FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY - Quarter Report: 2008 July (Form 10-Q)

form10q-94609_freit.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended July 31, 2008

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________________ to ____________________

Commission File No. 000-25043

FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY
(Exact name of registrant as specified in its charter)

New Jersey		22-1697095
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

505 Main Street, Hackensack, New Jersey		07601
(Address of principal executive offices)		(Zip Code)

201-488-6400

(Registrant's telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o

Accelerated Filer x

Non-Accelerated Filer o

Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of September 9, 2008, the number of shares of beneficial interest outstanding was 6,988,152.

Page 1

FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY

INDEX

Part I:	Financial Information
				Page

	Item 1:	Unaudited Condensed Consolidated Financial Statements

		a.)	Consolidated Balance Sheets as at July 31, 2008 and October 31, 2007;	3

		b.)	Consolidated Statements of Income, Comprehensive Income and Undistributed Earnings for the Nine and Three Months Ended July 31, 2008 and 2007;	4

		c.)	Consolidated Statements of Cash Flows for the Nine Months Ended July 31, 2008 and 2007;	5

		d.)	Notes to Condensed Consolidated Financial Statements.	6

	Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10

	Item 3	Quantitative and Qualitative Disclosures About Market Risk		20

	Item 4:	Controls and Procedures		20



Part II:	Other Information

	Item 1A:	Risk Factors		20

	Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds		23

	Item 6:	Exhibits		24

	Item 10:	Material Agreements		24

	Signatures			25

Page 2

Part I: Financial Information

Item 1: Unaudited Condensed Consolidated Financial Statements

FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS



	(Unaudited)			(Audited)
	July 31,			October 31,
	2008			2007
	(In Thousands of Dollars)
ASSETS
Real estate, at cost, net of accumulated depreciation	$	209,143		$	204,732
Construction in progress		8,121			7,331
Cash and cash equivalents		9,084			12,740
Tenants' security accounts		2,315			2,369
Sundry receivables		4,416			4,833
Secured loans receivable		3,326			3,326
Prepaid expenses and other assets		2,845			2,852
Acquired over market leases and in-place lease costs		925			1,104
Deferred charges, net		3,532			3,454
Interest rate swap contract		-			14
Totals	$	243,707		$	242,755


LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages payable	$	192,868		$	189,389
Accounts payable and accrued expenses		4,800			5,193
Dividends payable		2,054			2,704
Tenants' security deposits		3,111			3,124
Acquired below market value leases and deferred revenue		3,518			3,911
Total liabilities		206,351			204,321

Minority interest		13,265			13,304

Commitments and contingencies

Shareholders' equity:
Shares of beneficial interest without par value:
8,000,000 shares authorized;
6,846,152 and 6,760,652 shares issued and outstanding		23,904			23,225
Treasury stock, at cost: 5,000 shares		(120	)		-
Undistributed earnings		307			1,891
Accumulated other comprehensive income		-			14
Total shareholders' equity		24,091			25,130
Totals	$	243,707		$	242,755


See Notes to Condensed Consolidated Financial Statements.

Page 3

FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME
AND UNDISTRIBUTED EARNINGS
NINE AND THREE MONTHS ENDED JULY 31, 2008 AND 2007
(Unaudited)


	Nine Months Ended						Three Months Ended
	July 31,						July 31,
	2008			2007			2008			2007
	(In Thousands of Dollars, Except Per Share Amounts)
Revenue:
Rental income	$	27,193		$	26,480		$	9,129		$	8,980
Reimbursements		3,932			3,601			1,475			1,227
Sundry income		310			415			124			234
Totals		31,435			30,496			10,728			10,441

Expenses:
Operating expenses		8,069			8,224			2,385			2,713
Management fees		1,396			1,321			479			451
Real estate taxes		4,300			4,277			1,409			1,424
Depreciation		4,086			3,972			1,411			1,323
Totals		17,851			17,794			5,684			5,911

Operating income		13,584			12,702			5,044			4,530

Investment income		437			382			124			157
Interest expense including amortization
of deferred financing costs		(8,694	)		(9,099	)		(2,876	)		(3,010	)
Minority interest		(768	)		(386	)		(373	)		(129	)
Distribution to certain minority interests		-			(150	)		-			-
Income from continuing operations		4,559			3,449			1,919			1,548
Discontinued operations:
Earnings from discontinued operations		-			91			-			15
Gain on sale		-			3,680			-			3,680
Income from discontinued operations		-			3,771			-			3,695
Net income	$	4,559		$	7,220		$	1,919		$	5,243

Basic earnings per share:
Continuing operations	$	0.67		$	0.51		$	0.28		$	0.23
Discontinued operations		-			0.56			-			0.55
Net income	$	0.67		$	1.07		$	0.28		$	0.78
Diluted earnings per share:
Continuing operations	$	0.66		$	0.50		$	0.28		$	0.22
Discontinued operations		-			0.54			-			0.54
Net income	$	0.66		$	1.04		$	0.28		$	0.76

Weighted average shares outstanding:
Basic		6,802			6,752			6,844			6,756
Diluted		6,897			6,919			6,941			6,925

COMPREHENSIVE INCOME
Net income	$	4,559		$	7,220		$	1,919		$	5,243
Other comprehensive income (loss):
Unrealized (loss) on interest
rate swap contract		-			(48	)		-			(19	)
Comprehensive income	$	4,559		$	7,172		$	1,919		$	5,224

UNDISTRIBUTED EARNINGS
Balance, beginning of period	$	1,891		$	1,735		$	451		$	(340	)
Net income		4,559			7,220			1,919			5,243
Less dividends declared		(6,143	)		(6,079	)		(2,063	)		(2,027	)
Balance, end of period	$	307		$	2,876		$	307		$	2,876
Dividends declared per share	$	0.90		$	0.90		$	0.30		$	0.30


See Notes to Condensed Consolidated Financial Statements.

Page 4

FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JULY 31, 2008 AND 2007
(Unaudited)

	Nine Months Ended
	July 31,
	2008			2007
	(In Thousands of Dollars)
Operating activities:
Net income	$	4,559		$	7,220
Adjustments to reconcile net income to net cash provided by
operating activities (including discontinued operations):
Depreciation		4,086			3,980
Amortization		516			570
Net amortization of acquired leases		(72	)		(226	)
Deferred revenue		(215	)		(389	)
Minority interest		768			536
Gain on sale of discontinued operations		-			(3,680	)
Changes in operating assets and liabilities:
Tenants' security accounts		54			(150	)
Sundry receivables, prepaid expenses and other assets		40			581
Accounts payable, accrued expenses and other liabilities		663			567
Tenants' security deposits		(13	)		229
Net cash provided by operating activities		10,386			9,238
Investing activities:
Capital improvements - existing properties		(2,562	)		(1,752	)
Proceeds from sale of discontinued operations		-			3,796
Net sale proceeds held in escrow		-			(3,796	)
Construction and pre development costs		(7,736	)		(4,114	)

Net cash used in investing activities		(10,298	)		(5,866	)
Financing activities:
Repayment of mortgages		(7,552	)		(19,053	)
Proceeds from mortgages		6,000			28,331
Proceeds from construction loan		5,031			-
Deferred financing costs		(282	)		(638	)
Proceeds from exercise of stock options		679			37
Repurchase of Company stock-Treasury shares		(120	)		-
Dividends paid		(6,793	)		(7,427	)
Distribution to minority interest		(707	)		(541	)
Net cash (used in) provided by financing activities		(3,744	)		709
Net increase (decrease) in cash and cash equivalents		(3,656	)		4,081
Cash and cash equivalents, beginning of period		12,740			9,616
Cash and cash equivalents, end of period	$	9,084		$	13,697

Supplemental disclosure of cash flow data:
Interest paid, including capitalized construction period interest
of $245 in fiscal 2008.	$	8,540		$	8,900
Income taxes paid	$	44		$	18
Supplemental schedule of non cash financing activities:
Accrued capital expenditures, construction costs and pre-development costs	$	854		$	235
Dividends declared but not paid	$	2,054		$	2,027

See Notes to Condensed Consolidated Financial Statements.

