Acquisitions and Properties Sold:
In the first threesix months of fiscal 2020, we sold two properties totaling 18,100 square feet. In the second quarter of fiscal 2021 we sold one property totaling 2,500 square feet. These properties accounted for all of the revenue and expense changes attributable to property acquisitions and sales in the threesix months ended January 31,April 30, 2021 when compared with fiscal 2020.
Properties Held in Both Periods:
Revenues
Base Rent
The net decrease in base rents for the six month and three month periodperiods ended January 31,April 30, 2021, when compared to the corresponding prior period, was predominantly caused by a reduction of $441,000$1.3 million and $814,000 in the firstsix months and three months of fiscalended April 30, 2021, respectively, for a reversal of straight-line rents for tenants whose revenue recognition was switched to cash-basis accounting in accordance with ASC Topic 842. There was no such reversal in the firstsix months or three months of fiscalended April 30, 2020. In addition, the reduction of base rents was caused by a decrease in occupancy rates in the first quarter of fiscalsix months and three months ended April 30, 2021 when compared with the corresponding prior period,periods, predominantly related to the vacancies at nine8 properties.
In the first threesix months of fiscal 2021, we leased or renewed approximately 189,000424,000 square feet (or approximately 4.2%9.4% of total GLA). At January 31,April 30, 2021, the Company’s consolidated properties were 89.8%90.1% leased (90.4% leased at October 31, 2020).
Tenant Recoveries
In the six month and three month periodperiods ended January 31,April 30, 2021, recoveries from tenants (which represent reimbursements from tenants for operating expenses and property taxes) increased by a net $2.0$4.6 million and $2.7 million, respectively when compared with the corresponding prior period.
The increase in tenant recoveries for the three month period ended January 31, 2021 when compared to the corresponding prior period was the result of having higher common area maintenance expenses in the six months and three month periodmonths of fiscal 2021 when compared with the three month period of fiscal 2020corresponding prior periods related to roof repairs, canopy repairs,snow removal and parking lot repairs. In addition, we completed the 2020 annual reconciliations for both common area maintenance and real estate taxes in the first quarterhalf of fiscal 2021 and those reconciliations resulted in us billing our tenants more than we had anticipated and accrued for in the prior period, which increased tenant reimbursement income in the current quarter.first half of fiscal 2021.
Uncollectable Amounts in Lease Income
In the six month and three month periodperiods ended January 31,April 30, 2021, uncollectable amounts in lease income decreased by $466,000 and $779,000, respectively. In the second quarter of fiscal 2020, we significantly increased by $313,000. This increase was predominantly the result ofour uncollectable amounts in lease income based on our assessment of the collectability of existing non-credit small shop tenants' receivables given the on-goingon-set of the COVID-19 pandemic.pandemic in March 2020. A number of non-credit small shop tenants' businesses were deemed non-essential by the states where they operate and were forced to close for a portion of the second and third quarters of fiscal 2020. This placed stress on our small shop tenants and made it difficult for many of them to pay their rents when due. Our assessment was 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 tenantsbilled but unpaid rents would most likely be uncollectable.
During the first six months ended April 30, 2021, many of our tenants saw early signs of business improvement as regulatory restrictions were relaxed and individuals began returning to pre-pandemic activities following significant progress made in vaccinating the U.S. public and the resulting decline in COVID-19 cases. As a result, the uncollectable amounts in lease income has been declining.
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 continuing to analyze our entire tenant base, we have determined that as a result of the COVID-19 pandemic, 8089 tenants' future lease payments wereare no longer probable of collection (9.2%(10.3% of our approximate 870863 tenants), this included 16including 9 tenants who were converted to cash-basis accounting in this firstsecond quarter of fiscal 2021. As a result of this assessment in the six month and three monthsmonth periods ended January 31,April 30, 2021, we reversed $999,000$1.3 million and $814,000, respectively, of lease income, consisting of billed but uncollected lease income for all 8089 tenants, and prior billed but uncollected accounts receivable related to the 169 tenants converted to cash-basis accounting in the firstsecond quarter of fiscal 2021, which represented 1.0% of our ABR.2021. This reduction is a direct reduction of lease income in the consolidated statement of income for the six months and three months ended January 31,April 30, 2021. We did not have any reversal of lease income for tenants converted to cash basis accounting in the six months and three months ended April 30, 2020.
