FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. Item 2.01 Completion of Acquisition or Disposition of Assets.
Purchase and Sale Agreement
First Real Estate Investment Trust of New Jersey, Inc. ("FREIT") previously reported that onNovember 22, 2021 , certain affiliates (the "Sellers") of FREIT entered into a Purchase and Sale Agreement (the "Purchase and Sale Agreement") withMCB Acquisition Company, LLC (the "Purchaser") pursuant to which the Sellers have agreed to sell three properties to the Purchaser. The properties consist of retail and office space and a residential apartment community owned byGrande Rotunda, LLC (the "Rotunda Property"), a shopping center owned byDamascus Centre, LLC (the "Damascus Property"), and a shopping center owned byWestFREIT Corp. (the "Westridge Square Property"). FREIT owns 100% of its subsidiary,WestFREIT Corp. ("WestFREIT"), a 60% interest inGrande Rotunda, LLC ("Grande Rotunda"), the joint venture that owns the Rotunda Property, and a 70% interest inDamascus Centre LLC ("Damascus Centre"), the joint venture that owns the Damascus Property. The original purchase price for the Rotunda Property, the Damascus Property and the Westridge Square Property (collectively the "Properties") under the Purchase and Sale Agreement was reduced by$2,723,000 from$267,000,000 to$248,750,269 , after giving effect to the escrow deposit described below. This reduction in the sales price was to account for improvements and repairs to the Properties and miscellaneous items identified by the Purchaser in the course of its due diligence inspection. Additionally, the Purchaser is obligated under the Purchase and Sale Agreement to deposit a total of$15,526,731 in escrow ($14,026,401 of which was deposited onDecember 30, 2021 ) with respect to certain leases at the Properties where the rent commencement date has not occurred or economic obligations of the Sellers under certain leases remain unpaid. Although there can be no assurance, a portion of the$15,526,731 escrow deposit (the "Purchaser Escrow Payment") may be paid to the Sellers depending upon the outcome of construction and leasing activities at the Properties. OnDecember 30, 2021 , the sale of the Rotunda Property was consummated by Grande Rotunda and the Purchaser for a purchase price of$191,080,599 . Grande Rotunda received net proceeds from the sale of approximately$68.7 million , after payment of related mortgage debt in the amount of$116.5 million and certain transactional expenses and transfer taxes, and not including loans (including interest) from each of the partners in Grande Rotunda (FREIT and Rotunda 100, LLC), totaling approximately$30.9 million which will be repaid with proceeds from the sale. In addition, the Purchaser deposited a total of$14,026,401 of the Purchaser Escrow Payment in escrow with respect to certain leases at the Rotunda Property where the rent commencement date has not occurred or economic obligations of the Sellers under certain leases remain unpaid. The sale of the Rotunda Property resulted in a net gain of approximately$52 million which includes approximately$8.2 million of proceeds anticipated to be released from the$14,026,401 held in escrow. The sale of the Damascus Property and the Westridge Square Property, with an aggregate purchase price of approximately$57.7 million , has not been completed. Pursuant to the Purchase and Sale Agreement, funds to be deposited in escrow with respect to certain leases at the Damascus Property and theWestridge Square Property where the rent commencement date has not occurred or economic obligations of the Sellers under certain leases remain unpaid amounts to approximately$1.5 million . The sale of the Damascus Property and the Westridge Square Property will result in net proceeds from the sales of approximately$16.3 million , after payment of related mortgage debt in the amount of approximately$39.3 million and certain transactional expenses and transfer taxes, with a resulting anticipated net gain of approximately$18.8 million , including approximately$1.1 million of proceeds anticipated to be released
from
escrow.