Page 5

FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of presentation:

The accompanying condensed consolidated financial statements have been prepared without audit, in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and pursuant to the rules of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnotes required by GAAP for complete financial statements have been omitted. It is the opinion of management that all adjustments considered necessary for a fair presentation have been included, and that all such adjustments are of a normal recurring nature.

The consolidated results of operations for the nine and three months ended July 31, 2008 are not necessarily indicative of the results to be expected for the full year. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Annual Report on Form 10-K for the year ended October 31, 2007 of First Real Estate Investment Trust of New Jersey (“FREIT”).

Reclassification:

Certain accounts in the 2007 financial statements have been reclassified to conform to the current presentation.

Note 2 - Earnings per share:

Basic earnings per share is calculated by dividing net income by the weighted average number of shares outstanding during each period (denominator). The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include the number of additional shares that would have been outstanding if all potentially dilutive shares, such as those issuable upon the exercise of stock options and warrants, were issued during the period.

	Nine Months Ended				Three Months Ended
	July 31,				July 31,
	2008		2007		2008		2007
Basic weighted average shares outstanding		6,802,083		6,752,484		6,844,304		6,755,652

Shares arising from assumed exercise of stock options		94,772		166,675		96,777		169,513
Dilutive weighted average shares outstanding		6,896,855		6,919,159		6,941,081		6,925,165

In computing diluted earnings per share for the nine and three months ended July 31, 2008 and 2007, the assumed exercise of all of FREIT’s outstanding stock options, adjusted for application of the treasury stock method, would have increased the weighted average number of shares outstanding as shown in the table below.

Basic and diluted earnings per share, based on the weighted average number of shares outstanding during each period, are comprised of ordinary income for the nine and three months ended July 31, 2008, and ordinary and capital gain income for the prior year’s comparable periods.

Note 3 - Equity incentive plan:

On September 10, 1998, the Board of Trustees approved FREIT’s Equity Incentive Plan (the "Plan") which was ratified by FREIT's shareholders on April 7, 1999, whereby up to 920,000 of FREIT's shares of beneficial interest were available for issuance to key personnel in the form of stock options, restricted share awards and other share-based awards.

Upon ratification of the Plan on April 7, 1999, FREIT issued 754,000 stock options (adjusted for stock splits), which it had previously granted to key personnel on September 10, 1998. The fair value of the options on the date of grant was $7.50 per share. As of July 31, 2008, options for 142,000 shares were outstanding. The total intrinsic value of the options outstanding at July 31, 2008 was approximately $2.3 million. In August and September 2008, an additional 142,000 options were exercised to purchase 142,000 shares at $7.50 per share. As a result, all outstanding options, which expire on September 10, 2008, have been exercised.

On April 4, 2007, FREIT shareholders approved amendments to FREIT’s Equity Incentive Plan as follows: (a) reserving an additional 300,000 shares for issuance under the Plan; and (b) extending the term of the Plan until September 10, 2018.

Page 6

Note 4 - Discontinued operations:

On June 26, 2007, FREIT closed on its contract for the sale of the Lakewood Apartments in Lakewood, New Jersey. The sales price for the property was $4 million. For financial reporting purposes, FREIT recognized a gain of approximately $3.7 million from the sale. In compliance with current accounting guidance (SFAS No. 144 – “Accounting for the Impairment or Disposal of Long-Lived Assets”), the prior year’s earnings of the Lakewood operation have been classified as “Income from discontinued operations”. Revenue attributable to discontinued operations was $268,000 and $61,000 for the nine and three-month periods ended July 31, 2007.

Note 5 - Segment information:

FREIT has determined that it has two reportable segments: commercial properties and residential properties. These reportable segments offer different types of space, have different types of tenants, and are managed separately because each requires different operating strategies and management expertise. The commercial segment contains ten (10) separate properties and the residential segment contains nine (9) properties. The accounting policies of the segments are the same as those described in Note 1 in FREIT’s Annual Report on Form 10-K for the year ended October 31, 2007.

The chief operating and decision-making group of FREIT's commercial segment, residential segment and corporate/other is comprised of FREIT’s Board of Trustees.

FREIT assesses and measures segment operating results based on net operating income ("NOI"). NOI, a standard used by real estate professionals, is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes deferred rents (straight lining), lease amortization, depreciation, and financing costs. NOI is not a measure of operating results or cash flows from operating activities as measured by GAAP, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity.

Real estate rental revenue, operating expenses, NOI and recurring capital improvements for the reportable segments are summarized below and reconciled to consolidated net income for the nine and three months ended July 31, 2008 and 2007. Asset information is not reported since FREIT does not use this measure to assess performance.

	Nine Months Ended						Three Months Ended
	July 31,						July 31,
	2008			2007			2008			2007
	(In Thousands of Dollars)
Real estate rental revenue:
Commercial	$	16,888		$	16,198		$	5,848		$	5,464
Residential		14,335			13,886			4,808			4,831
Totals		31,223			30,084			10,656			10,295
Real estate operating expenses:
Commercial		6,440			6,425			2,027			2,123
Residential		6,180			6,120			1,911			1,992
Totals		12,620			12,545			3,938			4,115
Net operating income:
Commercial		10,448			9,773			3,821			3,341
Residential		8,155			7,766			2,897			2,839
Totals	$	18,603		$	17,539		$	6,718		$	6,180
Recurring capital improvements-residential	$	346		$	314		$	88		$	77

Reconciliation to consolidated net income:
Segment NOI	$	18,603		$	17,539		$	6,718		$	6,180
Deferred rents - straight lining		140			186			48			72
Amortization of acquired leases		72			226			24			75
Net investment income		437			382			124			157
Minority interest in earnings of subsidiaries		(768	)		(386	)		(373	)		(129	)
Distribution to certain minority interests		-			(150	)		-			-
General and administrative expenses		(1,145	)		(1,277	)		(335	)		(474	)
Depreciation		(4,086	)		(3,972	)		(1,411	)		(1,323	)
Financing costs		(8,694	)		(9,099	)		(2,876	)		(3,010	)
Income from continuing operations		4,559			3,449			1,919			1,548
Income from discontinued operations		-			3,771			-			3,695
Net income	$	4,559		$	7,220		$	1,919		$	5,243

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Note 6 - Mortgages & notes payable:

On February 12, 2008, Damascus Centre, LLC (“Damascus Centre”) closed on a $27.3 million construction loan that is available to fund already expended and future construction costs. This loan has a term of forty-eight (48) months, with one twelve (12) month extension option. FREIT has guaranteed 30% of the loan, and the minority interests, who have a 30% investment in the Damascus Centre, have agreed to indemnify FREIT for their share of the guarantee. Draws against this loan bear interest at a floating rate equal to LIBOR +1.35%. As of July 31, 2008, Damascus drew down $5.0 million of this loan to cover construction costs.

FREIT had a variable interest rate mortgage secured by its Patchogue, NY property. To limit interest rate volatility on this loan, FREIT entered into an interest rate swap contract. This loan came due on January 2, 2008. The due date of the loan was extended to February 29, 2008. The interest rate swap contract terminated on January 2, 2008. On February 29, 2008, the unpaid principal amount of this loan of approximately $5.9 million was refinanced with a $6 million mortgage loan bearing a fixed interest rate of 6.125%, with a ten (10) year term, and payable according to a thirty (30) year amortization schedule. Under the terms of the mortgage loan agreement, FREIT can request, during the term of the loan, additional fundings that will bring the outstanding principal balance up to 75% of loan-to-value (percentage of mortgage loan to total appraised value of property securing the loan).

