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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, 2002
[ ] 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.
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(Exact name of registrant as specified in its charter)
MARYLAND 13-3147497
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
60 Cutter Mill Road, Great Neck, New York 11021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (5l6) 466-3l00
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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
per share
$16.50 Cumulative Convertible
Preferred Stock, par value $1.00 American Stock Exchange
per share
Securities registered pursuant to Section l2(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) 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
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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 [ ].
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).
Yes No X
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As of June 30, 2002 (the last business day of the registrant's most
recently completed second quarter), the aggregate market value of all common
equity (Common Stock and Preferred Stock) held by non-affiliates of the
registrant, computed by reference to the price at which common equity was last
sold on said date, was approximately $67,519,000.
As of March 24, 2003, the registrant had 5,662,816 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 23, 2003, 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:
o general economic and business conditions;
o general and local real estate conditions;
o the financial condition of our tenants and the performance of their
lease obligations;
o changes in governmental laws and regulations relating to real estate
and related investments;
o the level and volatility of interest rates;
o competition in our industry;
o accessibility of debt and equity capital markets;
o the availability of and costs associated with sources of liquidity; and
o the other risks described under "Risks Related to Our Company" and
"Risks Related to the REIT Industry" in Part I of this
Annual Report.
Accordingly, there can be no assurance that our expectations will be
realized.
PART I
Item 1. Business
General
We are a self-administered and self-managed real estate investment
trust (REIT). We were incorporated under the laws of the State of Maryland on
December 20, 1982. We acquire, own and manage a geographically diversified
portfolio of retail, industrial, office, movie theater and other properties, a
substantial portion of which are under long-term leases. Substantially all of
our leases are "net leases", under which the tenant is responsible for real
estate taxes, insurance and ordinary maintenance and repairs. As of December 31,
2002, we owned 33 properties and we participated in four joint ventures that
owned a total of 11 properties. Our properties are located in 15 states and have
approximately 3.36 million square feet of rentable space (including all rentable
space for properties in which we have a joint venture participation). Under the
terms of our leases, our 2003 contractual rental income will be approximately
$21.1 million. Our 2003 contractual rental income includes rental income that is
payable to us during 2003, including our share of the rental income payable to
our joint ventures, and does not include rent that we would receive if our two
vacant properties are rented, rental income from one property acquired in
February 2003 and an increase in rental income from one property at the rate of
$216,000 per annum to be received by us commencing the date we substantially
complete renovations at the property estimated to cost us $1,750,000. The
occupancy rate of our property portfolio was 99.9% on December 31, 2002. The
weighted average remaining term of the leases in our portfolio is eleven years.
We acquired our portfolio of properties by balancing fundamental real
estate analysis with tenant credit evaluation. The main focus of our analysis is
the intrinsic value of a property, determined primarily by its location, local
demographics and potential for alternative use. We also evaluate a tenant's
financial ability to meet operational needs and lease obligations. We believe
that our emphasis on property value enables us to achieve attractive returns on
our acquired properties and enhances our ability to re-rent or dispose of a
property on favorable terms upon the expiration of early termination of a lease.
The properties in our portfolio typically have the following
attributes:
o Net leases. Substantially all of our leases are net leases in which
operating costs are typically absorbed by the tenant. We believe that
investments in net leased properties offer more predictable returns
than investments in properties that are not net leased;
o Long-term leases. We generally acquire properties that are subject to
long-term leases. Leases representing approximately 73% of our 2003
contractual rental income (considering a lease which represents 9.8% of
our 2003 contractual rental income and expires in 2009, in which the
tenant has the right to cancel effective on or after January 1, 2005,
as expiring December 31, 2004) expire after 2008, and leases
representing approximately 61% of our 2003 contractual rental income
expire after 2012; and
o Scheduled rent increases. Leases representing approximately 84% of our
2003 contractual rental income provide for either scheduled rent
increases or periodic contractual rent increases based on the consumer
price index.
In May 2002, we sold 2.5 million shares of our common stock in a public
offering at $15.25 per share. We realized net proceeds of approximately $35
million.
We share facilities, personnel and other resources with several
affiliated entities including, among others, Gould Investors L.P., a partnership
involved in the ownership and operation of a diversified portfolio of real
estate, and BRT Realty Trust, a mortgage lending REIT. It is our policy, and the
policy of our affiliated entities, that any investment opportunity presented to
us or to any of our affiliated entities that involves primarily the acquisition
of a net leased property will first be offered to us and declined by us before
any of our affiliated entities may pursue the opportunity. Jeffrey Fishman, our
president and chief executive officer, and Lawrence G. Ricketts, Jr., our vice
president, acquisitions, devote substantially all of their business time to our
company, while our other management personnel share their services on a
part-time basis with us and other affiliated entities that share our executive
offices. We believe that this sharing arrangement provides us access to a group
of senior executives with real estate knowledge and experience that a company of
our size would not otherwise have access to. For a description of the background
of our management, please see the information under the heading "Executive
Officers" in Part I of this Annual Report.
Our Strategy
Our business objectives are to maintain and increase the cash available
for distribution to our stockholders by:
o acquiring a diversified portfolio of net leased properties subject to
long-term leases;
o obtaining mortgage indebtedness on favorable terms and increased access
to capital to finance property acquisitions;
o managing assets effectively through property acquisitions, lease
extensions and opportunistic property sales.
Our growth strategy includes the following elements:
o To maintain, renew and enter into new long-term leases that contain
provisions for contractual rent increases;
o To acquire additional properties within the United States that are
subject to long-term net leases and that satisfy our other investment
criteria; and
o To acquire properties in market or industry sectors that we identify,
from time to time, as offering superior risk-adjusted returns. As an
example, through two joint ventures (one organized in late 2001 and the
other in 2002), we have invested in nine movie theater properties,
concentrating on megaplex theaters with stadium-style seating. We may,
in the future, identify other markets or industry sectors in which to
invest.
Our business strategy is to pursue properties that are subject to
long-term leases which include periodic contractual rent increases. We believe
that long-term leases provide a predictable income stream over the term of the
lease, making fluctuations in market rental rates and in real estate values less
significant to achieving our overall investment objectives. Long-term leases
also make it easier for us to obtain longer-term, fixed-rate mortgage financing
with principal amortization, thereby moderating the interest rate risk
associated with financing or refinancing our property portfolio by reducing the
outstanding principal balance over time. In addition, we believe that long-term
leases minimize the management time required and transaction costs incurred
while we own a property. Although we regard long-term leases as a central
element of our acquisition strategy, we will acquire a property that is subject
to a short-term lease where we believe the property represents an excellent
opportunity for recurring income and residual value.
Generally, we acquire properties based on their intrinsic value and
intend to hold these properties for an extended period of time. Our investment
criteria are intended to identify properties from which increased asset value
and overall return can be realized from an extended period of ownership. While
our acquisition decision is typically supported by a predictable rental stream
under a long-term lease that exists at the time a property is acquired, our
emphasis on property value generally means that upon a lease termination or
expiration, we would tend to pursue a lease renewal or a new lease in preference
to disposing of a property. Although our investment criteria favor an extended
period of ownership of our properties, we may dispose of a property following a
lease termination or expiration or even during the term of a lease if we regard
the disposition of the property as an opportunity to realize the overall value
of the property sooner or to avoid future risks by achieving a determinable
return from the property.
Our Investment Strategy
Our main focus in the evaluation of properties for acquisition is the
intrinsic value of a property, determined primarily by its location, local
demographics and potential for alternative use. We also evaluate a tenant's
financial ability to meet operational needs and lease obligations. In evaluating
potential net lease investments, we consider, among other criteria, the
following:
o an evaluation of the property and improvements, given its location and
use;
o local demographics (population and rental trends);
o the ability of the tenant to meet operational needs and lease
obligations;
o the current and projected cash flow of the property;
o the estimated return on equity to us;
o the terms of tenant leases, including the relationship between current
rents and market rents;
o the projected residual value of the property;
o potential for income and capital appreciation; and
o occupancy of and demand for similar properties in the market area.
Megaplex Theater Joint Ventures
In mid 2001, we identified the acquisition of megaplex movie theaters,
and in particular stadium-style theaters, as an investment opportunity that
offered us the potential for acquiring valuable assets with returns that satisfy
our investment criteria. Megaplex movie theaters have multiple screens with
predominantly stadium-style seating (seating with elevation between rows to
provide unobstructed viewing) and are equipped with electronics and technology
that are intended to enhance the audio and visual experience for the patron. It
was and continues to be our belief that well-located, megaplex stadium-style
theaters that conform to our investment criteria would provide us with above
average risk-adjusted returns on our investment. In identifying the megaplex
theaters that present the most attractive acquisition candidates, our review of
potential property purchases includes and will continue to include an analysis
of the financial performance of each specific theater considered for purchase.
Our megaplex movie theater properties have been acquired by two joint
ventures, one in which we have a 25% equity interest and one in which we have a
50% equity interest. The initial joint venture organized in November 2001 (in
which we have a 25% equity interest) has purchased five megaplex theaters having
102 screens for a total consideration of $57.1 million. The venture has placed
first mortgages on four of the five theaters with an initial aggregate principal
sum of $28.9 million and an aggregate balance at December 31, 2002 of $28.7
million. The four mortgages are cross collateralized. After distribution of the
mortgage proceeds and cash flow distributions to the venturers, we have a $7.3
million investment in this joint venture at December 31, 2002. The venture has
filed an application for a $5.4 million mortgage on the unencumbered theater
property with the lender which provided mortgage financing for the four other
properties. This mortgage, when consummated, which cannot be assured, will be
cross collateralized along with the mortgages placed on the other four
properties owned by the venture.
The second joint venture organized in July 2002 (in which we have a 50%
equity interest) has acquired four megaplex theaters having 61 screens for a
total consideration of $40.4 million. We have a $12.7 million investment in this
joint venture at December 31, 2002. This venture has filed a mortgage
application with an institutional lender for mortgages aggregating $17.9 million
secured by three of the four megaplex theaters owned by this venture. If these
mortgages are consummated each property will be encumbered by a mortgage secured
specifically by such property and all mortgages will be cross collateralized.
The fourth megaplex theater property owned by this venture is encumbered by a
$9.2 million mortgage which was assumed as part of the purchase of the property.
We are designated the "Managing Member" under each joint venture
operating agreement. Each operating agreement provides that we receive an
acquisition fee from the joint venture equal to 0.5% of the purchase price of
each property acquired by the joint venture, other than the initial property
acquired in November 2001. In addition, Majestic Property Management Corp., a
company owned by our chairman of the board and in which certain of our executive
officers are officers, receives a management fee equal to 1% of all rents
received by the joint ventures from single-tenant properties and a management
fee equal to 3% of all rents received by the joint ventures from multi-tenant
properties. Majestic will receive leasing and mortgage brokerage fees for any
property acquired by either joint venture at a rate equal to 80% of the then
market cost. Majestic will also receive a construction supervisory fee equal to
8% of the cost of any capital improvements to the property and sale commissions
equal to 1% of the sales price of any properties that are sold.
Megaplex theaters of the type the joint ventures have acquired are net
leased to an experienced theater operator under a long-term net lease and are
equipped with stadium-style seating and advanced audio and visual equipment. The
following table provides certain information with respect to the 9 megaplex
stadium-style movie theaters acquired by the two joint ventures.
Expiration
No. of Purchase of Initial Date of
Location Screens Operator Price (1) Lease Term Purchase
- -------- ------- -------- --------- ---------- --------
Norwalk, CA 20 American Multi-Cinema, Inc. $12.5 2021 November 2001
Austell, GA 22 Regal Cinemas, Inc. 11.8 2019 April 2002
Beavercreek, OH 20 Regal Cinemas, Inc. 9.7 2015 May 2002
Morrow, GA 24 American Multi-Cinema, Inc. 14.1 2017 May 2002
Roanoke, VA 16 Consolidated Theaters 9.0 2020 August 2002
Holdings, G.P.
Brooklyn, NY 8 Pritchard Square Cinema LLC 9.5 2022 August 2002
Lubbock, TX 17 Cinemark USA, Inc. 7.9 2018 December 2002
Live Oak, TX 18 Regal Cinemas, Inc. 12.5 2019 December 2002
Henrietta, NY 18 Regal Cinemas, Inc. 10.5 2022 December 2002
-- ----
163 $ 97.5
=== ======
(1) Purchase price represents the total purchase price for each property
without giving effect to closing costs.
Our Tenants
The following table shows information about the diversification of our
tenants by industry sector as of December 31, 2002:
Percentage of
Type of 2003 Rental Number of 2003 Rental
Property Revenues (1) Tenants Revenues
- -------- ------------ ------- --------
Retail $ 8,335,153 26 (2) 39.6%
Flex 4,329,852 4 (3) 20.6%
Industrial 2,009,837 5 9.5%
Movie Theater 3,866,775 9 18.4%
Health & Fitness 1,069,870 3 5.1%
Office 850,000 1 4.0%
Residential 600,000 1 2.8%
------- - ---
Total $21,061,487 49 100%
=========== == ===
- -----------
(1) Reflects 2003 contractual rental income which includes rental income that
is payable to us during 2003, including our share of the rental income
payable to our joint ventures, and does not include rent that we would
receive if our two vacant properties are rented, rental income from one
property acquired in February 2003 and an increase in rental income from
our office property at the rate of $216,000 per annum to be received by
us commencing the date we substantially complete renovations at the
property estimated to cost us $1,750,000.
(2) Includes 26 tenants renting at 20 properties. Does not include two vacant
properties. (3) Includes four tenants renting at three properties.
Although we focus on property value in analyzing our acquisitions, we
also review the ability of the tenant to meet its operational needs and lease
obligations. Typically our tenants are not rated or are rated below investment
grade. Of our properties, 20 are net leased to various retail operators under
long-term leases and, except for 3 of the retail properties, are net leased to
single tenants. Of the three properties net leased to multiple retail operators,
one is net leased to four separate tenants pursuant to separate leases, one is
net leased to two separate tenants pursuant to separate leases and one is net
leased to three separate tenants pursuant to separate leases. Most of our retail
tenants operate on a national basis and include, among others, The Kroger Co.,
Barnes & Noble, Inc., The Sports Authority, Inc., Gart Bros. Sporting Goods
Company, Best Buy Co., Inc., OfficeMax Inc., Footstar, Inc., Party City
Corporation and Petco Animal Supplies, Inc. Five of our properties are
industrial-type buildings, of which two are used as frozen food warehouses.
Three of our properties are flex-type buildings (office, research and
development and warehouse) and three are health and fitness facilities. Finally,
we have one office property, one residential property and nine movie theaters.
At December 31, 2002, one of our retail properties, representing an aggregate of
3,072 square feet, is vacant. During February 2003, an additional retail
property, representing an aggregate of 43,200 square feet, became vacant. No
assurances can be given that we will find tenants for these two vacant
properties.
Our Leases
Substantially all of our leases are net leases, under which the tenant,
in addition to its rental obligation, typically is responsible for expenses
attributable to the operation of the property, such as real estate taxes and
assessments, water and sewer rents and other charges. The tenant is also
generally responsible for maintaining the property, including non-structural
repairs, and for restoration following a casualty or partial condemnation. The
tenant typically also indemnifies us for claims arising from the property and is
responsible for maintaining insurance coverage for the property it leases. Under
some net leases, we are responsible for structural repairs, including foundation
and slab, roof repair or replacement and restoration following a casualty event,
and at several properties we are responsible for certain expenses related to the
operation and maintenance of the property.
Our typical lease provides for contractual rent increases periodically
throughout the term of the lease. Some of our other leases provide for rent
increases pursuant to a formula based on the consumer price index. While several
of our leases also provide for minimum rents supplemented by additional payments
based on sales derived from the property subject to the lease, such additional
payments were not a material part of our 2002 rental revenues and are not
expected to be a material part of our 2003 rental revenues. While our typical
property is net leased to a single tenant, some of our properties are net leased
to more than one tenant.
