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,
2008
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
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13-3147497
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(State
or other jurisdiction of
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(I.R.S.
employer
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incorporation
or organization)
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identification
number)
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60 Cutter Mill Road, Great Neck, New
York
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11021
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's telephone
number, including area code: (516) 466-3100
Securities
registered pursuant to Section 12(b) of the Act:
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Name
of exchange
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Title of each class
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on which registered
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Common
Stock, par value $1.00 per share
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New
York Stock Exchange
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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
¨ 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 ¨ 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 ¨
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
¨
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Accelerated
filer x
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Non-accelerated filer
¨
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Small reporting company
¨
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(Do
not check if a small reporting
company)
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Indicate by check mark whether
registrant is a shell company (defined in Rule 12b-2 of the Exchange
Act).
Yes
¨ No
x
As of
June 30, 2008 (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 $129.4
million.
As of
March 10, 2009, the registrant had 10,156,212 shares of common stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the proxy statement for the 2009 annual meeting of stockholders of One
Liberty Properties, Inc., to be filed pursuant to Regulation 14A not later than
April 30, 2009, are incorporated by reference into Part III of this Annual
Report on 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 (including furniture and office supply stores),
industrial, office, flex, 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, 2008, we owned 79 properties, three of which are vacant, and one of which is
a 50% tenancy in common interest, and participated in five joint ventures that
own five properties, one of which is vacant. Our properties and the
properties owned by our joint ventures are located in 29 states and have an
aggregate of approximately 6.1 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 and approximately 1.5 million square feet of space at
properties owned by the joint ventures in which we participate).
As a
result of a severe national economic recession during 2008, which is continuing
into 2009, consumer confidence and retail spending have declined and may
continue to decline. Approximately 55% of the rental income that is
payable to us in 2009 under leases existing at December 31, 2008, including
rental income payable on our tenancy in common interest and excluding any rental
income from five properties formerly leased by Circuit City Stores, Inc.
(hereinafter 2009 contractual rental income) will be derived from rent paid by
retail tenants. If the financial problems of our retail tenants
continue or deteriorate further, our revenues could decline significantly and
our real estate expenses could increase. During the fourth quarter of
2008, we recorded an impairment charge of $5.2 million relating to three
properties that were leased to Circuit City Stores, Inc. (hereinafter Circuit
City). Circuit City filed for protection under Federal bankruptcy
laws in November 2008 and has rejected all of its leases on our
properties. To the extent that our other retail tenants are adversely
affected by the recession and reduced consumer spending, our portfolio may be
further adversely effected.
Our 2009
contractual rental income will be approximately $42 million. In 2009,
we expect that our share of the rental income payable to our five joint ventures
which own properties will be approximately $1.4 million. On December
31, 2008, the occupancy rate of properties owned by us was 97.5% based on square
footage (including the property in which we own a tenancy in common interest and
the properties formerly leased to Circuit City and the occupancy rate of
properties owned by our joint ventures was 99.5% based on square
footage. The weighted average remaining term of the leases in our
portfolio, including our tenancy in common interest (excluding the properties
formerly leased to Circuit City), is 9.4 years and 10.7 years for the leases at
properties owned by our joint ventures.
The
Effect of the Current Economic Crisis on Us
During
2008, the national economic recession resulted in, among other things, increased
unemployment, and caused a significant decline in consumer confidence, which has
dramatically reduced consumer spending on retail goods. This affected
us and our retail tenants in the following respects:
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·
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Circuit
City, a retail tenant which 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. The five properties formerly leased
to Circuit City accounted for 2.3% of our 2008 annual rental
revenues.
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·
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We
recorded an impairment charge of approximately $6 million against four
properties for the year ended December 31, 2008, including three
properties formerly leased to Circuit City. The impairment
charge for each affected property is equal to the difference between the
net book value, including intangibles, and the present value of discounted
cash flows of the properties based upon certain valuation
assumptions. At December 31, 2008, we had a non-recourse
mortgage with an outstanding balance of $8.7 million secured by the five
properties formerly leased to Circuit City. We have not made
any payments on this mortgage since December 1, 2008 and have entered into
negotiations with representatives of the mortgagee relating to possible
modifications of the mortgage. After taking into account the
impairment charge, our book value for these five properties is $8.3
million;
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·
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We
wrote-off or recorded accelerated amortization on an aggregate of $332,000
of unbilled “straight line” rent receivable for six retail properties,
including five properties formerly leased by Circuit City, which resulted
in a decrease in our rental revenues for the year ended December 31, 2008;
and
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·
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Our
quarterly distribution was reduced by 39% from $.36 in October 2008 to
$.22 in January 2009.
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Our
rental income from our retail tenants will account for 55% of our 2009
contractual rental revenues, including 19% which is from furniture stores and
14% from office supply stores. Two retail tenants in the office
supply and furniture business represent an aggregate of 10.6% and 10.3%,
respectively, of our 2009 contractual rental revenues.
If
economic conditions in the United States do not stabilize in 2009, we will
likely experience additional tenant defaults, delinquencies and delays in
payments and lease renegotiations, which could cause a decline in our rental
revenues and an increase in our real estate expenses. In addition,
since the economy has also sustained a crisis in the commercial real estate
market and in the commercial banking system, the value of properties that we
hold or seek to sell could decline. As a result, we may recognize
additional impairment charges and realize losses on property
sales. Also, our operating expenses will increase as we maintain and
improve vacant properties. Moreover, our ability to refinance
existing indebtedness and to secure additional funds from unencumbered
properties may also be limited due to the liquidity constraints in the credit
markets.
Acquisition
Strategies
We are
carefully monitoring our cash needs, our liquidity and the status of our
portfolio to preserve our cash and, until the economy stabilizes, we adopted a
conservative acquisition strategy. Traditionally, 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. Historically,
long-term leases have made 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 when 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, we may dispose of a property following a lease termination or
expiration, or even during the term of a lease if we regard the disposition of
the property as an opportunity to realize the overall value of the property
sooner or to avoid future risks by achieving a determinable return from the
property.
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:
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an
evaluation of the property and improvements, given its location and
use;
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the
current and projected cash flow of the
property;
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the
estimated return on equity to us;
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·
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local
demographics (population and rental
trends);
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the
ability of the tenant to meet operational needs and lease obligations
recognizing the current economic
climate;
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the
terms of tenant leases, including the relationship between current rents
and market rents;
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the
projected residual value of the
property;
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potential
for income and capital
appreciation;
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occupancy
of and demand for similar properties in the market area;
and
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·
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alternative
use for the property at lease
termination.
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Our
Business Objective
Our business objective is to maintain
and increase the cash available for distribution to our stockholders
by:
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monitoring
and maintaining our portfolio;
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obtaining
mortgage indebtedness on favorable terms and maintaining access to capital
to finance property acquisitions;
and
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managing
assets effectively, including lease extensions and opportunistic property
sales.
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Typical
Property Attributes
The properties in our portfolio and
owned by our joint ventures typically have the following
attributes:
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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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·
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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 71% of our 2009
contractual rental income expire after 2014, and leases representing
approximately 37% of our 2009 contractual rental income expire after 2018;
and
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·
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Scheduled rent
increases. Leases representing approximately 95% of our
2009 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.
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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, 2008:
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Percentage of
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Type of
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Number of
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Number of
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2009 Contractual
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2009 Contractual
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Property
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Tenants
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Properties
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Rental Income (1)
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Rental Income
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Retail
– various (2)
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25 |
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30 |
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$ |
9,407,667 |
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22.4 |
% |
Industrial
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9 |
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10 |
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8,245,965 |
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19.7 |
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Retail
– furniture (3)
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6 |
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16 |
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7,923,919 |
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18.9 |
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Retail
– office supply (4)
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13 |
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13 |
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5,713,993 |
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13.6 |
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Office
(5)
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3 |
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3 |
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4,377,584 |
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10.4 |
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Flex
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3 |
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2 |
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2,546,571 |
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6.1 |
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Health
& fitness
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3 |
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3 |
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1,783,128 |
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4.3 |
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Movie
theater (6)
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1 |
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1 |
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1,266,759 |
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3.0 |
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Residential
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1 |
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1 |
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687,500 |
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1.6 |
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64 |
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79 |
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$ |
41,953,086 |
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100.0 |
% |
(1)
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Contractual
2009 rental income includes rental income that is payable to us during
2009 under leases existing at December 31, 2008, including rental income
payable on our tenancy in common interest and excluding any rental income
from five properties formerly leased by Circuit
City.
