UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x Quarterly
Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the
quarterly period ended March 31, 2009
OR
¨ 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)
|
|
(516)
466-3100
(Registrant’s
telephone number, including area code)
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 ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer ¨
|
|
Accelerated filer x
|
Non-accelerated
filer ¨
(Do not check if a smaller
reporting company)
|
Smaller
reporting company ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨ No x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
As of May
4, 2009, the registrant had 10,662,613 shares of common stock
outstanding.
Part I –
FINANCIAL INFORMATION
Item
1 Financial
Statements
ONE
LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Amounts
in Thousands, Except Per Share Data)
|
|
March 31,
2009
|
|
|
December 31, 2008
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Real
estate investments, at cost
|
|
|
|
|
|
|
Land
|
|
$ |
94,981 |
|
|
$ |
95,545 |
|
Buildings
and improvements
|
|
|
334,452 |
|
|
|
336,609 |
|
|
|
|
429,433 |
|
|
|
432,154 |
|
Less
accumulated depreciation
|
|
|
46,137 |
|
|
|
44,698 |
|
|
|
|
383,296 |
|
|
|
387,456 |
|
|
|
|
|
|
|
|
|
|
Investment
in unconsolidated joint ventures
|
|
|
5,855 |
|
|
|
5,857 |
|
Cash
and cash equivalents
|
|
|
15,884 |
|
|
|
10,947 |
|
Unbilled
rent receivable
|
|
|
11,153 |
|
|
|
10,916 |
|
Unamortized
intangible lease assets
|
|
|
8,187 |
|
|
|
8,481 |
|
Escrow,
deposits and other receivables
|
|
|
1,781 |
|
|
|
1,569 |
|
Investment
in BRT Realty Trust at market (related party)
|
|
|
107 |
|
|
|
111 |
|
Unamortized
deferred financing costs
|
|
|
2,774 |
|
|
|
2,856 |
|
Other
assets (including available-for-sale securities at market of $261 and
$297)
|
|
|
936 |
|
|
|
912 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
429,973 |
|
|
$ |
429,105 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Mortgages
payable
|
|
$ |
226,530 |
|
|
$ |
225,514 |
|
Line
of credit
|
|
|
27,000 |
|
|
|
27,000 |
|
Dividends
payable
|
|
|
223 |
|
|
|
2,239 |
|
Accrued
expenses and other liabilities
|
|
|
4,831 |
|
|
|
5,143 |
|
Unamortized
intangible lease liabilities
|
|
|
5,132 |
|
|
|
5,234 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
263,716 |
|
|
|
265,130 |
|
|
|
|
|
|
|
|
|
|
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; 9,918 and 9,962 shares
issued and outstanding
|
|
|
9,918 |
|
|
|
9,962 |
|
Paid-in
capital
|
|
|
140,812 |
|
|
|
138,688 |
|
Accumulated
other comprehensive loss
|
|
|
(461 |
) |
|
|
(239 |
) |
Accumulated
undistributed net income
|
|
|
15,988 |
|
|
|
15,564 |
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
166,257 |
|
|
|
163,975 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
429,973 |
|
|
$ |
429,105 |
|
See
accompanying notes to consolidated financial statements.
ONE
LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(Amounts
in Thousands, Except Per Share Data)
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
Rental
income
|
|
$ |
10,679 |
|
|
$ |
9,655 |
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,352 |
|
|
|
2,033 |
|
General
and administrative (including $547 in each period to related
party)
|
|
|
1,649 |
|
|
|
1,596 |
|
Federal
excise tax
|
|
|
- |
|
|
|
11 |
|
Real
estate expenses
|
|
|
285 |
|
|
|
60 |
|
Leasehold
rent
|
|
|
77 |
|
|
|
77 |
|
Total
operating expenses
|
|
|
4,363 |
|
|
|
3,777 |
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
6,316 |
|
|
|
5,878 |
|
|
|
|
|
|
|
|
|
|
Other
income and expenses:
|
|
|
|
|
|
|
|
|
Equity
in earnings of unconsolidated joint ventures
|
|
|
160 |
|
|
|
145 |
|
Gain
on disposition of real estate of unconsolidated joint
venture
|
|
|
- |
|
|
|
297 |
|
Interest
and other income
|
|
|
28 |
|
|
|
209 |
|
Interest:
|
|
|
|
|
|
|
|
|
Expense
|
|
|
(3,813 |
) |
|
|
(3,635 |
) |
Amortization
of deferred financing costs
|
|
|
(281 |
) |
|
|
(158 |
) |
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
2,410 |
|
|
|
2,736 |
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
472 |
|
|
|
43 |
|
Impairment
charge on property sold at a loss
|
|
|
(229 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
243 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
2,653 |
|
|
$ |
2,779 |
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic and
diluted
|
|
|
10,694 |
|
|
|
10,681 |
|
|
|
|
|
|
|
|
|
|
Net
income per common share – basic and diluted:
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
.23 |
|
|
$ |
.26 |
|
Income
from discontinued operations
|
|
|
.02 |
|
|
|
- |
|
Net
income per common share
|
|
$ |
.25 |
|
|
$ |
.26 |
|
|
|
|
|
|
|
|
|
|
Cash
distribution per share of common stock
|
|
$ |
.02 |
|
|
$ |
.36 |
|
Stock
distribution per share of common stock
|
|
$ |
.20 |
|
|
|
- |
|
See
accompanying notes to consolidated financial statements.
