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

form10q-93110_freit.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended April 30, 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 

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 

Accelerated Filer x

Non-Accelerated Filer 

Smaller Reporting Company 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  No x

As of June 6, 2008, the number of shares of beneficial interest outstanding was 6,851,152

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 April 30, 2008 and October 31, 2007;	3

		b.)	Consolidated Statements of Income, Comprehensive Income and Undistributed Earnings for the Six and Three Months Ended April 30, 2008 and 2007;	4

		c.)	Consolidated Statements of Cash Flows for the Six Months Ended April 30, 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		9

	Item 3:	Quantitative and Qualitative Disclosures About Market Risk		18

	Item 4:	Controls and Procedures		18


Part II: Other Information

	Item 1A:	Risk Factors		19

	Item 4:	Submission of Matters to a Vote of Security Holders		21

	Item 6:	Exhibits		22

	Item 10:	Material Agreements		22

	Signatures			23

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Index

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)
	April 30,		October 31,
	2008		2007
	(In Thousands of Dollars)
ASSETS
Real estate, at cost, net of accumulated depreciation	$	208,683	$	204,732
Construction in progress		6,263		7,331
Cash and cash equivalents		11,611		12,740
Tenants' security accounts		2,410		2,369
Sundry receivables		4,081		4,833
Secured loans receivable		3,326		3,326
Prepaid expenses and other assets		2,487		2,852
Acquired over market leases and in-place lease costs		985		1,104
Deferred charges, net		3,579		3,454
Interest rate swap contract		-		14
Totals	$	243,425	$	242,755


LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages payable	$	192,613	$	189,389
Accounts payable and accrued expenses		5,108		5,193
Dividends payable		2,046		2,704
Tenants' security deposits		3,133		3,124
Acquired below market value leases and deferred revenue		3,272		3,911
Total liabilities		206,172		204,321

Minority interest		13,123		13,304

Commitments and contingencies

Shareholders' equity:
Shares of beneficial interest without par value:
8,000,000 shares authorized; 6,821,152 and 6,760,652 shares issued and outstanding		23,679		23,225
Undistributed earnings		451		1,891
Accumulated other comprehensive income		-		14
Total shareholders' equity		24,130		25,130
Totals	$	243,425	$	242,755

See Notes to Condensed Consolidated Financial Statements.

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FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME, COMPREHENSIVE INCOME

AND UNDISTRIBUTED EARNINGS

SIX AND THREE MONTHS ENDED APRIL 30, 2008 AND 2007

(Unaudited)

	Six Months Ended						Three Months Ended
	April 30,						April 30,
	2008				2007	*	2008				2007	*
	(In Thousands of Dollars, Except Per Share Amounts)
Revenue:
Rental income	$	18,064		$	17,501		$	9,084		$	8,781
Reimbursements		2,456			2,373			1,071			1,089
Sundry income		186			181			94			78
Totals		20,706			20,055			10,249			9,948

Expenses:
Operating expenses		5,685			5,512			2,760			2,617
Management fees		916			870			460			435
Real estate taxes		2,891			2,852			1,445			1,426
Depreciation		2,674			2,649			1,336			1,346
Totals		12,166			11,883			6,001			5,824

Operating income		8,540			8,172			4,248			4,124

Investment income		313			225			154			138

Interest expense including amortization of deferred financing costs		(5,818	)		(6,088	)		(2,885	)		(3,045	)
Minority interest		(395	)		(258	)		(280	)		(120	)
Distribution to certain minority interests		-			(150	)		-			-
Income from continuing operations		2,640			1,901			1,237			1,097
Discontinued operations:
Earnings from discontinued operations		-			76			-			34
Income from discontinued operations		-			76			-			34
Net income	$	2,640		$	1,977		$	1,237		$	1,131

Basic earnings per share:
Continuing operations	$	0.39		$	0.28		$	0.18		$	0.16
Discontinued operations	$	-		$	0.01		$	-		$	0.01
Net income	$	0.39		$	0.29		$	0.18		$	0.17
Diluted earnings per share:
Continuing operations	$	0.38		$	0.28		$	0.18		$	0.15
Discontinued operations	$	-		$	0.01		$	-		$	0.01
Net income	$	0.38		$	0.29		$	0.18		$	0.16

Weighted average shares outstanding:
Basic		6,781			6,751			6,799			6,751
Diluted		6,894			6,916			6,911			6,915

