| Management Agreement, Fees and Transactions with Related Party |
Note 8 - Management agreement, fees and transactions
with related party:
Hekemian & Co. currently
manages all of the properties owned by FREIT and its affiliates. The management agreement between FREIT and Hekemian & Co. dated as
of November 1, 2001 (“Management Agreement”) will expire on October 31, 2025 and is automatically renewed for successive periods
of two years unless either party gives not less than six (6) months prior notice of non-renewal. The Management Agreement requires the payment
of management fees equal to 4% to 5% of rents collected. Such fees charged to operations were approximately $1,011,000 and $1,002,000
for the nine months ended July 31, 2024 and 2023, respectively, and $343,000 for both the three months ended July 31, 2024 and 2023, respectively.
In addition, the Management Agreement provides for the payment to Hekemian & Co. of leasing commissions, as well as the reimbursement
of certain operating expenses, such as payroll and insurance costs, incurred on behalf of FREIT. Such commissions and reimbursements amounted
to approximately $449,000 and $477,000 for the nine months ended July 31, 2024 and 2023, respectively, and $133,000 and $155,000 for the
three months ended July 31, 2024 and 2023, respectively. FREIT also uses the resources of the Hekemian & Co. insurance department
to secure various insurance coverages for its properties and subsidiaries. Hekemian & Co. is paid a commission for these services.
Such commissions, charged to operations, were approximately $177,000 and $166,000 for the nine months ended July 31, 2024 and 2023, respectively,
and $117,000 and $101,000 for the three months ended July 31, 2024 and 2023, respectively.
From time to time, FREIT engages Hekemian &
Co., or certain affiliates of Hekemian & Co., to provide additional services, such as consulting services related to development,
property sales and financing activities of FREIT. Separate fee arrangements are negotiated between Hekemian & Co. and FREIT with respect
to such additional services. Such fees incurred for the nine and three months ended July 31, 2024 were approximately $89,000 and $0, respectively,
and for the nine and three months ended July 31, 2023 were approximately $180,000 and $159,000, respectively. Fees incurred during Fiscal
2024 related to commissions to Hekemian & Co. for the following: $32,500 for the renewal of FREIT’s line of credit; $22,400
for the modification and extension of the loan on the Steuben Arms property; $21,100 for the extension of the loan on the Westwood Plaza
property; and $13,400 for the additional proceeds received from the post-closing rent escrow for the sale of the Rotunda Property. Fees
incurred during Fiscal 2023 related to commissions to Hekemian & Co. for the following: $129,000 for the additional proceeds received
from the post-closing rent escrow for the sale of the Rotunda Property; $20,000 for the additional proceeds received from the post-closing
rent escrow for the sale of the Westridge Square Property; $10,000 for the additional proceeds received from the post-closing rent escrow
for the sale of the Damascus Property; and $21,000 for the modification and extension of the loan on the Westwood Plaza property. The
commissions for the renewal of FREIT’s line of credit and the modification and extension of the loans were accounted for as a deferred
mortgage cost and included in the unamortized debt issuance costs in the accompanying condensed consolidated balance sheets as of July
31, 2024 and October 31, 2023. The commissions related to the sale of the Rotunda Property, the Damascus Property and the Westridge Square
Property were charged against the gain on sale of the Maryland Properties (See Note 7) in the accompanying condensed consolidated statements
of operations for the nine months ended July 31, 2024 and 2023.
In connection with the litigation settlement received
in the third quarter of Fiscal 2024, FREIT’s Board of Directors approved payment of a litigation management fee in the amount of
$750,000 to Hekemian & Co. for its work performed related to this litigation over the past four years. Additionally, approximately
$2.6 million, comprising $4.5 million of the settlement income less litigation and certain transaction expenses totaling approximately
$1.9 million, was allocated to Westwood Hills, LLC. This allocation was based on the pro-rata share of the contracted sales prices between
the companies. Of the net amount, approximately $1 million is FREIT’s share based on its 40% ownership of Westwood Hills, LLC. See
Note 6 for additional details.
Robert S. Hekemian, Jr., Chief Executive Officer,
President and a Director of FREIT, is the Chief Executive Officer of Hekemian & Co. David B. Hekemian, a Director of FREIT, is the
President of Hekemian & Co. Allan Tubin, Chief Financial Officer and Treasurer of FREIT, is the Chief Financial Officer of Hekemian
& Co. Director fee expense and/or executive compensation (including interest, dividends and stock awards) incurred by FREIT for the
nine months ended July 31, 2024 and 2023 was approximately $515,000 and $479,000, respectively, for Robert S. Hekemian, Jr., $34,000 and
$32,000, respectively, for Allan Tubin and $65,000 and $61,000, respectively, for David Hekemian. Such costs are included within operating
expenses on the accompanying condensed consolidated statements of operations. Director fee expense and/or executive compensation (including
stock awards) incurred by FREIT for the three months ended July 31, 2024 and 2023 was approximately $165,000 and $165,000, respectively,
for Robert S. Hekemian, Jr., $11,000 and $11,000, respectively, for Allan Tubin and $15,000 and $15,000, respectively, for David Hekemian
(See Notes 13 and 14). Such costs are included within operating expenses on the accompanying condensed consolidated statements of operations.
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