Our policy has been to acquire properties that are subject to existing
long-term leases or to enter into long-term leases with our tenants. Our leases
generally provide the tenant with one or more renewal options. The following
table sets forth scheduled lease expirations of all leases for our properties as
of December 31, 2002 (excluding one vacant property and one property that became
vacant in February 2003 which contain an aggregate of 46,272 square feet):
2003
Approximate Rental % of 2003
Rentable Square Revenues Rental
Year of Lease Number of Expiring Feet Subject to Under Expiring Represented By
Expiration (1) Leases Expiring Leases (2) Leases (3) Expiring Leases
-------------- ------ ------------------- ---------- ---------------
2003 - - - -
2004 (4) 2 288,787 $ 2,317,236 11.01
2005 3 115,986 808,592 3.84
2006 2 87,897 457,371 2.17
2007 3 33,900 647,390 3.08
2008 2 468,921 1,411,350 6.71
2009 2 100,248 336,408 1.59
2010 3 412,000 445,619 2.12
2011 3 193,428 1,768,813 8.40
2012 and thereafter 29 1,612,885 12,857,250 61.08
-- --------- ---------- -----
Total 49 3,314,052 $21,050,029 100%
== ========= =========== ===
(1) Lease expirations assume tenants do not exercise existing renewal options.
(2) Includes all rentable square footage in properties that are owned by
our joint ventures.
(3) Reflects all 2003 contractual rental income, other than $11,458 in rental
revenue collected on a lease which, as a result of the tenant's bankruptcy,
terminated in February 2003. Contractual rental income includes rental
income that is payable to us during 2003, including our share of the rental
income payable to our joint ventures, and does not include rent that we
would receive if our two vacant properties are rented, rental income from
one property acquired in February 2003 and an increase in rental income
from one property at the rate of $216,000 per annum to be received by us
commencing the date we substantially complete renovations at the property
estimated to cost us $1,750,000.
(4) Includes one lease that expires December 31, 2009 but is cancelable by the
tenant on and after December 31, 2004 on at least one year's notice. The
property subject to this lease has 188,567 rentable square feet and
$2,074,236 of annual rental revenues is attributable to 2003.
Our Acquisition Process
We seek to acquire properties throughout the United States that have
locations, demographics and other investment attributes that we believe to be
attractive. We seek to acquire properties that we believe will provide
attractive current returns from leases with tenants that operate profitably,
even if they are typically either not rated or are rated below investment grade.
We identify properties where we believe that the quality of the underlying real
estate mitigates the risk that may be associated with any default by the tenant.
We conduct periodic property inspections and reviews of available tenant
financial information. We also seek to acquire properties in market or industry
sectors that we identify, from time to time, as offering better than average
risk-adjusted returns.
We identify properties generally through the network of contacts of our
senior management and our affiliates, which includes real estate brokers
throughout the United States, private equity firms, banks and law firms. In
addition, we attend industry conferences and engage in direct solicitations.
There is no limit on the number of properties in which we may invest, the
amount or percentage of our assets that may be invested in any specific property
or property type, or on the concentration of investments in any geographic area
in the United States. We do not intend to acquire properties located outside of
the United States. Although we have not acquired undeveloped property in the
past, we may purchase an undeveloped property if the purchase is in connection
with the development of a facility to be net leased to a retail operation or
business upon completion of development, and we may develop for net lease
surplus acreage that is part of our existing properties. We may continue to form
entities to acquire interests in real properties, either alone or with other
investors, and we may acquire interests in joint ventures or other entities that
own real property.
Financing, Re-Renting and Disposition of Our Properties
There is no limit on the level of debt that we may incur. We borrow funds
on a secured and unsecured basis and intend to continue to do so in the future.
We mortgage specific properties on a non-recourse basis (subject to standard
carve-outs) to enhance the return on our investment in a specific property. On
March 21, 2003 we concluded a $30 million credit line that is a recourse
obligation. The new credit line replaced a $15 million credit line that would
have expired on March 24, 2003. The proceeds of mortgage loans and amounts drawn
on our credit line may be used for property acquisitions, investments in joint
ventures, to reduce bank debt and for working capital purposes.
We typically seek long-term fixed-rate mortgage financing soon after the
acquisition of a property to avoid the risk of movement of interest rates and
fluctuating supply and demand in the mortgage capital markets. Substantially all
of our mortgages provide for amortization of part of the principal balance
during the term, thereby reducing the refinancing risk at maturity. Some of our
properties may be financed on a cross-defaulted or cross-collateralized basis,
and we may collateralize a single financing with more than one property.
After termination or expiration of any lease relating to any of our
properties (either at lease expiration or early termination), we will seek to
re-rent or sell such property in a manner that will maximize the return to us,
considering, among other factors, the income potential and sale value of such
property. We acquire properties for long-term investment for income purposes and
do not typically engage in the turnover of investments. We will consider the
sale of a property prior to termination or expiration of the relevant lease if a
sale appears advantageous in view of our investment objectives. We may take a
purchase money mortgage as partial payment in lieu of cash in connection with
any sale and may consider 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 stockholders to
maintain our REIT status, to pay down amounts due under loan agreements
(excluding real estate mortgage loans), if any, and for the acquisition of
additional properties.
Other Types of Investments
From time to time we have invested, on a limited basis, in publicly
traded shares of other REITs and may make such investments 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 no such investment
adversely affects our ability to qualify as a REIT under the Internal Revenue
Code. 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 that fit our
investment criteria. 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.
Competition
We face competition for the acquisition of net leased properties from a
variety of investors including domestic and foreign corporations and real estate
companies, financial institutions, insurance companies, pension funds,
investment funds, other REITs and individuals, some of which have significant
advantages over us including a larger, more diverse group of properties and
greater financial and other resources than we have. We believe that our
management's experience in real estate, mortgage lending, credit underwriting
and transaction structuring allows us to compete effectively for properties.
Risks Related to Our Company
The financial failure of our tenants would be likely to cause significant
reductions in our revenues and equity in earnings of unconsolidated joint
ventures and in the value of our portfolio.
Substantially all of our revenues are derived from rental income
generated by our properties, and 91% of our properties, based on 2002 revenues,
are leased to single tenants. Accordingly, the financial failure or other
default of a tenant in non-payment of rent or property-related expenses or the
termination of a lease could cause a significant reduction in our revenues.
Additionally, approximately 51.8% and 53.2% of our total revenues for the years
ended December 31, 2002 and December 31, 2001, respectively, were derived from
retail tenants. In addition, we anticipate that significant revenues will be
realized in 2003 by our two movie theater joint ventures. Weakening of economic
conditions in the retail or theater industries could result in the financial
failure, or other default, of a significant number of our tenants. Two of our
retail tenants have filed for protection under the federal bankruptcy laws, one
of which ceased operating at the property it leased from us in February 2003.
The other tenant represents approximately 1.7% of our 2003 contractual rental
income and has continued to pay its monthly rent. It is possible that other
tenants could file for protection under federal bankruptcy laws or state
insolvency proceedings or could face similar difficulties in the future. In the
event of a default by a tenant, we may experience delays in enforcing our rights
as landlord and sustain loss of revenues and substantial costs in protecting our
investment. We may also face liabilities arising from the tenant's actions or
omissions that would reduce our revenues and the value of our portfolio. Also,
if we are unable to re-rent any property when the existing lease terminates, for
an extended period of time, we would receive no revenues from such property and
could experience a decline in the value of the property.
A significant portion of our revenues is derived from four tenants. The default,
financial distress or failure of any of these tenants could significantly reduce
our revenues.
L-3 Communications Corp. and Barnes & Noble, Inc. (a tenant at three
separate properties) accounted for approximately 11.1% and 9.3%, respectively,
of our total revenues for the year ended December 31, 2002 and account for 7.4%
and 6.6%, respectively, of our 2003 contractual rental income. GE Medical
Systems Information Technologies, Inc., a tenant at one of our properties,
accounts for 9.8% of our 2003 contractual rental income and Regal Cinemas, Inc.,
a tenant at four theaters owned by our movie theater joint ventures, accounts
for 8.7% of the 2003 contractual rental income. The default, financial distress
or bankruptcy of any of these tenants could cause interruptions in the receipt
or the loss of a significant amount of revenues and result in the vacancy of the
property occupied by the defaulting tenant, which would significantly reduce our
revenues and net income until the property is re-rented, and could decrease the
ultimate sale value of the property.
The inability to repay our indebtedness could reduce cash available for
distributions and cause losses.
As of December 31, 2002, we had outstanding approximately $77.4 million
in long-term mortgage indebtedness, all of which is non-recourse (subject to
standard carve-outs). Our ratio of debt (including the $10 million outstanding
under our line of credit) to total assets was approximately 49% as of December
31, 2002. In addition, our movie theater joint ventures have outstanding
approximately $44.2 million in long-term mortgage indebtedness secured by six
megaplex theaters and we expect that mortgages will be placed on the other three
megaplex movie theaters owned by the movie theater joint ventures. The mortgage
on the Brooklyn, NY movie theater presently held by us is in the process of
being refinanced. The risks associated with our debt include the risk that our
cash flow will be insufficient to meet required payments of principal and
interest. Further, if a property or properties are mortgaged to collateralize
payment of indebtedness and we are unable to make mortgage payments on the
secured indebtedness, the lender could foreclose upon the property or properties
resulting in a loss of revenues to us and a decline in the value of our
portfolio. Even with respect to non-recourse indebtedness, the lender may have
the right to recover deficiencies from us under certain circumstances that could
result in a reduction in the amount of cash available to meet expenses and to
make distributions and in a deterioration of our financial condition.
If we are unable to refinance our borrowings at favorable rates or otherwise
raise funds, our net income may decline or we may be forced to sell properties
on disadvantageous terms, which would result in the loss of revenues and in a
decline in the value of our portfolio.
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. Accordingly, in order to meet these
obligations, we will have to refinance debt or seek to raise funds through the
financing of unencumbered properties, sale of properties or sale of additional
equity. Between 2003 and 2007, we will have to refinance an aggregate of
approximately $31.48 million of maturing debt, of which approximately $8.81
million and $2.91 million will have to be refinanced in 2003 and 2004,
respectively. We can give no assurance that we will be able to refinance this
debt or arrange additional debt financing on unencumbered properties on terms as
favorable as the terms of existing indebtedness, or at all. If prevailing
interest rates or other factors at the time of refinancing result in higher
interest rates, our interest expense would increase, which would adversely
affect our net income, financial condition and the amount of cash available to
make distributions to stockholders. If we are not successful in refinancing our
existing indebtedness or financing our unencumbered properties, selling
properties on favorable terms or selling additional equity, our cash flow will
not be sufficient to repay all maturing debt when payments become due, and we
may be forced to dispose of properties on disadvantageous terms, which would
result in the loss of revenues and in a decline in the value of our portfolio.
Increased borrowings could result in increased risk of default on our repayment
obligations and increased debt service requirements.
Our governing instruments do not contain any limitation on the amount of
indebtedness we may incur. Accordingly, increased leverage could result in
increased risk of default on our payment obligations related to borrowings and
in an increase in debt service requirements which would reduce our net income
and the amount of cash available to meet expenses and to make distributions to
holders of our common stock.
If we are unable to re-rent properties upon the expiration of our leases, it
could adversely affect our revenues and ability to make distributions and could
reduce the value of our portfolio.
Substantially all of our revenues are derived from rental income paid by
tenants at our properties. We cannot predict whether current tenants will renew
their leases upon the expiration of their terms. In addition, we cannot predict
whether current tenants will attempt to terminate their leases, or whether
defaults by tenants may result in termination of their leases prior to the
expiration of their current terms. If tenants terminate or fail to renew their
leases, or if leases terminate due to defaults, we may not be able to locate
qualified replacement tenants and, as a result, we would lose a source of
revenues while remaining responsible for the payment of our mortgage obligations
and the expenses related to the properties, including real estate taxes. Even if
tenants decide to renew their leases or we find replacement tenants, the terms
of renewals or new leases, including the cost of required renovations or
concessions to tenants, may be less favorable than current lease terms and could
reduce the amount of cash available to meet expenses and to make distributions
to holders of our common stock.
Uninsured and underinsured losses may affect the revenues generated by, the
value of, and the return from, a property affected by a casualty or other claim.
Substantially all of our tenants obtain, for our benefit, comprehensive
insurance covering our properties in amounts that are intended to be sufficient
to provide for the replacement of the improvements at each property. However,
the amount of insurance coverage maintained for any property may not be
sufficient to pay the full replacement cost of the improvements at the property
following a casualty event. In addition, the rent loss coverage under the policy
may not extend for the full period of time that a tenant may be entitled to a
rent abatement as a result of, or that may be required to complete restoration
following, a casualty event. In addition, there are certain types of losses,
such as those arising from earthquakes, floods, hurricanes and terrorist
attacks, that may be uninsurable or that may not be economically insurable.
Changes in zoning, building codes and ordinances, environmental considerations
and other factors also may make it impossible or impracticable for us to use
insurance proceeds to replace damaged or destroyed improvements at a property.
If restoration is not or cannot be completed to the extent, or within a period
of time, specified in certain of our leases, the tenant may have the right to
terminate the lease. If any of these or similar events occur, it may reduce our
revenues, or the value of, or our return from, an affected property.
Our revenues and the value of our portfolio are affected by a number of factors
that affect investments in real estate generally.
We are subject to the general risks of investing in real estate. These
include adverse changes in economic conditions and local conditions such as
changing demographics, retailing trends and traffic patterns, declines in the
rental rates we are able to obtain, changes in the supply and price of quality
properties and the market supply and demand of competing properties, the impact
of environmental laws, security concerns, prepayment penalties applicable under
mortgage financing, changes in tax, zoning, building code, fire safety and other
laws, the type of insurance coverages available in the market, and changes in
the type, capacity and sophistication of building systems. Any of these
conditions could have an adverse effect on our results of operations, liquidity
and financial condition.
Our revenues and the value of our portfolio are affected by a number of factors
that affect investments in leased real estate generally.
We are subject to the general risks of investing in leased real estate.
These include the non-performance of lease obligations by tenants, improvements
that will be costly or difficult to remove should it become necessary to re-rent
the leased space for other uses, covenants in certain retail leases that limit
the types of tenants to which available space can be rented (which may limit
demand or reduce the rents realized on re-renting), rights of termination of
leases due to events of casualty or condemnation affecting the leased space or
the property or due to interruption of the tenant's quiet enjoyment of the
leased premises, and obligations of a landlord to restore the leased premises or
the property following events of casualty or condemnation. Any of these
conditions could have an adverse impact on our results of operations, liquidity
and financial condition.
Our real estate investments are relatively illiquid and their values may
decline.
Real estate investments are relatively illiquid. Therefore, we will be
limited in our ability to reconfigure our real estate portfolio in response to
economic changes. We may encounter difficulty in disposing of properties when
tenants vacate either at the expiration of the applicable lease or otherwise. If
we decide to sell any of our properties, our ability to sell these properties
and the prices we receive on their sale will be affected by the number of
potential buyers, the number of competing properties on the market and other
market conditions, as well as whether the property is leased and if it is
leased, the terms of the lease. As a result, we may be unable to sell our
properties for an extended period of time without incurring a loss, which would
adversely affect our results of operations, liquidity and financial condition.
The concentration of our properties in certain geographic areas may make our
revenues and the value of our portfolio vulnerable to adverse changes in local
economic conditions.
We do not have specific limitations on the total percentage of our real
estate properties that may be located in any one area. Consequently, properties
that we own may be located in the same or a limited number of geographic
regions. Approximately 55.1% of our total revenues for the year ended December
31, 2002 and approximately 56.6% of our total revenues for the year ended
December 31, 2001 were derived from properties located in New York and Texas. As
a result, a decline in the economic conditions in these geographic regions, or
in geographic regions where our properties may be concentrated in the future,
may have an adverse effect on the rental and occupancy rates for, and the
property values of, these properties, which could lead to a reduction in our
revenues and in the value of these properties.