COMPREHENSIVE INCOME
Net income	$	2,640		$	1,977		$	1,237		$	1,131
Other comprehensive income (loss):
Unrealized (loss) on interest rate swap contract		-			(29	)		-			(22	)
Comprehensive income	$	2,640		$	1,948		$	1,237		$	1,109

UNDISTRIBUTED EARNINGS
Balance, beginning of period	$	1,891		$	1,735		$	1,260		$	556
Net income		2,640			1,977			1,237			1,131
Less dividends declared		(4,080	)		(4,052	)		(2,046	)		(2,027	)
Balance, end of period	$	451		$	(340	)	$	451		$	(340	)
Dividends declared per share	$	0.60		$	0.60		$	0.30		$	0.30

* Restated to reflect reclassification of discontinued operations.

See Notes to Condensed Consolidated Financial Statements.

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FIRST REAL ESTATE INVESTMENT TRUST OF NEW JERSEY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED APRIL 30, 2008 AND 2007

(Unaudited)

	Six Months Ended
	April 30,
	2008			2007
	(In Thousands of Dollars)
Operating activities:
Net income	$	2,640		$	1,977
Adjustments to reconcile net income to net cash provided by operating activities (including discontinued operations):
Depreciation		2,674			2,655
Amortization		381			360
Net amortization of acquired leases		(48	)		(151	)
Deferred revenue		(520	)		(298	)
Minority interest		395			408
Changes in operating assets and liabilities:
Tenants' security accounts		(41	)		(51	)
Sundry receivables, prepaid expenses and other assets		931			1,438
Accounts payable, accrued expenses and other liabilities		1,051			(448	)
Tenants' security deposits		9			91
Net cash provided by operating activities		7,472			5,981
Investing activities:
Capital improvements - existing properties		(2,058	)		(1,464	)
Construction and pre development costs		(4,605	)		(3,718	)

Net cash used in investing activities		(6,663	)		(5,182	)
Financing activities:
Repayment of mortgages		(6,995	)		(18,494	)
Proceeds from mortgages		6,000			28,331
Proceeds from construction loan		4,219			-
Deferred financing costs		(283	)		(524	)
Proceeds from exercise of stock options		454			37
Dividends paid		(4,738	)		(5,400	)
Distribution to minority interest		(595	)		(387	)
Net cash (used in) provided by financing activities		(1,938	)		3,563
Net increase (decrease) in cash and cash equivalents		(1,129	)		4,362
Cash and cash equivalents, beginning of period		12,740			9,616
Cash and cash equivalents, end of period	$	11,611		$	13,978

Supplemental disclosure of cash flow data:
Interest paid, including capitalized construction period interest of $157 in fiscal 2008.	$	5,720		$	5,956
Income taxes paid	$	10		$	18
Supplemental schedule of non cash financing activities:
Accrued capital expenditures, construction costs and pre-development costs	$	774		$	34
Dividends declared but not paid	$	2,046		$	2,027

See Notes to Condensed Consolidated Financial Statements.

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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 six and three months ended April 30, 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. (See Note 4 for a more detailed discussion.)

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.

In computing diluted earnings per share for the six and three months ended April 30, 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.

	Six Months Ended				Three Months Ended
	April 30,				April 30,
	2008		2007		2008		2007
Basic weighted average shares outstanding		6,780,740		6,750,873		6,799,219		6,751,101
Shares arising from assumed exercise of stock options		113,470		165,091		111,944		164,016
Dilutive weighted average shares outstanding		6,894,210		6,915,964		6,911,163		6,915,117

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 six and three months ended April 30, 2008 and 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 April 30, 2008, options for 172,000 shares were outstanding. The total intrinsic value of the options outstanding at April 30, 2008 was approximately $2.5 million.

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.

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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 reclassified to “Income from discontinued operations”. Revenue attributable to discontinued operations was $207,000 and $100,000 for the prior year’s six and three month periods ended April 30, 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 six and three months ended April 30, 2008 and 2007. Asset information is not reported since FREIT does not use this measure to assess performance.