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(2)
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Thirteen
of the retail properties are net leased to single tenants. Four
properties are net leased to a total of eleven separate tenants pursuant
to separate leases and eight properties are net leased to one tenant
pursuant to a master lease. At December 31, 2008, three retail
properties were leased to Circuit City. Circuit City rejected
two of our leases prior to December 2008 and the remaining three in March
2009.
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(3)
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Eleven
properties are net leased to Haverty Furniture Companies, Inc. pursuant to
a master lease covering all locations. Five of the properties
are net leased to single tenants, including a property where we assumed a
sublease to a retail furniture store from Circuit City in December
2008.
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(4)
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Includes
ten properties which are net leased to one tenant pursuant to ten separate
leases. Eight of these leases contain cross-default
provisions.
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(5)
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Includes
a property in which we own a 50% tenancy in common
interest.
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(6)
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We
are the ground lessee of this property under a long-term lease and net
lease the movie theater to an
operator.
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Most of
our retail tenants operate on a national basis and include, among others, Barnes
& Noble, Best Buy, CarMax, CVS, Office Depot, Office Max, Party City, Petco,
The Sports Authority, and Walgreen, and some of our tenants operate on a
regional basis, including Haverty Furniture Companies.
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
2008 rental revenues and are not expected to be a material part of our 2009
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, 2008:
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% of 2009 Contractual
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Approximate Square
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2009 Contractual
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Rental Income
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Year of Lease
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Number of
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Feet Subject to
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Rental Income Under
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Represented by
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Expiration (1)
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Expiring Leases
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Expiring Leases
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Expiring Leases
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Expiring Leases
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2009
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1 |
(2) |
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193,496 |
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$ |
575,780 |
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1.4 |
% |
2010
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3 |
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19,038 |
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349,825 |
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|
.8 |
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2011
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4 |
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208,428 |
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2,174,336 |
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5.2 |
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2012
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2 |
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19,000 |
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475,903 |
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1.1 |
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2013
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8 |
|
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627,268 |
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3,652,038 |
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8.7 |
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2014
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|
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10 |
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552,067 |
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4,888,236 |
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11.7 |
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2015
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4 |
|
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150,795 |
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1,765,765 |
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4.2 |
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2016
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4 |
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182,715 |
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1,712,396 |
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4.1 |
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2017
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5 |
(3) |
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316,285 |
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5,070,078 |
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12.1 |
|
2018
and thereafter
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23 |
|
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2,217,405 |
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21,288,729 |
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50.7 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
64 |
|
|
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4,486,497 |
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|
$ |
41,953,086 |
|
|
|
100.0 |
% |
(1)
|
Lease
expirations assume tenants do not exercise existing renewal
options.
|
(2)
|
Tenant
exercised its option to renew this lease subsequent to December 31,
2008. The lease for this property now expires in November
2014.
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(3)
|
Includes
a property in which we have a tenancy in common
interest.
|
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, which matures on March 31, 2010, 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 also
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 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. The
proceeds of our credit facility may be used to payoff existing mortgages, fund
the acquisition of additional properties, or to invest in joint
ventures. Net proceeds received from refinancing of properties are
required to be used to repay amounts outstanding under our credit facility if
proceeds from the credit facility were used to purchase or refinance the
property. Through the date of this filing, all of our draw down
requests have been fulfilled by our lending banks.
With respect to properties we acquire
on a free and clear basis, we usually seek to obtain long-term fixed-rate
mortgage financing, when available at acceptable terms, 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 credit facility, if any, and for
the acquisition of additional properties. With the national economic
recession and the reductions in real estate values, we may find that the value
of a property could be less than the mortgage secured by such
property. In such instance, we may seek to renegotiate the terms of
the mortgage, or to the extent that our loan is non-recourse and can not be
renegotiated, forfeit the property and write-off our investment.
Our
Joint Ventures
As of December 31, 2008, we are a joint
venture partner in five joint ventures that own an aggregate of five properties,
including one vacant property, and have an aggregate of approximately 1.5
million square feet of space. Three of the properties are retail
properties and two are industrial properties. 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, however, we do not
exercise substantial operating control over these entities, pursuant to EITF
04-05. At December 31, 2008, our investment in unconsolidated joint
ventures was approximately $5.9 million.
Based on
existing leases, we anticipate that our share of rental income payable to our
joint ventures in 2009 will be approximately $1.4 million. The leases
for two properties (each of which is owned by one of our joint ventures), which
are expected to contribute 84% of the aggregate projected rental income payable
to all of our joint ventures in 2009 will expire in 2021 and 2022.
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.
Our
Structure
In 2008,
five employees, Patrick J. Callan, Jr., our president and chief executive
officer, Lawrence G. Ricketts, Jr., our executive vice president and chief
operating officer, and three others, devoted 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 2008, we incurred a fee of $2,025,000 to Majestic Property
Management Corp. under the compensation and services
agreement. Pursuant to the compensation and services agreement, we
paid $2,013,000 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, we made a payment to Majestic Property Management Corp. of $175,000
for our share of all direct office expenses, including rent, telephone, postage,
computer services, and internet usage. We also paid our chairman a
fee of $250,000 in 2008 in accordance with the compensation and services
agreement.
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 (the “SEC”): 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
SEC. 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 us, 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,” “could,” “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:
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the
financial condition of our tenants and the performance of their lease
obligations;
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general
economic and business conditions, including those currently affecting our
nation’s economy and real estate
markets;
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the
availability of and costs associated with sources of
liquidity;
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accessibility
of debt and equity capital markets;
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general
and local real estate conditions, including any changes in the value of
our real estate;
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breach
of credit facility covenants;
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more
competition for leasing of vacant space due to current economic
conditions;
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changes
in governmental laws and regulations relating to real estate and related
investments;
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the
level and volatility of interest
rates;
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competition
in our industry; and
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the
other risks described under “Risks Related to Our Company” and “Risks
Related to the REIT Industry.”
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Any or
all of our forward-looking statements in this report, in our 2009 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 SEC.
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
If
our tenants default, if we are unable to re-rent properties upon the expiration
of our leases, or if a significant number of tenants are granted rent
abatements, our revenues will be reduced and we would incur additional
costs.
Substantially
all of our revenues are derived from rental income paid by tenants at our
properties. The current economic crisis and recession has had a
direct and significant effect on many of our tenants, resulting in a
deterioration of their business. A continuing deterioration of
economic conditions could result in additional tenants defaulting on their
obligations, fewer tenants renewing their leases upon the expiration of their
terms or tenants seeking rent abatements or other accommodations or
renegotiation of their leases. As a result of any of these events,
our revenues would decline. At the same time, we would remain
responsible for the payment of our mortgage obligations and the operating
expenses related to our properties, including, among other things, real estate
taxes, maintenance and insurance. In addition, we would incur
expenses for enforcing our rights as landlord. Even if we find
replacement tenants or renegotiate leases with current tenants, the terms of the
new or renegotiated leases, including the cost of required renovations or
concessions to tenants, or the expense of the 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.
Approximately
52% of our rental revenue is derived from tenants operating in the retail
industry, which has been particularly weakened in the current recession, and the
inability of those tenants to pay rent would significantly reduce our
revenues.
Approximately
52% of our rental revenues (excluding rental revenues from our joint ventures)
for the year ended December 31, 2008 was derived from retail tenants and
approximately 55% of our 2009 contractual rental income is expected to be
derived from retail tenants, including 18.9% and 13.6%, respectively, from
tenants engaged in retail furniture and office supply operations. The
current economic crisis and recession has severely reduced consumers’ disposable
income and has depressed consumer confidence in the economy, leading to a
drastic decline in consumer spending on retail goods.
Circuit
City, a retail tenant which 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. The five properties formerly leased to Circuit City accounted
for 2.3% of our 2008 annual rental revenues.
If the
recession continues at the current pace or accelerates, it could cause
additional retail tenants of ours to fail to meet their lease obligations, which
would have an adverse effect on our results of operations, liquidity and
financial condition, including making it more difficult for us to satisfy our
operating and debt service requirements, make capital expenditures and make
distributions to our stockholders.
A
significant portion of our 2008 revenues and our 2009 contractual rental income
is derived from six tenants. The default, financial distress or
failure of any of these tenants could significantly reduce our
revenues.