ONE
LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
For the
three month period ended March 31, 2009 (Unaudited)
and the
year ended December 31, 2008
(Amounts
in Thousands)
|
|
Common
Stock
|
|
|
Paid-in
Capital
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Accumulated
Undistributed
Net Income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
January 1, 2008
|
|
$ |
9,906 |
|
|
$ |
137,076 |
|
|
$ |
344 |
|
|
$ |
23,913 |
|
|
$ |
171,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
– common stock ($1.30 per share)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13,241 |
) |
|
|
(13,241 |
) |
Repurchase
of common stock
|
|
|
(125 |
) |
|
|
(1,702 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,827 |
) |
Shares
issued through dividend reinvestment plan
|
|
|
158 |
|
|
|
2,449 |
|
|
|
- |
|
|
|
- |
|
|
|
2,607 |
|
Restricted
stock vesting
|
|
|
23 |
|
|
|
(23 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Compensation
expense – restricted stock
|
|
|
- |
|
|
|
888 |
|
|
|
- |
|
|
|
- |
|
|
|
888 |
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,892 |
|
|
|
4,892 |
|
Other
comprehensive loss –
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized loss on available-for-sale securities
|
|
|
- |
|
|
|
- |
|
|
|
(583 |
) |
|
|
- |
|
|
|
(583 |
) |
Comprehensive
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
December 31, 2008
|
|
|
9,962 |
|
|
|
138,688 |
|
|
|
(239 |
) |
|
|
15,564 |
|
|
|
163,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions
– common stock ($.22 per share)
|
|
|
- |
|
|
|
2,006 |
|
|
|
- |
|
|
|
(2,229 |
) |
|
|
(223 |
) |
Repurchase
of common stock
|
|
|
(44 |
) |
|
|
(99 |
) |
|
|
- |
|
|
|
- |
|
|
|
(143 |
) |
Compensation
expense – restricted stock
|
|
|
- |
|
|
|
217 |
|
|
|
- |
|
|
|
- |
|
|
|
217 |
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,653 |
|
|
|
2,653 |
|
Other
comprehensive loss -
|
|
|
- |
|
|
|
- |
|
|
|
(38 |
) |
|
|
- |
|
|
|
(38 |
) |
Net
unrealized loss on available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized loss on derivative instruments
|
|
|
- |
|
|
|
- |
|
|
|
(184 |
) |
|
|
- |
|
|
|
(184 |
) |
Comprehensive
income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances,
March 31, 2009
|
|
$ |
9,918 |
|
|
$ |
140,812 |
|
|
$ |
(461 |
) |
|
$ |
15,988 |
|
|
$ |
166,257 |
|
See
accompanying notes to consolidated financial statements.
ONE
LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Amounts
in Thousands)
(Unaudited)
|
|
Three Months Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
2,653 |
|
|
$ |
2,779 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Impairment
charge on property sold at a loss
|
|
|
229 |
|
|
|
- |
|
Increase
in rental income from straight-lining of rent
|
|
|
(237 |
) |
|
|
(330 |
) |
(Decrease)
increase in rental income from amortization of intangibles relating to
leases
|
|
|
24 |
|
|
|
(57 |
) |
Amortization
of restricted stock expense
|
|
|
217 |
|
|
|
206 |
|
Equity
in earnings of unconsolidated joint ventures
|
|
|
(160 |
) |
|
|
(145 |
) |
Gain
on disposition of real estate of unconsolidated joint
venture
|
|
|
- |
|
|
|
(297 |
) |
Distributions
of earnings from unconsolidated joint ventures
|
|
|
135 |
|
|
|
145 |
|
Depreciation
and amortization
|
|
|
2,359 |
|
|
|
2,051 |
|
Amortization
of financing costs
|
|
|
281 |
|
|
|
158 |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase)
decrease in escrow, deposits and other assets and
receivables
|
|
|
(272 |
) |
|
|
504 |
|
(Decrease)
in accrued expenses and other liabilities
|
|
|
(521 |
) |
|
|
(648 |
) |
Net
cash provided by operating activities
|
|
|
4,708 |
|
|
|
4,366 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of real estate and improvements
|
|
|
(4 |
) |
|
|
(2,821 |
) |
Net
proceeds from sale of real estate
|
|
|
1,764 |
|
|
|
- |
|
Investment
in unconsolidated joint ventures
|
|
|
(3 |
) |
|
|
(39 |
) |
Distributions
of return of capital from unconsolidated joint ventures
|
|
|
32 |
|
|
|
1,327 |
|
Net
proceeds from sale of available-for-sale securities
|
|
|
- |
|
|
519
|
|
Net
cash provided by (used in) investing activities
|
|
|
1,789 |
|
|
|
(1,014 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayment
of mortgages payable
|
|
|
(1,543 |
) |
|
|
(1,265 |
) |
Proceeds
from mortgage financings
|
|
|
2,559 |
|
|
|
- |
|
Payment
of financing costs
|
|
|
(194 |
) |
|
|
(59 |
) |
Increase
in restricted cash
|
|
|
- |
|
|
|
(38 |
) |
Cash
distributions – common stock
|
|
|
(2,239 |
) |
|
|
(3,640 |
) |
Repurchase
of common stock
|
|
|
(143 |
) |
|
|
- |
|
Issuance
of shares through dividend reinvestment plan
|
|
|
- |
|
|
|
783 |
|
Net
cash used in financing activities
|
|
|
( 1,560 |
) |
|
|
(4,219 |
) |
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
4,937 |
|
|
|
(867 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
10,947 |
|
|
|
25,737 |
|
Cash
and cash equivalents at end of period
|
|
$ |
15,884 |
|
|
$ |
24,870 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$ |
4,188 |
|
|
$ |
3,673 |
|
Supplemental
schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Assumption
of mortgages payable in connection with purchase of real
estate
|
|
|
- |
|
|
$ |
2,771 |
|
Purchase
accounting allocations – intangible lease assets
|
|
|
- |
|
|
|
105 |
|
Purchase
accounting allocations – intangible lease liabilities
|
|
|
- |
|
|
|
(451 |
) |
Purchase
accounting allocations – mortgage payable discount
|
|
|
- |
|
|
|
(40 |
) |
See
accompanying notes to consolidated financial statements.