	Six Months Ended						Three Months Ended
	April 30,						April 30,
	2008				2007	*	2008				2007	*
	(In Thousands of Dollars)
Real estate rental revenue:
Commercial	$	11,039		$	10,735		$	5,415		$	5,272
Residential		9,527			9,055			4,765			4,542
Totals		20,566			19,790			10,180			9,814
Real estate operating expenses:
Commercial		4,412			4,303			2,121			2,138
Residential		4,270			4,128			2,124			1,927
Totals		8,682			8,431			4,245			4,065
Net operating income:
Commercial		6,627			6,432			3,294			3,134
Residential		5,257			4,927			2,641			2,615
Totals	$	11,884		$	11,359		$	5,935		$	5,749
Recurring capital improvements-residential	$	258		$	239		$	118		$	65

Reconciliation to consolidated net income:
Segment NOI	$	11,884		$	11,359		$	5,935		$	5,749
Deferred rents - straight lining		92			114			45			59
Amortization of acquired leases		48			151			24			75
Net investment income		313			225			154			138
Minority interest in earnings of subsidiaries		(395	)		(258	)		(280	)		(120	)
Distribution to certain minority interests		-			(150	)		-			-
General and administrative expenses		(810	)		(803	)		(420	)		(413	)
Depreciation		(2,674	)		(2,649	)		(1,336	)		(1,346	)
Financing costs		(5,818	)		(6,088	)		(2,885	)		(3,045	)
Income from continuing operations		2,640			1,901			1,237			1,097
Income from discontinued operations		-			76			-			34
Net income	$	2,640		$	1,977		$	1,237		$	1,131

* Restated to reflect reclassification of discontinued operations.

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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 April 30, 2008, Damascus drew down $4.2 million from 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 will be approximately $21.9 million. Construction on Phase I began in June 2007 with completion expected no later than June 2008. Phase I construction costs will approximate $4 - $4.5 million of which $4.2 million has already been expended. 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. As of April 30, 2008, Damascus drew down $4.2 million from this loan to cover construction costs.

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.

Note 9– Subsequent events:

FREIT owns a 60% membership interest in and is the managing member of Grande Rotunda, LLC (“Grande Rotunda”). Rotunda 100, LLC, a New Jersey limited liability company, owns a 40% interest in Grande Rotunda. Employees of Hekemian & Co., Inc. (“Hekemian & Co.”), the managing agent of FREIT, including members of the immediate family of Robert S. Hekemian, Chairman and Chief Executive Officer of FREIT, own Rotunda 100, LLC, and the members of Mr. Hekemian’s family have majority management control of this entity. Grande Rotunda is the owner of a mixed-use (office/retail) property in Baltimore, MD.

As an incentive to the employees of Hekemian & Co. to identify and provide real estate investment opportunities to FREIT, FREIT has agreed to advance the Hekemian & Co. employees, who are members of Rotunda 100, LLC, 50% of the amount which such employees are required to contribute toward the acquisition and operation of the Grande Rotunda, up to $2 million. The Hekemian & Co. employees have pledged their interests in Rotunda 100, LLC to FREIT as collateral security for these loans. FREIT collects a market level interest rate on the outstanding principal balance of such loans, and the loans are full recourse loans to the borrowers.

On May 8, 2008, FREIT’s Board of Trustees approved amendments to the existing loan agreements with the Hekemian & Co. employees 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.

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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 six and three month period ended April 30, 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 come down, although slight up ticks were registered in April and May 2008. As a result of the 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 six-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 April 30, 2008 and October 31, 2007, and for the six and three months ended April 30, 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.

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RESULTS OF OPERATIONS

Real Estate revenue for the six months ended April 30, 2008 (“Current Six Months”) increased 3.2% to $20,706,000 compared to $20,055,000 for the six months ended April 30, 2007 (“Prior Six Months”). Real Estate revenue for the three months ended April 30, 2008 (“Current Quarter”) increased 3.0% to $10,249,000 compared to $9,948,000 for the three months ended April 30, 2007 (“Prior Year’s Quarter”). The increase in real estate revenues was principally attributable to FREIT’s residential operations, primarily at The Boulders and The Pierre Towers, which accounted for 58% and 56% of the increase for the current six and three month periods, respectively.

