UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT
PURSUANT
TO SECTIONS 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
x
Annual Report Pursuant
to Section 13 or 15(d)
of
the
Securities Exchange Act of l934
For
the
fiscal year ended December
31, 2007
Or
o
Transition Report
Pursuant to Section 13 or 15(d)
of
the
Securities Exchange Act of 1934
Commission
File Number 001-09279
ONE
LIBERTY PROPERTIES, INC.
(Exact
name of registrant as specified in its charter)
MARYLAND
|
|
13-3147497
|
(State
or other jurisdiction of
|
|
(I.R.S.
employer
|
incorporation
or organization)
|
|
identification
number)
|
60
Cutter Mill Road, Great Neck, New York 11021
(Address
of principal executive offices) (Zip Code)
Registrant's
telephone number, including area code: (516) 466-3100
Securities
registered pursuant to Section 12(b) of the Act:
|
|
Name
of exchange
|
Title
of each class
|
|
on
which registered
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Common
Stock, par value $1.00 per share
|
|
New
York Stock Exchange
|
Securities
registered pursuant to Section 12(g) of the Act:
NONE
Indicate
by check mark if the registrant is a well-known seasoned issuer as defined
in
Rule 405 of the Securities Act. Yes o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. Yes o No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes x No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) 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. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company. See
definitions of “large accelerated filer,” “accelerated filer,” and “small
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o Accelerated
filer x
Non-accelerated
filer o
(Do
not
check if a small reporting company) Small
reporting company o
Indicate
by check mark whether registrant is a shell company (defined in Rule 12b-2
of
the Exchange Act).
Yes
o
No
x
As
of
June 29, 2007 (the last business day of the registrant’s most recently completed
second quarter), the aggregate market value of all common equity 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 $178.7
million.
As
of
March 7, 2008, the registrant had 10,185,553 shares of common stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the proxy statement for the annual meeting of stockholders of One Liberty
Properties, Inc., to be filed pursuant to Regulation 14A not later than April
29, 2008, are incorporated by reference into Part III of this Form
10-K.
PART
I
Item
1.
Business
General
We
are a
self-administered and self-managed real estate investment trust, also known
as a
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, health and fitness 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 typically responsible for
real estate taxes, insurance and ordinary maintenance and repairs. As of
December 31, 2007, we owned 65 properties, one of which is held for sale, held
a
50% tenancy in common interest in one property, and participated in five joint
ventures that own five properties (including one vacant property held for sale).
Our properties and the properties owned by our joint ventures are located in
28
states and have an aggregate of approximately 5.9 million square feet of space
(including approximately 106,000 square feet of space at the property in which
we own a tenancy in common interest, 459,000 square feet of space at the
property held for sale and approximately 1.6 million square feet of space at
properties owned by the joint ventures in which we participate). We did not
acquire any properties during the year ended December 31, 2007.
Under
the
terms of our current leases, our 2008 contractual rental income (rental income
that is payable to us in 2008 under leases existing at December 31, 2007,
excluding rental income from our property that is held for sale) will be
approximately $35.9 million, including approximately $1.3 million of rental
income payable to us on our tenancy in common interest. In 2008, we expect
that
our share of the rental income payable to our five joint ventures which own
properties will be approximately $1.4 million, without taking into consideration
any rent that we would receive if the vacant and held for sale property owned
by
a joint venture is rented. On December 31, 2007, the occupancy rate of
properties owned by us was 100% based on square footage (including the property
in which we own a tenancy in common interest) and the occupancy rate of
properties owned by our joint ventures was 98.9% based on square footage. The
weighted average remaining term of the leases in our portfolio, including our
tenancy in common interest, is 10.3 years and 11.3 years for the leases at
properties owned by our joint ventures.
Acquisition
Strategies
We
seek
to acquire properties throughout the United States that have locations,
demographics and other investment attributes that we believe to be attractive.
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. Our
goal
is to acquire properties that are subject to long-term net leases that include
periodic contractual rental increases. Periodic contractual rental increases
provide reliable increases in future rent payments, while rent increases based
on the consumer price index provide protection against inflation. 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. Although we regard long-term leases
as
an important element of our acquisition strategy, we may acquire a property
that
is subject to a short-term lease where we believe the property represents a
good
opportunity for recurring income and residual value.
Generally,
we intend to hold the properties we acquire 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. 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 (i) if we regard
the disposition of the property as an opportunity to realize the overall value
of the property sooner or (ii) to avoid future risks by achieving a determinable
return from the property. Although we investigated, analyzed and bid on several
properties in 2007, due to a variety of factors, including increased competition
and unfavorable prices, we did not acquire any properties in 2007.
We
generally identify properties through the network of contacts of our senior
management and our affiliates, which include real estate brokers, 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. We will 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.
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 may not be pursued by any of our affiliated entities unless and until we
decline the opportunity.
Investment
Evaluation
In
evaluating potential net lease investments, we consider, among other criteria,
the following:
|
·
|
an
evaluation of the property and improvements, given its location and
use;
|
|
·
|
the
current and projected cash flow of the
property;
|
|
·
|
the
estimated return on equity to us;
|
|
·
|
local
demographics (population and rental
trends);
|
|
·
|
the
ability of the tenant to meet operational needs and lease
obligations;
|
|
·
|
the
terms of tenant leases, including the relationship between current
rents
and market rents;
|
|
·
|
the
projected residual value of the
property;
|
|
·
|
potential
for income and capital appreciation;
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|
·
|
occupancy
of and demand for similar properties in the market area;
and
|
|
·
|
alternative
use for the property at lease
termination.
|
Our
Business Objectives and Growth Strategy
Our
business objective is to maintain and increase the cash available for
distribution to our stockholders by:
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·
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acquiring
a diversified portfolio of net leased properties subject to long-term
leases;
|
|
·
|
obtaining
mortgage indebtedness on favorable terms and increasing access to
capital
to finance property acquisitions;
and
|
|
·
|
managing
assets effectively through property acquisitions, lease extensions
and
opportunistic property sales.
|
Our
growth strategy includes the following elements:
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·
|
to
maintain, renew and enter into new long-term leases that contain
provisions for contractual rent
increases;
|
|
·
|
to
acquire additional properties within the United States that are subject
to
long-term net leases and that satisfy our other investment criteria;
and
|
|
·
|
to
acquire properties in market or industry sectors that we identify,
from
time to time, as offering superior risk-adjusted
returns.
|
Typical
Property Attributes
The
properties in our portfolio and owned by our joint ventures typically have
the
following attributes:
|
·
|
Net
leases.
Substantially all of the leases are net leases under which the tenant
is
typically responsible for real estate taxes, insurance and ordinary
maintenance and repairs. We believe that investments in net leased
properties offer more predictable returns than investments in properties
that are not net leased;
|
|
·
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Long-term
leases.
The properties acquired are generally subject to long-term leases.
Excluding leases relating to properties owned by our joint ventures,
leases representing approximately 83% of our 2008 contractual rental
income expire after 2013, and leases representing approximately 44%
of our
2008 contractual rental income expire after 2017;
and
|
|
·
|
Scheduled
rent increases.
Leases representing approximately 94% of our 2008 contractual rental
income provide for either scheduled rent increases or periodic contractual
rent increases based on the consumer price index. None of the leases
on
properties owned by our joint ventures provide for scheduled rent
increases.
|
Our
Tenants
The
following table sets forth information about the diversification of our tenants
(excluding tenants of our joint ventures) by industry sector as of December
31,
2007:
|
|
|
|
|
|
2008
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|
Percentage
of
|
|
|
|
|
|
|
|
Contractual
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|
2008
|
|
Type
of
|
|
Number
of
|
|
Number
of
|
|
Rental
|
|
Contractual
|
|
Property
|
|
Tenants
|
|
Properties
|
|
Income
(1)
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|
Rental
Income
|
|
|
|
|
|
|
|
|
|
|
|
Retail
- various (2)
|
|
|
32
|
|
|
32
|
|
$
|
11,453,658
|
|
|
31.9
|
%
|
Retail
- furniture (3)
|
|
|
5
|
|
|
15
|
|
|
7,543,184
|
|
|
21.0
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|
Industrial
(4)
|
|
|
8
|
|
|
8
|
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6,525,205
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|
|
18.2
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|
Office
(5)
|
|
|
3
|
|
|
3
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4,259,363
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|
11.9
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|
Flex
|
|
|
3
|
|
|
2
|
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2,497,764
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6.9
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|
Health
& fitness
|
|
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3
|
|
|
3
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1,757,091
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|
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4.9
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|
Movie
theater (6)
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|
|
1
|
|
|
1
|
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1,242,019
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|
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3.4
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|
Residential
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1
|
|
|
1
|
|
|
650,000
|
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1.8
|
|
|
|
|
56
|
|
|
65
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|
$
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35,928,284
|
|
|
100.0
|
%
|
(1) |
2008
contractual rental income includes rental income that is payable
to us
during 2008 for properties owned by us at December 31, 2007, including
rental income payable on our tenancy in common interest. Does not
include
rent on our property that is held for
sale.
|
(2) |
Twenty
of the retail properties are net leased to single tenants. Four properties
are net leased to a total of 11 separate tenants pursuant to separate
leases and 8 properties are net leased to one tenant pursuant to
a master
lease.
|
(3) |
Eleven
properties are net leased to Haverty Furniture Companies, Inc. pursuant
to
a master lease covering all locations and 4 of the properties are
net
leased to single tenants.
|
(4) |
Does
not include one property that is held for
sale.
|
(5) |
Includes
a property in which we own a 50% tenancy in common
interest.
|
(6) |
We
are the ground lessee of this property under a long-term lease and
net
lease the movie theater to an
operator.
|
Although
the main focus of our analysis is the intrinsic value of a property,
we seek
to acquire properties that we believe will provide attractive current returns
from leases with tenants that operate profitably, even if our tenants are
typically not rated or are rated below investment grade. We will acquire a
property if we believe that the quality of the underlying real estate mitigates
the risk that may be associated with any default by the tenant. Most
of
our retail tenants operate on a national basis and include, among others, Barnes
& Noble, Inc., Walgreen Co., The Sports Authority, Inc., Best Buy Co., Inc.,
TGI Friday’s Inc., Party City Corporation, Circuit City Stores, Inc., Petco
Animal Supplies, Inc. and CarMax Auto Superstores, Inc., and some of our tenants
operate on a regional basis, including Haverty’s Furniture Companies,
Inc.
Our
Leases
Substantially
all of our leases are net leases (including the leases entered into by our
joint
ventures) 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 is typically obligated to indemnify
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 leases provide for rent increases pursuant
to
a formula based on the consumer price index and some of our leases 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 2007 rental revenues and are not expected to be a material part
of
our 2008 rental revenues.
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 leases for our
properties (excluding joint venture properties) as of December 31,
2007:
Year
of Lease Expiration (1)(2)
|
|
Number
of
Expiring
Leases
|
|
Approximate
Square
Feet
Subject to
Expiring
Leases
|
|
2008
Contractual
Rental
Income Under
Expiring
Leases (3)
|
|
%
of 2008
Contractual
Rental
Income
Represented
by
Expiring
Leases
|
|
2008
|
|
|
1
|
|
|
51,351
|
|
$
|
386,160
|
|
|
1.1
|
%
|
2009
|
|
|
3
|
|
|
200,468
|
|
|
945,883
|
|
|
2.6
|
|
2010
|
|
|
3
|
|
|
19,038
|
|
|
349,825
|
|
|
1.0
|
|
2011
|
|
|
4
|
|
|
208,428
|
|
|
2,087,577
|
|
|
5.8
|
|
2012
|
|
|
2
|
|
|
19,000
|
|
|
475,903
|
|
|
1.3
|
|
2013
|
|
|
6
|
|
|
117,357
|
|
|
1,745,035
|
|
|
4.9
|
|
2014
|
|
|
14
|
|
|
700,200
|
|
|
5,777,024
|
|
|
16.1
|
|
2015
|
|
|
4
|
|
|
150,795
|
|
|
1,765,765
|
|
|
4.9
|
|
2016
|
|
|
4
|
|
|
182,715
|
|
|
1,757,996
|
|
|
4.9
|
|
2017
and thereafter
|
|
|
15
|
|
|
2,224,544
|
|
|
20,637,116
|
|
|
57.4
|
|
|
|
|
56
|
|
|
3,873,896
|
|
$
|
35,928,284
|
|
|
100.0
|
%
|
(1)
|
Lease
expirations assume tenants do not exercise existing renewal
options.
|
(2)
|
Includes
a property in which we have a tenancy in common interest and excludes
our
property that is held for sale.
|
(3)
|
2008
contractual rental income includes rental income that is payable
to us
during 2008 under existing leases on properties we owned at December
31,
2007 (including rental income payable on our tenancy in common interest
and excluding rental income payable on our property that is held
for
sale).
|
Financing,
Re-Renting and Disposition of Our Properties
Under
our
governing documents, there is no limit on the level of debt that we may incur.
Our credit facility is provided by VNB New York Corp., Bank Leumi, USA,
Manufacturers and Traders Trust Company and Israel Discount Bank of New York
and
is a full recourse obligation. The credit facility limits total indebtedness
that we may incur to an amount equal to 70% of the value (as defined) of our
properties, among other limitations in the credit facility on our ability to
incur additional indebtedness. 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. The proceeds of mortgage loans and
amounts drawn on our credit line may be used for property acquisitions,
investments in joint ventures or other entities that own real property, to
reduce bank debt and for working capital purposes.
With
respect to properties we acquire on a free and clear basis, we usually seek
to
obtain long-term fixed-rate mortgage financing shortly after the acquisition
of
such property to avoid the risk of movement of interest rates and fluctuating
supply and demand in the mortgage markets. We also will acquire a property
that
is subject to (and will assume) a fixed-rate mortgage. 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 market 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 back
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. If there is a substantial tax gain, we
may
seek to enter into a tax deferred transaction and reinvest the proceeds in
another property. 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 our line of credit, if any, and for the
acquisition of additional properties.
Our
Joint Ventures
As
of
December 31, 2007, we are a joint venture partner in five joint ventures that
own an aggregate of five properties (including one vacant property held for
sale), and have an aggregate of approximately 1.6 million square feet of space.
We own a 50% equity interest in four of the joint ventures and a 36% equity
interest in the fifth joint venture. We are designated as “managing member” or
“manager” under the operating agreements of three of these joint ventures. At
December 31, 2007, our investment in unconsolidated joint ventures was
approximately $6.6 million.
We
were
also a joint venture partner in two other joint ventures, with the same joint
venture partner. Nine of the ten properties held by these two joint ventures
were sold in 2006, and the remaining property was sold on March 14, 2007 for
a
purchase price of $1.25 million, after it was written down in prior years on
the
joint venture’s books to $40,000. Each
of
our remaining five joint ventures own one property, three of which are retail
properties and two of which are industrial properties.
Based
on
existing leases, we anticipate that our share of rental income payable to our
joint ventures in 2008 will be approximately $1.4 million. The leases for two
properties (each of which is owned by one of our joint ventures) that are
expected to contribute 81% of the aggregate projected rental income payable
to
all of our joint ventures in 2008, will expire in 2021 and 2022,
respectively.
Other
Types of Investments
From
time
to time we have invested, on a limited basis, in publicly traded shares of
other
REITs, and we 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 of 1986, as
amended. 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 our securities in exchange for properties that fit
our
investment criteria. We have not previously invested in the securities of
another entity for the purpose of exercising control over it 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,
1031 exchange buyers, 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. Although
we
investigated, analyzed and bid on several properties in 2007, due to a variety
of factors, including increased competition and unfavorable prices, we did
not
acquire any properties in 2007.
Our
Structure
In
2007,
Patrick J. Callan, Jr., our president and chief executive officer, Lawrence
G.
Ricketts, Jr., our executive vice president and chief operating officer, and
three other employees devoted substantially all of their business time to our
company. Our other executive, administrative, legal, accounting and clerical
personnel shared their services on a part-time basis with us and other
affiliated entities that share our executive offices.
We
entered into a compensation and services agreement with Majestic Property
Management Corp. effective as of January 1, 2007. Majestic Property
Management Corp. is wholly-owned by our chairman of the board and it provides
compensation to certain of our executive officers. Pursuant to the
compensation and services agreement, we pay an annual fee to Majestic Property
Management Corp. and Majestic Property Management Corp. assumes our obligations
under a shared services agreement, and provides us with the services of all
affiliated executive, administrative, legal, accounting and clerical personnel
that we use on a part time basis, as well as certain property management
services, property acquisition, sales and leasing and mortgage brokerage
services. In 2007, we incurred a fee of $2,125,000 to Majestic Property
Management Corp. Pursuant to the compensation and services agreement,
however, we paid $2,113,000 of the fee and the remainder of the fee, $12,000,
was offset by the $12,000 paid to Majestic Property Management Corp. by one
of
our joint ventures. In addition, in accordance with the compensation and
services agreement, in 2007 we paid our chairman a fee of $250,000 and made
an
additional payment to Majestic Property Management Corp. of $175,000 for our
share of all direct office expenses, such as rent, telephone, postage, computer
services, internet usage, etc.
We
believe that the compensation and services agreement allows us to benefit from
access to, and from the services of, a group of senior executives with
significant knowledge and experience in the real estate industry and our company
and its activities. If not for the compensation and services agreement, we
believe that a company of our size would not have access to the skills and
expertise of these executives at the cost that we have incurred and will incur
in the future. 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.
Available
Information
Our
Internet address is www.onelibertyproperties.com.
On the
Investor Information page of our web site, we post the following filings as
soon
as reasonably practicable after they are electronically filed with or furnished
to the Securities and Exchange Commission: our Annual Report on Form 10-K,
our
quarterly reports on Form 10-Q, our current reports on Form 8-K, and any
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended. All such filings
on
our Investor Information Web page, which also includes Forms 3, 4 and 5 filed
pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended,
are available to be viewed free of charge.
On
the
Corporate Governance page of our web site, we post the following charters and
guidelines: Audit Committee Charter, Compensation Committee Charter, Nominating
and Corporate Governance Committee Charter, Corporate Governance Guidelines
and
Code of Business Conduct and Ethics, as amended and restated. All such documents
on our Corporate Governance Web page are available to be viewed free of charge.
Information
contained on our web site is not part of, and is not incorporated by reference
into, this Annual Report on Form 10-K or our other filings with the Securities
and Exchange Commission. A copy of this Annual Report on Form 10-K and those
items disclosed on our Investor Information Web page and our Corporate
Governance Web page are available without charge upon written request to: One
Liberty Properties, Inc., 60 Cutter Mill Road, Suite 303, Great Neck, New York
11021, Attention: Secretary.
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:
|
·
|
general
economic and business conditions including those currently affecting
our
nation’s economy and real estate
markets;
|
|
·
|
general
and local real estate conditions;
|
|
·
|
the
financial condition of our tenants and the performance of their lease
obligations;
|
|
·
|
changes
in governmental laws and regulations relating to real estate and
related
investments;
|
|
·
|
the
level and volatility of interest
rates;
|
|
·
|
competition
in our industry;
|
|
·
|
accessibility
of debt and equity capital markets;
|
|
·
|
the
availability of and costs associated with sources of liquidity;
and
|
|
·
|
the
other risks described under “Risks Related to Our Company” and “Risks
Related to the REIT Industry.”
|
Any
or
all of our forward-looking statements in this report, in our Annual Report
to
Stockholders and in any other public statements we make may turn out to be
incorrect. Actual results may differ from our forward looking statements because
of inaccurate assumptions we might make or because of the occurrence of known
or
unknown risks and uncertainties. Many factors mentioned in the discussion below
will be important in determining future results. Consequently, no
forward-looking statement can be guaranteed and you are cautioned not to place
undue reliance on these forward-looking statements. Actual future results may
vary materially.
Except
as
may be required under the United States federal securities laws, we undertake
no
obligation to publicly update our forward-looking statements, whether as a
result of new information, future events or otherwise. You are advised, however,
to consult any further disclosures we make in our reports that are filed with
or
furnished to the Securities and Exchange Commission.
Set
forth
below is a detailed discussion of certain risks affecting our business. The
categorization of risks set forth below is meant to help you better understand
the risks facing our business and is not intended to limit your consideration
of
the possible effects of these risks to the listed categories. Any adverse
effects arising from the realization of any of the risks discussed including
our
financial condition and results of operation may, and likely will, adversely
affect many aspects of our business.
Item
1A.
Risk
Factors.
In
addition to the other information contained or incorporated by reference in
this
Form 10-K, readers should carefully consider the following risk
factors:
Risks
Related to Our Business
The
financial failure of our tenants would likely cause significant reductions
in
our revenues, our equity in earnings of unconsolidated joint ventures and in
the
value of our real estate portfolio.
Based
on
2008 contractual rental income, 88% of our rental revenues are generated from
properties which 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 52.4% of our rental revenues
(excluding rental revenues from our joint ventures) for the year ended December
31, 2007 was derived from retail tenants and approximately 52.9% of our 2008
contractual rental income will be derived from retail tenants, including 21%
from our tenants engaged in retail furniture operations. As of the date of
this
annual report, the national economy is characterized by considerable uncertainty
as well as by heightened concern that the economy has entered, or may be on
the
verge of entering, a period of sustained economic downturn. Weakening economic
conditions (nationally and/or locally) could result in the financial failure,
or
other default, of a significant number of our tenants and the tenants of our
joint ventures. In the event of a default by a tenant, we may experience delays
in enforcing our rights as landlord and sustain a loss of revenues and incur
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 a property
when an existing lease terminates, we receive no revenues from such property
and
are required to pay taxes, insurance and other operating expenses during the
vacancy period, and could as a result experience a decline in the value of
the
property.