Haverty Furniture Companies, Inc.,
Ferguson Enterprises, Inc., DSM Nutritional Products, Inc., New Flyer of
America, Inc., and L-3 Communications Corp, accounted for approximately 12%,
5.7%, 5.1%, 4.4% and 4.3%, respectively, of our rental revenues (excluding
rental revenues from our joint ventures) for the year ended December 31, 2008,
and account for 10.3%, 5.6%, 4.7%, 3.8% and 4.3%, respectively, of our 2009
contractual rental income. During 2008, we purchased eight properties
net leased to Office Depot, Inc. For 2009, these eight Office Depot,
Inc. properties, in addition to two we already owned, are expected to account
for 10.6% of our 2009 contractual rental income. The default,
financial distress or bankruptcy of any of these tenants would cause
interruptions in the receipt of, or the loss of, a significant amount of rental
revenues and would require us to pay operating expenses currently paid by the
tenant. This would 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.
Declines
in the value of our properties could result in additional impairment charges or
losses on sales and may reduce our stockholder distributions.
The
recent economic downturn has caused a decline in real estate values generally
throughout the country. We regularly evaluate our
properties. If we are presented with indications of an impairment in
the value of a particular property or group of properties, we may be required to
evaluate the current value of such properties under such
circumstances. If we determine that the fair value of any of our
properties has declined below the net book value, we will be required to
recognize an impairment charge for the difference during the quarter in which we
make such determination. In addition, we may incur losses from time
to time if we dispose of properties for sales prices that are less than our book
value.
Impairment
charges against owned real estate may not be adequate to cover actual
losses.
Impairment
charges taken by us against the value of our properties may be inadequate.
Regardless of the impairment charge taken, additional losses may be experienced
as a result of specific or systemic factors beyond our control, including, among
other things, a continuing economic recession and changes in market conditions
affecting the value of our real estate assets (including real estate assets
which collateralize mortgage loans made to us).
As of
December 31, 2008, we recorded an impairment charge of approximately $6 million
relating to four properties owned by us. Our impairment charges are
based on an evaluation of known risks and economic factors. The determination of
an appropriate level of impairment charges is an inherently difficult process
and is based on numerous assumptions. The amount of impairment
charges of real estate is susceptible to changes in economic, operating and
other conditions, that are largely beyond our control and these losses may
exceed current estimates. Our impairment charges may not be adequate
to cover actual losses and we may need to take additional impairment charges in
the future. Actual losses and additional impairment charges in the future could
materially and adversely affect our business, net income, stockholders’ equity
and cash distributions to our stockholders.
If
a significant number of our tenants default or fail to renew expiring leases, or
we take additional impairment charges against our properties, a breach of our
revolving credit facility could occur.
Our
revolving credit facility includes financial covenants that require us to
maintain certain financial ratios and requirements. If our tenants default under
their leases with us or fail to renew expiring leases, generally accepted
accounting principles may require us to recognize additional impairment charges
against our properties, and our financial position could be adversely affected
causing us to be in breach of the financial covenants contained in our credit
facility.
Failure
to meet interest and other payment obligations under our revolving credit
facility or a breach by us of the covenants to maintain the financial ratios
would place us in default under our revolving credit facility, and, if the banks
called a default and required us to repay the full amount outstanding under the
revolving credit facility, we might be required to rapidly dispose of our
properties, which could have an adverse impact on the amounts we receive on such
disposition. If we are unable to dispose of our properties in a timely fashion
to the satisfaction of the banks, the banks could foreclose on that portion of
our collateral pledged to the banks, which could result in the disposition of
our properties at below market values. The disposition of our properties at
below our carrying value would adversely affect our net income, reduce our
stockholders’ equity and adversely affect our ability to pay distributions to
our stockholders.
If
we are unable to refinance our mortgage loans at maturity, our net income may
decline or we may be forced to sell properties at disadvantageous terms, which
would result in the loss of revenues and in a decline in the value of our
portfolio.
As of
December 31, 2008, we had outstanding approximately $225.5 million in long-term
mortgage indebtedness, all of which is non-recourse (subject to standard
carve-outs). As of December 31, 2008, our ratio of mortgage debt to
total assets was approximately 52.6%. In addition, as of December 31,
2008, our joint ventures had approximately $18.3 million in total long-term
mortgage indebtedness (all of which is non-recourse subject to standard
carve-outs). The risks associated with our mortgage debt and the
mortgage 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.
Only a
small portion of the principal of our mortgage indebtedness will be repaid prior
to maturity. We do not plan to retain sufficient cash to repay such
indebtedness at maturity. Accordingly, in order to meet these
obligations if they cannot be refinanced at maturity, we will have to use funds
available under our credit facility, if any, to pay our mortgage debt or seek to
raise funds through the financing of unencumbered properties, sale of properties
or the issuance of additional equity. Between January 2009 and
December 31, 2013, approximately $79.7 million of our mortgage debt matures, of
which approximately $4.6 million will mature in 2009 and approximately $17
million will mature in 2010. If we (or our joint ventures) are not successful in
refinancing existing mortgage 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 mortgage debt when payments become due, and we (or a joint venture) may
be forced to dispose of properties on disadvantageous terms, which would lower
our revenues and the value of our portfolio.
If
we are unable to extend or secure a credit facility at maturity of our current
facility in March 2010 at favorable rates, our net income may decline or we may
be forced to sell properties at disadvantageous terms, which would result in the
loss of revenues and in a decline in the value of our portfolio.
As of
December 31, 2008 and March 1, 2009, we had $27 million outstanding under our
revolving credit facility. 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. Our credit facility
expires on March 31, 2010. We may be unable to extend our current
facility by the maturity date, March 31, 2010, or to negotiate a new facility at
acceptable rates and may be unable to pay off the amount then outstanding unless
we find alternative means of refinancing.
The
United States’ credit markets continue to experience significant price
volatility and liquidity disruptions, which thus far has caused market prices of
many stocks to plummet and terms for financings to be far less attractive, and
in many cases unavailable. Continued uncertainty in the credit
markets will negatively impact our ability to refinance the amount outstanding
under our revolving credit facility at favorable terms or at all. If
we are not successful in extending our current credit facility or securing a new
credit facility or financing unencumbered properties, selling properties on
favorable terms or raising additional equity, our cash flow will not be
sufficient to repay all amounts outstanding under our credit facility when it
matures in March 2010, and we may be forced to dispose of properties at
disadvantageous terms, which would lower our revenues and the value of our
portfolio.
The
current recession and its consequences present a threat to our present growth
strategy.
Our
present growth strategy relies, to a large extent, on the acquisition of
additional properties that are subject to long-term net leases or that are
located in market or industry sectors that we identify, from time to time, as
offering superior risk-adjusted returns. In order to fund these
acquisitions, our business model generally prescribes that we initially use
funds borrowed under our credit facility and then seek mortgage indebtedness for
the purchased properties on a non-recourse basis, repaying the amount borrowed
under the credit facility.
Institutions
have significantly curtailed their lending activities and it has become
increasingly challenging to identify and secure mortgage
indebtedness. As a result, we have adopted a conservative property
acquisition strategy.
The
banks which are parties to our credit facility may not be able to meet their
funding commitments under the facility as a result of the current credit crisis,
which would force us to conserve cash or arrange for alternative funding in a
difficult market environment.
Our
access to funds under our credit facility is dependent on the ability of the
banks that are parties to the credit facility to meet their funding
commitments. These banks might incur losses or might have reduced
capital reserves in part because of the weakening of the U.S. economy and the
increased financial instability of many borrowers. As a result, these banks
might become capital constrained and might tighten their lending standards, or
become insolvent. If they experience shortages of capital or liquidity or if
they experience excessive volumes of borrowing requests from other borrowers
within a short period of time, these banks might not be able to meet their
funding commitments under our credit facility. If we are unable to draw funds
under our credit facility because of a lender default or if we are unable to
obtain other cost-effective financing from other prospective sources of debt
capital, our financial condition and results of operations would be adversely
affected.
Disruptions
in the capital and credit markets as a result of uncertainty in the U.S.
economy, changing or increased regulation, reduced financing alternatives or
failures of significant financial institutions could adversely affect one or
more banks in our credit facility or otherwise adversely affect our access to
funds. These disruptions could require us to take measures to conserve cash
until the markets stabilize or until alternative credit arrangements or other
funding can be arranged, if such financing is available on acceptable terms, or
at all. Such measures could include deferring development and redevelopment
projects or other capital expenditures and reducing or eliminating future cash
dividend payments or other discretionary uses of cash.
If
our borrowings increase, the risk of default on our repayment obligations and
our debt service requirements will also increase.
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.
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 are required to
pay some expenses, such as the costs of environmental liabilities, roof and
structural repairs, insurance and certain non-structural 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, 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 coverage available in the market, and
changes in the type, capacity and sophistication of building
systems. Approximately 54.9%, 19.7% and 10.4% of our 2009 contractual
rental income is expected to come from retail, industrial, and office tenants,
respectively, and is vulnerable to further economic declines that negatively
impact these sectors 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, leasehold 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. The occurrence of any of these events could
adversely impact our results of operations, liquidity and financial
condition.