Net income for the Current Six Months was $2,640,000 ($0.38 diluted) compared to $1,977,000 ($0.29 diluted) for the Prior Six Months. Net income for the Current Quarter was $1,237,000 ($0.18 diluted) compared to $1,131,000 ($0.16 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 six and three months ended April 30, 2008 and 2007:

NET INCOME COMPONENTS
	Six Months Ended									Three Months Ended
	April 30,									April 30,
	2008			2007*			Change			2008			2007*			Change
	(thousands of dollars)									(thousands of dollars)
Commercial Properties
Same Properties (1)	$	6,623		$	6,504		$	119		$	3,273		$	3,186		$	87
Damascus Center - undergoing renovation		144			193			(49	)		90			82			8
Total Commercial Properties		6,767			6,697			70			3,363			3,268			95

Residential Properties
Same Properties (1)		5,257			4,927			330			2,641			2,615			26
Total Residential Properties		5,257			4,927			330			2,641			2,615			26

Total income from real estate operations		12,024			11,624			400			6,004			5,883			121

Financing costs:
Fixed rate mortgages
Same Properties (1)		(5,179	)		(5,271	)		92			(2,618	)		(2,647	)		29
Floating Rate - Rotunda		(639	)		(817	)		178			(267	)		(398	)		131
Total financing costs		(5,818	)		(6,088	)		270			(2,885	)		(3,045	)		160

Investment income		313			225			88			154			138			16

Corporate expenses		(497	)		(461	)		(36	)		(286	)		(301	)		15
Accounting		(313	)		(342	)		29			(134	)		(112	)		(22	)
Minority interest in earnings of subsidiaries		(395	)		(258	)		(137	)		(280	)		(120	)		(160	)
Distribution to Westwood Hills minority interests (2)		-			(150	)		150			-			-			-

Depreciation:
Same Properties (1)		(2,674	)		(2,649	)		(25	)		(1,336	)		(1,346	)		10
Total depreciation		(2,674	)		(2,649	)		(25	)		(1,336	)		(1,346	)		10

Income from continuing operations		2,640			1,901			739			1,237			1,097			140

Income from discontinued operations		-			76			(76	)		-			34			(34	)

Net Income	$	2,640		$	1,977		$	663		$	1,237		$	1,131		$	106

* Restated to reflect reclassification of discontinued operations.

(1) Properties operated since the beginning of fiscal 2007.

(2) Prior to change of Terms of LLC Operating Agreement effective June 1, 2007 with respect to recovery of

distributions in excess of cumulative net income of the LLC.

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

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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 Six Months and Current Quarter, as compared to the prior year’s comparable periods:

Six Months Ended April 30:
	Commercial												Residential											Combined
	Six Months Ended April 30,						Increase (Decrease)						Six Months Ended April 30,						Increase (Decrease)					Six Months Ended April 30,
	2008			2007			$			%			2008			2007*			$		%			2008			2007*
	($ in thousands)												($ in thousands)											($ in thousands)
Rental income	$	8,486		$	8,262		$	224			2.7	%	$	9,438		$	8,974		$	464		5.2	%	$	17,924		$	17,236
Reimbursements		2,456			2,373			83			3.5	%		-			-			-					2,456			2,373
Other		97			100			(3	)		-3.0	%		89			81			8		9.9	%		186			181
Total revenue		11,039			10,735			304			2.8	%		9,527			9,055			472		5.2	%		20,566			19,790

Operating expenses		4,412			4,303			109			2.5	%		4,270			4,128			142		3.4	%		8,682			8,431
Net operating income	$	6,627		$	6,432		$	195			3.0	%	$	5,257		$	4,927		$	330		6.7	%		11,884			11,359
Average
Occupancy %		90.0	%		89.7	%					0.3	%		95.2	%		94.3	%				0.9	%

										Reconciliation to consolidated net income:
										Deferred rents - straight lining															92			114
										Amortization of acquired leases															48			151
										Net investment income															313			225
										General and administrative expenses															(810	)		(803	)
										Depreciation															(2,674	)		(2,649	)
										Financing costs															(5,818	)		(6,088	)
										Distributions to certain minority interests															-			(150	)
										Minority interest															(395	)		(258	)
										Income from continuing operations															2,640			1,901
										Income from discontinued operations															-			76
										Net income														$	2,640		$	1,977

* Restated to reflect reclassification of discontinued operations.

