UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[ X] Annual Report Pursuant to Section l3 or l5(d)
of the Securities Exchange Act of l934
For the fiscal year ended December 31, 2001
-----------------
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 0-11083
-------
ONE LIBERTY PROPERTIES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 13-3147497
-------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
60 Cutter Mill Road, Great Neck, New York 11021
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (5l6)466-3l00
-----------------------------------------------------------------
Securities registered pursuant to Section l2(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, par value $1.00 American Stock Exchange
$16.50 Cumulative Convertible
Preferred Stock, par value $1.00 American Stock Exchange
Securities registered pursuant to Section l2(g) of the Act:
NONE
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
As of March 13, 2002 the aggregate market value of all voting stock (Common
Stock and Preferred Stock) held by non-affiliates of the registrant was
approximately $32,372,000.
As of March 13, 2002, the registrant had 3,062,308 shares of Common Stock and
648,058 shares of $16.50 Cumulative Convertible Preferred Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The proxy statement for the registrant's Annual Meeting of Stockholders,
scheduled for June 10, 2002, will be filed with the Securities and Exchange
Commission within 120 days after the end of the registrant's fiscal year covered
by this Form 10-K. The information required by Part III (Item 10-Directors and
Executive Officers of the Registrant, Item 11 -Executive Compensation, Item 12 -
Security Ownership of Certain Beneficial Owners and Management, and Item 13 -
Certain Relationships and Related Transactions) will be incorporated by
reference from the definitive proxy statement to be filed by the registrant
pursuant to Regulation 14A under the Securities Exchange Act of 1934.
Forward-Looking Statements
This Annual Report on Form 10-K, together with other statements and information
publicly disseminated by One Liberty Properties, Inc., contains certain
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. We intend such forward-looking statements to be covered by the safe
harbor provision for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995 and include this statement for purposes
of complying with these safe harbor provisions. Forward-looking statements,
which are based on certain assumptions and describe our future plans, strategies
and expectations, are generally identifiable by use of the words "may", "will",
"believe", "expect", "intend", "anticipate", "estimate", "project" or similar
expressions or variations thereof. You should not rely on forward-looking
statements since they involve known and unknown risks, uncertainties and other
factors which are, in some cases, beyond our control and which could materially
affect actual results, performance or achievements. Factors which may cause
actual results to differ materially from current expectations include, but are
not limited to (i) general economic and business conditions, (ii) general and
local real estate conditions, (iii) changes in governmental laws and
regulations, (iv) the level and volatility of interest rates, (v) competition,
(vi) accessability of debt and equity capital markets, and (vii) the
availability of and costs associated with sources of liquidity. Accordingly,
there can be no assurance that the company's expectations will be realized.
PART I
Item 1. Business
--------
General
- -------
One Liberty Properties, Inc. is a self administered real estate investment trust
("REIT") incorporated under the laws of Maryland in 1982. Our primary business
is the acquisition, ownership and management of a diverse portfolio of improved,
free standing commercial real properties that are net leased to retail
businesses, corporations (or other business entities) or governmental agencies.
Under the typical net lease, rental and other payments to be made by the lessee
are payable without diminution. The lessee, in addition to its rent obligation,
is responsible for payment of all charges attributable to the property, such as
real estate taxes and assessments, water and sewer rents and charges,
governmental charges and all utility and other charges incurred in the operation
of the property. The lessee is also generally responsible for maintaining the
property, including ordinary maintenance and repair and restoration following a
casualty or partial condemnation. Under some net leases the lessor is
responsible for structural items, such as foundation and slab, and roof repair
and/or replacement. In a typical net lease, the tenant is also responsible for
casualty, rent loss and liability insurance. The rental provision of the typical
net lease in which we are lessor provides for rent payable on a stepped basis
(rentals increase at specified intervals). In some leases in which we are
lessor, the rental provision provides for rent payable on an indexed basis
(rentals increase pursuant to a formula based on the consumer price index) or
for a minimum annual rental plus additional rental in the form of our
participation in the sales (as defined) derived from the business conducted at
the property.
We pursue a national operating strategy. At December 31, 2001, we owned fee
title to 33 properties, a leasehold position with respect to one property and
held a joint venture interest in an unconsolidated venture which owned fee title
to one property. The 35 properties (including the property owned by the venture)
are located in 13 states. Twenty one of the properties are net leased to various
retail operators. Five of the properties are improved with industrial type
buildings net leased to corporations, two of the properties are flex type
buildings (office, research and development and warehouse) net leased to
corporations, two of the properties are health and fitness facilities net leased
to a non-profit hospital, one property is an office building net leased to a
government agency and one property is a residential apartment building leased
under a long-term ground lease to an operator. At December 31, 2001, two retail
properties containing a total of 6,122 square feet of space (representing less
than 1/2 of 1% of the net rentable square footage of our properties) were
vacant. The property owned by the joint venture is a megaplex stadium style
movie theater which is net leased to a nationally recognized theater operator.
Investment Policy
- -----------------
Our business strategy has been and will continue to be focused on acquiring
improved, free standing, commercial properties subject to long term net leases
which have scheduled rent increases. We intend to acquire and own a diverse
portfolio of free standing commerical properties (retail buildings, office
buildings, industrial type buildings and special purpose buildings) net leased
to retail businesses, corporations (or other business entities) or government
agencies. There is no limitation on the number of properties in which we may
invest, the amount or percentage of our assets which may be invested in any
specific property or on the concentration of investments in any geographic area
in the United States. Although we have not acquired undeveloped acreage in the
past, we may purchase undeveloped acreage if the purchase is in connection with
the development of a facility to be net leased to a retail operation or
corporation (or other business entity) upon completion of development. We do not
have any plans to invest in or to originate loans to other persons whether or
not secured by real property. Although we have not done so in the past, we may
issue securities in exchange for properties which fit our investment criteria.
We do not intend to acquire properties located outside of the United States and
Puerto Rico.
In evaluating potential net lease investments, we consider, among other factors
(i) an evaluation of the property by our executive officers, given its location
and use, (ii) local demographics (population, occupancy levels, rental trends),
(iii) the financial strength of the lessee to meet operational needs and lease
obligations, (iv) the estimated return on equity to us, and (v) potential for
income and capital appreciation. The intrinsic value of a property, essentially
its location and local demographics, are given greater weight in the acquisition
process than the tenant's credit worthiness, although the tenant's financial
condition and credit worthiness is a factor given consideration in the
acquisition process.
After termination of any lease relating to any our properties (either at lease
expiration or early termination), we will seek to relet or sell such property in
a manner which will maximize the return to us, considering, among other factors,
the income potential and residual potential of such property. We acquire
properties for long-term investment for income purposes and do not engage in the
turnover of investments. We will consider the sale of a property prior to
termination of the relevant lease if such sale appears advantageous in view of
our investment objectives. We may take a purchase money mortgage as part payment
in lieu of cash in connection with any sale and may take into account local
custom and prevailing market conditions in negotiating the terms of repayment.
It is our policy to use any cash realized from the sale of properties, net of
any distributions to shareholders, to maintain our REIT status, to pay down
amounts due under loan agreements (excluding real estate mortgage loans), if
any, and in the acquisition of additional properties.
There is no limitation on the level of debt which we may incur. We have in the
past and intend in the future to borrow on a secured and unsecured basis.
Mortgaging specific properties on a non-recourse basis enhances the cash on cash
return on our investment in a specific property. The proceeds of mortgage loans
are used for property acquisitions, to pay down bank debt and for working
capital purposes.
Our investment objectives are (i) to maintain and increase the cash available
for distribution to our shareholders, (ii) to effectively manage assets through
property acquisitions, opportunistic property sales and lease extensions, (iii)
to obtain favorable mortgage indebtedness and increased access to capital to
finance property acquisitions, and (iv) to protect our capital.
In November, 2001, we entered into a joint venture with an affiliate of Deutsche
Bank A.G. for the acquisition of a megaplex stadium-style theater property
located in Norwalk, California. The venture intends to acquire additional
megaplex stadium theater properties and has contracted to purchase a megaplex
stadium theater located in a suburb of Dayton, Ohio for a $9,800,000 purchase
price. We and an affiliate of Deutsche Bank A.G. are 50/50 venturers in the
joint venture but, subject to the Bank's consent, we may admit an additional
venturer which could own up to one-half of our joint venture interest. All
decisions of the venture are subject to joint control. Megaplex theaters of the
type the joint venture has acquired and will acquire, are or will be net leased
to an experienced theater operator under a long-term net lease, have
predominantly stadium-style seating and be equipped with advanced audio and
visual equipment. The theater acquired by the venture in November, 2001 has 20
screens, stadium-style seating, and is net leased to AMC Entertainment, Inc. for
an initial term which expires on May 31, 2021. The theater under contract has 20
screens and is net leased to a nationally recognized operator for an initial
term which expires in August, 2014.
From time to time we have invested, on a limited basis, in publicly traded
shares of other REIT's and such investments may be made on a limited basis in
the future. We also may invest, on a limited basis, in the shares of entities
not involved in real estate investments, provided that any such investment does
not adversely affect our ability to qualify as a REIT under the Internal Revenue
Code. Investments in shares of other entities are made in such a way so that we
will not be treated as an investment company under the Investment Company Act of
1940. We have not in the past invested in the securities of another entity for
the purpose of exercising control, and we do not have any present plans to
invest in the securities of another entity for such purpose. However, subject to
Board of Director approval, in the future, we may acquire shares of another
entity with a view to gaining control. We do not intend to underwrite the
securities of other issuers.
Credit Agreement
- ----------------
On March 24, 2000, we entered into a Revolving Credit Agreement with European
American Bank. European American Bank has merged into Citibank N.A. Borrowings
under the Credit Agreement can be used to acquire commercial real estate and to
pay down existing mortgage debt. The Credit Agreement matures on March 24, 2003.
The Bank has agreed to advance up to $15,000,000 on a revolving basis. We pay
interest, monthly, on borrowings made under the Credit Agreement at the prime
rate (currently 4 3/4%) on an interest only basis, and a one-quarter of one
percent unused facility fee. Net proceeds from the sale or financing of any
property must be applied to reduce the Bank's loan, if the funds taken down
under the Credit Agreement were used to purchase or finance such property. As
collateral security for any advances taken by us under the Credit Agreement, we
have pledged the stock of each of our subsidiaries and our obligations are
guaranteed by subsidiaries which own unencumbered properties. We have agreed
that we and our affiliates will maintain on deposit with the Bank at least 10%
of the average outstanding annual principal balance taken down by us under the
Credit Agreement. If minimum balances are not maintained, a deficiency fee is
charged to us.
Risk Factors
- ------------
The risks described below represent the principal risks which we face. These
risks are not the only risks we face. Additional risks that we are not aware of
or that we currently believe are immaterial may also impair our business
operations. If any of the events or circumstances described below actually
occurs, our business, financial condition, or results of operations could be
adversely affected.
Real Estate Investment Risks
- ----------------------------
General.
- --------
Income from our real property investments and our resulting ability to make cash
distributions to stockholders at historical rates may be affected by the general
economic climate, by changes in the national and/or regional economic climate,
competitive factors, changing retailing trends and changing demographics and
traffic patterns. In addition, real estate values may be affected by such
factors as government regulations, interest rate levels, availability of
financing, zoning or tax laws, and potential liability under environmental and
other laws.
Dependence on Rental Income.
- ----------------------------
Substantially all of our revenues are derived from rental income from the
properties. As a result, our income and ability to make cash distributions to
stockholders would be adversely affected if the tenant of a material property (a
property which accounts for more than 10% of our aggregate gross annual
revenues) or a significant number of tenants were unable to meet their
obligations to us or if a significant amount of space at our properties became
vacant. At December 31, 2001, L-3 Communications Corporation was the only tenant
of a property which accounted for more than 10% of our aggregate gross revenues.
In the event of a default by a tenant, we may experience delays in enforcing our
rights as landlord and may incur substantial costs in protecting our investment.
The bankruptcy or insolvency of a major tenant may have an adverse effect on us.
Market Illiquidity.
- -------------------
Real estate investments are relatively illiquid. Therefore, we will be limited
in our ability to vary our real estate portfolio in response to economic changes
and may encounter difficulty in disposing of properties when tenants vacate
(either at the expiration of the applicable lease or otherwise).
Competition.
- ------------
Numerous companies compete with us in seeking properties for acquisition.
Need to Raise Capital to Fund Acquisitions.
- -------------------------------------------
Our ability to acquire additional properties will depend on our ability to
obtain additional financing on favorable terms, which will be dependent upon
conditions in the equity and credit markets and the market perception of REITs
generally.
Risks Associated With Indebtedness
- ----------------------------------
Leverage.
- ---------
As of December 31, 2001 we had outstanding approximately $76,587,000 in long
term mortgage indebtedness, all of which is non-recourse. The ratio of debt to
total assets is approximately 58% at December 31, 2001.
Near Term Maturity of Indebtedness.
- -----------------------------------
We are subject to risks normally associated with debt financing, including the
risk that our cash flow will be insufficient to meet required payments of
principal and interest, the risk that existing indebtedness on the properties
(which in most cases will not have been fully amortized at maturity) will not be
able to be refinanced or that the terms of such refinancing will not be as
favorable as the terms of the existing indebtedness. From 2002 through 2006 we
will have to refinance an aggregate of $28,989,000, of which $1,296,000 and
$8,811,000 will have to be refinanced in 2002 and 2003, respectively.
