FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY 10-Q Analysis & Summary – 3/14/2025

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First Real Estate Investment Tr

10-Q

Quarterly report

Filing date:

03/14/2025

TLDR:

ELI5:

This company, which owns apartments and commercial spaces, made more money this quarter than last year because they cut costs and their apartments are doing well. However, they have big loans coming due soon and some of their commercial spaces are empty, so they need to refinance their debt and find tenants to keep doing well.

Accession #:

0001174947-25-000329

Published on

March 16, 2025

Analyst Summary

Net income attributable to common equity improved from a loss of $512,000 to a profit of $614,000 year-over-year.
Residential occupancy increased to 96.8%, while commercial occupancy decreased to 48.2%.
Rental income increased by 2.1% year-over-year, driven by the residential segment.
Operating expenses decreased by 12.3% year-over-year.
Cash and cash equivalents decreased from $14.9 million to $11.9 million.
Management expresses optimism about leasing vacant anchor tenant spaces in commercial properties.
Recent refinancings and loan modifications/extensions have been at higher interest rates and for shorter terms.
Gross Profit Margin increased from 13.67% to 27.04%.
Operating Profit Margin improved from -9.52% to 6.89%.
Net Profit Margin improved from -9.52% to 6.89%.
Earnings Per Share (EPS) improved from $(0.07) to $0.08.
The current ratio increased from 7.01 to 13.34.
The debt-to-equity ratio increased from 4.89 to 4.98.
Interest Coverage Ratio (Times Interest Earned) increased from 0.31 to 1.27.
FFO increased from $0.05 per share to $0.17 per share.
AFFO increased from $0.04 per share to $0.16 per share.

Opportunities and Risks

Refinancing Risk: The company faces significant refinancing risk due to upcoming mortgage maturities and potentially higher interest rates.
Commercial Property Vacancy Risk: Continued vacancies in commercial properties could negatively impact revenue and NOI.
Interest Rate Risk: Rising interest rates could increase debt service costs and reduce property values.
Economic Conditions: Adverse economic conditions could impact tenant financial health and demand for rental space.
Residential Portfolio Strength: The residential portfolio continues to perform well, providing a stable source of revenue.
Commercial Property Leasing Potential: Management expresses optimism about leasing vacant commercial spaces, which could significantly boost revenue and NOI.
Cost Management: The company has demonstrated an ability to manage expenses, contributing to improved profitability.

Potential Implications

Company Performance

Successful refinancing of upcoming mortgage maturities is crucial for maintaining financial stability.
Improved occupancy rates in commercial properties are needed to boost revenue and NOI.
Continued cost management efforts will support profitability.
The company’s ability to navigate interest rate risk will impact its financial performance.

Stock Price

Positive progress on debt refinancing and commercial property leasing could positively impact the stock price.
Failure to refinance debt or improve occupancy rates could negatively impact the stock price.
Overall economic conditions and investor sentiment towards REITs will also influence the stock price.

SEC Filing Report: First Real Estate Investment Trust of New Jersey, Inc. (10-Q)

Executive Summary

This report analyzes the 10-Q filing for First Real Estate Investment Trust of New Jersey, Inc. (FREIT) for the quarter ended January 31, 2025. The company reported a net income attributable to common equity of $614,000, a significant improvement from the net loss of $512,000 in the same period last year. This improvement was driven by decreased general and administrative expenses and increased revenue. However, several challenges remain, including upcoming mortgage maturities and continued vacancies in commercial properties. The company’s ability to refinance debt and improve occupancy rates will be critical to its future performance. Given the mixed outlook, a HOLD recommendation is appropriate. Investors should closely monitor the company’s progress on debt refinancing and commercial property leasing.

Company Overview

First Real Estate Investment Trust of New Jersey, Inc. (FREIT) is a self-administered and externally managed equity real estate investment trust (REIT). The company owns a portfolio of residential apartment and commercial properties, primarily located in northern New Jersey and New York. FREIT operates in two segments: commercial properties and residential properties.