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The Purchaser made deposits of$10,000,000 in the aggregate upon expiration of the due diligence period with respect to its obligations under the Purchase and Sale Agreement, which deposits are applicable to the Damascus Property and the Westridge Square Property and are non-refundable except under certain limited circumstances. The Purchase and Sale Agreement provides that the purchase price for the Westridge Square Property and the Damascus Property is subject to customary prorations for rents, real estate taxes and operating expenses. Closing on the sale of the Westridge Square Property and the Damascus Property is subject to closing conditions and other terms and conditions customary for real estate transactions. The closing date for the sale of the Westridge Square Property and the Damascus Property is the earlier of (a) the date that is five (5) business days after the delivery of required estoppel certificates by Damascus Centre and WestFREIT and (b)January 14, 2022 . The Sellers have no right to extend the closing date
beyondJanuary 14, 2022 . 4
Item 9.01 Financial Statements and Exhibits
(b) Pro Forma Financial Information.
The following unaudited pro forma condensed consolidated financial statements are based on FREIT's historical consolidated financial statements and the historical financial statements of the Rotunda Property, the Damascus Property and the Westridge Square Property as adjusted to give effect to the sale of the Rotunda Property onDecember 30, 2021 and the anticipated sales of the Damascus Property and the Westridge Square Property. The unaudited pro forma condensed consolidated statements of operations for the nine months endedJuly 31, 2021 and the year endedOctober 31, 2020 give effect to the consummated sale of the Rotunda Property and the anticipated sales of the Damascus Property and the Westridge Square Property as if each had occurred onNovember 1, 2019 . The unaudited pro forma condensed consolidated balance sheet as ofJuly 31, 2021 gives effect to the consummated sale of the Rotunda Property and the anticipated sales of the Damascus Property and the Westridge Square Property as if each had occurred on that day. The transaction accounting adjustments consist of those necessary to account for each of these dispositions. These pro forma condensed consolidated financial statements do not contemplate any required dividend to maintain the status of a real estate investment trust as a result of these sales. 5FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY, INC. AND SUBSIDIARIES Unaudited Pro Forma Condensed Consolidated Balance Sheet As of July 31, 2021 (in Thousands) WestFREIT, Corp. & Grande Rotunda, LLC Damascus Centre, LLC Registrant Transaction accounting Transaction accounting historical
adjustments Notes adjustments Notes Pro forma
ASSETS
Real estate, at cost, net of accumulated
depreciation, including construction in
progress $ 273,004 $ (137,407 ) (a) $ (36,718 ) (h) $ 98,879
Cash and cash equivalents 36,359 68,687 (b) 16,312 (i) 121,358Investment in tenancy-in-common 19,433 - -
19,433
Funds held in post closing escrow - 8,205 (e) 1,132 (j)
9,337
Receivables, prepaid expenses and other assets 14,082 (6,304 ) (a) (3,210 ) (h)
4,568
Secured loans receivable (related party) 5,268
(5,268 ) (c) - -
Total Assets $ 348,146 $ (72,087 ) $ (22,484 ) $ 253,575
LIABILITIES AND EQUITY
Liabilities: Mortgages payable, net$ 301,162 $ (116,814 ) (a) $ (39,568 ) (h)$ 144,780 Due to affiliate 3,229 (3,229 ) (d) - - Accounts payable, accrued expenses and other liabilities 12,039 (1,035 ) (a) (618 ) (h) 10,386 Total Liabilities 316,430 (121,078 ) (40,186 ) 155,166 Common Equity: Common stock 71 - - 71 Additional paid-in-capital 25,417 - - 25,417 Retained earnings 13,516 28,011 (f) 14,275 (k) 55,802
Accumulated other comprehensive loss (2,885 )
- 391 (h) (2,494 )
Total Common Equity 36,119 28,011 14,666 78,796Noncontrolling interests in subsidiaries (4,403 )
20,980 (g) 3,036 (l) 19,613
Total Equity 31,716 48,991 17,702 98,409
Total Liabilities and Equity $ 348,146 $ (72,087 ) $ (22,484 ) $ 253,575 Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
(a) This adjustment reflects the elimination of assets and liabilities attributable to the sale of the Rotunda Property.
(b) This adjustment reflects consideration received from the sale of the Rotunda Property, the repayment of loans (including interest) and secured loans receivable to FREIT.
(c) This adjustment reflects the receipt of loan repayments from certain members of Rotunda 100, LLC from their respective proceeds of the sale of the Rotunda Property.