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 30% of our rental income (excluding
our share of the rental income and assets from our joint ventures) for the year
ended December 31, 2008 was, and approximately 30% of our 2009 contractual
rental income will be derived from properties located in Texas and New
York. At December 31, 2008, 25% of the depreciated book value of our
real estate investments were 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 venture partner 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, 2008, our investment in unconsolidated joint ventures was approximately $5.9
million and the tenancy in common interest represents a net investment of
approximately $623,000 by us. These investments may involve risks not
otherwise present in investments made solely by us, including the risk that our
co-investors may have different interests or goals than us, 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.
We
may pay our stockholder distributions in shares of our common stock, thereby
reducing the cash a stockholder would have otherwise received from
us.
In order
to assist REITs to retain their cash while simultaneously satisfying their tax
distribution requirements, the Internal Revenue Service released Revenue
Procedure 2008-68 effective with respect to distributions declared on or after
January 1, 2008, and applicable to REIT distributions with respect to taxable
years ending on or before December 31, 2009. Pursuant to this Revenue
Procedure, REITs may temporarily satisfy the distribution requirements of their
taxable income by offering their stockholders the option to receive the
distribution in cash or the REIT’s stock. As a result, for any
distributions we declare in 2009, we may provide our stockholders with the
option of receiving such distribution in cash or shares of our common
stock. If too many of our stockholders elect to receive only cash,
each such stockholder may receive up to 90% of the distribution in shares of our
stock, thereby reducing the cash such stockholder would have otherwise received
from us. Our board of directors will determine whether distributions
are made in cash or a combination of cash and stock.
If
we further reduce our dividend, the market value of our common stock may
decline.
The level
of our common stock dividend is established by our board of directors from time
to time based on a variety of factors, including our cash available for
distribution, our funds from operations and our maintenance of REIT
status. In December 2008, in view of the current economic
environment, our board determined that we should conserve cash and as a result
reduced our quarterly dividend from $.36 per share paid in October 2008 to $.22
per share paid in January 2009. Various factors could cause our board
of directors to decrease our common stock dividend level even further, including
tenant defaults or bankruptcies resulting in a material reduction in our cash
flows or a material loss resulting from an adverse change in the value of one or
more of our properties. If we are required to further reduce our
common stock dividend, the market value of our common stock could be adversely
affected.
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, will enable us to quality for the tax benefits accorded to a REIT
under the Code. We have not established a minimum dividend payment
level and our ability to pay dividends may be adversely affected by the risk
factors described in this Annual Report on Form 10-K. In December
2008, in view of the current economic environment, our board determined that we
should conserve cash and as a result reduced our quarterly dividend from $.36
per share paid in October 2008 to $.22 per share paid in January
2009. 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. As the economic crisis and
recession continue, our tenants may be further affected, which would likely
cause a decline in our revenues, and may reduce or eliminate our profitability
and further reduce or eliminate our dividends.
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.
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, the remediation of costs 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. 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.
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 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 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 the chairman of our Board of Directors and
it provides compensation to certain of our senior 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 2008,
we paid to Majestic a fee of approximately $2,025,000 under the compensation and
services agreement. In addition, in accordance with the compensation and
services agreement, in 2008 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, including rent, telephone, postage,
computer services, and internet usage. 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.
If
we fail to satisfy one or more of the NYSE continued listing standards, the NYSE
may delist our common stock from trading, which could limit our stockholders'
ability to make transactions in our common stock and subject us to additional
trading restrictions.
Our common stock is listed on the NYSE,
a national securities exchange, which imposes continued listing requirements
with respect to listed securities. The NYSE's continued listing
standards for REITs include, but are not limited to, a requirement that average
market capitalization over any consecutive 30 trading day period must be at
least $25 million and that the average closing price of the stock of any listed
company over any consecutive 30 trading day period must be at least
$1. Although the NYSE has temporarily lowered the market
capitalization standard to $15 million and suspended the minimum stock price
requirement, there can be no assurances that it will extend this temporary
relief beyond June 30, 2009, when it is scheduled to expire. On March
10, 2009, our market capitalization was $33.5 million, based on a share price of
$3.30 on that day. Our average share price over the 30 trading days
ending on March 10, 2009, was $4.44. If we fail to satisfy one or
more of the continued listing standards, the NYSE delists our common stock from
trading on its exchange and we are not able to list our securities on another
national securities exchange or on Nasdaq, we would have to quote our common
stock on the OTC Bulletin Board or the "pink sheets." As a result,
the ability of our stockholders to make transactions in our common stock could
be limited.
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
Code. Qualification as a REIT involves the application of technical
and complex legal provisions for which there are limited judicial and
administrative interpretations. The determination of various factual
matters and circumstances not entirely within our control may affect our ability
to qualify as a REIT. In addition, no assurance can be given that
legislation, new regulations, administrative interpretations or court decisions
will not significantly change the tax laws with respect to qualification as a
REIT or the federal income tax consequences of such qualification. If
we fail to quality as a REIT, we will be subject to federal, 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 or make
distributions in stock during 2009, 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 as currently is the case. 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 2009 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, 2009.
NAME
|
|
AGE
|
|
POSITION WITH THE
COMPANY
|
|
|
|
|
|
Fredric
H. Gould*
|
|
73
|
|
Chairman
of the Board
|
|
|
|
|
|
Patrick
J. Callan, Jr.
|
|
46
|
|
President,
Chief Executive Officer, and Director
|
|
|
|
|
|
Lawrence
G. Ricketts, Jr.
|
|
32
|
|
Executive
Vice President and Chief Operating Officer
|
|
|
|
|
|
Jeffrey
A. Gould*
|
|
43
|
|
Senior
Vice President and Director
|
|
|
|
|
|
Matthew
J. Gould*
|
|
49
|
|
Senior
Vice President and Director
|
|
|
|
|
|
David
W. Kalish
|
|
61
|
|
Senior
Vice President and Chief Financial Officer
|
|
|
|
|
|
Israel
Rosenzweig
|
|
61
|
|
Senior
Vice President
|
|
|
|
|
|
Mark
H. Lundy**
|
|
46
|
|
Senior
Vice President and Secretary
|
|
|
|
|
|
Simeon
Brinberg**
|
|
75
|
|
Senior
Vice President
|
|
|
|
|
|
Karen
Dunleavy
|
|
50
|
|
Vice
President, Financial
|
|
|
|
|
|
Alysa
Block
|
|
48
|
|
Treasurer
|
* 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.
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.
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.
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.
Alysa Block. Ms.
Block has been Treasurer of One Liberty Properties since June 2007, and served
as Assistant Treasurer from June 1997 to June 2007. Ms. Block also
serves as the Treasurer of BRT Realty Trust since March 2008, and served as its
Assistant Treasurer from March 1997 to March 2008.
As of
December 31, 2008, we owned 79 properties, three of which are vacant, three of
which are leased to a tenant in bankruptcy (which is liquidating its assets) and
one of which is a 50% tenancy in common interest, and participated in five joint
ventures that own five properties, one of which is vacant. The
properties owned by us and our joint ventures are suitable and adequate for
their current uses. The aggregate net book value of our 79 properties
was $387.5 million after taking into account impairment charges of $6 million
for the year ended December 31, 2008.
The
tables below set forth information as of December 31, 2008 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 2009
|
|
|
Approximate
|
|
|
|
Type of
|
|
Contractual
|
|
|
Building
|
|
Location
|
|
Property
|
|
Rental Income (1)
|
|
|
Square Feet
|
|
Baltimore,
MD
|
|
Industrial
|
|
|
5.6 |
% |
|
|
367,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Parsippany,
NJ
|
|
Office
|
|
|
4.7 |
|
|
|
106,680 |
|
|
|
|
|
|
|
|
|
|
|
|
Hauppauge,
NY
|
|
Flex
|
|
|
4.3 |
|
|
|
149,870 |
|
|
|
|
|
|
|
|
|
|
|
|
El
Paso, TX
|
|
Retail
|
|
|
3.8 |
|
|
|
110,179 |
|
|
|
|
|
|
|
|
|
|
|
|
St.
