Urstadt Biddle Properties Inc.
Annual Report 2002

Plain-text annual report

URSTADT BIDDLE PR O P E R T I E S I N C . 2002 ANNUAL REPORT DIVIDEND$! DIVIDEND$! DIVIDEND$! IN MILLIONS —$48 OVER THE LAST NINE YEARS: • DIVIDENDS PER SHARE INCREASED AN AVERAGE OF 4% EACH YEAR • TOTAL FUNDS FROM OPERATIONS INCREASED AN AVERAGE OF 13% • TOTAL REVENUES INCREASED AN AVERAGE OF 11% Revenues Funds From Operations —$36 ■ Dividends —$24 —$12 —$0 94 95 96 97 98 99 00 01 02 Ridgeway Shopping Center, Stamford, Connecticut (Acquired June, 2002) URSTADT BIDDLE PROPERTIES INC. Urstadt Biddle Properties Inc. (UBP) is a self-administered publicly held real estate investment trust providing investors with a means of participating in the ownership of income-producing properties. UBP’s core properties con- sist of neighborhood and community shopping centers in the suburban areas of the northeastern United States with a primary concentration in Fairfield County, Connecticut and Westchester and Putnam Counties, New York. Non- core assets consist of office and retail buildings, industrial properties and mortgages. Class A Common Shares and Common Shares of the Com- pany trade on the New York Stock Exchange under the symbols “UBP.A” and “UBP.” 2002 ANNUAL REPORT CONTENTS Selected Financial Data ..................1 Letter to Stockholders ....................2 Portfolio Review..............................5 Core Properties..............................10 Investment Portfolio .....................12 Financials........................................13 Directors and Officers ..................37 SELECTED FINANCIAL DATA (In thousands, except per share data) Year Ended October 31, Balance Sheet Data: Total Assets Mortgage Notes Payable Preferred Stock Operating Data: Total Revenues Total Operating Expenses Net Income Applicable to Common 2002 2001 2000 1999 1998 1997 $353,633 $106,429 $ 14,341 $218,352 $ 47,115 $ 33,462 $180,792 $ 51,903 $ 33,462 $183,774 $ 51,263 $ 33,462 $165,039 $ 32,900 $ 33,462 $137,430 $ 43,687 — $ 44,340 $ 29,438 $ 36,093 $ 26,154 $ 31,009 $ 23,281 $ 29,430 $ 21,596 $ 25,385 $ 17,252 $ 24,719 $ 16,238 and Class A Common Stockholders $ 16,080 $ 10,540 $ 5,442 $ 6,043 $ 5,615 $ 8,589 Other Data: Funds from Operations (Note 1) Net Cash Provided by Operating Activities Net Cash Used in Investing Activities Net Cash Provided by (Used in) $ 21,073 $ 18,532 $(64,960) $ 14,611 $ 21,308 $(11,394) $ 11,914 $ 14,262 $ (3,713) $ 11,878 $ 14,423 $ (10,556) $ 11,782 $ 13,901 $(31,130) $ 10,189 $ 14,755 $ (7,460) Financing Activities $ 59,023 $ 22,040 $(11,436) $ (5,009) $ 19,207 $ (7,192) Per Share Data: (Note 2) Net Income – Basic: Class A Common Stock Common Stock Net Income – Diluted: Class A Common Stock Common Stock Cash Dividends on: Class A Common Stock Common Stock $.89 $.80 $.87 $.78 $ .82 $ .74 $1.56 $1.01 $.91 $.97 $.88 $ .80 $ .72 $1.52 $.55 $.50 $.55 $.49 $ .78 $ .70 $1.48 $.62 $.55 $.61 $.54 $ .76 $ .68 $1.44 $.57 $.52 $.57 $.52 $ .19 $1.13 $1.32 $.87 $.80 $.86 $.79 — $1.26 $1.26 Cash Dividends on Common and Class A Common Stock as a Percentage of Funds from Operations 71% 60% 65% 63% 58% 63% Note (1): The Company considers Funds from Operations (FFO) to be a supplemental measure of operating performance. FFO is calculated as net income (computed in accordance with generally accepted accounting principles), excluding gains (or losses) from sales of properties and debt restructuring, plus depreciation and amortization, and after adjustments for unconsolidated joint ventures. FFO does not represent cash flows from operations as defined by GAAP and should not be considered an alternative to net income as an indication of the Company’s operating performance or for cash flows as a measure of liquidity or its dividend paying capacity. Furthermore, FFO as dis- closed by other REITs may not be comparable to the Company’s calculation of FFO. For a further discussion of FFO, see Management’s Discussion and Analysis on page 31. Note (2): In August 1998, the Company declared a one-for-one stock dividend effected in the form of a new issue of Class A Common Stock. Total Revenues (In millions) Total Funds From Operations (In millions) Combined Dividends Paid on Common and Class A Common Shares (Note 2) (In dollars per share) $48 $36 $24 $12 $0 $24 $18 $12 $6 $0 $1.60 $1.20 $.80 $.40 $0.0 97 98 99 00 01 02 97 98 99 00 01 02 97 98 99 00 01 02 1 TO OUR STOCKHOLDERS SIMPLY STATED — al economy was struggling and this letter. We have signed 2002 WAS A GREAT YEAR FOR for the third straight year the contracts to acquire another two YOUR COMPANY! major stock averages were down. shopping centers for $33 million. All of the Company’s principal financial indicators rose in 2002. As we stated in last year’s We expect these new properties annual report, our biggest chal- to contribute to our Funds lenge in 2002 was to quickly and From Operations in 2003 and Our Total Assets increased 62%, profitably use the $47 million thereafter. Stockholders Equity increased 74%, Total Revenues increased raised from the sale of 5.5 million This year’s news was filled shares of Class A Common Stock with stories about “lack of 23%, Net Income increased 53%, in 2001. Not only were we suc- investor confidence” in corporate Funds From Operations increased cessful in putting that money to America which has caused some 44% and, most importantly, our work but, we raised another $82 dramatic changes in regulations dividends increased for the million this year through the sale affecting public companies. The ninth straight year. Funds From of an additional 8.05 million Class Sarbanes-Oxley Law will result in Operations per share experienced A Shares, bringing the total new some added costs for public com- We strive to be judged on the facts — namely — increased profits and thus consistent, well-covered dividends to our stockholders. Charles J. Urstadt, Chairman panies of which UBP is no excep- tion. Our business is relatively simple and fairly easy to under- stand. Our names are “on the door” of this Company, our Board of Directors and management team have a significant invest- ment and, as a result, we are espe- a temporary decline as a result of capital raised to $129 million in cially dedicated to making certain the issuance of new shares. For under 15 months, more than that the Company complies with calendar 2002, UBP’s Class A Common Stock yielded a total doubling the equity base of the the new laws. During the year we Company. Our acquisition team replaced Arthur Andersen LLP, return of 15.8% which exceeded met the challenge and invested who had served as our the NAREIT All-REIT index aver- $148 million in four shopping Company’s auditors for many age of 5.2%. We achieved these center properties totaling 656,000 years, with Ernst & Young LLP. results at a time when the nation- square feet through the date of We are pleased to say that the 2 Despite the softening U.S. economy, we were able to maintain a 95% leased rate in our properties. Willing L. Biddle, President transition has been smooth thanks FUNDS FROM OPERATIONS to the cooperation of everyone concerned. On the topic of our stock prices, we would like to point out that we have no control over pre- vailing stock market attitudes or interest rates, both of which can have a profound influence on our stock price. Wall Street now seems to be focusing on dividends. We have long felt “stock prices are opinions, but dividends are facts.” And so, we strive to be judged on the facts — namely — increased profits and thus consis- tent, well-covered dividends to our stockholders. Therefore, we believe that this new emphasis on dividends should make our stock appeal to long term investors as opposed to traders seeking quick returns. ments, should correct this temporary imbalance in 2003 and thereafter. DIVIDENDS For more than 33 years, the Company has paid uninterrupted dividends. We are proud to state that the January quarterly pay- ments will be the Company’s 133rd consecutive quarterly For the ninth consecutive year, the Company reported an increase in its Funds From Operations (FFO), a supplemental measure of operating performance dividends. used by REITs. Total FFO increased this year to $21 million from $14.6 million last year and is the result of new property acquisitions, higher occupancies and new tenant leasing. However, as the stock sale proceeds were temporarily invested in low-yield- ing cash investments during the year, the Company’s FFO per share was affected by the dilution caused from the more than 13 mil- lion new Class A shares added over the past fifteen months. Recent acquisitions which will earn substantially more than the cash yields on short term invest- We are also pleased to report that for the ninth consecutive year, the Board of Directors in December 2002, approved an increase in the quarterly divi- dend rates. Our dividends are well covered by our Funds From Operations. At 71% of our 2002 Funds from Operations, our divi- dend payout rate is among the lowest in the REIT industry. The President recently released his new tax proposals concerning the elimination of the double taxation of dividends. While it is still too early to tell what the effect on REITS may be, The Company’s capital base more than doubled as a result of the sale of more than 13 million shares of Class A Common stock since June 2001. James R. Moore, Chief Financial Officer 3 TO OUR STOCKHOLDERS we believe that investors interest- ment and leasing staff to enable OUTLOOK ed in more reliable cash yields us to continue to intensively should continue to be attracted to manage and add value to our REITS and because of the impor- growing portfolio. Please read the tance that real estate plays in “Portfolio Review” section (pages diversified portfolios, REIT shares 5-9) of this Annual Report for will remain attractive to the more detail. investing public. OPERATIONS CAPITAL The Company’s capital base The success at our properties more than doubled as a result of is largely due to our capable, the sale of more than 13 million hardworking acquisition, manage- shares of Class A Common stock ment and leasing staff. since June 2001. We also have Despite the softening U.S. strong banking relationships and economy, we were able to main- have available approximately $40 tain a 95% leased rate in our million in bank credit lines which properties. However, due to the can be drawn upon to meet liquidi- downsizing of a large office tenant ty needs. Our mortgage debt is at our Southfield, Michigan prop- modest for a real estate company. erty earlier this year, our overall At year end, debt comprised less leased rate dropped from last than a third of the Company’s total year. During the year, we complet- book capitalization and all of our ed a number of property renova- mortgages have fixed rates of inter- tions and new tenant installations. est and long maturities. More than We added depth to our manage- half our properties are free of debt. We feel that of all property types, retail centers, are the most stable in uncertain times. While we are cautious given the state of the economy and the effect it can have on our tenants, we are opti- mistic because our properties are primarily grocery anchored cen- ters located in excellent locations with high barriers to entry. We will continue our proven strategy and we have the team in place to enable the company to grow and improve despite the economy as evidenced by our results. We thank our outstanding board of Directors and our hard working dedicated staff for con- tributing to the Company’s con- tinued success this year and we extend our gratitude to our old and new shareholders for their support of our team’s efforts. Sincerely yours, Charles J. Urstadt Willing L. Biddle Chairman President January 16, 2003 4 PORTFOLIO REVIEW Our strategy is to concentrate our portfolio of properties in a geographic area close to our head- quarters and primarily in one property type — grocery-anchored shopping centers. Our focus is on well-located neighborhood shopping centers leased to retailers who deliver basic services and products to consumers. We are also receptive to acquiring well-located high yield office proper- ties near our executive offices in Greenwich, Connecticut. Urstadt Biddle Properties Executive Offices Greenwich, Connecticut 5 PORTFOLIO REVIEW ACQUISITIONS Clearly, the past 15 months has seen the greatest dollar volume of acquisitions ($148 million) in the company’s history. In July 2002, we purchased the 360,000 square foot Ridgeway Shopping Center, located in the heart of Stamford, Connecticut. Ridgeway, which is on the cover of this annual report, is the largest open-air community shopping center in Fairfield