Expenses
Property Operating
In the six month and three month periodperiods ended January 31,April 30, 2021, property operating expenses increased by $392,000$1.7 million and $1.3 million, respectively, as a result of having higher common area maintenance expenses in the six months and three month periodmonths of fiscal 2021 when compared with the three month period of fiscal 2020corresponding prior periods related to roof repairs, canopy repairs,snow removal and parking lot repairs.
Property Taxes
In the six month and three month periodperiods ended January 31,April 30, 2021, property tax expense was relatively unchanged when compared with the corresponding prior period.
Interest
In the six month and three month periodperiods ended January 31,April 30, 2021, interest expense was relatively unchanged when compared with the corresponding prior period.
Depreciation and Amortization
In the threesix month period ended January 31,April 30, 2021, depreciation and amortization increased by $307,000$245,000 when compared with the prior period, primarily as a result of a write-off of tenant improvements related to a tenant that vacated six locations in our portfolio in fiscal 2021 and increased depreciation for tenant improvements for two large grocery store re-tenanting projects at our Eastchester, NY and Wayne, NJ properties after the first quarter of fiscal 2020. Depreciation and amortization was relatively unchanged for the three months ended April 30, 2021 when compared with the corresponding prior period.
General and Administrative Expenses
In the six month and three month periodperiods ended January 31,April 30, 2021, general and administrative expenses decreased by $133,000$1.6 million and $1.5 million, respectively, when compared with the corresponding prior period, primarily as a result ofpredominantly related to a decrease in compensation and benefits expense. The decrease was the result of accelerated vesting of restricted stock compensation amortization expense caused by a lower grant date stock pricevalue upon the death of our former Chairman Emeritus in January 2021 and a decrease in costs for business travel as many industry conventions were cancelled due to the COVID-19 Pandemic.second quarter of fiscal 2020.
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 to be 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 |
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. |
should not be considered an alternative to net income as an indication of our performance.
FFO as defined by us may not be comparable to similarly titled items reported by other real estate investment trusts due to possible differences in the application of the NAREIT definition used by such REITs. The table below provides a reconciliation of net income applicable to Common and Class A Common stockholders in accordance with GAAP to FFO for the six months and three months ended January 31,April 30, 2021 and 2020 (amounts in thousands):
| Reconciliation of Net Income Available to Common and Class A Common Stockholders To Funds From Operations: | | Three Months Ended | | | Six months ended | | | Three Months Ended | |
| | | January 31, | | | April 30, | | | April 30, | |
| | | 2021 | | | 2020 | | | 2021 | | | 2020 | | | 2021 | | | 2020 | |
| Net Income Applicable to Common and Class A Common Stockholders | | $ | $4,479 | | | $ | $5,071 | | | $ | $9,100 | | | $ | $7,870 | | | $ | $4,621 | | | $ | $2,799 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Real property depreciation | | | 5,702 | | | | 5,671 | | | | 11,461 | | | | 11,336 | | | | 5,759 | | | | 5,665 | |
| Amortization of tenant improvements and allowances | | | 1,315 | | | | 1,036 | | | | 2,352 | | | | 2,075 | | | | 1,037 | | | | 1,039 | |
| Amortization of deferred leasing costs | | | 476 | | | | 407 | | | | 846 | | | | 828 | | | | 370 | | | | 421 | |
| Depreciation and amortization on unconsolidated joint ventures | | | 375 | | | | 373 | | | | 750 | | | | 747 | | | | 375 | | | | 374 | |
| (Gain)/loss on sale of property | | | 28 | | | | 339 | | | | (406 | ) | | | 328 | | | | (434 | ) | | | (11 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Funds from Operations Applicable to Common and Class A Common Stockholders | | $ | $12,375 | | | $ | $12,897 | | | $ | $24,103 | | | $ | $23,184 | | | $ | $11,728 | | | $ | $10,287 | |
FFO amounted to $12.4$24.1 million in the threesix months ended January 31,April 30, 2021 compared to $12.9$23.2 million in the comparable period of fiscal 2020. The net decreaseincrease in FFO is attributable, among other things to:
Decreases:Increases:
A decreaseAn increase in variable lease income (cost recovery income) related to additional vacanciesan under-accrual adjustment in the portfoliorecoveries from tenants for real estate taxes and common area maintenance in the first threesix months of fiscal 2021, predominantly at 9 properties.which resulted in a positive variance in the first half of fiscal 2021 when compared to the same period of fiscal 2020.