Because only a small portion of the principal of our mortgage indebtedness will
be repaid prior to maturity and we do not plan to retain sufficient cash to
repay such indebtedness at maturity, it will be necessary to finance or
refinance debt or seek additional equity. If we are not successful, we may be
forced to dispose of properties at disadvantageous terms, which might result in
losses to us and might adversely affect cash available for distributions to
stockholders. If prevailing interest rates, or other factors at the time of
financing or refinancing result in higher interest rates, our interest expense
would increase, which could adversely affect our cash distributions to common
stockholders. Further, if a property or properties are mortgaged to
collateralize payment of indebtedness and we are unable to meet mortgage
payments, the property or properties could be foreclosed upon by the mortgagee
with a consequent loss of income and asset value to us. Even with respect to
non-recourse indebtedness, the lender may have the right to recover deficiencies
from us in certain circumstances, including environmental liabilities.
No Limitation on Debt.
- ----------------------
Our governing instruments do not contain any limitation on the amount of
indebtedness we may incur. Accordingly, the Board of Directors could permit us
to become too highly leveraged, which could adversely affect us.
Adverse Consequences of Failure to Qualify as a REIT
- ----------------------------------------------------
Taxation as a Corporation.
- --------------------------
We believe that we have operated so as to qualify as a REIT under the Internal
Revenue Code since our organization. Qualification as a REIT involves the
application of technical and complex Code provisions for which there are only
limited judicial and administrative interpretations. The determination of
various factual matters and circumstances not entirely within our control may
affect our ability to qualify as a REIT. In order to qualify as a REIT, at least
90% of our gross income in any year must be derived from qualifying sources and
we must make distributions to shareholders aggregating annually at least 90% of
our ordinary taxable income (excluding capital gains). In addition, no assurance
can be given that legislation, new regulations, administrative interpretations
or court decisions will not significantly change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification.
If we fail to qualify as a REIT, we will be subject to federal, state and local
income tax (including any applicable alternative minimum tax) on our taxable
income at regular corporate rates and would not be allowed a deduction in
computing our taxable income for amounts distributed to stockholders. In
addition, unless entitled to relief under certain statutory provisions, we will
be disqualified from treatment as a REIT for the four taxable years following
the year during which qualification is lost. The additional tax would
significantly reduce the cash flow available for distribution to stockholders.
REIT Distribution Requirements and Potential Impact of Borrowings.
- ------------------------------------------------------------------
To obtain the favorable tax treatment associated with REITs qualifying under the
Code, we generally will be required each year to distribute to our stockholders
at least 90% of our ordinary taxable income. In addition, we will be subject to
a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by us with respect to any calendar year are less than the sum
of 85% of our ordinary income, 95% of our capital gain net income and 100% of
our undistributed income from prior years.
Difference in timing between the receipt of income, the payment of expenses and
the inclusion of such income and the deduction of such expenses in arriving at
taxable income, or the effect of nondeductible capital expenditures, the
creation of reserves or required debt or amortization payments, could require us
to borrow funds on a short term basis to meet the distribution requirements that
are necessary to achieve the tax benefits associated with qualifying as a REIT.
In such instances, we might need to borrow funds in order to avoid adverse tax
consequences even if we believed that then prevailing market conditions were not
generally favorable for such borrowings.
Affects of the War Against Terrorism
- ------------------------------------
The military actions taken by the United States and its coalition partners in
response to the terrorist attacks which occurred in New York City and
Washington, D.C. on September 11, 2001 have not had a material adverse affect on
us, our properties or our financial condition. However, the affects of the war
on terrorism on general economic conditions are uncertain. It is possible that
short-term interest rates may be effected by United States activities in this
undertaking. If short term interest rates increase as a result of these
activities it would cause the cost of borrowing to increase, which in turn could
negatively affect the earnings of our tenants and our earnings. If earnings are
adversely affected it could affect our cash distributions to shareholders.
Environmental Risks
- -------------------
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate may be required to investigate and clean up
hazardous or toxic substances or petroleum product releases at such property and
may be held liable to a governmental entity or to third parties for property
damage and for investigation and cleanup costs incurred by such parties in
connection with contamination. The cost of investigation, remediation or removal
of such substances may be substantial, and the presence of such substances, or
the failure to properly remediate such substances, may adversely affect the
owner's ability to sell or rent such property or to borrow using such property
as collateral. In connection with the ownership, operation and management of
real properties, we may be considered an owner or operator of such properties
and, therefore, potentially liable for removal or remediation costs, as well as
certain other related costs, including governmental fines and injuries to
persons and property.
We believe that environmental studies made with respect to substantially all of
our properties have not revealed environmental liabilities that would have a
material adverse effect on our business, results of operations and liquidity.
However, no assurances can be given that existing environmental studies with
respect to any of the properties reveal all environmental liabilities, that any
prior owner of a property did not create any material environmental condition
not known to us, or that a material environmental condition does not otherwise
exist (or may exist in the future) as to any one or more of our properties. If
such a material environmental condition does in fact exist (or exists in the
future), it could have an adverse impact upon our financial condition, results
of operations and liquidity.
Item 2. Properties
----------
General
- -------
At December 31, 2001, we owned fee title to 33 properties, a leasehold position
with respect to one property and we were a joint venturer in an unconsolidated
joint venture which owned fee title to one property. The 35 properties
(including the property owned by the venture) are located in 13 states. The
following table sets forth certain information related to our properties at
December 31, 2001 (excluding the property owned by the joint venture):
Current
Annual Net Rentable
Net Rents Under Square Feet
Number of Book Existing Subject To
State Properties Value(1) Leases (2) Existing Leases
- ----- ---------- -------- ------------ ---------------
New York 8 $37,327,000 $4,406,878 600,603
Texas 8 32,610,000 3,620,733 271,588
Florida 3 6,217,000 1,032,248 436,354
Illinois 4 4,319,000 443,997 (3) 53,595 (3)
Other 11 38,091,000 4,550,874 1,047,511
-- ---------- --------- ---------
34 $118,564,000 $14,054,730 2,409,651
== =========== ========== =========
(1) Historical book value is not necessarily indicative of current market value.
(2) Reflects monthly base rent provided for under terms of each existing lease
as in effect on December 31, 2001 multiplied by 12 and does not take into
account any contractual rent escalations.
(3) Does not include two vacant properties in Illinois which contain an
aggregate of 6,122 square feet.
We pursue a national operating strategy. In seeking retail properties we
concentrate on locations which are on main thoroughfares or arteries. With
respect to industrial and commercial properties, we seek properties located
relatively close to the entrances/exits of main arteries. Twenty-one of the
thirty-five properties we own are net leased to various retail operators under
long term leases and, except for two of the properties, are net leased to a
single tenant. One of the twenty-one properties net leased to retail operators
is net leased to four separate tenants pursuant to separate leases and one is
net leased to two separate tenants pursuant to separate leases. Most of the
retail tenants operate on a national basis and include, among others, The Kroger
Company, Barnes & Noble Superstores, Inc., Payless Shoe Source, Inc., Gart
Brothers Sporting Goods Company, Best Buy, Inc., and Petco Animal Supplies, Inc.
Five of the properties are industrial type buildings net leased to corporations,
two of which are used as frozen food warehouses. Two of the properties are flex
type buildings (office, research and development and warehouse) net leased to
corporations, two of the properties are health and fitness facilities net leased
to a non-profit hospital and one property is an office building net leased to a
government agency. Each of the above mentioned locations has adequate parking
for the building constructed on the site. One of the properties is subject to a
long-term ground lease held by us as ground lessor upon which is situated a
residential apartment building containing 126 rental units and six retail
stores. The property owned by a joint venture in which we are a venturer is a
megaplex stadium style movie theater acquired in November, 2001 and is operated
by a subsidiary of AMC Entertainment, Inc. Two retail properties, each
containing 3,061 square feet, are vacant. The occupancy rate for the properties
has been in excess of 99% for fiscal years 2001, 2000 and 1999. The current
occupancy rate for all properties is over 99%.
Although we acquire properties for long-term investment and do not engage in the
turn over of investments, we consider the sale of a property prior to
termination of the lease if such sale appears advantageous in view of our
investment objectives. In 2000, we acquired eight properties and disposed of
fifteen properties, including the sale of thirteen properties leased to one
tenant in a single transaction. Except for the acquisition of a megaplex stadium
style movie theater, acquired in November, 2001 by an unconsolidated joint
venture organized by us, we did not acquire any properties in 2001. In 2001 we
sold two properties.
It is our policy to obtain non-recourse mortgages on substantially all of our
properties. In most instances, the mortgage financing is consummated at the time
of acquisition of a property or committed for prior to or soon after
acquisition. By obtaining a mortgage commitment at or about the time a property
is acquired, we can determine the return which will be realized from ownership
of the property during the term (or a significant portion of the term) of the
lease. On occasion, we acquire a property subject to a mortgage or elect not to
obtain mortgage financing on a specific property.
At December 31, 2001, we had first mortgages on 23 of the 35 properties we owned
as of that date. At December 31, 2001, we had $76,587,000 principal amount of
mortgages outstanding, bearing interest at rates ranging from 6.9% to 9.1%.
Substantially all mortgages contain prepayment penalties. The following table
sets forth scheduled principal mortgage payments due for our properties as of
December 31, 2001 (assuming no payment is made on principal on any outstanding
mortgage in advance of its due date):
PRINCIPAL PAYMENTS DUE
YEAR IN YEAR INDICATED
---- ------------------
2002 $2,493,000
2003 10,000,000
2004 4,092,000
2005 9,367,000
2006 8,741,000
2007 and thereafter 41,894,000
----------
Total $76,587,000
===========
Significant Properties
- ----------------------
As of December 31, 2001, two of the properties owned by us either had a book
value equal to or greater than 10% of our total assets or annual revenues which
accounted for more than 10% of our aggregate annual gross revenues. The
following sets forth the information concerning these two properties.
El Paso, Texas Property
- -----------------------
Description of El Paso, Texas Property
- --------------------------------------
The El Paso, Texas Property is owned in fee. It was constructed in 1974,
substantially renovated in 1995 and acquired by us in March, 2000 and is located
at 9521 and 9531 Viscount Boulevard in the Viscount Village Shopping Center, off
Exit 27 on Interstate 10 in El Paso, Texas. The 7.83 acre parcel is improved
with a 102,829 square foot single story retail building occupied by Comp USA,
Barnes & Noble and Best Buy and a separate 7,350 square foot single story retail
building occupied by The Mattress Firm. The two buildings are suitable and
adequate for its current use and there are no proposed programs in place for
renovation or improvement of the property.
Description of Leases
- ---------------------
Comp USA Stores L.P., Barnes & Noble Booksellers (Texas) L.P. and Best Buys
Stores L.P., occupy 26,593, 45,974 and 30,262 square feet, respectively, in the
102,829 square foot building. Each retail store has a separate entrance.
The Comp USA lease is for a term expiring December 31, 2015, with four 5-year
renewal options and provides for a current basic rent of $389,055 per annum,
($14.63 per square foot), with increases effective January 1, 2006 and January
1, 2011. Comp USA maintains the interior of its premises, its signage, all
systems serving its premises and all glass and doors. The landlord is
responsible for maintaining the exterior of the building, the roof, foundation
and structure.
The Barnes & Noble lease is for a term expiring February 28, 2011, with three
5-year renewal options and provides for a current basic rent of $484,192 per
annum, ($10.53 per square foot), with an increase effective December 1, 2005. In
addition, the tenant pays a percentage rent equal to 3% of gross sales (as
defined) for each fiscal year in excess of fixed rent for such fiscal year. No
percentage rent has been received by us since we acquired the property. Barnes &
Noble maintains its premises and the systems serving its premises and all glass
and doors. The landlord is responsible for structural repairs (foundation,
bearing walls and roof) and for maintaining the exterior of the building.
The Best Buy lease is for a term expiring January 31, 2015, with three 5-year
renewal options and provides for a current basic rent of $482,727 per annum,
($15.95 per square foot), with an increase effective February 1, 2010. Best Buy
maintains the interior of its premises and the systems serving its premises. The
landlord is responsible for all structural repairs, roof and the exterior.
The Mattress Venture L.P. d/b/a The Mattress Firm, occupies the 7,350 square
foot building located on an out parcel situated in front of the larger retail
building. It occupies the building under a lease which expires October 31, 2002,
with two five-year renewal options, at an annual rent of $107,970, ($14.69 per
square foot). The tenant maintains the premises and landlord is responsible for
the foundation, exterior walls and roof.
Each tenant at the El Paso, Texas Property pays for all utilities serving its
premises, and each is responsible for a pro rata share of real property taxes
and assessments, insurance expenses and common area maintenance expenses. The
property has been 100% occupied since acquired by us in March, 2000.
The realty tax rate for this property is $2.9658 per $100 and the annual real
estate taxes are $147,566.
Mortgage
- --------
On March 29, 2000, we obtained a $10,000,000 non-recourse first mortgage loan
secured by the El Paso, Texas Property. The mortgage loan bears interest at
8.03% per annum, matures April 1, 2010 and is being amortized based on a 30 year
amortization schedule. Assuming no additional payments are made on the principal
in advance of the maturity date, the principal balance due at maturity will be
approximately $8,955,000. We have the right to prepay this mortgage provided we
pay a yield maintenance penalty.