A
significant portion of our 2007 revenues and our 2008 contractual rental income
is derived from five tenants. The default, financial distress or failure of
any
of these tenants could significantly reduce our revenues.
Haverty’s
Furniture Companies, Inc., Ferguson Enterprises, Inc., Nutritional Products,
Inc., New Flyer of America, Inc. and L-3 Communications Corp, accounted for
approximately 13.2%, 6.3%, 5.6%, 4.8% and 4.7%, respectively, of our rental
revenues (excluding rental revenues from our joint ventures) for the year ended
December 31, 2007 and account for 12%, 6.5%, 5.4%, 4.3% and 4.9%, respectively,
of our 2008 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 rental revenues and result in the vacancy
of the property or properties occupied by the defaulting tenant, which would
significantly reduce our rental revenues and net income until the re-rental
of
the property or properties, and could decrease the ultimate sale value of the
property.
Since
the
second quarter of calendar 2007, the economy in the United States has faced
challenges of illiquidity in the credit markets, turmoil in the housing and
construction sectors, poorer performance in the retail sector and heightened
fears of an overall economic downturn. Were such a sustained economic downturn
to take place, the likelihood of the default, financial distress or bankruptcy
of any one or more of our major tenants would increase, which could have a
material adverse effect on our results of operations.
The
inability to repay our indebtedness could reduce cash available for
distributions and cause losses.
As
of
December 31, 2007, we had outstanding approximately $222 million in long-term
mortgage and loan indebtedness, all of which is non-recourse (subject to
standard carve-outs). As of December 31, 2007, our ratio of mortgage and loan
debt to total assets was approximately 55%. In addition, as of December 31,
2007, our joint ventures had approximately $18.8 million in total long-term
mortgage indebtedness (all of which is non-recourse subject to standard
carve-outs). The risks associated with our debt and the debt of our joint
ventures include the risk that cash flow for the properties securing the
mortgage indebtedness 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 or any of our joint ventures 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 our
non-recourse indebtedness, the lender may have the right to recover deficiencies
from us under certain circumstances, which could result in a reduction in the
amount of cash available to us to meet expenses and to make distributions to
our
stockholders and in a deterioration of our financial condition.
If
we are unable to refinance our borrowings at maturity 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 and the mortgage
indebtedness of our joint ventures will be repaid prior to maturity. Neither
we
nor our joint ventures plan to retain sufficient cash to repay such indebtedness
at maturity. Accordingly, in order to meet these obligations, we will have
to
use funds available under our credit line, if any, to refinance debt or seek
to
raise funds through the financing of unencumbered properties, sale of properties
or the issuance of additional equity. Between January 2008 and December 31,
2012, we will need to refinance an aggregate of approximately $61.1 million
of
maturing debt, of which approximately $4.2 will have to be refinanced in 2008
and approximately $4.6 million will have to be refinanced in 2009. Our joint
ventures do not have maturing mortgage debt until 2015. In addition, at the
present time there has been a tightening of credit by institutional lenders,
which has made it difficult for borrowers to refinance debt, including mortgage
debt. We cannot judge the duration of the current credit crunch or whether
or
not the situation may intensify. Accordingly, we can not provide any assurance
that we (or our joint ventures) 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 interest rates or other
factors at the time of refinancing result in interest rates higher than the
interest rates currently being paid, our interest expense would increase, which
would adversely affect our net income, financial condition and the amount of
cash available for distribution to stockholders. If we (or our joint ventures)
are not successful in refinancing existing indebtedness or financing
unencumbered properties, selling properties on favorable terms or raising
additional equity, our cash flow (or the cash flow of a joint venture) will
not
be sufficient to repay all maturing debt when payments become due, and we (or
a
joint venture) 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.
As
of
December 31, 2007 and March 1, 2008, we had no balance outstanding under our
revolving credit facility. Our credit facility expires on March 31, 2010.
Depending on our acquisition program, we could borrow a significant amount
under
our credit facility in 2008. The facility is guaranteed by all of our
subsidiaries which own unencumbered properties and the shares of stock of all
other subsidiaries are pledged as collateral. The risks associated with our
revolving credit facility include the risk that our cash flow will be
insufficient to meet required payments of interest. Also, we may be unable
to
negotiate a new facility at the maturity date and may be unable to pay off
the
amount then outstanding. This could result in a reduction in the amount of
cash
available to meet expenses and to make distributions to holders of our common
stock.
Increased
borrowings could result in increased risk of default on our repayment
obligations and increased debt service requirements.
Our
governing documents do not contain any limitation on the amount of indebtedness
we may incur. However, the terms of our credit facility with VNB New York Corp.,
Bank Leumi, USA, Manufacturers and Traders Trust Company and Israel Discount
Bank of New York limit the total indebtedness that we may incur to an amount
equal to 70% of the value (as defined in the credit agreement) of our
properties, in addition to other limitations in the credit facility on our
ability to incur additional indebtedness. 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 could reduce our net income
and the amount of cash available to meet expenses and to make distributions
to
our stockholders.
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 (including taking
advantage of provisions of the federal bankruptcy laws), 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 or in the course of a bankruptcy proceeding,
we
may not be able to locate qualified replacement tenants and, as a result, we
would lose a source of revenue while remaining responsible for the payment
of
our mortgage obligations and the expenses related to the properties, including
real estate taxes and insurance. 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, or the expense of
reconfiguration of a single tenancy property for use by multiple 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.
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, roof and 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.
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 the 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, 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 financings,
changes in tax, zoning, building code, fire safety and other laws and
regulations, the type of insurance coverages available in the market, and
changes in the type, capacity and sophistication of building systems. In
particular, approximately 53% of our 2008 contractual rental income will come
from retail tenants and is therefore vulnerable to any economic decline that
negatively impacts the retail sector of the economy. 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 may be affected by many factors, including
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 geographic area. Consequently, properties that
we
own may be located in the same or a limited number of geographic regions.
Approximately 32% of our rental income (excluding our share of the rental income
from our joint ventures) for the year ended December 31, 2007 was, and
approximately 33% of our 2008 contractual rental income will be, derived from
properties located in Texas and New York. 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 rental income and in the results of
operations.
Our
inability to control our joint ventures or our tenancy in common arrangement
could result in diversion of time and effort by our management and the inability
to achieve the goals of the joint venture or the tenancy in common
arrangement.
We
presently are a joint venturer in five joint ventures which own five properties
and we own 50% of another property as tenant in common with a group of investors
pursuant to a tenancy in common agreement. At December 31, 2007, our investment
in unconsolidated joint ventures was approximately $6.6 million and the tenancy
in common interest represents a net investment of approximately $569,000 by
us.
These investments may involve risks not otherwise present in investments made
solely by us, including that our co-investors may have different interests
or
goals than we do, or that our co-investors may not be able or willing to take
an
action that we desire. Disagreements with or among our co-investors could result
in substantial diversion of time and effort by our management team and the
inability of the joint venture or the tenancy in common to successfully operate,
finance, lease or sell properties as intended by our joint venture agreements
or
tenancy in common agreement. In addition, 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-investors.
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, 1031 exchange
buyers, 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. We have recently experienced increased
competition for the acquisition of net leased properties. 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, Patrick
J. Callan, Jr., our president and chief executive officer, Lawrence G. Ricketts,
Jr., our executive vice president and chief operating officer, and other members
of our senior management to carry out our business and investment strategies.
Only two of our senior officers, Messrs. Callan and Ricketts, devote all of
their business time to our company. The remainder of our senior management
provide services to us on a part-time, as needed basis. As we expand, we will
need to attract and retain qualified senior management and other key personnel,
both on a full-time and 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. We do not carry key man life insurance
on
members of our senior management.
Our
transactions with affiliated entities involve conflicts of
interest.
From
time
to time we have entered into transactions with persons and entities affiliated
with us and with certain of our officers and directors. Our policy is (i) to
receive terms in transactions with affiliates that are at least as favorable
to
us as similar transactions we would enter into with unaffiliated persons and
(ii) to have these transactions approved by our Audit Committee and by a
majority of our board of directors, including a majority of our independent
directors. We entered into a compensation and services agreement with
Majestic Property Management Corp. effective as of January 1, 2007.
Majestic Property Management Corp. is wholly-owned by our chairman of the board
and it provides compensation to certain of our executive officers. Pursuant
to
the compensation and services agreement, we pay an annual fee to Majestic
Property Management Corp. and they assume our obligations under a shared
services agreement, and provide us with the services of all affiliated
executive, administrative, legal, accounting and clerical personnel that we
use
on a part time basis, as well as certain property management services, property
acquisition, sales and leasing and mortgage brokerage services. In 2007,
we paid to Majestic a fee of approximately $2,125,000. In addition, in
accordance with the compensation and services agreement, in 2007 we paid our
chairman a fee of $250,000 and made an additional payment to Majestic Property
Management Corp. of $175,000 for our share of all direct office expenses, such
as rent, telephone, postage, computer services, internet usage, etc. Any
transactions with affiliated entities 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 or that our executive officers
might otherwise seek benefits for affiliated entities at our
expense.
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 of 1986, as amended. 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 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 of 1986, as amended. 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, certain additional 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 are
required, among other things, to distribute to our stockholders at least 90%
of
our ordinary taxable income (subject to certain adjustments) each year. To
the
extent that we satisfy these distribution requirements, but distribute less
than
100% of our taxable income we will be subject to federal corporate tax on our
undistributed taxable income. In addition, we will be subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
paid by us with respect to any calendar year are less than the sum of 85% of
our
ordinary income, 95% of our capital gain net income and 100% of our
undistributed income from prior years.
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 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. Any 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
such
portion of these securities in excess of these percentages 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 that is less than their true value and could lead
to
a material adverse impact on our results of operations and financial
condition.
Item
1B.
Unresolved
Staff Comments.
None.
EXECUTIVE
OFFICERS
Set
forth
below is a list of our executive officers whose terms expire at our 2008 annual
board of director’s meeting. The business history of our officers who are also
directors will be provided in our proxy statement to be filed pursuant to
Regulation 14A not later than April 29, 2008.
NAME
|
|
AGE
|
|
POSITION
WITH THE COMPANY
|
Fredric
H. Gould*
|
|
72
|
|
Chairman
of the Board
|
|
|
|
|
|
Patrick
J. Callan, Jr.
|
|
45
|
|
President,
Chief Executive Officer, and Director
|
|
|
|
|
|
Lawrence
G. Ricketts, Jr.
|
|
31
|
|
Executive
Vice President and Chief Operating Officer
|
|
|
|
|
|
Jeffrey
A. Gould*
|
|
42
|
|
Senior
Vice President and Director
|
|
|
|
|
|
Matthew
J. Gould*
|
|
48
|
|
Senior
Vice President and Director
|
|
|
|
|
|
David
W. Kalish
|
|
61
|
|
Senior
Vice President and Chief Financial Officer
|
|
|
|
|
|
Israel
Rosenzweig
|
|
60
|
|
Senior
Vice President
|
|
|
|
|
|
Simeon
Brinberg**
|
|
74
|
|
Senior
Vice President
|
|
|
|
|
|
Mark
H. Lundy**
|
|
45
|
|
Senior
Vice President and Secretary
|
|
|
|
|
|
Karen
Dunleavy
|
|
49
|
|
Vice
President, Financial
|
*
Matthew
J. Gould and Jeffrey A. Gould are Fredric H. Gould’s sons.
**
Mark
H. Lundy is Simeon Brinberg’s son-in-law.
Lawrence
G. Ricketts, Jr.
Mr.
Ricketts has been Chief Operating Officer of One Liberty Properties since
January 2008, and Vice President since December 1999 (Executive Vice President
since June 2006), and has been employed by One Liberty Properties, Inc. since
January 1999.
David
W. Kalish.
Mr.
Kalish has served as Senior Vice President and Chief Financial Officer of One
Liberty Properties since June 1990. Mr. Kalish has served as Senior Vice
President, Finance of BRT Realty Trust since August 1998 and Vice President
and
Chief Financial Officer of the managing general partner of Gould Investors
L.P.
since June 1990. Mr. Kalish is a certified public accountant.
Israel
Rosenzweig.
Mr.
Rosenzweig 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. He has
been a Vice President of the managing general partner of Gould Investors L.P.
since May 1997 and President of GP Partners, Inc., a sub-advisor to a registered
investment advisor, since 2000.
Simeon
Brinberg.
Mr.
Brinberg has served as a Senior 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 bar of the State of New York.
Mark
H. Lundy.
Mr.
Lundy has served as the Secretary of One Liberty Properties since June 1993
and
a Vice President since June 2000 (Senior Vice President since June 2006). Mr.
Lundy has been a Vice President of BRT Realty Trust since April 1993 (Senior
Vice President since March 2005) 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 bars of New York and the District of Columbia.
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.
Item
2.
Properties.
As
of
December 31, 2007, we owned 65 properties, one of which is held for sale, held
a
50% tenancy in common interest in one property, and participated in five joint
ventures that own a total of five properties (including one vacant property
held
for sale). The properties owned by us and our joint ventures are suitable and
adequate for their current uses. The tables below set forth information as
of
December 31, 2007 concerning each property which we own and in which we
currently own an equity interest. Except for one movie theater property, we
and
our joint ventures own fee title to each property.
Our
Properties
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
of
2008
|
|
|
|
|
|
|
|
Contractual
|
|
Approximate
|
|
|
|
Type
of
|
|
Rental
|
|
Building
|
|
Location
|
|
Property
|
|
Income
(1)
|
|
Square
Feet
|
|
Baltimore,
MD
|
|
|
Industrial
|
|
|
6.5
|
%
|
|
367,000
|
|
Parsippany,
NJ
|
|
|
Office
|
|
|
5.4
|
|
|
106,680
|
|
Hauppauge,
NY
|
|
|
Flex
|
|
|
4.9
|
|
|
149,870
|
|
El
Paso, TX
|
|
|
Retail
|
|
|
4.4
|
|
|
110,179
|
|
St.
Cloud, MN
|
|
|
Industrial
|
|
|
4.3
|
|
|
338,000
|
|
Plano,
TX
|
|
|
Retail
(2)
|
|
|
3.8
|
|
|
112,389
|
|
Los
Angeles, CA (3)
|
|
|
Office
|
|
|
3.5
|
|
|
106,262
|
|
Greensboro,
NC
|
|
|
Theater
|
|
|
3.5
|
|
|
61,213
|
|
Brooklyn,
NY
|
|
|
Office
|
|
|
3.0
|
|
|
66,000
|
|
Knoxville,
TN
|
|
|
Retail
|
|
|
2.8
|
|
|
35,330
|
|
Columbus,
OH
|
|
|
Retail
(2)
|
|
|
2.7
|
|
|
96,924
|
|
Plano,
TX
|
|
|
Retail
(4)
|
|
|
2.5
|
|
|
51,018
|
|
Philadelphia,
PA
|
|
|
Industrial
|
|
|
2.5
|
|
|
166,000
|
|
Tucker,
GA
|
|
|
Health
& Fitness
|
|
|
2.5
|
|
|
58,800
|
|
Ronkonkoma,
NY
|
|
|
Flex
|
|
|
2.1
|
|
|
89,500
|
|
Lake
Charles, LA
|
|
|
Retail
|
|
|
1.9
|
|
|
54,229
|
|
Cedar
Park, TX
|
|
|
Retail
(2)
|
|
|
1.8
|
|
|
50,810
|
|
Manhattan,
NY
|
|
|
Residential
|
|
|
1.8
|
|
|
125,000
|
|
Columbus,
OH
|
|
|
Industrial
|
|
|
1.6
|
|
|
100,220
|
|
Ft.
Myers, FL
|
|
|
Retail
|
|
|
1.6
|
|
|
29,993
|
|
Grand
Rapids, MI
|
|
|
Health
& Fitness
|
|
|
1.5
|
|
|
130,000
|
|
Newark,
DE
|
|
|
Retail
|
|
|
1.5
|
|
|
23,547
|
|
Wichita,
KS
|
|
|
Retail
(2)
|
|
|
1.4
|
|
|
88,108
|
|
Atlanta,
GA
|
|
|
Retail
|
|
|
1.4
|
|
|
50,400
|
|
Saco,
ME
|
|
|
Industrial
|
|
|
1.3
|
|
|
91,400
|
|
Champaign,
IL
|
|
|
Retail
|
|
|
1.3
|
|
|
50,530
|
|
Athens,
GA
|
|
|
Retail
|
|
|
1.3
|
|
|
41,280
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
of
2008
|
|
|
|
|
|
|
|
Contractual
|
|
Approximate
|
|
|
|
Type
of
|
|
Rental
|
|
Building
|
|
Location
|
|
Property
|
|
Income
(1)
|
|
Square
Feet
|
|
Greenwood
Village, CO
|
|
|
Retail
|
|
|
1.2
|
|
|
45,000
|
|
Tyler,
TX
|
|
|
Retail
(2)
|
|
|
1.2
|
|
|
72,000
|
|
Mesquite,
TX
|
|
|
Retail
(2)
|
|
|
1.1
|
|
|
22,900
|
|
Fayetteville,
GA
|
|
|
Retail
(2)
|
|
|
1.1
|
|
|
65,951
|
|
Onalaska,
WI
|
|
|
Retail
|
|
|
1.1
|
|
|
63,919
|
|
Melville,
NY
|
|
|
Industrial
|
|
|
1.1
|
|
|
51,351
|
|
Richmond,
VA
|
|
|
Retail
(2)
|
|
|
1.0
|
|
|
38,788
|
|
Amarillo,
TX
|
|
|
Retail
(2)
|
|
|
1.0
|
|
|
72,227
|
|
Virginia
Beach, VA
|
|
|
Retail
(2)
|
|
|
1.0
|
|
|
58,937
|
|
Selden,
NY
|
|
|
Retail
|
|
|
1.0
|
|
|
14,550
|
|
Lexington,
KY
|
|
|
Retail
(2)
|
|
|
.9
|
|
|
30,173
|
|
Duluth,
GA
|
|
|
Retail
(2)
|
|
|
.9
|
|
|
50,260
|
|
Antioch,
TN
|
|
|
Retail
|
|
|
.9
|
|
|
34,059
|
|
Newport
News, VA
|
|
|
Retail
(2)
|
|
|
.9
|
|
|
49,865
|
|
Grand
Rapids, MI
|
|
|
Health
& Fitness
|
|
|
.9
|
|
|
72,000
|
|
Gurnee,
IL
|
|
|
Retail
|
|
|
.8
|
|
|
22,768
|
|
Batavia,
NY
|
|
|
Retail
|
|
|
.7
|
|
|
23,483
|
|
St.
Louis, MO
|
|
|
Retail
|
|
|
.7
|
|
|
30,772
|
|
Somerville,
MA
|
|
|
Retail
|
|
|
.7
|
|
|
12,054
|
|
Hauppauge,
NY
|
|
|
Retail
|
|
|
.7
|
|
|
7,000
|
|
Fairview
Heights, IL
|
|
|
Retail
|
|
|
.7
|
|
|
31,252
|
|
Bluffton,
SC
|
|
|
Retail
(2)
|
|
|
.7
|
|
|
35,011
|
|
Houston,
TX
|
|
|
Retail
|
|
|
.6
|
|
|
12,000
|
|
Ferguson,
MO
|
|
|
Retail
|
|
|
.6
|
|
|
32,046
|
|
New
Hyde Park, NY
|
|
|
Industrial
|
|
|
.6
|
|
|
89,000
|
|
Vicksburg,
MS
|
|
|
Retail
|
|
|
.5
|
|
|
2,790
|
|
Florence,
KY
|
|
|
Retail
|
|
|
.5
|
|
|
31,252
|
|
Killeen,
TX
|
|
|
Retail
|
|
|
.5
|
|
|
8,000
|
|
Flowood,
MS
|
|
|
Retail
|
|
|
.4
|
|
|
4,505
|
|
Bastrop,
LA
|
|
|
Retail
|
|
|
.4
|
|
|
2,607
|
|
Monroe,
LA
|
|
|
Retail
|
|
|
.4
|
|
|
2,756
|
|
D’Iberville,
MS
|
|
|
Retail
|
|
|
.4
|
|
|
2,650
|
|
Kentwood,
LA
|
|
|
Retail
|
|
|
.4
|
|
|
2,578
|
|
Monroe,
LA
|
|
|
Retail
|
|
|
.4
|
|
|
2,806
|
|
Vicksburg,
MS
|
|
|
Retail
|
|
|
.4
|
|
|
4,505
|
|
Rosenberg,
TX
|
|
|
Retail
|
|
|
.3
|
|
|
8,000
|
|
West
Palm Beach, FL
|
|
|
Industrial
|
|
|
.3
|
|
|
10,361
|
|
Seattle,
WA
|
|
|
Retail
|
|
|
.2
|
|
|
3,038
|
|
|
|
|
|
|
|
100
|
%
|
|
3,873,896
|
|
Properties
Owned
by
Joint Ventures (5)
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
of
Our Share
|
|
|
|
|
|
|
|
of
Rent Payable
|
|
Approximate
|
|
|
|
Type
of
|
|
in
2008 to Our
|
|
Building
|
|
Location
|
|
Property
|
|
Joint
Ventures
|
|
Square
Feet
|
|
Lincoln,
NE
|
|
|
Retail
|
|
|
41.8
|
%
|
|
112,260
|
|
Milwaukee,
WI
|
|
|
Industrial
|
|
|
38.9
|
|
|
927,685
|
|
Miami,
FL
|
|
|
Industrial
|
|
|
10.7
|
|
|
396,000
|
|
Savannah,
GA
|
|
|
Retail
|
|
|
8.6
|
|
|
101,550
|
|
|
|
|
Retail
|
|
|
Vacant
|
|
|
17,108
|
|
|
|
|
|
|
|
100
|
%
|
|
1,554,603
|
|
(1)
|
Percentage
of 2008 contractual rental income payable to us pursuant to leases
as of
December 31, 2007, including rental income payable on our tenancy
in
common interest and excluding rental income from our property that
is held
for sale.
|
(2)
|
This
property is leased to a retail furniture
operator.
|
(3)
|
An
undivided 50% interest in this property is owned by us as tenant
in common
with an unrelated entity. Percentage of contractual rental income
indicated represents our share of the 2008 rental income. Approximate
square footage indicated represents the total rentable square footage
of
the property.
|
(4)
|
Property
has two tenants, of which approximately 53% is leased to a retail
furniture operator.
|
(5)
|
Each
property is owned by a joint venture in which we are a venture partner.