One
Liberty Properties, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
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 furniture and office
supply stores, industrial, office, flex, health and fitness and other
properties, a substantial portion of which are under long-term net
leases. As of March 31, 2009, OLP owns 78 properties, six of which
are vacant, and one of which is a 50% tenancy in common
interest. OLP’s joint ventures own five properties, one of which is
vacant. The 83 properties are located in 29 states.
Note 2 -
Basis of
Preparation
The
accompanying interim unaudited consolidated financial statements as of March 31,
2009 and 2008 and for the three months ended March 31, 2009 and 2008 reflect all
normal recurring adjustments which are, in the opinion of management, necessary
for a fair presentation of the results for such interim periods. The results of
operations for the three months ended March 31, 2009 are not necessarily
indicative of the results for the full year.
The
preparation of the financial statements in conformity with U.S. generally
accepted accounting principles 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.
The
consolidated financial statements include the accounts and operations of OLP and
its wholly-owned subsidiaries (collectively, the
“Company”). Material intercompany items and transactions have
been eliminated. 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.
Certain
amounts reported in previous consolidated financial statements have been
reclassified in the accompanying consolidated financial statements to conform to
the current year’s presentation, primarily to reclassify the operations of a
property that was sold during March 2009 as discontinued operations and to
reclassify another property’s operations that were presented as discontinued
operations at March 31, 2008 to continuing operations. This property had been
marketed for sale from August 2007 until May 2008 when the Company determined
that the market was not favorable for a sale of such property.
These
statements should be read in conjunction with the consolidated financial
statements and related notes which are included in the Company's Annual Report
on Form 10-K and Amendment No. 1 thereto (Form 10-K/A) for the year ended
December 31, 2008.
One
Liberty Properties, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Note 3 -
Earnings Per Common
Share
For the
three months ended March 31, 2009 and 2008, basic earnings per share was
determined by dividing net income for each period by the weighted average number
of shares of common stock outstanding, which includes unvested restricted stock
during each period, plus the common stock issued in connection with the dividend
paid in April 2009, as discussed in Note 8.
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
shared in the earnings of the Company. There were no outstanding
options to purchase shares of common stock in the three months ended March 31,
2009 and 2008.
Note 4 -
Investment in
Unconsolidated Joint Ventures
On March
25, 2008, one of the Company’s unconsolidated joint ventures sold its only
property, which was vacant, for a consideration of $1,302,000, net of closing
costs. The sale resulted in a gain to the Company of $297,000 (after
giving effect to the Company’s $480,000 share of a direct write down taken by
the joint venture in a prior year).
The
Company’s remaining five unconsolidated joint ventures each own and operate one
property. At March 31, 2009 and December 31, 2008, the Company’s
equity investment in unconsolidated joint ventures totaled $5,855,000, and
$5,857,000, respectively, and in addition to the gain on sale of property of
$297,000 in the three months ended March 31, 2008, contributed $160,000 and
$145,000 in equity earnings for the three months ended March 31, 2009 and 2008,
respectively.
Note 5 –
Allowance for Doubtful
Accounts
The
Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of our tenants to make required rent
payments. If the financial condition of a specific tenant were to
deteriorate, resulting in an impairment of its ability to make payments,
additional allowances may be required. At March 31, 2009 and December
31, 2008, the balance in allowance for doubtful accounts was $97,000 and
$160,000, respectively.
Note 6 –
Discontinued
Operations
In
February 2009, the Company entered into a lease termination agreement with a
retail tenant of a Texas property that had been paying its rent on a current
basis, but had vacated the property in 2006. Pursuant to the agreement, the
tenant paid the Company $400,000 as consideration for the termination, which
payment was recorded as rental income of discontinued operations. On
March 5, 2009, the Company completed the sale of this property to an unrelated
party for consideration of $1,900,000 and recorded an impairment charge of
$229,000 to recognize the net loss. This is in addition to an impairment charge
of $752,000 taken in the quarter ended June 30, 2008. At December 31, 2008, this
property had a net book value of $2,072,000 and was classified as a real estate
investment.
One
Liberty Properties, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Note 6 –
Discontinued
Operations (Continued)
The
following is a summary of income from discontinued operations applicable to this
property for the three months ended March 31, 2009 and 2008 (amounts in
thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Rental
income, including $400 lease termination fee in 2009
|
|
$ |
479 |
|
|
$ |
96 |
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
7 |
|
|
|
18 |
|
Interest
expense
|
|
|
- |
|
|
|
35 |
|
Total
expenses
|
|
|
7 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations before impairment charge
|
|
|
472 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
Impairment
charge on property sold at a loss
|
|
|
(229 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
$ |
243 |
|
|
$ |
43 |
|
Note 7 -
Circuit City Stores,
Inc.