Cloud, MN
|
|
Industrial
|
|
|
3.8 |
|
|
|
338,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Hanover,
PA
|
|
Industrial
|
|
|
3.4 |
|
|
|
458,560 |
|
|
|
|
|
|
|
|
|
|
|
|
Plano,
TX
|
|
Retail
(2)
|
|
|
3.3 |
|
|
|
112,389 |
|
|
|
|
|
|
|
|
|
|
|
|
Los
Angeles, CA
|
|
Office
(3)
|
|
|
3.1 |
|
|
|
106,262 |
|
|
|
|
|
|
|
|
|
|
|
|
Greensboro,
NC
|
|
Theater
|
|
|
3.0 |
|
|
|
61,213 |
|
|
|
|
|
|
|
|
|
|
|
|
Brooklyn,
NY
|
|
Office
|
|
|
2.6 |
|
|
|
66,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Knoxville,
TN
|
|
Retail
|
|
|
2.6 |
|
|
|
35,330 |
|
|
|
|
|
|
|
|
|
|
|
|
Columbus,
OH
|
|
Retail
(2)
|
|
|
2.5 |
|
|
|
96,924 |
|
|
|
|
|
|
|
|
|
|
|
|
Plano,
TX
|
|
Retail
(4)
|
|
|
2.3 |
|
|
|
51,018 |
|
|
|
|
|
|
|
|
|
|
|
|
Philadelphia,
PA
|
|
Industrial
|
|
|
2.2 |
|
|
|
166,000 |
|
|
|
|
|
|
|
|
|
|
|
|
East
Palo Alto, CA
|
|
Retail
(5)
|
|
|
2.1 |
|
|
|
30,978 |
|
|
|
|
|
|
|
|
|
|
|
|
Tucker,
GA
|
|
Health
& Fitness
|
|
|
2.1 |
|
|
|
58,800 |
|
|
|
|
|
|
|
|
|
|
|
|
Ronkonkoma,
NY
|
|
Flex
|
|
|
1.8 |
|
|
|
89,500 |
|
|
|
|
|
|
|
|
|
|
|
|
Lake
Charles, LA
|
|
Retail
(6)
|
|
|
1.6 |
|
|
|
54,229 |
|
|
|
|
|
|
|
|
|
|
|
|
Manhattan,
NY
|
|
Residential
|
|
|
1.6 |
|
|
|
125,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Cedar
Park, TX
|
|
Retail
(2)
|
|
|
1.6 |
|
|
|
50,810 |
|
|
|
|
|
|
|
|
|
|
|
|
Grand
Rapids, MI
|
|
Health
& Fitness
|
|
|
1.4 |
|
|
|
130,000 |
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
of 2009
|
|
|
Approximate
|
|
|
|
Type of
|
|
Contractual
|
|
|
Building
|
|
Location
|
|
Property
|
|
Rental Income (1)
|
|
|
Square Feet
|
|
Ft.
Myers, FL
|
|
Retail
|
|
|
1.3 |
|
|
|
29,993 |
|
|
|
|
|
|
|
|
|
|
|
|
Chicago,
IL
|
|
Retail
(5)
|
|
|
1.3 |
|
|
|
23,939 |
|
|
|
|
|
|
|
|
|
|
|
|
Newark,
DE
|
|
Retail
(5)
|
|
|
1.3 |
|
|
|
23,547 |
|
|
|
|
|
|
|
|
|
|
|
|
Columbus,
OH
|
|
Industrial
|
|
|
1.2 |
|
|
|
100,220 |
|
|
|
|
|
|
|
|
|
|
|
|
Miami
Springs, FL
|
|
Retail
(5)
|
|
|
1.2 |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Kennesaw,
GA
|
|
Retail
(5)
|
|
|
1.2 |
|
|
|
32,052 |
|
|
|
|
|
|
|
|
|
|
|
|
Wichita,
KS
|
|
Retail
(2)
|
|
|
1.2 |
|
|
|
88,108 |
|
|
|
|
|
|
|
|
|
|
|
|
Atlanta,
GA
|
|
Retail
|
|
|
1.2 |
|
|
|
50,400 |
|
|
|
|
|
|
|
|
|
|
|
|
Naples,
FL
|
|
Retail
(5)
|
|
|
1.1 |
|
|
|
15,912 |
|
|
|
|
|
|
|
|
|
|
|
|
Athens,
GA
|
|
Retail
(7)
|
|
|
1.1 |
|
|
|
41,280 |
|
|
|
|
|
|
|
|
|
|
|
|
Saco,
ME
|
|
Industrial
|
|
|
1.1 |
|
|
|
91,400 |
|
|
|
|
|
|
|
|
|
|
|
|
Champaign,
IL
|
|
Retail
|
|
|
1.1 |
|
|
|
50,530 |
|
|
|
|
|
|
|
|
|
|
|
|
New
Hyde Park, NY
|
|
Industrial
|
|
|
1.1 |
|
|
|
38,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Greenwood
Village, CO
|
|
Retail
|
|
|
1.1 |
|
|
|
45,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Tyler,
TX
|
|
Retail
(2)
|
|
|
1.0 |
|
|
|
72,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Melville,
NY
|
|
Industrial
|
|
|
1.0 |
|
|
|
51,351 |
|
|
|
|
|
|
|
|
|
|
|
|
Cary,
NC
|
|
Retail
(5)
|
|
|
1.0 |
|
|
|
33,490 |
|
|
|
|
|
|
|
|
|
|
|
|
Mesquite,
TX
|
|
Retail
(2)
|
|
|
1.0 |
|
|
|
22,900 |
|
|
|
|
|
|
|
|
|
|
|
|
Fayetteville,
GA
|
|
Retail
(2)
|
|
|
1.0 |
|
|
|
65,951 |
|
|
|
|
|
|
|
|
|
|
|
|
Onalaska,
WI
|
|
Retail
|
|
|
1.0 |
|
|
|
63,919 |
|
|
|
|
|
|
|
|
|
|
|
|
Richmond,
VA
|
|
Retail
(2)
|
|
|
.9 |
|
|
|
38,788 |
|
|
|
|
|
|
|
|
|
|
|
|
Amarillo,
TX
|
|
Retail
(2)
|
|
|
.9 |
|
|
|
72,227 |
|
|
|
|
|
|
|
|
|
|
|
|
Virginia
Beach, VA
|
|
Retail
(2)
|
|
|
.9 |
|
|
|
58,937 |
|
|
|
|
|
|
|
|
|
|
|
|
Eugene,
OR
|
|
Retail
(5)
|
|
|
.8 |
|
|
|
24,978 |
|
|
|
|
|
|
|
|
|
|
|
|
Selden,
NY
|
|
Retail
|
|
|
.8 |
|
|
|
14,550 |
|
|
|
|
|
|
|
|
|
|
|
|
Pensacola,
FL
|
|
Retail
(5)
|
|
|
.8 |
|
|
|
22,700 |
|
|
|
|
|
|
|
|
|
|
|
|
Lexington,
KY
|
|
Retail
(2)
|
|
|
.8 |
|
|
|
30,173 |
|
|
|
|
|
|
|
|
|
|
|
|
El
Paso, TX
|
|
Retail
(5)
|
|
|
.8 |
|
|
|
25,000 |
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
of 2009
|
|
|
Approximate
|
|
|
|
Type of
|
|
Contractual
|
|
|
Building
|
|
Location
|
|
Property
|
|
Rental Income (1)
|
|
|
Square Feet
|
|
Duluth,
GA
|
|
Retail
(2)
|
|
|
.8 |
|
|
|
50,260 |
|
|
|
|
|
|
|
|
|
|
|
|
Grand
Rapids, MI
|
|
Health
& Fitness
|
|
|
.8 |
|
|
|
72,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Newport
News, VA
|
|
Retail
(2)
|
|
|
.7 |
|
|
|
49,865 |
|
|
|
|
|
|
|
|
|
|
|
|
Hyannis,
MA
|
|
Retail
|
|
|
.7 |
|
|
|
9,750 |
|
|
|
|
|
|
|
|
|
|
|
|
Batavia,
NY
|
|
Retail
(5)
|
|
|
.6 |
|
|
|
23,483 |
|
|
|
|
|
|
|
|
|
|
|
|
Gurnee,
IL
|
|
Retail
(2)
|
|
|
.6 |
|
|
|
22,768 |
|
|
|
|
|
|
|
|
|
|
|
|
Somerville,
MA
|
|
Retail
|
|
|
.6 |
|
|
|
12,054 |
|
|
|
|
|
|
|
|
|
|
|
|
Hauppauge,
NY
|
|
Retail
|
|
|
.6 |
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Bluffton,
SC
|
|
Retail
(2)
|
|
|
.6 |
|
|
|
35,011 |
|
|
|
|
|
|
|
|
|
|
|
|
Houston,
TX
|
|
Retail
|
|
|
.5 |
|
|
|
12,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Vicksburg,
MS
|
|
Retail
|
|
|
.4 |
|
|
|
2,790 |
|
|
|
|
|
|
|
|
|
|
|
|
Everett,
MA
|
|
Retail
|
|
|
.4 |
|
|
|
18,572 |
|
|
|
|
|
|
|
|
|
|
|
|
Killeen,
TX
|
|
Retail
|
|
|
.4 |
|
|
|
8,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Flowood,
MS
|
|
Retail
|
|
|
.4 |
|
|
|
4,505 |
|
|
|
|
|
|
|
|
|
|
|
|
Marston
Mills, MA
|
|
Retail
|
|
|
.4 |
|
|
|
8,775 |
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
.3 |
|
|
|
2,806 |
|
|
|
|
|
|
|
|
|
|
|
|
Vicksburg,
MS
|
|
Retail
|
|
|
.3 |
|
|
|
4,505 |
|
|
|
|
|
|
|
|
|
|
|
|
Rosenberg,
TX
|
|
Retail
|
|
|
.3 |
|
|
|
8,000 |
|
|
|
|
|
|
|
|
|
|
|
|
West
Palm Beach, FL
|
|
Industrial
|
|
|
.3 |
|
|
|
10,361 |
|
|
|
|
|
|
|
|
|
|
|
|
Seattle,
WA
|
|
Retail
|
|
|
.1 |
|
|
|
3,038 |
|
|
|
|
|
|
|
|
|
|
|
|
St.