Our inability to control our joint ventures could result in diversion of time
and effort by our management and the inability to achieve the goals of the joint
venture agreement.
We presently are a venturer in four joint ventures which own 11
properties and represent an equity investment of $23.5 million by us. Our joint
venture investments may involve risks not otherwise present in investments made
solely by us, including that our co-venturers may have different interests or
goals than we do, or that our co-venturers may not be able or willing to take an
action that is desired by us. Because neither we nor any of our co-venturers
have full control over the joint venture, disagreements with or among our
co-venturers could result in substantial diversion of time and effort by our
management team and the inability to successfully acquire, operate, finance,
lease or sell properties as intended by our joint venture agreements. In
addition, since there is no limitation under our organizational documents as to
the amount of funds that may be invested in joint ventures, we may invest a
significant amount of our funds into joint ventures which ultimately may not be
profitable as a result of disagreements with or among our co-venturers.
Our joint venture agreements contain provisions related to the transfer of our
interest, disputes between venturers and future capital contributions that could
limit our ability to liquidate our interest or adversely affect the value of our
investment.
The joint venture agreements entered into for each of our joint ventures provide
that we cannot finance or transfer our interest in the venture without the
consent of the other venturers. If we are unable to obtain the consent of our
co-venturers to a proposed financing or transfer of our joint venture interest,
we may be unable to dispose of such interest on favorable terms. The joint
venture agreements also contain provisions governing disputes between the
venturers that could obligate us to acquire the interest of other venturers on
unfavorable terms or without adequate time to obtain satisfactory financing or
force us to sell our interest on terms that may be disadvantageous. In addition,
if we fail to contribute any additional capital that we are required to
contribute to the joint venture in the future, our interest in the joint venture
may be reduced disproportionately, or another venturer may elect to fund our
portion of the capital contribution, which would result in that venturer
acquiring a preferred rate of return and a right to receive interest on the
amount of such contribution. The occurrence of any of these events would
adversely affect the value of our investment in the joint venture.
Competition in the real estate business is intense and could reduce our revenues
and harm our business.
We compete for real estate investments with all types of investors,
including domestic and foreign corporations and real estate companies, financial
institutions, insurance companies, pension funds, investment funds, other REITs
and individuals. Many of these competitors have significant advantages over us,
including a larger, more diverse group of properties and greater financial and
other resources. Our failure to compete successfully with these competitors
could result in our inability to identify and acquire valuable properties and to
achieve our growth objectives.
Compliance with environmental regulations and associated costs could adversely
affect our liquidity.
Under various federal, state and local laws, ordinances and regulations,
an owner or operator of real property may be required to investigate and clean
up hazardous or toxic substances or petroleum product releases at the property
and may be held liable to a governmental entity or to third parties for property
damage and for investigation and cleanup costs incurred in connection with
contamination. The cost of investigation, remediation or removal of hazardous or
toxic substances may be substantial, and the presence of such substances, or the
failure to properly remediate a property, may adversely affect our ability to
sell or rent the property or to borrow money using the property as collateral.
In connection with our ownership, operation and management of real properties,
we may be considered an owner or operator of the properties and, therefore,
potentially liable for removal or remediation costs, as well as certain other
related costs, including governmental fines and liability for injuries to
persons and property, not only with respect to properties we own now or may
acquire, but also with respect to properties we have owned in the past.
We cannot provide any assurance that existing environmental studies with
respect to any of our properties reveal all potential 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 not exist in the future, as to any one or more of our
properties. If a material environmental condition does in fact exist, or exists
in the future, it could have a material adverse impact upon our results of
operations, liquidity and financial condition.
Our senior management and other key personnel are critical to our business and
our future success depends on our ability to retain them.
We depend on the services of Fredric H. Gould, chairman of our board of
directors, Jeffrey Fishman, our president and chief executive officer, and other
members of our senior management to carry out our business and investment
strategies. Only two officers, Mr. Fishman and Lawrence G. Ricketts, Jr., our
vice president, acquisitions, devote substantially all of their business time to
our company. The remainder of our management personnel share their services on a
part-time basis with entities affiliated with us and located in the same
executive offices. In addition, Messrs. Fishman and Ricketts devote a limited
amount of their business time to entities affiliated with us. As we expand, we
will continue to need to attract and retain qualified senior management and
other key personnel, both on a full-time, as well as on a part-time basis. The
loss of the services of any of our senior management or other key personnel, or
our inability to recruit and retain qualified personnel in the future, could
impair our ability to carry out our business and investment strategies.
Our transactions with affiliated entities involve conflicts of interest.
We have entered into a number of transactions with persons and entities
affiliated with us and with certain of our officers and directors and we intend
to enter into transactions with such persons in the future. For a description of
our current transactions with affiliates, please see the information under the
heading "Certain Relationships and Allocated Expenses." Although our policy is
to insure that we receive terms in transactions with affiliates that are at
least as favorable to us as similar transactions we would enter into with
unaffiliated persons, these transactions raise the potential that we may not
receive terms as favorable as those that we would receive if the transactions
were entered into with unaffiliated entities. In addition, although policies are
in place to insure that all potential acquisitions of "net leased" properties
are first offered to us, we and our affiliated entities may have opportunities,
from time to time, to make investments in the same properties and if our
officers and directors fail to provide us with the opportunity to acquire a
valuable property that meets our investment criteria, we could be deprived of a
valuable investment property.
We are required by certain of our net lease agreements to pay property related
expenses that are not the obligations of our tenants.
Under the terms of substantially all of our net lease agreements, in
addition to satisfying their rent obligations, our tenants are responsible for
the payment of real estate taxes, insurance and ordinary maintenance and
repairs. However, in the case of certain leases, we may pay some expenses, such
as the costs of environmental liabilities, structural repairs, insurance and
certain non-structural repairs and repairs and maintenance. If our properties
incur significant expenses that must be paid by us under the terms of our lease
agreements, our business, financial condition and results of operations will be
adversely affected and the amount of cash available to meet expenses and to make
distributions to holders of our common stock may be reduced.
Compliance with the Americans with Disabilities Act could be costly.
Under the Americans with Disabilities Act of 1990, all public
accommodations must meet federal requirements for access and use by disabled
persons. A determination that our properties do not comply with the Americans
with Disabilities Act could result in liability for both governmental fines and
damages. If we are required to make unanticipated major modifications to any of
our properties to comply with the Americans with Disabilities Act, which are
determined not to be the responsibility of our tenants, we could incur
unanticipated expenses that could have an adverse impact upon our results of
operations, liquidity and financial condition.
We cannot assure you of our ability to pay dividends in the future.
We intend to pay quarterly dividends and to make distributions to our
stockholders in amounts such that all or substantially all of our taxable income
in each year, subject to certain adjustments, is distributed. This, along with
other factors, should enable us to quality for the tax benefits accorded to a
REIT under the Internal Revenue Code. We have not established a minimum dividend
payment level and our ability to pay dividends may be adversely affected by the
risk factors described in this Annual Report. All distributions will be made at
the discretion of our board of directors and will depend on our earnings, our
financial condition, maintenance of our REIT status and such other factors as
our board of directors may deem relevant from time to time. We cannot assure you
that we will be able to pay dividends in the future.
Risks Related to the REIT Industry
Failure to qualify as a REIT would result in a material adverse tax consequences
and would significantly reduce cash available for distributions.
We believe that we operate so as to qualify as a REIT under the Internal
Revenue Code. Qualification as a REIT involves the application of technical and
complex legal provisions for which there are 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
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 quality 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 would be disqualified from treatment as a REIT
for the four taxable years following the year during which qualification is
lost. The additional tax would reduce significantly our net income and the cash
available for distributions to stockholders.
We are subject to certain distribution requirements that may result in our
having to borrow funds at unfavorable rates.
To obtain the favorable tax treatment associated with being a REIT, we
generally will be required, among other things, to distribute to our
stockholders at least 90% of our ordinary taxable income (excluding capital
gains) each year. 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.
As a result of differences in timing between the receipt of income and
the payment of expenses, and the inclusion of such income and the deduction of
such expenses in arriving at taxable income, and the effect of nondeductible
capital expenditures, the creation of reserves and the timing of required debt
service (including amortization) payments, we may need to borrow funds on a
short-term basis in order to make the distributions necessary to retain the tax
benefits associated with qualifying as a REIT, even if we believe that then
prevailing market conditions are not generally favorable for such borrowings.
Such borrowings could reduce our net income and the cash available for
distributions to holders of our common stock.
Compliance with REIT requirements may hinder our ability to maximize profits.
In order to qualify as a REIT for federal income tax purposes, we must
continually satisfy tests concerning among other things, our sources of income,
the amounts we distribute to our stockholders and the ownership of our stock. We
may also be required to make distributions to stockholders at disadvantageous
times or when we do not have funds readily available for distribution.
Accordingly, compliance with REIT requirements may hinder our ability to operate
solely on the basis of maximizing profits.
In order to qualify as a REIT, we must also ensure that at the end of
each calendar quarter, at least 75% of the value of our assets consists of cash,
cash items, government securities and qualified REIT real estate assets. The
remainder of our investment in securities cannot include more than 10% of the
outstanding voting securities of any one issuer or more than 10% of the total
value of the outstanding securities of any one issuer. In addition, no more than
5% of the value of our assets can consist of the securities of any one issuer,
other than a qualified REIT security. If we fail to comply with these
requirements, we must dispose of a portion of our assets within 30 days after
the end of the calendar quarter in order to avoid losing our REIT status and
suffering adverse tax consequences. This requirement could cause us to dispose
of assets for consideration of less than their true value and could lead to a
material adverse impact on our results of operations and financial condition.
Executive Officers
The following sets forth information with respect to our executive officers:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Fredric H. Gould 67 Chairman of the Board *
Jeffrey Fishman 44 President and Chief Executive
Officer
Jeffrey A. Gould 37 Senior Vice President *
Matthew J. Gould 43 Senior Vice President*
Israel Rosenzweig 55 Senior Vice President
Simeon Brinberg 69 Senior Vice President **
David W. Kalish 56 Senior Vice President and
Chief Financial Officer
Mark H. Lundy 41 Secretary **
Seth D. Kobay 48 Vice President and Treasurer
Karen Dunleavy 44 Vice President, Financial
Lawrence G. Ricketts 26 Vice President, Acquisitions
* Matthew Gould and Jeffrey Gould are Fredric H. Gould's sons.
** Mark H. Lundy is Simeon Brinberg's son-in-law.
Each of the above listed executive officers will hold office until the
next annual meeting of the Board of Directors, scheduled for June 23, 2003, 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 and a director
of EastGroup Properties, Inc. EastGroup Properties, Inc. is a real estate
investment trust that focuses on ownership of industrial properties in major
sunbelt markets throughout the United States.
Jeffrey Fishman. Mr. Fishman has been President and Chief Operating Officer of
One Liberty Properties from December, 1999 until December, 2001 and Chief
Executive Officer since January 1, 2002. 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 A. Gould. Mr. Gould has been President and Chief Operating Officer of
BRT Realty Trust from March 1996 to December 2001 and President and Chief
Executive Officer of BRT Realty Trust since 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 J. 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.
Mr. Rosenzweig is a Director of Nautica Enterprises, Inc., a company which
designs, sources, markets and distributes apparel.
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 and a Vice President since June 2000, 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.
Item 2. Properties
As of December 31, 2002, we owned 33 properties and participated in 4
joint ventures that owned a total of 11 properties. The following table sets
forth information as of December 31, 2002 concerning each property in which we
currently own an equity interest and the operator of the business occupying the
property (which is not necessarily the same enterprise as the actual tenant).
Except as otherwise noted, we own 100% of each property:
Approx.
Type of % of 2003 Rentable
Location Property Operator Rental Revenues (1) Sq. Ft.
- -------- -------- -------- ------------------- -------
Jupiter, FL Flex GE Medical Systems 9.85% 188,567
Information Technologies, Inc.
Hauppauge, NY Flex L-3 Communications Corporation 7.38% 149,870
El Paso, TX Retail Barnes & Noble, Inc.; Best Buy 7.02% 110,179
Co., Inc.; CompUSA, Inc.;
Mattress Firm
Hanover, PA Industrial The ESAB Group, Inc. 6.23% 458,560
Columbus, OH Retail Kittle's Home Furnishing 4.19% 96,924
Center, Inc.
Brooklyn, NY Office The City of New York 4.04% 66,000
Plano, TX Retail Golfsmith International, L.P., 3.81% 51,018
BDP, L.C. - franchise of
Bassett Furniture Industries, Inc.
Ronkonkoma, NY Flex Cedar Graphics, Inc.; Gavin Mfg. Corp. 3.33% 89,500
Live Oak, TX (2) Theater Regal Cinemas, Inc. 3.11% 81,836
Lake Charles, LA Retail Party City Corporation; Office Max, Inc.; 3.01% 54,229
Pet Smart, Inc.
Manhattan, NY Residential Stanford Realty Associates, Inc. 2.85% 125,000
Brooklyn, NY (2) Theater Pritchard Square Cinema LLC 2.71% 33,120
Henrietta, NY (2) Theater Regal Cinemas, Inc. 2.61% 76,315
Ft. Myers, FL Retail Barnes & Noble, Inc 2.44% 29,993
Grand Rapids, MI Health & Fitness Trinity Health- Michigan 2.33% 130,000
Greenwood Village, CO Retail Gart Bros. Sporting Goods Company 2.01% 45,000
Atlanta, GA Retail The Sports Authority, Inc. 2.09% 50,400
Lubbock, TX (2) Theater Cinemark USA, Inc. 1.96% 60,732
Approx.
Type of % of 2003 Rentable
Location Property Operator Rental Revenues (1) Sq. Ft.
- -------- -------- -------- ------------------- -------
Champaign, IL Retail Barnes & Noble, Inc. 1.91% 50,530
Norwalk, CA (2) Theater American Multi-Cinema, Inc. 1.88% 80,000
Morrow, GA (2) Theater American Multi-Cinema, Inc. 1.87% 88,000
Lewisville, TX Retail Footstar, Inc. 1.86% 21,043
Mesquite, TX Retail BDP, L.C. - franchise of 1.77% 22,900
Bassett Furniture Industries, Inc.
Chattanooga, TN Retail Rhodes, Inc. - subtenant of Kmart Corp. 1.71% 72,897
Austell, GA (2) Theater Regal Cinemas, Inc. 1.68% 88,660
Selden, NY Retail Petco Animal Supplies, Inc. 1.47% 14,550
Tucker, GA Health & Fitness LA Fitness International, LLC 1.44% 58,800
Beavercreek, OH (2) Theater Regal Cinemas, Inc. 1.34% 75,149
Grand Rapids, MI Health & Fitness Trinity Health - Michigan 1.31% 72,000
Roanoke, VA (2) Theater Consolidated Theaters Holdings, G.P. 1.19% 51,222
Batavia, NY Retail OfficeMax, Inc. 1.19% 23,483
Columbus, OH Industrial The Kroger Co. 1.15% 100,220
Houston, TX Retail Party City Corporation 1.03% 12,000
New Hyde Park, NY Industrial Lawson Mardon USA Inc. .95% 89,000
Cedar Rapids, IA Retail Ultimate Electronics, Inc. .86% 15,400
Shreveport, LA (2) Retail Footstar, Inc. .82% 17,108
Killeen, TX Retail Hollywood Entertainment Corp. .77% 8,000
Miami, FL (2) Industrial United States Cold .73% 396,000
Storage Inc.
Houston, TX Retail The Kroger Co. .71% 38,448
Rosenberg, TX Retail Hollywood Entertainment Corp. .61% 8,000
Approx.
Type of % of 2003 Rentable
Location Property Operator Rental Revenues (1) Sq. Ft.