Hauppauge, NY Property
- ----------------------
Description of Hauppauge, NY Property
- -------------------------------------
The Hauppauge, NY Property, owned in fee, was constructed in 1981 and acquired
by us in December, 2000. It is located in an industrial park, approximately one
mile north of the Long Island Expressway in Suffolk County, New York. The
Hauppauge Property, a 17.4 acre parcel, is improved with a 149,870 square foot
flex building. The lease gives us the right to subdivide five acres delineated
in the lease and sell, lease or develop the five acres. We are presently in the
process of subdividing these five acres. The property is suitable and adequate
for its current use and there are no plans in place for renovations or
improvements to the property. Upon completion of subdivision we may develop the
five acre site for rental on a net lease basis. There are currently no
agreements or understandings pending for any such development.
Description of Lease
- --------------------
The entire building is occupied by L-3 Communications Corporation, a wholly
owned subsidiary of L-3 Communications Holdings, Inc., under a lease which
expires December 31, 2014, with three 5-year renewal options and provides for a
current base rent of $1,517,000 per annum ($10.12 per square foot) increasing
each calendar year during the term and any extended term. The tenant maintains
and repairs the premises. The tenant utilizes the facility for offices, research
and development and light manufacturing. The current tenant and its predecessor
has occupied the property for more than the past five years.
The realty tax rate for this property is $1.1564 per $1,000 and the annual real
estate taxes are $308,991.
Mortgage
- --------
On April 25, 2001, we obtained a $9,900,000 non-recourse first mortgage loan
secured by the Hauppauge, New York property. The mortgage loan bears interest at
7.9% per annum, matures on January 1, 2015 and is being amortized based on a 25
year amortization schedule. Assuming no additional payments are made on the
principal in advance of the maturity date, the principal balance due at maturity
will be approximately $6,824,000. We have the right to prepay this mortgage
provided we pay a yield maintenance penalty. The mortgage permits release of the
mortgage lien from the subdivided five acres, without a principal payment, upon
satisfaction of certain conditions.
Leases
- ------
Our policy has been to enter into long-term leases with our tenants, and the
leases generally afford the tenant one or more renewal options. We also acquire
properties subject to existing leases. On occasion the lease in place at the
time of acquisition does not have as long a lease term as is usually negotiated
by us. Substantially all leases are net leases, under which the lessee, in
addition to its rental obligation, is responsible for all charges attributable
to the property, such as real estate taxes and assessments, water and sewer
rents and charges. The lessee is also generally responsible for maintaining the
property, including maintenance and repair, and for restoration following a
casualty or partial condemnation. Under some net leases we have entered into or
which were in place when we acquired the property, we are responsible for
structural repairs, including foundation and slab, and roof repair or
replacement and in one property we are responsible for certain expenses related
to maintenance of the property.
The following table sets forth scheduled lease expirations for all leases for
the properties as of December 31, 2001.
Current
Net Rentable Annual % of Rents
Square Feet Rents Under Represented
Year of Lease Number of Leases Subject to Expiring By Expiring
Expiration (1) Expiring Expiring Leases Leases (2) Leases
-------------- -------- --------------- ---------- --------
2002 3 76,422 $977,938 6.96
2003 - - - -
2004 1 100,220 243,000 1.73
2005 3 115,986 720,941 5.13
2006 3 90,962 491,137 3.50
2007 2 26,550 485,542 3.45
2008 2 468,921 1,359,164 9.67
2009 1 89,000 201,000 1.43
2010 4 455,200 853,630 6.07
2011 3 193,428 1,693,959 12.05
2012 and thereafter 15 792,962 7,028,419 50.01
-- ------- --------- -----
37 (3) 2,409,651 $14,054,730 100%
=== ========= =========== ====
(1) Lease expirations assume tenants do not exercise existing renewal options.
(2) Reflects monthly base rent provided for under terms of each expiring lease
as in effect on December 31, 2001 multiplied by 12 and does not take into
account any contractual rent escalations.
(3) The above table does not include two vacant properties which contain an
aggregate of 6,122 square feet. It also does not include the property owned
by the joint venture in which we are a venturer.
Competition
- -----------
We face competition for the acquisition of net leased properties from other
REITs, investment companies, insurance companies, pension funds and private
individuals, some of whom have greater resources than we have. We also face
indirect competition from institutions that provide or arrange for other types
of commercial financing, such as traditional mortgage financing and traditional
bank financing. We believe that our management's experience in real estate,
mortgage lending, credit underwriting and transaction structuring allows us to
compete effectively for properties.
Environmental Matters
- ---------------------
Under various federal, state and local environmental laws, regulations and
ordinances, current or former owners of real estate, may be required to
investigate and clean up hazardous or toxic chemicals, substances or waste or
petroleum products or waste released on, under, in or from such property, and
may be held liable to governmental entities or to third parties for certain
damage and for investigation and clean-up costs incurred by such parties in
connection with the release or threatened release of hazardous materials. Such
laws typically impose responsibility and liability without regard to whether the
owner knew of or was responsible for the presence of hazardous materials, and
the liability under such laws has been interpreted to be joint and several under
such circumstances. The leases we have entered into generally provide that the
tenant is responsible for all environmental liability and for compliance with
environmental regulations relating to the tenant's operations. Such a
contractual arrangement does not eliminate our statutory liability or preclude
claims against us by governmental authorities or persons who are not a party to
such an arrangement. Contractual arrangements in our leases may provide a basis
for us to recover from the tenant damages or costs for which we have been found
liable.
The cost of investigation and clean-up of hazardous materials on, under, in or
from property can be substantial, and the fact that the property has had a
release of hazardous materials, even if remediated, may adversely affect the
value of the property and the owner's ability to sell or lease the property or
to borrow using the property as collateral. In addition, some environmental laws
create a lien on a property in favor of the government for damages and costs it
incurs in connection with the release or threatened release of hazardous
materials, and certain state environmental laws provide that such a lien has
priority over all other encumbrances on the property or that a lien can be
imposed on other property owned by the responsible party. Finally, the presence
of hazardous materials on a property could result in a claim by a private party
for personal injury or a claim by a neighboring property owner for property
damage.
Other federal, state and local laws and regulations govern the removal or
encapsulation of asbestos-containing material when such material is in poor
condition or in the event of building remodeling, renovation or demolition.
Still other federal, state and local statutes, regulations and ordinances may
require the removal or upgrading of underground storage tanks that are out of
service or out of compliance. In addition, federal, state and local laws,
regulations and ordinances may impose prohibitions, limitations and operational
standards on, or require permits, approvals and notifications in connection with
the discharge of wastewater and other water pollutants, the emission of air
pollutants and operation of air polluting equipment, the generation and
management of hazardous materials, and workplace health and safety.
Non-compliance with environmental or health and safety requirements may also
result in the need to cease or alter operations at a property, which could
affect the financial health of a tenant and its ability to make lease payments.
Furthermore, if there is a violation of such requirement in connection with a
tenant's operations, it is possible that we, as the owner of the property, could
be held accountable by governmental authorities for such violation and could be
required to correct the violation.
We typically undertake an investigation of potential environmental risks when
evaluating an acquisition. Where warranted, Phase I and/or Phase II assessments
are performed by independent environmental consulting and engineering firms.
Phase I assessments do not involve subsurface testing, whereas Phase II
assessments involve some degree of soil and/or groundwater testing. We may
acquire a property which is known to have had a release of hazardous materials
in the past, subject to a determination of the level of risk and potential cost
of remediation. We normally require property sellers to indemnify us against any
environmental problem existing as of the date of purchase. Additionally, we
normally structure our leases to require the tenant to assume all responsibility
for environmental compliance or environmental remediation relating to the
tenant's operations at the property.
Regulations and Insurance
- -------------------------
Americans With Disabilities Act and Similar Laws.
- ---------------------------------------------------
Under the Americans with Disabilities Act of 1990, all places of public
accommodation are required to meet certain Federal requirements related to
access and use by disabled persons. These requirements became effective in 1992.
Although we believe that our properties are substantially in compliance with
present requirements of such Act, we have not conducted and do not presently
intend to conduct an audit or investigation to determine its compliance. There
can be no assurance that we will not incur additional costs in complying with
the Americans With Disabilities Act.
Additional legislation may place further burdens or restrictions on owners with
respect to access by disabled persons. The ultimate amount of the cost of
compliance with the Americans With Disabilities Act or such legislation is not
currently ascertainable, but are not expected to have a material effect on us.
Insurance.
- ----------
Under substantially all leases, our tenants are responsible for maintaining and
paying for adequate insurance on the properties leased by them, including all
risk insurance for the full replacement cost and liability insurance. We monitor
compliance by our tenants with the obligation to insure the properties. We
believe all the properties are covered by adequate fire, flood, property, and
liability insurance.
Item 3. Legal Proceedings
-----------------
Neither we nor our properties are presently subject to any material litigation
nor, to our knowledge, is any material litigation threatened against us or our
properties, other than routine litigation arising in the ordinary course of
business, which collectively are not expected to have a material adverse effect
on our business, financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this Form 10-K.
Executive Officers
The following sets forth information with respect to our executive officers:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Fredric H. Gould 66 Chairman of the Board and Chief Executive Officer* **
Jeffrey Fishman 43 President and Chief Operating Officer *
Jeffrey Gould 36 Senior Vice President **
Matthew Gould 42 Senior Vice President **
Israel Rosenzweig 54 Senior Vice President
Simeon Brinberg 68 Vice President
David W. Kalish 55 Vice President and Chief Financial Officer
Mark H. Lundy 40 Secretary
Seth D. Kobay 47 Vice President and Treasurer
Karen Dunleavy 43 Vice President, Financial
Lawrence G. Ricketts 25 Vice President, Acquisitions
* Effective January 1, 2002, Fredric H. Gould retired as Chief Executive
Officer and Jeffrey Fishman was designated as Chief Executive Officer by the
Board of Directors.
** Matthew Gould and Jeffrey Gould are Fredric H. Gould's sons.
Each of the above listed executive officers will hold office until the next
annual meeting of the Board of Directors, scheduled for June 10, 2002, or until
their respective successors are elected and shall qualify. The information below
sets forth the business experience of our officers for at least the past five
years.
Fredric H. Gould. Mr. Gould has served as Chairman of the Board of One Liberty
Properties since 1989 and as Chief Executive Officer from December, 1999 to
December, 2001. Mr. Gould has served as Chairman of the Board of Trustees of BRT
Realty Trust, a real estate investment trust, since 1984 and Chief Executive
Officer of BRT Realty Trust from 1996 to December 31, 2001. Since 1985 Mr. Gould
has been an executive officer (currently Chairman of the Board) of the managing
general partner of Gould Investors L.P., a limited partnership primarily engaged
in the ownership and operation of real properties and he serves as sole member
of a limited liability company which is the other general partner of Gould
Investors L.P. He is President of the advisor to BRT Realty Trust, a director of
East Group Properties, Inc. and a director of Yonkers Financial Corporation and
its subsidiary Yonkers Savings and Loan Association, F.A.
Jeffrey Fishman. Mr. Fishman has been President and Chief Operating Officer of
One Liberty Properties from December, 1999 until December, 2001. Effective
January 1, 2002, the Board of Directors designated Mr. Fishman Chief Executive
Officer. From 1996 to December 1999, Mr. Fishman was a Senior Managing Director
of Cogswell Properties, LLC, a real estate property owner and manager. For more
than five years prior to 1996, he was President of Britannia Management
Services, Inc., a real estate property owner and manager.
Jeffrey Gould. Mr. Gould has been President and Chief Operating Officer of BRT
Realty Trust from March 1996 to December 2001 and Chief Executive Officer of BRT
Realty Trust effective January 1, 2002. Mr. Gould has served as a Trustee of BRT
Realty Trust since March 1997. Mr. Gould has been a Vice President of One
Liberty Properties since 1989 and a Senior Vice President and Director since
December, 1999. He is also a Senior Vice President of the managing general
partner of Gould Investors L.P. since 1996.
Matthew Gould. Mr. Gould has served as President of the managing general partner
of Gould Investors L.P. since 1996. He served as President and Chief Executive
Officer of One Liberty Properties from 1989 to December, 1999 and became a
Senior Vice President and Director of One Liberty Properties in December 1999.
He has been a Vice President of BRT Realty Trust since 1986, a trustee of BRT
Realty Trust since March 2001 and he also serves as a Vice President of the
advisor to BRT Realty Trust.
Israel Rosenzweig. Mr. Rosenzweig is a Vice President of the managing general
partner of Gould Investors L.P.. He has been a Senior Vice President of One
Liberty Properties since June, 1997 and a Senior Vice President of BRT Realty
Trust since March 1998. From November 1994 to April 1997 he was a Senior Vice
President and Chief Lending Officer of Bankers Federal Savings and Loan
Association. For more than five years prior to March 1995, he served as
President of BRT Realty Trust.
Simeon Brinberg. Mr. Brinberg has served as Vice President of One Liberty
Properties since 1989. He has been Secretary of BRT Realty Trust since 1983, a
Senior Vice President of BRT Realty Trust since 1988 and a Vice President of the
managing general partner of Gould Investors L.P. since 1988. Mr. Brinberg is an
attorney-at-law and a member of the New York Bar.
David W. Kalish. Mr. Kalish has served as Vice President and Chief Financial
Officer of One Liberty Properties since June 1990. Mr. Kalish is also Senior
Vice President, Finance of BRT Realty Trust and Vice President and Chief
Financial Officer of the managing general partner of Gould Investors L.P. Mr.
Kalish is a certified public accountant.
Mark H. Lundy. In addition to being Secretary of One Liberty Properties since
June 1993, Mr. Lundy has been a Vice President of BRT Realty Trust since April
1993 and a Vice President of the managing general partner of Gould Investors
L.P. since July 1990. He is an attorney-at-law and a member of the New York and
District of Columbia Bars.