(d) This adjustment reflects the repayment of a loan (including interest) due to
Rotunda 100, LLC (40% partnership interest in
(e) This adjustment reflects proceeds anticipated to be released from funds held
in a post closing escrow totalling approximately
(f) This adjustment reflects FREIT's share of the$52 million gain on the sale of the Rotunda Property, inclusive of approximately$8.2 million of proceeds anticipated to be released from funds held in a post closing escrow for rents and unpaid economic obligations of the Sellers under certain leases related to tenants whose rent commencement dates have not begun.
(g) This adjustment reflects the minority interest share of the gain on sale of the Rotunda Property.
(h) This adjustment reflects the elimination of assets and liabilities
attributable to the Damascus Property and the
(i) This adjustment reflects the anticipated cash consideration received from
the sale of the Damascus Property and the
(j) This adjustment reflects proceeds anticipated to be released from funds held
in a post closing escrow of approximately
(k) This adjustment reflects FREIT's share of the$18.8 million gain on the sale of the Damascus Property and the Westridge Square Property, inclusive of approximately$1.1 million of proceeds anticipated to be released from funds held in a post closing escrow for rents and unpaid economic obligations of the Sellers under certain leases related to tenants whose rent commencement dates have not begun.
(l) This adjustment reflects the minority interest share of the gain on sale of the Damascus Property.
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Unaudited Pro Forma Condensed Consolidated Statement of Operations
For the nine months ended July 31, 2021
(In Thousands, Except Per Share Amounts)
Grande Rotunda, LLC WestFREIT, Corp. &
Transaction Damascus Centre, LLC
Registrant accounting Transaction accounting
historical adjustments Notes adjustments Notes Pro forma
Revenue $ 38,100 $ (12,842 ) (a) $ (5,396 ) (f) $ 19,862
Expenses:
Operating expenses 13,078 (3,411 ) (b) (979 ) (g) 8,688
Real estate taxes 6,018 (1,011 ) (b) (677 ) (g) 4,330
Other property expenses 8,573 (3,935 ) (b) (1,509 ) (g) 3,129
Total expenses 27,669 (8,357 ) (3,165 ) 16,147
Operating income 10,431 (4,485 ) (2,231 ) 3,715
Other expenses (157 ) (74 ) (c) - (231 )
Interest expense including amortization of
deferred financing costs (9,242 ) 3,148 (d) 1,077 (h) (5,017 )
Net income (loss) 1,032 (1,411 ) (1,154 ) (1,533 )
Net (income) loss attributable to noncontrolling
interests in subsidiaries (256 ) 273 (e) 80 (i) 97 Net income (loss) attributable to common equity $ 776 $ (1,138 ) $ (1,074 ) $
(1,436 )
Earnings (loss) per share - basic and diluted $ 0.11
$ (0.20 )
Weighted average shares outstanding:
Basic 7,016 7,016 Diluted 7,018 7,016
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
(a) This adjustment reflects the elimination of revenues of the Rotunda Property.
(b) This adjustment reflects the elimination of expenses of the Rotunda Property.
(c) This adjustment reflects the elimination of interest income earned on secured loans receivable to FREIT from certain members of Rotunda 100, LLC.
(d) This adjustment reflects the elimination of interest expense of the Rotunda Property.
(e) This adjustment reflects the adjustment to the minority interest share of the Rotunda Property.
(f) This adjustment reflects the elimination of revenues of the Damascus
Property and the
(g) This adjustment reflects the elimination of expenses of the Damascus
Property and the
(h) This adjustment reflects the elimination of interest expense of the Damascus
Property and the
(i) This adjustment reflects the adjustment to the minority interest share of the Damascus Property.