County, Connecticut and contains such well-known national retail- ers as Stop & Shop Supermarket, Bed Bath & Beyond, Marshalls, Staples, Old Navy and Michael’s Crafts. Many of these stores per- form in the top 10% of their chains in terms of sales per square Ridgeway Shopping Center Stamford, Connecticut (above and right) 6 foot. Earlier in the year, we pur- year, we purchased the 185,000 chased Airport Plaza Shopping square foot Westchester Pavilion Center, a 33,000 square foot shop- Shopping Center located in the ping center located across the center of White Plains, road from our Danbury Square Westchester County, New York Shopping Center in Danbury, and the 78,000 square foot Orange Fairfield County, Connecticut. Meadows Shopping Center locat- Shortly after the end of our fiscal ed on the busy Route 1 corridor Airport Plaza Danbury, Connecticut Orange Meadows Shopping Center Orange, Connecticut 7 PORTFOLIO REVIEW in Orange, Connecticut. The Pavilion, which is 100% leased, contains well known national retailers such as Toys R Us, Office Max, Sports Authority, Borders Books and Outback Steakhouse, many of which stores also per- form in the top 10% of their chains in terms of sales per square foot. Orange Meadows is 85% leased and its tenant roster con- sists of national and local retailers including Trader Joe’s (a specialty supermarket), Talbots, Seamans Furniture and Thomasville Furniture. These four properties added over 656,000 square feet of Westchester Pavilion Shopping Center, White Plains, New York (above and below) next several months.Your compa- leases and negotiated lease ny has a strong management and renewals totaling 236,000 square leasing team in place to handle feet of space, about 10% of the these new properties and our acquisition team continues to proactively uncover attractive prime retail property to our port- shopping center investments in folio in our target market at an our target market. approximate cost of $148 million. LEASING company’s core property total leasable area. The percentage of our total portfolio leased dropped slightly over the year from 98% to 95% due primarily to a vacancy in our Southfield, Michigan office building. At Townline Square, In addition, we have two addi- tional properties in contract for a In 2002 we continued our success Burlington Coat, Michaels Crafts in leasing vacant space and posi- and Chuck E. Cheese opened for cost of approximately $33 million tioning our properties for future which we expect to close in the growth. Overall, we signed new business during the year complet- ing the re-tenanting of this prop- 8 erty. At Newington Park, JoAnn and increased their leased square erty a tenant downsized resulting Fabrics (22,500 sf) renewed their footage to accommodate the in a 61,600 sf vacancy which we lease and Outback Steakhouse store’s anticipated expansion and are marketing. We have a number (6,500 sf) opened for business. We renovation. At Five Town Plaza, of anchor grocer expansions in completed a façade renovation of we re-leased the 115,390 sf former negotiation at our core properties. the Eastchester Mall and added Spag’s space to Burlington Coat Our leasing challenges this year an additional 2,500 square feet of Factory and World Gym both of will be to lease the vacant leasable space in the process. At whose stores will open in 2003. In Michigan office space and approx- the Goodwives Shopping Center, Tempe, Arizona 99¢ Stores imately 40,000 sf of office and we extended the lease with our opened for business but in our retail space available at the anchor grocer Shaws (42,000 sf), Southfield, Michigan office prop- Ridgeway Shopping Center. Goodwives Shopping Center Darien, Connecticut Townline Square Meriden, Connecticut 9 URSTADT BIDDLE PROPERTIES INC. Towne Centre Shopping Center Somers, New York Carmel ShopRite Center Carmel, New York Arcadian Shopping Center Briarcliff Manor, New York Chilmark Shopping Center Briarcliff Manor, New York Heritage 202 Center Somers, New York 25 Valley Drive Greenwich, Connecticut 7 Riversville Road Greenwich, Connecticut 530 Old Post Road Greenwich, Connecticut Westchester Pavilion Shopping Center White Plains, New York Eastchester Mall Eastchester, New York Valley Ridge Shopping Center Wayne, New Jersey 10 URSTADT BIDDLE PROPERTIES Greenwich, Connecticut Bi-County Shopping Center Farmingdale, New York Danbury Square Danbury, Connecticut Ridgefield Center Ridgefield, Connecticut Ridgeway Shopping Center Stamford, Connecticut Five Town Plaza Springfield, Massachusetts Newington Park Newington, New Hampshire Airport Plaza Danbury, Connecticut Townline Square Meriden, Connecticut Goodwives Shopping Center Darien, Connecticut Orange Meadows Shopping Center Orange, Connecticut CORE PROPERTIES 11 INVESTMENT PORTFOLIO URSTADT BIDDLE PROPERTIES INC. CORE PROPERTIES UBP owns or has interests in nineteen shopping centers and five office buildings which total 2,479,000 square feet. Location Square Feet Principal Tenants 360,000 316,000 313,000 194,000 190,000 185,000 126,000 102,000 102,000 95,000 78,000 78,000 70,000 70,000 51,000 38,000 33,000 19,000 59,000 Stamford, Connecticut Springfield, Massachusetts Meriden, Connecticut Danbury, Connecticut Briarcliff Manor, New York White Plains, New York* Carmel, New York Wayne, New Jersey Newington, New Hampshire Darien, Connecticut Somers, New York Orange, Connecticut* Farmingdale, New York Eastchester, New York Ridgefield, Connecticut Briarcliff Manor, New York Danbury, Connecticut Somers, New York Greenwich, Connecticut *Acquired-12/02 NON-CORE PROPERTIES Property Type Shopping center Shopping center Stop & Shop, Bed Bath & Beyond A&P, Burlington Coat, Toy Works ShopRite, Old Navy, Linens ‘N Things Shopping center Barnes & Noble, Christmas Tree Shops Shopping center Stop & Shop, Toy Works Toys R Us, The Sports Authority ShopRite, Eckerd Drugs A&P, PNC Bank Linens ‘N Things Shaw’s Supermarket Gristede’s, US Post Office Trader Joe’s Food Market, Seamans Furniture King Kullen, Eckerd Drugs Food Emporium (A&P) Chico’s Dress Barn, Radio Shack Gateway Putnam County Savings Bank Greenwich Hospital, Urstadt Biddle Properties (Executive Offices) Shopping center Shopping center Shopping center Shopping center Shopping center Shopping center Shopping center Shopping center Shopping center Shopping center Shopping center Shopping center Shopping center Shopping center 5 Office buildings UBP owns one office building containing 202,000 square feet, one retail property containing 126,000 square feet and two industrial properties with a total of 447,000 square feet. The Company also holds long-term mortgages. Location Square Feet Principal Tenant Property Type Southfield, Michigan Tempe, Arizona Dallas, Texas St. Louis, Missouri 202,000 126,000 255,000 192,000 Arcadis/Giffels Mervyn’s DaimlerChrysler DaimlerChrysler Office building Shopping center Parts distribution facility Parts distribution facility 12 FINANCIALS CONTENTS Consolidated Balance Sheets at October 31, 2002 and 2001 ........14 Consolidated Statements of Income for each of the three years in the period ended October 31, 2002.................15 Consolidated Statements of Cash Flows for each of the three years in the period ended October 31, 2002.................16 Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended October 31, 2002 ...................................................17 Notes to Consolidated Financial Statements .......................18-30 Report of Independent Auditors ...........................................30 Management’s Discussion and Analysis of Financial Condition and Results of Operations .................................31 Tax Status ..........................................................................36 Market Price Ranges ...........................................................36 URSTADT BIDDLE PROPERTIES INC. 13 FINANCIAL STATEMENTS URSTADT BIDDLE PROPERTIES INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) ASSETS Real Estate Investments: Core properties — at cost, net of accumulated depreciation Non-core properties — at cost, net of accumulated depreciation Mortgage notes and other receivable Cash and cash equivalents Restricted cash Short-term investments Tenant receivables, net of allowances Deferred charges, net of accumulated amortization Prepaid expenses and other assets LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Mortgage notes payable Accounts payable and accrued expenses Deferred officers’ compensation Other liabilities Minority Interests Preferred Stock, par value $.01 per share; 20,000,000 shares authorized; 8.99% Series B Senior Cumulative Preferred stock, (liquidation preference of $100 per share); 150,000 and 350,000 shares issued and outstanding in 2002 and 2001, respectively Commitments and Contingencies Stockholders’ Equity: Excess stock, par value $.01 per share; 10,000,000 shares authorized; none issued and outstanding Common stock, par value $.01 per share; 30,000,000 shares authorized; 6,578,572 and 6,242,139 issued and outstanding shares in 2002 and 2001, respectively Class A Common stock, par value $.01 per share; 40,000,000 shares authorized; 18,449,472 and 9,600,019 issued and outstanding shares in 2002 and 2001, respectively Additional paid in capital Cumulative distributions in excess of net income Unamortized restricted stock compensation and notes receivable from officers/stockholders The accompanying notes to consolidated financial statements are an integral part of these statements. 14 October 31, 2002 2001 $252,711 11,944 3,447 $160,152 11,039 3,507 268,102 174,698 46,342 514 25,145 5,695 3,294 4,541 33,747 333 — 3,826 3,477 2,271 $353,633 $218,352 $106,429 1,021 287 4,218 111,955 $47,115 2,670 230 4,142 54,157 7,320 4,365 14,341 33,462 — 66 — 62 185 254,266 (30,487) 96 162,763 (31,654) (4,013) (4,899) 220,017 126,368 $353,633 $218,352 URSTADT BIDDLE PROPERTIES INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) Revenues Operating leases Lease termination income Interest and other Operating Expenses Property expenses Interest Depreciation Amortization General and administrative expenses Directors’ fees and expenses Operating Income Equity in Earnings of Unconsolidated Joint Venture Minority Interests in Results of Consolidated Joint Ventures Gains on Sales of Real Estate Investments Net Income Preferred Stock Dividends Excess of Carrying Value over Cost to Repurchase Preferred Shares Year Ended October 31, 2002 2001 2000 $42,206 765 1,369 44,340 $34,209 1,137 747 36,093 $30,242 — 767 31,009 12,781 5,584 7,547 517 2,836 173 29,438 14,902 — (395) — 14,507 (1,498) 3,071 11,502 4,456 6,697 871 2,484 144 26,154 9,939 3,864 (432) 316 13,687 (3,147) — 10,413 4,245 5,638 669 2,152 164 23,281 7,728 245 (451) 1,067 8,589 (3,147) — Net Income Applicable to Common and Class A Common Stockholders $16,080 $10,540 $5,442 Basic Earnings Per Share: Common Class A Common Weighted Average Number of Shares Outstanding: Common Class A Common Diluted Earnings Per Share: Common Class A Common Weighted Average Number of Shares Outstanding: Common and Common Equivalent Class A Common and Class A Common Equivalent Dividends Per Share: Common Class A Common The accompanying notes to consolidated financial statements are an integral part of these statements. $.80 $.89 6,089 12,615 $.78 $.87 6,432 13,136 $.74 $.82 $.91 $1.01 5,881 5,182 $.88 $.97 6,038 5,606 $.72 $.80 $.50 $.55 5,351 5,059 $.49 $.55 5,433 5,532 $.70 $.78 15 FINANCIAL STATEMENTS URSTADT BIDDLE PROPERTIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Operating Activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Restricted stock compensation Recovery of investment in properties owned subject to financing leases Equity in income of unconsolidated joint venture Minority interests in results of consolidated joint ventures Gains on sales of real estate investments Increase in restricted cash (Increase) decrease in tenant receivables (Decrease) increase in accounts payable and accrued expenses (Increase) decrease in other assets and other liabilities, net Year Ended October 31, 2002 2001 2000 $14,507 $13,687 $8,589 8,064 942 — — 395 — (181) (1,871) (1,649) (1,675) 7,568 769 191 (3,864) 432 (316) (174) 98 1,448 1,469 6,307 630 1,214 (245) 451 (1,067) (81) (481) (684) (371) Net Cash Provided by Operating Activities 18,532 21,308 14,262 Investing Activities: Purchase of short term investments Acquisitions of properties Acquisition of minority interest Improvements to properties and deferred charges Investment in unconsolidated entity Net proceeds from sales of properties Distributions to limited partners of consolidated joint venture Distributions received from unconsolidated joint venture Payments to limited partners of unconsolidated joint venture Payments received on mortgage notes and other receivables Deposits on acquisitions of properties Net Cash Used in Investing Activities Financing Activities: Sales of additional Common and Class A Common shares Proceeds from mortgage notes payable and bank loans Payments on mortgage notes payable and bank loans Dividends paid – Common and Class A Common shares Dividends paid – Preferred Stock Purchases of Common and Class A Common shares Repurchase of preferred shares Repayments of notes from officers Net Cash Provided by (Used in) Financing Activities Net Increase (Decrease) In Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year (25,145) (34,785) (1,258) (2,814) — 275 (395) — (600) 62 (300) (64,960) 88,523 17,200 (17,256) (14,913) (1,498) — (16,050) 3,017 59,023 12,595 33,747 — (5,606) (1,013) (11,695) (480) 1,216 (432) 6,544 — 72 — (11,394) 42,959 26,250 (35,190) (8,797) (3,147) (35) — — 22,040 31,954 1,793 — (1,627) — (6,642) (535) 3,921 (451) 1,500 — 121 — (3,713) 2,713 6,500 (7,861) (7,712) (3,147) (1,929) — — (11,436) (887) 2,680 Cash and Cash Equivalents at End of Year $46,342 $33,747 $1,793 The accompanying notes to consolidated financial statements are an integral part of these statements. 