Louis, MO
|
|
Retail
(8)
|
|
|
- |
|
|
|
30,772 |
|
|
|
|
|
|
|
|
|
|
|
|
Fairview
Heights, IL
|
|
Retail
(8)
|
|
|
- |
|
|
|
31,252 |
|
|
|
|
|
|
|
|
|
|
|
|
Florence,
KY
|
|
Retail
(8)
|
|
|
- |
|
|
|
31,252 |
|
|
|
|
|
|
|
|
|
|
|
|
Antioch,
TN
|
|
Retail
(8)
|
|
|
- |
|
|
|
34,059 |
|
|
|
|
|
|
|
|
|
|
|
|
Ferguson,
MO
|
|
Retail
(8)
|
|
|
- |
|
|
|
32,046 |
|
|
|
|
|
|
|
|
|
|
|
|
New
Hyde Park, NY
|
|
Industrial
(9)
|
|
|
- |
|
|
|
51,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
4,603,602 |
|
Properties
Owned by Joint Ventures (10)
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
of Our Share
|
|
|
|
|
|
|
|
|
of Rent Payable
|
|
|
Approximate
|
|
|
|
Type of
|
|
in 2009 to Our
|
|
|
Building
|
|
Location
|
|
Property
|
|
Joint Ventures
|
|
|
Square Feet
|
|
|
|
|
|
|
|
|
|
|
Lincoln,
NE
|
|
Retail
|
|
|
43.3 |
% |
|
|
112,260 |
|
|
|
|
|
|
|
|
|
|
|
|
Milwaukee,
WI
|
|
Industrial
|
|
|
40.4 |
|
|
|
927,685 |
|
|
|
|
|
|
|
|
|
|
|
|
Miami,
FL
|
|
Industrial
|
|
|
11.1 |
|
|
|
396,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Savannah,
GA
|
|
Retail
|
|
|
5.2 |
|
|
|
101,550 |
|
|
|
|
|
|
|
|
|
|
|
|
Savannah,
GA
|
|
Retail
(9)
|
|
|
- |
|
|
|
7,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
1,545,454 |
|
(1)
|
Percentage
of 2009 contractual rental income payable to us pursuant to leases as of
December 31, 2008, including rental income payable on our tenancy in
common interest and excluding any rental income from five properties
formerly leased by Circuit City.
|
(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 2009 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)
|
This
property is leased to a retail office supply
operator.
|
(6)
|
Property
has three tenants, of which approximately 43% is leased to a retail office
supply operator.
|
(7)
|
Property
has two tenants, of which approximately 48% is leased to a retail office
supply operator.
|
(8)
|
Property
was leased to Circuit City, which in 2008 rejected the leases for
properties located in Antioch, TN, and Ferguson, MO, both of which are
vacant. Circuit City rejected its remaining leases with us in
March 2009 for our properties located in St. Louis, MO, Fairview Heights,
IL and Florence, KY.
|
(10)
|
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.
|
The
occupancy rate for our properties (including the property in which we own a
tenancy in common interest and the five properties formerly leased to Circuit
City) based on total rentable square footage, was 97.5% and 100% as of December
31, 2008 and 2007. The occupancy rate for the properties owned by our joint
ventures, based on total rentable square footage, was approximately 99.5% and
98.9% as of December 31, 2008 and 2007, respectively.
As of December 31, 2008, the 79
properties owned by us and the five properties owned by our joint ventures are
located in 29 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, 2008.
Our
Properties
|
|
|
|
|
|
|
|
Approximate
|
|
|
|
Number of
|
|
|
2009 Contractual
|
|
|
Building
|
|
State
|
|
Properties
|
|
|
Rental Income
|
|
|
Square Feet
|
|
Texas
|
|
|
11 |
|
|
$ |
6,648,615 |
|
|
|
544,523 |
|
New
York
|
|
|
10 |
|
|
|
6,094,678 |
|
|
|
615,754 |
|
Georgia
|
|
|
6 |
|
|
|
3,103,938 |
|
|
|
298,743 |
|
Maryland
|
|
|
1 |
|
|
|
2,340,923 |
|
|
|
367,000 |
|
Pennsylvania
|
|
|
2 |
|
|
|
2,338,343 |
|
|
|
624,560 |
|
California
|
|
|
2 |
|
|
|
2,186,055 |
|
|
|
137,240 |
|
Florida
|
|
|
5 |
|
|
|
2,011,972 |
|
|
|
103,966 |
|
New
Jersey
|
|
|
1 |
|
|
|
1,981,581 |
|
|
|
106,680 |
|
North
Carolina
|
|
|
2 |
|
|
|
1,692,751 |
|
|
|
94,703 |
|
Minnesota
|
|
|
1 |
|
|
|
1,574,022 |
|
|
|
338,000 |
|
Ohio
|
|
|
2 |
|
|
|
1,572,080 |
|
|
|
197,144 |
|
Louisiana
|
|
|
5 |
|
|
|
1,301,690 |
|
|
|
128,489 |
|
Illinois
|
|
|
4 |
|
|
|
1,258,630 |
|
|
|
64,976 |
|
Tennessee
|
|
|
2 |
|
|
|
1,079,367 |
|
|
|
69,389 |
|
Other
|
|
|
25 |
|
|
|
6,768,441 |
|
|
|
912,435 |
|
|
|
|
79 |
|
|
$ |
41,953,086 |
|
|
|
4,603,602 |
|
Properties
Owned by Joint Ventures
|
|
|
|
|
Our Share
|
|
|
|
|
|
|
|
|
|
of Rent Payable
|
|
|
Approximate
|
|
|
|
Number of
|
|
|
in 2009 to Our
|
|
|
Building
|
|
State
|
|
Properties
|
|
|
Joint Ventures
|
|
|
Square Feet
|
|
Nebraska
|
|
|
1 |
|
|
$ |
603,594 |
|
|
|
112,260 |
|
Wisconsin
|
|
|
1 |
|
|
|
562,500 |
|
|
|
927,685 |
|
Florida
|
|
|
1 |
|
|
|
154,488 |
|
|
|
396,000 |
|
Georgia
|
|
|
2 |
|
|
|
72,188 |
|
|
|
109,509 |
|
|
|
|
5 |
|
|
$ |
1,392,770 |
|
|
|
1,545,454 |
|
At
December 31, 2008, we had first mortgages on 61 of the 79 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, 2008, we had
approximately $225.5 million of mortgage loans outstanding, bearing interest at
rates ranging from 5.44% to 8.8%. Substantially all of our mortgage
loans contain prepayment penalties. The following table sets forth
scheduled principal mortgage payments due for our properties as of December 31,
2008, and assumes no payment is made on principal on any outstanding mortgage in
advance of its due date:
|
|
PRINCIPAL PAYMENTS DUE
|
|
|
|
IN YEAR INDICATED
|
|
YEAR
|
|
(Amounts in Thousands)
|
|
2009
|
|
$ |
18,869 |
|
2010
|
|
|
22,532 |
|
2011
|
|
|
8,816 |
|
2012
|
|
|
37,806 |
|
2013
|
|
|
19,036 |
|
2014
and thereafter
|
|
|
118,455 |
|
Total
|
|
$ |
225,514 |
|
Included
in 2009 is a $8.7 million non-recourse mortgage which is secured and cross
collateralized by the five Circuit City properties. The Company has
not made any payments on this mortgage since December 1, 2008 and has entered
into negotiations with representatives of the mortgagee relating to possible
modifications of the mortgage. The mortgage is due in
2014.