Note 7 – Commitments & contingencies:

A modernization and expansion is underway at our Damascus Center in Damascus, MD (owned by our 70% owned affiliate, Damascus Centre). FREIT has issued a bond of approximately $1 million to guaranty completion of off-site improvements. Total construction costs are estimated to be approximately $21.9 million. Construction on Phase I, which began in June 2007, was completed in June 2008. Phase I construction costs were approximately $5.6 million, of which $1.1 million related to tenant improvements. Construction financing for approximately $27.3 million has been committed that will be available to fund future and already expended construction costs, and will be drawn upon as needed. (See Note 6 for a more detailed discussion.)

Note 8– Share repurchase program:

On April 9, 2008, FREIT’s Board of Trustees authorized up to $2 million for the repurchase of FREIT shares commencing three (3) days after the announcement of its operating results for the quarter ended April 30, 2008. Share repurchases under this program may be made from time to time in the open market or through privately negotiated transactions, depending on trading prices of FREIT shares and other market conditions. This share repurchase program may be limited or terminated at any time and without prior notice. As of July 31, 2008, FREIT repurchased 5,000 shares of common stock at a cost of $120,000, which is reflected in the Stockholders’ Equity section of FREIT’s balance sheet.

Note 9– Transactions with related party:

Hekemian & Co., Inc. (“Hekemian”) currently manages all of the properties owned by FREIT, except for the Rotunda, which is managed by an independent third party management company.

Grande Rotunda, LLC (“Grande”) owns and operates The Rotunda, which is a mixed-use office and retail facility located in Baltimore, Maryland. FREIT owns a 60% equity interest in Grande, and Rotunda 100, LLC owns a 40% equity interest.

Damascus Centre, LLC (“Damascus”), owns and operates the Damascus Shopping Center in Damascus, Maryland. FREIT owns a 70% equity interest in Damascus, and Damascus 100, LLC owns a 30% equity interest.

The equity owners of Rotunda 100, LLC, and Damascus 100, LLC are principally employees of Hekemian. To incentivize the employees of Hekemian, FREIT has agreed to advance, only to employees of Hekemian, up to 50% of the amount of the equity contributions that the Hekemian employees are required to invest in Rotunda 100, LLC and Damascus 100, LLC. On May 8, 2008, FREIT’s Board of Trustees approved amendments to the existing loan agreements with the Hekemian & Co. employees, relative to their interests in Rotunda 100, LLC, to increase the aggregate amount that FREIT may advance to such employees from $2 million to $4 million. No other terms of the loan agreements were amended.

Page 8

In connection with the development activities at The Rotunda and the redevelopment activities at the Damascus Shopping Center, agreements for the payments for development services to be provided by Hekemian Development Resources LLC (“Resources”) have been approved. The development fee arrangement for The Rotunda provides for Resources to receive a fee equal to 6.375% of the total development costs of up to $136 million (as may be modified), and the fee for the redevelopment of the Damascus Shopping Center to be equal to 7% of the redevelopment costs of up to approximately $17.3 million (as may be modified). As of July 31, 2008 Resources received fees of $1,000,000 and $750,000 for development activities at The Rotunda and Damascus Shopping Center, respectively.

Resources, Rotunda 100, LLC, and Damascus 100, LLC are principally owned by employees of Hekemian, including certain members of the immediately family of Robert S. Hekemian, FREIT’s CEO and Chairman, and Robert S. Hekemian, Jr., a trustee of FREIT, and the members of the Hekemian family have majority management control of these entities.

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Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Identifying Important Factors That Could Cause FREIT’s Actual Results to Differ From Those Projected
in Forward Looking Statements.

Readers of this discussion are advised that the discussion should be read in conjunction with the unaudited condensed consolidated financial statements of FREIT (including related notes thereto) appearing elsewhere in this Form 10-Q, and the consolidated financial statements included in FREIT’s most recently filed Form 10-K. Certain statements in this discussion may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect FREIT’s current expectations regarding future results of operations, economic performance, financial condition and achievements of FREIT, and do not relate strictly to historical or current facts. FREIT has tried, wherever possible, to identify these forward-looking statements by using words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or words of similar meaning.

Although FREIT believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties, which may cause the actual results to differ materially from those projected. Such factors include, but are not limited to the following: general economic and business conditions, which will, among other things, affect demand for rental space, the availability of prospective tenants, lease rents, the financial condition of tenants and the default rate on leases, operating and administrative expenses and the availability of financing; adverse changes in FREIT’s real estate markets, including, among other things, competition with other real estate owners, competition confronted by tenants at FREIT’s commercial properties, governmental actions and initiatives; environmental/safety requirements; and risks of real estate development and acquisitions. The risks with respect to the development of real estate include: increased construction costs, inability to obtain construction financing, or unfavorable terms of financing that may be available, unforeseen construction delays and the failure to complete construction within budget.

OVERVIEW

FREIT is an equity real estate investment trust ("REIT") that owns a portfolio of residential apartment and commercial properties. Our revenues consist primarily of fixed rental income from our residential and commercial properties and additional rent in the form of expense reimbursements derived from our income producing commercial properties. Our properties are primarily located in northern New Jersey and Maryland. We acquire existing properties for investment. We also acquire properties, which we feel have redevelopment potential, and make changes and capital improvements to these properties. We develop and construct properties on our vacant land. Our policy is to acquire and develop real property for long-term investment.

During the past nine and three month period ended July 31, 2008, we have identified the following trends that have had an effect on our operating results and cash flow:

Increased occupancy and rental rates at our residential rental properties: As a result of the sub-prime mortgage fall-out, generally homebuyers are experiencing less mortgage availability and higher credit standards, coupled with higher interest costs. This has put a damper on home and condominium purchases. It has, however, increased demand for apartment rentals. The occupancy rates at our residential properties remain high, and we have been aggressively increasing rental rates where possible.

Availability of financing capital and interest rates: Since the start of our fiscal year, benchmark interest indexes, such as Treasury bond and LIBOR rates, have generally been trending downward and are currently lower than interest rates of a year ago. As a result of this volatility in the interest rate market, fewer lenders are in the market for new loans, and the lenders that are in the market have increased their spreads (the margin that lenders charge over current interest rates) resulting in higher interest costs to borrowers. In this respect, FREIT has benefited with respect to its variable rate mortgages since the spread on these loans was fixed in prior periods at the time that these loans were closed, resulting in lower interest costs during the last nine-month period. Conversely, the cost of financing at our future development projects at the Rotunda and South Brunswick may prove more costly.

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SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

Pursuant to the Securities and Exchange Commission ("SEC") disclosure guidance for "Critical Accounting Policies," the SEC defines Critical Accounting Policies as those that require the application of management's most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, the preparation of which takes into account estimates based on judgments and assumptions that affect certain amounts and disclosures. Accordingly, actual results could differ from these estimates. The accounting policies and estimates used, which are outlined in Note 1 to our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended October 31, 2007, have been applied consistently as at July 31, 2008 and October 31, 2007, and for the nine and three months ended July 31, 2008 and 2007. We believe that the following accounting policies or estimates require the application of management's most difficult, subjective, or complex judgments:

Revenue Recognition: Base rents, additional rents based on tenants' sales volume and reimbursement of the tenants' share of certain operating expenses are generally recognized when due from tenants. The straight-line basis is used to recognize base rents under leases if they provide for varying rents over the lease terms. Straight-line rents represent unbilled rents receivable to the extent straight-line rents exceed current rents billed in accordance with lease agreements. Before FREIT can recognize revenue, it is required to assess, among other things, its collectibility. If we incorrectly determine the collectibility of revenue, our net income and assets could be overstated.