Seth D. Kobay. Mr. Kobay has been Vice President and Treasurer of One Liberty
Properties since August 1994. He has been Vice President and Treasurer of BRT
Realty Trust since March 1994 and Vice President of Operations of the managing
general partner of Gould Investors L.P. since 1986. Mr. Kobay is a certified
public accountant.
Karen Dunleavy. Ms. Dunleavy has been Vice President, Financial of One Liberty
Properties since August 1994. She has served as Treasurer of the managing
general partner of Gould Investors L.P. since 1986. Ms. Dunleavy is a certified
public accountant.
Lawrence G. Ricketts. Mr. Ricketts has been Vice President, Acquisitions of One
Liberty Properties since December 1999 and has been employed by us since January
1999. From May 1998 to January, 1999 he was employed as an analyst by BRT
Funding Corp., a subsidiary of BRT Realty Trust. He graduated from Fairfield
University in May 1998.
Part II
Item 5. Market for the Registrant's Common Equity and Related
-----------------------------------------------------
Stockholder Matters
-------------------
The following table sets forth the high and low prices for our Common Stock and
our Convertible Preferred Stock as reported by the American Stock Exchange and
the per share cash distributions paid on the Common Stock and Preferred Stock
during each quarter of the years ended December 31, 2001 and 2000.
COMMON STOCK PREFERRED STOCK
------------ ---------------
DISTRIBUTIONS DISTRIBUTIONS
2001 HIGH LOW PER SHARE HIGH LOW PER SHARE
- ---- ---- --- --------- ---- --- ----------
First Quarter $12.25 $11.00 $.30 $15.28 $13.50 $.40
Second Quarter $13.98 $11.75 $.30 $17.10 $14.60 $.40
Third Quarter $14.41 $13.58 $.30 $18.00 $16.10 $.40
Fourth Quarter $15.00 $13.50 $.30* $17.80 $16.75 $.40 *
2000
First Quarter $13.00 $10.69 $.30 $15.88 $14.63 $.40
Second Quarter $11.75 $10.63 $.30 $14.31 $12.25 $.40
Third Quarter $12.00 $10.94 $.30 $14.63 $12.25 $.40
Fourth Quarter $11.38 $10.13 $.30 $14.25 $13.31 $.40
* A cash distribution of $.30 and $.40 was paid on the Common Stock and
Preferred Stock, respectively, on January 3, 2002. These distributions are
reported as being paid in the fourth quarter of the prior year.
The Common Stock and Convertible Preferred Stock trade on the American Stock
Exchange, under the symbols OLP and OLP Pr, respectively. As of March 4, 2002
there were 384 common and 134 preferred stockholders of record and we estimate
that at such date there were approximately 900 and 1,000 beneficial owners of
the Common and Preferred Stock, respectively.
We qualify as a real estate investment trust for Federal income tax purposes. In
order to maintain that status, we are required to distribute to our shareholders
at least 90% of our annual ordinary taxable income. The amount and timing of
future distributions will be at the discretion of the Board of Directors and
will depend upon our financial condition, earnings, business plan, cash flow and
other factors. We intend to pay cash distributions in an amount at least equal
to that necessary for us to maintain our status as a real estate investment
trust for federal income tax purposes.
Item 6. Selected Financial Data
-----------------------
The following table sets forth the selected consolidated statement of operations
data for each of the periods indicated, all of which are derived from our
audited consolidated financial statements and related notes. The selected
financial data for each of the three years in the period ended December 31, 2001
and as of December 31, 2000 and 2001 should be read together with our
consolidated financial statements and related notes appearing elsewhere in this
Annual Report on Form 10-K and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
As of and for the Year Ended
Year Ended December 31
(Amounts in Thousands, Except Per Share Data)
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
OPERATING DATA
Revenues $15,320 $12,669 $10,180 $10,133 $6,285
Income before gain on sale 4,754 4,142 4,753 5,286 2,385
Net gain on sale of real estate and (loss) gain on
sale of available-for-sale securities 112 3,790 126 1,132 599
Net income 4,866 7,932 4,879 6,418 2,984
Calculation of net income
applicable to common stockholders:
Net income 4,866 7,932 4,879 6,418 2,984
Less: dividends and accretion on preferred stock 1,037 1,044 1,247 1,452 1,450
Net income applicable to common stockholders $3,829 $6,888 $ 3,632 $4,966 $1,534
Weighted average number of common
shares outstanding:
Basic 3,019 2,993 2,960 2,297 1,523
Diluted 3,036 3,528 2,963 2,298 1,529
Net income per common share:
Basic $1.27 $2.30 $1.23 $2.16 $1.01
Diluted $1.26 $2.25 $1.23 $2.16 $1.00
Cash distributions per share of:
Common Stock $1.20 $1.20 $1.20 $1.20 $1.20
Preferred Stock $1.60 $1.60 $1.60 $1.60 $1.60
BALANCE SHEET DATA
Real estate investments, net $118,564 $121,620 $70,770 $59,831 $48,317
Investment in unconsolidated joint venture 6,345 - - - -
Cash and cash equivalents 2,285 2,069 11,247 19,089 1,606
Total assets 132,939 128,219 85,949 82,678 57,648
Mortgages payable 76,587 64,123 35,735 29,422 20,545
Line of credit - 10,000 - - 4,605
Total liabilities 78,591 74,843 36,147 30,960 26,337
Total stockholders' equity 54,348 53,376 49,802 38,495 18,204
OTHER DATA
Funds from operations applicable to
common stockholders (Note a) $6,303 $5,324 $4,334 $3,276 $1,743
Funds from operations per common share:
Basic $2.09 $1.78 $1.46 $1.43 $1.14
Diluted $2.08 $1.78 $1.46 $1.43 $1.14
Cash flow provided by (used in):
Operating activities $6,764 $5,840 $5,826 $5,810 $2,977
Investing activities (5,702) (39,324) (10,743) (6,705) (5,959)
Financing activities (846) 24,306 (2,926) 18,378 2,110
Note a: We generally consider Funds from operations applicable to common
stockholders ("FFO") to be one measure of financial performance of an equity
REIT. We have adopted the National Association of Real Estate Investment Trusts
("NAREIT") definition of FFO, which was effective on January 1, 2000. Under the
definition, FFO represents income (loss) before minority interest (computed in
accordance with generally accepted accounting principles ("GAAP")), excluding
gains (losses) from debt restructuring and sales of property, plus real estate
related depreciation and amortization (excluding amortization of financing
costs), and after adjustment for unconsolidated partnerships and joint ventures.
Therefore, FFO does not represent cash generated from operating activities in
accordance with GAAP and should not be considered an alternative to net income
as an indication of our performance or to cash flows from operating activities
as a measure of liquidity or the ability to pay distributions. Since all
companies and analysts do not calculate FFO in a similar fashion, our
calculation of FFO presented herein may not be comparable to similarly titled
measures as reported by other companies.
Funds from operations is calculated in the following table (amounts in
thousands):
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Net income $ 4,866 $ 7,932 $ 4,879 $ 6,418 $ 2,984
Add: depreciation of properties (1) 2,600 2,113 1,478 1,184 894
Add: provision for valuation adjustment of real estate - 125 - 157 -
Deduct: gain on sale of real estate (126) (3,802) (62) (1,102) (610)
Deduct: non-recurring income items - - (793) (2,087) -
Deduct: minority interest in partially owned property - - - - (231)
Deduct: preferred distributions (1,037) (1,044) (1,168) (1,294) (1,294)
------- ------- ------- ------- -------
Funds from operations applicable to common stockholders $ 6,303 $ 5,324 $ 4,334 $ 3,276 $ 1,743
======= ======= ======= ======= =======
(1) Includes our share of depreciation expense of $16 from its unconsolidated joint venture for the year ended December 31, 2001.
Item 7. Management's Discussion And Analysis Of Financial Condition And
---------------------------------------------------------------
Results Of Operations.
----------------------
General
- -------
We are a self-administered real estate investment trust and we primarily own
real estate that we net lease to tenants. We own thirty-three properties, a
leasehold position with respect to one property and we are a member of a joint
venture which owns one property. Our 35 properties are located in 13 states.
We have elected to be taxed as a real estate investment trust (REIT) under the
Internal Revenue Code. To qualify as a REIT, we must meet a number of
organizational and operational requirements, including a requirement that we
currently distribute at least 90% of ordinary taxable income to our
stockholders. We intend to adhere to these requirements and to maintain our REIT
status.
Our principal business strategy is to acquire improved, free standing,
commercial properties subject to long term net leases. We acquire properties for
their value as long-term investments and for their ability to generate income
over an extended period of time. We have in the past and intend in the future to
borrow on a secured and unsecured basis to finance the purchase of real estate.
Our rental properties are generally leased under noncancellable operating leases
to corporate tenants. Substantially all of our lease agreements are net lease
arrangements which require the tenant to pay not only rent but all the expenses
of the leased property including maintenance, taxes, utilities and insurance. A
majority of our lease agreements provide for periodic rental increases and
others provide for increases based on the consumer price index.
In 2000, the Company purchased eight properties in four states for a total
consideration of approximately $61,000,000. First mortgages totaling
approximately $29,000,000 were placed on five of these properties.
In November 2001, we entered into a joint venture with an affiliate of Deutsche
Bank A.G., which acquired a megaplex stadium style movie theater. We invested
approximately $6,300,000 for our 50% participation in the joint venture. All
decisions of the venture are subject to joint control. Under the joint venture
operating agreement, a management fee equal to 1% of the rent paid by the tenant
is paid to a company controlled by our Chairman of the Board of Directors and
certain of our officers.
In 2000, we sold fifteen properties, thirteen of which were sold in a single
transaction, which resulted in a gain of approximately $3,800,000 for financial
statement purposes.
In 2001, we sold two properties for a total sales price of $800,000 and
recognized a net gain of $126,000.
At December 31, 2001, we had twenty-three outstanding mortgages payable,
aggregating $76,587,000 in principal amount, all of which are secured by first
liens on individual real estate investments with an aggregate carrying value of
approximately $116,000,000 before accumulated depreciation. The mortgages bear
interest at rates ranging from 6.9% to 9.1%, and mature between 2002 and 2017.
Results of Operations
- ---------------------
Comparison of Years Ended December 31, 2001 and December 31, 2000.
- ------------------------------------------------------------------
Revenues
- --------
Revenues consist primarily of rental income from tenants in our rental
properties. Rental income increased by $2,720,000 to $15,053,000 for the year
ended December 31, 2001, as compared to $12,333,000 for the year ended December
31, 2000 primarily because we received rental income from eight properties
during the entire year ended December 31, 2001. We acquired these properties at
various times during the year ended December 31, 2000. Rental income during the
year ended December 31, 2001 reflects an $878,000 reduction in rental income
received during the year ended December 31, 2000 as a result of the sale of
thirteen properties in October 2000.
In November 2001, we entered into a joint venture which acquired a megaplex
stadium style theater in Norwalk, California. Our 50% equity share of the
earnings of this unconsolidated joint venture of $83,000 is included in revenues
for the year ended December 31, 2001.
Interest and other income decreased by $152,000 to $184,000 for the year ended
December 31, 2001 due to a reduction in interest earned on cash and cash
equivalents available for investment, as cash and cash equivalents were used
during the year ended December 31, 2000 to fund property acquisitions.
Expenses
- --------
The increase in depreciation and amortization expense of $544,000 to $2,900,000
for the year ended December 31, 2001 resulted primarily from depreciation
recorded on the eight properties acquired during the year ended December 31,
2000. The increases were partially offset by a decrease in depreciation
resulting from the sale of fifteen properties during the year ended December 31,
2000.
The increase in interest-mortgages payable to $5,810,000 for the year ended
December 31, 2001 from $4,261,000 for the year ended December 31, 2000 resulted
from mortgages placed on seven properties acquired during 2000.
Interest-line of credit was $250,000 for the year ended December 31, 2001, as
compared to $340,000 for the year ended December 31, 2000 resulting from
borrowings under the credit facility. We repaid indebtedness under our line of
credit during the year ended December 31, 2001, which had been incurred to
facilitate the purchase of several properties during the year ended December 31,
2000, using the proceeds from mortgage financings on two properties purchased in
December 2000.
General and administrative expenses increased by $47,000 to $1,136,000 for the
year ended December 31, 2001. These increases resulted from increased costs
primarily resulting from the increases in our business activities.
Real estate expenses were $181,000 in the year ended December 31, 2001 and
$67,000 in the year ended December 31, 2000. This increase is primarily due to
the write-off of leasing commissions, non-recurring landlord repairs and certain
real estate expenses and taxes not rebilled to tenants. The results of
operations for the year ended December 31, 2000 included a refund of real estate
taxes received during that period.
During the year ended December 31, 2000, we determined that the estimated fair
value of two properties was lower than their carrying amounts and therefore, we
recorded a provision for valuation adjustment of real estate for the difference
of $125,000. There was no comparable adjustment during the year ended December
31, 2001.
Gain On Sale Of Real Estate
- ---------------------------
Gain on sale of real estate during the year ended December 31, 2001 resulted
from the sale of a property in August 2001 at a gain of $172,000, offset in part
by a $46,000 loss on a sale of property in May 2001.
Gain on sale of real estate during the year ended December 31, 2000 resulted
primarily from the sale of thirteen Total Petroleum locations which resulted in
a gain of $3,603,000 for financial statement purposes. We also recognized a gain
of $43,000 on the sale of a property in May 2000 and a gain of $156,000 on the
sale of a property in February 2000.