16 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except shares and per share data) URSTADT BIDDLE PROPERTIES INC. Common Stock Class A Common Stock Outstanding Number of Shares Par Value Outstanding Number of Shares Par Value Unamortized Restricted Stock (Cumulative Additional Distributions Compensation and Notes In Excess of Receivable Net Income) Paid In Capital Total Balances — October 31, 1999 5,531,845 $55 5,184,039 $52 $120,964 $(31,127) $(1,907) $88,037 Net income applicable to Common and Class A Common stockholders Cash dividends paid: Common stock ($.70 per share) Class A Common stock ($.78 per share) Sale of additional shares Sale of additional shares under dividend reinvestment plan Shares issued under restricted stock plan Amortization of restricted stock compensation Purchases of shares Balances — October 31, 2000 Net Income applicable to Common and Class A Common stockholders Cash dividends paid: Common stock ($.72 per share) Class A common stock ($.80 per share) Sale of additional shares Sale of additional shares under dividend reinvestment plan Shares issued under restricted stock plan Amortization of restricted stock compensation Purchases of shares Exercises of stock options Note from officer upon exercise of stock options Deemed repurchase of Class A common Stock — — — 64,400 21,367 48,375 — (108,600) 5,557,387 — — — 200,000 18,652 48,000 — (900) 419,000 — — Balances — October 31, 2001 6,242,139 Net income applicable to Common and Class A common stockholders Cash dividends paid: Common stock ($.74 per share) Class A common stock ($.82 per share) Sales of Class A common shares Sales of additional shares under dividend reinvestment plan Shares issued under restricted stock plan Amortization of restricted stock compensation Exercises of stock options Notes from officers upon exercises of stock options Repayments of notes receivable from officers — — — — 14,296 110,375 — 211,762 — — Balances — October 31, 2002 6,578,572 — — — — — 1 — (1) 55 — — — 2 — — — — 5 — — 62 — — — — — 2 — 2 — — $66 — — — 256,400 22,035 48,375 — (154,600) 5,356,249 — — — 4,805,000 23,257 48,000 — (2,800) 24,859 — — — — 3 — 1 — (2) 54 — — — 48 — — — — — — — — — 2,406 304 700 — (1,926) 5,442 (3,748) (3,964) — — — — — — — — — — (702) 630 — 5,442 (3,748) (3,964) 2,409 304 — 630 (1,929) 122,448 (33,397) (1,979) 87,181 — 10,540 — — 42,521 343 686 — (35) 3,043 — (4,487) (4,310) — — — — — — — — — — — — — (686) 769 — — 10,540 (4,487) (4,310) 42,571 343 — 769 (35) 3,048 (3,003) (3,003) — (6,249) (654,546) 9,600,019 (6) 96 (6,243) 162,763 (31,654) (4,899) 126,368 — — — 8,749,222 19,494 43,425 — 37,312 — — — — — 88 — 1 — — — — — 16,080 — — 87,835 364 1,577 — 1,727 — — (4,750) (10,163) — — — — — — — — — — — — (1,580) 942 — 16,080 (4,750) (10,163) 87,923 364 — 942 1,729 (1,493) (1,493) 3,017 3,017 18,449,472 $185 $254,266 $(30,487) $(4,013) $220,017 The accompanying notes to consolidated financial statements are an integral part of these statements. 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Urstadt Biddle Properties Inc. (Company), a real estate investment trust (REIT), is engaged in the acquisition, ownership and management of commercial real estate, primarily neighborhood and community shopping centers in the northeastern part of the United States. Other assets include office and retail buildings and industrial properties. The Company’s major tenants include supermarket chains and other retailers who sell basic necessities. At October 31, 2002, the Company owned or had interests in 26 properties containing a total of 3.0 million square feet of leasable area. Principles of Consolidation The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and entities in which the Company has the ability to control the affairs of the venture. Prior to September 2001, the Company had an investment in an unconsolidated joint venture which was accounted for by the equity method of accounting. Under the equity method, only the Company’s net investment and proportionate share of income or loss of the unconsolidated joint venture is reflected in the financial statements. All significant intercompany transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make use of estimates and assumptions that affect amounts reported in the financial statements as well as certain disclosures. Actual results could differ from those estimates. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. Federal Income Taxes The Company has elected to be treated as a real estate investment trust under Sections 856-860 of the Internal Revenue Code (Code). Under those sections, a REIT, that among other things, distributes at least 90% of real estate trust taxable income and meets certain other qualifications prescribed by the Code will not be taxed on that portion of its taxable income which is distributed. The Company believes it qualifies as a REIT and will distribute all of its taxable income for the fiscal years through 2002 in accordance with the provisions of the Code. Accordingly, no provision has been made for Federal income taxes in the accompanying consolidated financial statements. Depreciation and Amortization The Company uses the straight-line method for depreciation and amortization. Core and non-core properties are depreciated over the estimated useful lives of the properties, which range from 30 to 40 years. Property improvements are depreciated over the estimated useful lives which range from 10 to 20 years. Tenant improvements are amortized over the life of the related leases. Deferred Charges Deferred charges consist principally of leasing commissions which are amortized ratably over the life of the tenant leases and financing fees which are amortized over the terms of the respective agreements. Deferred charges in the accompanying consolidated balance sheets are shown at cost, net of accumulated amortization of $1,437,000 and $1,786,000 as of October 31, 2002 and 2001, respectively. Real Estate Investment Impairment The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to aggregate future net cash flows, undis- counted and without interest, expected to be generated by the asset. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. It is the Company’s policy to reclassify properties as assets to be disposed of upon deter- mination that such properties will be sold within one year. 18 URSTADT BIDDLE PROPERTIES INC. Capitalization Acquisition of real estate investments, including brokerage, legal and other external costs incurred in acquiring new properties are capitalized as incurred. Additions, renovations and improvements that enhance and/or extend the useful life of a property are also capitalized. Expenditures for ordinary maintenance, repairs and improvements that do not materially prolong the normal useful life of an asset are charged to operations as incurred. Revenue Recognition Revenues from operating leases include revenues from core properties and non-core properties. Rental income is generally recognized based on the terms of leases entered into with tenants. Minimum rental income from leases with scheduled rent increases is recognized on a straight-line basis over the lease term. At October 31, 2002 and 2001, approximately $3,743,000 and $1,970,000 has been recognized as straight-line rents receivable (represent- ing the current net cumulative rents recognized prior to when billed and collectible as provided by the terms of the leases), all of which is included in tenant receivables in the accompanying consolidated financial statements. Percentage rent is recognized when a specific tenant’s sales breakpoint is achieved. Property operating cost recov- eries from tenants of common area maintenance, real estate taxes, and other recoverable costs are recognized in the period the related expenses are incurred. Lease termination fees received by the Company from its tenants are recognized as income in the period received. Interest income is recognized as it is earned. Gains and losses on sales of properties are recorded when the criteria for recognizing such gains or losses under generally accepted account- ing principles have been met. The Company provides an allowance for doubtful accounts against the portion of tenant accounts receivable (including straight-line rents receivable) which is estimated to be uncollectible. Such allowances are reviewed periodically. At October 31, 2002 and 2001, tenant receivables in the accompanying consolidated balance sheets are shown net of allowances for doubtful accounts of $1,169,000 and $411,000, respectively. Cash and Cash Equivalents The Company considers highly liquid investments with original maturities of 90 days or less when purchased to be cash equivalents. Restricted Cash Restricted cash consists of those tenant security deposits which are required to be held in separate bank accounts. Short-Term Investments Short-term investments consist of investments with original maturities of greater than three months when purchased and are carried at cost plus accrued interest (which approximates fair value). At October 31, 2002, short-term investments consists principally of shares of a mutual fund which invests primarily in fixed income securities with an average duration of between three and thirteen months. Fair Value of Financial Instruments The carrying values of cash and cash equivalents, short-term investments, rent receivable, accounts payable, accrued expenses and other assets and liabilities are reasonable estimates of their fair values because of the short maturities of these instruments. The estimated fair value of mortgage notes receivable collateralized by real property is based on discounting the future cash flows at a year-end risk adjusted lending rate that the Company would utilize for loans of similar risk and duration. At October 31, 2002 and 2001, the estimated aggregate fair value of the mortgage notes receivable was $3,542,000 and $3,594,000, respectively. The estimated fair value of mortgage notes payable was $118,000,000 and $49,000,000 at October 31, 2002 and 2001, respectively. The estimated fair value of mortgage notes payable is based on discounting the future cash flows at a year-end risk adjusted lending rate currently available to the Company for issuance of debt with similar terms and remaining maturities. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein. 