Valuation of Long-Lived Assets: We periodically assess the carrying value of long-lived assets whenever we determine that events or changes in circumstances indicate that their carrying amount may not be recoverable. When FREIT determines that the carrying value of long-lived assets may be impaired, the measurement of any impairment is based on a projected discounted cash flow method determined by FREIT's management. While we believe that our discounted cash flow methods are reasonable, different assumptions regarding such cash flows may significantly affect the measurement of impairment.

All references to per share amounts are on a diluted basis unless otherwise indicated.

Page 11

RESULTS OF OPERATIONS

Real Estate revenue for the nine months ended July 31, 2008 (“Current Nine Months”) increased 3.1% to $31,435,000 compared to $30,496,000 for the nine months ended July 31, 2007 (“Prior Nine Months”). Real Estate revenue for the three months ended July 31, 2008 (“Current Quarter”) increased 2.7% to $10,728,000 compared to $10,441,000 for the three months ended July 31, 2007 (“Prior Year’s Quarter”). The increase in real estate revenues for the Current Nine Month period was equally attributable to both the residential and commercial operations. The Boulders and The Pierre Towers were the primary contributors for the residential operations, accounting for 45% of the overall increase. The Rotunda and Rochelle Park were the primary contributors for the commercial operations, accounting for 39% of the overall increase. The increase in real estate revenues for the Current Quarter was principally attributable to FREIT’s commercial operations, primarily at The Rotunda and Rochelle Park.

During the Prior Year’s Quarter, FREIT sold its Lakewood Apartments in Lakewood, New Jersey. In compliance with current accounting guidance, the gain on the sale, as well as the prior year’s earnings of the Lakewood operation was classified as “Income from discontinued operations”, which is included within “Net Income” after “Income from continuing operations”. (See Note 4 for a further discussion of the sale.) Net income for the Current Nine Months was $4,559,000 ($0.66 per share diluted) compared to $7,220,000 ($1.04 per share diluted) for the Prior Nine Months. Net income for the Current Quarter was $1,919,000 ($0.28 per share diluted) compared to $5,243,000 ($0.76 per share diluted) for the Prior Year’s Quarter. Income from continuing operations for the Current Nine Months was $4,559,000 ($0.66 per share diluted) compared to $3,449,000 ($0.50 per share diluted) for the Prior Nine Months. Income from continuing operations for the Current Quarter was $1,919,000 ($0.28 per share diluted) compared to $1,548,000 ($0.22 per share diluted) for the Prior Year’s Quarter. Refer to the schedule below for a detailed analysis of the major changes that impacted revenue and net income for the nine and three months ended July 31, 2008 and 2007:

	Nine Months Ended									Three Months Ended
	July 31,									July 31,
	2008			2007			Change			2008			2007			Change
	(thousands of dollars)									(thousands of dollars)

Commercial Properties (except Damascus)	$	10,411		$	9,896		$	515		$	3,789		$	3,392		$	397
Damascus Center - undergoing renovation		249			289			(40	)		104			96			8
Total Commercial Properties		10,660			10,185			475			3,893			3,488			405

Residential Properties		8,155			7,766			389			2,897			2,839			58

Total income from real estate operations		18,815			17,951			864			6,790			6,327			463

Financing costs:
Fixed rate mortgages		(7,794	)		(7,871	)		77			(2,615	)		(2,599	)		(16	)
Floating Rate - Rotunda		(900	)		(1,228	)		328			(261	)		(411	)		150
Total financing costs		(8,694	)		(9,099	)		405			(2,876	)		(3,010	)		134

Investment income		437			382			55			124			157			(33	)

Corporate expenses		(726	)		(678	)		(48	)		(228	)		(216	)		(12	)
Accounting		(419	)		(599	)		180			(107	)		(258	)		151
Minority interest in earnings of subsidiaries		(768	)		(386	)		(382	)		(373	)		(129	)		(244	)
Distribution to Westwood Hills minority interests		-			(150	)		150			-			-			-

Depreciation		(4,086	)		(3,972	)		(114	)		(1,411	)		(1,323	)		(88	)

Income from continuing operations		4,559			3,449			1,110			1,919			1,548			371

Income from discontinued operations		-			3,771			(3,771	)		-			3,695			(3,695	)

Net Income	$	4,559		$	7,220		$	(2,661	)	$	1,919		$	5,243		$	(3,324	)

The consolidated results of operations for the Current Nine Months and Current Quarter are not necessarily indicative of the results to be expected for the full year.

Page 12

SEGMENT INFORMATION

The following table sets forth comparative net operating income ("NOI") data for FREIT’s real estate segments and reconciles the NOI to consolidated net income for the Current Nine Months and Current Quarter, as compared to the prior year’s comparable periods:

Nine Months Ended July 31:
	Commercial										Residential											Combined
	Nine Months Ended										Nine Months Ended											Nine Months Ended
	July 31,						Increase (Decrease)				July 31,						Increase (Decrease)					July 31,
	2008			2007			$		%		2008			2007			$			%		2008		2007
	($ in thousands)										($ in thousands)											($ in thousands)
Rental income	$	12,806		$	12,454		$	352	2.8	%	$	14,175		$	13,614		$	561		4.1	%	$	26,981	$	26,068
Reimbursements		3,932			3,601			331	9.2	%		-			-			-					3,932		3,601
Other		150			143			7	4.9	%		160			272			(112	)	-41.2	%		310		415
Total revenue		16,888			16,198			690	4.3	%		14,335			13,886			449		3.2	%		31,223		30,084

Operating expenses		6,440			6,425			15	0.2	%		6,180			6,120			60		1.0	%		12,620		12,545
Net operating income	$	10,448		$	9,773		$	675	6.9	%	$	8,155		$	7,766		$	389		5.0	%		18,603		17,539
Average
Occupancy %		89.9	%		90.1	%			-0.2	%		94.9	%		94.8	%				0.1	%

Reconciliation to consolidated net income:
Deferred rents - straight lining		140			186
Amortization of acquired leases		72			226
Net investment income		437			382
General and administrative expenses		(1,145	)		(1,277	)
Depreciation		(4,086	)		(3,972	)
Financing costs		(8,694	)		(9,099	)
Distributions to certain minority interests		-			(150	)
Minority interest		(768	)		(386	)
Income from continuing operations		4,559			3,449
Income from discontinued operations		-			3,771
Net income	$	4,559		$	7,220


Three Months Ended July 31:
	Commercial											Residential											Combined
	Three Months Ended											Three Months Ended											Three Months Ended
	July 31,						Increase (Decrease)					July 31,						Increase (Decrease)					July 31,
	2008			2007			$			%		2008			2007			$			%		2008		2007
	($ in thousands)											($ in thousands)											($ in thousands)
Rental income	$	4,320		$	4,192		$	128		3.1	%	$	4,737		$	4,642		$	95		2.0	%	$	9,057	$	8,834
Reimbursements		1,475			1,227			248		20.2	%		-			-			-					1,475		1,227
Other		53			45			8		17.8	%		71			189			(118	)	-62.4	%		124		234
Total revenue		5,848			5,464			384		7.0	%		4,808			4,831			(23	)	-0.5	%		10,656		10,295

Operating expenses		2,027			2,123			(96	)	-4.5	%		1,911			1,992			(81	)	-4.1	%		3,938		4,115
Net operating income	$	3,821		$	3,341		$	480		14.4	%	$	2,897		$	2,839		$	58		2.0	%		6,718		6,180
Average
Occupancy %		89.8	%		91.0	%				-1.2	%		94.2	%		95.9	%				-1.7	%

Reconciliation to consolidated net income:
Deferred rents - straight lining		48			72
Amortization of acquired leases		24			75
Net investment income		124			157
General and administrative expenses		(335	)		(474	)
Depreciation		(1,411	)		(1,323	)
Financing costs		(2,876	)		(3,010	)
Distributions to certain minority interests		-			-
Minority interest		(373	)		(129	)
Income from continuing operations		1,919			1,548
Income from discontinued operations		-			3,695
Net income	$	1,919		$	5,243

NOI is based on operating revenue and expenses directly associated with the operations of the real estate properties, but excludes deferred rents (straight lining), lease amortization, depreciation, and financing costs. FREIT assesses and measures segment operating results based on NOI. NOI is not a measure of operating results or cash flow as measured by generally accepted accounting principles, and is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity.