Except for the joint venture which owns the Miami, Florida property,
in
which we own a 36% economic interest, we own a 50% economic interest
in
each joint venture. Approximate square footage indicated represents
the
total rentable square footage of the property owned by the joint
venture.
|
(6)
|
This
property was held for sale at December 31,
2007.
|
The
occupancy rate for our properties (including the property in which we own a
tenancy in common interest), based on total rentable square footage, was 100%
as
of December 31, 2007 and 2006. The occupancy rate for the properties owned
by
our joint ventures (except for a property located in Monroe, New York which
was
vacant land and was sold by the joint venture in March 2007), based on total
rentable square footage, was approximately 98.9% as of December 31, 2007 and
2006.
As
of
December 31, 2007, the 66 properties owned by us and the five properties owned
by our joint ventures are located in 28 states. The following tables set forth
certain information, presented by state, related to our properties and
properties owned by our joint ventures as of December 31, 2007.
Our
Properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
|
2008
Contractual
Rental
Income
|
|
Approximate
Building
Square
Feet
|
|
Texas
|
|
|
10
|
|
$
|
6,241,132
|
|
|
519,523
|
|
New
York
|
|
|
9
|
|
|
5,676,108
|
|
|
615,754
|
|
Georgia
|
|
|
5
|
|
|
2,568,977
|
|
|
266,691
|
|
Maryland
|
|
|
1
|
|
|
2,340,923
|
|
|
367,000
|
|
New
Jersey
|
|
|
1
|
|
|
1,928,241
|
|
|
106,680
|
|
Ohio
|
|
|
2
|
|
|
1,546,990
|
|
|
197,144
|
|
Minnesota
|
|
|
1
|
|
|
1,541,441
|
|
|
338,000
|
|
Tennessee
|
|
|
2
|
|
|
1,324,086
|
|
|
69,389
|
|
Louisiana
|
|
|
5
|
|
|
1,277,934
|
|
|
64,976
|
|
California
|
|
|
1
|
|
|
1,251,797
|
|
|
106,262
|
|
North
Carolina
|
|
|
1
|
|
|
1,242,019
|
|
|
61,213
|
|
Other
|
|
|
27
|
|
|
8,988,637
|
|
|
1,161,264
|
|
|
|
|
65
|
|
$
|
35,928,285
|
|
|
3,873,896
|
|
Properties
Owned
by
Joint Ventures
State
|
|
|
|
Our
Share
of
Rent Payable
in
2008 to Our
Joint
Ventures
|
|
Approximate
Building
Square
Feet
|
|
Nebraska
|
|
|
1
|
|
$
|
603,594
|
|
|
112,260
|
|
Wisconsin
|
|
|
1
|
|
|
562,500
|
|
|
927,685
|
|
Florida
|
|
|
1
|
|
|
154,488
|
|
|
396,000
|
|
Georgia
|
|
|
1
|
|
|
123,750
|
|
|
101,550
|
|
Louisiana
|
|
|
1
|
(2)
|
|
-
|
|
|
17,108
|
|
|
|
|
5
|
|
$
|
1,444,332
|
|
|
1,554,603
|
|
(1) |
Excludes
a property owned by us, located in Pennsylvania, which is held for
sale.
|
(2)
|
This
vacant property was held for sale at December 31,
2007.
|
At
December 31, 2007, we had first mortgages on 57 of the 66 properties we owned
as
of that date (including our 50% tenancy in common interest, but excluding
properties owned by our joint ventures). At December 31, 2007, we had
approximately $215.5 million of mortgage loans outstanding, bearing interest
at
rates ranging from 5.13% to 8.8%. Substantially all of our mortgage loans
contain prepayment penalties. In addition, we had one outstanding loan payable
with a balance of approximately $6.5 million at December 31, 2007, bearing
interest at 6.25%. The following table sets forth scheduled principal mortgage
and loan payments due for our properties as of December 31, 2007 (assumes no
payment is made on principal on any outstanding mortgage or loan in advance
of
its due date):
YEAR
|
|
PRINCIPAL
PAYMENTS DUE IN
YEAR INDICATED
|
|
|
|
(Amounts
in Thousands)
|
|
2008
|
|
$
|
9,104
|
|
2009
|
|
|
10,033
|
|
2010
|
|
|
22,313
|
|
2011
|
|
|
8,580
|
|
2012
|
|
|
37,551
|
|
2013
and thereafter
|
|
|
134,454
|
|
Total
|
|
$
|
222,035
|
|
At
December 31, 2007, our joint ventures had first mortgages on three properties
with outstanding balances of approximately $18.8 million, bearing interest
at
rates ranging from 5.8% to 6.4%. Substantially all these mortgages contain
prepayment penalties. The following table sets forth the scheduled principal
mortgage payments due for properties owned by our joint ventures as of December
31, 2007 (assumes no payment is made on principal on any outstanding mortgage
in
advance of its due date):
YEAR
|
|
PRINCIPAL
PAYMENTS DUE IN
YEAR INDICATED
|
|
|
|
(Amounts
in Thousands)
|
|
|
|
|
|
2008
|
|
$
|
410
|
|
2009
|
|
|
435
|
|
2010
|
|
|
462
|
|
2011
|
|
|
490
|
|
2012
|
|
|
520
|
|
2013
and thereafter
|
|
|
16,434
|
|
Total
|
|
$
|
18,751
|
|
Significant
Tenant
As
of
December 31, 2007, no single property owned by us had a book value equal to
or
greater than 10% of our total assets or had revenues which accounted for more
than 10% of our aggregate annual gross revenues in the year ended December
31,
2007. However, as of December 31, 2007, we owned a portfolio of 11 properties,
leased under a master lease to Haverty’s Furniture Companies, Inc., which had a
net book value of 13% of our total assets and revenues which accounted for
13.2%
of our aggregate annual gross revenues in the year ended December 31, 2007.
Of
the eleven properties, three are located in each of Texas and Virginia, two
are
located in Georgia, and one is located in each of Kansas, Kentucky and South
Carolina. The properties aggregate approximately 43 acres and contain buildings
with an aggregate of approximately 612,130 square feet.
The
properties are net leased pursuant to a master lease, which expires on August
14, 2022. Haverty’s Furniture Companies, Inc. is a New York Stock Exchange
listed company and operates over 100 showrooms in 17 states. The lease
provides for a current base rent of $4,310,000 per annum, increasing on August
15, 2012 and every five years thereafter and provides the tenant with
certain renewal options. Pursuant to the lease, the tenant is responsible for
maintenance and repairs, and for real estate taxes and assessments on the
properties. The 2007 annual real estate taxes on the properties aggregated
$756,000. The tenant utilizes approximately 86% of the properties for
retail and 14% for warehouse.
The
mortgage loan, which our subsidiary assumed when it acquired the properties
in
2006, is secured by mortgages/deeds of trust on all eleven properties in the
principal amount of approximately $26 million at December 31, 2007. The
mortgage loan bears interest at 6.87% per annum, matures on September 1, 2012
and is being amortized based on a 25-year amortization schedule. Assuming
no additional payments are made on the principal amount of the mortgage loan
in
advance of the maturity date, the principal balance due on the maturity date
will be approximately $20 million. Although the mortgage loan provides for
defeasance, it is generally not prepayable until 90 days prior to the maturity
date.
Item
3.
Legal
Proceedings
In
July
2005, our former president and chief executive officer, who was also a member
of
our board of directors, resigned following the discovery of inappropriate
financial dealings by him with a former tenant of a property owned by a joint
venture in which we are a 50% partner and the managing member. We reported
this
matter to the Securities and Exchange Commission (the “SEC”) in July 2005. The
Audit Committee of our Board of Directors conducted an investigation of this
matter and related matters and retained special counsel to assist the committee
in its investigation. This investigation was completed, and the Audit Committee
and its special counsel, based on the materials gathered and interviews
conducted, found no evidence that any officer or employee of our company (other
than the former president and chief executive officer) was aware of, or
knowingly assisted, our former president and chief executive officer’s
inappropriate financial dealings.
In
June
2006, we announced that we had received notification of a formal order of
investigation from the SEC. We believe that the matters being investigated
by
the SEC focus on the improper payments received by our president and chief
executive officer. The SEC also requested information regarding “related party
transactions” between us and entities affiliated with us and with certain of our
officers and directors and compensation paid to certain of our officers by
these
affiliates. The SEC and our Audit Committee have conducted investigations
concerning these issues. We believe that these investigations have been
substantially completed.
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 Annual Report on Form 10-K.
Part
II
Item
5. Market
for the Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchase of Equity Securities.
Our
common stock is listed on the New York Stock Exchange. The following table
sets
forth the high and low prices for our common stock as reported by the New York
Stock Exchange for 2007 and for 2006 and the per share cash distributions paid
on our common stock during each quarter of the years ended December 31, 2007
and
2006.
|
|
|
|
|
|
CASH
|
|
|
|
|
|
|
|
DISTRIBUTION
|
|
2007
|
|
HIGH
|
|
LOW
|
|
PER
SHARE
|
|
First
Quarter
|
|
$
|
26.13
|
|
$
|
22.72
|
|
$
|
.36
|
|
Second
Quarter
|
|
$
|
24.48
|
|
$
|
21.59
|
|
$
|
.36
|
|
Third
Quarter
|
|
$
|
23.26
|
|
$
|
18.83
|
|
$
|
1.03
|
* |
Fourth
Quarter
|
|
$
|
21.97
|
|
$
|
17.61
|
|
$
|
.36
|
|
|
|
|
|
|
|
CASH
|
|
|
|
|
|
|
|
DISTRIBUTION
|
|
2006
|
|
HIGH
|
|
LOW
|
|
PER
SHARE
|
|
First
Quarter
|
|
$
|
21.00
|
|
$
|
18.33
|
|
$
|
.33
|
|
Second
Quarter
|
|
$
|
21.00
|
|
$
|
17.91
|
|
$
|
.33
|
|
Third
Quarter
|
|
$
|
22.40
|
|
$
|
18.66
|
|
$
|
.33
|
|
Fourth
Quarter
|
|
$
|
25.53
|
|
$
|
22.01
|
|
$
|
.36
|
|
*
Includes
a regular cash dividend of $.36 per share and a special cash distribution of
$.67 per share.
As
of
March 3, 2008, there were 351 common stockholders of record and we estimate
that
at such date there were approximately 3,600 beneficial owners of our common
stock.
We
qualify as a REIT 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.
Stock
Performance Graph
The
following graph compares the performance of our common stock with the Standard
and Poor’s 500 Index and a peer group index of publicly traded equity real
estate investment trusts prepared by the National Association of Real Estate
Investment Trusts. As indicated, the graph assumes $100 was invested on December
31, 2002 in our common stock and assumes the reinvestment of
dividends.
CUMULATIVE
TOTAL RETURN
|
|
|
|
12/02
|
|
12/03
|
|
12/04
|
|
12/05
|
|
12/06
|
|
12/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
Liberty Properties, Inc.
|
|
|
100.00
|
|
|
140.01
|
|
|
155.53
|
|
|
147.76
|
|
|
214.62
|
|
|
172.92
|
|
S&P
500
|
|
|
100.00
|
|
|
128.68
|
|
|
142.69
|
|
|
149.70
|
|
|
173.34
|
|
|
182.87
|
|
NAREIT
Equity
|
|
|
100.00
|
|
|
137.13
|
|
|
180.44
|
|
|
202.38
|
|
|
273.34
|
|
|
230.45
|
|
Equity
Compensation Plan Information
The
following table provides information about shares of our common stock that
may
be issued upon the exercise of options, warrants, rights and restricted stock
under our 2003 Stock Incentive Plan as of December 31, 2007.
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding
options, warrants
and
rights
|
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
|
Number
of securities remaining available for future issuance
under equity
compensation plans (excluding securities reflected
in
column(a))
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
compensation plans approved by security holders (1)
|
|
|
-
|
|
|
-
|
|
|
81,900
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
-
|
|
|
-
|
|
|
81,900
|
|
(1)
Our
2003 Stock Incentive Plan, which was approved by our stockholders in 2003,
is
our only equity compensation plan. Our 2003 Stock Incentive Plan permits us
to
grant stock options and restricted stock to our employees, officers, directors
and consultants. Currently, there are no options outstanding under our 2003
Stock Incentive Plan.
Purchase
of Securities
On
August
7, 2007, our board of directors authorized a program for us to repurchase up
to
500,000 shares of our common stock in the open market from time to time. Set
forth below is a table which provides the purchases we made in the fourth
quarter of 2007.
Issuer
Purchases of Equity Securities
Period
|
|
Total
Number of Shares (or Units Purchased)
|
|
Average
Price Paid per Share (or Unit)
|
|
Total
Number of Shares (or Units) Purchased as Part of Publicly
Announced Plans or Programs
|
|
Maximum
Number (or Approximate Dollar Value) of Shares (or Units) that May
Yet Be Purchased Under the Plans or Programs
|
|
October
1, 2007-
October
31, 2007
|
|
|
28,800
|
|
$
|
20.26
|
|
|
28,800
|
|
|
401,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
1, 2007-
November
30, 2007
|
|
|
24,500
|
|
$
|
20.18
|
|
|
24,500
|
|
|
377,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
1, 2007-
December
31, 2007
|
|
|
35,926
|
|
$
|
19.31
|
|
|
35,926
|
|
|
341,191
|
|
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,
2007
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)
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
OPERATING
DATA(Note
a)
|
|
|
|
|
|
|
|
|
|
|
|
Rental
revenues
|
|
$
|
36,805
|
|
$
|
32,048
|
|
$
|
25,910
|
|
$
|
19,511
|
|
$
|
14,850
|
|
Equity
in earnings (loss) of unconsolidated joint ventures (Note
b)
|
|
|
648
|
|
|
(3,276
|
)
|
|
2,102
|
|
|
2,869
|
|
|
2,411
|
|
Gain
on dispositions of real estate of unconsolidated joint
ventures
|
|
|
583
|
|
|
26,908
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Net
gain on sale of air rights, other and real estate
|
|
|
-
|
|
|
413
|
|
|
10,248
|
|
|
73
|
|
|
14
|
|
Income
from continuing operations
|
|
|
9,013
|
|
|
30,797
|
|
|
18,309
|
|
|
7,308
|
|
|
5,995
|
|
Income
from discontinued operations
|
|
|
1,577
|
|
|
5,628
|
|
|
2,971
|
|
|
3,666
|
|
|
2,530
|
|
Net
income
|
|
|
10,590
|
|
|
36,425
|
|
|
21,280
|
|
|
10,974
|
|
|
8,525
|
|
Calculation
of net income applicable to common stockholders (Note c):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
10,590
|
|
|
36,425
|
|
|
21,280
|
|
|
10,974
|
|
|
8,525
|
|
Less:
dividends and accretion on preferred stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,037
|
|
Net
income applicable to common stockholders
|
|
$
|
10,590
|
|
$
|
36,425
|
|
$
|
21,280
|
|
$
|
10,974
|
|
$
|
7,488
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,069
|
|
|
9,931
|
|
|
9,838
|
|
|
9,728
|
|
|
6,340
|
|
Diluted
|
|
|
10,069
|
|
|
9,934
|
|
|
9,843
|
|
|
9,744
|
|
|
6,372
|
|
Net
income per common share - basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
.89
|
|
$
|
3.10
|
|
$
|
1.86
|
|
$
|
.75
|
|
$
|
.78
|
|
Income
from discontinued operations
|
|
|
.16
|
|
|
.57
|
|
|
.30
|
|
|
_
.38
|
|
|
_
.40
|
|
Net
income
|
|
$
|
1.05
|
|
$
|
3.67
|
|
$
|
2.16
|
|
$
|
1.13
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
distributions per share of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock (Note d)
|
|
$
|
2.11
|
|
$
|
1.35
|
|
$
|
1.32
|
|
$
|
1.32
|
|
$
|
1.32
|
|
Preferred
Stock (Note c)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
1.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
SHEET DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate investments, net
|
|
$
|
333,990
|
|
$
|
341,652
|
|
$
|
258,122
|
|
$
|
228,536
|
|
$
|
177,316 |
|
Investment
in unconsolidated joint ventures
|
|
|
6,570
|
|
|
7,014
|
|
|
27,335
|
|
|
37,023
|
|
|
24,441
|
|
Cash
and cash equivalents
|
|
|
25,737
|
|
|
34,013
|
|
|
26,749
|
|
|
6,051
|
|
|
45,944
|
|
Total
assets
|
|
|
406,634
|
|
|
422,037
|
|
|
330,583
|
|
|
284,386
|
|
|
259,089
|
|
Mortgages
and loan payable
|
|
|
222,035
|
|
|
227,923
|
|
|
167,472
|
|
|
124,019
|
|
|
106,133
|
|
Line
of credit
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,600
|
|
|
-
|
|
Total
liabilities
|
|
|
235,395
|
|
|
241,912
|
|
|
175,064
|
|
|
138,271
|
|
|
113,120
|
|
Total
stockholders' equity
|
|
|
171,239
|
|
|
180,125
|
|
|
155,519
|
|
|
146,115
|
|
|
145,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
DATA(Note
e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
from operations applicable to common stockholders
|
|
$
|
18,645
|
|
$
|
13,707
|
|
$
|
26,658
|
|
$
|
16,789
|
|
$
|
11,776
|
|
Funds
from operations per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.85
|
|
$
|
1.38
|
|
$
|
2.71
|
|
$
|
1.73
|
|
$
|
1.86
|
|
Diluted
|
|
$
|
1.85
|
|
$
|
1.38
|
|
$
|
2.71
|
|
$
|
1.72
|
|
$
|
1.85
|
|
Note
a:
Certain amounts reported in prior periods have been reclassified to conform
to
the current year’s
presentation.
Note
b:
For the year ended December 31, 2006, “Equity in earnings (loss) of
unconsolidated joint ventures” is after giving effect to $5.3 million, our share
of the mortgage prepayment premium expense incurred in connection with
dispositions of real estate of unconsolidated joint ventures. This expense is
reflected as interest expense on the books of the joint ventures and is not
netted against the gain on dispositions.
Note
c:
On December 30, 2003, we redeemed all of our outstanding preferred
stock.
Note
d:
2007 includes a special cash distribution of $.67 per share
Note
e:
We consider funds from operations (FFO) to be a relevant and meaningful
supplemental measure of the operating performance of an equity REIT, and it
should not be deemed to be a measure of liquidity. FFO does not represent cash
generated from operations as defined by generally accepted accounting principles
(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.
We
compute FFO in accordance with the “White Paper on Funds From Operations” issued
in April 2002 by the National Association of Real Estate Investment Trusts
(NAREIT). FFO is defined in the White Paper as “net income (computed in
accordance with generally accepting accounting principles), excluding gains
(or
losses) from sales of property, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures. Adjustments
for
unconsolidated partnerships and joint ventures will be calculated to reflect
funds from operations on the same basis.” In computing FFO, we do not add back
to net income the amortization of costs in connection with our financing
activities, or depreciation of non-real estate assets, but those items that
are
defined as “extraordinary” under GAAP are added back to net income. Since the
NAREIT White Paper only provides guidelines for computing FFO, the computation
of FFO may vary from one REIT to another.
We
believe that FFO is a useful and a standard supplemental measure of the
operating performance for equity REITs and is used frequently by securities
analysts, investors and other interested parties in evaluating equity REITs,
many of which present FFO when reporting their operating results. FFO is
intended to exclude GAAP historical cost depreciation and amortization of real
estate assets, which assures that the value of real estate assets diminish
predictability over time. In fact, real estate values have historically risen
and fallen with market conditions. As a result, we believe that FFO provides
a
performance measure that when compared year over year, should reflect the impact
to operations from trends in occupancy rates, rental rates, operating costs,
interest costs and other matters without the inclusion of depreciation and
amortization, providing a perspective that may not be necessarily apparent
from
net income. We also consider FFO to be useful to us in evaluating potential
property acquisitions.
FFO
does
not represent net income or cash flows from operations as defined by GAAP.
FFO
should not be considered to be an alternative to net income as a reliable
measure of our operating performance; nor should FFO be considered to be an
alternative to cash flows from operating, investing or financing activities
(as
defined by GAAP) as measures of liquidity.
FFO
does
not measure whether cash flow is sufficient to fund all of our cash needs,
including principal amortization, capital improvements and distributions to
stockholders. FFO does not represent cash flows from operating, investing or
financing activities as defined by GAAP.