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Earnings Per Share The Company calculates basic and diluted earnings per share in accordance with SFAS No. 128, “Earnings Per Share.” Basic earnings per share (“EPS”) excludes the impact of dilutive shares and is computed by dividing net income applicable to Common and Class A Common stockholders by the weighted number of Common shares and Class A Common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue Common shares or Class A Common shares were exercised or con- verted into Common shares or Class A Common shares and then shared in the earnings of the Company. Since the cash dividends declared on the Company’s Class A Common stock are higher than the dividends declared on the Common Stock, basic and diluted EPS have been calculated using the “two-class” method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock according to the weighted average of the dividends declared, outstanding shares per class and participation rights in undistributed earnings. The following table sets forth the reconciliation between basic and diluted EPS (in thousands): Numerator Net income applicable to common stockholders – basic Effect of dilutive securities: Operating partnership units Net income applicable to common stockholders – diluted Denominator Denominator for basic EPS – weighted average common shares Effect of dilutive securities: Stock options and awards Operating partnership units Denominator for diluted EPS – weighted average common equivalent shares Numerator Net income applicable to Class A common stockholders – basic Effect of dilutive securities Operating partnership units Net income applicable to Class A common stockholders – diluted Denominator Denominator for basic EPS – weighted average Class A common shares Effect of dilutive securities: Stock options and awards Operating partnership units Denominator for diluted EPS – weighted average Class A common equivalent shares 2002 2001 2000 $4,880 $5,326 $2,650 160 $5,040 (32) $5,294 28 $2,678 6,089 5,881 5,351 288 55 157 — 82 — 6,432 6,038 5,433 $11,200 $5,214 $2,792 202 $11,402 246 $5,460 246 $3,038 12,615 5,182 5,059 211 310 135 289 90 383 13,136 5,606 5,532 The weighted average Common equivalent shares and Class A common equivalent shares for the years ended October 31, 2001 and 2000 exclude 54,553 Common and 54,553 Class A partnership units which are exchange- able into shares. These shares were not included in the calculation of diluted EPS because the effect would be anti-dilutive. 20 URSTADT BIDDLE PROPERTIES INC. Recently Issued Accounting Pronouncements The Financial Accounting Standards Board (FASB) has issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long Lived Assets” which updates and clarifies the accounting and reporting for impairment of assets held in use and to be disposed of. The Statement, among other things, will require the Company to classify the operations and cash flow of properties to be disposed of as discontinued operations. The Company will adopt the provisions of the Statement in fiscal 2003, and does not expect the Statement to have a material impact on the Company’s financial position or results from operations. In December 2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensation-Transition and Disclosure.” This statement amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS No. 123. Adoption of the provisions of the Statement in fiscal 2003 will not have an impact since the Company will continue to use the intrinsic value method as set forth in APB No. 25. Segment Reporting The Company operates in one industry segment, ownership of commercial real estate properties which are located principally in the northeastern United States. Management reviews operating and financial data for each property separately and independently from all other properties when making resource allocation decisions and measuring performance. (2) REAL ESTATE INVESTMENTS The Company’s investments in real estate, net of depreciation, were composed of the following at October 31, 2002 and 2001 (in thousands): Retail Office Industrial Undeveloped Land Core Properties Non-core Properties Mortgage Notes and Other Receivables $244,384 8,023 — 304 $252,711 $1,920 8,240 1,784 — $11,944 $3,447 — — — $3,447 2002 Totals $249,751 16,263 1,784 304 $268,102 2001 Totals $145,289 27,071 2,034 304 $174,698 The Company’s investments at October 31, 2002, consisted of equity interests in 26 properties, which are located in various regions throughout the United States and mortgage notes. The Company’s primary invest- ment focus is neighborhood and community shopping centers located in the northeastern United States. These properties are considered core properties of the Company. The remaining properties are located outside of the northeastern United States and are considered non-core properties. As a significant concentration of the Company’s properties are in the northeast, market changes in this region could have an effect on the Company’s leasing efforts and ultimately its overall results of operations. The following is a summary of the geographic locations of the Company’s investments at October 31, 2002 and 2001 (in thousands): Northeast Southeast Midwest Southwest 2002 $253,432 1,196 9,048 4,426 $268,102 2001 $160,897 1,200 8,064 4,537 $174,698 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (3) CORE PROPERTIES The components of core properties were as follows (in thousands): Land Buildings and improvements Accumulated depreciation 2002 $53,021 236,362 289,383 (36,672) $252,711 2001 $32,524 159,650 192,174 (32,022) $160,152 Space at the Company’s core properties is generally leased to various individual tenants under short and intermediate term leases which are accounted for as operating leases. Minimum rental payments on non-cancelable operating leases become due as follows: 2003 – $31,861,000; 2004 – $30,677,000; 2005 – $28,608,000; 2006 – $26,645,000; 2007 – $24,711,000 and thereafter – $134,255,000. Certain of the Company’s leases provide for the payment of additional rent based on a percentage of the tenant’s revenues. Such additional percentage rents are included in operating lease income and were approxi- mately $47,000, $70,000, and $148,000, in 2002, 2001 and 2000, respectively. In fiscal 2002 and 2001, the Company received net proceeds of $765,000 and $1,137,000, respectively, in satisfaction of all claims against former tenants in negotiated settlements of the tenants lease obligations. The settlement amounts are reflected in revenues in the accompanying consolidated statements of income as lease termination income in the years ended October 31, 2002 and 2001. The Company is the general partner in an entity that owns the Eastchester Mall in Eastchester, New York. The limited partner is entitled to preferential distributions of cash flow from the property and may put its interest in the entity to the Company for a fixed number of shares of Common Stock and Class A Common stock of the Company. The Company, at its option, may redeem the limited partner’s interest for cash. The Company also has an option to purchase the limited partner’s interest after a certain period. The Company is also the general partner in an entity that owns the Arcadian Shopping Center in Briarcliff Manor, New York. The limited partners contributed the property, subject to a $6.3 million first mortgage, in exchange for operating partnership units (OPU’s) of the entity. The OPU’s are exchangeable into an equivalent number of shares of the Company’s Class A Common Stock. The limited partners are entitled to preferential distributions of cash flow from the property and may put their partnership interests to the Company for cash or Class A Common Stock of the Company at a unit price as defined in the partnership agreement. The Company, at its option, may redeem the limited partners’ interest for cash. The Company also has the option to purchase the limited partners’ interest for cash after a certain period. In fiscal 2001, the Company redeemed, at net book value, 127,548 OPU’s for cash of $1.0 million. At October 31, 2002 and 2001 there were 255,097 OPU’s outstanding. 22 URSTADT BIDDLE PROPERTIES INC. In June 2002, UB Stamford, LP, a newly formed limited partnership in which the Company has a 90% general partner interest, acquired the Ridgeway shopping center, a 360,000 square foot shopping center in Fairfield County, Connecticut for a total purchase price of $89.99 million, including transaction costs of $708,000 and the assumption of an existing first mortgage loan on the property of $57,369,000 at a fixed interest rate of 7.54%. The partnership agreement provides for the partners to receive an annual cash preference from available cash of the partnership. Any unpaid preferences accumulate and are paid from future available cash, if any. The limited partners’ cash preferences are paid after the general partner’s preferences are satisfied. The balance of available cash, if any, is distributed in accordance with the respective partners’ interests. Upon liquidation, proceeds from the sale of partnership assets are to be distributed in accordance with the respective partners’ interests. The partners are not obligated to make any additional capital contributions to the partnership. The Company has retained an affiliate of one of the limited partners to provide management and leasing services to the property at an annual fee of $125,000 for a period of five years ending in June 2007. The assumption of the first mortgage loan represents a non-cash financing activity and is therefore not included in the accompanying 2002 consolidat- ed statement of cash flows. The limited partnership interests in the partnerships are reflected in the accompanying consolidated financial statements as Minority Interests. In March 2002, the Company acquired a shopping center in Danbury, Connecticut for $7.0 million subject to a first mortgage loan of $2.0 million at a fixed interest rate of 8.375%. The assumption of the first mortgage represents a non-cash financing activity and is therefore not included in the accompanying 2002 consolidated statement of cash flows. In fiscal 2001, the Company purchased an office property in Greenwich, Connecticut and a 38,000 square foot shopping center in Westchester County, New York in separate transactions for a total purchase price of $9.5 million. In connection with the acquisition of the shopping center, the Company assumed a first mortgage of $4.2 million. The assumption of the first mortgage represents a non-cash financing activity and is therefore not included in the accompanying 2001 consolidated statement of cash flows. In fiscal 2000, the Company purchased one office property for $1.65 million. (4) NON-CORE PROPERTIES The Board of Directors has authorized a plan to sell all of the non-core properties of the Company over a period of several years. At October 31, 2002, the non-core properties consist of two distribution and service properties, one office building and one retail property located outside of the Northeast region of the United States. The components of non-core properties were as follows (in thousands): 2002 2001 Land Buildings and improvements $1,493 17,970 19,463 Accumulated depreciation (9,320) (8,424) $11,039 $1,943 19,321 21,264 $11,944 Minimum rental payments on non-cancelable operating leases of the non-core properties become due as follows: 2003 – $4,822,000; 2004 – $4,956,000; 2005 – $4,497,000; 2006 – $4,572,000; 2007 – $4,284,000 and thereafter $3,695,000. 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (4) NON-CORE PROPERTIES (continued) Sales of Properties In fiscal 2002, the Company sold undeveloped land for a net loss on sale of $6,200. In fiscal 2001, the Company sold a non-core property for $100,000. There was no gain or loss on the sale. The Company also sold undeveloped land for a net gain on the sale of the property of $316,000. In fiscal 2000, the Company sold two of its non-core properties for net gains on the sales of $1,067,000. The operating income of the properties sold during each of the years ended October 31, 2002, 2001 and 2000 was less than 1% of the consolidated operating income in each of the years then ended. Prior to December 2001, the Company was the sole general partner in Countryside Square Limited Partnership (the “Partnership”), which owned the Countryside Square Shopping Center in Clearwater, Florida. Upon the formation of the Partnership in 1997, the Company contributed the property and the limited partners con- tributed 600,000 Common shares of the Company. In 1998, the Partnership received 600,000 Class A Common shares pursuant to a stock dividend and in 1999, exchanged 600,000 Common shares with an affiliate for an equivalent number of Class A Common shares. After the exchange, the Partnership owned 1,200,000 shares of Class A Common stock of the Company. The Company accounted for its proportionate interest in the Class A Common shares owned by the Partnership as a deemed repurchase of 545,454 Class A Common shares and reduced its investment in the unconsolidated joint venture and stockholders’ equity in an amount equal to the fair value of the shares repurchased. In September 2001, the property was sold by the Partnership. Prior to the sale of the property, the Company accounted for its interest in the Partnership under the equity method. Accordingly, through the date of sale in fiscal 2001, the Company recorded $3,864,000 as its proportionate share of the income of the joint venture including earnings from the sale of the property. The Company’s equity in earnings of the Partnership was reflected after eliminating its proportionate share of dividend income in the Class A Common shares of the Company recorded by the Partnership. Upon the Partnership’s sale of the property, the Company effectively gained control of the Partnership and as a result, the Partnership’s accounts, which included $1.2 million in notes issued by the purchaser of the property and 1,200,000 shares of the Company’s Class A Common stock held by the Partnership, were thereafter consolidat- ed with the Company. Upon consolidation, the remaining 654,546 shares of Class A Common stock held by the Partnership were retired. In December 2001, the Partnership was liquidated. (5) MORTGAGE NOTES AND OTHER RECEIVABLE The components of the mortgage notes and other receivables at October 31, 2002 and 2001 were as follows (in thousands): Remaining principal balance Unamortized discounts to reflect market interest rates at time of acceptance of notes Promissory note receivable 2002 $2,685 (434) 2,251 1,196 $3,447 2001 $2,786 (479) 2,307 1,200 $3,507 Mortgage notes receivable consist of two fixed rate mortgages with contractual interest rates of 9% and 12%. The promissory note is due in 2004, bears interest at 12.5% and is collateralized by a security interest in the ownership interest of the purchaser of the Clearwater, Florida property. See Note 4. At October 31, 2002, principal payments on mortgage notes and promissory note become due as follows: 2003 – $163,000; 2004 – $1,261,000; 2005 – $130,000; 2006 – $142,000; 2007 – $156,000 and thereafter – $2,029,000. 