Three Months Ended April 30:
	Commercial												Residential											Combined
	Three Months Ended April 30,						Increase (Decrease)						Three Months Ended April 30,						Increase (Decrease)					Three Months Ended April 30,
	2008			2007			$			%			2008			2007*			$		%			2008			2007*
	($ in thousands)												($ in thousands)											($ in thousands)
Rental income	$	4,292		$	4,126		$	166			4.0	%	$	4,723		$	4,521		$	202		4.5	%	$	9,015		$	8,647
Reimbursements		1,071			1,089			(18	)		-1.7	%		-			-			-					1,071			1,089
Other		52			57			(5	)		-8.8	%		42			21			21		100.0	%		94			78
Total revenue		5,415			5,272			143			2.7	%		4,765			4,542			223		4.9	%		10,180			9,814

Operating expenses		2,121			2,138			(17	)		-0.8	%		2,124			1,927			197		10.2	%		4,245			4,065
Net operating income	$	3,294		$	3,134		$	160			5.1	%	$	2,641		$	2,615		$	26		1.0	%		5,935			5,749
Average
Occupancy %		90.7	%		89.9	%					0.8	%		94.7	%		94.7	%				0.0	%

										Reconciliation to consolidated net income:
										Deferred rents - straight lining															45			59
										Amortization of acquired leases															24			75
										Net investment income															154			138
										General and administrative expenses															(420	)		(413	)
										Depreciation															(1,336	)		(1,346	)
										Financing costs															(2,885	)		(3,045	)
										Distributions to certain minority interests															-			-
										Minority interest															(280	)		(120	)
										Income from continuing operations															1,237			1,097
										Income from discontinued operations															-			34
										Net income														$	1,237		$	1,131

* Restated to reflect reclassification of discontinued operations.

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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.

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 October 31,	Number of Expiring Leases	Expiring Leases Sq. Ft.	Percent of 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 Six Months and Prior Six Months:

Residential Apartment Properties:					Commercial Properties:
Property & Location	No. of Units	Average Occupancy Rate @ 4/30/08	Average Monthly Rent per Unit @ 4/30/08	Average Monthly Rent per Unit @ 4/30/07	Property & Location	Leaseable Space - Approximate Sq. Ft.	Average Occupancy Rate @ 4/30/08	Average Annualized Rent per Sq. Ft. @ 4/30/08	Average Annualized Rent per Sq. Ft. @ 4/30/07

Palisades Manor	12	100.0%	$1,058	$1,031	Franklin Crossing	87,041	93.2%	$22.91	$21.92
Palisades Park, NJ					Franklin Lakes, NJ

Grandview Apts.	20	100.0%	$1,138	$1,086	Westwood Plaza	173,854	100.0%	$12.77	$12.85
Hasbrouck Heights, NJ					Westwood, NJ

Heights Manor	79	92.4%	$1,127	$1,079	Westridge Square	256,620	90.8%	$12.37	$12.25
Spring Lake Heights, NJ					Frederick, MD

Hammel Gardens	80	97.3%	$1,179	$1,157	Pathmark Super Store	63,962	100.0%	$19.99	$18.49
Maywood, NJ					Patchogue, NY

Steuben Arms	100	97.0%	$1,251	$1,207	Glen Rock, NJ	4,800	100.0%	$20.48	$20.48
River Edge, NJ

Berdan Court	176	98.0%	$1,389	$1,337	Preakness Center	322,136	97.4%	$12.63	$12.13
Wayne, NJ					Wayne, NJ

Pierre Towers	269	93.9%	$1,764	$1,703	Damascus Center*	139,878	52.3%	$8.02	$9.56
Hackensack, NJ					Damascus, MD

Westwood Hills	210	93.7%	$1,402	$1,376	The Rotunda	216,645	89.9%	$18.22	$17.95
Westwood Hills, NJ					Baltimore, MD

Boulders	129	94.7%	$1,358	$1,262	* Undergoing renovation and expansion.
Rockaway, NJ

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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 Par, NJ.

As indicated in the above Segment Information table, revenue from FREIT’s commercial segment for the Current Six Months and Current Quarter increased by 2.8% and 2.7%, respectively, over the comparable prior year’s periods. NOI for the Current Six Months and Current Quarter increased by 3.0% and 5.1%, over the comparable prior year’s periods. The favorable increase in both revenue and NOI was primarily attributable to our land in Rochelle Park, purchased in September 2007, which was generating revenue for the full Current Six Month period. However, the current year increases in both revenues and NOI were adversely affected by the anticipated planned 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 Six Months was at 94.7%, exclusive of the Damascus Center, compared to 93.8% 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 $61,000 and $50,000, respectively for the Current Six Month period. (See discussion below).