Page 13

SUPPLEMENTARY SEGMENT INFORMATION

Commercial lease expirations as at October 31, 2007, assuming none of the tenants exercise renewal options:

								Annual Rent of Expiring Leases
Year Ending	Number of		Expiring Leases		Percent of
October 31,	Expiring Leases		Sq. Ft.		Commercial Sq. Ft.			Total		Per Sq. Ft.

Month to month		24		59,092		5.4	%	$	1,082,497	$	18.32
2008		20		67,554		6.2	%	$	1,339,565	$	19.83
2009		15		44,143		4.1	%	$	801,213	$	18.15
2010		19		89,719		8.3	%	$	1,283,854	$	14.31
2011		15		57,081		5.2	%	$	1,342,052	$	23.51
2012		10		191,758		17.6	%	$	1,384,803	$	7.22
2013		4		33,346		3.1	%	$	641,326	$	19.23
2014		4		20,121		1.9	%	$	318,276	$	15.82
2015		7		76,104		7.0	%	$	862,806	$	11.34
2016		3		20,576		1.9	%	$	172,432	$	8.38
2017		1		2,786		0.3	%	$	65,471	$	23.50

The following tables present the average rental income on a per unit and square foot basis for each of our Residential and Commercial properties, respectively for the Current Nine Months and Prior Nine Months:

Residential Apartment Properties:					Commercial Properties:
Property & Location	No. of Units	Average Occupancy Rate @ 7/31/08	Average Monthly Rent per Unit @ 7/31/08	Average Monthly Rent per Unit @ 7/31/07	Property & Location	Leaseable Space - Approximate Sq. Ft.	Average Occupancy Rate @ 7/31/08	Average Annualized Rent per Sq. Ft. @ 7/31/08	Average Annualized Rent per Sq. Ft. @ 7/31/07

Palisades Manor	12	97.5%	$1,068	$1,030	Franklin Crossing	87,041	92.5%	$22.46	$21.49
Palisades Park, NJ					Franklin Lakes, NJ

Grandview Apts.	20	100.0%	$1,143	$1,093	Westwood Plaza	173,854	100.0%	$12.51	$12.50
Hasbrouck Heights, NJ					Westwood, NJ

Heights Manor	79	93.2%	$1,118	$1,071	Westridge Square	256,620	91.6%	$12.09	$11.85
Spring Lake Heights, NJ					Frederick, MD

Hammel Gardens	80	97.3%	$1,187	$1,162	Pathmark Super Store	63,962	100.0%	$19.49	$18.35
Maywood, NJ					Patchogue, NY

Steuben Arms	100	96.9%	$1,253	$1,213	Glen Rock, NJ	4,800	100.0%	$19.96	$19.96
River Edge, NJ

Berdan Court	176	97.0%	$1,403	$1,348	Preakness Center	322,136	97.6%	$12.46	$12.01
Wayne, NJ					Wayne, NJ

Pierre Towers	269	92.1%	$1,778	$1,708	Damascus Center *	139,878	49.3%	$8.56	$9.12
Hackensack, NJ					Damascus, MD

Westwood Hills	210	94.8%	$1,418	$1,381	The Rotunda	216,645	90.5%	$17.74	$17.57
Westwood Hills, NJ					Baltimore, MD

Boulders	129	95.3%	$1,353	$1,286	* Undergoing renovation and expansion.
Rockaway, NJ

Page 14

COMMERCIAL SEGMENT

FREIT’s commercial properties consist of ten (10) properties totaling approximately 1,127,000 sq. ft. of retail space and 138,000 sq. ft. of office space. Seven (7) are multi-tenanted retail or office centers, and one is a single tenanted store. In addition, FREIT has two parcels of leased land, from which it receives rental income. One is from a tenant who has built and operates a bank branch on land FREIT owns in Rockaway, NJ. The other is from a tenant who intends to build and operate a bank branch on land FREIT owns in Rochelle Park, NJ.

As indicated in the above Segment Information table, revenue from FREIT’s commercial segment for the Current Nine Months and Current Quarter increased by 4.3% and 7.0%, respectively, over the comparable prior year’s periods. NOI for the Current Nine Months and Current Quarter increased by 6.9% and 14.4%, over the comparable prior year’s periods. The favorable increase in both revenue and NOI was primarily attributable to higher occupancy levels along with increased common area maintenance charge reimbursements at The Rotunda property, in addition to nine months of revenue being generated by our land in Rochelle Park, which was purchased in September 2007. However, the current year increases in revenue and NOI were adversely affected by the renovation at our Damascus Shopping Center property located in Damascus, MD (the “Damascus Center”), which caused a temporary decline in occupancy levels at the Damascus Center. Average occupancy rates for FREIT’s commercial segment for the Current Nine Months was at 95.0%, exclusive of the Damascus Center, compared to 94.3% for the prior year’s period. As a result of this renovation, temporary declines in both revenue and NOI were experienced at the Damascus Center of $56,000 and $47,000, respectively for the Current Nine Month period. (See discussion below).

	Nine Months Ended July 31,
	2008						2007
	Commercial				Same		Commercial				Same
($000)	Properties		Damascus		Properties		Properties		Damascus		Properties
Revenues	$	16,888	$	554	$	16,334	$	16,198	$	610	$	15,588
Expenses		6,440		307		6,133		6,425		316		6,109
NOI	$	10,448	$	247	$	10,201	$	9,773	$	294	$	9,479


	Three Months Ended July 31,
	2008						2007
	Commercial				Same		Commercial				Same
($000)	Properties		Damascus		Properties		Properties		Damascus		Properties
Revenues	$	5,848	$	201	$	5,647	$	5,464	$	195	$	5,269
Expenses		2,027		100		1,927		2,123		97		2,026
NOI	$	3,821	$	101	$	3,720	$	3,341	$	98	$	3,243

The impact of the Damascus renovation on the nine and three month results of the commercial segment is reflected in the following table:

DEVELOPMENT ACTIVITIES

A modernization and expansion is underway at our Damascus Center in Damascus, MD (owned by our 70% owned affiliate, Damascus Centre, LLC). Total construction costs are expected to approximate $21.9 million. The building plans incorporate an expansion of retail space from its current configuration of approximately 140,000 sq. ft to approximately 150,000 sq ft., and will be anchored by a modern 58,000 sq ft Safeway supermarket. Building plans for Phase I have been approved and construction on Phase I began in June 2007, and was completed in June 2008. Phase I construction costs were approximately $5.6 million, of which $1.1 million related to tenant improvements. On February 12, 2008, Damascus Centre, LLC closed on a $27.3 million construction loan that is available to fund already expended and future construction costs. This loan will be drawn upon as needed. As of July 31, 2008, Damascus drew down $5.0 million of this loan to cover construction costs. (See “Liquidity and Capital Resources” for additional information regarding this loan.) Because of this expansion, leases for certain tenants have been allowed to expire and not renewed. This has caused occupancy to decline, on a temporary basis, during the construction phase.