Circuit
City Stores, Inc., a retail tenant which previously leased five of our
properties, filed for protection under the Federal bankruptcy laws in November
2008, rejected leases for two of our properties in December 2008 and the
remaining three properties in March 2009. At March 31, 2009, a
non-recourse mortgage which is secured and cross collateralized by the five
former Circuit City properties had an outstanding balance of
$8,706,000. The Company has not made any payments on this mortgage
since December 1, 2008 and has received a letter of default on March 16, 2009.
The Company is currently in discussions with representatives of the
mortgagee. The Company continues to accrue interest expense, totaling
$169,000 at March 31, 2009, on this mortgage which matures in December
2014. The net book value of these five properties was $8,121,000 at
March 31, 2009, after giving effect to a $5,231,000 impairment charge taken at
December 31, 2008.
One
Liberty Properties, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Note 8 -
Common Stock Dividend
Distribution
On March
13, 2009, the Board of Directors declared a quarterly dividend for the Company’s
common stock of $.22 per share payable in cash and shares of the Company’s
common stock. The distribution was paid on April 27, 2009 to stockholders of
record on March 30, 2009 and totaled $2,229,000, of which $223,000 was paid in
cash and the balance was paid by the issuance of 529,000 shares of common stock,
valued at $3.79 per share. All per share amounts have been retroactively
adjusted to reflect the stock dividend. The number of common shares issued and
outstanding as presented on the balance sheet at March 31, 2009 would have been
10,447,000, taking into account the 529,000 shares issued on April 27,
2009.
Note 9 -
Comprehensive
Income
Comprehensive
income for the three months ended March 31, 2009 and 2008 is as follows (amounts
in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
2,653 |
|
|
$ |
2,779 |
|
Other
comprehensive loss –
|
|
|
|
|
|
|
|
|
Net
unrealized loss on available-for-sale securities
|
|
|
(38 |
) |
|
|
(97 |
) |
Net
unrealized loss on derivative instruments
|
|
|
(184 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$ |
2,431 |
|
|
$ |
2,682 |
|
Accumulated
other comprehensive loss includes an accumulated net unrealized loss on
available-for-sale securities of $277,000 and a net unrealized loss on
derivative instruments of $184,000, totaling $461,000 at March 31,
2009. At December 31, 2008, it was comprised solely of a net
accumulated unrealized loss on available-for-sale securities of
$239,000.
Note 10 –
Restricted
Stock
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 employer, or the employer 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.
The
Company’s 2003 Stock Incentive Plan (the “Incentive Plan”), approved by the
Company’s stockholders in June 2003, permits the Company to grant stock options
and restricted stock to its employees, officers, directors and
consultants. 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 is initially deferred, and amortization of amounts deferred is being
charged to operations over the respective vesting periods.
One
Liberty Properties, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Note 10 –
Restricted Stock
(Continued)
|
|
Three Months Ended
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
Restricted
share grants
|
|
|
- |
|
|
|
50,550 |
|
Average
per share grant price
|
|
|
- |
|
|
$ |
17.50 |
|
Recorded
as deferred compensation
|
|
|
- |
|
|
$ |
885,000 |
|
|
|
|
|
|
|
|
|
|
Total
charge to operations, all outstanding restricted grants
|
|
$ |
217,000 |
|
|
$ |
206,000 |
|
|
|
|
|
|
|
|
|
|
Non-vested
shares:
|
|
|
|
|
|
|
|
|
Non-vested
beginning of period
|
|
|
213,625 |
|
|
|
186,300 |
|
Grants
|
|
|
- |
|
|
|
50,550 |
|
Vested
during period
|
|
|
- |
|
|
|
- |
|
Forfeitures
|
|
|
- |
|
|
|
(500 |
) |
Non-vested
end of period
|
|
|
213,625 |
|
|
|
236,350 |
|
Through
March 31, 2009, a total of 243,075 shares were issued, of which 28,675 shares
vest on April 14, 2009 and 31,925 shares remain available for grant pursuant to
the Incentive Plan, and approximately $1,959,000 remains as deferred
compensation and will be charged to expense over the remaining respective
vesting periods. The weighted average vesting period is approximately 2.2
years. As of March 31, 2009, there were no options outstanding under
the Incentive Plan.
The
Company’s Board of Directors has approved, subject to stockholder approval, the
adoption of the Company’s 2009 Incentive Plan, under which 600,000 additional
shares of the Company’s common stock will be available for grant as stock
options, restricted stock and/or performance- based awards.
Note 11 –
Line of
Credit
The
Company has a $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 Facility matures on March 31, 2010 and provides
that the Company pay interest at the lower of LIBOR plus 2.15% or the respective
bank’s prime rate on funds borrowed and has an unused facility fee of
¼%. At March 31, 2009, there was $27,000,000 outstanding under the
Facility.
One
Liberty Properties, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Note
12 – Assets and
Liabilities Measured at Fair Value
The
Company accounts for fair value measurements in accordance with Statement of
Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS
No. 157 emphasizes that fair value is a market-based measurement, not an
entity-specific measurement. Therefore, a fair value measurement
should be determined based on the assumptions that market participants would use
in pricing the asset or liability. As a basis for considering market
participant assumptions in fair value measurements, SFAS No. 157 establishes a
fair value hierarchy that distinguishes between market participant assumptions
based on market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entity’s own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the
hierarchy). SFAS No. 157 was effective on January 1, 2009 for
non-financial assets and non-financial liabilities and on January 1, 2008 for
financial assets and financial liabilities.