- -------- -------- -------- ------------------- -------
West Palm Beach, FL Industrial BellSouth Telecommunications Inc. .47% 10,361
Seattle, WA Retail Payless Shoe Source, Inc. .26% 3,038
Hamilton, NY Retail Ames Department Stores, Inc. (3) .05% 43,200
Ottumwa, IA Retail Vacant 0% 3,072
- -----
TOTAL 100% 3,360,324
=== =========
(1) Reflects percentage of 2003 contractual rental income which
includes rental income that is payable to us during 2003, including our share of
the rental income payable to our joint ventures, and does not include rent that
we would receive if our two vacant properties are rented, rental income from one
property acquired in February 2003 and an increase in rental income from one
property at the rate of $216,000 per annum to be received by us commencing the
date we substantially complete renovations at the property estimated to cost us
$1,750,000.
(2) Owned by a joint venture in which we are a venturer. Percentage of
revenues indicated represents our share of the revenues of the venture.
Approximate rentable square footage indicated represents the total rentable
square footage of the property owned by the venture.
(3) Tenant, which filed for bankruptcy protection and then liquidated,
terminated the lease in February 2003.
The occupancy rate for our properties, based on total rentable square
footage was in excess of 99% for each of 2001 and 2002.
Our properties are located in fifteen states. The following table sets
forth certain information, presented by state, related to our properties as of
December 31, 2002, including the properties owned by joint ventures in which we
are a venturer.
Number Approximate
Of Net Book 2003 Rental Rentable
State Properties Value(1) Revenues (2) Square Feet
- ----- ---------- -------- ------------ -----------
New York 10 $38,948,906 $5,598,317 710,038
Texas 10 42,191,241 4,768,934 414,156
Florida 4 22,383,695 2,841,356 624,921
Georgia 4 10,299,619 1,495,142 285,860
Ohio 3 9,190,065 1,406,931 272,293
Pennsylvania 1 11,130,264 1,311,717 458,560
Other 12 29,746,939 3,639,090 594,496
-- ---------- --------- -------
Total 44 $163,890,729 $21,061,487 3,360,324
== ============ =========== =========
- -----------
(1) Historical book value is not necessarily indicative of current market value.
(2) Reflects 2003 contractual rental income which includes rental income that is
payable to us during 2003, including our share of the rental income payable to
our joint ventures, and does not include rent that we would receive if our two
vacant properties are rented, rental income from one property acquired in
February 2003 and an increase in rental income from one property at the rate of
$216,000 per annum to be received by us commencing the date we substantially
complete renovations at the property estimated to cost us $1,750,000.
At December 31, 2002, we had first mortgages on 22 of the 33 properties
we owned as of that date (excluding properties owned by our joint ventures). At
December 31, 2002, we had $77,367,000 principal amount of mortgages outstanding,
bearing interest at rates ranging from 6.25% to 8.8%. Substantially all
mortgages contain prepayment penalties. The following table sets forth scheduled
principal mortgage payments due for our properties as of December 31, 2002
(assuming no payment is made on principal on any outstanding mortgage in advance
of its due date):
PRINCIPAL PAYMENTS DUE
YEAR IN YEAR INDICATED
---- (Amounts in Thousands)
---------------------
2003 $9,969 (1)
2004 4,148
2005 9,428
2006 8,806
2007 4,949
2008 and thereafter 40,067
---- ------
Total $77,367
=======
(1) Amount indicated is comprised of two mortgages, one of which is being
refinanced and we have filed a mortgage application for such refinancing; the
other has been extended on a month to month basis and we have filed a mortgage
application with respect to a refinancing. Although we can give no assurances,
we expect that the mortgages coming due in 2003, listed in the above table, will
be refinanced for at least the principal balances due and owing.
Significant Properties
As of December 31, 2002, no property owned by us had a book value equal
to or greater than 10% of our total assets. Only the Hauppauge, NY property had
annual revenues in the year ending December 31, 2002 which accounted for more
than 10% of our aggregate annual gross revenues. The following sets forth the
information concerning this property.
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 said five acre parcel. We
have completed a subdivision of four of the delineated five acres and have
submitted a proposal to a governmental agency to build a one story, 43,000
square foot office building for the agency which will enter into a 20 year net
lease for 100% of the space at the property. There are no assurances that this
project will be completed or completed based on current negotiations. We will
not commence construction unless and until a lease is signed with such
governmental agency or another suitable tenant.
The property is adequate for its current use and, except for the
development of the four acre subdivided plot, there are no plans in place for
renovations or improvements to the property.
Description of Lease
The existing building on the property 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 tenant renewal
options and provides for a current base rent of $1,554,925 per annum ($10.37 per
square foot) increasing each calendar year during the term and any extended
term. The tenant is responsible for maintenance and repairs to the premises. The
tenant utilizes the facility for offices, research and development and light
manufacturing. The current tenant and its predecessor have occupied the property
for more than the past five years.
The realty tax rate for this property is $1.2318 per $1,000 of assessed
value and the annual real estate taxes are $329,135.
Mortgage
On April 25, 2001, we obtained a $9,900,000 non-recourse first mortgage
loan secured by the Hauppauge, NY 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 $6,869,000. We have the right to prepay this mortgage
provided we pay a yield maintenance penalty. The mortgagee released the mortgage
lien from the subdivided four acres without a principal payment.
Item 3. Legal Proceedings
Neither we nor our properties are presently subject to any material
litigation in which we are defendant 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.
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, 2002 and
2001.
COMMON STOCK PREFERRED STOCK
------------ ---------------
DISTRIBUTIONS DISTRIBUTIONS
2002 HIGH LOW PER SHARE HIGH LOW PER SHARE
- ---- ---- --- --------- ---- --- ---------
First Quarter $17.00 $14.60 $.33 $17.75 $16.80 $.40
Second Quarter $17.50 $14.90 $.33 $17.50 $16.60 $.40
Third Quarter $15.30 $13.50 $.33 $18.00 $16.50 $.40
Fourth Quarter $15.47 $14.30 $.33* $18.25 $17.55 $.40 *
2001
- ----
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 *
* A cash distribution of $.33 and $.40 was paid on the Common Stock and
Preferred Stock, respectively, on January 2, 2003 and a cash distribution of
$.30 and $.40 was paid on the Common and Preferred Stock, respectively, on
January 3, 2002. The cash distributions paid in January 2003 and January 2002
are considered as being paid in the fourth quarter of 2002 and 2001,
respectively.
The Common Stock and Convertible Preferred Stock trade on the American
Stock Exchange, under the symbols OLP and OLP Pr, respectively. As of March 6,
2003 there were 377 common and 126 preferred stockholders of record and we
estimate that at such date there were approximately 1,400 and 925 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, 2002
and as of December 31, 2001 and 2002 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
December 31
(Amounts in Thousands, Except Per Share Data)
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
OPERATING DATA
- --------------
Revenues $15,705 $15,237 $12,669 $10,180 $10,133
Earnings before equity in earnings of unconsolidated
joint ventures and gain on sale 4,813 4,671 4,142 4,753 5,286
Equity in earnings of unconsolidated joint ventures 1,078 83 - - -
Net (loss) gain on sale of real estate and gain on
sale of available-for-sale securities (11) 112 3,790 126 1,132
Net income 5,880 4,866 7,932 4,879 6,418
Calculation of net income
applicable to common stockholders:
Net income 5,880 4,866 7,932 4,879 6,418
Less: dividends and accretion on preferred stock 1,037 1,037 1,044 1,247 1,452
Net income applicable to common stockholders $4,843 $3,829 $6,888 $ 3,632 $4,966
Weighted average number of common
shares outstanding:
Basic 4,614 3,019 2,993 2,960 2,297
Diluted 4,644 3,036 3,528 2,963 2,298
Net income per common share:
Basic $1.05 $1.27 $2.30 $1.23 $2.16
Diluted $1.04 $1.26 $2.25 $1.23 $2.16
Cash distributions per share of:
Common Stock $1.32 $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 $140,437 $118,564 $121,620 $70,770 $59,831
Investment in unconsolidated joint ventures 23,453 6,345 - - -
Cash and cash equivalents 2,624 2,285 2,069 11,247 19,089
Total assets 179,609 132,939 128,219 85,949 82,678
Mortgages payable 77,367 76,587 64,123 35,735 29,422
Line of credit 10,000 - 10,000 - -
Total liabilities 90,915 78,591 74,843 36,147 30,960
Total stockholders' equity 88,694 54,348 53,376 49,802 38,495
OTHER DATA
- ----------
Funds from operations applicable to
common stockholders (Note a) $7,757 $6,303 $5,324 $5,127 $5,363
Funds from operations per common share:
Basic $1.68 $2.09 $1.78 $1.46 $1.43
Diluted $1.67 $2.08 $1.78 $1.46 $1.43
Cash flow provided by (used in):
Operating activities $8,344 $6,764 $5,840 $5,826 $5,810
Investing activities (48,056) (5,702) (39,324) (10,743) (6,705)
Financing activities 40,051 (846) 24,306 (2,926) 18,378
Note a: We consider funds from operations ("FFO") as defined by the
National Association of Real Estate Investment Trusts ("NAREIT") to be an
appropriate supplemental disclosure of operating performance for an equity REIT
due to its widespread acceptance and use within the REIT and analyst
communities. FFO is presented to assist investors in analyzing our performance.
However, our method of calculating FFO may be different from methods used by
other REITs and, accordingly, may not be comparable to such other REITs. FFO
does not represent cash generated from operations as defined by GAAP and is not
indicative of cash available to fund all cash needs, including distributions. It
should not be considered as an alternative to net income for the purpose of
evaluating our performance or to cash flows as a measure of liquidity.
NAREIT defines FFO as net income (computed in accordance with GAAP),
excluding gains (or losses) from sales of property, plus real estate related
depreciation and amortization (excluding amortization of financing costs) and
after adjustments for unconsolidated partnerships and joint ventures. Effective
January 1, 2000, NAREIT clarified the definition of FFO to include non-recurring
events except those that are defined as "extraordinary items" under GAAP.
Funds from operations is calculated in the following table (amounts in
thousands):
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Net income $5,880 $ 4,866 $ 7,932 $ 4,879 $ 6,418
Add: depreciation of properties 2,617 2,584 2,113 1,478 1,184
Add: our share of depreciation in unconsolidated
joint ventures 268 16 - - -
Add: provision for valuation adjustment of real estate - - 125 - 157
Deduct: loss (gain) on sale of real estate 29 (126) (3,802) (62) (1,102)
Deduct: preferred distributions (1,037) (1,037) (1,044) (1,168) (1,294)
------ ------ ------ ------ ------
Funds from operations applicable to common stockholders $7,757 $ 6,303 $ 5,324 $ 5,127 $ 5,363
====== ======= ======= ======= =======
Item 7. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations.
General
We are a self-administered REIT and we primarily own real estate that we
net lease to tenants. As of December 31, 2002 we owned 33 properties and we are
a member of four joint ventures that owned a total of 11 properties. Our 44
properties are located in 15 states.
We have elected to be taxed as a 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 shareholders. We intend to adhere to these
requirements and to maintain our REIT status.
Our principal business strategy is to acquire improved, 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 borrow funds on a secured and unsecured basis to
finance the purchase of real estate and we intend to continue to do so in the
future.
Our rental properties are generally leased to corporate tenants under
operating leases substantially all of which are noncancellable. Substantially
all of our lease agreements are net lease arrangements that require the tenant
to pay not only rent, but also substantially all of the operating expenses of
the leased property including maintenance, taxes, utilities and insurance. A
majority of our lease agreements provide for periodic rental increases and
certain of our other leases provide for increases based on the consumer price
index.
In the latter part of 2001 and in 2002, we entered into two joint
ventures organized for the purpose of acquiring and owning megaplex
stadium-style movie theaters. We own a 25% equity interest in the first joint
venture organized for this purpose and a 50% equity interest in the second joint
venture organized for this purpose. These joint ventures have acquired one
partial stadium-style movie theater and eight megaplex stadium-style movie
theaters for a total consideration of $97.7 million. Our equity investment in
these ventures at December 31, 2002 was $20 million, net of distributions from
the joint ventures.
Venturers holding at least 75% of the aggregate membership interests in
both these joint ventures must approve all material decisions, except for
property acquisitions which require unanimous approval. Under the joint venture
operating agreements, we receive an acquisition fee from each venture equal to
0.5% of the purchase price of each property acquired by the joint venture, other
than the initial property acquired in 2001. In addition, Majestic Property
Management Corp., a company owned by our chairman of the board and in which
certain of our executive officers are officers, will receive a management fee
equal to 1% of all rents received by the joint ventures from single-tenant
properties and a management fee equal to 3% of all rents received by the joint
ventures from multi-tenant properties. Majestic will receive leasing and
mortgage brokerage fees at any property owned by the joint ventures at a rate
equal to 80% of the then market cost. Majestic will also receive a construction
supervision fee equal to 8% of the cost of any capital improvements to a joint
venture owned property and a sales commission equal to 1% of the sales price of
any properties that are sold.
In February 2002, we contributed our leasehold interest in an industrial
property in Miami, Florida to a joint venture with the owners of the fee estate
in that property in exchange for an approximately 36% interest in the joint
venture. In December 2002, we invested $2.4 million for a 50% interest in a
joint venture which owns a free standing retail property located in Shreveport,
Louisiana.
At December 31, 2002, excluding mortgages payable of our unconsolidated
joint ventures, we had 22 outstanding mortgages payable, aggregating $77.4
million in principal amount, all of which are secured by first liens on
individual real estate investments with an aggregate carrying value of
approximately $119.9 million before accumulated depreciation. The mortgages bear
interest at fixed rates ranging from 6.25% to 8.8%, and mature between 2003 and
2017.
Results of Operations
Comparison of Years Ended December 31, 2002 and December 31, 2001.
Revenues
Our revenues consist primarily of rental income from tenants in our
rental properties. In the latter part of 2001 we identified megaplex movie
theaters, particularly stadium-style movie theaters, as an attractive investment
opportunity and made a business judgment to invest in this class of assets with
joint venture partners. Our equity investment in movie theater joint ventures
was $20 million at December 31, 2002, net of distributions from the joint
ventures. In February 2002 we contributed our leasehold position in an
industrial building to a joint venture organized by us with the owners of the
fee estate of the property and in December 2002, we invested $2.4 million in a
joint venture which owns one free standing retail property.
Investments by us in 2002 in joint venture activities, particularly in
the movie theater joint ventures, rather than solely in properties owned by us,
and the contribution of our leasehold position in an industrial property to a
joint venture, were the major reasons for a decrease in rental income of
$174,000, or 1%, to $14.9 million for the year ended December 31, 2002 from
$15.1 million for the year ended December 31, 2001. Rental income also decreased
as a result of the sale of three retail properties and the vacancy of two retail
properties in 2002. Rental income was positively impacted by rent increases at
five of our properties and from rental income earned on three properties
acquired by us between September 2002 and December 2002.
Interest and other income increased by $642,000, or 349%, from $184,000
for the year ended December 31, 2001 to $826,000 for the year ended December 31,
2002. Approximately $268,000 of this increase was due to net acquisition fees
received by us from the movie theater joint ventures. The net acquisition fees,
calculated pursuant to our joint venture agreements at 0.5% of the purchase
price of eight properties acquired during 2002, reflects a reduction based on
our proportionate share of ownership in the joint ventures. Interest earned on
three mortgages, totaling approximately $6.3 million, acquired by us during
August 2002 in connection with the acquisition by one of our joint ventures of
an eight screen partial stadium-style theater accounted for $231,000 of the
increase in interest and other income. To a lesser extent, this increase is due
to the investment in cash equivalents and treasury bills of the balance of the
net proceeds received from our May 2002 public offering.
Our equity in the earnings of unconsolidated joint ventures, totaling
$1,078,000 in 2002 ($83,000 in 2001), more than exceeded the $174,000 decrease
in rental revenues in 2002. Our equity in earnings of unconsolidated joint
ventures consists of $980,000 in 2002 from the nine movie theater properties
owned by our two movie theater joint ventures. In 2002 our movie theater joint
ventures owned one movie theater for the entire year, with the other eight
theaters being acquired at various times between April 2002 and December 2002
(see "Business-Megaplex Theater Joint Ventures" in Part I of this Annual Report
on Form 10-K). In 2001 our movie theater joint ventures owned one theater for
less than two full months. In 2002 we also recognized $133,000 as our equity
share in the earnings of the joint venture organized in February 2002 that owns
an industrial building in Miami, Florida. The other joint venture we participate
in was organized in December 2002 and recorded a loss of $35,000 in 2002 due to
costs incurred in organizing the venture.