Management
recognizes that there are limitations in the use of FFO. In evaluating the
performance of our company, management is careful to examine GAAP measures
such
as net income and cash flows from operating, investing and financing activities.
Management also reviews the reconciliation of net income to FFO.
The
table
below provides a reconciliation of net income in accordance with GAAP to FFO,
as
calculated under the current NAREIT definition of FFO, for each of the years
in
the five year period ended December 31, 2007.
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
Net
income (Note 1)
|
|
$
|
10,590
|
|
$
|
36,425
|
|
$
|
21,280
|
|
$
|
10,974
|
|
$
|
8,525
|
|
Add:
depreciation of properties
|
|
|
8,248
|
|
|
7,091
|
|
|
5,905
|
|
|
4,758
|
|
|
3,473
|
|
Add:
our share of depreciation in unconsolidated joint ventures
|
|
|
329
|
|
|
716
|
|
|
1,277
|
|
|
1,075
|
|
|
790
|
|
Add:
amortization of deferred leasing costs
|
|
|
61
|
|
|
43
|
|
|
101
|
|
|
55
|
|
|
39
|
|
Deduct:
gain on sale of real estate
|
|
|
-
|
|
|
(3,660
|
)
|
|
(1,905
|
)
|
|
(73
|
)
|
|
(14
|
)
|
Deduct:
gain on dispositions of real estate of unconsolidated joint
ventures
|
|
|
(583
|
)
|
|
(26,908
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Deduct:
preferred distributions
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,037
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
from operations applicable to common stockholders (Note 1)
|
|
$
|
18,645
|
|
$
|
13,707
|
|
$
|
26,658
|
|
$
|
16,789
|
|
$
|
11,776
|
|
Note
1:
For the year ended December 31, 2006, net income and funds from operations
applicable to common stockholders (FFO) is after giving effect to $5.3 million,
our share of the mortgage prepayment premium expense incurred in connection
with
the dispositions of real estate of unconsolidated joint ventures. This expense
is reflected as interest expense on the books of the joint ventures and not
netted against gain on dispositions.
For
the
year ended December 31, 2005, net income and FFO include $10.2 million from
the
gain on sale of air rights.
The
table
below provides a reconciliation of net income per common share (on a diluted
basis) in accordance with GAAP to FFO.
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (Note 2)
|
|
$
|
1.05
|
|
$
|
3.67
|
|
$
|
2.16
|
|
$
|
1.13
|
|
$
|
1.34
|
|
Add:
depreciation of properties
|
|
|
.82
|
|
|
.71
|
|
|
.60
|
|
|
.49
|
|
|
.55
|
|
Add:
our share of depreciation in unconsolidated joint ventures
|
|
|
.03
|
|
|
.07
|
|
|
.13
|
|
|
.11
|
|
|
.12
|
|
Add:
amortization of deferred leasing costs
|
|
|
.01
|
|
|
.01
|
|
|
.01
|
|
|
-
|
|
|
-
|
|
Deduct:
gain on sale of real estate
|
|
|
-
|
|
|
(.37
|
)
|
|
(.19
|
)
|
|
(.01
|
)
|
|
-
|
|
Deduct:
gain on dispositions of real estate of unconsolidated joint
ventures
|
|
|
(.06
|
)
|
|
(2.71
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Deduct:
preferred distributions
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
from operations applicable to common stockholders (Note 2)
|
|
$
|
1.85
|
|
$
|
1.38
|
|
$
|
2.71
|
|
$
|
1.72
|
|
$
|
1.85
|
|
Note
2: For
the
year ended December 31, 2006, net income and FFO is after $.53, our share of
the
mortgage prepayment premium expense. See Note 1 above. For the year ended
December 31, 2005, net income and FFO include $1.04 from the gain on sale of
air
rights.
Item
7.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
General
We
are a
self-administered and self-managed REIT and we primarily own real estate that
we
net lease to tenants. As of December 31, 2007, we owned 65 properties, one
of
which is held for sale, held a 50% tenancy in common interest in one property,
and participated in five joint ventures that owned a total of five properties
(including one vacant property held for sale). These 71 properties are located
in 28 states.
We
have
elected to be taxed as a REIT under the Internal Revenue Code of 1986, as
amended. To qualify as a REIT, we must meet a number of organizational and
operational requirements, including a requirement that we currently distribute
at least 90% of ordinary taxable income to our stockholders. We intend to comply
with 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 have borrowed funds in the past to finance the purchase
of
real estate and we expect 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.
Although
we investigated, analyzed and bid on several properties in 2007, due to a
variety of factors, including increased competition and unfavorable prices,
we
did not acquire any properties in 2007. In January and February 2008, we
acquired two single retail properties for an aggregate purchase price of
approximately $5.5 million.
Our
five
joint ventures each held a single-tenant property as of December 31, 2007.
At
year end, our equity investment in our joint ventures was $6.6 million, net
of
distributions.
At
December 31, 2007, excluding mortgages payable of our unconsolidated joint
ventures, we had 57 outstanding mortgages payable, aggregating $215.5 million
in
principal amount, all of which are secured by first liens on individual real
estate investments with an aggregate carrying value of approximately $349
million before accumulated depreciation. The mortgages bear interest at fixed
rates ranging from 5.13% to 8.8%, and mature between 2008 and 2037. In addition,
we had one loan payable outstanding with a principal amount of $6.5 million,
bearing interest at 6.25% and maturing in 2018.
Results
of Operations
Outlook
We
anticipate that in 2008 we will use any available cash (after taking into
account required cash distributions to shareholders), funds derived from the
placement of additional mortgages and a credit line to acquire additional
properties, either directly or through joint ventures. As a result, we
anticipate that we will acquire and own additional properties and unless we
experience an unexpected number of lease terminations and/or cancellations
in
2008 (taking into consideration the lease expiration we know will occur in
2008,
and without giving effect to any re-letting of such properties), our revenues
should increase in 2008.
Comparison
of Years Ended December 31, 2007 and December 31, 2006
Rental
Revenues
Rental
revenues increased by $4.8 million, or 14.8%, to $37 million for the year ended
December 31, 2007 from $32 million for the year ended December 31, 2006. The
increase in rental revenues is substantially due to rental revenues earned
during the year ended December 31, 2007 on 22 properties acquired by us between
April and December 2006.
Operating
Expenses
Depreciation
and amortization expense increased by $1.4 million, or 20%, to $8.1 million
for
the year ended December 31, 2007 from $6.8 million for the year ended December
31, 2006. The increase in depreciation and amortization was due to the
acquisition of 22 properties between April and December 2006.
General
and administrative expenses increased by $1.2 million, or 22.5%, to $6.4 million
for the year ended December 31, 2007 from $5.3 million for the year ended
December 31, 2006. The increase is due to a number of factors including (i)
an
increase of $135,000 in payroll and payroll related expenses of full-time
employees; (ii) an increase of $310,000 in compensation expenses related to
the
amortization of restricted stock awards; (iii) an increase of $200,000 (from
$50,000 to $250,000) in the compensation paid to the chairman of our board;
(iv)
an increase of $228,000 in professional fees resulting from both the retention
by our Compensation Committee of an independent consultant, and an increase
in
legal and accounting fees. Offsetting these increases was a $723,000 decease
in
professional fees incurred in the prior year in connection with investigations
by the SEC and our Audit Committee and legal fees relating to a civil litigation
arising out of the activities of our former president and chief executive
officer.
Included
in the increase in general and administrative expenses was $2.29 million of
expenses incurred pursuant to a compensation and services agreement which became
effective January 1, 2007. Under the agreement Majestic Property Management
Corp., an affiliated entity, took over our obligations under a shared services
agreement (including our share of direct office overhead) and agreed to continue
to provide us with the services of all affiliated executive, administrative,
legal, accounting and clerical personnel that we use on an as needed, part-time
basis. Accordingly, we no longer allocate direct office overhead or allocate
payroll expenses. The agreement also requires Majestic Property Management
Corp.
to continue to provide us with certain property management services (including
construction supervisory services), property acquisition, sales and leasing
services and mortgage brokerage services and we do not incur any fees or
expenses for such services except for the annual fee referred to below. In
consideration of taking over our obligations under the shared services agreement
and providing the services mentioned above, we agreed to pay Majestic Property
Management Corp. a fee in 2007 of $2,125,000 million (before offsets provided
for in the agreement) plus $175,000 as our share of direct office overhead.
The
following table compares the amounts paid by us in 2007 under the compensation
and services agreement and the expenses paid in 2006 which would be included
in
the fee paid under such agreement:
|
|
Years
ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Compensation
and Services Agreement
|
|
$
|
2,288,000
|
|
$
|
-
|
|
Allocated
expenses
|
|
|
-
|
|
|
1,317,000
|
|
Mortgage
brokerage fees
|
|
|
-
|
|
|
100,000
|
(1)
|
Sales
commissions
|
|
|
-
|
|
|
152,000
|
(2)
|
Management
fees
|
|
|
-
|
|
|
15,000
|
|
Supervisory
fees
|
|
|
-
|
|
|
41,000
|
(3)
|
|
|
|
2,288,000
|
|
|
1,625,000
|
|
Fees
paid by our joint ventures
|
|
|
6,000
|
|
|
691,000
|
(4)
|
Total
fees
|
|
$
|
2,294,000
|
|
$
|
2,316,000
|
|
(1)
|
Deferred
and written off over term of
mortgage.
|
(2) |
Reduced
net sales proceeds.
|
(3) |
Capitalized
to improvement account.
|
(4) |
Represents
our 50% share of fees paid to Majestic Property Management Corp.
by our
joint ventures. The 2007 amount is for management fees and the 2006
amount
is primarily for sales commissions, which reduced the net sales proceeds
from the dispositions of real estate of unconsolidated
joint ventures.
|
Other
Income and Expenses
Our
equity
in earnings of unconsolidated joint ventures increased by $3.9 million to
$648,000 for the year ended December 31, 2007 from a loss of $3.3 million for
the year ended December 31, 2006. The $3.3 million loss for the year ended
December 31, 2006 resulted primarily from $10.5 million of mortgage prepayment
premiums, of which 50%, or $5.3 million, was our share, paid by two of our
joint
ventures upon the sale of its nine movie theater properties in September and
October 2006. Such sales resulted in a decrease in income producing properties
owned by our joint ventures since these properties generated operating income
of
$4.6 million, of which 50%, or $2.3 million, was our share in 2006. The year
ended December 31, 2006 also included a $960,000 provision for valuation
adjustment by one of our joint ventures, of which 50%, or $480,000, was our
share. Additionally, during the year ended December 31, 2006, one of our movie
theater joint ventures recorded a $600,000 provision for valuation adjustment,
of which 50%, or $300,000, was our share. The joint venture sold this property
in March 2007. The year ended December 31, 2007 includes an increase in our
equity share of earnings from four of our other unconsolidated joint ventures,
primarily due to our participation in an additional joint venture which acquired
a property in September 2006.
Gain
on
dispositions of real estate of unconsolidated joint ventures results from sales
of real estate assets owned by our two movie theater joint ventures. The year
ended December 31, 2006 reflects the September 2006 sale by one of the joint
ventures of a movie theater property located in Brooklyn, New York for a
consideration of $16 million from which it realized a gain of $6.6 million,
of
which our share was $3.3 million. The year ended December 31, 2006 also reflects
the October 2006 sale of eight movie theater properties by both movie theater
joint ventures to an unrelated party for an aggregate purchase price of $136.7
million, from which the joint ventures realized a gain of $49 million, of which
$24.5 million was our share. We wrote off the unamortized premium balance of
$924,000 in our investment in one of the joint ventures against the gain. The
year ended December 31, 2007 reflects the sale by one of the movie theater
joint
ventures of its last remaining real estate asset, a vacant parcel of land,
located in Monroe, New York, for a consideration of $1.25 million. The joint
venture recognized a gain of $1.2 million on this sale, of which our 50% share
is $583,000.
Interest
and other income increased by $877,000, or 97.6%, to $1.8 million for the year
ended December 31, 2007 from $899,000 for the year ended December 31, 2006.
The
increase in interest and other income for the year ended December 31, 2007
results substantially from our investment in short-term cash equivalents
available primarily from the distributions we received from the movie theater
joint ventures upon the sales of its theater properties in September and October
2006. Also contributing to the increase in interest and other income in the
year
ended December 31, 2007 is a $118,000 gain on sale of available-for-sale
securities.
Interest
expense increased by $2.4 million, or 19.2%, to $14.9 million for the year
ended
December 31, 2007 from $12.5 million for the year ended December 31, 2006.
This
increase results primarily from fixed rate mortgages placed on 10 properties
in
the year ended December 31, 2006 and the assumption of a fixed rate mortgage
in
connection with the purchase of 11 properties in April 2006. The year ended
December 31, 2007 includes a full year of interest expense on these mortgages.
In addition, the increase in interest expense results from interest on a loan
payable which was originally a mortgage collateralized by a movie theater
property we sold in October 2006.
Amortization
of deferred financing costs increased by $43,000, or 7.2%, to $638,000 for
the
year ended December 31, 2007. The increase results from the amortization of
deferred mortgage costs during the year ended December 31, 2007 resulting from
mortgages placed on 22 properties between April 2006 and August 2007.
In
July
2006, we sold excess acreage at a property we own to an unrelated party and
recognized a $185,000 gain on the sale, and in February 2006, we sold an option
to buy an interest in certain property adjacent to one of our properties and
recognized a $228,000 gain on the sale.
Discontinued
Operations
Income
from discontinued operations decreased by $4.1 million, or 72%, to $1.6 million
for the year ended December 31, 2007 from $5.6 million for the year ended
December 31, 2006. This decrease was primarily due to the $3.7 million gain
in
the year ended December 31, 2006 on the sale of a movie theater wholly owned
by
us that we sold for $15.2 million. This sale was part of a sale which closed
in
October 2006 pursuant to which an unrelated party purchased one movie theater
from us and eight movie theaters from two of our joint ventures. The year ended
December 31, 2006 also includes the net operating income of $487,000 from this
property.
Comparison
of Years Ended December 31, 2006 and December 31, 2005
Rental
Revenues
Rental
revenues increased by $6.1 million, or 23.7%, to $32 million for the year ended
December 31, 2006 from $25.9 million for the year ended December 31, 2005.
The
increase in rental revenues is substantially due to rental revenues earned
during the year ended December 31, 2006 on 30 properties acquired by us between
January 2005 and December 2006.
Operating
Expenses
Depreciation
and amortization expense increased by $1.6 million, or 30.1%, to $6.8 million
for the year ended December 31, 2006 from $5.2 million for the year ended
December 31, 2005. The increase in depreciation and amortization was due to
the
acquisition of 30 properties between January 2005 and December
2006.
General
and administrative expenses increased by $1.1 million, or 26.8%, to $5.3 million
for the year ended December 31, 2006 from $4.1 million for the year ended
December 31, 2005. The increase was due to a number of factors, including a
$495,000 increase in payroll and payroll related expenses resulting primarily
from compensation paid to our president (elected effective January 1, 2006)
for
all of 2006, while we did not have any payroll expenses for our president for
five months in 2005, as well as from staff increases. An increase of $166,000
relates to professional fees incurred in connection with an investigation by
the
Securities and Exchange Commission (see Part I - Item 3 - Legal Proceedings)
and
investigations by our Audit Committee. Similarly, there was an increase of
$72,000 in legal fees relating to a civil litigation arising out of the
activities of our former president and chief executive officer. Additionally,
for the year ended December 31, 2006, expenses allocated to us under the Shared
Services Agreement among us and various affiliated companies, increased by
$109,000 for executive and support personnel, primarily legal and accounting
services, a significant portion of which relates to the SEC and Audit Committee
investigations, as well as to property acquisitions and the overall increase
in
the level of our business activity. Also included in the year ended December
31,
2006, is a $222,000 increase in compensation expense relating to our restricted
stock program. The balance of the increase in general and administrative
expenses includes an increase in directors’ fees.
Federal
excise tax of $490,000 was accrued at December 31, 2006, based on taxable income
generated but not yet distributed. There was no such tax for the year ended
December 31, 2005.
Real
estate expenses decreased by $75,000, or 21.9%, to $268,000 for the year ended
December 31, 2006, resulting primarily from unusual repair items incurred in
the
year ended December 31, 2005 at three properties.
Other
Income and Expenses
Our
equity
in earnings of unconsolidated joint ventures decreased by $5.4 million, or
256%,
to a loss of $3.3 million for the year ended December 31, 2006 from income
of
$2.1 million for the year ended December 31, 2005. This decrease resulted
primarily from $10.5 million of mortgage prepayment premiums, of which 50%,
or
$5.3 million was our share, paid by two of our joint ventures upon the sales
of
its nine movie theater properties. Such sales also contributed to an operating
income decrease from these ventures of $1.3 million, of which $646,000 was
our
share, caused by a decrease in rental income, offset in part by a decrease
in
mortgage interest expense and depreciation. The decrease in earnings from
unconsolidated joint ventures also resulted from a $960,000 provision for
valuation adjustment, of which 50%, or $480,000 was our share, by one of our
joint ventures which owns a vacant property. These decreases were offset, in
part, by a $2.56 million provision for valuation adjustment taken in the year
ended December 31, 2005 by one of our movie theater joint ventures against
its
vacant parcel of land, of which 50%, or $1.3 million, was our share. During
the
year ended December 31, 2006, the joint venture recorded an additional $600,000
provision against this property, of which $300,000 was our share. The joint
venture sold this property in March 2007 for an aggregate consideration of
$1.25
million.
Gain
on
dispositions of real estate of unconsolidated joint ventures resulted from
the
sales of nine movie theater properties by two of our joint ventures. On
September 13, 2006, one of our joint ventures sold a movie theater property
located in Brooklyn, New York to an unrelated party for $16 million. The joint
venture recognized a gain of $6.6 million on the sale, of which our share is
$3.3 million. On October 5, 2006, two of our joint ventures sold eight movie
theater properties to a single unrelated party for an aggregate of $136.7
million and realized a gain of $49 million on the sale, of which $24.5 million
is our share. We wrote off the unamortized premium balance of $924,000 in our
investment in this joint venture against such gain.
Interest
and other income increased by $589,000, or 190%, to $899,000 for the year ended
December 31, 2006. The primary reason for the increase was the investment in
short-term cash equivalents of the distributions we received from the movie
theater joint ventures upon the sale of its nine theater
properties.
Interest
expense increased by $3 million, or 31.1%, primarily due to an increase of
$3
million on our mortgages payable, principally resulting from mortgages placed
on
20 properties between March 2005 and December 2006 and the assumption of a
mortgage in connection with the purchase of 11 properties in April 2007. The
increase was offset by a $215,000 decrease in interest expense related to our
line of credit.
During
February 2006, we sold an option to buy an interest in certain property adjacent
to one of our properties and recognized a gain on the sale of $228,000. In
June
2005, we closed on the sale of unused development or “air rights” relating to
our property located in Brooklyn, New York for a net gain, after closing costs,
of approximately $10.25 million. These gains are included in “Gain on sale of
air rights and other gains.”
Included
in gain on sale of real estate is our sale of excess acreage at a property
we
own to an unrelated party. We recognized a gain of $185,000 in July 2006 from
this sale.
Discontinued
Operations
Income
from discontinued operations increased by $2.7 million, or 89.3%, to $5.6
million for the year ended December 31, 2006. This increase was primarily due
to
the $3.7 million gain on sale of a movie theater wholly owned by us that we
sold
for $15.2 million. This sale was part of a sale which closed on October 5,
2006
pursuant to which an unrelated party purchased one movie theater from us and
eight movie theaters from two of our joint ventures. This increase was offset
in
part by net gains of $1.9 million in the year ended December 31, 2005 on the
sale of five of our properties. The increase in discontinued operations also
resulted from an increase in income from operations caused by a $469,000
provision for valuation adjustment that was recorded in the year ended December
31, 2005 against one of the properties which was sold later in that
year.
Liquidity
and Capital Resources
Our
primary sources of liquidity are cash and cash equivalents, our revolving credit
facility and cash generated from operating activities, including mortgage
financings. We are a party to a credit agreement, as amended, with VNB New
York
Corp., Bank Leumi, USA, Manufacturers and Traders Trust Company and Israel
Discount Bank of New York which provides for a $62.5 million revolving credit
facility. The credit facility is available to us to pay off existing mortgages,
to fund the acquisition of additional properties or to invest in joint ventures.
The facility matures on March 31, 2010. Borrowings under the facility bear
interest at the lower of LIBOR plus 2.15% or the bank’s prime rate and there is
an unused facility fee of ¼% 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. As of December 31, 2007 and March 7, 2008, there is no outstanding
balance under the facility.
We
continue to seek additional property acquisitions. We will use our available
cash and cash equivalents, cash provided from operations, cash provided from
mortgage financings and funds available under our credit facility to fund
acquisitions.
The
following sets forth our contractual cash obligations as of December 31, 2007,
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):
|
|
Payment
due by period
|
|
|
|
|
|
Less
than
|
|
1-3
|
|
4-5
|
|
More
than
|
|
Contractual
Obligations
|
|
Total
|
|
1
Year
|
|
Years
|
|
Years
|
|
5
Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages
and loan payable -
|
|
|
|
|
|
|
|
|
|
|
|
interest
and amortization
|
|
$
|
139,497
|
|
$
|
19,136
|
|
$
|
36,547
|
|
$
|
32,272
|
|
$
|
51,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages
and loan payable -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
balances
due at maturity
|
|
|
172,140
|
|
|
4,184
|
|
|
21,584
|
|
|
35,287
|
|
|
111,085
|
|
Total
|
|
$
|
311,637
|
|
$
|
23,320
|
|
$
|
58,131
|
|
$
|
67,559
|
|
$
|
162,627
|
|
As
of
December 31, 2007, we had outstanding approximately $222 million in long-term
mortgage and loan 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
$55.7 million due in the next three years will be paid primarily from cash
generated from our operations. We anticipate that loan maturities of
approximately $25.8 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, funds available under our credit facility and available cash,
if
any, may 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.