24 URSTADT BIDDLE PROPERTIES INC. (6) MORTGAGE NOTES PAYABLE AND LINES OF CREDIT At October 31, 2002, the Company had ten non-recourse first mortgage notes payable totaling $106,429,000 ($47,115,000 at October 31, 2001) due in installments over various terms extending to fiscal year 2011 at fixed rates of interest ranging from 6.29% to 8.375%. The mortgage notes payable are collateralized by real estate investments having a net carrying value of approximately $170,000,000 as of October 31, 2002. Scheduled principal payments during the next five years and thereafter are as follows: 2003 – $1,840,000; 2004 – $1,985,000; 2005 – $2,139,000; 2006 – $8,928,000; 2007 – $11,225,000 and thereafter – $80,312,000. At October 31, 2002, the Company had a secured revolving line of credit with a bank which allows for borrow- ings up to $18.75 million. The agreement which expires in October 2005 is secured by first mortgage liens on two properties. Interest on outstanding borrowings is at a variable rate of prime + 1/2% or LIBOR + 1.5%. The Company can elect a fixed rate option at any time prior to the last year of the agreement. The agreement requires the Company to maintain certain debt service coverage ratios during its term and provides for a per- manent reduction in the revolving credit loan amount of $625,000 annually. At October 31, 2002 and 2001, the Company had no outstanding borrowings under this revolving credit agreement. The Company pays annual fees of 1/4% on the unused portion of this credit facility. At October 31, 2002 and 2001, the Company had an outstanding letter of credit of $139,295 which expires in fiscal 2003. The Company also has a $20 million unsecured line of credit arrangement with the same bank. The line of credit expires in fiscal 2003 and, is available to acquire real estate, refinance indebtedness and for working capital needs. Extensions of credit under the arrangement are at the bank’s discretion and subject to the bank’s satisfaction of certain conditions. Outstanding borrowings bear interest at the prime rate + 1/2% or LIBOR + 2.5%. The Company pays an annual fee of 1/4% on unused amounts. There were no borrowings outstanding under this line of credit at October 31, 2002 and 2001. Interest paid for the years ended October 31, 2002, 2001, and 2000 was $5,584,000, $4,456,000 and $4,245,000, respectively. (7) PREFERRED STOCK The Series B Preferred Stock has no stated maturity, is not subject to any sinking fund or mandatory redemption and is not convertible into other securities or property of the Company. On or after January 8, 2008, the Series B Preferred Stock may be redeemed by the Company at its option, in whole or in part, at a redemption price of $100 per share, plus all accrued dividends. Upon a change in control of the Company (as defined), (i) each hold- er of Series B Preferred Stock shall have the right, at such holder’s option, to require the Company to repurchase all or any part of such holder’s Series B Preferred Stock for cash at a repurchase price of $100 per share, plus all accrued and unpaid dividends, and (ii) the Company shall have the right, at the Company’s option, to redeem all or any part of the Series B Preferred Stock at (a) prior to January 8, 2008, the Make-Whole Price (as defined) and (b) on or subsequent to January 8, 2008, the redemption price of $100 per share, plus all accrued and unpaid dividends. Holders of the Series B Preferred Stock are entitled to receive cumulative preferential cash dividends equal to 8.99% per annum, payable quarterly in arrears and subject to adjustments under certain circumstances. The Series B Preferred Stock contains covenants which require the Company to maintain certain financial coverages relating to fixed charge and capitalization ratios. Shares of the Series B Preferred Stock are non-voting; however, under certain circumstances (relating to non-payment of dividends or failure to comply with the financial covenants) the preferred stockholders will be entitled to elect two directors. The Company was in compliance with such covenants at October 31, 2002 and 2001. In fiscal 2002, the Company repurchased 200,000 shares of its Series B Preferred Stock for a purchase price of $16,050,000 in a negotiated transaction with a holder of the preferred shares. The Company has recorded the excess of the carrying value over the cost to repurchase the preferred shares as an increase in net income applicable to Common and Class A Common stockholders. 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (8) STOCKHOLDERS’ EQUITY In fiscal 2002, the Company completed a secondary offering of 8,050,000 shares of its Class A Common Stock in an underwritten public offering. The net proceeds to the Company (after deducting underwriting fees and expenses) were $81,854,000. In November 2001, the Company also sold 699,222 shares to its underwriters to cover over allotments in connection with the Company’s secondary stock offering of 4,800,000 shares in fiscal 2001. Net proceeds to the Company amounted to $6,069,000. In fiscal 2001, the Company sold 4,800,000 shares of its Class A Common Stock in an underwritten public offer- ing. The net proceeds to the Company (after deducting underwriting fees and expenses) were $41,136,000. The Company also sold 200,000 shares of Common Stock and 5,000 shares of Class A Common Stock for total pro- ceeds of $1,435,000 in a private placement offering with two entities controlled by an officer of the Company. Underwriting commissions and costs incurred in connection with the Company’s stock offerings are reflected as a reduction of additional paid in capital. In fiscal 1998, the Board of Directors declared and paid a special stock dividend on the Company’s Common Stock consisting of one share of a newly created class of Class A Common Stock, par value $.01 per share, for each share of the Company’s Common Stock. The Class A Common Stock entitles the holder to 1/20 of one vote per share. Each share of Common Stock and Class A Common Stock have identical rights with respect to dividends except that each share of Class A Common Stock will receive not less than 110% of the regular quarterly dividends paid on each share of Common Stock. The Company has a stockholders rights agreement, which expires on November 12, 2008. The rights are not cur- rently exercisable. When they are exercisable, the holder will be entitled to purchase from the Company one one-hundredth of a share of a newly-established Series A Participating Preferred Stock at a price of $65 per one one-hundredth of a preferred share, subject to certain adjustments. The distribution date for the rights will occur 10 days after a person or group either acquires or obtains the right to acquire 10% (“Acquiring Person”) or more of the combined voting power of the Company’s Common Shares, or announces an offer the consummation of which would result in such person or group owning 30% or more of the then outstanding Common Shares. Thereafter, shareholders other than the Acquiring Person will be entitled to purchase original common shares of the Company having a value equal to two times the exercise price of the right. If the Company is involved in a merger or other business combination at any time after the rights become exercisable, and the Company is not the surviving corporation or 50% or more of the Company assets are sold or transferred, the rights agreement provides that the holder other than the Acquiring Person will be entitled to purchase a number of shares of common stock of the acquiring company having a value equal to two times the exercise price of each right. The Company’s articles of incorporation provide that if any person acquires more than 7.5% of the outstanding shares of any class of stock, except, among other reasons, as approved by the Board of Directors, such shares in excess of this limit shall automatically be exchanged for an equal number of shares of Excess Stock. Excess Stock have limited rights, may not be voted and are not entitled to any dividends. In fiscal 1996, the Company’s Board of Directors authorized a program to purchase up to 500,000 shares each of the Company’s Common Stock and Class A Common Stock. As of October 31, 2002, the Company purchased and retired a total of 224,500 Common shares and 214,100 Class A Common shares under this program (none in 2002). 26 URSTADT BIDDLE PROPERTIES INC. (9) STOCK OPTION AND OTHER BENEFIT PLANS The Company has a stock option plan, whereby 824,093 Common shares and 743,003 Class A Common shares were reserved for issuance to key employees and non-employee Directors of the Company. Options are granted at fair market value on the date of the grant, have a duration of ten years from the date of grant and are general- ly exercisable in installments over a maximum period of four years from the date of grant. A summary of stock option transactions during the periods covered by these financial statements is as follows: Year ended October 31, 2002 2001 2000 Common stock: Balance at beginning of period Granted Exercised Canceled/Forfeited Balance at end of period Exercisable Class A Common Stock: Balance at beginning of period Granted Exercised Canceled/Forfeited Balance at end of period Exercisable Weighted average fair value per share of an option granted during the year – Common Stock – Class A Common Stock Weighted Average Exercise Prices $7.00 — $6.88 $7.03 $7.50 $7.50 — $7.26 $7.16 $7.71 Number of Shares 315,060 — (211,762) (11,728) 91,570 91,570 314,605 — (37,312) (210,483) 66,810 66,810 Weighted Average Exercise Prices $6.91 — $6.83 $7.54 $7.00 $7.48 — $7.38 $7.13 $7.50 Number of Shares 739,958 — (419,000) (5,898) 315,060 222,060 739,464 — (24,859) (400,000) 314,605 221,605 Weighted Average Exercise Prices $7.04 $6.81 — $6.91 $6.91 $7.10 $7.13 — $6.96 $7.48 Number of Shares 736,843 593,000 — (589,885) 739,958 146,958 732,482 593,000 — (586,018) 739,464 146,464 — — — — $0.18 $0.12 At October 31, 2002, exercise prices of shares of Common Stock and Class A Common Stock under option ranged from $6.60 to $9.03, for the Common Stock and $6.65 to $9.09, for the Class A Common Stock. Option expiration dates range for both classes of stock from April 2003 through April 1, 2009 and the weighted average remaining contractual life of these options is 3.5 years. As of October 31, 2002, outstanding options to acquire approximately 44,000 shares each of Common Stock and Class A Common stock permit the optionee to elect to receive either shares of Common stock, Class A Common Stock or a combination of both. Upon an election to exercise shares of a class of common stock by the optionee, a comparable number of shares of the class of common stock not elected by such optionee is deemed cancelled and no longer available for future grants. 