Development plans and studies for the expansion and renovation of our Rotunda property in Baltimore, MD (owned by our 60% owned affiliate Grande Rotunda, LLC) continue. The Rotunda property, on an 11.5-acre site, currently consists of an office building containing 138,000 sq. ft. of office space and 78,000 sq. ft. of retail space on the lower floor of the main building. The building plans incorporate an expansion of approximately 180,500 sq ft. of retail space, approximately 302 residential rental apartments, 56 condominium units and 120 hotel rooms, and structured parking. Development costs for this project are expected to approximate $145 million. City Planning Board approval has been received, and construction is expected to start during our next fiscal year.

Page 15

FREIT recently completed the re-configuration and renovation of the space formerly occupied by a movie theater at its Westridge Square Shopping Center in Frederick, MD at a cost approximating $1 million. The former movie theater operator, as part of its lease termination fee, supplied the funds for this re-configuration.

RESIDENTIAL SEGMENT

FREIT operates nine (9) multi-family apartment communities totaling 1,075 apartment units. As indicated in the table above, revenue from our residential segment for the Current Nine Months increased 3.2% to $14,335,000 and NOI for the same period is up 5.0% to $8,155,000. This was primarily attributable to higher occupancy levels, specifically at The Boulders and The Pierre Towers, which continue to be strong contributors to FREIT’s residential operations, accounting for 95% of the increase in revenue and 103% of the increase in NOI for the Current Nine Months. For the Current Quarter, revenue decreased 0.5% to $4,808,000 and NOI increased by 2.0% to $2,897,000. A slight decrease in occupancy levels for the quarter was the primary reason for the decrease in revenue for the Current Quarter.

Rental revenues from FREIT’s residential properties continue to increase. Average occupancy rates for the Current Nine Months increased slightly to 94.9%, compared to 94.8% for the Prior Nine Months. The occupancy level at The Boulders was in excess of 96% at the end of July 2008, and averaged 95.3% during the Current Nine Month period.

Our residential revenue is principally composed of monthly apartment rental income. Total rental income is a factor of occupancy and monthly apartment rents. Monthly average residential rents at the end of the Current Nine Months and the Prior Nine Month period were $1,556 and $1,484, respectively. A 1% decline in annual average occupancy, or a 1% decline in average rents from current levels, results in an annual revenue decline of approximately $200,700 and $189,800, respectively.

Capital expenditures: Since all of our apartment communities, with the exception of The Boulders, were constructed more than 25 years ago, we tend to spend more in any given year on maintenance and capital improvements than may be spent on newer properties. A major renovation program is ongoing at The Pierre Towers apartment complex (“The Pierre”). We intend to modernize, where required, all apartments and some of the buildings’ mechanical services. This renovation is expected to cost approximately $3 - $4 million, and apartments are to be renovated as they become temporarily vacant, over the next several years. These costs will be financed from operating cash flow and cash reserves. Through July 31, 2008, we expended approximately $2.8 million in capital improvements at The Pierre, including approximately $130,000 during the Current Nine Months.

FINANCING COSTS

	Nine Months Ended					Three Months Ended
	July 31,					July 31,
	2008			2007		2008			2007
	($ in thousands)					($ in thousands)
Fixed rate mortgages:
1st Mortgages
Existing	$	6,459		$	6,027	$	2,094		$	2,211
New		153			-		92
2nd Mortgages
Existing		893			1,472		296			304
Variable rate mortgages:
Acquisition loan-Rotunda		972			1,184		294			396
Construction loan-Damascus		62			-		44			-
Other		178			217		63			32
		8,717			8,900		2,883			2,943
Amortization of Mortgage Costs		222			199		81			67
Total Financing Costs		8,939			9,099		2,964			3,010
Less amount capitalized		(245	)		-		(88	)		-
Financing costs expensed	$	8,694		$	9,099	$	2,876		$	3,010

Financing costs before capitalized amounts for the Current Nine Months and Current Quarter decreased 1.8% and 1.5%, over the prior year’s comparable periods. This decrease was primarily attributable to our $22.5 million acquisition loan for The Rotunda property, which bears a floating interest rate. Lower interest rates over the course of the Current Nine Month period decreased the level of interest expense for The Rotunda by approximately $327,000 and $149,000, to $900,000 and $261,000 for the Current Nine Months and Current Quarter, respectively.

Page 16

NET INVESTMENT INCOME

Net investment income for the Current Nine Months increased 14% to $437,000 from the Prior Nine Months, and decreased 21% to $124,000, over the Prior Year’s Quarter. Net investment income is principally derived from interest earned from cash on deposit in institutional money market funds and interest earned from secured loans receivable (loans made to Hekemian employees, including certain members of the immediate family of Robert S. Hekemian, FREIT’s CEO and Chairman of the Board, for their equity investment in Grande Rotunda, LLC, a limited liability company, in which FREIT owns a 60% equity interest and Damascus Center, LLC, a limited liability company, in which FREIT owns a 70% equity interest). The increase in net investment income for the Current Nine Months was primarily attributable to higher interest income due to higher interest rates on the Company’s investments.

GENERAL AND ADMINISTRATIVE EXPENSES (“G & A”)

During the Current Nine Months and Current Quarter, G & A was $1,145,000 and $335,000, respectively, as compared to $1,277,000 and $474,000 for the prior year’s periods. The decrease for the Current Nine Months and Current Quarter was primarily attributable to a lower level of accounting fees, offset slightly by increased office overhead costs.

DEPRECIATION

Depreciation expense for the Current Nine Months and Current Quarter was $4,086,000 and $1,411,000, respectively, an increase of $114,000 and $88,000 from the prior year’s comparable periods. The increase was primarily attributable to FREIT’s residential operations, specifically with respect to current renovation and construction projects becoming operational at both The Pierre and The Boulders during FREIT’s first quarter ended January 31, 2008.

LIQUIDITY AND CAPITAL RESOURCES

Our financial condition remains strong. Net Cash Provided By Operating Activities was $10.4 million for the Current Nine Months compared to $9.2 million for the Prior Nine Months. We expect that cash provided by operating activities will be adequate to cover mandatory debt service payments, recurring capital improvements and dividends necessary to retain qualification as a REIT (90% of taxable income).

As at July 31, 2008, we had cash and marketable securities totaling $9.1 million compared to $12.7 million at October 31, 2007.

Credit Line:

FREIT has an $18 million line of credit provided by the Provident Bank. The line of credit is for three years but can be cancelled by the bank, at its will, at each anniversary date. Draws against the credit line can be used for general corporate purposes, for property acquisitions, construction activities, and letters of credit. Draws against the credit line are secured by mortgages on FREIT’s Franklin Crossing Shopping Center, Franklin Lakes, NJ, retail space in Glen Rock, NJ, Palisades Manor Apartments, Palisades Park, NJ, and Grandview Apartments, Hasbrouck Heights, NJ. .Interest rates on draws will be set at the time of each draw for 30, 60, or 90-day periods, based on our choice of the prime rate or at 175 basis points over the 30, 60, or 90-day LIBOR rates at the time of the draws.

In connection with its construction activities at The Boulders in Rockaway, NJ, FREIT had drawn down $1.5 million and further utilized the credit line for the issuance of a $2 million Letter of Credit (“LoC”). The $1.5 million was repaid during the Prior Year’s 1st Quarter and the $2 million LoC was retired on May 16, 2007. $18 million is currently available under the line of credit.