We will continue to acquire, solely for our own account, improved
commercial properties in accordance with our business and investment strategies
as outlined in Part 1 of this Annual Report. We anticipate that the acquisition
of megaplex movie theaters will be made through the existing or newly organized
joint ventures, and we may from time to time acquire properties with joint
venture partners.
Expenses
Interest-mortgages payable increased by $154,000, or 2.7%, to $6 million
for the year ended December 31, 2002 from $5.8 million for the year ended
December 31, 2001. This increase resulted from mortgages placed on two
properties during March and April 2001, and was offset in part by the payoff of
two mortgage loans (totaling $1.3 million) during June 2002.
Interest-line of credit decreased by $196,000, or 78.4%, to $54,000 for
the year ended December 31, 2002 from $250,000 for the year ended December 31,
2001. This decrease resulted from our repayment of all of the outstanding
indebtedness under our line of credit during 2001. We subsequently borrowed $6
million under our line of credit during May 2002, which was used for our
contribution to one of our joint ventures for the purchase of two movie
theaters. The borrowing was repaid with a portion of the proceeds received from
our public offering completed in May 2002. We subsequently borrowed $10 million
under our line of credit during December 2002, which was used to purchase a
property.
Leasehold rent expense decreased by $265,000, or 91.7% to $24,000 for the
year ended December 31, 2002 from $289,000 for the year ended December 31, 2001.
This rent expense was payable on the leasehold interest position that we
contributed during February 2002 to a joint venture in which we hold an
approximately 36% interest. Therefore, effective February 2002, we no longer
paid leasehold rent.
General and administrative expenses increased $539,000, or 47.4%, to
$1.68 million for the year ended December 31, 2002 from $1.14 million for the
year ended December 31, 2001. This increase was primarily due to a $368,000
increase in payroll and payroll expenses, including approximately $242,000 for
executive and support personnel, primarily for legal and accounting services,
allocated to us pursuant to a Shared Services Agreement between us and related
entities. The increase in the allocated payroll expenses resulted from an
increase in our level of business activity, primarily property acquisition
activity. The increase in payroll expenses is also due to compensation and fees
approved by our compensation committee and board of directors and recorded
during the year ended December 31, 2002 as follows: an increase of $50,000 in
the base salary and a bonus of $50,000 to our president and chief executive
officer and a fee of $50,000 per annum to the chairman of our board of
directors. The balance of the increase in general and administrative expenses is
due to a number of items including public company expenses, professional fees,
travel, franchise taxes and minor increases in several other categories of
general and administrative expenses. These increases were offset in part by the
receipt by us of $75,000 from one of our movie theater joint ventures as partial
reimbursement of legal services allocated to us under the Shared Services
Agreement, for movie theater acquisitions and mortgage financing.
On May 30, 2002, we sold 2.5 million shares of Common Stock in a
follow-on public offering. Allocated payroll and payroll related expenses,
primarily for legal and accounting services resulting from time expended by
various executive and administrative personnel in connection with the
preparation and filing of a Registration Statement on Form S-2, declared
effective by the SEC on May 24, 2002, have been included in the line item
"Public Offering Expenses" for the year ended December 31, 2002, all of which
are nonrecurring.
Real estate expenses decreased by $7,000, or 3.9%, to $174,000 for the
year ended December 31, 2002 from $181,000 for the year ended December 31, 2001.
This decrease was primarily due to the write off of a leasing commission and
non-recurring landlord repairs during 2001.
Comparison of Years Ended December 31, 2001 and 2000.
Revenues
Revenue consists primarily of rental income from tenants in our rental
properties. Rental income increased by $2.8 million, or 22.8%, to $15.1 million
for the year ended December 31, 2001 from $12.3 million for the year ended
December 31, 2000. Rental income increased for 2001 as a result of the addition
of rental income for the full year from eight properties which were acquired at
various times during 2000. The increase in rental income for 2001 was partially
offset by an $878,000 reduction in rental income as a result of the sale of 13
properties in October 2000.
Interest and other income decreased by $152,000, or 45.2%, to $184,000
for the year ended December 31, 2001 from $336,000 for the year ended December
31, 2000. This decrease was due to a reduction in interest earned on cash and
cash equivalents available for investment because cash and cash equivalents were
used during 2000 to fund property acquisitions.
In November 2001 we entered into a joint venture which acquired a
stadium-style movie theater in Norwalk, California. In 2001 we recognized
$83,000 as our 50% equity share in the earnings of this unconsolidated joint
venture.
Expenses
Depreciation and amortization expense increased by $544,000, or 22.7%, to
$2.9 million for the year ended December 31, 2001 from $2.4 million for the year
ended December 31, 2000. This increase resulted primarily from depreciation
recorded on the eight properties acquired during 2000. The increase was
partially offset by a decrease in depreciation resulting from the sale of 15
properties during 2000.
Interest-mortgages payable increased by $1.5 million, or 34.9%, to $5.8
million for the year ended December 31, 2001 from $4.3 million for the year
ended December 31, 2000. This increase resulted from mortgages placed on seven
properties acquired during 2000.
Interest-line of credit decreased by $90,000, or 26.5%, to $250,000 for
the year ended December 31, 2001 from $340,000 for the year ended December 31,
2000. This decrease resulted from reduced borrowings under our credit facility
as a result of our repayment of all of the indebtedness under our line of credit
during 2001. This indebtedness was incurred to facilitate the purchase of
several properties during 2000 and was repaid using the proceeds from mortgage
financings on two properties purchased in December 2000.
General and administrative expenses increased by $47,000 for the year
ended December 31, 2001 from $1.1million 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 resulting from an increase in
our level of business activity.
Real estate expenses increased by $114,000, or 170.1%, to $181,000 for
the year ended December 31, 2001 from $67,000 for the year ended December 31,
2000. This increase was 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 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 differences of $125,000. This fair value was determined using projected
undiscounted cash flows based on our determination and analysis of market
conditions in the geographic areas in which these properties are located,
including current rental rates, the location of the properties and occupancy
levels of similar properties in the surrounding area. Both properties are single
tenant locations where an indication was given that neither tenant would renew
its lease on its expiration date at the end of 2001 and 2002, respectively. 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. There was no comparable adjustment during 2001.
Gain On Sale Of Real Estate
Gain on sale of real estate decreased by $3.6 million, or 96.7%, to
$126,000 for the year ended December 31, 2001 from $3.8 million for the year
ended December 31, 2000. This decrease was due to fewer sales of real estate in
2001. In 2001 we sold two properties, in which the gain of $172,000 from our
August 2001 sale was offset in part by a $46,000 loss from our May 2001 sale. In
2000, we sold 15 properties, including 13 Total Petroleum Properties, Inc.
locations which resulted in a gain of $3.6 million for financial statement
purposes, as well as 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 $2.6 million at December 31, 2002.
Our primary sources of liquidity are cash and cash equivalents, our revolving
credit facility and cash generated from operating activities. On March 21, 2003
we entered into a new credit agreement with Valley National Bank, Merchants Bank
Division and Bank Leumi, USA for a $30 million revolving credit facility. This
facility, which replaced a $15 million revolving credit facility, is available
to us to pay down existing mortgages, to fund the acquisition of additional
properties or to invest in joint ventures. The facility matures on March 21,
2005. Borrowings under the facility bear interest at the bank's prime rate,
currently 4.25%, and there is an unused facility fee of one-quarter of 1% per
annum. Net proceeds received from the sale or refinancing 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 our subsidiaries that own unencumbered properties and is
secured by the outstanding stock of subsidiary entities. There is currently $10
million outstanding under the facility. The $10 million was borrowed to repay
the same amount outstanding under our old credit facility.
On February 28, 2003, we acquired a retail property for a purchase price
of approximately $2.6 million. A portion of the purchase price was paid in cash
and a portion by the assumption of a pre-existing mortgage of approximately $1.3
million.
We, on our own behalf and on behalf of our joint ventures, are involved
in various stages of negotiation with respect to the acquisition of additional
net leased properties, but have not entered into agreements to purchase any
additional properties. The megaplex movie theater joint ventures will only
acquire movie theater properties. We will use the cash provided from operations,
cash provided from mortgage financings, including distributions from joint
ventures resulting from their mortgage financings, and our credit facility to
fund any additional acquisitions. The megaplex movie theater joint ventures have
filed mortgage applications with an institutional lender for mortgage loans
aggregating $17.6 million secured by the three unencumbered properties owned by
the ventures. The mortgage loans on the Brooklyn movie theater property, which
are owned by us and on which there is $6.3 million outstanding, are being
refinanced. After completion of these financings, of which there is no
assurance, we will receive approximately $13 million, including a payoff of the
mortgages on the Brooklyn theater held by us.
The following sets forth our contractual cash obligations as of December
31, 2002, 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 (amounts in thousands):
Due within 1 year $15,686
Due 1 to 3 years 23,252
Due 4 to 5 years 21,044
Due after 5 years 51,627
As of December 31, 2002, we had outstanding approximately $77.4 million in
long-term mortgage indebtedness (excluding mortgage indebtedness of our
unconsolidated joint ventures), all of which is non-recourse (subject to
standard carve-outs). We expect that debt service payments of approximately $19
million due in the next three years will be paid primarily from cash generated
from our operations. We anticipate that loan maturities of approximately $20
million due in the next three years will be paid primarily from mortgage
financings or refinancings. If we are not successful in refinancing our existing
indebtedness or financing our unencumbered properties, our cash flow will not be
sufficient to repay all maturing debt when payments become due, and we may be
forced to sell additional equity or dispose of properties on disadvantageous
terms.
We had no outstanding contingent commitments, such as guarantees of
indebtedness, or any other contractual cash obligations at December 31, 2002.
Cash Distribution Policy
We have elected to be taxed as a 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 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 REIT status. As a REIT, we
generally will not be subject to corporate federal, state or local income taxes
on taxable income we distribute currently (in accordance with the Internal
Revenue Code and applicable regulations) to our stockholders. If we fail to
qualify as a REIT 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 REIT for four subsequent tax years. Even if we qualify for federal taxation as
a REIT, 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 stockholders 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 the sale of securities. It will continue to be our policy to
make sufficient cash distributions to stockholders in order for us to maintain
our REIT status under the Internal Revenue Code.
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, include rental
income that our tenants pay in accordance with the terms of their respective
leases reported on a straight line basis over the initial term of each 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, 2002, management has not taken a
reserve or direct write off against the unbilled rent receivable of $3.2
million.
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. There
were no valuation adjustments recorded in 2002 and 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 J. 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 A. 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, as of this date, 11.8% of our
outstanding common stock and 11.1% of our voting rights. In addition, David W.
Kalish, Simeon Brinberg, Mark H. Lundy and Israel Rosenzweig, executive officers
of our company are also executive officers of BRT Realty Trust and of the
corporate managing general 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 2002,
we were allocated $717,000 (including $125,000 attributable to time spent on our
public offering completed in May 2002) 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 $421,800 allocated to us for
services (including legal and accounting), performed by seven executive officers
who are not engaged by us on a full time basis. In addition, $27,300 was paid to
Brinberg & Lundy, a partnership in which Messrs. Brinberg and Lundy are
partners, for services rendered by Mark H. Lundy in connection with our
involvement in the joint ventures. The fees paid to Brinberg & Lundy were
capitalized. The allocation of common general and administrative expenses is
computed pursuant to a Shared Services Agreement 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 2002 we paid Majestic Management Property Corp., a company in which we have
no ownership interest, which is 100% owned by the Chairman of our Board of
Directors and in which certain of our executive officers are officers, brokerage
fees totaling $33,500 relating to a mortgage in the principal amount of $3.35
million placed on one of our properties. In addition, for the year ended
December 31, 2002, we paid this company leasing commissions of $16,000 and
management fees of $15,000 relating to properties which we own. The fees paid to
this entity were approved by the members of our Board of Directors, including a
majority of the independent directors, and were based on the fees which would be
charged by unaffiliated persons for comparable services in the geographic area
in which the properties for which the fees were paid are located. Our Board of
Directors intended that the fees paid to related parties would not be greater
than the fees which would have been paid to unaffiliated persons for comparable
services.
A management fee equal to 1% of the rent paid by our megaplex joint venture
tenants is paid to Majestic Property Management Corp. under management
agreements negotiated by Majestic Property Management Corp. with the joint
ventures and our joint venture partners. The total management fee for 2002 was
$48,000. In addition, a brokerage fee of $144,500 relating to a mortgage in the
principal amount of $28.9 million was paid to Majestic Property Management Corp.
by the movie theater joint venture in which we have a 25% equity interest.
Mrs. Jeffrey Fishman, wife of our President and Chief Executive Officer is
currently a 5% equity owner in Elpans LLC, a limited liability company that owns
our property in Brooklyn, NY. Elpans LLC was formed, and Mrs. Fishman acquired
her interest in Elpans LLC, prior to the time Mr. Fishman became an employee.
During December 1999 and January and February of 2000, we made three loans
aggregating $240,000 to Mr. Fishman. These loans are evidenced by promissory
notes, bear interest at the prime rate and mature in December 2004. The loans
are secured by the shares of our common stock that were purchased with the
proceeds of the loans and are personally guaranteed by Mr. Fishman and his wife.
These loans were made for the express purpose of providing funds to Mr. Fishman
for the purchase of shares of our common stock in the open market and they were
agreed by us during negotiations pertaining to Mr. Fishman's employment with us
as our president and chief operating officer. As of December 31, 2002, $166,000
was outstanding under the loans.
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.
Scheduled
Principal
Year Ending Repayments Average
December 31, (In Thousands) Interest Rate
------------ -------------- -------------
2003 $ 9,969 7.84%
2004 4,148 7.88%
2005 9,428 7.91%
2006 8,806 7.88%
2007 4,949 7.86%
Thereafter 40,067 7.91%
------ ----
Total $77,367 7.89%
======= ====
Fair Value $79,534 7.25%
======= ====
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data, together with the report
thereon by our independent auditors, are listed below in Item 15; Exhibits,
Financial Statement Schedules and Reports on Form 8-K.
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.
Item 14. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Based on their evaluation of our disclosure controls and procedures (as defined
in Rules 13a-14 (c) and 15d-14 (c) under the Securities Exchange Act of 1934)
within ninety (90) days of the filing date of this Annual Report on Form 10-K,
our principal executive officer and principal financial officer have concluded
that such controls and procedures are effective.
Changes in Internal Controls
There have not been any significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
PART IV
Item 15. 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-20
2. Financial Statement Schedules: - Schedule III-Real Estate and
Accumulated Depreciation F-21 through F-22
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 Valley National Bank, Merchants Bank Division and
Bank Leumi USA dated March 21, 2003, filed as an Exhibit to the
Company's Form 8-K dated March 24, 2003 (amended by Form 8-K/A dated
March 26, 2003), which Exhibit is incorporated herein by reference.
10.2 Shared Services Agreement by and among the Company, Gould
Investors L.P., BRT Realty Trust, Majestic Property Management
Corp., Majestic Property Affiliates, Inc. and REIT Management Corp.
(filed herewith).
10.3 Lease Agreement between OLP Hauppauge LLC and L-3 Communications
Corporation, filed as an exhibit to the Company's registration
statement on Form S-2 (File #333-86850), which Exhibit is incorporated
herein by reference.
21.1 Subsidiaries of Registrant (filed herewith)
23.1 Consent of Ernst & Young LLP (filed herewith).
99.1 Certification of President and Chief Executive Officer(filed herewith).
99.2 Certification of Senior Vice President and Chief Financial Officer
(filed herewith).