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (9) STOCK OPTION AND OTHER BENEFIT PLANS (continued) The fair value of the Company’s stock options granted in fiscal 2000 were estimated as of the date of grant using a Black-Scholes option pricing model using the following assumptions (there were no grants in fiscal 2002 and 2001). Year Ended October 31, Risk-free interest rate Expected dividend yields Expected volatility Weighted average option life 2000 6.17% 9.8%-10.9% 15.1% 10 Years The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock Based Compensation” (“SFAS 123”). Accordingly, no compensation expense has been recognized for stock options granted under the plan. Had compensation cost for stock options granted been determined based on the fair value on the grant date consistent with the provisions of SFAS 123, the effect on the Company’s net income and earnings per share for the three years ended October 31, 2002 would have been immaterial. Certain officers of the Company exercised stock options to purchase shares of Common Stock and Class A Common Stock. In connection with the share exercises, the officers executed full recourse promissory notes in favor of the Company for the purchase price of the shares. In October 2002, an officer prepaid $3,017,000 in out- standing stock loans. At October 31, 2002, notes from officers totaled $1,746,000 ($3,270,000 at October 31, 2001). The notes have 10 year terms and bear fixed rates of interest ranging from 6.8% to 8%. The shares have been pledged as additional collateral for the notes. Interest is payable quarterly. The exercise of the stock options and the issuance of the notes from officers represent non-cash financing activities and are therefore not included in the accompanying consolidated statements of cash flows. The Company has a restricted stock plan for key employees and directors of the Company. The plan, which was amended in 2002, authorizes grants of restricted stock of up to 1,050,000 shares (350,000 shares each of Common Stock and Class A Common Stock and 350,000 shares which, at the discretion of the Company’s com- pensation committee, may be awarded in any combination of Common Stock or Class A Stock). As of October 31, 2002, the Company has awarded 350,000 shares of Common Stock and 186,300 shares of Class A Common Stock to participants as an incentive for future services. The shares vest between five and ten years after the date of grant (3,500 shares each of Common Stock and Class A Common Stock were vested at October 31, 2002 (none at October 31, 2001)). Dividends on vested and non-vested shares are paid as declared. The market value of shares awarded has been recorded as unamortized restricted stock compensation and is shown as a separate component of stockholders’ equity. Unamortized restricted stock compensation is being amortized to expense over the vest- ing period. For the years ended October 31, 2002, 2001 and 2000 amounts charged to expense totaled $942,000, $769,000 and $630,000, respectively. The Company has a profit sharing and savings plan (the “401K Plan”) which permits all eligible employees to defer a portion of their compensation in accordance with the Internal Revenue Code. Under the 401K Plan, the Company may make discretionary contributions on behalf of eligible employees. For the years ended October 31, 2002, 2001 and 2000, the Company made contributions to the 401K Plan of $93,000, $88,000 and $95,000, respectively. The Company also has an Excess Benefits and Deferred Compensation Plan which allows eligible employees to defer benefits in excess of amounts provided under the Company’s 401K Plan and a portion of the employees current compensation. 28 URSTADT BIDDLE PROPERTIES INC. (10) PRO FORMA FINANCIAL INFORMATION (UNAUDITED) The unaudited pro forma financial information set forth below is based upon the Company’s historical consolidated statements of income for the year ended October 31, 2002 and 2001 adjusted to give effect to the acquisition of the Ridgeway shopping center (see Note 3) as though it was completed on November 1, 2000. The unaudited pro forma financial information is presented for informational purposes only and may not be indicative of what actual results of operations would have been had the transaction occurred as of November 1, 2000. Unaudited pro forma amounts in thousands are as follows (except per share data). Year ended October 31, Revenues: Net income applicable to Common and Class A Common Stockholders: Earnings per share: Basic: Common Class A Common Diluted: Common Class A Common 2002 $50,066 $16,191 $.81 $.89 $.79 $.87 2001 $46,717 $9,843 $.85 $.94 $.82 $.91 (11) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The unaudited quarterly results of operations for the years ended October 31, 2002 and 2001 are as follows (in thousands, except per share data): Year Ended October 31, 2002 Year Ended October 31, 2001 Quarter Ended Quarter Ended Jan 31 Apr 30 July 31 Oct 31 Jan 31 Apr 30 July 31 Oct 31 Revenues $10,014 $9,971 $11,223 $13,132 $8,281 $8,702 $9,983 $9,127 Net Income (1) $3,508 $3,368 $3,295 $4,336 $1,932 $2,276 $3,211 $6,268 Preferred Stock Dividends Excess of carrying value over cost of Preferred Shares Repurchased Net Income Applicable to Common and Class A Common Stockholders Basic Earnings per Share: Common Class A Common Diluted Earnings per Share: Common Class A Common (487) (337) (337) (337) (786) (787) (787) (787) 3,071 — — — — — — — $6,092 $3,031 $2,958 $3,999 $1,146 $1,489 $2,424 $5,481 $.36 $.40 $.35 $.38 $.18 $.20 $.17 $.19 $.15 $.17 $.15 $.16 $.15 $.17 $.15 $.17 $.10 $.11 $.10 $.11 $.13 $.14 $.12 $.14 $.21 $.24 $.21 $.23 $.47 $.52 $.45 $.49 (1) Quarter ended October 31, 2001 includes a gain on sale of real estate investments of $316,000 and the Company’s proportionate share of the earnings of an unconsolidated joint venture of $3,884,000. 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (12) SUBSEQUENT EVENTS, COMMITMENTS AND CONTINGENCIES On December 23, 2002, the Company acquired the Westchester Pavilion Shopping Center in White Plains, New York, a 185,000 square foot shopping center for $39.9 million in an all cash transaction. On December 20, 2002, the Company acquired the Orange Meadows Shopping Center in Orange, Connecticut, a 78,000 square foot retail property for $11.2 million in an all cash transaction. The Company has also contracted to purchase two retail properties totaling 169,000 square feet under separate agreements for an aggregate purchase price of approximately $33 million. In the normal course of business, from time to time, the Company is involved in legal actions relating to the ownership and operations of its properties. In management’s opinion, the liabilities, if any that may ultimately result from such legal actions are not expected to have a material adverse effect on the consolidated financial position, results of operations or liquidity of the Company. REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of Urstadt Biddle Properties Inc.: We have audited the accompanying consolidated balance sheet of Urstadt Biddle Properties Inc. (the “Company”) as of October 31, 2002, and the related consolidated statements of income, cash flows and stock- holders’ equity for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Urstadt Biddle Properties Inc. as of October 31, 2001 and for each of the two years in the period October 31, 2001, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated December 12, 2001. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidat- ed financial position of Urstadt Biddle Properties Inc. at October 31, 2002 and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP New York, New York December 11, 2002, except for the first two paragraphs in Note 12 as to which the date is December 23, 2002 30 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Urstadt Biddle Properties Inc. (Company), a real estate investment trust (REIT), is engaged in the acquisition, ownership and management of commercial real estate, primarily neighborhood and community shopping cen- ters in the northeastern part of the United States. Other assets include office and retail buildings and industrial properties. The Company’s major tenants include super- market chains and other retailers who sell basic necessi- ties. At October 31, 2002, the Company owned or had interests in 26 properties containing a total of 3.0 million square feet of leasable area. This report includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than state- ments of historical facts, included in this report that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future, including such matters as future cap- ital expenditures, dividends and acquisitions (including the amount and nature thereof), expansion and other development trends of the real estate industry, business strategies, expansion and growth of the Company’s oper- ations and other such matters are forward-looking state- ments. These statements are based on certain assump- tions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions, expected future developments and other fac- tors it believes are appropriate. Such statements are sub- ject to a number of assumptions, risks and uncertainties, general economic and business conditions, the business opportunities that may be presented to and pursued by the Company, changes in laws or regulations and other factors, many of which are beyond the control of the Company. Any such statements are not guarantees of future performance and actual results or developments may differ materially from those anticipated in the for- ward-looking statements. LIQUIDITY AND CAPITAL RESOURCES Sources of Capital The Company’s sources of liquidity and capital resources include its cash and cash equivalents, proceeds from bank borrowings and long-term mortgage debt, capital financings and sales of real estate investments. Payments of expenses related to real estate operations, debt service, management and professional fees, and dividend requirements place demands on the Company’s short- term liquidity. The Company expects to meet its short- term liquidity requirements primarily by generating net cash from the operations of its properties. The Company believes that its net cash provided by operations will be sufficient to fund its short-term liquidity requirements for fiscal 2003 and to meet its dividend requirements necessary to maintain its REIT status. In fiscal 2002, 2001 and 2000, net cash provided by operations amounted to $18.5 million, $21.3 million and $14.3 million, respective- ly. Dividends paid to stockholders of the Company in fis- cal 2002, 2001 and 2000, amounted to $16.4 million, $11.9 million and $10.9 million, respectively. The Company derives substantially all of its revenues from tenants under existing leases at its properties. The Company’s operating cash flow therefore depends on the rents that it is able to charge to its tenants, and the ability of its ten- ants to make rental payments. The Company believes that the nature of the properties in which it typically invests — primarily grocery-anchored neighborhood and community shopping centers — provides a more stable revenue flow in uncertain economic times, in that con- sumers still need to purchase basic staples and conve- nience items. However, even in the geographic areas in which the Company owns properties, general economic downturns may adversely impact the ability of the Company’s tenants to make lease payments and the Company’s ability to re-lease space as leases expire. In either of these cases, the Company’s cash flow could be adversely affected. The Company expects to fund its long-term liquidity requirements such as property acquisitions, repayment of indebtedness and capital expenditures through other long-term indebtedness (including indebtedness assumed in acquisitions), proceeds from sales of non- core properties and/or the issuance of equity securities. The Company believes that these sources of capital will continue to be available to it in the future to fund its long-term capital needs; however, there are certain fac- tors that may have a material adverse effect on its access to capital sources. The Company’s ability to incur addi- tional debt is dependent upon its existing leverage, the value of its unencumbered assets and borrowing limita- tions imposed by existing lenders. The Company’s abili- ty to raise funds through sales of equity securities is dependent on, among other things, general market con- ditions for REITs, market perceptions about the Company and its stock price in the market. The Company’s ability to sell properties in the future to raise cash will be dependent upon market conditions at the time of sale. At October 31, 2002, the Company had cash and cash equivalents of $46.3 million compared to $33.7 million in 2001. The Company also had $25.1 million in liquid short-term investments as of October 31, 2002. The Company’s cash positions and short-term invest- ments reflect the temporary investment of the net pro- ceeds received from the sales of the Company’s Class A Common shares during fiscal 2002 and 2001. 