In
addition, we, as ground lessee, are obligated to pay rent under a ground lease
for a property owned in fee by an unrelated third party. The annual fixed
leasehold rent expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
More
than
|
|
Total
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
5
Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3,986,476
|
|
$
|
237,500
|
|
$
|
262,240
|
|
$
|
296,875
|
|
$
|
296,875
|
|
$
|
296,875
|
|
$
|
2,596,111
|
|
We
had no
outstanding contingent commitments, such as guarantees of indebtedness, or
any
other contractual cash obligations at December 31, 2007.
Cash
Distribution Policy
We
have
elected to be taxed as a REIT under the Internal Revenue Code of 1986, as
amended. 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 stockholders. 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 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)
and are subject to federal excise taxes on our undistributed taxable
income.
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 taxable 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.
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements.
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:
Purchase
Accounting for Acquisition of Real Estate
The
fair
value of the real estate acquired is allocated to the acquired tangible assets,
consisting of land and building, and identified intangible assets and
liabilities, consisting of the value of above-market and below-market leases
and
other value of in-place leases based in each case on their fair values. The
fair
value of the tangible assets of an acquired property (which includes land and
building) is determined by valuing the property as if it were vacant, and the
“as-if-vacant” value is then allocated to land and building based on
management’s determination of relative fair values of these assets. The
allocation made by management may have a positive or negative effect on net
income and may have an effect on the assets and liabilities on the balance
sheet.
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.
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, including deferred
costs and intangibles, 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, 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. For each real estate asset owned for which
indicators of impairment exist, recognition of impairment is required if the
calculated value is less than the asset’s carrying amount. We generally 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 adjustment,
but it will not affect our cash flow until such time as the property is
sold.
Item
7A. Qualitative
and Quantitative Disclosures About Market Risk.
All
of
our long-term mortgage debt bears interest at fixed rates and accordingly,
the
effect of changes in interest rates would not impact the amount of interest
expense that we incur under these mortgages. Our credit line is a variable
rate
facility which is sensitive to interest rates. Therefore, our primary market
risk exposure is the effect of changes in interest rates on the interest cost
of
draws on our line of credit. Under current market conditions, we do not believe
that our risk of material potential losses in future earnings, fair values
and/or cash flows from near-term changes in market rates that we consider
reasonably possible is material.
The
fair
market value (FMV) of our long term debt is estimated based on discounting
future cash flows at interest rates that our management believes reflect the
risks associated with long term debt of similar risk and duration.
The
following table sets forth our long-term debt obligations by scheduled principal
cash flow payments and maturity date, weighted average interest rates and
estimated FMV at December 31, 2007 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
There-
|
|
|
|
|
|
For
the Year Ended December 31
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
after
|
|
Total
|
|
FMV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
term debt
|
|
$
|
9,104
|
|
$
|
10,033
|
|
$
|
22,313
|
|
$
|
8,580
|
|
$
|
37,551
|
|
$
|
134,454
|
|
$
|
222,035
|
|
$
|
219,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate weighted
average interest rate
|
|
|
6.49
|
%
|
|
6.49
|
%
|
|
6.38
|
%
|
|
6.33
|
%
|
|
6.32
|
%
|
|
6.24
|
%
|
|
6.30
|
%
|
|
6.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
rate
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Item
8.
Financial
Statements and Supplementary Data.
This
information appears in Item 15(a) of this Annual Report on Form
10-K.
Item
9.
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
Item
9A.
Controls
and Procedures.
A
review
and evaluation was performed by our management, including our Chief Executive
Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end
of
the period covered by this Annual Report on Form 10-K. Based on that review
and
evaluation, the CEO and CFO have concluded that our current disclosure controls
and procedures, as designed and implemented, were effective. There have been
no
significant changes in our internal controls or in other factors that could
significantly affect our internal controls subsequent to the date of their
evaluation. There were no significant material weaknesses identified in the
course of such review and evaluation and, therefore, we took no corrective
measures.
Management
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting
is
defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities
Exchange Act of 1934, as amended, as a process designed by, or under the
supervision of, a company’s principal executive and principal financial officers
and effected by a company’s board, management and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
GAAP and includes those policies and procedures that:
|
·
|
pertain
to the maintenance of records that in reasonable detail accurately
and
fairly reflect the transactions and dispositions of the assets of
a
company;
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with GAAP, and
that
receipts and expenditures of a company are being made only in accordance
with authorizations of management and directors of a company;
and
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of a company’s assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risks that controls may become inadequate
because of changes in conditions or that the degree of compliance with the
policies or procedures may deteriorate.
Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2007. In making this assessment, our management
used criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated
Framework.
Based
on
its assessment, our management believes that, as of December 31, 2007, our
internal control over financial reporting was effective based on those
criteria.
Our
independent registered public accounting firm, Ernst & Young LLP, has issued
an audit report on management’s assessment of our internal control over
financial reporting. This report appears on page F1 of this Annual Report on
Form 10-K.
Item
9B.
Other
Information.
None.
PART
III
Item
10.
Directors,
Executive Officers and Corporate Governance.
We
have
an amended and restated Code of Business Conduct and Ethics that applies to
all
directors, officers and employees, including our principal executive officer,
principal financial officer and principal accounting officer. You can find
our
Code of Business Conduct and Ethics on our web site by going to the following
address: www.onelibertyproperties.com.
We will
post any amendments to our amended and restated Business Code of Conduct and
Ethics as well as any waivers that are required to be disclosed by the rules
of
either the Securities and Exchange Commission or The New York Stock Exchange,
on
our web site.
Our
Board
of Directors has adopted Corporate Governance Guidelines and Charters for the
Audit, Compensation and Nominating and Corporate Governance Committees of the
Board of Directors. You can find these documents on our web site by going to
the
following address: www.onelibertyproperties.com.
You
can
also obtain a printed copy of any of the materials referred to above by
contacting us at the following address: One Liberty Properties, Inc., 60 Cutter
Mill Road, Great Neck, New York 11021, Attention: Secretary, telephone number
(1-800-450-5816).
The
Audit
Committee of our Board of Directors is an “Audit Committee” for the purposes of
Section 3(a) (58) of the Securities Exchange Act of 1934, as amended. The
members of that Committee are Charles Biederman, Chairman, Joseph A. DeLuca
and
James J. Burns.
Apart
from certain information concerning our executive officers which is set forth
in
Part I of this Annual Report, the other information required by this Item is
incorporated herein by reference to the applicable information in the proxy
statement for our 2008 Annual Meeting of Stockholders including the information
set forth under the captions “Election of Directors,” “Section 16(a) Beneficial
Ownership Reporting Compliance” and “Governance of the Company.”
Item
11.
Executive
Compensation.
The
information concerning our executive compensation required by Item 11 shall
be
included in the Proxy Statement to be filed relating to our 2008 Annual Meeting
of Stockholders and is incorporated herein by reference, including the
information set forth under the caption “Executive Compensation,” “Compensation
of Directors,” “Compensation Committee Interlocks and Insider Participation” and
“Report of Compensation Committee.”
Item
12.
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The
information concerning our beneficial owners and management required by Item
12
shall be included in the Proxy Statement to be filed relating to our 2008 Annual
Meeting of Stockholders and is incorporated herein by reference, including
the
information set forth under the caption “Stock Ownership of Certain Beneficial
Owners, Directors and Officers.”
Equity
compensation plan information is incorporated by reference from Part II, Item
5,
“Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities,” of this report.
Item
13.
Certain
Relationships and Related Transactions.
The
information concerning certain relationships, related transactions and director
independence required by Item 13 shall be included in the Proxy Statement to
be
filed relating to our 2008 Annual Meeting of Stockholders and is incorporated
herein by reference, including the information set forth under the caption
“Certain Relationships and Related Transactions,” and “Governance of the
Company.”
Item
14.
Principal
Accountant Fees and Services.
The
information concerning our principal accounting fees required by Item 14 shall
be included in the Proxy Statement to be filed relating to our 2008 Annual
Meeting of Stockholders and is incorporated herein by reference, including
the
information set forth under the caption “Independent Registered Public
Accounting Firm.”
PART
IV
Item
15.
Exhibits
and Financial Statement Schedules
(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:
-
Reports of Independent Registered
|
|
|
|
Public
Accounting Firm
|
|
|
F-1
through F-2
|
|
-
Statements:
|
|
|
|
|
Consolidated
Balance Sheets
|
|
|
F-3
|
|
Consolidated
Statements of Income
|
|
|
F-4
|
|
Consolidated
Statements of Stockholders' Equity
|
|
|
F-5
|
|
Consolidated
Statements of Cash Flows
|
|
|
F-6
through F-7
|
|
Notes
to Consolidated Financial Statements
|
|
|
F-8
through F-24
|
|
(2)
Financial Statement Schedules:
-
Schedule III-Real Estate
|
|
|
|
and
Accumulated Depreciation
|
|
|
F-25
through F-26
|
|
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 Amendment and Restatement of One Liberty Properties, Inc., dated
July
20, 2004 (incorporated by reference to Exhibit 3.1 to One Liberty
Properties, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended
June 30, 2004).
|
3.2
|
Articles
of Amendment to Restated Articles of Incorporation of One Liberty
Properties, Inc. filed with the State of Assessments and Taxation
of
Maryland on June 17, 2005 (incorporated by reference to Exhibit 3.1
to One
Liberty Properties, Inc.'s Quarterly Report on Form 10-Q for the
quarter
ended June 30, 2005).
|
3.3
|
Articles
of Amendment to Restated Articles of Incorporation of One Liberty
Properties, Inc. filed with the State of Assessments and Taxation
of
Maryland on June 21, 2005 (incorporated by reference to Exhibit 3.2
to One
Liberty Properties, Inc.'s Quarterly Report on Form 10-Q for the
quarter
ended June 30, 2005).
|
3.4
|
By-Laws
of One Liberty Properties, Inc., as amended (incorporated by reference
to
Exhibit 3.1 to One Liberty Properties, Inc.'s Current Report on Form
8-K
filed on December 12, 2007).
|
4.1
|
One
Liberty Properties, Inc. 1996 Stock Option Plan (incorporated by
reference
to Exhibit 10.5 to One Liberty Properties, Inc.'s Registration Statement
on Form S-2, Registration No. 333-86850, filed on April 24, 2002
and
declared effective on May 24,
2002).
|
4.2
|
One
Liberty Properties, Inc. 2003 Incentive Plan (incorporated by reference
to
Exhibit 4.1 to One Liberty Properties, Inc.'s Registration Statement
on
Form S-8 filed on July 15, 2003).
|
4.3
|
Form
of Common Stock Certificate (incorporated by reference to Exhibit
4.1 to
One Liberty Properties, Inc.'s Registration Statement on Form S-2,
Registration No. 333-86850, filed on April 24, 2002 and declared
effective
on May 24, 2002).
|
10.1
|
Amended
and Restated Loan Agreement, dated as of June 4, 2004, by and among
One
Liberty Properties, Inc., Valley National Bank, Merchants Bank Division,
Bank Leumi USA, Israel Discount Bank of New York and Manufacturers
and
Traders Trust Company (incorporated by reference to the Exhibit to
One
Liberty Properties, Inc.'s Current Report on Form 8-K filed on June
8,
2004).
|
10.2 |
First
Amendment to Amended and Restated Loan Agreement, dated as of March
15,
2007, between VNB New York Corp. as assignee of Valley National Bank,
Merchants Bank Division, Bank Leumi, USA, Manufacturers and Traders
Trust
Company, Israel Discount Bank of New York, and One Liberty Properties,
Inc. (incorporated by reference to Exhibit 10.1 to One Liberty Properties,
Inc.’s Current Report on Form 8-K filed on March 15,
2007).
|
10.3
|
Second
Amendment to Amended and Restated Loan Agreement effective as of
September
30, 2007, between VNB New York Corp., as assignee, of Valley National
Bank, Merchants Bank Division, Bank Leumi USA, Israel Discount Bank
of New
York, Manufacturers and Traders Trust Company and One Liberty Properties,
Inc.
|
10.4 |
Compensation
and Services and Agreement effective as of January 1, 2007 between
One
Liberty Properties Inc. and Majestic Property Management Corp.
(incorporated by reference to One Liberty Properties Inc.’s Current Report
on Form 8-K filed March 14,2007).
|
14.1
|
Code
of Business Conduct and Ethics (incorporated by reference to Exhibit
14.1
to One Liberty Properties, Inc.’s Form Current Report on Form 8-K filed on
March 14, 2006).
|
21.1 |
Subsidiaries
of Registrant*
|
23.1
|
Consent
of Ernst & Young LLP*
|
31.1 |
Certification
of President and Chief Executive
Officer*
|
31.2 |
Certification
of Senior Vice President and Chief Financial
Officer*
|
32.1 |
Certification
of President and Chief Executive Officer
*
|
32.2 |
Certification
of Senior Vice President and Chief Financial
Officer*
|
*
Filed
herewith
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.
|
|
|
|
|
By: |
/s/
Patrick J. Callan, Jr.
|
|
Patrick
J. Callan, Jr.
|
|
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
|
|
Chairman
of the
|
|
|
Fredric
H. Gould
|
|
Board
of Directors
|
|
March
13, 2008
|
|
|
|
|
|
|
|
|
|
|
/s/
Patrick J. Callan, Jr.
|
|
President,
|
|
|
Patrick
J. Callan, Jr
|
|
Chief
Executive Officer and Director
|
|
March
13, 2008
|
|
|
|
|
|
|
|
|
|
|
/s/
Joseph A. Amato
|
|
|
|
|
Joseph
A. Amato
|
|
Director
|
|
March
13, 2008
|
|
|
|
|
|
|
|
|
|
|
/s/
Charles Biederman
|
|
|
|
|
Charles
Biederman
|
|
Director
|
|
March
13, 2008
|
|
|
|
|
|
|
|
|
|
|
/s/
James J. Burns
|
|
|
|
|
James
J. Burns
|
|
Director
|
|
March
13, 2008
|
|
|
|
|
|
|
|
|
|
|
/s/
Jeffrey A. Gould
|
|
|
|
|
Jeffrey
A. Gould
|
|
Director
|
|
March
13, 2008
|
|
|
|
|
|
|
|
|
|
|
/s/
Matthew J. Gould
|
|
|
|
|
Matthew
J. Gould
|
|
Director
|
|
March
13, 2008
|
|
|
|
|
|
|
|
|
|
|
/s/
Joseph De Luca
|
|
|
|
|
Joseph
De Luca
|
|
Director
|
|
March
13, 2008
|
|
|
|
|
|
|
|
|
|
|
/s/
J. Robert Lovejoy
|
|
|
|
|
J.
Robert Lovejoy
|
|
Director
|
|
March
13, 2008
|
|
|
|
|
|
|
|
|
|
|
/s/
Eugene I. Zuriff
|
|
|
|
|
Eugene
I. Zuriff
|
|
Director
|
|
March
13, 2008
|
|
|
|
|
|
|
|
|
|
|
/s/
David W. Kalish
|
|
Senior
Vice President and
|
|
|
David
W. Kalish
|
|
Chief
Financial Officer
|
|
March
13, 2008
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board
of Directors and Stockholders of
One
Liberty Properties, Inc. and Subsidiaries
We
have
audited One Liberty Properties, Inc. and Subsidiaries’ (the “Company”) internal
control over financial reporting as of December 31, 2007, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). The
Company’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management Report
on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on the Company’s internal control over financial reporting based on
our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, based on the
COSO
criteria.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of One Liberty
Properties, Inc. and Subsidiaries as of December 31, 2007 and 2006, and the
related consolidated statements of income, stockholders’ equity, and cash flows
for each of the three years in the period ended December 31, 2007 of the Company
and our report dated March 13, 2008 expressed an unqualified opinion
thereon.
/s/
Ernst
& Young LLP
New
York,
New York
March
13,
2008
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2007 and 2006, and
the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2007. 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 the standards of the Public Company
Accounting Oversight Board (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, 2007 and 2006, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2007, in conformity with U.S.
generally accepted accounting principles. 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.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), One Liberty Properties, Inc. and Subsidiaries’
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated March 13, 2008 expressed an unqualified opinion thereon.
/s/
Ernst
& Young LLP
New
York,
New York
March
13,
2008
ONE
LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
(Amounts
in Thousands, Except Per Share Data)
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
Real
estate investments, at cost
|
|
|
|
|
|
Land
|
|
$
|
70,032
|
|
$
|
70,078
|
|
Buildings
and improvements
|
|
|
298,470
|
|
|
298,265
|
|
|
|
|
368,502
|
|
|
368,343
|
|
Less
accumulated depreciation
|
|
|
34,512
|
|
|
26,691
|
|
|
|
|
333,990
|
|
|
341,652
|
|
|
|
|
|
|
|
|
|
Investment
in unconsolidated joint ventures
|
|
|
6,570
|
|
|
7,014
|
|
Cash
and cash equivalents
|
|
|
25,737
|
|
|
34,013
|
|
Restricted
cash
|
|
|
7,742
|
|
|
7,409
|
|
Unbilled
rent receivable
|
|
|
9,893
|
|
|
8,218
|
|
Property
held for sale
|
|
|
10,052
|
|
|
10,189
|
|
Escrow,
deposits and other receivables
|
|
|
2,465
|
|
|
2,251
|
|
Investment
in BRT Realty Trust at market (related party)
|
|
|
459
|
|
|
831
|
|
Deferred
financing costs
|
|
|
3,119
|
|
|
3,062
|
|
Other
assets (including available-for-sale securities at market of
$1,024 and $1,372)
|
|
|
1,672
|
|
|
2,145
|
|
Unamortized
intangible lease assets
|
|
|
4,935
|
|
|
5,253
|
|
|
|
$
|
406,634
|
|
$
|
422,037
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
Liabilities:
|
|
|
|
|
|
Mortgages
and loan payable
|
|
$
|
222,035
|
|
$
|
227,923
|
|
Dividends
payable
|
|
|
3,638
|
|
|
3,587
|
|
Accrued
expenses and other liabilities
|
|
|
4,252
|
|
|
4,391
|
|
Unamortized
intangible lease liabilities
|
|
|
5,470
|
|
|
6,011
|
|
Total
liabilities
|
|
|
235,395
|
|
|
241,912
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
Preferred
stock, $1 par value; 12,500 shares authorized; none
issued
|
|
|
-
|
|
|
-
|
|
Common
stock, $1 par value; 25,000 shares authorized; 9,906
and 9,823 shares issued and outstanding
|
|
|
9,906
|
|
|
9,823
|
|
Paid-in
capital
|
|
|
137,076
|
|
|
134,826
|
|
Accumulated
other comprehensive income - net unrealized gain
on available-for-sale securities
|
|
|
344
|
|
|
935
|
|
Accumulated
undistributed net income
|
|
|
23,913
|
|
|
34,541
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
171,239
|
|
|
180,125
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
406,634
|
|
$
|
422,037
|
|
See
accompanying notes.
ONE
LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Income
(Amounts
in Thousands, Except Per Share Data)
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Revenues:
|
|
|
|
|
|
|
|
Rental
income
|
|
$
|
36,805
|
|
$
|
32,048
|
|
$
|
25,910
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
8,111
|
|
|
6,760
|
|
|
5,197
|
|
General
and administrative (including $2,290, $1,317 and
$1,208, respectively, to related parties)
|
|
|
6,430
|
|
|
5,250
|
|
|
4,140
|
|
Federal
excise tax
|
|
|
91
|
|
|
490
|
|
|
-
|
|
Real
estate expenses
|
|
|
290
|
|
|
268
|
|
|
342
|
|
Leasehold
rent
|
|
|
308
|
|
|
308
|
|
|
308
|
|
Total
operating expenses
|
|
|
15,230
|
|
|
13,076
|
|
|
9,987
|
|
Operating
income
|
|
|
21,575
|
|
|
18,972
|
|
|
15,923
|
|
Other
income and expenses:
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings (loss) of unconsolidated joint ventures
|
|
|
648
|
|
|
(3,276
|
)
|
|
2,102
|
|
Gain
on dispositions of real estate - unconsolidated
|
|
|
|
|
|
|
|
|
|
|
joint
ventures
|
|
|
583
|
|
|
26,908
|
|
|
-
|
|
Interest
and other income
|
|
|
1,776
|
|
|
899
|
|
|
311
|
|
Interest:
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
(14,931
|
)
|
|
(12,524
|
)
|
|
(9,555
|
)
|
Amortization
of deferred financing costs
|
|
|
(638
|
)
|
|
(595
|
)
|
|
(720
|
)
|
Gain
on sale of air rights and other gains
|
|
|
-
|
|
|
228
|
|
|
10,248
|
|
Gain
on sale of real estate
|
|
|
-
|
|
|
185
|
|
|
-
|
|
Income
from continuing operations
|
|
|
9,013
|
|
|
30,797
|
|
|
18,309
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
1,577
|
|
|
1,968
|
|
|
1,066
|
|
Net
gain on sale
|
|
|
-
|
|
|
3,660
|
|
|
1,905
|
|
Income
from discontinued operations
|
|
|
1,577
|
|
|
5,628
|
|
|
2,971
|
|
Net
income
|
|
$
|
10,590
|
|
$
|
36,425
|
|
$
|
21,280
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,069
|
|
|
9,931
|
|
|
9,838
|
|
Diluted
|
|
|
10,069
|
|
|
9,934
|
|
|
9,843
|
|
Net
income per common share - basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
.89
|
|
$
|
3.10
|
|
$
|
1.86
|
|
Income
from discontinued operations
|
|
|
.16
|
|
|
.57
|
|
|
.30
|
|
Net
income per common share
|
|
$
|
1.05
|
|
$
|
3.67
|
|
$
|
2.16
|
|
Cash
distributions per share of common stock
|
|
$
|
2.11
|
|
$
|
1.35
|
|
$
|
1.32
|
|
See
accompanying notes.