A decrease of $164,000$357,000 increase in percentage rent collectedlease termination income in the first threesix months of fiscal 2021 when compared with the corresponding prior period.period as a result of one tenant who occupied multiple spaces in our portfolio ceasing operations and buying out the remaining terms of their leases.
| • | An increaseA net decrease in general and administrative expenses of $1.6 million, predominantly related to a decrease in compensation and benefits expense in the six months ended April 30, 2021 when compared to the corresponding prior period. The decrease was the result of accelerated vesting of restricted stock grant value upon the death of our former Chairman Emeritus in the second quarter of fiscal 2020.
|
| • | A decrease in uncollectable amounts in lease income of $313,000. This increase was$466,000. In the resultsecond quarter of an increasefiscal 2020, we significantly increased our uncollectable amounts in lease income based on our assessment of the collectability of existing non-credit small shop tenants' receivables given the on-going COVID-19 pandemic.on-set of the COVID-19 pandemic in March 2020. A number of non-credit small shop tenants' businesses were deemed non-essential by the states where they operate and were forced to close for a portion of the second and third quarters of fiscal 2020. This placed stress on our third quarter until states loosenedsmall shop tenants and made it difficult for many of them to pay their restrictions and allowed almost allrents when due. Our assessment was that any billed but unpaid rents for such tenants would likely be uncollectable. During the first six months ended April 30, 2021, many of our tenants saw early signs of business improvement as regulatory restrictions were relaxed and individuals began returning to re-open, although some with operational restrictions. Our assessmentpre-pandemic activities following significant progress made in vaccinating the U.S. public and the resulting decline in COVID-19 cases. As a result, the uncollectable amounts in lease income has been declining. |
| • | A decrease of $229,000 in net income to noncontrolling interests. This decrease was caused by our redemption of noncontrolling units in the second half of fiscal 2020 and first half of fiscal 2021. In addition, distributions decreased to noncontrolling unit owners whose distributions per unit were based on the premise that as we emerge fromdividend rate of our Class A Common stock, which was significantly reduced in the COVID-19six months ended April 30, 2021 pandemic, our non-credit small shop tenants will needwhen compared 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.the corresponding prior period. |
Decreases:
A decrease in lease income related to additional vacancies in the portfolio in the first six months of 2021, predominantly at 8 properties. In addition, the vacancy rate increased at our six unconsolidated joint venture properties in the six months ended April 30, 2021 when compared to the first six months of fiscal 2020. This reduced the amount of equity in earnings we record for those joint ventures.
| • | An increase in the write-off of lease income in the first six months of 2021 quarter 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 lease income in the threesix months ended January 31,April 30, 2021 of $$1.9 million999,000,, which consisted of the reversal of billed but uncollected lease income for all 8089 tenants converted to cash-basis accounting and the write-off of accounts receivable related to the 169 tenants converted to cash-basis accounting in the firstsecond quarter of fiscal 2021. There were no such reversals in the six month periods ended April 30, 2020. In addition, we reversed accrued straight-line rents receivable for these aforementioned 16 tenants converted to cash basis in the six months ended April 30, 2021of $441,000.$1.3 million. There were no such reversals of lease income in the threesix months ended January 31, April 30,2020. |
FFO amounted to $11.7 million in the three months ended April 30, 2021 compared to $10.3 million in the comparable period of fiscal 2020. The net increase in FFO is attributable, among other things to:
Increases:
An increase in variable lease income (cost recovery income) related to an under-accrual adjustment in recoveries from tenants for real estate taxes and common area maintenance in the firstsecond quarter of fiscal 2021, which resulted in a positive variance in the firstsecond quarter of fiscal 2021 when compared to the same period of fiscal 2020.