At December 31, 2008, our joint
ventures had first mortgages on three properties with outstanding balances of
approximately $18.3 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, 2008, and assumes no payment is made on principal on any outstanding
mortgage in advance of its due date:
|
|
PRINCIPAL PAYMENTS DUE
|
|
|
|
IN YEAR INDICATED
|
|
YEAR
|
|
(Amounts in Thousands)
|
|
2009
|
|
$ |
435 |
|
2010
|
|
|
462 |
|
2011
|
|
|
490 |
|
2012
|
|
|
520 |
|
2013
|
|
|
552 |
|
2014
and thereafter
|
|
|
15,882 |
|
Total
|
|
$ |
18,341 |
|
Significant
Tenants
As of
December 31, 2008, 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,
2008.
Haverty
Furniture Companies, Inc.
As of
December 31, 2008, we owned a portfolio of eleven properties leased under a
master lease to Haverty Furniture Companies, Inc., which properties had a net
book value equal to 13.6% of our depreciated book value of real estate
investments, and revenues which accounted for 12% of our aggregate annual gross
revenues in the year ended December 31, 2008. 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 contain buildings with an aggregate of approximately 612,130 square
feet.
The
properties are net leased to Haverty Furniture Companies, Inc. pursuant to a
master lease, which expires on August 14, 2022. Haverty Furniture
Companies, Inc. is a New York Stock Exchange listed company and operates over
100 showrooms in 17 states. The master lease provides for a current base
rent of $4,310,000 per annum (which accounts for 10.3% of our 2009 contractual
rental income), increasing on August 15, 2012 and every five years thereafter
and provides the tenant with certain renewal options. Pursuant to the
master lease, the tenant is responsible for maintenance and repairs, and for
real estate taxes and assessments on the properties. The 2008 annual real
estate taxes on the properties aggregated $800,000. The tenant
utilizes approximately 86% of the properties for retail and 14% for
warehouse.
The
mortgage loan, which our subsidiary, OLP Havertportfolio L.P.
assumed when it acquired these eleven properties in 2006, is secured by
mortgages/deeds of trust on all such properties in the principal amount of
approximately $25.4 million at December 31, 2008. 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 only contractual
payments are made on the principal amount of the mortgage loan, the principal
balance due on the maturity date will be approximately $23 million.
Although the mortgage loan provides for defeasance, it is generally not
prepayable until 90 days prior to the maturity date.
Office
Depot, Inc.
As of
December 31, 2008, we owned a portfolio of ten properties, each of which is
subject to a lease with Office Depot, Inc. We purchased eight of
these properties on September 26, 2008. The ten Office Depot, Inc.
properties have a net book value equal to 12.6% of our depreciated book value of
real estate investments, accounted for 3.8% of our 2008 rental income and will
account for 10.6% of our 2009 contractual rental income. Of the ten
properties, two are located in each of Florida and Georgia, and one is located
in each of California, Illinois, Louisiana, North Carolina, Oregon and
Texas. The properties contain buildings with an aggregate of
approximately 261,678 square feet.
Each
property is subject to a separate lease. Eight of the leases contain
cross-default provisions, expire on September 30, 2018, and provide the tenant
with four five-year renewal options. One lease expires on June 30,
2013 and provides the tenant with three five-year renewal options, and one lease
expires on February 28, 2014 and provides the tenant with four five-year renewal
options. Office Depot, Inc. is a New York Stock Exchange listed
company and operates over 1,700 worldwide retail stores. The ten
leases provide for an aggregate current base rent of $4,435,000. The
lease rent for eight of the properties increases every five years by
10%. The lease rent for one property increases by 5% every five years
and the lease rent for one property increases by $20,000 every five
years. Pursuant to the leases, the tenant is responsible for
maintenance and repairs, and for real estate taxes and assessments on the
properties. The 2008 annual real estate taxes on the properties
aggregated $666,000.
Item
3.
|
Legal
Proceedings
|
None.
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 2008 and for 2007 and the per share cash
distributions declared on our common stock during each quarter of the years
ended December 31, 2008 and 2007.
|
|
|
|
|
|
|
|
CASH
|
|
|
|
|
|
|
|
|
|
DISTRIBUTION
|
|
2008
|
|
HIGH
|
|
|
LOW
|
|
|
PER SHARE
|
|
First
Quarter
|
|
$ |
18.73 |
|
|
$ |
15.45 |
|
|
$ |
.36 |
|
Second
Quarter
|
|
$ |
17.95 |
|
|
$ |
16.01 |
|
|
$ |
.36 |
|
Third
Quarter
|
|
$ |
19.32 |
|
|
$ |
15.20 |
|
|
$ |
.36 |
|
Fourth
Quarter
|
|
$ |
18.15 |
|
|
$ |
6.35 |
|
|
$ |
.22 |
|
|
|
|
|
|
|
|
|
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 |
|
* Includes a regular cash
dividend of $.36 per share and a special cash distribution of $.67 per
share.
As of
March 3, 2009, there were 337 common stockholders of record and we estimate that
at such date there were approximately 3,500 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 stockholders at least
90% of our annual ordinary taxable income. The amount and timing of
future distributions will be at the discretion of our Board of Directors and
will depend upon our financial condition, earnings, business plan, cash flow and
other factors. We intend to make 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, 2003 in our common stock and assumes the reinvestment of
dividends.
|
|
Period Ending
|
|
Index
|
|
12/31/03
|
|
|
12/31/04
|
|
|
12/31/05
|
|
|
12/31/06
|
|
|
12/31/07
|
|
|
12/31/08
|
|
One
Liberty Properties, Inc.
|
|
|
100.00 |
|
|
|
111.08 |
|
|
|
105.54 |
|
|
|
153.29 |
|
|
|
123.50 |
|
|
|
64.81 |
|
S&P
500
|
|
|
100.00 |
|
|
|
110.88 |
|
|
|
116.33 |
|
|
|
134.70 |
|
|
|
142.10 |
|
|
|
89.53 |
|
NAREIT
Equity Index
|
|
|
100.00 |
|
|
|
131.58 |
|
|
|
147.58 |
|
|
|
199.32 |
|
|
|
168.05 |
|
|
|
104.65 |
|
Source
: SNL Financial LC, Charlottesville, VA
©
2009
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, 2008:
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
|
Number of
|
|
|
|
|
|
remaining available
|
|
|
|
securities
|
|
|
|
|
|
for future issuance
|
|
|
|
to be issued
|
|
|
Weighted-
|
|
|
under equity
|
|
|
|
upon exercise
|
|
|
average
|
|
|
compensation
|
|
|
|
of outstanding
|
|
|
exercise price
|
|
|
plans (excluding
|
|
|
|
options,
|
|
|
of outstanding
|
|
|
securities
|
|
|
|
warrants and
|
|
|
options, warrants
|
|
|
reflected in
|
|
Plan Category
|
|
rights
|
|
|
and rights
|
|
|
column(a))
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity
compensation plans approved by security holders (1)
|
|
|
- |
|
|
|
- |
|
|
|
31,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
- |
|
|
|
- |
|
|
|
31,925 |
|
(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. Please see note 8 to
our Consolidated Financial Statements for a description of our 2003 Stock
Incentive Plan.