We are planning an expansion and redevelopment of The Rotunda in Baltimore, MD and have begun the rebuilding of the Damascus Shopping Center, in Damascus, MD. The total capital required for these projects is estimated at $145 million, and $21.9 million, respectively. Financing for the Rotunda project will be, in part, from mortgage financing and, in part, from funds available in our institutional money market investment. On February 12, 2008, Damascus Centre, LLC (“Damascus Centre”) closed on a $27.3 million construction loan that is available to fund already expended and future construction costs. This loan has a term of forty-eight (48) months, with one twelve (12) month extension option. FREIT has guaranteed 30% of the loan, and the minority interests, who have a 30% investment in the Damascus Centre, have agreed to indemnify FREIT for their share of the guarantee. Draws against this loan bear interest at a floating rate equal to LIBOR +1.35%. As of July 31, 2008, Damascus drew down $5.0 million of this loan to cover construction costs.

We expect these development projects to add to revenues, income, cash flow, and shareholder value.

Page 17

At July 31, 2008, FREIT’s aggregate outstanding mortgage debt was $192.9 million and bears a weighted average interest rate of 5.94%, and an average life of approximately 5.6 years. These fixed rate mortgages are subject to amortization schedules that are longer than the term of the mortgages. As such, balloon payments (unpaid principal amounts at mortgage due date) for all mortgage debt will be required as follows:

Fiscal Year	2009	2010	2013	2014	2016	2017	2018	2019	2022
($ in millions)
Mortgage "Balloon" Payments	$22.5	$12.2	$8.0	$25.9	$24.5	$22.0	$5.0	$28.1	$14.4

The following table shows the estimated fair value and carrying value of our long-term debt at July 31, 2008 and October 31, 2007:

	July 31,		October 31,
($ in Millions)	2008		2007
Fair Value	$	196.8	$	188.7

Carrying Value	$	192.9	$	189.4

Fair values are estimated based on market interest rates at July 31, 2008 and October 31, 2007 and on discounted cash flow analysis. Changes in assumptions or estimation methods may significantly affect these fair value estimates.

FREIT expects to refinance the individual mortgages with new mortgages when their terms expire. To this extent we have exposure to interest rate risk. If interest rates, at the time any individual mortgage note is due, are higher than the current fixed interest rate, higher debt service may be required, and/or refinancing proceeds may be less than the amount of mortgage debt being retired. For example, at July 31, 2008 a 1% interest rate increase would reduce the fair value of our debt by $9.7 million, and a 1% decrease would increase the fair value by $10.6 million.

FREIT also has interest rate exposure on its floating rate loans. Currently, FREIT has $27.5 million in floating rate loans outstanding, of which $22.5 million relates to the acquisition loan for The Rotunda and $5.0 million relates to the construction loans for the Damascus redevelopment project. A 1% rate fluctuation would impact FREIT’s annual interest cost by approximately $275,000.

We believe that the values of our properties will be adequate to command refinancing proceeds equal to or higher than the mortgage debt to be refinanced. We continually review our debt levels to determine if additional debt can prudently be utilized for property acquisition additions to our real estate portfolio that will increase income and cash flow to our shareholders.

Share repurchase program:

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FUNDS FROM OPERATIONS (“FFO”)

Many consider FFO as the standard measurement of a REIT’s performance. We compute FFO as follows:

Funds From Operations ("FFO")
	Nine Months Ended						Three Months Ended
	July 31,						July 31,
	2008			2007			2008			2007
	($ in thousands, except per share amounts)

Net income	$	4,559		$	7,220		$	1,919		$	5,243
Depreciation		4,086			3,972			1,411			1,323
Amortization of deferred mortgage costs		222			199			81			67
Deferred rents (Straight lining)		(140	)		(186	)		(48	)		(72	)
Amortization of acquired leases		(72	)		(226	)		(24	)		(75	)
Capital Improvements - Apartments		(346	)		(314	)		(88	)		(77	)
Discontinued operations		-			(3,771	)		-			(3,695	)
Minority interests:
Equity in earnings of affiliates		768			536			373			129
Distributions to minority interests		(707	)		(541	)		(112	)		(155	)
FFO	$	8,370		$	6,889		$	3,512		$	2,688

Per Share - Basic	$	1.23		$	1.02		$	0.51		$	0.40
Per Share - Diluted	$	1.21		$	1.00		$	0.51		$	0.39

Weighted Average Shares Outstanding:
Basic		6,802			6,752			6,844			6,756
Diluted		6,897			6,919			6,941			6,925

FFO does not represent cash generated from operating activities in accordance with accounting principles generally accepted in the United States of America, and therefore should not be considered a substitute for net income as a measure of results of operations or for cash flow from operations as a measure of liquidity. Additionally, the application and calculation of FFO by certain other REITs may vary materially from that of FREIT’s, and therefore FREIT’s FFO and the FFO of other REITs may not be directly comparable.

INFLATION

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

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Item 3: Quantitative and Qualitative Disclosures About Market Risk

See “Residential Segment” and “Liquidity and Capital Resources” under Item 2 above for a detailed discussion of FREIT’s quantitative and qualitative market risk disclosures.

Item 4: Controls and Procedures

As of October 31, 2007, we carried out an evaluation of the effectiveness of the design and operation of FREIT’s disclosure controls and procedures. This evaluation was carried out under the supervision and with participation of FREIT’s management, including FREIT’s Chairman and Chief Executive Officer and Chief Financial Officer, who concluded that FREIT’s disclosure controls and procedures are effective. There has been no change in FREIT’s internal control over financial reporting during the first nine months of fiscal 2008 that has materially affected, or is reasonably likely to materially affect, FREIT’s internal control over financial reporting.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in FREIT’s reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in FREIT’s reports filed under the Exchange Act is accumulated and communicated to management, including FREIT’s Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

Part II: Other Information

Item 1A: Risk Factors

Almost all of FREIT’s income and cash flow is derived from the net rental income (revenues after expenses) from our properties. FREIT’s business and financial results are affected by the following fundamental factors:


	§	the national and regional economic climate;

occupancy rates at the properties;

tenant turnover rates;

rental rates;

operating expenses;

tenant improvement and leasing costs;

cost of and availability of capital;

new acquisitions and development projects; and

	§	changes in governmental regulations, real estate tax rates and similar matters.

A negative quality change in the above factors could potentially cause a detrimental effect on FREIT’s revenue, earnings and cash flow. If rental revenues decline, we would expect to have less cash available to pay our indebtedness and distribute to our shareholders.

Changes in General Economic Climate: FREIT derives the majority of its revenues from renting apartments to individuals or families, and from retailers renting space at its shopping centers. A decline in general economic conditions, particularly in New Jersey and Maryland, where a majority of our properties are located, may cause reductions in rental revenues. A decline in general economic conditions may cause apartment tenants to double-up or vacate, causing increases in vacancies, or to resist monthly rent increases. Additionally, a general decline in economic conditions may cause a lack of consumer confidence, resulting in lower levels of consumer spending that could adversely affect the financial condition of some of our retail tenants, resulting in their inability to pay rent and/or expense recovery charges (represents recovery of certain common area maintenance charges, including insurance and real estate taxes). These retail tenants may vacate or fail to exercise renewal options for their space.

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Tenants unable to pay rent: Financially distressed tenants may be unable to pay rents and expense recovery charges, where applicable, and may default on their leases. Enforcing our rights as landlord could result in substantial costs and may not result in a full recovery of unpaid rent. If a tenant files for bankruptcy, the tenant’s lease may be terminated. In each such instance FREIT’s income and cash flow would be negatively impacted.

Costs of re-renting space: If tenants fail to renew leases, fail to exercise renewal options, or terminate their leases early, the lost rents due to vacancy and the costs of re-renting the space could prove costly to FREIT. In addition to cleaning and renovating the vacated space, we may be required to grant concessions to a new tenant, and may incur leasing brokerage commissions. The lease terms to a new tenant may be less favorable than the prior tenant’s lease terms, and will negatively impact FREIT’s income and cash flow and adversely affect our ability to pay mortgage debt and interest or make distributions to our shareholders.