Comparison of Years Ended December 31, 2000 and 1999
- ----------------------------------------------------
Revenues
- --------
Revenue consists primarily of rental income from tenants in our rental
properties. Rental income increased by $3,502,000 to $12,333,000 for the year
ended December 31, 2000, as compared to $8,831,000 for the year ended December
31, 1999. Increases of $3,385,000 and $178,000 were due to the acquisition of
eight and four properties during the years ended December 31, 2000 and 1999,
respectively. These increases were partially offset by a $214,000 decrease in
revenues resulting from the sale of thirteen properties during October 2000.
Interest and other income decreased by $1,013,000 for the year ended December
31, 2000 to $336,000, primarily because unused escrow funds of $793,000 were
returned to us during the year ended December 31, 1999. Interest and other
income also decreased in the year ended December 31, 2000 due to a reduction in
interest earned on cash and cash equivalents available for investment, as cash
and cash equivalents were used during the years ended December 31, 1999 and 2000
to fund property acquisitions.
Expenses
- --------
The increase in depreciation and amortization expense of $711,000 to $2,356,000
during the year ended December 31, 2000 resulted primarily from depreciation
recorded on the eight properties acquired during the year ended December 31,
2000.
The increase in interest-mortgages payable to $4,261,000 for the year ended
December 31, 2000 from $2,543,000 for the year ended December 31, 1999 resulted
from mortgages placed on nine properties acquired during the years ended
December 31, 2000 and 1999.
Interest-line of credit was $340,000 during the year ended December 31, 2000
resulting from borrowings under the credit facility. We borrow funds under our
line of credit to facilitate property acquisitions. There were no such
borrowings during the prior year.
General and administrative expenses increased by $268,000 for the year ended
December 31, 2000. This increase was primarily due to an increase in payroll and
payroll related expenses and advertising and promotional expenses, as our level
of business activity increased.
Real estate expenses were $67,000 in the year ended December 31, 2000 and
$129,000 in the year ended December 31, 1999. The decrease is due to a refund of
real estate taxes received during the year ended December 31, 2000. The related
expense had been included in the results of operations for the year ended
December 31, 1999.
During the year ended December 31, 2000, we determined that the estimated fair
value of two properties was lower than their carrying amounts and therefore, we
recorded a provision for valuation adjustment of real estate for the differences
of $125,000. There was no comparable adjustment during the year ended December
31, 1999.
Gain On Sale Of Real Estate
- ---------------------------
Gain on sale of real estate during the year ended December 31, 2000 resulted
primarily from the sale of thirteen properties, in a single transaction, which
resulted in a gain of $3,603,000 for financial statement purposes. We also
recognized a gain of $43,000 on the sale of a property in May 2000 and a gain of
$156,000 on the sale of a property in February 2000.
Liquidity and Capital Resources
- -------------------------------
We had cash and cash equivalents of $2,285,000 at December 31, 2001. Our primary
sources of liquidity are cash and cash equivalents, our $15,000,000 revolving
credit facility and cash generated from operating activities. On March 24, 2000
we entered into an agreement with European American Bank (now Citibank N.A.) to
provide a $15,000,000 revolving credit facility. We use the facility primarily
to finance the acquisition of commercial real estate. The facility matures on
March 24, 2003. Borrowings under the facility bear interest at the Bank's prime
rate and there is an unused facility fee of one-quarter of 1% per annum. Net
proceeds received from the sale or refinance of properties are required to be
used to repay amounts outstanding under the facility if proceeds from the
facility were used to purchase or refinance the property. The facility is
guaranteed by all of our subsidiaries which own unencumbered properties and
secured by the outstanding stock of all of our subsidiaries. At December 31,
2001, we had no indebtedness outstanding under the facility.
We, on our own behalf, and on behalf of our joint venture with an affiliate of
Deutsche Bank, A.G., are involved in various stages of negotiation with respect
to the acquisition of additional net leased properties. The joint venture, which
will only acquire theater properties has agreed to acquire a 20 screen theater
located in a suburb of Dayton, Ohio for a total consideration of $9,800,000. Our
equity investment will approximate $5,000,000. We will use cash provided from
operations and our credit facility to fund this and other acquisitions. The
joint venture will likely seek mortgage financing secured by properties owned
and acquired by it. It will continue to be our policy to make sufficient cash
distributions to shareholders in order for us to maintain our real estate
investment trust status under the Internal Revenue Code.
The following sets forth our contractual cash obligations, all of which relate
to interest and amortization payments and balances due at maturity under
outstanding mortgages secured by our properties, for the periods indicated:
Due within 1 year $ 8,130,000
Due 1 to 3 years 24,420,000
Due 4 to 5 years 26,007,000
Due after 5 years 55,894,000
The debt service payments due within the next year will be paid primarily from
cash generated from our operations. The debt service due for the next two years
will be paid from operations. Loan maturities of approximately $8,800,000 due
from 1 to 3 years will be paid predominately from mortgage financings or
refinancings.
We have no outstanding contingent commitments, such as guarantees of
indebtedness, or any other contractual cash obligations at December 31, 2001.
We intend to expand our investment activities either through our joint venture
or independently in the near future. In the ordinary course of our business, we
are involved in varying levels of discussions with respect to the acquisition of
additional properties. We expect that in order to execute our expansion program,
we will have to identify and obtain a significant amount of additional capital,
either through increased debt or additional equity.
Cash Distribution Policy
- ------------------------
We have elected to be taxed as a real estate investment trust under the Internal
Revenue Code since our organization. To qualify as a real estate investment
trust, we must meet a number of organizational and operational requirements,
including a requirement that we distribute currently at least 90% of our
ordinary taxable income to our shareholders. It is our current intention to
comply with these requirements and maintain our real estate investment trust
status. As a real estate investment trust, we generally will not be subject to
corporate federal income tax on taxable income we distribute currently (in
accordance with the Internal Revenue Code and applicable regulations) to our
shareholders. If we fail to qualify as a real estate investment trust in any
taxable year, we will be subject to federal, state and local income taxes at
regular corporate rates and may not be able to qualify as a real estate
investment trust for four subsequent tax years. Even if we qualify for federal
taxation as a real estate investment trust, we may be subject to certain state
and local taxes on our income and to federal income and excise taxes on our
undistributed taxable income, i.e., taxable income not distributed in the
amounts and in the time frames prescribed by the Internal Revenue Code and
applicable regulations thereunder.
It is our intention to pay to our shareholders within the time periods
prescribed by the Internal Revenue Code no less than 90%, and, if possible, 100%
of our annual taxable income, including gains from the sale of real estate and
recognized gains on sale of securities.
Significant Accounting Policies
- -------------------------------
Our significant accounting policies are more fully described in Note 2 to our
consolidated financial statements. Certain of our accounting policies are
particularly important to an understanding of our financial position and results
of operations and require the application of significant judgment by our
management; as a result they are subject to a degree of uncertainty. These
significant accounting policies include:
Revenues
- --------
Our revenues, which are substantially derived from rental income, includes
rental income that each tenant pays in accordance with the terms of their
respective leases reported on a straight line basis over the initial term of the
lease. Since many of our leases provide for rental increases at specified
intervals, straight line basis accounting requires us to record as an asset and
include in revenues, unbilled rent receivables which we will only receive if the
tenant makes all rent payments required through the expiration of the initial
term of the lease. Accordingly, our management must determine, in its judgment,
that the unbilled rent receivable applicable to each specific tenant is
collectible. We review unbilled rent receivables on a quarterly basis and take
into consideration the tenant's payment history, the financial condition of the
tenant, business conditions in the industry in which the tenant is engaged and
economic conditions in the area in which the property is located. In the event
that the collectability of an unbilled rent receivable is in doubt, we would be
required to take a reserve against the receivable or a direct write off of the
receivable, which would have an adverse affect on net income for the year in
which the reserve or direct write off is taken and would decrease total assets
and stockholders' equity. At December 31, 2001, management has not taken a
reserve or direct write off against the unbilled rent receivable of $2,442,000.
Value of Real Estate Portfolio
- ------------------------------
We review our real estate portfolio on a quarterly basis to ascertain if there
has been any impairment in the value of any of our real estate assets in order
to determine if there is any need for a provision for valuation adjustment. In
reviewing the portfolio, we examine the type of asset, its location, the
economic situation in the area in which the asset is located, the economic
situation in the industry in which the tenant is involved and the timeliness of
the payments made by the tenant under its lease, as well as any current
correspondence that may have been had with the tenant, including property
inspection reports. We also ascertain appropriate capitalization rates for the
real estate asset in the area in which the property is located and apply such
capitalization rate to the net operating income derived from that asset. We do
not obtain any independent appraisals in determining value but rely on our own
analysis and valuations. Any provision taken with respect to any part of our
real estate portfolio will reduce our net income and reduce assets and
stockholders' equity to the extent of the amount of the valuation allowance, but
it will not affect our cash flow until such time as the property is sold. A
$125,000 valuation adjustment was recorded in 2000. There was no valuation
adjustment recorded in 2001.
Certain Relationships and Allocated Expenses
- --------------------------------------------
We note the following relationships:
Fredric H. Gould, Chairman of our Board, is Chairman of the Board of BRT Realty
Trust, a mortgage lending REIT, Chairman of the Board and sole shareholder of
the managing general partner of Gould Investors L.P. and sole member of a
limited liability company which is also a general partner of Gould Investors
L.P.; Matthew Gould, a Senior Vice President and Director is a Senior Vice
President and Trustee of BRT Realty Trust and President of the managing general
partner of Gould Investors L.P.; and Jeffrey Gould, a Senior Vice President and
Director is President, Chief Executive Officer and a Trustee of BRT Realty Trust
and a Vice President of the corporate managing general partner of Gould
Investors L.P. Gould Investors L.P. owns 18% of our outstanding common stock and
16% of our voting rights. In addition, David W. Kalish, Simeon Brinberg, Mark
Lundy and Israel Rosenzweig, executive officers are also executive officers of
BRT Realty Trust and of the corporate managing partner of Gould Investors L.P.
Arthur Hurand, one of our Directors is a Trustee of BRT Realty Trust. Finally,
we own 30,048 common shares of BRT Realty Trust, which is less than 1% of its
total voting power.
Our company and related entities, including Gould Investors L.P. and BRT Realty
Trust, occupy common office space and use certain personnel in common. In 2001,
we were allocated $351,000 of common general and administrative expenses,
including rent, telecommunication services, computer services, bookkeeping,
secretarial and other clerical services and legal and accounting services. This
amount includes an aggregate of $191,500, allocated to us for services
(primarily legal and accounting), performed by seven executive officers who are
not engaged by us on a full time basis. In addition $32,615 was paid to Brinberg
and Lundy, a partnership in which Messrs. Brinberg and Lundy are partners, for
services rendered by Mark H. Lundy in connection with potential property
acquisitions, completed mortgage financings and our involvement in the joint
venture with an affiliate of Deutsche Bank A.G. The fees paid to Brinberg &
Lundy were capitalized. The allocation of common, general and administrative
expenses is computed on a quarterly basis and is based on the time devoted by
executive, administrative and clerical personnel to the affairs of each
participating entity.
In 2001 we paid to a company controlled by the Chairman of our Board and certain
of our officers, brokerage fees totaling $136,000 relating to $13,600,000
principal amount of mortgages placed on two of our properties. In addition, for
the year ended December 31, 2001, this entity was paid a fee of $12,500 for
supervision of improvements to a property which we own. The fees paid to this
entity were approved by the directors of the Company, including a majority of
the independent directors, and was based on fees for comparable services in the
geographic area in which the properties for which the fee was paid is located.
Accordingly, our Board intended that fees paid to related parties were no
greater than fees which would have been paid to unaffiliated persons for
comparable services.
During October 1998, Gould Investors L.P. loaned $350,000 to Jeffrey Fishman,
our President and his wife which matured in October 2001 and was repaid prior to
December 31, 2001. Mr. Fishman was not our employee in 1998. The loan was
secured by interests in several real estate partnerships in which we or Gould
Investors L.P. are the majority partners, and Mrs. Fishman is the minority
partner. Mrs. Fishman is currently an equity owner in one limited liability
company that was formed prior to the time Mr. Fishman became our employee.
Item 7a. Qualitative and Quantitative Disclosures About Market Risk
----------------------------------------------------------
All of our long-term debt bears interest at fixed rates, and therefore the fair
value of these instruments is affected by changes in the market interest rates.
The following table presents principal cash flows based upon maturity dates of
the debt obligations and the related weighted-average interest rates by expected
maturity dates for the fixed rate debt.
Principal
Year Ending Cash Flows Average
December 31, (In Thousands) Interest Rate
- ----------- -------------- -------------
2002 $ 2,493 7.85%
2003 10,000 7.89
2004 4,092 7.94
2005 9,367 7.97
2006 8,741 7.95
Thereafter 41,894 7.93
-------
Total $76,587 7.93
=======
Fair Value $77,303 7.75%
=======
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The financial statements and supplementary data listed in Items 14(a)(1) and
14(a)(2) hereof are included herein.
Item 9. Changes in and Disagreements with Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosure
------------------------
None
PART III
Information required by Part III (Item 10 - "Directors and Executive Officers of
the Registrant", Item 11 - "Executive Compensation", Item 12 -"Security
Ownership of Certain Beneficial Owners and Management" and Item 13 -"Certain
Relationships and Related Transactions") will be contained in the definitive
proxy statement to be filed within 120 days of the end of our fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) Documents filed as part of this Report:
1. The following financial statements of the Company are
included in this Report on Form 10-K:
Page
----
- Report of Independent Auditors F-1
- Statements:
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 through F-17
2. Financial Statement Schedules:
- Schedule III-Real Estate
and Accumulated Depreciation F-18 through F- 19
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or the notes
thereto.