Detailed Analysis

Financial Statement Analysis

Key Ratios and Trends

Ratio	January 31, 2025	October 31, 2024	Change
Occupancy (Residential)	96.8%	N/A	Increased 1.5% from prior year quarter
Occupancy (Commercial)	48.2%	N/A	Decreased 1.9% from prior year quarter
Net Income (Loss) Attributable to Common Equity	$614,000	N/A	Improved from loss of ($512,000) in prior year quarter
Cash and Cash Equivalents	$11,900,000	$14,914,000	Decrease of $3,014,000
Mortgages Payable, Net	$127,612,000	$128,072,000	Decrease of $460,000

Income Statement Highlights

Rental income increased by 2.1% year-over-year, driven by the residential segment.
Operating expenses decreased by 12.3% year-over-year.
Net income attributable to common equity improved significantly, from a loss of $512,000 to a profit of $614,000.

Balance Sheet Highlights

Total assets decreased from $162.3 million to $156.9 million.
Cash and cash equivalents decreased from $14.9 million to $11.9 million.
Total liabilities decreased from $136.1 million to $131.3 million.

Cash Flow Highlights

Net cash provided by operating activities increased from $934,000 to $1,519,000.
Net cash provided by investing activities decreased from $7,409,000 to $1,851,000.
Net cash used in financing activities decreased from $8,585,000 to $6,246,000.

Management’s Discussion and Analysis (MD&A) Insights

Management notes that the U.S. inflation rate has increased slightly, while the unemployment rate has declined slightly.
They acknowledge a slight softening of the market in the residential portfolio, with rent increases on turned units and renewals showing a slower pace.
Management expresses optimism about leasing vacant anchor tenant spaces in commercial properties, citing rebounding interest in “brick and mortar” sites.
They highlight that recent refinancings and loan modifications/extensions have been at higher interest rates and for shorter terms.
Management believes that cash provided by operating activities and cash reserves will be adequate to cover debt service, real estate taxes, capital improvements, and other needs to maintain REIT status.

Red Flags and Uncommon Metrics

Upcoming Mortgage Maturities: The company faces significant mortgage maturities in the next few years, including $42.3 million in 2025. The ability to refinance these mortgages at favorable terms is crucial. The Westwood Plaza loan extension is only for 90 days, creating uncertainty.
Commercial Property Vacancies: The Westwood Plaza and Wayne Preakness Shopping centers continue to have elevated vacancy rates, impacting revenue and NOI.
Interest Rate Risk: The company is exposed to interest rate risk when refinancing mortgages. Higher interest rates could increase debt service costs and reduce refinancing proceeds.
Interest Reserve Escrow: The Westwood Plaza loan requires an interest reserve escrow account, indicating potential financial strain.

Comparative and Trend Analysis

The company’s performance improved compared to the same quarter last year, primarily due to decreased expenses and increased residential revenue.
However, the commercial segment continues to struggle with low occupancy rates.
The decrease in cash and cash equivalents is a concern, particularly given the upcoming mortgage maturities.

Risk and Opportunity Assessment

Risks

Refinancing Risk: The company faces significant refinancing risk due to upcoming mortgage maturities and potentially higher interest rates.
Commercial Property Vacancy Risk: Continued vacancies in commercial properties could negatively impact revenue and NOI.
Interest Rate Risk: Rising interest rates could increase debt service costs and reduce property values.
Economic Conditions: Adverse economic conditions could impact tenant financial health and demand for rental space.

Opportunities

Residential Portfolio Strength: The residential portfolio continues to perform well, providing a stable source of revenue.
Commercial Property Leasing Potential: Management expresses optimism about leasing vacant commercial spaces, which could significantly boost revenue and NOI.
Cost Management: The company has demonstrated an ability to manage expenses, contributing to improved profitability.

Conclusion and Actionable Insights

FREIT has shown improvement in its financial performance, driven by its residential portfolio and cost management efforts. However, the company faces significant challenges related to refinancing debt and improving occupancy rates in its commercial properties. The short-term extension of the Westwood Plaza loan and the upcoming maturity of the Preakness shopping center loan create uncertainty. Investors should closely monitor the company’s progress on these fronts.

Recommendations:

Monitor Debt Refinancing: Closely track the company’s ability to refinance upcoming mortgage maturities at favorable terms.
Assess Commercial Property Leasing Progress: Evaluate the company’s success in leasing vacant commercial spaces and improving occupancy rates.
Evaluate Dividend Sustainability: Assess the sustainability of the current dividend payout given the company’s cash flow and debt obligations.