ONE
LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Stockholders' Equity
For
the
Three Years Ended December 31, 2007
(Amounts
in Thousands, Except Per Share Data)
|
|
Common
Stock
|
|
Paid-in
Capital
|
|
Accumulated
Other
Comprehensive
Income
|
|
Unearned
Compen-
sation
|
|
Accumulated
Undistributed
Net
Income
|
|
Total
|
|
Balances,
December 31, 2004
|
|
$
|
9,728
|
|
$
|
133,350
|
|
$
|
717
|
|
$
|
(926
|
)
|
$
|
3,246
|
|
$
|
146,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
- common stock ($1.32
per share)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(12,990
|
)
|
|
(12,990
|
)
|
Exercise
of options
|
|
|
11
|
|
|
109
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
120
|
|
Shares
issued through dividend
reinvestment plan
|
|
|
31
|
|
|
569
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
600
|
|
Issuance
of restricted stock
|
|
|
-
|
|
|
617
|
|
|
-
|
|
|
(617
|
)
|
|
-
|
|
|
-
|
|
Compensation
expense - restricted
stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
293
|
|
|
-
|
|
|
293
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
21,280
|
|
|
21,280
|
|
Other
comprehensive income - net
unrealized gain on available-for-sale
securities
|
|
|
-
|
|
|
-
|
|
|
101
|
|
|
-
|
|
|
-
|
|
|
101
|
|
Comprehensive
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
21,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2005
|
|
|
9,770
|
|
|
134,645
|
|
|
818
|
|
|
(1,250
|
)
|
|
11,536
|
|
|
155,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
upon the adoption of
FASB No. 123 (R)
|
|
|
-
|
|
|
(1,250
|
)
|
|
-
|
|
|
1,250
|
|
|
-
|
|
|
-
|
|
Distributions
- common
stock ($1.35 per share)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(13,420
|
)
|
|
(13,420
|
)
|
Exercise
of options
|
|
|
9
|
|
|
101
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
110
|
|
Shares
issued through dividend
reinvestment plan
|
|
|
44
|
|
|
815
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
859
|
|
Compensation
expense - restricted
stock
|
|
|
-
|
|
|
515
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
515
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
36,425
|
|
|
36,425
|
|
Other
comprehensive income - net
unrealized gain on available-for-sale
securities
|
|
|
-
|
|
|
-
|
|
|
117
|
|
|
-
|
|
|
-
|
|
|
117
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2006
|
|
|
9,823
|
|
|
134,826
|
|
|
935
|
|
|
-
|
|
|
34,541
|
|
|
180,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
- common
stock ($2.11 per share)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(21,218
|
)
|
|
(21,218
|
)
|
Repurchase
of common stock
|
|
|
(159
|
)
|
|
(3,053
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,212
|
)
|
Shares
issued through dividend
reinvestment plan
|
|
|
237
|
|
|
4,482
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,719
|
|
Restricted
stock vesting
|
|
|
5
|
|
|
(5
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Compensation
expense - restricted
stock
|
|
|
-
|
|
|
826
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
826
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,590
|
|
|
10,590
|
|
Other
comprehensive income- net
unrealized loss on available-for-sale
securities
|
|
|
-
|
|
|
-
|
|
|
(591
|
)
|
|
-
|
|
|
-
|
|
|
(591
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2007
|
|
$
|
9,906
|
|
$
|
137,076
|
|
$
|
344
|
|
$
|
-
|
|
$
|
23,913
|
|
$
|
171,239
|
|
See
accompanying notes.
ONE
LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
(Amounts
in Thousands)
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
10,590
|
|
$
|
36,425
|
|
$
|
21,280
|
|
Adjustments
to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of real estate, air rights and other
|
|
|
(122
|
)
|
|
(4,181
|
)
|
|
(12,152
|
)
|
Increase
in rental income from straight-lining of rent
|
|
|
(1,674
|
)
|
|
(1,763
|
)
|
|
(1,311
|
)
|
(Increase)
decrease in rental income from amortization of
intangibles relating to leases
|
|
|
(250
|
)
|
|
(187
|
)
|
|
29
|
|
Provision
for valuation adjustment
|
|
|
-
|
|
|
-
|
|
|
469
|
|
Amortization
of restricted stock expense
|
|
|
826
|
|
|
515
|
|
|
293
|
|
Gain
on dispositions of real estate related to unconsolidated joint
ventures
|
|
|
(583
|
)
|
|
(26,908
|
)
|
|
-
|
|
Equity
in (earnings) loss of unconsolidated joint ventures
|
|
|
(648
|
)
|
|
3,276
|
|
|
(2,102
|
)
|
Distributions
of earnings from unconsolidated joint ventures
|
|
|
1,089
|
|
|
24,165
|
|
|
3,108
|
|
Depreciation
and amortization
|
|
|
8,248
|
|
|
7,091
|
|
|
5,905
|
|
Amortization
of financing costs
|
|
|
638
|
|
|
600
|
|
|
758
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Increase
in escrow, deposits and other receivables
|
|
|
(92
|
)
|
|
(945
|
)
|
|
(1,640
|
)
|
(Decrease)
increase in accrued expenses and other liabilities
|
|
|
(138
|
)
|
|
839
|
|
|
132
|
|
Net
cash provided by operating activities
|
|
|
17,884
|
|
|
38,927
|
|
|
14,769
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchase
of real estate and improvements
|
|
|
(423
|
)
|
|
(79,636
|
)
|
|
(59,427
|
)
|
Net
proceeds from sale of real estate, air rights and other
|
|
|
4
|
|
|
16,228
|
|
|
34,114
|
|
Investment
in unconsolidated joint ventures
|
|
|
(8
|
)
|
|
(1,553
|
)
|
|
(282
|
)
|
Distributions
of return of capital from unconsolidated joint
ventures
|
|
|
551
|
|
|
21,264
|
|
|
9,084
|
|
Net
proceeds from sale of available-for-sale securities
|
|
|
843
|
|
|
348
|
|
|
5
|
|
Purchase
of available-for-sale securities
|
|
|
(551
|
)
|
|
(1,364
|
)
|
|
-
|
|
Net
cash provided by (used in) investing activities
|
|
|
416
|
|
|
(44,713
|
)
|
|
(16,506
|
)
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Repayment
of bank line of credit
|
|
|
-
|
|
|
-
|
|
|
(7,600
|
)
|
Proceeds
from mortgages payable
|
|
|
2,700
|
|
|
37,564
|
|
|
64,706
|
|
Payment
of financing costs
|
|
|
(695
|
)
|
|
(916
|
)
|
|
(1,172
|
)
|
Repayment
of mortgages payable
|
|
|
(8,588
|
)
|
|
(4,070
|
)
|
|
(21,253
|
)
|
Increase
in restricted cash
|
|
|
(333
|
)
|
|
(7,409
|
)
|
|
-
|
|
Cash
distributions - common stock
|
|
|
(21,167
|
)
|
|
(13,088
|
)
|
|
(12,966
|
)
|
Exercise
of stock options
|
|
|
-
|
|
|
110
|
|
|
120
|
|
Repurchase
of common stock
|
|
|
(3,212
|
)
|
|
-
|
|
|
-
|
|
Issuance
of shares through dividend reinvestment plan
|
|
|
4,719
|
|
|
859
|
|
|
600
|
|
Net
cash (used in) provided by financing activities
|
|
|
(26,576
|
)
|
|
13,050
|
|
|
22,435
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(8,276
|
)
|
|
7,264
|
|
|
20,698
|
|
Cash
and cash equivalents at beginning of year
|
|
|
34,013
|
|
|
26,749
|
|
|
6,051
|
|
Cash
and cash equivalents at end of year
|
|
$
|
25,737
|
|
$
|
34,013
|
|
$
|
26,749
|
|
Continued
on next page
ONE
LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows (Continued)
(Amounts
in Thousands)
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid during the year for interest expense
|
|
$
|
14,812
|
|
$
|
12,576
|
|
$
|
10,150
|
|
Cash
paid during the year for income taxes
|
|
|
35
|
|
|
16
|
|
|
15
|
|
Supplemental
schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
Assumption
of mortgages payable in connection with purchase
of real estate
|
|
$
|
-
|
|
$
|
26,957
|
|
$
|
-
|
|
Purchase
accounting allocations
|
|
|
-
|
|
|
(3,346
|
)
|
|
1,655
|
|
Reclassification
of 2005 deposit in connection with purchase
of real estate
|
|
|
-
|
|
|
2,525
|
|
|
-
|
|
See
accompanying notes.
ONE
LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Notes
to
Consolidated Financial Statements
December
31, 2007
NOTE
1 -ORGANIZATION
AND BACKGROUND
One
Liberty Properties, Inc. (“OLP”) was incorporated in 1982 in the state of
Maryland. OLP is a self-administered and self-managed real estate investment
trust ("REIT"). OLP acquires, owns and manages a geographically diversified
portfolio of retail, including retail furniture stores, industrial, office,
health and fitness and other properties, a substantial portion of which are
under long-term net leases. As of December 31, 2007, the Company owned
sixty-five properties, one of which was held for sale, and held a 50% tenancy
in
common interest in one property. OLP’s joint ventures owned a total of five
properties, including one vacant property that was held for sale. The
seventy-one properties are located in twenty-eight states.
NOTE
2 -SIGNIFICANT
ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts and operations of OLP
and
its wholly-owned subsidiaries. OLP and its subsidiaries are hereinafter referred
to as the Company. Material intercompany items and transactions have been
eliminated.
Investment
in Unconsolidated Joint Ventures
The
Company accounts for its investments in unconsolidated joint ventures under
the
equity method of accounting as the Company (1) is primarily the managing member
but does not exercise substantial operating control over these entities pursuant
to EITF 04-05, and (2) such entities are not variable-interest entities pursuant
to FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities”.
These investments are recorded initially at cost, as investments in
unconsolidated joint ventures, and subsequently adjusted for equity in earnings
and cash contributions and distributions. None of the joint venture debt is
recourse to 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 amounts reported
in
the financial statements and accompanying notes. 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.
Revenue
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 term of the lease. In order for management to determine, in its judgment,
that the unbilled rent receivable applicable to each specific property is
collectible, management reviews unbilled rent receivables on a quarterly basis
and takes 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.
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)
Gains
or
losses on disposition of properties are recorded when the criteria for
recognizing such gains or losses under generally accepted accounting principles
have been met.
Purchase
Accounting for Acquisition of Real Estate
In
accordance with Statement of Financial Accounting Standards No. 141, or SFAS
141, “Business Combinations,” the Company allocates the purchase price of real
estate to land and building and intangibles, such as the value of above, below
and at-market leases and origination costs associated with in-place leases.
The
Company depreciates the amount allocated to building and intangible assets
or
liabilities over their estimated useful lives, which generally range from two
to
forty years. The values of the above and below market leases are amortized
and
recorded as either an increase (in the case of below market leases) or a
decrease (in the case of above market leases) to rental income over the
remaining minimum term of the associated lease. The tenant improvements and
origination costs are amortized as an expense over the remaining minimum term
of
the lease. The Company assesses fair value of the leases based on estimated
cash
flow projections that utilize appropriate discount rates and available market
information.
As
a
result of its evaluation under SFAS 141 of the acquisitions made, the Company
recorded additional deferred intangible lease assets of $2,210,000, representing
the value of the acquired above market leases and assumed lease origination
costs during the year ended December 31, 2006. The Company also recorded
additional deferred intangible lease liabilities of $5,556,000, representing
the
value of the acquired below market leases during the year ended December 31,
2006. With respect to the Company’s acquisition of a property in December 2006,
the initial fair value of its in-place lease and other intangibles were
allocated on a preliminary basis and was subject to change. In 2007, the fair
value of the in-place lease was changed from a deferred intangible lease
liability of $110,000 to a deferred intangible lease asset of $153,000. The
Company did not acquire any properties during the year ended December 31, 2007.
The Company recognized a net increase in rental revenue of $250,000 and $187,000
for the amortization of the above/below market leases for the years ended 2007
and 2006, respectively. For the years ended 2007 and 2006, the Company
recognized amortization expense of $290,000 and $233,000, respectively, relating
to lease origination costs resulting from the reallocation of the purchase
price
of acquired properties. At December 31, 2007 and 2006, accumulated amortization
of intangible lease assets was $1,228,000 and $758,000, respectively. At
December 31, 2007 and 2006, accumulated amortization of intangible lease
liabilities was $878,000 and $448,000, respectively.
The
unamortized balance of intangible lease assets at December 31, 2007 will be
deducted from future operations through 2025 as follows:
2008
|
|
$
|
463,000
|
|
2009
|
|
|
451,000
|
|
2010
|
|
|
451,000
|
|
2011
|
|
|
451,000
|
|
2012
|
|
|
451,000
|
|
Thereafter
|
|
|
2,668,000
|
|
|
|
$
|
4,935,000
|
|
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
The
unamortized balance of intangible lease liabilities at December 31, 2007 will
be
added to future operations through 2022 as follows:
2008
|
|
$
|
397,000
|
|
2009
|
|
|
397,000
|
|
2010
|
|
|
397,000
|
|
2011
|
|
|
397,000
|
|
2012
|
|
|
397,000
|
|
Thereafter
|
|
|
3,485,000
|
|
|
|
$
|
5,470,000
|
|
Accounting
for Long-Lived Assets and Impairment
of Real Estate Owned
The
Company reviews its real estate portfolio on a quarterly basis to ascertain
if
there has been any impairment in the value of any of its real estate assets,
including deferred costs and intangibles, in order to determine if there is
any
need for a provision for valuation adjustment. In reviewing the portfolio,
the
Company examines the type of asset, 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. For each real estate asset owned
for which indicators of impairment exist, recognition of impairment is required
if the calculated value is less than the asset’s carrying amount. 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.
During
the years ended December 31, 2006 and 2005, one of the Company’s joint ventures
determined that the fair value of one of the five properties owned by it was
lower than its carrying value and recorded provisions for valuation adjustment
totaling $3,162,000, of which the Company’s share was $1,581,000. The provisions
were based on an evaluation of market conditions in the geographic area in
which
the property is located, and were recorded as direct write downs on the balance
sheet of the joint venture. The joint venture sold this property in March 2007
and realized a gain on sale of this property of $1,166,000, of which the
Company’s share was $583,000.
During
the year ended December 31, 2006, another of the Company’s joint ventures
determined that the fair value of a vacant property owned by it was lower than
its carrying value and recorded a provision for valuation adjustment of
$960,000, of which the Company’s share was $480,000. The provision was based on
an evaluation of market conditions in the area in which the property is located,
and was recorded as a direct write down on the balance sheet of the joint
venture.
In
accordance with FIN 47, “Accounting
for Conditional Asset Retirement Obligations”,
the
Company records a conditional asset retirement obligation (“CARO”) if the
liability can be reasonable estimated. A CARO is an obligation that is settled
at the time the asset is retired or disposed of and for which the timing and/or
method of settlement are conditional on future events. The Company currently
is
not aware of any conditional asset retirement obligations that would require
remediation.
Cash
and Cash Equivalents
Cash
equivalents consist of highly liquid investments with maturities of three months
or less when purchased.
Restricted
Cash
Restricted
cash consists of a cash deposit as required by a certain loan payable agreement
for collateral. (See Note 5.)
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Escrow,
Deposits and Other Receivables
Includes
$839,000 and $815,000 at December 31, 2007 and 2006, respectively, of restricted
cash relating to real estate taxes, insurance and other escrows.
Depreciation
and Amortization
Depreciation
of buildings and improvements is computed on the straight-line method over
an
estimated useful life of 40 years for commercial properties and 27 1/2 years
for
the Company’s residential property. Depreciation ceases when a property is
deemed “held for sale”. Leasehold interest is amortized over the initial lease
term of the leasehold position. Depreciation expense, including amortization
of
the leasehold position, amounted to $7,821,000, $6,527,000 and $5,047,000 for
the three years ended December 31, 2007, 2006 and 2005,
respectively.
Leasehold
Rent
Ground
lease payments on a leasehold position are computed on the straight line
method.
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. At December 31, 2007 and 2006, accumulated amortization of
such
costs was $2,464,000 and $1,939,000, respectively.
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.
Distributions
made during 2007 and 2006 included 82% and 67%, respectively, to be treated
by
the stockholders as capital gain distributions, with the balance to be treated
as ordinary income.
Investment
in Equity Securities
The
Company determines the appropriate classification of equity securities at the
time of purchase and reassesses the appropriateness of the classification at
each reporting date. At December 31, 2007, 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, 2007 of $459,000. At December 31, 2007, the total cumulative
unrealized gain of $344,000 on all investments in equity securities is reported
as accumulated other comprehensive income in the stockholders' equity
section.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Realized
gains and losses are determined using the average cost method and is included
in
“Interest and other income”
on the income statement. During 2007, 2006 and 2005, sales proceeds and gross
realized gains and losses on securities classified as available-for-sale
were:
|
|
2007
|
|
2006
|
|
2005
|
|
Sales
proceeds
|
|
$
|
161,000
|
|
$
|
348,000
|
|
$
|
5,000
|
|
Gross
realized losses
|
|
$
|
-
|
|
$
|
3,000
|
|
$
|
1,000
|
|
Gross
realized gains
|
|
$
|
118,000
|
|
$
|
111,000
|
|
$
|
-
|
|
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.
Restricted
cash: The carrying amount reported in the balance sheet for this instrument
approximates its 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
and loan payable: At December 31, 2007, the estimated fair value of the
Company's mortgages and loan payable is less than their carrying value by
approximately $2,503,000, assuming a market interest rate of 6.75%.
Considerable
judgment is necessary to interpret market data and develop estimated fair value.
The use of different market assumptions and/or estimation methodologies may
have
a material effect on the estimated fair value amounts.
Concentration
of Credit Risk
The
Company maintains accounts at various financial institutions. While the Company
attempts to limit any financial exposure, its deposit balances exceed federally
insured limits. The Company has not experienced any losses on such
accounts.
While
the
Company’s properties are located in twenty-eight states, 16.0%, 17.9% and 17.6%
of the Company’s rental revenues were attributable to properties located in
Texas and 15.1%, 17.2% and 20.2% of the Company’s rental
revenues were attributable to properties located in New York for the years
ended
December 31, 2007, 2006 and 2005, respectively. No other state contributed
over
10% to the Company’s rental revenues.
In
April
2006, the Company acquired eleven retail furniture stores, located in six
states, net leased to a single tenant pursuant to a master lease. The basic
term
of the net lease expires August 2022, with several renewal options. These
properties which represented 16.1% of the depreciated book value of real estate
investments at December 31, 2007 and 2006, generated rental revenues of
$4,845,000 and $3,559,000, or 13.2% and 11.1%, of the Company’s total revenues
for the years ended December 31, 2007 and 2006, respectively. No tenant
contributed over 10% of the Company’s rental revenues for the year ended
December 31, 2005.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, which includes unvested restricted stock
during each year.
Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts exercisable for or convertible into common stock
were exercised or converted or resulted in the issuance of common stock that
then shared in the earnings of the Company. 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 (2,315
and 4,738 shares for the years ended 2006 and 2005, respectively) using the
treasury stock method. There were no outstanding options in 2007.
Segment
Reporting
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.
Consolidation
of Variable Interest Entities
In
January 2003, the Financial Accounting Standards Board (FASB) 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. In December 2003, a revision was issued
(46R) to clarify some of the original provisions. Management has reviewed its
unconsolidated joint venture arrangements and determined that none represent
variable interest entities which would require consolidation by the Company
pursuant to the interpretation.
Share
Based Compensation
The
Company adopted the provisions of Statement of Financial Accounting Standards
(“SFAS”) No. 123R, “Share-Based Payments”, effective January 1, 2006. SFAS No.
123R established financial accounting and reporting standards for stock-based
employee compensation plans, including all arrangements by which employees
and
others receive shares of stock or other equity instruments of the Company,
or
the Company incurs liabilities to employees in amounts based on the price of
the
employer’s stock. The statement also defined a fair value based method of
accounting for an employee stock option or similar equity instrument whereby
the
fair-value is recorded based on the market value of the common stock on the
grant date and is amortized to general and administrative expense over the
respective vesting periods.
New
Accounting Pronouncements
In
September 2006, the FASB issued Statement No. 157, “Fair
Value Measurements” (“SFAS
No. 157”). SFAS No. 157 provides guidance for using fair value to measure
certain assets and liabilities. This statement clarifies the principle that
fair
value should be based on the assumptions that market participants would use
when
pricing the asset or liability. SFAS No.157 establishes a fair value hierarchy,
giving the highest priority to quoted prices in active markets and the lowest
priority to unobservable data. SFAS No. 157 applies whenever other standards
require assets or liabilities to be measured at fair value. This statement
is
effective for fiscal years beginning after November 15, 2007. The Company
believes that the adoption of this statement on January 1, 2008 will not have
a
material effect on its consolidated financial statements.