Inflation may adversely affect our financial condition and results of operations: Increased inflation could have a pronounced negative impact on our operating and administrative expenses, as these costs may increase at a higher rate than our rents. While increases in most operating expenses at our commercial properties can be passed on to retail tenants, increases in expenses at our residential properties cannot be passed on to residential tenants. Unreimbursed increased operating expenses may reduce cash flow available for payment of mortgage debt and interest, and for distributions to shareholders.

Development and construction risks: As part of its investment strategy, FREIT seeks to acquire property for development and construction, as well as to develop and build on land already in its portfolio. FREIT is currently renovating its shopping center located in Damascus, Maryland, and is planning a major development at its Rotunda property in Baltimore, Maryland. In addition it is contemplating the construction of an industrial building on its South Brunswick, New Jersey property. Development and construction activities are challenged with the following risks, which may adversely affect our cash flow:

financing may not be available in the amounts we seek, or may not be on favorable terms;

long-term financing may not be available upon completion of the construction; and

failure to complete construction on schedule or within budget may increase debt service costs and construction costs.

Debt financing could adversely affect income and cash flow: FREIT relies on debt financing to fund its growth through acquisitions and development activities. To the extent third party debt financing is not available, or not available on favorable terms, acquisitions and development activities will be curtailed.

FREIT currently has approximately $165.4 million of non-recourse mortgage debt subject to fixed interest rates, and $27.5 million of partial recourse mortgage debt subject to variable interest rates ($22.5 million relates to the acquisition of the Rotunda property, and $5.0 million relates to the Damascus redevelopment project). These mortgages are being repaid over periods (amortization schedules) that are longer than the terms of the mortgages. Accordingly, when the mortgages become due (at various times) significant balloon payments (the unpaid principal amounts) will be required. FREIT expects to refinance the individual mortgages with new mortgages when their terms expire. To this extent we have exposure to capital availability and interest rate risk. If interest rates, at the time any individual mortgage note is due, are higher than the current fixed interest rate, higher debt service may be required and/or refinancing proceeds may be less than the amount of the mortgage debt being retired.

To the extent we are unable to refinance our indebtedness on acceptable terms, we may need to dispose of one or more of our properties upon disadvantageous terms.

Our revolving $18 million credit line (currently unutilized and fully available) and our acquisition mortgage loan contain financial covenants that could restrict our acquisition activities and result in a default on these loans if we fail to satisfy these covenants.

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Real estate is a competitive business: FREIT is subject to normal competition with other investors to acquire real property and to profitably manage such property. Numerous other REITs, banks, insurance companies and pension funds, as well as corporate and individual developers and owners of real estate, compete with FREIT in seeking properties for acquisition and for tenants. Many of these competitors have significantly greater financial resources than FREIT. In addition, retailers at FREIT's commercial properties face increasing competition from discount shopping centers, outlet malls, sales through catalogue offerings, discount shopping clubs, marketing and shopping through cable and computer sources, particularly over the internet, and telemarketing. In many markets, the trade areas of FREIT's commercial properties overlap with the trade areas of other shopping centers. Renovations and expansions at those competing shopping centers and malls could negatively affect FREIT's commercial properties by encouraging shoppers to make their purchases at such new, expanded or renovated shopping centers and malls. Increased competition through these various sources could adversely affect the viability of FREIT's tenants, and any new commercial real estate competition developed in the future could potentially have an adverse effect on the revenues of and earnings from FREIT's commercial properties.

Illiquidity of real estate investment: Real estate investments are relatively difficult to buy and sell quickly. Accordingly, the ability of FREIT to vary its portfolio in response to changing economic, market or other conditions is limited. Also, FREIT’s interests in its partially owned subsidiaries are subject to transfer constraints by the operating agreements, which govern FREIT’s investment in these partially owned subsidiaries.

Environmental problems may be costly: Both federal and state governments are concerned with the impact of real estate construction and development programs upon the environment. Environmental legislation affects the cost of selling real estate, the cost to develop real estate, and the risks associated with purchasing real estate.

Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property, as well as certain other potential costs relating to hazardous or toxic substances (including government fines and penalties and damages for injuries to persons and adjacent property). Such laws often impose such liability without regard to whether the owners knew of, or were responsible for, the presence or disposal of such substances. Such liability may be imposed on the owner in connection with the activities of any operator of, or tenant at the property. The cost of any required remediation, removal, fines or personal or property damages and the owner's liability therefore could exceed the value of the property and/or the aggregate assets of the owner. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. If FREIT incurred any such liability, it could reduce FREIT's revenues and ability to make distributions to its shareholders.

A property can also be negatively impacted by either physical contamination or by virtue of an adverse effect upon value attributable to the migration of hazardous or toxic substances, or other contaminants that have or may have emanated from other properties.

Qualification as a REIT: Since its inception in 1961, FREIT has elected, and will continue to operate so as to qualify as a REIT for federal income tax purposes. In order to qualify as a REIT, we must satisfy a number of highly technical and complex provisions of the Internal Revenue Code. Governmental legislation, new regulations, administrative interpretations may significantly change the tax laws with respect to the requirements for qualification as a REIT, or the federal income tax consequences of qualifying as a REIT. Although FREIT intends to continue to operate in a manner to allow it to qualify as a REIT, future economic, market, legal, tax or other considerations may cause it to revoke the REIT election or fail to qualify as a REIT. Such a revocation would subject FREIT’s income to federal income tax at regular corporate rates, and failure to qualify as a REIT would also eliminate the requirement that we pay dividends to our shareholders.

Change of investment and operating policies: FREIT’s investment and operating policies, including indebtedness and dividends, are exclusively determined by FREIT’s Board of Trustees, and not subject to shareholder approval.

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Item 2: Unregistered Sales of Equity Securities and Use of Proceeds

Information regarding FREIT’s share repurchase program for the three months ended July 31, 2008 is as follows:

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased1	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
May 1, 2008 through May 31, 2008	-	-	-	$ 2,000,000
June 1, 2008 through June 30, 2008	5,000	$ 24.00	5,000	$ 1,880,000
July 1, 2008 through July 31, 2008	-	-	-	$ 1,880,000
Total	5,000	$ 24.00	5,000	$ 1,880,000

On April 9, 2008, FREIT’s Board of Trustees authorized up to $2 million for the repurchase of FREIT’s shares of beneficial interest commencing three (3) days after the announcement of FREIT’s operating results for the quarter ended April 30, 2008. Share repurchases under this program may be made from time to time in the open market or through privately negotiated transactions, depending on the trading prices of FREIT’s shares and other market conditions. FREIT’s share repurchase program may be limited or terminated at any time and without prior notice.

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Item 6: Exhibits

Reference is made to the Exhibit index below.

Exhibit Index

	Page


Exhibit 31.1 - Section 302 Certification of Chief Executive Officer	26

Exhibit 31.2 - Section 302 Certification of Chief Financial Officer	27

Exhibit 32.1 - Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350	28

Exhibit 32.2 - Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350	29

Item 10: Material Agreements

Reference is made to the Exhibit index below

Exhibit Index

	Page


Exhibit 10.1 – Agency Agreement – Damascus Center, LLC with Hekemian Development Resources, LLC	30

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	FIRST REAL ESTATE INVESTMENT
	TRUST OF NEW JERSEY
	(Registrant)

Date: September 9, 2008
	/s/ Robert S. Hekemian
	(Signature)
	Robert S. Hekemian
	Chairman of the Board and Chief Executive Officer
	(Principal Executive Officer)


	/s/ Donald W. Barney
	(Signature)
	Donald W. Barney
	President, Treasurer and Chief Financial Officer
	(Principal Financial/Accounting Officer)

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