| • | A net decrease in general and administrative expenses of $1.5 million, predominantly related to a decrease in compensation and benefits expense in the second quarter of fiscal 2021 when compared to the corresponding prior period. The decrease was the result of accelerated vesting of restricted stock grant value upon the death of our former Chairman Emeritus in the second quarter of fiscal 2020. |
| • | A decrease in uncollectable amounts in lease income of $779,000. In the second quarter of fiscal 2020, we significantly increased our uncollectable amounts in lease income based on our assessment of the collectability of existing non-credit small shop tenants' receivables given the on-set of the COVID-19 pandemic in March 2020. A number of non-credit small shop tenants' businesses were deemed non-essential by the states where they operate and were forced to close for a portion of the second and third quarters of fiscal 2020. This placed stress on our small shop tenants and made it difficult for many of them to pay their rents when due. Our assessment was that any billed but unpaid rents for such tenants would likely be uncollectable. During the first six months ended April 30, 2021, many of our tenants saw early signs of business improvement as regulatory restrictions were relaxed and individuals began returning to pre-pandemic activities following significant progress made in vaccinating the U.S. public and the resulting decline in COVID-19 cases. As a result, the uncollectable amounts in lease income has been declining. |
A $495,000 increasedecrease of $103,000 in lease terminationnet income to noncontrolling interests. This decrease was caused by our redemption of noncontrolling units in the second half of fiscal 2020 and first three monthshalf of fiscal 2021. In addition, distributions decreased to noncontrolling unit owners whose distributions per unit were based on the dividend rate of our Class A Common stock, which was significantly reduced in the second quarter of fiscal 2021 when compared withto the corresponding prior period.
Decreases:
A decrease in lease income related to additional vacancies in the portfolio in the three months ended April 30, 2021 when compared to the corresponding prior period, as a resultpredominantly at 8 properties. In addition, the vacancy rate increased at our six unconsolidated joint venture properties in the three months ended April 30, 2021 when compared to the corresponding prior period. This reduced the amount of one tenant who occupied multiple spacesequity in our portfolio ceasing operations and buying out the remaining terms of their leases.earnings we record for those joint ventures.
A net decrease in general and administrative expenses of $133,000, predominantly related to a decrease in compensation and benefits expense for the reduced amortization expense of restricted stock as a result of a lower common stock price on the January 2021 grant date.
| • | An increase in the write-off of lease income in the three months ended April 30, 2021 when compared to the corresponding prior period. This increase was related to 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 lease income in the amount of $893,000, which consisted of the reversal of billed but uncollected lease income for all 89 tenants converted to cash-basis accounting and the write-off of accounts receivable related to the 9 tenants converted to cash-basis accounting in the second quarter of fiscal 2021. There were no such reversals in the three months ended April 30, 2020. In addition, we reversed accrued straight-line rents receivable for these aforementioned 9 tenants in the three months ended April 30, 2021 of $814,000. There were no such reversals of lease income in the three months ended April 30, 2020. |
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 Midway Shopping Center, L.P.,
a 50% equity interest in the Chestnut Ridge Shopping Center,
a 50% equity interest in the Gateway Plaza shopping center and the Riverhead Applebee’s Plaza, and
a 20% interest in a suburban office building with ground level retail.