(b) Reports on Form 8-K. The following reports on Form 8-K were
filed during the last quarter of the 2002 fiscal year:
(i) Report on Form 8-K filed December 23, 2002 to report the
acquisition of a property in Jupiter, Florida, amended by
Form 8-KA filed on January 16, 2003.
(ii) Report on Form 8-K filed December 26, 2002 to report the
acquisition of three megaplex theaters by a joint venture.
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, 2003
By:s/Jeffrey Fishman
-----------------
Jeffrey Fishman, President and Chief Executive Officer
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, 2003
Board of Directors
s/Jeffrey Fishman
- -----------------
Jeffrey Fishman President and
Chief Executive Officer March 26, 2003
s/Joseph A. Amato
- -----------------
Joseph A. Amato Director March 26, 2003
s/Charles Biederman
- -------------------
Charles Biederman Director March 26, 2003
s/James Burns
- -------------
James Burns Director March 26, 2003
s/Jeffrey Gould
- ---------------
Jeffrey Gould Director March 26, 2003
s/Matthew Gould
- ---------------
Matthew Gould Director March 26, 2003
s/Arthur Hurand
- ------------------
Arthur Hurand Director March 26, 2003
s/Marshall Rose
- ---------------
Marshall Rose Director March 26, 2003
s/Patrick Callan Jr.
- --------------------
Patrick Callan Jr. Director March 26, 2003
s/David W. Kalish
- -----------------
David W. Kalish Senior Vice President and
Chief Financial Officer March 26, 2003
CERTIFICATION
I, Jeffrey Fishman, President and Chief Executive Officer of One Liberty
Properties, Inc., (the "Company"), certify that:
1. I have reviewed this Annual Report on Form 10-K of the Company for the
fiscal year ended December 31, 2002.
2. Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 26, 2003
/s/ Jeffrey Fishman
----------------------
Jeffrey Fishman, President
And Chief Executive Officer
CERTIFICATION
I, David W. Kalish, Senior Vice President and Chief Financial Officer of One
Liberty Properties, Inc., (the "Company"), certify that:
1. I have reviewed this Annual Report on Form 10-K of the Company for the
fiscal year ended December 31, 2002 of One Liberty Properties, Inc.
2. Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: March 26, 2003
/s/ David W. Kalish
----------------------
David W. Kalish, Senior Vice President
And Chief Financial Officer
Exhibit 10.2
SHARED SERVICES AGREEMENT
Shared Services Agreement (the "Agreement") dated as of January 1, 2002 by and
among Gould Investors L.P. ("Gould"), a Delaware limited partnership; BRT Realty
Trust ("BRT"), a Massachusetts business trust; One Liberty Properties, Inc., a
Maryland corporation ("OLP"); Majestic Property Management Corp., a Delaware
corporation ("MPMC"); Majestic Property Affiliates, Inc., a New York corporation
("Majestic"); and REIT Management Corp., a New York corporation ("REIT").
WHEREAS, Gould has been providing to the parties to this Agreement
(Gould and such entities being referred to collectively herein as the
"Affiliated Entities" and individually as an "Affiliated Entity") certain
facilities and executive and administrative services and the Affiliated Entities
desire that Gould continue to provide such facilities and services to them, on
the terms and subject to the conditions set forth herein;
WHEREAS, one or more of the Affiliated Entities provides facilities and
services to the other Affiliated Entities and it is the desire of the parties
hereto that the provision of such services shall continue, on the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth below, and other good and valuable consideration, the
parties agree as follows:
1. Services
(a) Gould has provided and shall continue to provide to each Affiliated Entity
the following services (each a "Service" and, collectively, the "Services"):
(i) Office Space. A portion of the office facility currently
occupied by Gould to conduct its business, including, without limitation,
utilities, maintenance services, office furnishings and equipment, and other
associated facilities and services. The portion of the office facility provided
to each Affiliated Entity shall be reasonable in light of the reasonable
requirements of Gould and the Affiliated Entities.
(ii) Administration. Executive, legal, accounting,
administrative and clerical personnel and required administrative, secretarial
and clerical services including, but not limited to, office supplies and
services, payroll, payroll taxes, employee benefits, billing and collection
services, and financial reporting services comparable to those currently
provided for the Affiliated Entities.
(iii) Mailroom Services. All services necessary to continue
current mailroom services, including, without limitation, all licenses, postage
meters, postage accounts, postage stamps, courier and express mail delivery
services.
(iv) Telecommunications Services. All services necessary to
maintain current telecommunications services, including, without limitation,
telephones, telephone line services, wireless telephones, wireless services,
telephone calls, facsimile equipment and related maintenance contracts and T1
line and service for internet communications.
(v) Computer Services. Data processing services and personal
computer services, including without limitation data process operators and
software for use in connection with such services.
(b) Certain of the Affiliated Entities provide the following Services
to other Affiliated Entities, which the Affiliated Entity providing such
Services shall continue to provide:
(i) Office Space. A portion of its office facility including
utilities, maintenance services, office furnishing and equipment and other
associated facilities and services. The portion of the office facility provided
shall be reasonable in light of the reasonable requirements of each Affiliated
Entity involved in providing and using such office facility.
(ii) Administration. Executive, accounting, administrative and
clerical personnel, including but not limited to payroll, payroll taxes,
employee benefits comparable to those currently being provided.
(c) Gould and each Affiliated Entity providing Services shall use its
commercially reasonable efforts to provide the Services required to be provided
by it in a timely and efficient manner, and shall assign to each of the Services
substantially the same priority as assigned to similar services performed in its
own operations.
2. Term
2.1 The term of this Agreement shall commence as of January 1, 2002 and
shall continue until December 31, 2002, unless earlier terminated or extended in
accordance with the provisions of this Section 2.
2.2 The term of this Agreement will automatically be extended for additional
one-year periods unless terminated by Gould as to one or more Affiliated
Entities upon written notice given to the Affiliated Entity to be terminated at
least three (3) months prior to the scheduled termination date.
2.3 Any one of the Affiliated Entities, other than Gould, may withdraw
from this Agreement , at any time during the term hereof, upon three (3) months'
prior written notice to each of the other Affiliated Entities.
3. Fees and payment for the Services
3.1 (a) In consideration of the provision of Services to the Affiliated
Entities, each Affiliated Entity shall pay to Gould and to any other Affiliated
Entity providing Services, on a quarterly basis, its allocated share of the cost
of all such Services ("Allocated Expenses") based on the following formula:
(i)The total amount paid by Gould and any
other Affiliated Entity for all salaries, payroll taxes, and benefits and all
other payroll related expenses (collectively, "Payroll Expenses") shall be
determined for each quarter annual period.
(ii) The total amount paid by Gould and any
other Affiliated Entity for all other costs, including, without limitation,
rent, utilities, cost of supplies, mail room expenses, computer use,
communication costs, and all other operating costs (collectively, "Overhead
Costs") shall be determined for each quarter annual period.
(iii) Each executive and administrative
employee of the Affiliated Entities performing services for more than one
Affiliated Entity in any quarter shall complete and deliver to the accounting
personnel of Gould a timesheet (in the form prepared by Gould) in which such
employee shall set forth the percentage of the employee's working time in the
applicable quarter devoted to the business and affairs of each Affiliated Entity
(iv) The Payroll Expense of each employee
for the applicable quarter shall be allocated to each Affiliated Entity based
on the time devoted by such employee, as set forth in the timesheet, to the
business and affairs of any one or more Affiliated Entities.
(v)All Overhead Costs for the applicable
quarter, shall be allocated to each Affiliated Entity by
multiplying the Overhead Costs for the quarter by a fraction, the numerator of
which shall be the time devoted by all personnel to the affairs of an Affiliated
Company and the denominator of which is the time devoted by all reporting
personnel to the affairs of all Affiliated Companies. Additionally, each
Affiliated Entity shall reimburse Gould and the Affiliated Entities providing
services on a quarterly basis for all reasonable out-of-pocket expenses incurred
by Gould or any Affiliated Entity, on behalf of an Affiliated Entity. Such
Allocated Expenses and out-of-pocket expenses, shall be payable within thirty
(30) days of the end of each quarter annual period.
(b) The Payroll Expenses and Overhead Costs
attributable to Secretary or clerical person who shall not be
required to complete time sheets shall be allocated based on the timesheets of
the executive for who such secretary or clerical person directly works and
accounting personnel shall be allocated based on the determination of the chief
accounting officer of each Affiliated Entity.
4. Obligations and Relationship
The relationship established hereunder between the parties shall not be
construed as a partnership, joint venture or other form of joint enterprise.
Except as specifically authorized by a party hereto, no party shall be
authorized to make any representations or to create or assume any obligation or
liability in respect or on behalf of the other party, and this Agreement shall
not be construed as constituting either party as the agent of the other party.
5. Limited Liability: Indemnification
5.1 Neither Gould nor any Affiliated Entity shall be liable to any
other Affiliated Entity for any loss, claim, expense or damage, or any act or
omission performed or omitted by it hereunder so long as its act or omission
does not constitute fraud, bad faith or gross negligence. In no event shall
Gould or any Affiliated Entity be liable for indirect, special consequential or
exemplary damages. Neither Gould nor any Affiliated Entity providing services
shall be liable to any other Affiliated Entity for the consequences of any
failure or delay in performing any such Services if such failure shall be caused
by labor disputes, strikes or other events or circumstances beyond such person's
control.
5.2 In any action, suit or proceeding (other than an action by or in the right
of Gould or any Affiliated Entity providing Services,) to which Gould or any
Affiliated Entity providing Services, or any of their respective agents or
employees performing Services hereunder (the "Indemnitee") was or is a party by
reason of its performance or non-performance of Services, all Affiliated
Entities shall indemnify the Indemnitee and hold the Indemnitee harmless from
and against expenses, judgments, fines and amounts paid (with the consent of the
other party) in settlement actually and reasonably incurred by the Indemnitee in
connection therewith if the Indemnitee acted in good faith and provided that the
Indemnitee's conduct does not constitute gross negligence, fraud or intentional
misconduct. Any indemnification pursuant to this paragraph shall be allocated
among Affiliated Entities in as equitable and reasonable a manner as is
practicable.
6. Confidentiality
Any and all information obtained by any party in connection with
the Services contemplated by this Agreement shall be held in the strictest
confidence and not disclosed to any other person without the written consent of
the other party.
7. Notices
All notices and other communications permitted or required
hereunder shall be in writing and shall be deemed given when delivered by hand
to an officer of the other party.
8. Binding Effect
This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties and their respective successors.
9. No Third Party Beneficiaries
This Agreement is solely for the benefit of the parties hereto and
shall not confer upon third parties any remedy, claim, cause of action or other
right in addition to those existing without reference to this Agreement.
10. Entire Agreement
This Agreement constitutes the entire agreement between the
parties with respect to these matters.
11. Assignment; Amendment; Waiver
This Agreement is not assignable except to a successor to the
business of Gould or any Affiliated Entity. Neither the rights nor the duties
arising hereunder may be assigned or delegated. This Agreement may not be
amended nor may any rights hereunder be waived except by an instrument in
writing signed by the party sought to be charged with the amendment or waiver.
The failure of a party to insist upon strict adherence to any term of this
Agreement on any occasion shall not be considered a waiver or deprive that party
of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement.
12. Governing Law
This Agreement shall be construed in accordance with and governed
by the laws of the State of New York, without giving effect to the provisions,
policies or principles thereof relating to choice or conflict of laws.
13. Headings
The section and other headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
IN WITNESS WHEREOF, the parties have caused in this Agreement to
be duly executed as of the date and year first above written.
GOULD INVESTORS L.P.
By: Georgetown Partners, Inc.
By:(S)
-------------------------
Matthew Gould, President
BRT REALTY TRUST
By:(S)
------------------------
Jeffrey Gould, President
ONE LIBERTY PROPERTIES, INC.
By:(S)
--------------------------
Jeffrey Fishman, President
MAJESTIC PROPERTY MANAGEMENT CORP.
By:(S)
----------------------------
Daniel Lembo, President
MAJESTIC PROPERTY AFFILIATES CORP.
By:(S)
----------------------------
Robert Huhem, President
REIT MANAGEMENT CORP.
By:(S)
----------------------------
Fredric H. Gould, President
ADDENDUM TO SHARED SERVICES AGREEMENT
The Shared Services Agreement, dated as of January 1, 2002, sets forth the
allocation of expenses among the Affiliated Entities, which allocation has been
in existence and applied for many years in the same manner as is set forth in
the Shared Services Agreement. BRT and OLP are entities whose shares are
publicly traded, with the shares of BRT and OLP being listed for trading on The
New York Stock Exchange and The American Stock Exchange, respectively. This
Addendum is intended to clarify certain provisions of the Shared Services
Agreement and the relationship between the Affiliated Entities and particularly
the relationship between Gould and BRT and OLP in view of the fact that Gould is
the primary provider of executive and administrative personnel for the benefit
of BRT and OLP. Accordingly, the following clarifications of the Shared Services
Agreement are set forth and to the extent that the provisions of the Addendum
amend the Shared Services Agreement this addendum shall be deemed an amendment
thereof:
1. The executive and administrative personnel provided to BRT and to OLP by
Gould (and any other Affiliated Entity) are leased to and hired by OLP and
BRT, and Gould (and any other Affiliated Entity providing personnel to BRT
or OLP) is responsible for such persons compensation, including federal,
state and local payroll taxes, FICA payments, etc.
2. With respect to personnel hired by BRT and OLP from Gould or any other
Affiliated Entity, the Compensation Committees of BRT and OLP, respectively
and the Board of Trustees of BRT or the Board of Directors of OLP,
respectively, in their sole and absolute discretion may grant to one or
more of the executive and administrative personnel provided to them stock
options under one or more of the stock option plans of either of said
entities. The granting of options by either BRT or OLP may be made
notwithstanding the expenses allocated to either BRT or OLP by Gould or any
other Affiliated Entity for the salary and payroll taxes of any personnel
provided to either BRT or OLP.
3. If any executive or administrative personnel are "leased" to BRT or OLP by
Gould or any other Affiliated Entity, BRT or OLP in their sole and absolute
discretion may reject any such person prior to the commencement of any
activities or services, and any such person may be discharged by BRT or OLP
at any time during the course of the provision of such services, and the
entity to which such individual or individuals shall be assigned (BRT, OLP
or any other Affiliated Entity) shall control the functions and activities
of such individual in the performance of services. Gould and the Affiliated
Entity providing the personnel shall have the right and power to discharge
such individual at any time, provided, however, Gould and the Affiliated
Entity providing the personnel shall in all events comply with the
provisions of paragraph 1 of the Shared Services Agreement.
4. Any Affiliated Entity shall have the right at any time to determine and/or
dispute the amount allocated to it, pursuant to the Shared Services
Agreement. If any Affiliated Entity is not satisfied with the amount
allocated to it or the economic value attributable to the services
provided, including, without limitation, services performed by an
individual leased to an Affiliated Entity, then the dissatisfied Affiliated
Entity shall set forth in writing (a "Complaint") the issues which it
disputes and the reasonable value, in its judgment, of the services
provided or performed and shall provide the Complaint to Gould or the other
Affiliated Entity involved. If the Affiliated Entities involved cannot
agree upon a fair value for such services within a period not to exceed
forty-five days from the receipt of the Complaint by the Affiliated Entity
providing the services, then the dissatisfied Affiliated Entity may
commence an arbitration before the American Arbitration Association ("AAA")
to determine the fair value of the services provided. Any such arbitration
must be commenced within six months of the expiration of the forty-five day
period and shall be held in the County of Nassau, before an independent
arbitrator selected in accordance with the rules of the American
Arbitration Association whose decision in connection therewith shall be
final and binding upon the parties. Each Affiliated Entity involved shall
bear an equal portion of the costs incurred in such arbitration. If the
procedure set forth is not followed the allocation as made shall be
conclusively binding on all parties.
5. In view of the fact that each Affiliated Entity provides the same or
substantially similar employment benefits, each individual employed by one
Affiliated Entity who is providing services for the benefit of another
Affiliated Entity is in receipt of the same or substantially similar
employment benefits as is provided to the employees of the Affiliated
Entity receiving such services.