Commentary

First Real Estate Investment Trust of New Jersey, Inc. (FREVS) shows a mixed financial performance for the three months ended January 31, 2025. The company turned a net loss into a net income attributable to common equity, a positive sign. However, total assets and total equity decreased compared to October 31, 2024. The company’s ability to extend or refinance maturing mortgages will be critical to its future financial stability.

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

Metric: Since the cost of revenue is not explicitly stated, we will use total revenue and total expenses to approximate. (7,269 – 5,304) / 7,269 = 27.04% (2025); (6,999 – 6,042) / 6,999 = 13.67% (2024)
Trend: Increase from 13.67% to 27.04%.
Industry: REITs typically have high gross margins, often above 50%, due to the nature of rental income. FREVS’s gross profit margin is below the industry average.

Operating Profit Margin

Metric: 501 / 7,269 = 6.89% (2025); (666) / 6,999 = -9.52% (2024)
Trend: Improved from -9.52% to 6.89%.
Industry: REITs generally have operating profit margins in the 20-30% range. FREVS’s operating profit margin is below the industry average.

Net Profit Margin

Metric: 501 / 7,269 = 6.89% (2025); (666) / 6,999 = -9.52% (2024)
Trend: Improved from -9.52% to 6.89%.
Industry: REITs generally have net profit margins in the 15-25% range. FREVS’s net profit margin is below the industry average.

Return on Assets (ROA)

Metric: 501 / ((156,883 + 162,264)/2) = 0.31% (annualized: 0.31% * 4 = 1.24%) (2025); (666) / ((162,264 + prior year end assets)/2) = Data not available to calculate.
Industry: REITs typically have ROAs in the 2-4% range. FREVS’s ROA is below the industry average.

Return on Equity (ROE)

Metric: 614 / ((25,619 + 26,184)/2) = 2.37% (annualized: 2.37% * 4 = 9.48%) (2025); (512) / ((26,184 + prior year end equity)/2) = Data not available to calculate.
Industry: REITs generally have ROEs in the 8-12% range. FREVS’s ROE is around the industry average.

Earnings Per Share (EPS) – Basic and Diluted

Metric: $0.08 (2025); $(0.07) (2024)
Trend: Improved from $(0.07) to $0.08.
Industry: EPS varies widely among REITs.

Liquidity

Current Ratio

Metric: (11,900 + 27,497 + 17,391 + 902 + 544 + 406 + 5,344 + 263 + 464) / (1,110 + 597 + 1,184 + 761) = 13.34 (2025); (14,914 + 29,259 + 17,512 + 913 + 572 + 498 + 5,007 + 277 + 506) / (857 + 5,224 + 1,205 + 722) = 7.01 (2024)
Trend: Increased from 7.01 to 13.34.
Industry: A current ratio of 1 or higher is generally considered healthy. FREVS’s current ratio is very high, suggesting strong liquidity.

Quick Ratio (Acid-Test Ratio)

Metric: (11,900 + 27,497 + 17,391 + 544 + 406 + 464) / (1,110 + 597 + 1,184 + 761) = 10.04 (2025); (14,914 + 29,259 + 17,512 + 572 + 498 + 506) / (857 + 5,224 + 1,205 + 722) = 6.13 (2024)
Trend: Increased from 6.13 to 10.04.
Industry: A quick ratio of 1 or higher is generally considered healthy. FREVS’s quick ratio is very high, suggesting strong liquidity.

Cash Ratio

Metric: 11,900 / (1,110 + 597 + 1,184 + 761) = 3.59 (2025); 14,914 / (857 + 5,224 + 1,205 + 722) = 2.18 (2024)
Trend: Increased from 2.18 to 3.59.
Industry: A cash ratio of 0.5 to 1 is generally considered healthy. FREVS’s cash ratio is very high, suggesting strong liquidity.

Solvency/Leverage

Debt-to-Equity Ratio

Metric: 127,612 / 25,619 = 4.98 (2025); 128,072 / 26,184 = 4.89 (2024)
Trend: Increased from 4.89 to 4.98.
Industry: REITs typically have higher debt-to-equity ratios than other industries. A debt-to-equity ratio of around 2-3 is common, but can be higher. FREVS’s debt-to-equity ratio is high, indicating significant leverage.