3. Exhibits
3.1 Articles of Incorporation, as amended, of the Company, filed as
Exhibit 3.1 to the Company's Form 10-Q for the quarter ended
September 30, 1985, which Exhibit is incorporated herein by reference.
3.2 Amendment to Articles of Incorporation, filed as an Exhibit to the
Company's Form 10-Q for the quarter ended June 30, 1989, which Exhibit
is incorporated herein by reference.
3.3 Amendment to Articles of Incorporation, filed as an Exhibit to the
Company's Form 10-Q for the quarter ended June 30, 1990, which Exhibit
is incorporated herein by reference.
3.4 By-Laws of the Company, as amended, filed as an Exhibit to the
Company's Form 10-Q for the quarter ended June 30, 1989, which Exhibit
is incorporated herein by reference.
3.5 Amendment to By-Laws filed as an Exhibit to the Company's Form 10-Q
for the quarter ended June 30, 1990, which Exhibit is incorporated
herein by reference.
10.1 Credit Agreement with European American Bank filed as an Exhibit
to the Company's Form 8K filed March 31, 2000, which
exhibit is incorporated herein by reference.
21.1 Subsidiaries of Registrant (filed herewith)
(b) Reports on Form 8-K. There were no reports on Form 8-K filed
during the last quarter of the 2001 fiscal year.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf of the undersigned, thereunto duly authorized.
ONE LIBERTY PROPERTIES, INC.
Dated: March 26, 2002
By:s/Jeffrey Fishman
-----------------
Jeffrey Fishman, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant in
the capacities indicated on the dates indicated.
Signature Title Date
--------- ----- ----
s/Fredric H. Gould
- ------------------
Fredric H. Gould Chairman of the March 26, 2002
Board of Directors
and Chief Executive Officer
s/Jeffrey Fishman
- -----------------
Jeffrey Fishman President and
Chief Operating Officer March 26, 2002
s/Joseph A. Amato
- -----------------
Joseph A. Amato Director March 26, 2002
s/Charles Biederman
- -------------------
Charles Biederman Director March 26, 2002
s/James Burns
- ------------
James Burns Director March 26, 2002
s/Jeffrey Gould
- ---------------
Jeffrey Gould Director March 26, 2002
s/Matthew Goud
- --------------
Matthew Gould Director March 26, 2002
s/Arthur Hurand
- ---------------
Arthur Hurand Director March 26, 2002
s/Marshall Rose
- ---------------
Marshall Rose Director March 26, 2002
s/David W. Kalish
- -----------------
David W. Kalish Vice President and
Chief Financial Officer March 26, 2002
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
Company State of Organization
------- ---------------------
OLP Action, Inc. Michigan
OLP Arby's II South Carolina
OLP Iowa, Inc. Delaware
OLP Texas, Inc. Texas
OLP-TSA Georgia, Inc. Georgia
OLP Dixie Drive Houston, Inc. Texas
OLP Greenwood Village, Colorado, Inc. Colorado
OLP Ft. Myers, Inc. Florida
OLP Rabro Drive Corp. New York
OLP Chattanooga, Inc. Tennessee
OLP Columbus, Inc. Ohio
OLP Mesquite, Inc. Texas
OLP South Highway Houston, Inc. Texas
OLP Selden, Inc. New York
OLP Palm Beach, Inc. Florida
OLP New Hyde Park, Inc. New York
OLP Champaign, Inc. Illinois
OLP Batavia, Inc. New York
OLP Hanover PA, Inc. Pennsylvania
OLP Grand Rapids, Inc. Michigan
OLP El Paso, Inc. Texas
OLP Plano, Inc. Texas
OLP Hamilton, Inc. New York
OLP Hauppauge, LLC New York
OLP Ronkonkoma, LLC New York
OLP Plano 1, L.P. Texas
OLP El Paso 1, L.P. Texas
OLP Plano, LLC Delaware
OLP El Paso 1, LLC Delaware
OLP Hanover 1, LLC Pennsylvania
OLP Theaters, LLC Delaware
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
One Liberty Properties, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of One Liberty
Properties, Inc. and Subsidiaries (the "Company") as of December 31, 2001 and
2000, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2001. Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of One Liberty
Properties, Inc. and Subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ Ernst & Young LLP
New York, New York
March 1, 2002
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in Thousands, Except Per Share Data)
ASSETS
December 31,
---------------------------
2001 2000
---- ----
Real estate investments, at cost (Notes 3, 4, and 5)
Land $ 25,939 $ 26,279
Buildings and improvements 101,288 101,585
-------- --------
127,227 127,864
Less accumulated depreciation 8,663 6,244
-------- --------
118,564 121,620
Investment in unconsolidated joint venture (Note 3) 6,345 -
Cash and cash equivalents 2,285 2,069
Unbilled rent receivable (Note 3) 2,442 1,615
Rent, interest, deposits and other receivables 1,157 976
Notes receivable - officer (Note 7) 167 240
Investment in BRT Realty Trust - (related party) (Note 2) 361 240
Deferred financing costs 1,247 1,154
Other (including available-for-sale securities
of $249 and $228) (Note 2) 371 305
--------- ---------
$ 132,939 $ 128,219
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable (Note 5) $ 76,587 $ 64,123
Line of credit (Note 5) - 10,000
Dividends payable 1,177 -
Accrued expenses and other liabilities 827 720
--------- ---------
Total liabilities 78,591 74,843
--------- ---------
Commitments and contingencies - -
Stockholders' equity (Notes 6, 8, and 9):
Redeemable Convertible Preferred Stock,
$1 par value; $1.60 cumulative annual dividend;
2,300 shares authorized; 648 shares issued;
liquidation and redemption values of $16.50 10,693 10,693
Common Stock, $1 par value; 25,000 shares authorized;
3,058 and 3,010 shares issued and outstanding 3,058 3,010
Paid-in capital 32,192 31,650
Accumulated other comprehensive income - net unrealized
gain on available-for-sale securities (Note 2) 261 76
Accumulated undistributed net income 8,144 7,947
--------- ---------
Total stockholders' equity 54,348 53,376
--------- ---------
$ 132,939 $ 128,219
========= =========
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Amounts in Thousands, Except Per Share Data)
Year Ended December 31,
----------------------------------
2001 2000 1999
---- ---- ----
Revenues:
Rental income (Note 3) $ 15,053 $ 12,333 $ 8,831
Equity in earnings of unconsolidated joint venture 83 - -
Interest and other income (Note 3) 184 336 1,349
--------- -------- --------
15,320 12,669 10,180
--------- -------- --------
Expenses:
Depreciation and amortization 2,900 2,356 1,645
Interest - mortgages payable (Note 5) 5,810 4,261 2,543
Interest - line of credit (Note 5) 250 340 -
Leasehold rent 289 289 289
General and administrative (Note 7) 1,136 1,089 821
Real estate expenses 181 67 129
Provision for valuation adjustment of
real estate (Note 4) - 125 -
--------- --------- ---------
10,566 8,527 5,427
--------- --------- ---------
Income before gain on sale 4,754 4,142 4,753
--------- --------- ---------
Gain on sale of real estate (Note 3) 126 3,802 62
(Loss) gain on sale of available-for-sale securities (14) (12) 64
--------- --------- ---------
112 3,790 126
--------- --------- ---------
Net income $ 4,866 $ 7,932 $ 4,879
========= ========= =========
Calculation of net income applicable to common stockholders:
Net income $ 4,866 $ 7,932 $ 4,879
Less dividends and accretion on preferred stock 1,037 1,044 1,247
---------- --------- --------
Net income applicable to common stockholders $ 3,829 $ 6,888 $ 3,632
========== ========= ========
Weighted average number of common shares outstanding:
Basic 3,019 2,993 2,960
===== ===== =====
Diluted 3,036 3,528 2,963
===== ===== =====
Net income per common share (Notes 2 and 8):
Basic $ 1.27 $ 2.30 $ 1.23
======== ========= ========
Diluted $ 1.26 $ 2.25 $ 1.23
======== ========= ========
Cash distributions per share:
Common Stock $ 1.20 $ 1.20 $ 1.20
======== ========= =========
Preferred Stock $ 1.60 $ 1.60 $ 1.60
======== ========= =========
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Three Years Ended December 31, 2001
(Amounts in Thousands, Except Per Share Data)
Accumulated
Other Accumulated
Preferred Common Paid-in Comprehensive Undistributed
Stock Stock Capital Income Net Income Total
----- ----- ------- ------ ---------- -----
Balances, December 31, 1998 $ - $ 2,940 $30,965 $ 100 $ 4,490 $38,495
Distributions - Common Stock
($1.20 per share) - - - - (3,552) (3,552)
Distributions - Preferred Stock
($1.60 per share) - - - - (1,168) (1,168)
Preferred Stock (Note 6) 10,802 - - - - 10,802
Accretion on Preferred Stock - - (79) - - (79)
Preferred shares converted to
Common Stock - 1 7 - - 8
Shares issued through dividend
reinvestment plan - 39 445 - - 484
Net income - - - - 4,879 4,879
Other comprehensive income -
net unrealized loss on available-
for-sale securities (Note 2) - - - (67) - (67)
-------
Comprehensive income - - - - - 4,812
------- ------ ------ ------ ------ -------
Balances, December 31, 1999 10,802 2,980 31,338 33 4,649 49,802
Distributions - Common Stock
($1.20 per share) - - - - (3,590) (3,590)
Distributions - Preferred Stock
($1.60 per share) - - - - (1,044) (1,044)
Preferred Stock (Note 6) (109) - 18 - - (91)
Shares issued through dividend
reinvestment plan - 30 294 - - 324
Net income - - - - 7,932 7,932
Other comprehensive income -
net unrealized gain on available-
for-sale securities (Note 2) - - - 43 - 43
-------
Comprehensive income - - - - - 7,975
------- ------- ------- ------- -------- --------
Balances, December 31, 2000 10,693 3,010 31,650 76 7,947 53,376
Distributions - Common Stock
($1.20 per share) - - - - (3,632) (3,632)
Distributions - Preferred Stock
($1.60 per share) - - - - (1,037) (1,037)
Exercise of options - 33 368 - - 401
Shares issued through dividend
reinvestment plan - 15 174 - - 189
Net income - - - - 4,866 4,866
Other comprehensive income -
net unrealized loss on available-
for-sale securities (Note 2) - - - 185 - 185
-------
Comprehensive income - - - - - 5,051
--------- -------- --------- -------- --------- --------
Balances, December 31, 2001 $ 10,693 $ 3,058 $ 32,192 $ 261 $ 8,144 $ 54,348
======== ======== ========= ========= ========= ========
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in Thousands)
Year Ended December 31,
------------------------------------------
2001 2000 1999
---- ---- -----
Cash flows from operating activities:
Net income $ 4,866 $ 7,932 $ 4,879
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of real estate (126) (3,802) (62)
Loss (gain) on sale of available-for-sale securities 14 12 (64)
Increase in rental income from straight-lining of rent (827) (669) (572)
Equity in earnings of unconsolidated joint venture (83) - -
Distribution from unconsolidated joint venture 65 - -
Payments to minority interest by subsidiary (23) (32) (13)
Provision for valuation adjustment - 125 -
Depreciation and amortization 2,900 2,356 1,645
Changes in assets and liabilities:
Increase in rent, interest, deposits and other receivables (153) (422) (82)
Increase in accrued expenses and other liabilities 131 340 95
--------- --------- --------
Net cash provided by operating activities 6,764 5,840 5,826
--------- --------- --------
Cash flows from investing activities:
Additions to real estate (152) (51,994) (11,499)
Net proceeds from sale of real estate 749 12,514 210
Investment in unconsolidated joint venture (6,327) - -
Net proceeds from sale of available-for-sale securities 201 156 1,203
Collection of mortgages receivable - - 228
Purchase of available-for-sale securities (173) - (885)
--------- -------- --------
Net cash used in investing activities (5,702) (39,324) (10,743)
--------- --------- --------
Cash flows from financing activities:
(Repayments) proceeds from bank line of credit (10,000) 10,000 -
Proceeds from mortgages payable 13,600 20,162 5,775
Payment of financing costs (408) (666) (238)
Repayment of mortgages payable (1,136) (789) (528)
Cash distributions - Common Stock (2,714) (3,590) (4,434)
Cash distributions - Preferred Stock (778) (1,044) (1,491)
Exercise of stock options 401 - -
Repurchase of preferred stock, which was cancelled - (91) (2,494)
Issuance of shares through dividend reinvestment plan 189 324 484
--------- --------- --------
Net cash (used in) provided by financing activities (846) 24,306 (2,926)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 216 (9,178) (7,843)
Cash and cash equivalents at beginning of year 2,069 11,247 19,090
--------- -------- --------
Cash and cash equivalents at end of year $ 2,285 $2,069 $11,247
======== ====== =======
Supplemental disclosures of cash flow information:
Cash paid during the year for interest expense $ 6,084 $ 4,464 $ 2,546
Supplemental schedule of non cash investing and financing activities:
Assumption of mortgage payable in connection
with purchase of real estate $ - $ 9,015 $ 1,065
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001
NOTE 1 - ORGANIZATION AND BACKGROUND
One Liberty Properties, Inc. (the "Company") was incorporated in
1982 in the state of Maryland. The Company is a self-administered
real estate investment trust ("REIT") which currently participates
in net leasing transactions and has engaged in other real property
transactions. The Company owns thirty-three properties, a
leasehold position with respect to one property and is a member of
a joint venture which owns one property. The thirty-five
properties are located in thirteen states.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of One
Liberty Properties, Inc., its wholly-owned subsidiaries and a
majority-owned limited liability company. Material intercompany
items and transactions have been eliminated. The Company's
investment in a less than majority owned joint venture has been
accounted for using the equity method. One Liberty Properties,
Inc., its subsidiaries and the limited liability company are
hereinafter referred to as the Company.