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Unaudited Pro Forma Condensed Consolidated Statement of Income
For the year ended October 31, 2020
(In Thousands, Except Per Share Amounts)
WestFREIT, Corp. &
Grande Rotunda, LLC Damascus Centre, LLC
Registrant Transaction Accounting Transaction Accounting
historical Adjustments Notes Adjustments Notes Pro Forma
Revenue $ 52,727 $ (16,503 ) (a) $ (7,386 ) (g) $ 28,838
Expenses:
Operating expenses 15,805 (4,773 ) (b) (1,118 ) (h) 9,914
Real estate taxes 8,687 (1,550 ) (b) (864 ) (h) 6,273
Other property expenses 24,475 (12,929 ) (b) (1,998 ) (h) 9,548
Total expenses 48,967 (19,252 ) (3,980 ) 25,735
Operating income 3,760 2,749 (3,406 ) 3,103
Other expenses 2 (131 ) (c) - (129 )
Gain on sale of property - 51,957 (d) 18,778 (i) 70,735Gain on deconsolidation of subsidiary 27,680 - -
27,680
Interest expense including amortization of deferred financing costs (14,122 ) 5,345 (e) 1,573 (j) (7,204 ) Net income 17,320 59,920 16,945 94,185
Net loss (income) attributable to noncontrolling
interests in subsidiaries 3,233 (24,668 ) (f) (2,812 ) (k)
(24,247 )
Net income attributable to common equity
35,252 $ 14,133 $ 69,938
Earnings per share - basic and diluted $ 2.94 $
10.00
Weighted average shares outstanding:
Basic 6,992 6,992 Diluted 6,994 6,994
Notes to Unaudited Pro Forma Condensed Consolidated Statement of Income
(a) This adjustment reflects the elimination of revenues of the Rotunda Property.
(b) This adjustment reflects the elimination of expenses of the Rotunda Property.
(c) This adjustment reflects the elimination of interest income earned on secured loans receivable to FREIT from certain members of Rotunda 100, LLC.
(d) This adjustment reflects the gain on sale of the Rotunda Property on
(e) This adjustment reflects the elimination of interest expense of the Rotunda Property.
(f) This adjustment reflects the minority interest share of the sale of the Rotunda Property.
(g) This adjustment reflects the elimination of revenues of the Damascus
Property and the
(h) This adjustment reflects the elimination of expenses of the Damascus
Property and the
(i) This adjustment reflects the anticipated gain on sale of the Damascus Property and theWestridge Square property. Included in this gain is approximately$1.1 million of proceeds anticipated to be released from funds held in a post closing escrow for rents and unpaid economic obligations of the Sellers under certain leases related to tenants whose rent commencement dates have not begun.
(j) This adjustment reflects the elimination of interest expense of the Damascus
Property and the
(k) This adjustment reflects the minority interest share of the anticipated sale
of the Damascus Property and the
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Forward-Looking and Cautionary Statements
This current report on Form 8-K may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements can be identified by the use of words such as "expect," "plan," "will," "estimate," "project," "intend," "believe," "guidance," "approximately," "anticipate," "may," "should," "seek" or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management. These forward-looking statements are subject to known and unknown risks and uncertainties that you should not rely on as predictions of future events. Forward-looking statements depend on assumptions, data and/or methods which may be incorrect or imprecise and we may not be able to realize them. The following risks and uncertainties, among others, could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to: industry and economic conditions; FREIT's ability to satisfy the conditions to closing and complete the proposed transaction; FREIT's dependence upon its external manager to conduct its business and achieve its investment objectives; unknown liabilities acquired in connection with acquired properties or interests in real estate-related entities; general risks affecting the real estate industry and local real estate markets (including, without limitation, the market value of FREIT's properties, potential illiquidity of FREIT's remaining real estate investments, condemnations, and potential damage from natural disasters); the financial performance of FREIT's tenants; the impact of any financial, accounting, legal or regulatory issues or litigation that may affect the Trust and its major tenants; volatility and uncertainty in the financial markets, including potential fluctuations in the consumer price index; risks associated with FREIT's failure to maintain status as a REIT under the Internal Revenue Code of 1986, as amended; and other additional risks discussed in FREIT's annual report on Form 10-K for the fiscal year endedOctober 31, 2020 . FREIT expressly disclaims any responsibility to update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. 9
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