31 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financings In fiscal 2002, the Company completed an underwrit- ten public offering of 8,050,000 shares of its Class A Common stock. The net proceeds to the Company (after deducting underwriting fees and expenses) was $81.9 million. A portion of the proceeds was used to repay $16 million of outstanding revolving credit line indebtedness. The balance of the net proceeds of the offering is expected to be used to acquire properties. In December 2002, the Company acquired two properties utilizing approximately $51 million in cash. In November 2001, the Company also sold 699,222 shares to its underwriters to cover over allotments in connec- tion with the Company’s stock offering of 4,800,000 shares in fiscal 2001. Net proceeds to the Company amounted to $6,069,000. In fiscal 2001, the Company completed an under- written public offering of 4,800,000 shares of its Class A Common stock. The net proceeds to the Company (after deducting underwriting fees and expenses) was $41.1 million. The Company also sold 200,000 shares of Common stock and 5,000 shares of Class A Common stock in a private placement for total proceeds of $1,435,000. The Company used the proceeds of these offerings to complete the acquisitions of two proper- ties, repay outstanding credit line borrowings and repurchase 200,000 shares of its Series B preferred stock at a cost of $16.1 million. At October 31, 2002, the Company had a $18.75 million secured revolving credit facility with a bank which expires in fiscal 2005 and a conditional $20 mil- lion unsecured revolving line of credit with the same bank which expires in fiscal 2003. The revolving credit lines are available to finance the acquisition, manage- ment and/or development of commercial real estate, refinance indebtedness and for working capital pur- poses. Extensions of credit under the unsecured credit line are at the bank’s discretion and subject to the bank’s satisfaction of certain conditions. During 2002, the Company borrowed $16 million on the secured credit line to complete the acquisition of the Ridgeway Shopping Center, Stamford, Connecticut (see below). Borrowings were fully repaid from the proceeds of the sale of equity securities in fiscal 2002. There were no borrowings during the year under the unsecured cred- it line and there were no outstanding borrowings on either line of credit at October 31, 2002. The Company is exposed to interest rate risk pri- marily through its borrowing activities. There is inher- ent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the vari- ability of future interest rates and the Company’s future financing requirements. 32 At October 31,2002, the Company’s contractual obligations for borrowings are as follows: Payments Due by Period Less than 1 year 1 to 3 years 4 to 5 years After 5 years Amount $1,840,000 $4,124,000 $20,153,000 $80,312,000 Borrowings consist of $106,429,000 of fixed rate mortgage loan indebtedness with a weighted average interest rate of 7.53% at October 31, 2002. The mortgage loans are secured by fourteen properties and have fixed rates of interest ranging from 6.29% to 8.375%. The Company expects to refinance certain of these borrow- ings, at or prior to maturity, through new mortgage loans on real estate. The ability to do so, however, is dependent upon various factors, including the income level of the properties, interest rates and credit condi- tions within the commercial real estate market. Accordingly, there can be no assurance that such refi- nancings can be achieved. Capital Expenditures The Company invests in its existing properties and regularly incurs capital expenditures in the ordinary course of business to maintain its properties. The Company believes that such expenditures enhance the competitiveness of its properties. In fiscal 2002, the Company spent approximately $2.8 million for capital expenditures including $1.5 million related to tenant allowances and commissions in connection with the Company’s leasing activities. The amounts of these expenditures can vary significantly depending on ten- ant negotiations, market conditions and rental rates. The Company has budgeted an additional $3.3 million for known capital improvements and leasing costs in fiscal 2003. These expenditures are generally funded from operating cash flows or borrowings on its credit facilities. Acquisitions and Sales During fiscal 2002, the Company acquired a 90% gen- eral partner interest in a shopping center in Stamford, Connecticut for $86.8 million (including transaction costs of $708,000). The property was acquired subject to a $57.4 million first mortgage loan, utilizing avail- able cash of approximately $13.4 million and revolving credit line borrowings of $16 million. The Company also purchased a shopping center in Danbury, Connecticut for $7.0 million subject to a first mortgage loan of $2.0 million and acquired the remaining 15% interest in the Giffels Building in Southfield, Michigan that it did not own for a purchase price of $1.25 million. In December 2002, the Company acquired two properties in separate transactions for an aggregate purchase price of approximately $51 million. The acquisitions were funded from available cash. As of October 31, 2002, the Company had con- tracted to purchase two additional shopping center properties for an aggregate purchase price of approxi- mately $33 million. The properties are located in the Company’s preferred geographic area of Westchester County, New York and Fairfield County, Connecticut. The transactions are expected to close during the first half of fiscal 2003. In fiscal 2001, the Company acquired two proper- ties for $9.5 million. One property was acquired sub- ject to a first mortgage loan of $4.2 million. The pur- chases were financed from available cash and borrow- ings under the Company’s revolving credit lines. In a prior year, the Company’s Board of Directors expanded and refined the strategic objectives of the Company to refocus its real estate portfolio into one of self-managed retail properties located in the northeast and authorized a plan to sell the non-core properties of the Company in the normal course of business over a period of several years. The Company intends to sell the non-core properties as opportunities become avail- able. The Company has selectively effected asset sales to generate cash proceeds over the last several years. The Company’s ability to generate cash from asset sales is dependent upon market conditions and will necessarily be limited if market conditions make such sales unattractive. In fiscal 2001, the Company sold two non-core properties for $1.2 million and a shop- ping center for $16 million. At October 31, 2002, the remaining non-core properties total four properties with a net book value of approximately $12 million and consist of two distribution service facilities, one office building and one retail property (all of which are located outside of the northeast region of the United States). FUNDS FROM OPERATIONS The Company considers Funds from Operations (“FFO”) to be one supplemental financial measure of an equity REIT’s operating performance. FFO is calcu- lated as net income (computed in accordance with generally accepted accounting principles (GAAP)), plus depreciation and amortization, excluding gains (or losses) from sales of property and debt restructur- ing, and after adjustments for unconsolidated joint ventures. The Company considers recoveries of invest- ments in properties subject to finance leases to be anal- ogous to amortization for purposes of calculating FFO. FFO does not represent cash flows from operations as defined by GAAP and should not be considered an alternative to net income as an indication of the Company’s operating performance or for cash flows as a measure of liquidity or its dividend paying capacity. Furthermore, FFO as disclosed by other REITs may not be comparable to the Company’s calculation of FFO. The table below provides a reconciliation of net income in accordance with GAAP to FFO for each of the years ended October 31, 2002, 2001 and 2000 (amounts in thousands). 2002 2001 2000 Net Income Applicable to Common and Class A Common Stockholders Plus: Real property depreciation Amortization of tenant improvements and allowances Amortization of deferred leasing cost Recoveries of investments in properties subject to finance leases Adjustments for unconsolidated joint venture Less: Excess of carrying value over cost to repurchase preferred shares Gains on sales of real estate investments $16,080 $10,540 $5,442 5,459 4,463 4,571 2,088 2,234 1,067 517 851 545 — 91 822 — (3,252) 534 (3,071) — — — (316) (1,067) Funds from Operations $21,073 $14,611 $11,914 Net Cash Provided by Operating Activities $18,532 $21,308 $14,262 Net Cash Used in Investing Activities $(64,960) $(11,394) $(3,713) Net Cash Provided by (Used in) Financing Activities $59,023 $22,040 $(11,436) RESULTS OF OPERATIONS Fiscal 2002 vs. Fiscal 2001 Revenues Revenues from operating leases increased 23.4% to $42.2 million in fiscal 2002 compared to $34.2 million in fiscal 2001. The increase in operating lease revenues resulted from additional rental revenues from new properties acquired during both years and leasing of previously vacant space at the Company’s core prop- erties. During fiscal 2002 and 2001, the Company acquired four properties containing 442,000 square feet of space. Rents from recently acquired properties increased operating lease income by approximately $5.5 million in fiscal 2002. In the current year the 33 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Company renewed or signed new leases totaling 236,000 square feet of space at its core properties. In fiscal 2002, the overall leasing levels at the Company’s properties decreased to 95% compared to 98% leased in the year ago period. Additionally, the Company’s total property occupancy levels decreased to 92% in fiscal 2002 from 98% in fiscal 2001. The decrease in leasing and occupancy levels was principally caused by the loss of a tenant occupying 115,390 square feet at the Company’s Five Town Plaza shopping center and a tenant occupying 94,000 square feet at the Company’s office property in Southfield, Michigan who re-leased 32,400 square feet of its previously occupied space. The balance of the office space remains vacant at October 31, 2002. The Company re-leased the 115,390 square feet of space at Five Town Plaza. Lease termination income of $765,000 in fiscal 2002 represents lease cancellation payments from tenants who terminated two leases early during the year. One of the vacant spaces was re-leased during the year. Interest income increased in fiscal 2002 from the investment of cash proceeds during the year into short- term investments at generally lower yields and the addition of a new $1.2 million promissory note receiv- able (interest at 12.5% per annum). Expenses Total expenses increased to $29.4 million from $26.2 mil- lion in fiscal 2001. Property expenses increased 11.1% to $12.8 million from $11.5 million principally from the incremental expense of recently acquired properties, which increased property expenses by $1.4 million in fiscal 2002. Property expenses for properties owned during 2002 and 2001 were generally unchanged. Snow removal costs decreased by approximately $250,000 which was largely offset by increases in property taxes and insurance costs. Interest expense increased principally from new mortgage loans totaling $59.4 million assumed in con- nection with recent acquisitions. The increase in interest expense was partially offset by the repayments of out- standing bank credit line borrowings. The Company also repaid approximately $6 million in mortgage notes payable which matured during fiscal 2001. Depreciation expense increased by $850,000 princi- pally due to the additional expense incurred from cur- rent year property acquisitions. Amortization expense decreased by $354,000 principally from the write-off in fiscal 2001 of unamortized leasing commissions related to tenants who vacated during the year. General and administrative expenses increased to $2.8 million or 14.2% in fiscal 2002 as compared to $2.5 million in fiscal 2001. The increase is due primarily to increased compensation costs. In fiscal 2002, the Company repurchased 200,000 shares of its Series B Preferred Stock for a purchase price of $16,050,000 in a negotiated transaction with a 34 holder of the preferred shares. The Company has recorded the excess of the carrying value over the cost to repurchase the preferred shares of $3,071,000 as an increase in net income applicable to Common and Class A Common stockholders. Fiscal 2001 vs. Fiscal 2000 Revenues Property occupancy levels increased to 98% from 97% in fiscal 2000. Operating lease revenues increased 