These unconsolidated joint ventures are accounted for under the equity method of accounting, as we have the ability to exercise significant influence over, but not control of, the operating and financial decisions of these investments. Our off-balance sheet arrangements are more fully discussed in Note 4, “Investments in and Advances to Unconsolidated Joint Ventures” in our financial statements in Item 1 of this Quarterly Report on Form 10-Q. Although we have not guaranteed the debt of these joint ventures, we have agreed to customary environmental indemnifications and nonrecourse carve-outs (e.g. guarantees against fraud, misrepresentation and bankruptcy) on certain loans of the joint ventures. The below table details information about the outstanding non-recourse mortgage financings on our unconsolidated joint ventures (amounts in thousands):
| | | | Principal Balance | | Fixed Interest | | | | | | Principal Balance | | Fixed Interest | | |
| Joint Venture Description | | Location | | Original Balance | | At January 31, 2021 | | Rate Per Annum | | Maturity Date | | Location | | Original Balance | | At April 30, 2021 | | Rate Per Annum | | Maturity Date |
| Midway Shopping Center | | Scarsdale, NY | | $ | 32,000 | | $ | 25,500 | | | 4.80% | | Dec-2027 | | Scarsdale, NY | | $ | 32,000 | | $ | 25,200 | | | 4.80% | | Dec-2027 |
| Putnam Plaza Shopping Center | | Carmel, NY | | $ | 18,900 | | $ | 18,300 | | | 4.81% | | Oct-2028 | | Carmel, NY | | $ | 18,900 | | $ | 18,200 | | | 4.81% | | Oct-2028 |
| Gateway Plaza | | Riverhead, NY | | $ | 14,000 | | $ | 11,500 | | | 4.18% | | Feb-2024 | | Riverhead, NY | | $ | 14,000 | | $ | 11,400 | | | 4.18% | | Feb-2024 |
| Applebee's Plaza | | Riverhead, NY | | $ | 2,300 | | $ | 1,800 | | | 3.38% | | Aug-2026 | | Riverhead, NY | | $ | 2,300 | | $ | 1,800 | | | 3.38% | | Aug-2026 |
Environmental Matters
Based on management's ongoing review of its properties, management is not aware of any environmental condition with respect to any of our properties that would be reasonably likely to have a material adverse effect on us. There can be no assurance, however, that (a) the discovery of environmental conditions that were previously unknown, (b) changes in law, (c) the conduct of tenants or (d) activities relating to properties in the vicinity of our properties, will not expose us to material liability in the future. Changes in laws increasing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of our tenants, which could adversely affect our financial condition and results of operations.
Item 3
. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to interest rate risk primarily through our borrowing activities, which predominantly include fixed-rate mortgage debt and, in limited circumstances, variable rate debt. As of January 31,April 30, 2021, we had total mortgage debt of $295.8$294.1 million, of which 100% was fixed-rate, inclusive of variable rate mortgages that have been swapped to fixed interest rates using interest rate swap derivatives contracts.
For our fixed-rate debt, there is 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 January 31,April 30, 2021, we had nine 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 October 2024, the Yonkers swap expires in November 2024, the Orangeburg swap expires in October 2024, the Brewster swap expires in June 2029, the Stamford swap expires in July 2027, the Greenwich swaps expire in October 2026, the Darien swap expires in March 2028, and the Dumont, NJ swap expires in August 2027, 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 January 31,April 30, 2021, we had $35 million in borrowings outstanding on our Facility, which bears interest at Libor plus 1.35%1.45%. 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% per annum.
Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective.
Changes in Internal Controls
During the quarter ended January 31,April 30, 2021, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1.
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.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
In December 2013, our Board of Directors 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. We have repurchased 195,413 shares of Class A Common Stock under the Current Repurchase Program. From the inception of all repurchase programs, we have repurchased 4,600 shares of Common Stock and 919,991 shares of Class A Common Stock. For the three months ended January 31,April 30, 2021, the Company did not repurchase any stock under the Current Repurchase Program.
From time to time, we could be deemed to have repurchased shares as a result of shares withheld for tax purposes upon a stock compensation related vesting event.
| Amended and Restated Credit Agreement, dated as of March 30, 2021, by and among Urstadt Biddle Properties Inc., The Bank of New York Mellon, as Administrative Agent, and Wells Fargo Bank, N.A. and Bank of Montreal (as co-syndication agents), (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, as filed on April 1, 2021). |
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| 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). |
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| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. |
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| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| URSTADT BIDDLE PROPERTIES INC. | |
| | (Registrant) | |
| | | |
| | By: /s/ Willing L. Biddle | |
| | Willing L. Biddle | |
| | Chief Executive Officer | |
| | (Principal Executive Officer) | |
| | | |
| | By: /s/ John T. Hayes | |
| | John T. Hayes | |
| | Senior Vice President & | |
| | Chief Financial Officer | |
| | (Principal Financial Officer | |
Dated: March 10,June 7, 2021 | and Principal Accounting Officer | |