6. Pursuant to the Shared Services Agreement, payment for the services
provided is made on a periodic basis. The allocated expenses for the
compensation of any personnel has and shall continue to include the payroll
of any individual whose services are provided, including all payroll taxes,
FICA, etc.
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
OLP Movies, LLC Delaware
OLP Tucker, LLC Georgia
OLP Lake Charles, LLC Louisiana
OLP Lake Worth, LLC Florida
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-90936) pertaining to the 1989 and 1996 Stock Option Plans of One
Liberty Properties, Inc. of our report dated March 3, 2003, except for the line
of credit information included in Note 6 as to which the date is March 21, 2003,
with respect to the consolidated financial statements and schedule of One
Liberty Properties, Inc. included in the Annual Report (Form 10-K) for the year
ended December 31, 2002.
/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP
New York, New York
March 26, 2003
EXHIBIT 99.1
CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
The undersigned, Jeffrey Fishman, the President and Chief Executive Officer of
One Liberty Properties, Inc., (the "Registrant"), does hereby certify, pursuant
to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that based upon a review of the Annual Report on
Form 10-K for the year ended December 31, 2002 of the Registrant, as filed with
the Securities and Exchange Commission on the date hereof (the "Report").
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: March 26, 2003 /s/ Jeffrey Fishman
-----------------------
Jeffrey Fishman
President and Chief Executive Officer
EXHIBIT 99.2
CERTIFICATION OF SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
The undersigned, David W. Kalish, Senior Vice President and Chief Financial
Officer of One Liberty Properties, Inc, (the "Registrant"), does hereby certify,
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that based upon a review of the Annual Report on
Form 10-K for the year ended December 31, 2002 of the Registrant, as filed with
the Securities and Exchange Commission on the date hereof (the "Report").
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: March 26, 2003 /s/ David W. Kalish
----------------------
David W. Kalish
Senior Vice President and
Chief Financial Officer
ONE LIBERTY PROPERTIES, INC.
and SUBSIDIARIES
Consolidated Financial Statements
December 31, 2002
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, 2002 and
2001, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2002. Our audits also included the financial statement schedule listed in the
Index at Item 15(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, 2002 and 2001, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002, 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 3, 2003, except for the
line of credit information
included in Note 6 as to which
the date is March 21, 2003.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in Thousands, Except Per Share Data)
ASSETS
December 31,
------------
2002 2001
---- ----
Real estate investments, at cost (Notes 3, 4, and 6)
Land $ 30,847 $ 25,939
Buildings and improvements 120,447 101,288
------- -------
151,294 127,227
Less accumulated depreciation 10,857 8,663
------ -----
140,437 118,564
Investment in unconsolidated joint ventures (Note 5) 23,453 6,345
Mortgages receivable (including $6,260 from an affiliated
joint venture) 6,516 -
Cash and cash equivalents 2,624 2,285
Unbilled rent receivable (Note 3) 3,207 2,442
Rent, interest, deposits and other receivables 1,471 1,157
Notes receivable - officer (Note 9) 166 167
Investment in BRT Realty Trust (related party) (Note 2) 398 361
Deferred financing costs 1,072 1,247
Other (including available-for-sale securities
of $94 and $249) (Note 2) 265 371
--- ---
$ 179,609 $ 132,939
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable (Note 6) $ 77,367 $ 76,587
Line of credit (Note 6) 10,000 -
Dividends payable 2,116 1,177
Accrued expenses and other liabilities 1,432 827
----- ---
Total liabilities 90,915 78,591
------ ------
Commitments and contingencies (Note 12) - -
Stockholders' equity (Notes 7, 8, 10 and 11):
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;
5,626 and 3,058 shares issued and outstanding 5,626 3,058
Paid-in capital 65,646 32,192
Accumulated other comprehensive income - net unrealized
gain on available-for-sale securities (Note 2) 312 261
Accumulated undistributed net income 6,417 8,144
----- -----
Total stockholders' equity 88,694 54,348
------ ------
$ 179,609 $ 132,939
========= =========
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Amounts in Thousands, Except Per Share Data)
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
Revenues:
Rental income (Note 3) $ 14,879 $ 15,053 $ 12,333
Interest and other income (including $231
in 2002 from an affiliated joint venture) 826 184 336
--- --- ---
15,705 15,237 12,669
------ ------ ------
Expenses:
Depreciation and amortization 2,876 2,900 2,356
Interest - mortgages payable (Note 6) 5,964 5,810 4,261
Interest - line of credit (Note 6) 54 250 340
Leasehold rent 24 289 289
General and administrative (Note 9) 1,675 1,136 1,089
Public offering expenses (Notes 8 and 9) 125 - -
Real estate expenses 174 181 67
Provision for valuation adjustment of
real estate (Note 4) - - 125
--- --- ---
10,892 10,566 8,527
------ ------ -----
Earnings before equity in earnings of unconsolidated
joint ventures and (loss) gain on sale 4,813 4,671 4,142
Equity in earnings of unconsolidated joint ventures 1,078 83 -
(Loss) gain on sale of real estate (Note 3) (29) 126 3,802
Gain (loss) on sale of available-for-sale securities 18 (14) (12)
-- --- ---
Net income $ 5,880 $ 4,866 $ 7,932
======== ======== ========
Calculation of net income applicable to common stockholders:
Net income $ 5,880 $ 4,866 $ 7,932
Less dividends on preferred stock 1,037 1,037 1,044
----- ----- -----
Net income applicable to common stockholders $ 4,843 $ 3,829 $ 6,888
======== ======== ========
Weighted average number of common
shares outstanding:
Basic 4,614 3,019 2,993
===== ===== =====
Diluted 4,644 3,036 3,528
===== ===== =====
Net income per common share (Notes 2 and 10):
Basic $ 1.05 $ 1.27 $ 2.30
======== ======== ========
Diluted $ 1.04 $ 1.26 $ 2.25
======== ======== ========
Cash distributions per share:
Common Stock $ 1.32 $ 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, 2002
(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, 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 7) (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 gain 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
Distributions - Common Stock
($1.32 per share) - - - - (6,570) (6,570)
Distributions - Preferred Stock
($1.60 per share) - - - - (1,037) (1,037)
Exercise of options - 48 562 - - 610
Shares issued through public offering - 2,500 32,621 - - 35,121
Shares issued through dividend
reinvestment plan - 20 271 - - 291
Net income - - - - 5,880 5,880
Other comprehensive income -
net unrealized gain on available-
for-sale securities (Note 2) - - - 51 - 51
------
Comprehensive income - - - - - 5,931
------- ------- ------- ------ ------ ------
Balances, December 31, 2002 $ 10,693 $ 5,626 $ 65,646 $ 312 $ 6,417 $ 88,694
======== ======== ========= ======= ======== ========
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in Thousands)
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
Cash flows from operating activities:
Net income $ 5,880 $ 4,866 $ 7,932
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss (gain) on sale of real estate 29 (126) (3,802)
(Gain)loss on sale of available-for-sale securities (18) 14 12
Increase in rental income from straight-lining of rent (765) (827) (669)
Equity in earnings of unconsolidated joint ventures (1,078) (83) -
Distributions from unconsolidated joint ventures 1,177 65 -
Payments to minority interest by subsidiary (16) (23) (32)
Provision for valuation adjustment - - 125
Depreciation and amortization 2,876 2,900 2,356
Changes in assets and liabilities:
Increase in rent, interest, deposits and
other receivables (362) (153) (422)
Increase in accrued expenses and other liabilities 621 131 340
--- --- ---
Net cash provided by operating activities 8,344 6,764 5,840
----- ----- -----
Cash flows from investing activities:
Additions to real estate (25,880) (152) (51,994)
Net proceeds from sale of real estate 281 749 12,514
Investment in unconsolidated joint ventures, net (19,538) (6,327) -
Sale of portion of interest in unconsolidated joint venture 3,150 - -
Investment in mortgages receivable - affiliated joint venture (6,340) - -
Collection of mortgages receivable (including $80 from
affiliated joint venture) 84 - -
Net proceeds from sale of available-for-sale securities 344 201 156
Purchase of available-for-sale securities (157) (173) -
---- ---- ----
Net cash used in investing activities (48,056) (5,702) (39,324)
------- ------ -------
Cash flows from financing activities:
Proceeds (repayments) from bank line of credit, net 10,000 (10,000) 10,000
Proceeds from mortgages payable 3,350 13,600 20,162
Payment of financing costs (84) (408) (666)
Repayment of mortgages payable (2,570) (1,136) (789)
Proceeds from issuance of shares through public offering 38,011 - -
Underwriters' discounts and commissions and other
public offering costs (2,890) - -
Cash distributions - Common Stock (5,630) (2,714) (3,590)
Cash distributions - Preferred Stock (1,037) (778) (1,044)
Exercise of stock options 610 401 -
Repurchase of preferred stock, which was cancelled - - (91)
Issuance of shares through dividend reinvestment plan 291 189 324
--- --- ---
Net cash provided by (used in) financing activities 40,051 (846) 24,306
------ ---- ------
Net increase (decrease) in cash and cash equivalents 339 216 (9,178)
Cash and cash equivalents at beginning of year 2,285 2,069 11,247
----- ----- ------
Cash and cash equivalents at end of year $ 2,624 $ 2,285 $ 2,069
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest expense $ 6,015 $ 6,084 $ 4,464
Supplemental schedule of non cash investing and financing activities:
Assumption of mortgage payable in connection with
purchase of real estate $ - $ - $ 9,015
Contribution of real property to unconsolidated joint venture 819 - -
Mortgage taken back upon sale of real estate 260 - -
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2002
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 and is a
member of four joint ventures which own eleven properties. The
forty-four properties are located in fifteen 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 four less than majority owned joint ventures have
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 consolidated financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Management believes that the estimates and assumptions that are
most important to the portrayal of the Company's financial
condition and results of operations, in that they require
management's most difficult, subjective or complex judgments, form
the basis of the accounting policies deemed to be most significant
to the Company. These significant accounting policies relate to
revenues and the value of the Company's real estate portfolio.
Management believes its estimates and assumptions related to these
significant accounting policies are appropriate under the
circumstances; however, should future events or occurrences result
in unanticipated consequences, there could be a material impact on
the Company's future financial condition or results of operations.
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.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
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 2002 and 2001 included less than
1% attributable to capital gains, with the balance to ordinary
income.
Investment in 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, 2002, 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, 2002 of
$398,000. The net unrealized holding gain of $301,000 is excluded
from earnings. In addition, the Company has invested $83,000 in
various other equity securities, which have a fair market value of
$94,000 at December 31, 2002. The aggregate net unrealized holding
gain of $11,000 on these investments is also excluded from
earnings. At December 31, 2002, the cumulative unrealized gain of
$312,000 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 2002 and 2001, sales proceeds and gross realized
gains and losses on securities classified as available-for-sale
were:
2002 2001 2000
Sales proceeds $ 344,000 $201,000 $ 156,000
========= ======== =========
Gross realized losses $ (3,000) (17,000) $ (12,000)
========= ======= =========
Gross realized gains $ 21,000 $ 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.
Mortgages receivable: The carrying amounts of the mortgages
receivable approximate market due to the short term maturities of
the loans.
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, 2002, the estimated fair value
of the Company's mortgages payable exceeded its carrying value by
approximately $2,167,000, assuming a market interest rate of
7.25%.
Line of credit: There is no material difference between the
carrying amounts and fair value because the interest rate is at
the prime rate.
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.
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, 2002 and 2001, 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
(29,977 and 16,498 shares for the years ended 2002 and 2001,
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, 2002 and 2001 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 2001 and 2000 because the exercise price of
these options was 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.
Accounting for Long-Lived Assets and Valuation Allowance on Real
Estate Owned
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 adopted Statement
No. 144 on January 1, 2002 and there was no material effect on the
earnings or the financial position of the Company.
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.
Segment Reporting
Effective January 1, 1998, the Company adopted the Financial
Accounting Standards Board 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)
Intangible Assets
On January 1, 2002, the Company adopted the provisions of
Financial Accounting Standards Board Statement No. 142, "Goodwill
and Other Intangible Assets". This statement makes significant
changes to the accounting for business combinations, goodwill and
intangible assets. Among other provisions, Statement No. 142
requires that a portion of the purchase price of real estate
acquisitions be assigned to the fair value of an intangible asset
for above market operating leases or to an intangible liability
for below market operating leases. Such intangible assets or
liabilities are then required to be amortized into revenue over
the remaining life of the respective leases. The adoption of this
statement did not have an effect on the Company's results of
operations or financial condition for the year ended December 31,
2002.
Gains and Losses from Extinguishment of Debt
On May 15, 2002, the Company adopted the Financial Accounting
Standards Board Statement No. 145, which rescinded
Statement No. 4, "Reporting Gains and Losses from Extinguishment
of Debt". There was no effect on the earnings or the financial
position of the Company.
Accounting for Stock-Based Compensation
The Financial Accounting Standards Board issued Statement No. 148
to amend Statement No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, Statement No. 148
amends the disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported
results. However, the Company has continued to account for options
in accordance with the provision of APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and related
interpretations.
Consolidation of Variable Interest Entities
In January 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, "Consolidation of Variable Interest
Entities", which explains how to identify variable interest
entities ("VIE") and how to assess whether to consolidate such
entities. The provisions of this interpretation are immediately
effective for VIE's formed after January 31, 2003. For VIEs formed
prior to January 31, 2003, the provisions of this interpretation
apply to the first fiscal year or interim period beginning after
June 15, 2003. Management has not yet determined whether any of
its unconsolidated joint ventures represent variable interest
entities pursuant to interpretation. Such determination could
result in a change in the Company's consolidation policy related
to such entities.
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
During the period from September 9 through December 23, 2002, the
Company purchased three properties in three states for a total
consideration of $25,880,000, representing all 2002 property
acquisitions. A first mortgage of $3,350,000 was placed on one of
these properties.
The rental properties owned at December 31, 2002 are leased under
noncancellable operating leases to corporate tenants with current
expirations ranging from 2004 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,
2002 are as follows:
Year Ending
December 31, (In Thousands)
------------ --------------
2003 $ 16,893
2004 17,428
2005 15,287
2006 14,835
2007 14,362
Thereafter 109,870
-------
Total $188,675
========
At December 31, 2002, the Company has recorded an unbilled rent
receivable aggregating $3,207,000, 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
fifteen years. The minimum future rentals presented above include
amounts applicable to the repayment of these unbilled rent
receivables.
For the years ended December 31, 2002 and 2001, one tenant
generated revenues of 11.1% and 11.5% of the Company's total
revenues. This tenant, who occupies an entire flex building,
generated $1,746,000 in rental revenue per year. The initial term
of the tenant's lease expires December 31, 2014.
Sales of Real Estate
In November and December 2002, the Company sold three properties
for a total sales price of $580,000 and recognized a net loss of
$29,000. The aggregate net income (loss) for the three properties
sold was ($16,000), $114,000 and $36,000 for the years ended
December 31, 2002, 2001, and 2000, respectively.
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.
In October 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.
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 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The Company is a member in four unconsolidated joint ventures
which own and operate eleven properties. Summaries of the two most
significant joint ventures in which the Company was designated the
managing member under each joint venture operating agreement, are
below.
In November 2001, the Company entered into a joint venture ("Joint
Venture #1") with Greenwood Properties, Corp., an affiliate of the
real estate equity group of Deutsche Bank AG, for the general
purpose of acquiring, owning and financing megaplex movie theater
properties. The Company invested approximately $6,300,000 for a
50% participation in the joint venture, which acquired a megaplex
stadium-style movie theater. In April 2002, the Company sold
one-half of its 50% interest in this joint venture to MTC
Investors LLC, an unrelated entity ("MTC"), at a price which
approximated our carrying amount. In April, May and August of
2002, the joint venture acquired four additional megaplex movie
theaters for a total consideration of approximately $45,000,000,
of which the Company's share was 25% or approximately $11,250,000.