Use of Estimates
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Income Recognition
Rental income includes the base rent that each tenant is required
to pay in accordance with the terms of their respective leases
reported on a straight-line basis over the initial term of the
lease. Some of the leases provide for additional contingent rental
revenue in the form of percentage rents and increases based on the
consumer price index. The percentage rents are based upon the
level of sales achieved by the lessee and are recorded once the
required sales levels are reached.
Depreciation
Depreciation of buildings is computed on the straight-line method
over an estimated useful life of 40 years for commercial
properties and 27 and one half years for residential properties.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deferred Financing Costs
Mortgage and credit line costs are deferred and amortized on a
straight-line basis over the terms of the respective debt
obligations, which approximates the effective interest method.
Federal Income Taxes
The Company has qualified as a real estate investment trust under
the applicable provisions of the Internal Revenue Code. Under
these provisions, the Company will not be subject to federal
income taxes on amounts distributed to stockholders providing it
distributes substantially all of its taxable income and meets
certain other conditions.
Total distributions made during 2001 and 2000 included
approximately 1% attributable to capital gains, with the balance
to ordinary income.
Investments in Debt and Equity Securities
The Company determines the appropriate classification of
securities at the time of purchase and reassesses the
appropriateness of the classification at each report date. At
December 31, 2001, all marketable securities have been classified
as available-for-sale and, as a result, are stated at fair value.
Unrealized gains and losses on available-for-sale securities are
recorded as accumulated other comprehensive income in the
stockholders' equity section.
The Company's investment in 30,048 common shares of BRT Realty
Trust ("BRT"), a related party of the Company, (accounting for
less than 1% of the total voting power of BRT), purchased at a
cost of $97,000 has a fair market value at December 31, 2001 of
$361,000. The net unrealized holding gain of $264,000 is excluded
from earnings. In addition, the Company has invested $252,000 in
various other equity securities which have a fair market value of
$249,000 at December 31, 2001. The aggregate net unrealized
holding loss of $3,000 on these investments is also excluded from
earnings. At December 31, 2001, the cumulative unrealized gain of
$261,000 on these investments is reported as accumulated other
comprehensive income in the stockholders' equity section.
Realized gains and losses are determined using the average cost
method. During 2001 and 2000, sales proceeds and gross realized
gains and losses on securities classified as available-for-sale
were:
2001 2000
---- ----
Sales proceeds $ 201,000 $ 156,000
========== ==========
Gross realized losses $ (17,000) $ (12,000)
========== ==========
Gross realized gains $ 3,000 $ -
========== ==========
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Notes receivable - officer: The carrying amount of the notes
receivable reported on the balance sheet is their face value. The
notes carry an interest rate equal to the prime rate and thus the
outstanding balance approximates the fair value.
Investment in equity securities: Since these investments are
considered "available-for-sale", they are reported in the balance
sheet based upon quoted market prices.
Mortgages payable: At December 31, 2001, the estimated fair value
of the Company's mortgages payable exceeded its carrying value by
$800,000, assuming a market interest rate of 7.75%.
Considerable judgment is necessary to interpret market data and
develop estimated fair value. The use of different market
assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Accretion on Preferred Stock
The Company has Preferred Stock outstanding which is both
redeemable and convertible. The stock was initially recorded in
the financial statements at its fair value based upon the initial
average trades on the American Stock Exchange. The amount by which
the redemption value exceeded the carrying value was accreted
using the interest method through July 1, 1999. (See Note 6.)
Earnings Per Common Share
Basic earnings per share was determined by dividing net income
applicable to common stockholders for each year by the weighted
average number of shares of Common Stock outstanding during each
year.
Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue Common Stock
were exercised or converted into Common Stock or resulted in the
issuance of Common Stock that then shared in the earnings of the
Company. For the years ended December 31, 2001 and 1999, diluted
earnings per share was determined by dividing net income
applicable to common stockholders for each year by the total of
the weighted average number of shares of Common Stock outstanding
plus the dilutive effect of the Company's outstanding options
(16,498 and 3,376 shares for the years ended 2001 and 1999,
respectively) using the treasury stock method. The Preferred Stock
was not considered for the purpose of computing diluted earnings
per share for the years ended December 31, 2001 and 1999 because
their assumed conversion was antidilutive. For the year ended
December 31, 2000, diluted earnings per share was determined by
dividing net income by the total of the weighted average number of
shares of Common Stock outstanding plus the dilutive effect of the
Company's outstanding options (49,500 shares) plus the dilutive
effect of the Company's Preferred Stock using the if-converted
method.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Various options were not included in the computation of diluted
earnings per share in each year because the exercise price of
these options is greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with
maturities of three months or less when purchased.
Valuation Allowance on Real Estate Owned
The Company reviews each real estate asset owned for which
indicators of impairment are present to determine whether the
carrying amount of the asset will be recovered. Recognition of
impairment is required if the undiscounted cash flows estimated to
be generated by those assets are less than the assets' carrying
amount. Measurement is based upon the fair market value of the
asset. Real estate assets that are expected to be disposed of are
valued at the lower of carrying amount or fair value less costs to
sell on an individual asset basis.
Accounting for Long-Lived Assets
The Financial Accounting Standards Board issued Statement No. 144
"Accounting for the Impairment of Long-Lived Assets" which
supersedes FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of",
however it retains the fundamental provisions of that statement
related to the recognition and measurement of the impairment of
long-lived assets to be "held and used". In addition, Statement
No. 144 provides more guidance on estimating cash flows when
performing a recoverability test, requires that a long-lived asset
or asset group to be disposed of other than by sale (e.g.
abandoned) be classified as "held and used" until it is disposed
of, and establishes more restrictive criteria to classify an asset
or asset group as "held for sale". The Company's management does
not anticipate that the adoption of this statement will have an
effect on the earnings or the financial position of the Company.
Segment Reporting
Effective January 1, 1998, the Company adopted the Financial
Accounting Standards Board's Statement No. 131, Disclosure About
Segments of an Enterprise and Related Information. Statement No.
131 established standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures
about products and services, geographic areas, and major
customers. Virtually all of the Company's real estate assets are
comprised of real estate owned that is net leased to tenants on a
long-term basis. Therefore, the Company operates predominantly in
one industry segment, and thus, Statement No. 131 did not have a
material impact on that Company's financial statements.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Derivative Instruments and Hedging Activities
Effective January 1, 2001 the Company adopted the Financial
Accounting Standards Board Statement No. 137, Accounting for
Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133. Statement No. 137
deferred for one year the effective date of Statement No. 133,
Accounting for Derivatives Instruments and Hedging Activities.
Because of the Company's minimal use of derivatives, Statement No.
137 did not have a significant effect on earnings or the
financial position of the Company.
Reclassification
Certain amounts reported in previous financial statements have
been reclassified in the accompanying financial statements to
conform to the current year's presentation.
NOTE 3 - REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS
In November, 2001, a joint venture entered into by the Company
with an affiliate of Deutsche Bank A.G., an unrelated party,
acquired a megaplex stadium style theatre. The Company invested
approximately $6,300,000 for its 50% participation in the joint
venture. All decisions of the venture are subject to joint
control. A management fee equal to 1% of rent paid by the tenant
is paid to a company controlled by the Chairman of the Board of
Directors and certain officers of the Company. The fee for the
year ending December 31, 2001 was $1,300.
During the year ended December 31, 2000, the Company purchased
eight properties in four states for a total consideration of
$61,009,000. First mortgages totaling $29,015,000 were placed on
five of these properties.
The rental properties owned at December 31, 2001 are leased under
noncancellable operating leases to corporate tenants with current
expirations ranging from 2002 to 2038, with certain tenant renewal
rights. The majority of lease agreements are net lease
arrangements which require the tenant to pay not only rent but all
the expenses of the leased property including maintenance, taxes,
utilities and insurance. Certain lease agreements provide for
periodic rental increases and others provide for increases based
on the consumer price index.
The minimum future rentals to be received over the next five years
and thereafter on the operating leases in effect at December 31,
2001 are as follows:
Year Ending
December 31, (In Thousands)
------------ --------------
2002 $ 13,616
2003 13,078
2004 13,167
2005 13,097
2006 12,636
Thereafter 98,572
--------
Total $164,166
========
NOTE 3 - REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS (Continued)
At December 31, 2001, the Company has recorded an unbilled rent
receivable aggregating $2,442,000, representing rent reported on a
straight-line basis in excess of rental payments required under
the initial term of the respective leases. This amount is to be
billed and received pursuant to the lease terms over the next
sixteen years. The minimum future rentals presented above include
amounts applicable to the repayment of these unbilled rent
receivables.
For the year ended December 31, 2001, one tenant generated
revenues of 11.4% of the Company's total revenues. This tenant,
who occupies an entire flex building, generated $1,746,000 in
rental revenue. The initial term of the tenant's lease expires
December 31, 2014.
Sales of Real Estate
In May and August, 2001, the Company sold two properties for a
total sales price of $800,000 and recognized a net gain of
$126,000.
On October 20, 2000, the Company sold the thirteen locations it
owned in Michigan that were net leased to Total Petroleum, Inc.
The gross sales price was $12,000,000 which resulted in a gain of
$3,603,000 for financial statement purposes. The Company did not
realize a gain for federal income tax purposes on the sale in
accordance with Internal Revenue Section 1031.
In February and May, 2000, the Company sold two properties for a
total sales price of $890,000 and recognized gains totaling
$199,000.
In July 1999, the Company sold a property for a sales price of
$225,000 and recognized a gain of $62,000.
Included in other income for the year ended December 31, 1999 is
$793,000 which represents the return to the Company of unused
escrow funds by the escrow agent pursuant to the lease agreement
with Total Petroleum, Inc. (entered into in 1991).
NOTE 4 - PROVISION FOR VALUATION ADJUSTMENT
During the year ended December 31, 2000, the Company determined
that the estimated fair value of two properties were lower than
their carrying amounts and thus, the Company recorded a $125,000
provision for the differences. The $125,000 provision was recorded
as a direct write-down of the respective investments on the
balance sheet and depreciation was calculated using the new basis.
NOTE 5 - DEBT OBLIGATIONS
Mortgages Payable
At December 31, 2001, there are twenty-three outstanding mortgages
payable, all of which are secured by first liens on individual
real estate investments with an aggregate carrying value of
$116,453,000 before accumulated depreciation. The mortgages bear
interest at rates ranging from 6.9% to 9.1%, and mature between
2002 and 2017. The weighted average interest rate was 8%, 7.7% and
7.6% for the years ended December 31, 2001, 2000 and 1999,
respectively.
NOTE 5 - DEBT OBLIGATIONS (Continued)
Scheduled principal repayments during the next five years and
thereafter are as follows:
Year Ending
December 31, (In Thousands)
------------ --------------
2002 $ 2,493
2003 10,000
2004 4,092
2005 9,367
2006 8,741
2007 and thereafter 41,894
--------
Total $ 76,587
========
Line of Credit
On March 24, 2000 the Company entered into an agreement with
European American Bank ("EAB") to provide for a two year
$15,000,000 revolving credit facility ("Facility"). EAB merged
into Citibank NA and accordingly, Citibank, successor to EAB is
hereafter referred to as the "Bank". The Facility provides that
the Company pay interest at the Bank's prime rate on funds
borrowed and an unused facility fee of 1/4%. The Company paid
$175,000 in fees and closing costs which are being amortized over
the term of the loan. The Company has exercised an option to
extend the term for one year until March 24, 2003. The Facility is
guaranteed by all of the Company's subsidiaries which own
unencumbered properties and the shares of all the subsidiaries are
pledged as collateral. The Company has agreed that it and its
affiliates will maintain on deposit with the Bank at least 10% of
the average outstanding annual principal balance of take downs
under the Facility. If minimum balances are not maintained by the
Company and its affiliates, a deficiency fee is charged to the
Company.
The Facility is available to finance the acquisition of commercial
real estate. The Company is required to comply with certain
covenants. Net proceeds received from the sale or refinance of
properties are required to be used to repay amounts outstanding
under the Facility if proceeds from the Facility were used to
purchase the property.
NOTE 6 - REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Preferred Stock has the following rights, qualifications and
conditions: (i) a cumulative dividend preference of $1.60 per
share per annum; (ii) a liquidation preference of $16.50 per
share; (iii) a right to convert each share of Preferred Stock at
any time into .825 of a share of Common Stock; (iv) redeemable by
the Company at $16.50 per share and (v) one-half vote per share.
Pursuant to the Company's certificate of incorporation, as
amended, each preferred shareholder of the Company had a one-time
right to "put" the Preferred Stock to the Company at $16.50 per
share for a period of ninety (90) days commencing July 1, 1999.
During this period, preferred shareholders "put" 137,268 preferred
shares to the Company for a total payment by the Company of
$2,265,000. The preferred shareholders no longer have any rights
to "put" their shares to the Company.