In
February 2007, the FASB issued Statement No. 159, “The
Fair Value Option for Financial Assets and Financial Liabilities”
("SFAS
No. 159"). SFAS
No.
159 provides companies with an option to report selected financial assets and
liabilities at fair value. The objective of SFAS No. 159 is to reduce both
complexity in accounting for financial instruments and the volatility in
earnings caused by measuring related assets and liabilities differently. The
FASB believes that SFAS No. 159 helps to mitigate this type of
accounting-induced volatility
by enabling companies to report related assets and liabilities at fair value,
which would likely reduce the need for companies to comply with detailed rules
for hedge accounting. SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose
different measurement attributes for similar types of assets and liabilities.
This
statement is effective for fiscal years beginning after November 15, 2007.
The
Company believes that the adoption of this statement on January 1, 2008 will
not
have a material effect on its consolidated financial statements.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassification
Certain
amounts reported in previous financial statements have been reclassified in
the
accompanying financial statements to conform to the current year’s presentation,
primarily to present discontinued operations for a property held for sale in
2007.
NOTE
3 - REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS
During
the year ended December 31, 2006, the Company purchased twenty-two single tenant
properties in eleven states for a total consideration of $111,872,000. There
were no property acquisitions during the year ended December 31, 2007.
The
rental properties owned at December 31, 2007 are leased under noncancellable
operating leases to corporate tenants with current expirations ranging from
2008
to 2038, with certain tenant renewal rights. Virtually all of the 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, 2007 are as follows:
Year
Ending
December
31,
|
|
(In
Thousands)
|
|
2008
|
|
$
|
37,318
|
|
2009
|
|
|
37,105
|
|
2010
|
|
|
37,382
|
|
2011
|
|
|
36,212
|
|
2012
|
|
|
35,472
|
|
Thereafter
|
|
|
228,415
|
|
Total
|
|
$
|
411,904
|
|
Included
in the minimum future rentals are rentals from a property not owned in fee
(ground lease) by an unrelated third party. The Company pays annual fixed
leasehold rent of $237,500 through July 2009 with 25% increases every five
years
through March 3, 2020 and has a right to extend the lease for up to five 5-year
and one 7 month renewal options.
At
December 31, 2007, the Company has recorded an unbilled rent receivable
aggregating $9,893,000, representing rent reported on a straight-line basis
in
excess of rental payments required under the term of the respective leases.
This
amount is to be billed and received pursuant to the lease terms during the
next
eighteen years.
In
December 2006, the Company acquired an industrial property located in Baltimore,
Maryland, leased to a single tenant. The basic term of the net lease expires
March 2022, with several renewal options. The property was acquired for a
purchase price of approximately $32,200,000, and the seller of the property
posted a rental reserve for the Company’s benefit in the amount of $416,500,
since the property was not producing sufficient rent at
the
time of the acquisition. The Company received this rental reserve through July
2007 and recorded it as a reduction
to land, building and improvements rather than rental income in accordance
with
Emerging
Issues Task Force
(“EITF”)
Issue 85-27, “Recognition
of Receipts from Made-Up Rental Shortfalls”.
NOTE
3 - REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS
(Continued)
Sales
of Air Rights, Other and Real Estate
In
July
2006, the Company sold excess acreage to an unrelated third party for a sales
price of $975,000 and realized a gain of $185,000.
In
February 2006, the Company sold an option it owned to buy an interest in certain
property adjacent to one of the Company’s properties and realized a gain of
$228,000.
In
June
2005, the Company sold the unused development or “air” rights relating to a
property located in Brooklyn, New York for a sales price of approximately
$11,000,000, which resulted in a gain after closing costs of $10,248,000 for
financial statement purposes. This gain has been deferred for federal tax
purposes in accordance with Section 1031 of the Internal Revenue Code of 1986,
as amended. (See Note 6 for the related party fee paid as a result of this
sale.)
NOTE
4 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
At
December 31, 2007, the Company is a member in seven unconsolidated joint
ventures which own and operate five properties. The two joint ventures which
do
not currently own any real estate assets are between the Company and MTC
Investors LLC, an unrelated party. In September and October 2006, these two
joint ventures sold their portfolio of nine movie theater properties to a single
unrelated purchaser for an aggregate sales price of $152,658,000 and realized
a
gain, for book purposes, after expenses, fees and brokerage commissions, of
$55,665,000, of which the Company’s 50% share was $27,832,000. The joint
ventures paid a prepayment premium of $10,538,000, of which the Company’s 50%
share was $5,269,000, on the outstanding mortgage loans secured by the
properties which were sold, which was considered as interest expense on the
books of the joint ventures and was not netted against the gain recognized
on
the sale. In connection with this sale, a brokerage commission totaling
$1,277,000 was paid to Majestic Property Management Corp. (“Majestic”), a
company wholly owned by the Chairman of the Board of Directors and Chief
Executive Officer and in which certain executive officers of the Company are
officers and from which such officers receive compensation. In addition, the
joint ventures paid an aggregate bonus of $90,000 to two other officers of
the
Company (neither of whom are officers of Majestic) for their efforts in
connection with this sale. The one remaining real estate asset of these two
joint ventures at December 31, 2006 was a vacant parcel of land located in
Monroe, New York, which was sold on March 14, 2007 for a consideration of
$1,250,000 to a former tenant of the joint venture. This property had a net
book
value of $40,000 after direct write downs totaling $3,162,000 taken in prior
years by the joint venture. The joint venture realized a gain on sale of this
property of $1,166,000, of which the Company’s 50% share was $583,000. As of
December 31, 2007 and 2006, the Company’s equity investment in these two joint
ventures totaled $75,000 and $284,000, respectively, and in addition to the
gain
on sale of properties of $583,000 and $26,908,000, respectively, they
contributed $90,000 in equity earnings for the year ended December 31, 2007
and
$3,278,000 in equity losses for the year ended December 31, 2006. The $3,278,000
equity loss in 2006 is net of $5,269,000 mortgage prepayment premiums discussed
above. The 2006 gain on sale of $26,908,000 is net of a $924,000 unamortized
premium balance which represented the difference between the carrying amount
of
the Company’s investment in one of the joint ventures and the underlying equity
in net assets. This premium was being amortized as an adjustment to equity
in
earnings of unconsolidated joint ventures over 40 years.
The
remaining five unconsolidated joint ventures each own one property, including
one vacant property which is held for sale. At December 31, 2007 and 2006,
the
Company’s equity investment in these five joint ventures totaled $6,495,000 and
$6,730,000, respectively. These balances are net of distributions, including
distributions of $793,000 and $1,823,000 received in 2007 and 2006,
respectively, from these five joint ventures, including a $1,061,000
distribution of financing proceeds the Company received in 2006 from one of
its
joint ventures. These five unconsolidated joint ventures contributed $558,000
and $2,000 in equity earnings for the years ended December 31, 2007 and 2006,
respectively. The $2,000 equity in earnings for the year ended December 31,
2006
is net of a $960,000 provision for valuation adjustment, of which the Company’s
share was $480,000, recorded by the joint venture against its vacant property.
The joint venture had determined that the fair value of this vacant property
was
lower than its carrying value based on an evaluation of market conditions in
the
area in which the property is located.
NOTE
4 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
(Continued)
One
of
these joint ventures paid Majestic $12,000 in management fees for each of the
years ended December 31, 2007 and 2006. In addition, for the year ended December
31, 2006, the two movie theater joint ventures paid Majestic management fees
of
$52,000 and a fee of $8,000 for supervision of improvements to a
property.
NOTE
5 - DEBT OBLIGATIONS
Mortgages
Payable
At
December 31, 2007, there are thirty-six outstanding mortgages payable, all
of
which are secured by first liens on individual real estate investments with
an
aggregate carrying value before accumulated depreciation of $349,210,000. The
mortgages bear interest at fixed rates ranging from 5.13% to 8.8%, and mature
between 2008 and 2037. The weighted average interest rate was 6.30% and 6.36%
for the years ended December 31, 2007 and 2006, respectively.
Scheduled
principal repayments during the next five years and thereafter are as
follows:
Year
Ending
December
31,
|
|
(In
Thousands)
|
|
2008
|
|
$
|
8,951
|
|
2009
|
|
|
9,870
|
|
2010
|
|
|
22,138
|
|
2011
|
|
|
8,394
|
|
2012
|
|
|
37,354
|
|
Thereafter
|
|
|
128,825
|
|
Total
|
|
$
|
215,532
|
|
Loan
Payable
At
December 31, 2007, there is one outstanding loan payable with a balance of
$6,503,000, which is collateralized by cash held in escrow and shown on the
balance sheet as restricted cash. The loan bears interest at a fixed rate of
6.25% and matures December 1, 2018. The loan was originally a mortgage
collateralized by a movie theater property the Company owned in California.
During 2006, the property was sold and cash was substituted for collateral
at
110% of the principal balance at the date of sale. The mortgagee will place
the
loan on a suitable replacement property for a 2% fee on the then principal
balance. The Company still retains the right to prepay the loan and pay the
normal prepayment penalty but has determined not to do so at this
time.
Scheduled
principal repayments during the next five years and thereafter are as
follows:
Year
Ending
December
31,
|
|
(In
Thousands)
|
|
2008
|
|
$
|
154
|
|
2009
|
|
|
164
|
|
2010
|
|
|
174
|
|
2011
|
|
|
185
|
|
2012
|
|
|
197
|
|
Thereafter
|
|
|
5,629
|
|
Total
|
|
$
|
6,503
|
|
NOTE
5 - DEBT OBLIGATIONS (Continued)
Line
of Credit
On
March
15, 2007, the Company consummated an amendment to its existing $62,500,000
revolving credit facility (“Facility”) with VNB New York Corp., Bank Leumi USA,
Israel Discount Bank of New York and Manufacturers and Traders Trust Company.
The amendment extended the maturity date of the Facility from March
31,
2007 to March 31, 2010 and reduced the interest rate to the lower of LIBOR
plus
2.15% (formerly 2.5%) or the bank’s prime rate on funds borrowed. The Facility
provides for an unused facility fee of ¼%. In connection with the amendment, the
Company paid $640,000 in fees and closing costs which are being amortized over
the term of the Facility. There is no balance outstanding under the Facility
at
December 31, 2007.
The
Facility is guaranteed by all of the Company’s subsidiaries which own
unencumbered properties and is secured by the outstanding stock of subsidiary
entities. The Facility is available to pay off existing mortgages, to fund
the
acquisition of additional properties, or to invest in joint ventures. The
Company is required to comply with certain covenants. 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.
NOTE
6 - RELATED PARTY TRANSACTIONS
At
December 31, 2007 and 2006, Gould Investors L.P. (“Gould”), a related party,
owned 913,241 and 830,911 shares of the common stock of the Company or
approximately 9% and 8%, respectively, of the equity interest. During 2007
and
2006, Gould purchased 82,330 and 12,232 shares, respectively, of the Company
through the Company’s dividend reinvestment plan.
Effective
as of January 1, 2007, the Company entered into a compensation and services
agreement with Majestic Property Management Corp., a company wholly-owned by
our
Chairman and in which certain of the Company’s executive officers are officers
and from which they receive compensation. Under the terms of the agreement,
Majestic took over the Company’s obligations to make payments to Gould (and
other affiliated entities) under a shared services agreement and agreed to
provide to the Company the services of all affiliated executive, administrative,
legal, accounting and clerical personnel that the Company has heretofore
utilized on an as needed, part time basis and for which the Company had paid,
as
a reimbursement, an allocated portion of the payroll expenses of such personnel
in accordance with the shared services agreement. Accordingly, the Company,
no
longer incurs any allocated payroll expenses. Under the terms of the agreement,
Majestic (or its affiliates) continues to provide to the Company certain
property management services (including construction supervisory services),
property acquisition, sales and leasing services and mortgage brokerage services
that it has provided to the Company in the past, some of which were capitalized,
deferred or reduced net sales proceeds in prior years. The Company does not
incur any fees or expenses for such services except for the annual fees
described below. As consideration for providing to the Company the services
described above, the Company paid Majestic an annual fee of $2,125,000 in 2007,
in equal monthly installments. Majestic credits against the fee payments due
to
it under the agreement any management or other fees received by it from any
joint venture in which the Company is a joint venture partner (exclusive of
fees
paid by the tenant in common on a property located in Los Angeles, California).
The agreement also provides for an additional payment to Majestic of $175,000
in
2007 for the Company’s share of all direct office expenses, such as rent,
telephone, postage, computer services, internet usage, etc., previously
allocated to the Company under the shared services agreement. The annual
payments the Company makes to Majestic will be negotiated each year by the
Company and Majestic, and will be approved by the Company’s Audit Committee and
the Company’s independent directors. The Company also agreed to pay compensation
to the Company’s Chairman of $250,000 per annum effective January 2007.
Previously, the Company’s Chairman was paid $50,000 per annum.
For
the
years ended December 31, 2006 and 2005, the Company reimbursed Gould for
allocated expenses and paid
fees
to companies wholly owned by the Chairman of the Board of Directors and in
which
certain executive officers of the Company are officers and from which such
officers receive compensation (“Majestic Entities”). The Company’s policy had
been to receive terms in transactions with affiliates that are at least as
favorable to the Company
as similar transactions the Company would enter into with unaffiliated persons.
Such fees and costs paid
directly by the Company are as follows:
NOTE
6 - RELATED PARTY TRANSACTIONS (Continued)
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Compensation
and services agreement
|
|
$
|
2,288,000
|
|
$
|
-
|
|
$
|
-
|
|
Allocated
expenses (A)
|
|
|
-
|
|
|
1,317,000
|
|
|
1,208,000
|
|
Mortgage
brokerage fees (B)
|
|
|
-
|
|
|
100,000
|
|
|
543,000
|
|
Sales
commissions (C)
|
|
|
-
|
|
|
152,000
|
|
|
404,000
|
|
Management
fees (D)
|
|
|
-
|
|
|
15,000
|
|
|
42,000
|
|
Supervisory
fees (E)
|
|
|
-
|
|
|
41,000
|
|
|
37,000
|
|
Total
fees
|
|
$
|
2,288,000
|
|
$
|
1,625,000
|
|
$
|
2,234,000
|
|
The
Company’s unconsolidated joint ventures paid the following fees to Majestic
Property Management Corp. (“Majestic”), one of the Majestic Entities. Such
amounts represent 100% of the fees paid by the joint ventures, of which the
Company’s share is 50%:
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Mortgage
brokerage fees (F)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
156,000
|
|
Sales
commissions (G)
|
|
|
-
|
|
|
1,277,000
|
|
|
-
|
|
Management
fees (H)
|
|
|
12,000
|
|
|
97,000
|
|
|
131,000
|
|
Supervisory
fees (I)
|
|
|
-
|
|
|
8,000
|
|
|
-
|
|
Total
fees
|
|
$
|
12,000
|
|
$
|
1,382,000
|
|
$
|
287,000
|
|
(A)
The
Company reimbursed Gould for allocated general and administrative expenses
and
payroll based on estimated time incurred by various employees pursuant to a
Shared Services Agreement. At December 31, 2006, $241,000 remained unpaid and
is
reflected in accrued expenses on the balance sheet. This does not include
payments under a direct lease, effective July 2005, with a subsidiary of Gould,
for approximately 1,200 square feet, expiring in 2011, at an annual rent of
$42,000, increasing 3% per year.
(B)
Fees
paid to Majestic relating to mortgages placed on nine and eleven of the
Company’s properties for the years ended December 31, 2006 and 2005, for
mortgages in the aggregate amounts of $12,900,000 and $57,706,000, respectively.
Except for one of the mortgages, where the fee was .8% of the principal balance,
all fees were 1% of the principal balances of the mortgages. These fees were
deferred and are being amortized over the life of the respective
mortgages.
(C) Fees
paid
to Majestic Entities relating to the sales of one property and two properties
and air rights, for the years ended December 31, 2006 and 2005, respectively,
for aggregate sales prices of $15,227,000 and $30,524,000, respectively. Such
fees were based on 1% of the sales price in 2006 and 1% to 2% of the sales
price
in 2005 and reduced the net sales proceeds.
(D)
Fees
paid to Majestic relating to management of one and two of the Company’s
properties for the years ended December 31, 2006 and 2005, respectively.
Such
fees were based on 2% to 4% of rent collections and were charged to
operations.
(E)
Fees
paid to Majestic for supervision of improvements to properties. Such fees
are
generally based on 8% of the cost of the improvements and were
capitalized.
NOTE
6 - RELATED PARTY TRANSACTIONS (Continued)
(F) Fees
paid
to Majestic relating to mortgages placed on two joint venture properties for
mortgages in the aggregate amount of $17,500,000. These fees, ranging from
.8%
to 1% of the principal balance of the mortgages, were deferred and are being
amortized over the life of the respective mortgages.
(G) Fee
paid
to Majestic relating to the sale by two of the Company’s joint ventures of eight
movie theater properties at approximately 1% of the aggregate sales price.
These
fees reduced the net sales proceeds from the dispositions of real estate of
unconsolidated joint ventures.
(H) Fees
paid
to Majestic for the management of various joint venture properties at 1% of
rent
collections for the years ended December 31, 2007, 2006 and 2005, respectively
and were charged to operations.
(I) Fee
paid
to Majestic for supervision of improvements to a property at 8% of the cost
of
the improvements and was capitalized.
See
Note
4 for further information regarding the Company’s unconsolidated joint
ventures.
NOTE
7 - STOCK OPTIONS AND RESTRICTED STOCK
Stock
Options
On
December 6, 1996, the directors of the Company adopted the 1996 Stock Option
Plan (Incentive/Nonstatutory Stock Option Plan), which was approved by the
Company’s stockholders in June 1997. The options granted under the Plan were
granted prior to 2002 at per share amounts at least equal to their fair market
value at the date of grant, were cumulatively exercisable at a rate of 25%
per
annum, commencing six months after the date of grant, and expired five years
after the date of grant. A maximum of 225,000 shares of common stock of the
Company were reserved for issuance to employees, officers, directors,
consultants and advisors to the Company, of which none are available for grant
at December 31, 2007.
Changes
in the number of common shares under all option arrangements are summarized
as
follows:
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Outstanding
at beginning of period
|
|
|
-
|
|
|
9,000
|
|
|
19,500
|
|
Exercised
|
|
|
-
|
|
|
(9,000
|
)
|
|
(10,500
|
)
|
Outstanding
at end of period
|
|
|
-
|
|
|
-
|
|
|
9,000
|
|
Exercisable
at end of period
|
|
|
-
|
|
|
-
|
|
|
9,000
|
|
Option
price per share outstanding
|
|
|
-
|
|
|
-
|
|
$
|
12.19
|
|
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 the outstanding
options was estimated at the date of the grant using a Black-Scholes option
pricing model with the following weighted-average assumptions for these options
which were granted in 2001: risk free interest rate of 4.06%, dividend yield
of
10.07%, volatility factor of the expected market price of the Company’s Common
Stock based on historical results of .141; and expected life 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 2006 and 2005 because the impact on the reported net income
and
earnings per share is immaterial.
NOTE
7 - STOCK OPTIONS AND RESTRICTED STOCK (Continued)
Restricted
Stock
The
Company’s 2003 Stock Incentive Plan (the “Incentive Plan”), approved by the
Company’s stockholders in June 2003, provides for the granting of restricted
shares. The maximum number of shares of the Company’s common stock that may be
issued pursuant to the Incentive Plan is 275,000. The restricted stock grants
are valued at the fair value as of the date of the grant and all restricted
share awards made to date provide for vesting upon the fifth anniversary of the
date of grant and under certain circumstances may vest earlier. For accounting
purposes, the restricted stock is not included in the outstanding shares shown
on the balance sheet until they vest, however dividends are paid on the unvested
shares. The value of such grants are initially deferred, and amortization of
amounts deferred is being charged to operations over the respective vesting
periods.
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Restricted
share grants
|
|
|
51,225
|
|
|
50,050
|
|
|
40,750
|
|
Average
per share grant price
|
|
$
|
24.50
|
|
$
|
20.66
|
|
$
|
19.05
|
|
Recorded
as deferred compensation
|
|
$
|
1,255,000
|
|
$
|
1,034,000
|
|
$
|
776,000
|
|
Total
charge to operations, all outstanding restricted
grants
|
|
$
|
826,000
|
|
$
|
515,000
|
|
$
|
293,000
|
|
Non-vested
shares:
|
|
|
|
|
|
|
|
|
|
|
Non-vested
beginning of period
|
|
|
140,175
|
|
|
92,725
|
|
|
60,300
|
|
Grants
|
|
|
51,225
|
|
|
50,050
|
|
|
40,750
|
|
Vested
during period
|
|
|
(5,050
|
)
|
|
-
|
|
|
-
|
|
Forfeitures
|
|
|
(50
|
)
|
|
(2,600
|
)
|
|
(8,325
|
)
|
Non-vested
end of period
|
|
|
186,300
|
|
|
140,175
|
|
|
92,725
|
|
Through
December 31, 2007, a total of 193,100 shares were issued and 81,900 shares
remain available for grant pursuant to the Incentive Plan, and approximately
$2,179,000 remains as deferred compensation and will be charged to expense
over
the remaining weighted average vesting period of approximately 2.6 years.