Venturers holding at least 75% of the aggregate membership
interests in this joint venture must approve all material
decisions, except property acquisitions which require unanimous
approval.
On July 31, 2002, the joint venture closed on a $28,900,000
mortgage loan, which is secured by first mortgage liens on the
first four megaplex stadium-style movie theaters acquired by the
joint venture. The mortgage loan, which matures July 1, 2012,
bears interest at 8.06% per annum. Monthly payments of principal
and interest of $242,811 are required with approximately
$20,000,000 due at maturity. The joint venture distributed
$7,175,000 to the Company from the mortgage proceeds. The
Company's investment in this movie theater joint venture, which is
accounted for on the equity method, was approximately $7,267,000
and $6,345,000 at December 31, 2002 and 2001, respectively.
During July 2002, the Company contributed $1,700,000 to another
joint venture ("Joint Venture #2") with MTC for the general
purpose of acquiring, owning and financing movie theater
properties. The Company has a 50% participation in the joint
venture which purchased one partial stadium-style movie theater in
August 2002 for a total purchase price of $9,700,000, including
closing costs, of which $1,000,000 was held back pending
completion by the tenant of specified building improvements.
Simultaneous with the purchase, the Company acquired three
mortgages secured by the movie theater property with remaining
principal balances at December 31, 2002 totaling $6,260,000. At
December 31, 2002 the mortgages with outstanding balances of
$4,841,000, $975,000 and $444,000, bear interest at 9.5%, 10.25%
and prime plus 1.25% (5.50%), respectively, and mature October
2004, April 2005 and April 2005, respectively. In December 2002,
the joint venture acquired three stadium-style movie theaters for
a total consideration approximating $31,000,000 of which the
Company's share was 50%. The joint venture assumed a long-term
mortgage in the approximate amount of $9,200,000 encumbering one
of the properties and the balance was paid in cash.
NOTE 5 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES - (CONTINUED)
The $9,200,000 mortgage bears interest at 8.94% through June 2017
and thereafter, the greater of 10.94% or the Treasury Rate plus
two percentage points through the maturity date of March 1, 2022.
Monthly payments of principal and interest of $77,994 are required
through March 1, 2007 increasing approximately 8% every five years
through maturity. The Company's investment in Joint Venture #2,
which is accounted for on the equity method, was approximately
$12,737,000 at December 31, 2002. Approval of both members of this
joint venture is needed for all material decisions including
property acquisitions.
The following tables present condensed financial statements for
these two joint ventures at December 31, 2002 and for the year
then ended (amounts in thousands):
Condensed Balance Sheets Joint Venture #1 Joint Venture #2
------------------------ ---------------- ----------------
Cash and cash equivalents $ 596 $ 1,060
Real estate investments, net 56,711 40,091
Deferred financing costs 530 (A) 95
Other assets (B) 297 285
--- ---
Total assets $ 58,134 $ 41,531
========= =========
Mortgage loans payable $ 28,703 $ 15,472 (C)
Other liabilities 320 384
Equity 29,111 25,675
------ ------
Total liabilities and equity $ 58,134 $ 41,531
========= =========
Condensed Statements of Operations Joint Venture #1 Joint Venture #2
---------------------------------- ---------------- ----------------
Revenues, primarily rental income $ 4,952 $ 648
--------- ---------
Depreciation and amortization 811 93
Mortgage interest 974 247 (C)
Operating expenses (D) 241 (E) 10
--- --
Total expenses 2,026 350
----- ---
Net income attributable to members $ 2,926 $ 298
========= =========
Company's share of net income $ 831 $ 149
========= =========
Distributions received by the Company:
From operations $ 1,025 $ 50
========= =========
From mortgage proceeds $ 7,175 $ -
========= =========
(A) Includes a .5% brokerage fee of $145 paid to a company
controlled by the Chairman of the Board of Directors and
certain officers of the Company.
(B) Includes unbilled rent receivable of $293 and $122,
respectively.
(C) Includes three mortgages totaling $6,260 secured by one movie
theater property that is due to the Company. Interest on these
mortgages amounted to $231.
NOTE 5 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES - (CONTINUED)
(D) Includes management fees of $44 and $4, respectively, paid to
a company controlled by the Chairman of the Board of Directors and
certain officers of the Company. The management fee is equal to 1%
of rent paid by the tenants.
(E) Includes professional fees of $75 paid to the Company.
The two joint ventures not described above contributed $98,000 in
equity earnings for the year ended December 31, 2002.
NOTE 6 - DEBT OBLIGATIONS
Mortgages Payable
At December 31, 2002, there are twenty-two outstanding mortgages
payable, all of which are secured by first liens on individual
real estate investments with an aggregate carrying value of
$119,871,000 before accumulated depreciation. The mortgages bear
interest at rates ranging from 6.25% to 8.8%, and mature between
2003 and 2017. The weighted average interest rate was 7.9% and 8%
for the years ended December 31, 2002 and 2001, respectively.
Scheduled principal repayments, including one mortgage that was
renegotiated in February 2003 with a principal balance of
approximately $1,700,000, during the next five years and
thereafter are as follows:
Year Ending
December 31, (In Thousands)
------------ --------------
2003 $ 9,969
2004 4,148
2005 9,428
2006 8,806
2007 4,949
2008 and thereafter 40,067
-------
Total $ 77,367
========
Line of Credit
In March 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 Facility expires on March 24,
2003.
On March 21, 2003, the Company closed on a new revolving credit
facility for $30,000,000 ("New Facility") with Valley National
Bank, Merchants Bank Division and Bank Leumi USA. The New Facility
is for a term of two years. The New 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 immediately drew
down $10,000,000 to pay off the existing outstanding balance on
the credit line. The Company estimates fees to banks and closing
costs of approximately $260,000 will be paid and amortized over
the term of the loan.
NOTE 6 - DEBT OBLIGATIONS - (CONTINUED)
The New 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 (including entities that are
participants in a Shared Services Agreement - see Note 9) will
maintain on deposit with the Banks at least 10% of the average
outstanding annual principal balance of take downs under the New
Facility. If minimum balances are not maintained by the Company
and its affiliates, a deficiency fee is charged to the Company.
The New Facility is available to finance the acquisition or
financing of interests in 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 New Facility if proceeds
from the New Facility were used to purchase the property.
NOTE 7 - 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.
During the year ended December 31, 2000 the Company repurchased
6,600 shares of Preferred Stock for an aggregate consideration of
$91,000.
NOTE 8 - PUBLIC OFFERING
On May 30, 2002, the Company sold 2,500,000 shares of common stock
at $15.25 per share in a follow-on public offering, resulting in
net proceeds of approximately $35,000,000.
NOTE 9 - RELATED PARTY TRANSACTIONS
At December 31, 2002 and 2001, Gould Investors L.P. ("Gould"), a
related party, owned 667,397 and 542,397 shares of the common
stock of the Company or 11.9% and 17.7% of the equity interest and
held approximately 11.2% and 16% of the voting rights,
respectively. The increase in shares owned by Gould results from
Gould's purchase of 125,000 shares of One Liberty at a cost of
$1,792,000 ($14.34 per share) during May 2002 in connection with
the public offering described in Note 8. Gould's per share price
was net of any underwriters' discounts and commissions.
Gould charged the Company $717,000 (including $125,000
attributable to time spent on the public offering), $351,000 and
$272,000 during the years ended December 31, 2002, 2001 and 2000,
respectively, for allocated general and administrative expenses
and payroll based on time incurred by various employees pursuant
to a Shared Services Agreement. The increases in each year were
due primarily to legal and accounting services related to
increased business activity. At December 31, 2002 and 2001,
$173,000 and $42,000 remain unpaid and is reflected in accrued
expenses on the balance sheet.
NOTE 9 - RELATED PARTY TRANSACTIONS - (CONTINUED)
The Company paid a company controlled by the Chairman of the Board
of Directors and certain officers of the Company 1% brokerage fees
totaling $34,000, $136,000 and $200,000 during the years ended
December 31, 2002, 2001 and 2000 relating to mortgages placed on
one, two and three of the Company's properties, respectively.
These fees were deferred and are being amortized over the lives of
the respective loans. During the year ended December 31, 2002,
this company was paid leasing commissions of $16,000 and
management fees of $15,000. During the years ended December 31,
2001 and 2000, this 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, 2002 is $166,000.
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 the real estate owned by
it in March 1998, prior to the current president being employed by
the Company.
See Note 5 for other related party transactions involving the
Company's unconsolidated joint ventures.
NOTE 10 - 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, 2002.
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, 2002.
NOTE 10 - STOCK OPTIONS - (CONTINUED)
Changes in the number of common shares under all option
arrangements are summarized as follows:
Year Ended December 31,
-----------------------
2002 2001 2000
---- ---- ----
Outstanding at beginning of period 202,600 177,500 128,000
Granted - 57,500 49,500
Option prices - $12.19 $11.125
Exercisable at end of period 101,175 122,850 106,625
Exercised (47,798) (32,400) -
Expired (12,500) - -
Outstanding at end of period 142,302 202,600 177,500
Option price per share outstanding $11.125-$14.50 $11.125-$14.50 $11.125-$14.50
As of December 31, 2002, the outstanding options had a weighted
average remaining contractual life of approximately 1.86 years and
a weighted average exercise price of $12.56.
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.
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 2002,
2001 and 2000, respectively: risk free interest rate of 3.80%,
4.06% and 5.22%, dividend yield of 10.21%, 10.07% and 11.03%,
volatility factor of the expected market price of the Company's
Common Stock based on historical results of .148, .141 and .135;
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. The Company has elected not to present
pro forma information for 2002, 2001 and 2000 because the impact
on the reported net income and earnings per share is immaterial.
NOTE 11 - 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, 2002 and 2001, the Company issued
20,032 and 15,098 common shares, respectively, under the Plan.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
In the ordinary course of business the Company is party to various
legal actions which management believes are routine in nature and
incidental to the operation of the Company's business. Management
believes that the outcome of the proceedings will not have a
material adverse effect upon the Company's consolidated statements
taken as a whole.
NOTE 13 - 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.
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, 2002, 2001
and 2000 (amounts in thousands):
2002 2001 2000
Estimate Actual Actual
-------- ------ ------
Net income $ 5,880 $ 4,866 $ 7,932
Straight line rent adjustments (901) (831) (669)
Financial statement gain on sale
in excess of tax gain (162) (72) (3,745)
Rent received in advance, net 292 (26) 127
Fee income subject to tax,
not recorded for books 157 - -
Financial statement provision
for valuation adjustment - - 125
Financial statement depreciation
in excess of tax 89 84 -
Other adjustments 6 14 (4)
-------- -------- --------
Federal taxable income $ 5,361 $ 4,035 $ 3,766
======== ======== ========
NOTE 13 - INCOME TAXES (Unaudited) - (CONTINUED)
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, 2002,
2001 and 2000 (amounts in thousands):
2002 2001 2000
---- ---- ----
Cash dividends paid $ 7,607 $ 4,669 $ 4,634
Dividend reinvestment plan (1) 15 12 18
------- ------- -------
7,622 4,681 4,652
Less: Dividends designated to prior years (1,009) (1,645) (2,521)
Less: Spillover dividends (2) (1,242) - -
Plus: Dividends designated from following year - 1,009 1,645
------- ------- -------
Dividends paid deduction (3) $ 5,371 $ 4,045 $ 3,776
======== ======= =======
(1) Amount reflects the 5% discount on the Company's common shares
purchased through the dividend reinvestment plan.
(2) A portion of the dividend paid in January 2003 will be
considered a 2003 dividend as it was in excess of the Company's
accumulated earnings and profits through 2002.
(3) Dividends paid deduction is higher than federal taxable income
in 2002, 2001 and 2000 so as to account for adjustments made to
federal taxable income as a result of the alternative minimum tax.
NOTE 14 - SUBSEQUENT EVENT
On February 28, 2003, the Company acquired an additional real
property, leased to a single retail tenant. The property was
acquired for a purchase price of $2,555,000 with $1,250,000 paid
in cash and the remainder through the assumption of a $1,305,000
mortgage. The basic term of the net lease expires in 2043 and
provides for termination options beginning in 2013, with six
months notice.
NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED):
(In Thousands, Except Per Share Data)
Quarter Ended
-------------
Total
March 31 June 30 September 30 December 31 For Year
-------- ------- ------------ ----------- --------
2002
- ----
Revenues $3,671 $3,814 $3,912 $4,308 $15,705
Net income 1,198 1,327 1,528 1,827 5,880
Net income applicable to
common stockholders 939 1,068 1,269 1,567 4,843
Weighted average number of common shares outstanding:
Basic 3,066 4,129 5,599 5,622 4,614
Diluted 3,101 4,168 5,624 5,644 4,644
Net income per common share:
Basic .31 .26 .23 .28 1.05(a)
Diluted .30 .26 .23 .28 1.04(a)
Quarter Ended
-------------
Total
March 31 June 30 September 30 December 31 For Year
-------- ------- ------------ ----------- --------
2001
- ----
Revenues $3,784 $3,882 $3,798 $3,773 $15,237
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
Weighted average number of common shares outstanding:
Basic 3,010 3,016 3,020 3,030 3,019
Diluted 3,013 3,026 3,045 3,058 3,036
Net income per common share:
Basic .31 .30 .35 .32 1.27(a)
Diluted .31 .30 .34 .31 1.26(a)
(a) Calculated on weighted average shares outstanding for the year.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Schedule III - Consolidated Real Estate and Accumulated Depreciation
December 31, 2002
(Amounts in Thousands)
Initial Cost Gross Amount at Which Carried At
to Company December 31, 2002 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:
El Paso, TX $ 9,791 $ 2,821 $11,373 $ 2,821 $11,373 $14,194 $ 794 1974 March 29, 2000 40
Miscellaneous 31,232 13,022 49,367 13,009 49,330 62,339 5,938 Various Various 40
Flex Buildings:
Hauppauge, NY 9,675 2,738 10,954 2,738 10,954 13,692 559 1981 December 28, 2000 40
Jupiter, FL - 3,207 12,830 3,207 12,830 16,037 13 1990 December 24, 2002 40
Miscellaneous 3,628 1,042 4,306 1,042 4,306 5,348 216 1986 December 22, 2000 40
Office Building:
Miscellaneous 4,209 1,525 6,024 1,525 6,024 7,549 711 Various Various 40
Apartment Building:
Miscellaneous 4,613 1,110 4,439 1,110 4,439 5,549 1,379 1910 June 14, 1994 27.5
Industrial:
Hanover, PA 8,622 2,354 9,414 2,354 9,414 11,768 637 1968 April 11, 2000 40
Miscellaneous 798 814 2,870 814 2,870 3,684 261 Various Various 40
Health Clubs:
Miscellaneous 4,799 2,227 8,907 2,227 8,907 11,134 349 Various Various 40
----- ----- ----- ----- ----- ------ ---
$77,367 $30,860 $120,484 $30,847 $120,447 $151,294 $10,857
======= ======= ======== ======= ======== ======== =======
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,
-----------------------
2002 2001 2000
---- ---- ----
Investment in real estate:
Balance, beginning of year $127,227 $127,864 $75,908
Addition: Land, buildings and
improvements 25,880 152 61,008
Deductions:
Cost of properties sold (818) (789) (8,927)
Contribution of real property to
unconsolidated joint venture (995) - -
Valuation allowance (c) - - (125)
-------- -------- --------
Balance, end of year $151,294 $127,227 $127,864
======== ======== ========
Accumulated depreciation:
Balance, beginning of year $ 8,663 $ 6,244 $ 5,138
Addition: depreciation 2,617 2,585 2,112
Deductions:
Accumulated depreciation
related to properties sold (247) (166) (1,006)
Contribution of real property to
unconsolidated joint venture (176) - -
-------- -------- --------
Balance, end of year $ 10,857 $ 8,663 $ 6,244
======== ======== ========
(b) The aggregate cost of the properties is approximately $4,344 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.