The fair
value of the Company’s available-for-sale securities and derivative financial
instrument was determined using the following inputs as of March 31,
2009:
|
|
|
|
|
|
|
|
Fair Value Measurements
Using Fair Value Hierarchy
|
|
|
|
Carrying
Value
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$ |
368,000 |
|
|
$ |
368,000 |
|
|
$ |
368,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instruments
|
|
$ |
788,000 |
|
|
$ |
788,000 |
|
|
$ |
- |
|
|
$ |
788,000 |
|
|
$ |
- |
|
Available-for-sale
securities
All of
the Company’s marketable securities and its investment in common shares of BRT
Realty Trust are classified as available-for-sale securities. The
total cost of such securities is $645,000 and the aggregate amount of unrealized
losses is $277,000, which is included in Accumulated Other Comprehensive Loss on
the balance sheet. Fair values are approximated on current market
quotes from financial sources that track such securities.
Derivative financial
instruments and hedging activities
The
Company entered into two interest rate swaps to manage its interest rate risk in
connection with two mortgages in the aggregate principal amount of $20,675,000,
of which $20,612,000 is outstanding at March 31, 2009. The valuation
of the instruments is determined using widely accepted valuation techniques
including discounted cash flow analysis on the expected cash flows of the
derivatives. This analysis reflects the contractual terms of the derivatives,
including the period to maturity, and uses observable market-based inputs,
including interest rate curves, foreign exchange rates, and implied
volatilities.
One
Liberty Properties, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Note 12 –
Assets and Liabilities
Measured at Fair Value (Continued)
Although
the Company has determined that the majority of the inputs used to value its
derivatives fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with its derivatives utilize Level 3 inputs,
such as estimates of current credit spreads to evaluate the likelihood of
default by itself and its counterparties. However, as of March 31,
2009, the Company has assessed the significance of the impact of the credit
valuation adjustments on the overall valuation of its derivative positions and
has determined that the credit valuation adjustments are not significant to the
overall valuation of its derivatives. As a result, the Company has
determined that its derivative valuations are classified in Level 2 of the fair
value hierarchy.
Statement
of Financial Accounting Standards No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133” (“SFAS No.161”), amends and expands the disclosure requirements of
FASB Statement No. 133 (“SFAS 133”) with the intent
to provide users of financial statements with an enhanced understanding of: (a)
how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS 133 and its
related interpretations, and (c) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance, and cash
flows. SFAS 161 requires qualitative disclosures about objectives and strategies
for using derivatives, quantitative disclosures about the fair value of and
gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative instruments.
The
Company’s objectives in using interest rate derivatives are to add stability to
interest expense and to manage its exposure to interest rate movements. To
accomplish this objective, the Company uses interest rate swaps as part of its
interest rate risk management strategy. Interest rate swaps
designated as cash flow hedges involve the receipt of variable-rate amounts from
a counterparty in exchange for the Company making fixed-rate payments over the
life of the agreements without exchange of the underlying notional
amount.
The
effective portion of changes in the fair value of derivatives designated and
that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive
Loss and is subsequently reclassified into earnings in the period that the
hedged forecasted transaction affects earnings. During 2009, such derivatives
were used to hedge the variable cash flows associated with existing
variable-rate debt. The ineffective portion of the change in fair
value of the derivatives is recognized directly in earnings. During the three
months ended March 31, 2009, and March 31, 2008, there was no hedge
ineffectiveness effecting earnings.
Amounts
reported in Accumulated Other Comprehensive Loss related to derivatives will be
reclassified to interest expense as interest payments are made on the Company’s
variable-rate debt. During the next 12 months, the Company estimates that an
additional $145,000 will be reclassified as an increase to interest
expense.
As of
March 31, 2009, the Company had one outstanding interest rate swap with a
notional amount of $10,000,000 that was designated as a cash flow hedge of
interest rate risk. In addition, the Company had one outstanding interest rate
swap, with a notional amount of $10,612,000 that was not designated in hedging
relationships. Interest rate swaps not designated as hedges are
not speculative and are used to manage the Company’s exposure to interest rate
movements. For the three months ended March 31, 2009, the change in the fair
value of our interest rate swap not designated in hedging relationships was
recorded directly in interest expense and was equal to $9,000, which includes
the positive fair value change of $46,000 less the difference between the
variable and the fixed rate of the swap of $55,000.
One
Liberty Properties, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Note 12 –
Assets and Liabilities
Measured at Fair Value (Continued)
The table
below presents the fair value of the Company’s derivative financial instruments
as well as their classification on the balance sheet as of March 31,
2009.