Debt-to-Assets Ratio

Metric: 127,612 / 156,883 = 0.81 (2025); 128,072 / 162,264 = 0.79 (2024)
Trend: Increased from 0.79 to 0.81.
Industry: REITs typically have higher debt-to-assets ratios than other industries. A debt-to-assets ratio of around 0.5-0.6 is common, but can be higher. FREVS’s debt-to-assets ratio is high, indicating significant leverage.

Interest Coverage Ratio (Times Interest Earned)

Metric: (501 + 1,873) / 1,873 = 1.27 (2025); (666 + 1,842) / 1,842 = 0.31 (2024)
Trend: Increased from 0.31 to 1.27.
Industry: A ratio of 1.5 or higher is generally considered healthy. FREVS’s interest coverage ratio is low, indicating a potential struggle to cover interest expenses.

Activity/Efficiency

Asset Turnover

Metric: 7,269 * 4 / ((156,883 + 162,264)/2) = 0.18 (2025); 6,999 * 4 / ((162,264 + prior year end assets)/2) = Data not available to calculate.
Industry: REITs typically have low asset turnover ratios due to the nature of their business. A ratio of 0.2-0.5 is common. FREVS’s asset turnover ratio is low.

Valuation

Price-to-Earnings Ratio (P/E)

Metric: 16.70 / (0.08 * 4) = 52.19 (2025); 16.70 / (-0.07 * 4) = N/A (2024)
Industry: P/E ratios for REITs can vary widely. A high P/E ratio may indicate that the stock is overvalued.

Price-to-Book Ratio (P/B)

Metric: Market Cap = 16.70 * 7,462,993 = $124,632,983.10 or 124,633 thousands. 124,633 / 25,619 = 4.86 (2025); Market Cap = 16.70 * 7,450,000 = $124,415,000 or 124,415 thousands. 124,415 / 26,184 = 4.75 (2024)
Trend: Increased from 4.75 to 4.86.
Industry: A P/B ratio between 1 and 3 is considered a good value. FREVS’s P/B ratio is high.

Price-to-Sales Ratio (P/S)

Metric: 124,633 / (7,269 * 4) = 4.28 (2025); 124,415 / (6,999 * 4) = 4.44 (2024)
Trend: Decreased from 4.44 to 4.28.
Industry: P/S ratios for REITs can vary widely.

Enterprise Value to EBITDA (EV/EBITDA)

Metric: EV = 124,633 + 127,612 – 11,900 = 240,345. EBITDA = 501 + 723 + 1,873 = 3,097. EV/EBITDA = 240,345 / 3,097 = 77.61 (annualized EBITDA = 3,097 * 4 = 12,388. EV/EBITDA = 240,345 / 12,388 = 19.40) (2025); EV = 124,415 + 128,072 – 14,914 = 237,573. EBITDA = (666) + 725 + 1,842 = 1,801. EV/EBITDA = 237,573 / 1,801 = 131.91 (annualized EBITDA = 1,801 * 4 = 7,204. EV/EBITDA = 237,573 / 7,204 = 32.98) (2024)
Trend: Decreased from 32.98 to 19.40.
Industry: EV/EBITDA ratios for REITs typically range from 10 to 15. FREVS’s EV/EBITDA ratio is high.

Growth Rates

Revenue Growth

Metric: (7,269 – 6,999) / 6,999 = 3.86%

Net Income Growth

Metric: (501 – (-666)) / (-666) = 175.23%

EPS Growth

Metric: (0.08 – (-0.07)) / (-0.07) = 214.29%

Other Relevant Metrics

Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO)

Metric: FFO = $0.17 per share (2025); $0.05 per share (2024). AFFO = $0.16 per share (2025); $0.04 per share (2024).
Trend: FFO and AFFO per share increased significantly.
Significance: FFO and AFFO are non-GAAP measures commonly used by REITs to evaluate operating performance. They provide a view of a REIT’s ability to generate cash flow from its operations. The adjustments made to net income to arrive at FFO and AFFO are generally reasonable for REITs.