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

	Six Months Ended April 30,
	2008						2007
	Commercial				Same		Commercial				Same
($000)	Properties		Damascus		Properties		Properties		Damascus		Properties
Revenues	$	11,039	$	354	$	10,685	$	10,735	$	415	$	10,320
Expenses		4,412		208		4,204		4,303		219		4,084
NOI	$	6,627	$	146	$	6,481	$	6,432	$	196	$	6,236


	Three Months Ended April 30,
	2008						2007
	Commercial				Same		Commercial				Same
($000)	Properties		Damascus		Properties		Properties		Damascus		Properties
Revenues	$	5,415	$	202	$	5,213	$	5,272	$	216	$	5,056
Expenses		2,121		110		2,011		2,138		131		2,007
NOI	$	3,294	$	92	$	3,202	$	3,134	$	85	$	3,049

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. Building plans for Phase I have been approved and construction on Phase I began in June 2007 with completion expected no later than June 2008. Phase I construction costs will approximate $4 - $4.5 million of which approximately $4.2 million has already been expended. 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 April 30, 2008, Damascus drew down $4.2 million from 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) continues. 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. These development costs are expected to approximate $145 million. City Planning Board approval has been received, and construction is expected to start during calendar 2008.

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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 Six Months increased 5.2% to $9,527,000 and NOI for the same period is also up 6.7% to $5,257,000. For the Current Quarter, revenue increased 4.9% to $4,765,000 and NOI is also up slightly by 1.0% to $2,641,000. The primary reason for the increase was higher occupancy levels, specifically at The Boulders and The Pierre Towers, which continue to be strong contributors to FREIT’s residential operations, accounting for 81% of the increase in revenue and 88% of the increase in NOI for the Current Six Months.

Revenues from FREIT’s residential properties continue to increase. Average occupancy rates for the Current Six Months increased to 95.2%, compared to 94.3% for the Prior Six Months. The occupancy level at The Boulders was in excess of 96% at the end of April 2008, and averaged 94.7% during the Current Six 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 Six Months and the Prior Six Month period were $1,547 and $1,472, 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 $199,600 and $187,900, 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 April 30, 2008, we expended approximately $2.8 million in capital improvements at The Pierre, including approximately $78,000 during the Current Six Months.

FINANCING COSTS

	Six Months Ended					Three Months Ended
	April 30,					April 30,
	2008			2007		2008			2007
	($ in thousands)					($ in thousands)
Fixed rate mortgages:
1st Mortgages
Existing	$	4,365		$	3,815	$	1,996		$	1,422
New		61			-		61
2nd Mortgages
Existing		597			1,168		467			1,035
Variable rate mortgages:
Acquisition loan-Rotunda		678			788		286			383
Construction loan-Damascus		18			-		18
Other		115			185		60			138
		5,834			5,956		2,888			2,978
Amortization of Mortgage Costs		141			132		68			67
Total Financing Costs		5,975			6,088		2,956			3,045
Less amount capitalized		(157	)		-		(71	)		-
Financing costs expensed	$	5,818		$	6,088	$	2,885		$	3,045

Financing costs before capitalized amounts for the Current Six Months and Current Quarter decreased 1.9% and 2.9%, 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 Six Month period decreased the level of interest expense for the Rotunda by approximately $178,000 and $131,000, to $639,000 and $267,000 for the Current Six Months and Current Quarter, respectively.

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NET INVESTMENT INCOME

Net investment income for the Current Six Months and Current Quarter increased 39% and 12% to $313,000 and $154,000, respectively, over the comparable prior year’s periods. 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 was primarily attributable to higher interest income for the Current Six Months and Current Quarter due to higher interest rates on the Company’s investments.

GENERAL AND ADMINISTRATIVE EXPENSES (“G & A”)

During the Current Six Months and Current Quarter, G & A was $810,000 and $420,000, respectively, as compared to $803,000 and $413,000 for the prior year’s periods. The increases for the Current Six Month and Current Quarter periods were primarily attributable to increased office overhead costs and Trustees’ fees offset by reduced accounting fees.

DEPRECIATION

Depreciation expense for the Current Six Months and Current Quarter was $2,674,000 and $1,336,000, respectively, an increase of $25,000 from the Prior Six Months and a decrease of $10,000 from the Prior Year’s Quarter. 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 $7.5 million for the Current Six Months compared to $6.0 million for the Prior Six 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 April 30, 2008, we had cash and marketable securities totaling $11.6 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%. On April 30, 2008, Damascus drew down $4.2 million of this loan to cover construction costs.