13.1% to $34.2 million in fiscal 2001 compared to $30.2 million in fiscal 2000. The increase in operating lease revenues resulted from leasing of previously vacant space, higher tenant base rent renewal rates at certain of the Company’s properties and higher recoveries of property operating, property tax and other recoverable costs. Operating lease income also increased by $682,000 from the reclassification of three net leases previously accounted for as direct finance leases in accordance with generally accepted accounting principles. During the year, one of the properties was sold and the net leas- es of the remaining two properties expired. The new leases were classified as operating leases. Lease termination income of $1,137,000 represents a settlement of the Company’s claims against a former tenant arising from the tenant’s bankruptcy and rejec- tion of its lease at one of the Company’s properties. The Company had an investment in an unconsoli- dated joint venture which was accounted for under the equity method. The joint venture owned the Countryside Square shopping center in Clearwater, Florida. In fiscal 2001, the property was sold and the Company recorded $3,864,000 as its proportionate share of the income of the joint venture including its earnings from the sale of the property as compared to earnings of $245,000 in fiscal 2000. In 2001, the Company sold two non-core properties for net gains of $316,000 as compared to net gains on sales of $1,067,000 in fiscal 2000. Expenses Total expenses increased to $26.2 million from $23.3 mil- lion in fiscal 2000. Property expenses increased by 10.5% in fiscal 2001 principally from higher snow removal costs, maintenance and repairs and property taxes. These items increased property expenses by $1,046,000 in fiscal 2001 and resulted from higher than normal snowfall amounts during the period and increased property tax assessments at the Company’s core proper- ties. Interest expense increased from borrowings of $16.5 million on the Company’s revolving credit lines during the year. The increase in interest expense was partially offset by mortgage loans repaid during the year. Depreciation and amortization expense increased to $7.6 million from $6.3 million in fiscal 2000 from the expenditure of $11.7 million for property improvements, tenant allowances and leasing costs during the year. The Company also wrote off $287,000 of unamortized tenant allowances related to former tenants who vacated space during the year. APPLICATION OF CRITICAL ACCOUNTING POLICIES Critical accounting policies are those that are both important to the presentation of the Company’s finan- cial condition and results of operations and require management’s most difficult, complex or subjective judgments. The Company’s critical accounting policies are those applicable to the evaluation of the collectibility of accounts and notes receivable and the evaluation of impairment of long-term assets. The allowance for doubtful accounts and notes receivable is established based on quarterly analysis of the risk of loss on specific accounts. The analysis places particular emphasis on past-due accounts and considers information such as the nature and age of the receiv- ables, the payment history of the tenants or other debtors, the financial condition of the tenants and man- agement’s assessment of their ability to meet their lease obligations, the basis for any disputes and the status of related negotiations, among other things. Management’s estimates of the required allowance is subject to revision as these factors change and is sensitive to the effects of economic and market conditions on tenants, particular- ly those at retail centers. Rental revenue is recognized on a straight-line basis over the term of the lease. The excess of rents recog- nized over amounts contractually due pursuant to the underlying leases is included in tenant receivables on the accompanying balance sheets. It is the Company’s policy to maintain an allowance for future tenant credit losses of approximately 10% of the deferred straight line rent receivable balance. On a periodic basis, management assesses whether there are any indicators that the value of the real estate properties and mortgage notes receivable may be impaired. To the extent impairment has occurred, the loss is measured as the excess of the carrying amount of the property over the fair value of the asset. Management does not believe that the value of any of its rental properties or mortgage notes receivable is impaired at October 31, 2002. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) has issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long Lived Assets” which updates and clar- ifies the accounting and reporting for impairment of assets held in use and to be disposed of. The Statement, among other things, will require the Company to classi- fy the operations and cash flow of properties to be dis- posed of as discontinued operations. The Company will adopt the provisions of the Statement in fiscal 2003, and does not expect the Statement to have a material impact on the Company’s financial position or results of opera- tions. In December 2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensation-Transition and Disclosure.” This statement amends SFAS No. 123 to provide alternative methods of transition for a volun- tary change to the fair value based method of account- ing for stock-based employee compensation and amends the disclosure requirements of SFAS No. 123. Adoption of the provisions of the Statement in fiscal 2003 will not have any impact since the Company will continue to use the intrinsic value method as set forth in APB #25. INFLATION The Company’s long-term leases contain provisions to mitigate the adverse impact of inflation on its operating results. Such provisions include clauses entitling the Company to receive (i) scheduled base rent increases and (ii) percentage rents based upon tenants’ gross sales, which generally increase as prices rise. In addi- tion, many of the Company’s non-anchor leases are for terms of less than ten years, which permits the Company to seek increases in rents upon renewal at then current market rates if rents provided in the expir- ing leases are below then existing market rates. Most of the Company’s leases require tenants to pay a share of operating expenses, including common area mainte- nance, real estate taxes, insurance and utilities, thereby reducing the Company’s exposure to increases in costs and operating expenses resulting from inflation. ENVIRONMENTAL MATTERS Based upon management’s ongoing review of its prop- erties, management is not aware of any environmental condition with respect to any of the Company’s proper- ties which would be reasonably likely to have a material adverse effect on the Company. There can be no assur- ance, however, that (i) the discovery of environmental conditions which were previously unknown, (ii) changes in law, (iii) the conduct of tenants or (iv) activi- ties relating to properties in the vicinity of the Company’s properties, will not expose the Company to material liability in the future. Changes in laws increas- ing the potential liability for environmental conditions existing on properties or increasing the restrictions on discharges or other conditions may result in significant unanticipated expenditures or may otherwise adversely affect the operations of the Company’s tenants, which would adversely affect the Company’s financial condi- tion and results of operations. 35 TAX STATUS The Company has elected to be treated as a real estate investment trust under the Internal Revenue Code. Thus, generally it will be subject to Federal income taxes only on that part of its taxable income not distributed as dividends so long as 90% of such taxable income is distributed. The Company intends to distribute all of its taxable income for fiscal 2002 and, accordingly, no provision has been made for Federal income taxes. INCOME TAX INFORMATION The tax status for Federal income tax purposes of the dividends paid by the Company during fiscal 2002 is as follows: Common Share Class A Common Share Gross Dividend Paid Capital Ordinary Gain Income Per Share Distribution Distribution Gross Dividend Paid Capital Gain Per Share Distribution Distribution Ordinary Income Dividend Payment Date January 18, 2002 April 19, 2002 July 21, 2002 October 18, 2002 Total $0.185 $0.185 $0.185 $0.185 $0.74 $0.135 $0.135 $0.135 $0.135 $0.54 $0.05 $0.05 $0.05 $0.05 $0.20 $0.205 $0.205 $0.205 $0.205 $0.82 $0.15 $0.15 $0.15 $0.15 $0.60 $0.055 $0.055 $0.055 $0.055 $0.22 MARKET PRICE RANGES The following sets forth, for the fiscal years ended October 31, 2002 and 2001, the low and high closing sales price per Common Share and Class A Common Share as quoted on The New York Stock Exchange. Shares trade on the New York Stock Exchange under the Symbols: UBP and UBP.A. Fiscal 2002 Low High $8.60 – $10.65 $10.25 – $12.28 $9.95 – $12.80 $10.77 – $11.60 $9.35 – $10.28 $9.88 – $12.00 $10.60 – $12.00 $10.80 – $11.97 Fiscal 2001 Low High $6.35 – $7.27 $6.99 – $7.85 $7.64 – $8.66 $8.02 – $8.93 $6.39 – $7.64 $7.35 – $8.54 $8.12 – $9.28 $8.55 – $9.75 Common Shares First Quarter Second Quarter Third Quarter Fourth Quarter Class A Common Shares First Quarter Second Quarter Third Quarter Fourth Quarter 36 URSTADT BIDDLE PROPERTIES INC. DIRECTORS CHARLES J. URSTADT Chairman, Urstadt Biddle Properties Inc. ROBERT R. DOUGLASS Vice Chairman, Urstadt Biddle Properties Inc. Of Counsel, Milbank, Tweed, Hadley and McCloy WILLING L. BIDDLE President, Urstadt Biddle Properties Inc. E. VIRGIL CONWAY Retired Chairman, New York State Metropolitan Transportation Authority PETER HERRICK Retired Vice Chairman, The Bank of New York GEORGE H.C. LAWRENCE Chairman and Chief Executive Officer Lawrence Properties CHARLES D. URSTADT President, Urstadt Property Co, Inc. GEORGE J. VOJTA Retired Vice Chairman Bankers Trust Company Directors Emeriti GEORGE T. CONKLIN, JR. GEORGE M. HUBBARD, JR. JAMES O. YORK Officers CHARLES J. URSTADT Chairman and Chief Executive Officer WILLING L. BIDDLE President and Chief Operating Officer JAMES R. MOORE Executive Vice President, Chief Financial Officer and Treasurer RAYMOND P. ARGILA Senior Vice President, Legal and Assistant Secretary THOMAS D. MYERS Senior Vice President and Secretary JOHN C. MERRITT Vice President, Acquisitions LINDA L. LACEY Vice President, Leasing JAMES M. ARIES Vice President, Acquisitions and Leasing JOSEPH V. LoPARRINO Vice President, Controller WAYNE W. WIRTH Vice President, Construction Securities Traded New York Stock Exchange Symbols: UBP.A and UBP Stockholders of Record as of January 10, 2003: Common Stock: 1,453 and Class A Common Stock: 1,459 Annual Meeting The annual meeting of stockholders will be held at 11:00 A.M. March 12, 2003 at The Hyatt Regency Greenwich, Old Greenwich, Connecticut. Form 10-K A copy of the Company’s 2002 Annual Report on Form 10-K filed with the Securities and Exchange Commission may be obtained by stockholders without charge by writing to the Secretary of the Company at its executive office. Shareholder Information and Dividend Reinvestment Plan Inquiries regarding stock ownership, dividends or the transfer of shares can be addressed to our Transfer Agent, The Bank of New York, Shareholder Relations Department–11E, P.O. Box 11258, Church Street Station, New York, NY 10286-1258 or call toll-free at 1-800-524-4458. The Company has a dividend reinvest- ment plan which provides stockholders with a con- venient means of increasing their holdings without incurring commissions or fees. For information about the plan, stockholders should contact the Transfer Agent. Other shareholder inquiries should be directed to Thomas D. Myers, Secretary, telephone (203)-863-8200. Investor Relations Investors desiring information about the Company can contact James R. Moore, Executive Vice President, telephone (203) 863-8200. Investors are also encouraged to visit our web site at: www.ubproperties.com Auditors Ernst & Young LLP General Counsel Coudert Brothers Executive Office of the Company 321 Railroad Avenue Greenwich, CT 06830 Tel: (203) 863-8200 Fax: (203) 861-6755 Website: www.ubproperties.com HEIDI R. BRAMANTE Assistant Vice President and Assistant Controller CHARLES R. DAVIS, JR. Assistant Vice President, Leasing Memberships National Association of Real Estate Investment Trusts, Inc. (NAREIT) International Council of Shopping Centers (ICSC) 37 URSTADT BIDDLE PR O P E R T I E S I N C . 321 RAILROAD AVENUE GREENWICH, CONNECTICUT 06830 We are the RIGHT Company. still V In the RIGHT Business. In the RIGHT Place. At the RIGHT Time. 

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