|
|
Liability Derivatives
|
|
|
|
|
|
|
|
|
|
As of March 31, 2009
|
|
As of December 31, 2008
|
|
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
Balance Sheet
Location
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments
under SFAS 133:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Products
|
|
Other
liabilities
|
|
$ |
184,000 |
|
Other
liabilities
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
not
designated
as hedging instruments under SFAS
133:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Products
|
|
Other
liabilities
|
|
$ |
604,000 |
|
Other
liabilities
|
|
$ |
650,000 |
|
The
tables below present the effect of the Company’s derivative financial
instruments on the income statement for the three months ended March 31,
2009:
Derivatives in
SFAS 133 Cash
Flow Hedging
Relationships
|
|
Amount of Gain/
(Loss) in Other
Comprehensive
Income (Effective
Portion)
|
|
Gain/ (Loss) Reclassified from
Accumulated Other Comprehensive
Income into Income (Effective
Portion)
|
|
Gain/(Loss) in Income (Ineffective
Portion and Amount Excluded from
Effectiveness Testing)
|
|
|
|
|
|
Location
|
|
Amount
|
|
Location
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Products
|
|
$ |
(184,000 |
) |
Interest
expense
|
|
$ |
- |
|
Other
expense
|
|
$ |
- |
|
Derivatives Not Designated
as Hedging Instruments
Under SFAS 133
|
|
Location of Gain/(Loss)
in Income on Derivative
|
|
Amount of Gain/(Loss)
in Income on Derivative
|
|
Interest
Rate Products
|
|
Interest
expense
|
|
|
$46,000
|
|
One
Liberty Properties, Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Note 12 –
Assets and Liabilities
Measured at Fair Value (Continued)
The
Company did not have any derivative instruments during the three months ended
March 31, 2008.
The
Company has agreements with each of its derivative counterparties that contain a
provision that provides that if the Company either defaults or is capable of
being declared in default on any of its indebtedness, then the Company could
also be declared in default on its derivative obligations.
As of
March 31, 2009, the fair value of derivatives in a liability position related to
these agreements was $788,000. As of March 31, 2009, the Company has not posted
any collateral related to these agreements. If the Company breached any of these
provisions it would be required to settle its obligations under the agreements
at their termination value of $894,000.
Note 13 -
New Accounting
Pronouncements
In
December 2007, the FASB issued Statement No. 141 (R), “Business Combinations - a
replacement of FASB Statement No. 141” (“SFAS No. 141 (R)”), which
applies to all transactions or events in which an entity obtains control of one
or more businesses. SFAS No. 141 (R) (i) establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed, (ii) requires expensing of most transaction costs, and
(iii) requires the acquirer to disclose to investors and other users of the
information needed to evaluate and understand the nature and financial effect of
the business combination. The principal impact of the adoption of SFAS No. 141
(R) on the Company’s consolidated financial statements will be the requirement
that the Company expense most of its transaction costs relating to its
acquisition activities. The Company adopted SFAS No. 141 (R) on
January 1, 2009 and has determined that it has no effect on its consolidated
financial statements.
In
December 2007, the FASB issued Statement No. 160, “Non-controlling Interests in
Consolidated Financial Statements an amendment of ARB No 51” (“SFAS No.
160”). SFAS No. 160 requires non-controlling interests in
consolidated subsidiaries to be displayed in the statement of financial position
as a separate component of equity. Earnings and losses attributable to
non-controlling interests are no longer reported as part of consolidated
earnings, rather they are disclosed on the face of the income
statement. The Company adopted SFAS No. 160 on January 1, 2009 and
due to the current 100% ownership of the Company’s consolidated subsidiaries,
SFAS No. 160 has no impact on the Company’s consolidated financial
statements.
In June
2008, the FASB issued FSP No. EITF 03-6-1, ‘‘Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities,’’ (“FSP EITF 03-6-1”). FSP EITF 03-6-1
states that unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents (whether paid or unpaid) are
participating securities and shall be included in the computation of earnings
per share. The Company adopted FSP EITF 03-6-1 on January 1, 2009 and the
adoption had no impact on the Company as the unvested restricted stock awards
were previously included in the per share amounts for both basic and diluted
earnings per share.
Item
2.
|
Management's
Discussion And Analysis Of Financial Condition And Results Of
Operations
|
Forward-Looking
Statements
With the
exception of historical information, this quarterly report on Form 10-Q 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 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," “could,” "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions or variations
thereof. Forward-looking statements should not be relied on 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. Investors are cautioned not to
place undue reliance on any forward-looking statements.
Overview
We are a
self-administered and self-managed real estate investment trust, or REIT, and we
primarily own real estate that we net lease to tenants. As of
March 31, 2009 we own 78 properties, including a 50% tenancy in common interest
in one property and participate in five joint ventures which own a total of five
properties. These 83 properties are located in 29
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 distribute currently
at least 90% of ordinary taxable income to our stockholders. We
intend to comply with these requirements and to maintain our REIT
status.
Our
growth strategy relies, to a large extent, on the acquisition of additional
properties that are subject to long-term net leases and that have locations,
demographics and other investment attributes that we believe to be
attractive. In order to fund these acquisitions, we typically use
funds borrowed under our credit facility and then seek mortgage indebtedness for
the purchased properties on a non-recourse basis, repaying any funds borrowed
under the credit facility. Institutions have significantly curtailed
their lending activities and it has been challenging to secure mortgage
indebtedness. In addition, we are monitoring our cash needs, our liquidity and
the status of our portfolio to preserve cash. As a result of this and
until the economy stabilizes, we have adopted a conservative property
acquisition strategy.
Results of
Operations
Comparison of Three Months
Ended March 31, 2009 and 2008
Revenues
Rental
income increased by $1 million, or 10.6%, to $10.7 million for the three months
ended March 31, 2009 from $9.7 million for the three months ended March 31,
2008. The increase in rental income is primarily due to rental
revenues of $1.2 million earned on twelve properties acquired by us during
2008. The increase in rental income was offset primarily by a
decrease of $260,000 in rental income from Circuit City, which formerly leased
five of our properties. Circuit City, which filed for protection
under the federal bankruptcy laws in November 2008, rejected two of its leases
on our properties in December 2008 and three of its leases on our properties in
March 2009.