NOTE 6 - REDEEMABLE CONVERTIBLE PREFERRED STOCK (Continued)
During the years ended December 31, 2000 and 1999 the Company
repurchased 6,600 and 13,950 shares of Preferred Stock for an
aggregate consideration of $91,000 and $228,000, respectively.
NOTE 7 - RELATED PARTY TRANSACTIONS
At December 31, 2001 and 2000, Gould Investors L.P. ("Gould"), a
related party, owned 542,397 shares of the common stock of the
Company or approximately 18% of the equity interest and held
approximately 16% of the voting rights.
Gould charged the Company $351,000, $272,000 and $248,000 during
the years ended December 31, 2001, 2000 and 1999, respectively,
for allocated general and administrative expenses and payroll
based on time incurred by various employees.
The Company paid a company controlled by the Chairman of the Board
of Directors and certain officers of the Company 1% brokerage fees
totaling $136,000, $200,000 and $102,000 during the years ended
December 31, 2001, 2000 and 1999 relating to mortgages placed on
two, three and five of the Company's properties, respectively.
These fees were deferred and are being amortized over the lives of
the respective loans. During the years ended December 31, 2001 and
2000, this controlled company was paid fees of $12,500 and $4,000,
respectively, for supervision of improvements and repairs to
properties and was paid a brokerage fee of $300,000 relating to
the sale of the Total Petroleum properties during the year ended
December 31, 2000.
In 1999 and 2000, the Company made loans aggregating $240,000 to
its current president providing for an interest rate equal to the
prime rate and maturing in December, 2004. These loans are secured
by shares of the Company purchased with the proceeds and
personally guaranteed by him and his wife. The outstanding loan
balance at December 31, 2001 is $167,000.
During October 1998 and prior to his being employed by the
Company, Gould made a $350,000 loan to the current president and
his wife which matured in October, 2001 and was repaid by December
31, 2001. The loan was secured by interests in several real estate
partnerships in which Gould and the Company are the majority
partners, and the wife of the Company's president is the minority
partner. The loan bore interest at 9% and was personally
guaranteed.
The minority partner of a limited liability company, which is
consolidated within these financial statements, is the wife of the
current president. This entity purchased real estate in March
1998, prior to the current president being employed by the
Company.
NOTE 8 - STOCK OPTIONS
On November 17, 1989, the directors of the Company adopted the
1989 Stock Option Plan. Stock options under the 1989 Stock Option
Plan are granted at per share amounts at least equal to their fair
market value at the date of grant. A maximum of 225,000 common
shares were reserved for issuance under the 1989 Stock Option
Plan, of which none are available for grant at December 31, 2001.
On December 6, 1996, the directors of the Company adopted the 1996
Stock Option Plan (Incentive/Nonstatutory Stock Option Plan).
Incentive stock options are granted at per share amounts, at least
equal to their fair market value at the date of grant, whereas for
nonstatutory stock options the exercise price may be any amount
determined by the Board of Directors. Options granted under the
Plan will expire no later than ten years after the date on which
the option is granted. The options granted under the Plans are
cumulatively exercisable at a rate of 25% per annum, commencing
six months after the date of grant, and expire five years after
the date of grant. A maximum of 225,000 shares of common stock of
the Company (which includes 100,000 additional shares which were
approved by the Company's shareholders as an amendment to the Plan
at the 2001 annual meeting of stockholders) are reserved for
issuance to employees, officers, directors, consultants and
advisors to the Company, of which 85,000 are available for grant
at December 31, 2001.
Changes in the number of common shares under all option
arrangements are summarized as follows:
Year Ended December 31,
-------------------------------------
2001 2000 1999
---- ---- ----
Outstanding at beginning of period 177,500 128,000 80,500
Granted 57,500 49,500 47,500
Option prices $12.19 $11.125 $12.375
Exercisable at end of period 122,850 106,625 62,250
Exercised (32,400) - -
Expired - - -
Outstanding at end of period 202,600 177,500 128,000
Option price per share outstanding $11.125-$14.50 $11.125-$14.50 $12.375-$14.50
As of December 31, 2001, the outstanding options had a weighted
average remaining contractual life of approximately 2.41 years and
a weighted average exercise price of $12.62.
The Company adopted Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations in accounting for its employee stock options.
Under APB 25, no compensation expense is recognized because the
exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant. The
alternative fair value accounting provided for under FASB No. 123,
Accounting for Stock-Based Compensation, is not applicable because
it requires use of option valuation models that were not developed
for use in valuing employee stock options.
NOTE 8 - STOCK OPTIONS (Continued)
Pro forma information regarding net income and earnings per share
is required by FASB No. 123, and has been determined as if the
Company had accounted for its employee stock options under the
fair value method. The fair value for these options was estimated
at the date of the grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 2001,
2000 and 1999, respectively: risk free interest rate of 4.06%,
5.22% and 6.41%, dividend yield of 10.07%, 11.03% and 9.7%,
volatility factor of the expected market price of the Company's
Common Stock based on historical results of 1.41, .135 and .116;
and expected lives of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective
assumptions including expected stock price volatility. Because the
Company's employee stock options have characteristics
significantly different from those of traded options, and changes
in the subjective input assumptions can materially affect the fair
value estimate, management believes the existing models do not
necessarily provide a reliable single measure of the fair value of
its employee stock options. Had the fair value method of
accounting been applied to the Company's stock plan, which
requires recognition of compensation cost ratably over the vesting
period, pro forma net income applicable to common stockholders
would have been $3,610,000 which would result in pro forma
earnings of $1.22 per share in 1999. The Company has elected not
to present pro forma information for 2001 and 2000 because the
impact on the reported net income and earnings per share is
immaterial.
NOTE 9 - DISTRIBUTION REINVESTMENT PLAN
In May, 1996, the Company implemented a Distribution Reinvestment
Plan (the "Plan"). The Plan provides owners of record of 100
shares or more of its common and/or preferred stock the
opportunity to reinvest cash distributions in newly-issued common
stock of the Company at a five percent discount from the market
price. No open market purchases are made under the Plan. During
the years ended December 31, 2001 and 2000, the Company issued
15,098 and 30,532 common shares, respectively, under the Plan.
NOTE 10 - INCOME TAXES (Unaudited)
The Company elected to be taxed as a real estate investment trust
(REIT) under the Internal Revenue Code, commencing with its
taxable year ended December 31, 1983. To qualify as a REIT, the
Company must meet a number of organizational and operational
requirements, including a requirement that it currently distribute
at least 90% of its adjusted taxable income to its stockholders.
It is management's current intention to adhere to these
requirements and maintain the Company's REIT status. As a REIT,
the Company generally will not be subject to corporate level
federal, state and local income tax on taxable income it
distributes currently to its stockholders. If the Company fails to
qualify as a REIT in any taxable year, it will be subject to
federal, state and local income taxes at regular corporate rates
(including any applicable alternative minimum tax) and may not be
able to qualify as a REIT for four subsequent taxable years. Even
if the Company qualifies for taxation as a REIT, the Company may
be subject to certain state and local taxes on its income and
property, and to federal income and excise taxes on its
undistributed taxable income.
NOTE 10 - INCOME TAXES (Unaudited) (Continued)
Reconciliation Between Financial Statement Net Income and Federal
Taxable Income:
The following table reconciles financial statement net income to
federal taxable income for the years ended December 31, 2001, 2000
and 1999:
2001 2000 1999
Estimate Actual Actual
-------- ------ ------
Net income $ 4,866 $ 7,932 $ 4,879
Straight line rent adjustments (827) (669) (572)
Financial statement gain on sale
in excess of tax gain (69) (3,745) (129)
Rent received in advance 101 127 -
Financial statement provision
for valuation adjustment - 125 -
Financial statement depreciation
in excess of tax 85 - -
Other adjustments (2) (4) (11)
-------- -------- --------
Federal taxable income $ 4,154 $ 3,766 $ 4,167
======== ======== ========
Reconciliation Between Cash Dividends Paid and Dividends
Paid Deduction:
The following table reconciles cash dividends paid with the
dividends paid deduction for the years ended December 31, 2001,
2000 and 1999:
2001 2000 1999
---- ---- ----
Cash dividends paid $ 4,669 $ 4,634 $ 4,720
Dividend reinvestment plan (1) 12 18 20
-------- ------- -------
4,681 4,652 4,740
Less: Dividends designated to prior years (1,645) (2,521) (3,094)
Plus: Dividends designated from following year 1,128 1,645 2,521
------- ------- -------
Dividends paid deduction (2) $ 4,164 $ 3,776 $ 4,167
======= ======= =======
(1) Amount reflects the 5% discount on the Company's common shares
purchased through the dividend reinvestment plan.
(2) Dividends paid deduction is higher than federal taxable income
in 2001 and 2000 so as to account for adjustments made to federal
taxable income as a result of the alternative minimum tax.
NOTE 11 - QUARTERLY FINANCIAL DATA (UNAUDITED):
(In Thousands, Except Per Share Data)
Quarter Ended
Total
March 31 June 30 September 30 December 31 For Year
-------- ------- ------------ ----------- --------
2001
- ----
Revenues $3,784 $3,882 $3,798 $3,856 $15,320
Net income 1,186 1,163 1,303 1,214 4,866
Net income applicable to
common stockholders 927 904 1,044 954 3,829
Net income per common share:
Basic .31 .30 .35 .32 1.27(a)
Diluted .31 .30 .34 .31 1.26(a)
Quarter Ended
Total
March 31 June 30 September 30 December 31 For Year
-------- ------- ------------ ----------- --------
2000
- ----
Revenues $2,559 $3,295 $3,356 $3,459 $12,669
Net income 1,140 1,156 1,081 4,555(b)(c) 7,932
Net income applicable to
common stockholders 878 894 820 4,296(b)(c) 6,888
Net income per common share:
Basic .29 .30 .27 1.43 2.30(a)
Diluted .29 .30 .27 1.29 2.25(a)
(a) Calculated on weighted average shares outstanding for the year.
(b) Net income reflects a provision for valuation adjustment of real estate
amounting to $125 for the quarter ending December 31, 2000.
(c) Includes $3,603, (or $1.20 and $1.06 per common share, basic and diluted,
respectively)from the sale of the Total Petroleum properties. See Note 3.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Schedule III - Consolidated Real Estate and Accumulated Depreciation
December 31, 2001
(Amounts in Thousands)
Initial Cost Gross Amount at Which Carried At
to Company December 31, 2001
---------- ----------------- Life on Which
Depreciation in
Latest Income
Date Of Statement Is
Accumulated Construc- Date Computed
Encumbrances Land Buildings Land Buildings Total Depreciation tion Acquired (Years)
------------ ---- --------- ---- --------- ----- ------------ ---- -------- --------
Free Standing
Retail Locations:
Columbus, OH $ 4,161 $ 1,445 $ 5,781 $ 1,445 $ 5,781 $ 7,226 $ 596 1996 November 19, 1997 40
Plano, TX 4,941 1,536 6,145 1,536 6,145 7,681 288 1998 February 10, 2000 40
El Paso, TX 9,874 2,821 11,373 2,821 11,373 14,194 509 1974 March 29, 2000 40
Miscellaneous 20,569 9,199 33,438 9,128 33,284 42,412 4,137 Various Various 40
Flex Buildings:
Hauppauge, NY 9,813 2,738 10,954 2,738 10,954 13,692 285 1981 December 28, 2000 40
Miscellaneous 3,673 1,042 4,306 1,042 4,306 5,348 109 1986 December 22, 2000 40
Office Building:
New York, NY 4,287 1,344 5,300 1,344 5,300 6,644 503 1973 March 31, 1998 40
Miscellaneous - 181 724 181 724 905 58 1978 October 2, 1998 40
Apartment Building:
New York, NY 4,711 1,110 4,439 1,110 4,439 5,549 1,218 1910 June 14, 1994 27.5
Industrial:
Hanover, PA 8,779 2,354 9,414 2,354 9,414 11,768 402 1968 April 11, 2000 40
Miscellaneous 875 815 3,865 815 3,865 4,680 362 Various Various 40
Health Clubs:
Miscellaneous 4,904 1,425 5,703 1,425 5,703 7,128 196 Various August 23, 2000 40
----- ----- ----- ----- ----- ----- ---
$76,587 $26,010 $101,442 $25,939 $101,288 $127,227 $8,663
======= ======= ======== ======= ======== ======== ======
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Notes To Schedule III
Consolidated Real Estate And Accumulated Depreciation
(a) Reconciliation of "Real Estate and Accumulated Depreciation"
(Amounts In Thousands)
Year Ended December 31,
2001 2000 1999
---- ---- ----
Investment in real estate:
Balance, beginning of year $127,864 $75,908 $63,550
Addition: Land, buildings and
improvements 152 61,008 12,564
Deductions:
Cost of properties sold (789) (8,927) (206)
Valuation allowance (c) - (125) -
-------- -------- -------
Balance, end of year $127,227 $127,864 $75,908
======== ======== =======
Accumulated depreciation:
Balance, beginning of year $ 6,244 $ 5,138 $ 3,719
Addition: depreciation 2,585 2,112 1,477
Deduction: accumulated
depreciation related to
properties sold (166) (1,006) (58)
-------- -------- --------
Balance, end of year $ 8,663 $ 6,244 $ 5,138
======== ======== ========
(b) The aggregate cost of the properties is approximately $4,169 lower for
federal income tax purposes.
(c) During the year ended December 31, 2000, the Company recorded a
provision for valuation adjustment of real estate totaling $125. See
Note 4 to the consolidated financial statements for other information.