Included in the 2007 compensation expense is $76,000 related to the accelerated
vesting of 5,000 shares of restricted stock that had been awarded to a board
member who retired in 2007. On February 29, 2008, 50,550 shares were issued
as
restricted share grants having an aggregate value of approximately
$885,000.
NOTE
8 - DISTRIBUTION REINVESTMENT PLAN
In
June
2007, the Company implemented a new Dividend Reinvestment Plan (the “Plan”),
replacing a similar plan which was established in May 1996 and terminated
simultaneously with the filing of a Registration Statement with the Securities
and Exchange Commission on June 1, 2007 relating to the Plan. The Plan provides
owners of record the opportunity to reinvest cash dividends paid on the
Company’s common stock in additional shares of its common stock, at a discount
of 0% to 5% from the market price. The discount is determined at the Company’s
sole discretion. The Company is currently offering a 5% discount from market.
During the year ended December 31, 2007, the Company issued 195,289 common
shares under the Plan. In connection with the filing of the Registration
Statement, the Company paid $70,000 for legal and accounting fees, which have
been offset against additions to Paid-in Capital on the Company’s balance
sheet.
NOTE
9 - STOCK REPURCHASE PROGRAM
In
August
2007, the Company announced that its Board of Directors had authorized a
stock
repurchase program of up to 500,000 shares of the Company’s common stock in open
market transactions. (All purchases will be executed in accordance with
applicable federal securities laws.) The timing and exact number of shares
purchased will be determined at the Company’s discretion and will depend upon
market conditions. The stock repurchase program will continue for twelve
months
and may be suspended or terminated by the Company at any time.
Through December 31, 2007, the Company repurchased 159,000 shares of common
stock for a consideration of $3,212,000 offset against additional paid-in
capital. The Company did not repurchase any additional shares subsequent
to
December 31, 2007.
NOTE
10 - DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
In
accordance with SFAS No. 144, “Accounting
for Impairment or Disposal of Long Lived Assets,”
the
Company reports as discontinued operations assets held for sale (as defined
by
SFAS No. 144) as of the end of the current period and assets sold subsequent
to
the adoption of SFAS No. 144. All results of these discontinued operations
are
included in a separate component of income on the Consolidated Statements of
Income under the caption Discontinued Operations. This has resulted in certain
reclassification of 2007, 2006 and 2005 financial statement amounts.
The
components of income from discontinued operations for each of the three years
in
the period ended December 31, 2007, are shown below. These include the results
of operations through the date of each respective sale for one property sold
during 2006, five properties sold during 2005 and a full year of operations
for
the property classified as held for sale as of December 31, 2007. It also
includes settlements relating to properties sold in a prior year (amounts in
thousands):
|
|
Years
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Revenues,
primarily rental income
|
|
$
|
1,750
|
|
$
|
2,683
|
|
$
|
3,712
|
|
Depreciation
and amortization
|
|
|
137
|
|
|
332
|
|
|
709
|
|
Real
estate expenses
|
|
|
36
|
|
|
49
|
|
|
700
|
|
Interest
expense
|
|
|
-
|
|
|
334
|
|
|
768
|
|
Provision
for valuation adjustment of real estate
|
|
|
-
|
|
|
-
|
|
|
469
|
|
Total
expenses
|
|
|
173
|
|
|
715
|
|
|
2,646
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations before gain on sale
|
|
|
1,577
|
|
|
1,968
|
|
|
1,066
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain on sale of discontinued operations
|
|
|
-
|
|
|
3,660
|
(A)
|
|
1,905
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
$
|
1,577
|
|
$
|
5,628
|
|
$
|
2,971
|
|
|
(A)
|
The
$3,660 gain has been deferred for federal tax purposes in accordance
with
Section 1031 of the Internal Revenue Code of 1986, as
amended.
|
NOTE
11 - FORMER PRESIDENT RESIGNATION AND CONTINGENCIES
In
July
2005, the Company’s former president and chief executive officer, who was also a
member of its board of directors, resigned following the discovery of
inappropriate financial dealings by him with a former tenant of a property
owned
by a joint venture in which the Company is a 50% partner and the managing
member. The Company reported this matter to the Securities and Exchange
Commission (the “SEC”) in July 2005. The Audit Committee of the Board of
Directors conducted an investigation of this matter and related matters and
retained special counsel to assist the committee in the investigation. The
investigation was completed, and the Audit Committee and its special counsel,
based on the materials gathered and interviews conducted, found no evidence
that
any other officer or employee of the Company (other than the former president
and chief executive officer) was aware of, or knowingly assisted, our former
president and chief executive officer’s inappropriate financial
dealings.
In
June 2006, the Company announced that it had
received notification of a formal order of investigation from the SEC.
Management believes that the matters being investigated by the SEC focus on
the
improper payments received by the Company’s former president and chief executive
officer. The SEC also requested information
regarding “related party transactions” between the Company and entities
affiliated with it and with certain of the Company’s officers and directors and
compensation paid to certain of the Company’s officers by these affiliates. The
SEC and the Company’s Audit Committee have conducted investigations concerning
these issues. The Company believes that these investigations have been
substantially completed. The Company’s direct legal expenses related to these
investigations totaled $93,000, $726,000 and $560,000 in the years ended
December 31, 2007, 2006 and 2005, respectively.
NOTE
12 - COMMITMENTS AND CONTINGENCIES
The
Company maintains a non-contributory defined contribution pension plan covering
eligible employees and officers. Contributions by the Company are made through
a
money purchase plan, based upon a percent of qualified employees’ total salary
as defined. Pension expense approximated $100,000, $90,000 and $60,000 for
the
years ended December 31, 2007, 2006 and 2005, respectively.
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 - TAXES
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 though the Company qualifies for taxation as a REIT, the Company is subject
to certain state and local taxes on its income and property, and to federal
income and excise taxes on its undistributed taxable income.
On
January 1, 2007, the Company adopted the provisions of Interpretation No. 48,
“Accounting
for Uncertainty in Income Taxes”
(“FIN
48”). This interpretation, among other things, creates a two step approach for
evaluating uncertain tax positions. Recognition (step one) occurs when an
enterprise concludes that a tax position, based solely on its technical merits,
is more-likely-than-not to be sustained upon examination. Measurement (step
two)
determines the amount of benefit that more-likely-than-not will be realized
upon
settlement. Derecognition of a tax position that was previously recognized
would
occur when a company subsequently determines that a tax position no longer
meets
the more-likely-than-not threshold of being sustained. FIN 48 specifically
prohibits the use of a valuation allowance as a substitute for derecognition
of
tax positions, and it has expanded disclosure requirements. The adoption of
FIN
48 had no material effect on the Company’s consolidated financial
statements.
The
Company recorded $91,000 and $490,000 of Federal excise tax which is based
on
taxable income generated but not yet distributed for the years ended December
31, 2007 and 2006, respectively. There was no Federal excise tax for 2005.
Included in general and administrative expenses for the years ended December
31,
2007, 2006 and 2005 are state tax expense of $226,000, $143,000 and $140,000,
respectively.
NOTE
13 - TAXES (Continued)
Reconciliation
between Financial Statement Net Income and Federal Taxable
Income:
The
following unaudited table reconciles financial statement net income to federal
taxable income for the years ended December 31, 2007, 2006 and 2005 (amounts
in
thousands):
|
|
2007
Estimate
|
|
2006
Actual
|
|
2005
Actual
|
|
Net
income
|
|
$
|
10,590
|
|
$
|
36,425
|
|
$
|
21,280
|
|
Straight
line rent adjustments
|
|
|
(1,604
|
)
|
|
(269
|
)
|
|
(1,602
|
)
|
Financial
statement gain on sale in excess of tax gain (A)
|
|
|
(705
|
)
|
|
(3,976
|
)
|
|
(11,287
|
)
|
Rent
received in advance, net
|
|
|
96
|
|
|
(33
|
)
|
|
(590
|
)
|
Financial
statement provisions for valuation adjustment
|
|
|
-
|
|
|
780
|
|
|
1,751
|
|
Federal
excise tax, non-deductible
|
|
|
91
|
|
|
490
|
|
|
-
|
|
Financial
statement adjustment for above/below market leases
|
|
|
(285
|
)
|
|
(223
|
)
|
|
(118
|
)
|
Restricted
stock expense, non-deductible
|
|
|
710
|
|
|
515
|
|
|
294
|
|
Financial
statement depreciation in excess of tax depreciation
|
|
|
855
|
|
|
773
|
|
|
537
|
|
Other
adjustments
|
|
|
(117
|
)
|
|
(83
|
)
|
|
59
|
|
Federal
taxable income
|
|
$
|
9,631
|
|
$
|
34,399
|
|
$
|
10,324
|
|
(A)Amounts
include $3,660 GAAP gain on sale of real estate and $10,248 GAAP gain on
sale of
air rights for the years ended December 31, 2006 and 2005, respectively,
which
were deferred for federal tax purposes in accordance with Section 1031 of
the
Internal Revenue Code of 1986, as amended.
Reconciliation
between Cash Dividends Paid and Dividends Paid
Deduction:
The
following unaudited table reconciles cash dividends paid with the dividends
paid
deduction for the years ended December 31, 2007, 2006 and 2005 (amounts in
thousands):
|
|
2007
Estimate
|
|
2006
Actual
|
|
2005
Actual
|
|
Cash
dividends paid
|
|
$
|
21,218
|
|
$
|
13,420
|
|
$
|
12,990
|
|
Dividend
reinvestment plan (B)
|
|
|
268
|
|
|
59
|
|
|
37
|
|
|
|
|
21,486
|
|
|
13,479
|
|
|
13,027
|
|
Less:
Spillover dividends designated to following year (C)
|
|
|
-
|
|
|
-
|
|
|
(3,265
|
)
|
Less:
Return of capital
|
|
|
-
|
|
|
-
|
|
|
(2,623
|
)
|
Less:
Spillover dividends designated to previous year (D)
|
|
|
(17,705
|
)
|
|
-
|
|
|
-
|
|
Plus:
Spillover dividends designated from prior year
|
|
|
-
|
|
|
3,265
|
|
|
3,235
|
|
Plus:
Dividends designated from following year (D)
|
|
|
5,900
|
|
|
17,705
|
|
|
-
|
|
Dividends
paid deduction (E)
|
|
$
|
9,681
|
|
$
|
34,449
|
|
$
|
10,374
|
|
(B) Amount
reflects the 5% discount on the Company's common shares purchased through the
dividend reinvestment plan.
(C)
The entire dividend paid in January 2006 was considered a 2006 dividend, as
it
was in excess of the Company's accumulated earnings and profits through
2005.
(D)
Includes
a special dividend paid on October 2, 2007 of $.67 per share or $6,731, which
represents the remaining undistributed portion of the taxable income recognized
by the Company in 2006 primarily from gains on sale by two of its 50% owned
joint ventures of their portfolio of movie theater properties.
(E) Dividends
paid deduction is slightly higher than federal taxable income in 2007, 2006
and
2005 so as to account for adjustments made to federal taxable income as a result
of the impact of the alternative minimum tax.
NOTE
14 - QUARTERLY FINANCIAL DATA (Unaudited):
(In
Thousands, Except Per Share Data)
|
|
Quarter
Ended
|
|
Total
|
|
2007
|
|
March
31
|
|
June
30
|
|
September
30
|
|
December
31
|
|
For
Year
|
|
Rental
revenues as previously reported
|
|
$
|
9,593
|
|
$
|
9,642
|
|
$
|
9,238
|
|
$
|
8,993
|
|
$
|
37,466
|
|
Revenues
from discontinued operations (A)
|
|
|
(330
|
)
|
|
(331
|
)
|
|
-
|
|
|
-
|
|
|
(661
|
)
|
Revenues
(B)
|
|
$
|
9,263
|
|
$
|
9,311
|
|
$
|
9,238
|
|
$
|
8,993
|
|
$
|
36,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
2,769
|
|
$
|
2,265
|
|
$
|
2,154
|
|
$
|
1,825
|
|
$
|
9,013
|
|
Income
from discontinued operations
|
|
|
377
|
|
|
267
|
|
|
425
|
|
|
508
|
|
|
1,577
|
|
Net
income
|
|
$
|
3,146
|
|
$
|
2,532
|
|
$
|
2,579
|
|
$
|
2,333
|
|
$
|
10,590
|
|
Weighted
average number of common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,001
|
|
|
10,055
|
|
|
10,078
|
|
|
10,140
|
|
|
10,069
|
|
Diluted
|
|
|
10,001
|
|
|
10,055
|
|
|
10,078
|
|
|
10,140
|
|
|
10,069
|
|
Net
income per common share - basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
.27
|
|
$
|
.22
|
|
$
|
.22
|
|
$
|
.18
|
|
$
|
.89
|
(C)
|
Income
from discontinued operations
|
|
|
.04
|
|
|
.03
|
|
|
.04
|
|
|
.05
|
|
|
.16
|
(C)
|
Net
income
|
|
$
|
.31
|
|
$
|
.25
|
|
$
|
.26
|
|
$
|
.23
|
|
$
|
1.05
|
(C)
|
(A) |
Excludes
revenues from discontinued operations which were previously excluded
from
total revenues as previously reported in the September and December
2007
quarters.
|
(B) |
Amounts
have been adjusted to give effect to the Company’s discontinued operations
in accordance with Statement No.
144.
|
(C) |
Calculated
on weighted average shares outstanding for the
year.
|
|
|
Quarter
Ended
|
|
Total
|
|
2006
|
|
March
31
|
|
June
30
|
|
September
30
|
|
December
31
|
|
For
Year
|
|
Rental
revenues as previously reported
|
|
$
|
7,281
|
|
$
|
8,562
|
|
$
|
8,615
|
|
$
|
8,912
|
|
$
|
33,370
|
|
Revenues
from discontinued operations (D)
|
|
|
(331
|
)
|
|
(330
|
)
|
|
(330
|
)
|
|
(331
|
)
|
|
(1,322
|
)
|
Revenues
(E)
|
|
$
|
6,950
|
|
$
|
8,232
|
|
$
|
8,285
|
|
$
|
8,581
|
|
$
|
32,048
|
|
Income
from continuing operations
|
|
$
|
2,661
|
|
$
|
2,368
|
|
$
|
5,263
|
|
$
|
20,505
|
|
$
|
30,797
|
|
Income
from discontinued operations
|
|
|
409
|
|
|
824
|
|
|
472
|
|
|
3,923
|
|
|
5,628
|
|
Net
income
|
|
$
|
3,070
|
|
$
|
3,192
|
|
$
|
5,735
|
|
$
|
24,428
|
|
$
|
36,425
|
|
Weighted
average number of common shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,894
|
|
|
9,930
|
|
|
9,937
|
|
|
9,963
|
|
|
9,931
|
|
Diluted
|
|
|
9,897
|
|
|
9,934
|
|
|
9,940
|
|
|
9,963
|
|
|
9,934
|
|
Net
income per common share - basic and diluted:
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$
|
.27
|
|
$
|
.24
|
|
$
|
.53
|
|
$
|
2.06
|
|
$
|
3.10
|
(F)
|
Income
from discontinued operations
|
|
|
.04
|
|
|
.08
|
|
|
.05
|
|
|
.40
|
|
|
.57
|
(F)
|
Net
income
|
|
$
|
.31
|
|
$
|
.32
|
|
$
|
.58
|
|
$
|
2.46
|
|
$
|
3.67
|
(F)
|
(D) |
Excludes
revenues from discontinued operations which were previously excluded
from
total revenues as previously
reported.
|
(E) |
Amounts
have been adjusted to give effect to the Company’s discontinued operations
in accordance with Statement No.
144.
|
(F) |
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, 2007
(Amounts
in Thousands)
|
|
|
|
Initial
Cost To Company
|
|
Cost
Capitalized
Subsequent
to
Acquisition
|
|
Gross
Amount at Which Carried at December 31, 2007
|
|
|
|
|
|
|
|
Life
on Which Depreciation in Latest Income Statement is
|
|
|
|
Encumbrances
|
|
Land
|
|
Buildings
|
|
Improvements
|
|
Land
|
|
Buildings
and
Improvements
|
|
Total
|
|
|
|
|
|
Date
Acquired
|
|
Computed
(Years)
|
|
Free
Standing Retail Locations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Properties - Note 1
|
|
$
|
25,999
|
|
$
|
10,286
|
|
$
|
45,414
|
|
$
|
-
|
|
$
|
10,286
|
|
$
|
45,414
|
|
$
|
55,700
|
|
$
|
1,940
|
|
|
Various
|
|
|
04/07/06
|
|
|
40
|
|
Miscellaneous
|
|
|
79,097
|
|
|
29,161
|
|
|
115,461
|
|
|
1,010
|
|
|
29,161
|
|
|
116,471
|
|
|
145,632
|
|
|
16,737
|
|
|
Various
|
|
|
Various
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flex
Buildings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
|
|
|
12,116
|
|
|
3,780
|
|
|
15,125
|
|
|
958
|
|
|
3,780
|
|
|
16,083
|
|
|
19,863
|
|
|
2,694
|
|
|
Various
|
|
|
Various
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
Buildings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parsippany,
NJ
|
|
|
16,354
|
|
|
6,055
|
|
|
23,300
|
|
|
-
|
|
|
6,055
|
|
|
23,300
|
|
|
29,355
|
|
|
1,335
|
|
|
1997
|
|
|
09/16/05
|
|
|
40
|
|
Miscellaneous
|
|
|
16,834
|
|
|
3,537
|
|
|
13,688
|
|
|
2,524
|
|
|
3,537
|
|
|
16,212
|
|
|
19,749
|
|
|
2,495
|
|
|
Various
|
|
|
Various
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apartment
Building:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
|
|
|
4,300
|
|
|
1,110
|
|
|
4,439
|
|
|
-
|
|
|
1,110
|
|
|
4,439
|
|
|
5,549
|
|
|
2,186
|
|
|
1910
|
|
|
06/14/94
|
|
|
27.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baltimore,
MD -Note 2
|
|
|
23,000
|
|
|
6,474
|
|
|
25,282
|
|
|
-
|
|
|
6,474
|
|
|
25,282
|
|
|
31,756
|
|
|
659
|
|
|
1960
|
|
|
12/20/06
|
|
|
40
|
|
Miscellaneous
|
|
|
21,859
|
|
|
7,396
|
|
|
31,415
|
|
|
66
|
|
|
7,396
|
|
|
31,481
|
|
|
38,877
|
|
|
2,913
|
|
|
Various
|
|
|
Various
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theater:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
|
|
|
6,197
|
|
|
-
|
|
|
8,328
|
|
|
-
|
|
|
-
|
|
|
8,328
|
|
|
8,328
|
|
|
1,826
|
|
|
2000
|
|
|
08/10/04
|
|
|
15.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
Clubs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
|
|
|
9,776
|
|
|
2,233
|
|
|
8,729
|
|
|
2,731
|
|
|
2,233
|
|
|
11,460
|
|
|
13,693
|
|
|
1,727
|
|
|
Various
|
|
|
Various
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
215,532
|
|
$
|
70,032
|
|
$
|
291,181
|
|
$
|
7,289
|
|
$
|
70,032
|
|
$
|
298,470
|
|
$
|
368,502
|
|
$
|
34,512
|
|
|
|
|
|
|
|
|
|
|
Note
1 -
These 11 properties are retail furniture stores covered by one master lease
and
one loan that is secured by crossed mortgages. They are located in six states
(Georgia, Kansas, Kentucky, South Carolina, Texas and Virginia) and no
individual property is greater than 5% of the Company’s total assets.
Note
2 -
Upon purchase of the property in December 2006, a $416,000 rental reserve was
posted for the Company’s benefit, since the property was not producing
sufficient rent at the time of acquisition. The Company recorded the receipt
of
this rental reserve as a reduction to land and building.
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,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Investment
in real estate:
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
368,343
|
|
$
|
268,279
|
|
$
|
247,183
|
|
Addition:
Land, buildings and improvements
|
|
|
576
|
|
|
112,462
|
|
|
57,772
|
|
Deductions:
|
|
|
|
|
|
|
|
|
|
|
Cost
of properties sold
|
|
|
(1
|
)
|
|
(12,398
|
)
|
|
(24,440
|
)
|
Valuation
allowance (c)
|
|
|
-
|
|
|
-
|
|
|
(469
|
)
|
Rental
reserve received (see Note 2 above)
|
|
|
(416
|
)
|
|
-
|
|
|
-
|
|
Property
held for sale
|
|
|
-
|
|
|
-
|
|
|
(11,767
|
)
|
Balance,
end of year
|
|
$
|
368,502
|
|
$
|
368,343
|
|
$
|
268,279
|
|
Accumulated
depreciation:
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$
|
26,691
|
|
$
|
20,581
|
|
$
|
18,647
|
|
Addition:
depreciation
|
|
|
7,958
|
|
|
6,857
|
|
|
5,755
|
|
Deductions:
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation related to property held
for sale
|
|
|
-
|
|
|
-
|
|
|
(1,108
|
)
|
Depreciation
expense related to property held
for sale
|
|
|
(137
|
)
|
|
(235
|
)
|
|
(235
|
)
|
Accumulated
depreciation related to properties sold
|
|
|
-
|
|
|
(512
|
)
|
|
(2,478
|
)
|
Balance,
end of year
|
|
$
|
34,512
|
|
$
|
26,691
|
|
$
|
20,581
|
|
|
(b)
|
The
aggregate cost of the properties is approximately $18,618 lower for
federal income tax purposes at December 31,
2007.
|
|
(c)
|
During
the year ended December 31, 2005, the Company recorded a provision
for
valuation adjustment of real estate totaling $469.
|