Operating
Expenses
Depreciation
and amortization expense increased by $319,000, or 15.7%, to $2.4 million for
the three months ended March 31, 2009. The increase was primarily due to
depreciation and amortization of $238,000 taken on eleven properties acquired
during 2008. The increase was also due to a $59,000 increase in
depreciation in the three months ended March 31, 2009 on a property which had
been classified as “held for sale” with no depreciation taken during the three
months ended March 31, 2008.
General
and administrative expenses increased by $53,000, or 3.3%, to $1.6 million for
the three months ended March 31, 2009, substantially due to an increase in
accounting and legal fees in connection with our year end audit and filings with
the Securities and Exchange Commission.
Real
estate expenses increased by $225,000, or 375%, to $285,000 for the three months
ended March 31, 2009, resulting primarily from real estate taxes and utilities
for the five properties formerly leased by Circuit City and another vacant
property.
Other
Income and Expenses
We
recognized a net gain of $297,000 on the sale by a joint venture of a
vacant property in the three months ended March 31, 2008. There was no
comparable gain in the three months ended March 31, 2009.
Interest
and other income decreased by $181,000, or 86.6%, to $28,000 for the three
months ended March 31, 2009. Since we applied available cash to the purchase of
nine properties in September 2008, we had less cash available for investment in
short-term cash equivalents. To a lesser extent, the decrease results
from declining interest rates over the past several quarters.
Interest
expense increased by $178,000, or 4.9%, to $3.8 million for the three months
ended March 31, 2009. The increase results primarily from an
increase of $180,000 of interest expense related to our line of credit as we
drew down funds for the purchase of eight properties in September
2008. Additionally, the increase was due to interest expense on fixed
rate mortgages placed on three properties between September 2008 and November
2008. These increases were offset in part from the payoff in full of
a loan payable, as well as from the monthly principal amortization of
mortgages.
Amortization
of deferred financing costs increased by $123,000 or 77.8%, to $281,000 for the
three months ended March 31, 2009 resulting primarily from $118,000 of
accelerated amortization of deferred financing costs relating to a mortgage loan
that was refinanced during the current quarter.
Discontinued
Operations
Income
from discontinued operations was $472,000 for the three months ended March 31, 2009 resulting
substantially from a $400,000 lease termination payment by a retail tenant of a
Texas property that had been paying its rent on a current basis, but had vacated
the property in 2006. On March 5, 2009, we sold this property
to an unrelated party and recorded an impairment charge of $229,000 to recognize
the loss. This is in addition to an impairment charge of $752,000 taken during
the quarter ended June 30, 2008. For the three months ended March 31,
2008, income from operations of this property amounted to $43,000.
Liquidity and Capital
Resources
We
require capital to fund our operations. Our capital sources include
income from operating activities, borrowings under our revolving credit facility
and mortgage loans secured by our properties. Our available liquidity
at March 31, 2009 includes approximately $15.9 million of cash and cash
equivalents and $35.5 million under our revolving credit facility, which can be
used to pay off existing mortgages, to fund the acquisition of additional
properties or to invest in joint ventures. With the tightening of
liquidity by lending institutions, it has been difficult to secure mortgage
indebtedness and as a result, our ability to make new property acquisitions or
increase liquidity will continue to be limited until mortgage loans become more
readily available.
We expect
to meet our short-term liquidity requirements generally through our cash and
cash equivalents and cash provided by operating activities. The most significant
source available to us for a new property acquisition is our revolving credit
facility. All of our requests for draw downs under our credit
facility have been satisfied to date. However, in view of the current
uncertainties in the economy and our limited ability to secure mortgage
indebtedness, we have adopted a conservative acquisition strategy and will
likely make few, if any, acquisitions in the near term.
We expect
to meet our long term liquidity requirements through existing cash resources,
proceeds from debt, including under a credit facility, and mortgage financings
on our properties (including refinances), and if required, the liquidation of
properties. We believe that the value of our real estate portfolio
is, and will continue to be, sufficient to allow us to refinance the existing
mortgage debt at maturity and repay all indebtedness we owe under our credit
facility. In addition, in order to increase our cash position, we
have reduced our quarterly dividend by 38.8% and in connection with our most
recent quarterly dividend paid in April 2009, took advantage of a recently
adopted IRS revenue ruling which allows us to satisfy our REIT dividend
requirement by paying our quarterly dividend in cash and shares of our common
stock, providing the cash portion of the dividend is at least 10% of the
aggregate amount.
Our
current credit facility matures on March 31, 2010. The growth of our
business through acquisitions is dependent on securing an extension of our
credit facility or securing a new credit facility. Any decision by
our lenders (or potential lenders) to provide us with financing will depend upon
a number of factors, such as the continuation of the current economic recession,
our compliance with the terms of our existing credit facility, our financial
performance, industry and market trends, the general availability of and rates
applicable to financing transactions, such lenders' resources and policies
concerning the terms under which they make capital commitments and the relative
attractiveness of alternative investment or lending opportunities. Given the
current environment, we expect that the terms of a new facility will be less
favorable than our existing facility.