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

April 30, 2008, FREIT’s aggregate outstanding mortgage debt was $192.6 million and bears a weighted average interest rate of 5.99%, and an average life of approximately 5.8 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	2008		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	$	5.9	$	28.1	$	14.4

	April 30,	October 31,
($ in Millions)	2008	2007
Fair Value	$199.0	$188.7

Carrying Value	$192.6	$189.4

The following table shows the estimated fair value and carrying value of our long-term debt at April 30, 2008 and October 31, 2007:

Fair values are estimated based on market interest rates at April 30, 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 April 30, 2008 a 1% interest rate increase would reduce the fair value of our debt by $10.1 million, and a 1% decrease would increase the fair value by $11.0 million.

FREIT also has interest rate exposure on its floating rate loans. Currently, FREIT has $26.7 million in floating rate loans outstanding, of which $22.5 million relates to the acquisition loan for The Rotunda and $4.2 million relates to the construction loans for the Damascus redevelopment project. A 1% rate fluctuation would impact FREIT’s annual interest cost by approximately $267,000.

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.

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).

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")
	Six Months Ended						Three Months Ended
	April 30,						April 30,
	2008			2007*			2008			2007*
	($ in thousands, except per share amounts)

Net income	$	2,640		$	1,977		$	1,237		$	1,131
Depreciation		2,674			2,649			1,336			1,346
Amortization of deferred mortgage costs		141			132			68			67
Deferred rents (Straight lining)		92			(114	)		45			(59	)
Amortization of acquired leases		(48	)		(151	)		(24	)		(75	)
Capital Improvements - Apartments		(258	)		(239	)		(118	)		(65	)
Discontinued operations		-			(76	)		-			(34	)
Minority interests:
Equity in earnings of affiliates		395			408			280			120
Distributions to minority interests		(595	)		(387	)		(268	)		(87	)
FFO	$	5,041		$	4,199		$	2,556		$	2,344

Per Share - Basic	$	0.74		$	0.62		$	0.38		$	0.35
Per Share - Diluted	$	0.73		$	0.61		$	0.37		$	0.34

Weighted Average Shares Outstanding:
Basic		6,781			6,751			6,799			6,751
Diluted		6,894			6,916			6,911			6,915

* Restated to reflect reclassification of discontinued operations

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.

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

At the end of the period covered by this report, 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 six months of fiscal 2008 that has materially affected, or is reasonably likely to materially affect, FREIT’s internal control over financial reporting.

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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.

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

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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 $166 million of non-recourse mortgage debt subject to fixed interest rates, and $26.7 million of partial recourse mortgage debt subject to variable interest rates ($22.5 million relates to the acquisition of the Rotunda property, and $4.2 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.

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.

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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.

FREIT may fail to qualify 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.

Item 4: Submission of Matters to a Vote of Security Holders

The following matters were submitted to a vote of security holders at FREIT’s Annual Meeting of Shareholders held on April 9, 2008:

A. Shareholders re-elected Mr. Robert S. Hekemian, Mr. David F. McBride and Mr. Robert S. Hekemian, Jr. to serve as Trustees for a three (3) year term. The balloting for the elections was as follows:

	Robert S. Hekemian	David F. McBride	Robert S. Hekemian, Jr.
Votes For	5,628,810	5,649,076	5,629,010
Votes Withheld	94,966	74,700	94,766

The other members of the Board of Trustees are as follows:

Name	Term Expires
Donald W. Barney	April 2009
Ronald J. Artinian	April 2010
Alan L. Aufzien	April 2010
Herbert C. Klein, Esq.	April 2009

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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		24

Exhibit 31.2 - Section 302 Certification of Chief Financial Officer		25

Exhibit 32.1 - Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350		26

Exhibit 32.2 - Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350		27

Item 10: Material Agreements

Reference is made to the Exhibit index below

Exhibit index

		Page


Exhibit 10.1 –	Indemnification Agreement – Damascus 100 LLC to FREIT	28

Exhibit 10.2 –	Indemnification Agreement – Rotunda 100 LLC to FREIT	31

Exhibit 10.3 –	Sample of notes to Hekemian employees for investment in Grande Rotunda, LLC. (Promissory Notes, Pledge and Security Agreement, Amendment to Promissory Notes and Pledge And Security Agreement)	34

Exhibit 10.4 –	Sample of notes to Hekemian employees for investment in Damascus Centre, LLC. (Promissory Notes, Pledge and Security Agreement)	93

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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: June 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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