At March
31, 2009, excluding mortgages payable of our unconsolidated joint ventures, we
had 40 outstanding mortgages payable covering 61 properties, aggregating
approximately $226.5 million in principal amount, all of which are secured by
first liens on individual real estate investments with an aggregate carrying
value of approximately $359 million, before accumulated depreciation. The
mortgages bear interest at fixed rates ranging from 5.44% to 8.8%, and mature
between 2009 and 2037. During the period April 1, 2009 through
December 31, 2009, $3.2 million of our mortgage debt will mature. We believe we
will be able to refinance the mortgage indebtedness which becomes due in 2009
but in the event that we are unable to do so, our present and anticipated cash
position is sufficient to repay this mortgage debt.
We have
not made any payments since December 1, 2008 on an $8.7 million non-recourse
mortgage secured by our five properties formerly leased to Circuit City and
received a letter of default on March 16, 2009. We are currently in
discussions with representatives of the mortgagee.
Credit
Facility
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. In
September 2008, we borrowed $34 million under our line of credit to facilitate
the purchase of eight properties, of which $7 million was repaid in November
2008 with a portion of the proceeds from a mortgage financing of one of our
properties. As of March 31, 2009, there was $27 million outstanding under
the facility.
At March
31, 2009, we had no outstanding contingent commitments, such as guarantees of
indebtedness, or any other contractual cash obligations, other than mortgage
payable debt, interest rate swaps and the amount outstanding under our line of
credit.
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 as a REIT for federal taxation purposes, we
may be subject to certain state and local taxes on our income and to federal
income and/or excise taxes on our undistributed taxable income (i.e., taxable
income not distributed in the amounts and in the time frames prescribed by the
Internal Revenue Code and applicable regulations thereunder).
With
respect to the quarterly dividend we have historically paid in April, we took
advantage of a recently adopted IRS revenue ruling which allows us to satisfy
the distribution requirement by paying the dividend in cash and our common
stock, provided the cash component represents at least 10% of the aggregate
distribution. Accordingly, the dividend paid on April 27, 2009,
aggregating $2,229,000, consisted of $223,000 in cash and 529,000 shares of our
common stock.
Item
3. Quantitative and Qualitative
Disclosures About Market Risk
Our
primary market risk exposure is the effect of changes in interest rates on the
interest cost of draws on our revolving variable rate credit facility and the
effect of changes in the fair value of our interest rate swap
agreements. Interest rates are highly sensitive to many factors,
including governmental monetary and tax policies, domestic and international
economic and political considerations and other factors beyond our
control.
As of
March 31, 2009, we had two interest rate swap agreements outstanding which have
an aggregate notional value of $20.6 million. The fair market value
of the interest rate swap is dependent upon existing market interest rates and
swap spreads, which change over time. As of March 31, 2009, if there
had been a 50 basis point increase in forward interest rates, the fair market
value of the interest rate swaps would have increased by approximately
$451,000. If there were a 50 basis point decrease in forward interest
rates, the fair market value of the interest rate swap would have decreased by
approximately $463,000.
We
utilize interest rate swaps to limit interest rate risk. Derivatives
are used for hedging purposes rather than speculation. We do not
enter into financial instruments for trading purposes.
In
connection with our long-term mortgage debt, which bears interest at fixed rates
or is subject to an interest rate swap, 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 facility is a revolving variable
rate facility which is sensitive to interest rates. 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.
We
assessed the market risk for our revolving variable rate credit facility and
believe that a 1% increase in interest rates would cause a decrease in annual
net income of $270,000 and a 1% decrease would cause an increase in annual net
income of $270,000 based on the $27 million outstanding on our credit facility
at March 31, 2009.
Item
4. Controls
and Procedures
As
required under Rules 13a-15 (e) and 15d-15 (e) under the Securities Exchange Act
of 1934, as amended, we carried out an evaluation under the supervision and with
the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934). Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures as of March 31, 2009 are
effective.
There
were no changes in our internal control over financial reporting (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934) during the three
months ended March 31, 2009 that materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
PART
II
Item
2. Unregistered Sales of Equity
Securities and Use of Proceeds
On
November 6, 2008, we announced that 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, which may continue for up to twelve months. Set
forth below is a table which provides the purchases we made in the three months
ended March 31, 2009:
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
|
January 1,
2009- January 31, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
467,836
shares
|
February
1, 2009- February 28, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
467,836
shares
|
March
1, 2009- March 31, 2009
|
|
44,133
shares
|
|
|
$ |
3.24 |
|
|
44,133
shares
|
|
423,703
shares
|
Exhibit
31.1
|
|
Certification
of President and Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. (Filed with this Form
10-Q.)
|
|
|
|
Exhibit
31.2
|
|
Certification
of Senior Vice President and Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. (Filed with this Form
10-Q.)
|
|
|
|
Exhibit
32.1
|
|
Certification
of President and Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (Filed with this Form
10-Q.)
|
|
|
|
Exhibit
32.2
|
|
Certification
of Senior Vice President and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. (Filed with this Form
10-Q.)
|
ONE
LIBERTY PROPERTIES, INC.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
One Liberty Properties,
Inc.
(Registrant)
May 7, 2009
|
|
/s/ Patrick J. Callan,
Jr.
|
|
Date
|
|
Patrick
J. Callan, Jr.
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
(principal
executive officer)
|
|
|
|
|
|
May 7, 2009
|
|
/s/ David W. Kalish
|
|
Date
|
|
David
W. Kalish
|
|
|
|
Senior
Vice President and
|
|
|
|
Chief
Financial Officer
|
|
|
|
(principal
financial officer)
|
|