Purchase
of Securities
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 fourth
quarter of 2008:
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, 2008-October
31, 2008
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November
1, 2008-November
30, 2008
|
|
|
32,164 |
|
|
$ |
8.19 |
|
|
|
32,164 |
|
|
|
467,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
1, 2008-December
31, 2008
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
467,836 |
|
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, 2008 should be read together
with our consolidated financial statements and related notes appearing elsewhere
in this Annual Report on Form 10-K and in “Management’s Discussion and Analysis
of Financial Condition and Results of Operations”, below, where this data is
discussed in more detail.
|
|
As
of and for the Year Ended
|
|
|
|
December
31
|
|
|
|
(Amounts
in Thousands, Except Per Share Data)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
OPERATING DATA (Note
a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
revenues
|
|
$ |
40,341 |
|
|
$ |
38,149 |
|
|
$ |
33,370 |
|
|
$ |
27,232 |
|
|
$ |
20,833 |
|
Impairment
charge
|
|
|
5,983 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Equity
in earnings (loss) of unconsolidated joint ventures (Note
b)
|
|
|
622 |
|
|
|
648 |
|
|
|
(3,276 |
) |
|
|
2,102 |
|
|
|
2,869 |
|
Gain
on dispositions of real estate of unconsolidated joint
ventures
|
|
|
297 |
|
|
|
583 |
|
|
|
26,908 |
|
|
|
- |
|
|
|
- |
|
Net
gain on sale of unimproved land, air rights and other
gains
|
|
|
1,830 |
|
|
|
- |
|
|
|
413 |
|
|
|
10,248 |
|
|
|
73 |
|
Income
from continuing operations
|
|
|
4,892 |
|
|
|
10,217 |
|
|
|
31,882 |
|
|
|
19,182 |
|
|
|
7,733 |
|
Income
from discontinued operations
|
|
|
- |
|
|
|
373 |
|
|
|
4,543 |
|
|
|
2,098 |
|
|
|
3,241 |
|
Net
income
|
|
|
4,892 |
|
|
|
10,590 |
|
|
|
36,425 |
|
|
|
21,280 |
|
|
|
10,974 |
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,183 |
|
|
|
10,069 |
|
|
|
9,931 |
|
|
|
9,838 |
|
|
|
9,728 |
|
Diluted
|
|
|
10,183 |
|
|
|
10,069 |
|
|
|
9,934 |
|
|
|
9,843 |
|
|
|
9,744 |
|
Net
income per common share – basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
.48 |
|
|
$ |
1.01 |
|
|
$ |
3.21 |
|
|
$ |
1.95 |
|
|
$ |
.80 |
|
Income
from discontinued operations
|
|
|
- |
|
|
|
.04 |
|
|
|
.46 |
|
|
|
.21 |
|
|
|
.33 |
|
Net
income
|
|
$ |
.48 |
|
|
$ |
1.05 |
|
|
$ |
3.67 |
|
|
$ |
2.16 |
|
|
$ |
1.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
distributions per share of common stock (Note c)
|
|
$ |
1.30 |
|
|
$ |
2.11 |
|
|
$ |
1.35 |
|
|
$ |
1.32 |
|
|
$ |
1.32 |
|
|
|
As
of and for the Year Ended
|
|
|
|
December
31
|
|
|
|
(Amounts
in Thousands, Except Per Share Data)
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
BALANCE SHEET
DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate investments, net
|
|
$ |
387,456 |
|
|
$ |
344,042 |
|
|
$ |
351,841 |
|
|
$ |
258,122 |
|
|
$ |
228,536 |
|
Investment
in unconsolidated joint ventures
|
|
|
5,857 |
|
|
|
6,570 |
|
|
|
7,014 |
|
|
|
27,335 |
|
|
|
37,023 |
|
Cash
and cash equivalents
|
|
|
10,947 |
|
|
|
25,737 |
|
|
|
34,013 |
|
|
|
26,749 |
|
|
|
6,051 |
|
Total
assets
|
|
|
429,105 |
|
|
|
406,634 |
|
|
|
422,037 |
|
|
|
330,583 |
|
|
|
284,386 |
|
Mortgages
and loan payable
|
|
|
225,514 |
|
|
|
222,035 |
|
|
|
227,923 |
|
|
|
167,472 |
|
|
|
124,019 |
|
Line
of credit
|
|
|
27,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,600 |
|
Total
liabilities
|
|
|
265,130 |
|
|
|
235,395 |
|
|
|
241,912 |
|
|
|
175,064 |
|
|
|
138,271 |
|
Total
stockholders' equity
|
|
|
163,975 |
|
|
|
171,239 |
|
|
|
180,125 |
|
|
|
155,519 |
|
|
|
146,115 |
|
OTHER
DATA (Note
d)
Funds
from operations
|
|
$ |
13,952 |
|
|
$ |
18,645 |
|
|
$ |
13,707 |
|
|
$ |
26,658 |
|
|
$ |
16,789 |
|
Funds
from operations per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.37 |
|
|
$ |
1.85 |
|
|
$ |
1.38 |
|
|
$ |
2.71 |
|
|
$ |
1.73 |
|
Diluted
|
|
$ |
1.37 |
|
|
$ |
1.85 |
|
|
$ |
1.38 |
|
|
$ |
2.71 |
|
|
$ |
1.72 |
|
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: 2007 includes a special cash distribution of $.67 per
share.
Note
d: 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. 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, 2008.
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Net
income (Note 1)
|
|
$ |
4,892 |
|
|
$ |
10,590 |
|
|
$ |
36,425 |
|
|
$ |
21,280 |
|
|
$ |
10,974 |
|
Add:
depreciation of properties
|
|
|
8,971 |
|
|
|
8,248 |
|
|
|
7,091 |
|
|
|
5,905 |
|
|
|
4,758 |
|
Add:
our share of depreciation in unconsolidated joint
ventures
|
|
|
322 |
|
|
|
329 |
|
|
|
716 |
|
|
|
1,277 |
|
|
|
1,075 |
|
Add:
amortization of deferred leasing costs
|
|
|
64 |
|
|
|
61 |
|
|
|
43 |
|
|
|
101 |
|
|
|
55 |
|
Deduct:
gain on sale of real estate
|
|
|
- |
|
|
|
- |
|
|
|
(3,660 |
) |
|
|
(1,905 |
) |
|
|
(73 |
) |
Deduct:
gain on dispositions of real estate of unconsolidated joint
ventures
|
|
|
(297 |
) |
|
|
(583 |
) |
|
|
(26,908 |
) |
|
|
- |
|
|
|
- |
|
Funds
from operations (Note 1)
|
|
$ |
13,952 |
|
|
$ |
18,645 |
|
|
$ |
13,707 |
|
|
$ |
26,658 |
|
|
$ |
16,789 |
|
Note
1: For the year ended December 31, 2008, net income and funds from
operations (FFO) is after $6 million of impairment charges. For the
year ended December 31, 2006, net income and 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.
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (Note 2)
|
|
$ |
.48 |
|
|
$ |
1.05 |
|
|
$ |
3.67 |
|
|
$ |
2.16 |
|
|
$ |
1.13 |
|
Add:
depreciation of properties
|
|
|
.88 |
|
|
|
.82 |
|
|
|
.71 |
|
|
|
.60 |
|
|
|
.49 |
|
Add:
our share of depreciation in unconsolidated joint ventures
|
|
|
.03 |
|
|
|
.03 |
|
|
|
.07 |
|
|
|
.13 |
|
|
|
.11 |
|
Add:
amortization of deferred leasing costs
|
|
|
.01 |
|
|
|
.01 |
|
|
|
.01 |
|
|
|
.01 |
|
|
|
- |
|
Deduct:
gain on sale of real estate
|
|
|
- |
|
|
|
- |
|
|
|
(.37 |
) |
|
|
(.19 |
) |
|
|
(.01 |
) |
Deduct:
gain on dispositions of real estate of unconsolidated joint
ventures
|
|
|
(.03 |
) |
|
|
(.06 |
) |
|
|
(2.71 |
) |
|
|
- |
|
|
|
- |
|
Funds
from operations (Note 2)
|
|
$ |
1.37 |
|
|
$ |
1.85 |
|
|
$ |
1.38 |
|
|
$ |
2.71 |
|
|
$ |
1.72 |
|
Note
2: For the year ended December 31, 2008, net income and FFO is after
$.59 of impairment charges. For the year ended December 31, 2006, net
income and FFO is after $.53, our share of the mortgage prepayment premium
expense. For the year ended December 31, 2005, net income and FFO
include $1.04 from the gain on sale of air rights. See Note 1
above.
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
General
We are a
self-administered and self-managed REIT. We primarily own real estate
that we net lease to tenants. As of December 31, 2008, we owned 79
properties, three of which are vacant, and one of which is a 50% tenancy in
common interest, and participated in five joint ventures that own five
properties, one of which is vacant. These properties are located in
29 states.
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.
At
December 31, 2008, excluding mortgages payable of our unconsolidated joint
ventures, we had 40 outstanding mortgages payable, aggregating $225.5 million in
principal amount, all of which are secured by first liens on individual real
estate investments with an aggregate carrying value of approximately $362
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
2008, the national economic recession resulted in, among other things, increased
unemployment, and caused a significant decline in consumer confidence, which has
dramatically reduced consumer spending on retail goods. This affected
us and our retail tenants in the following respects:
|
·
|
Circuit
City, a retail tenant which 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. The five properties formerly leased
to Circuit City accounted for 2.3% of our 2008 annual rental
revenues.
|
|
·
|
We
recorded an impairment charge of approximately $6 million against four
properties for the year ended December 31, 2008, including three
properties formerly leased to Circuit City. An analysis was
performed and we determined that two of the properties leased to Circuit
City at December 2008, which leases were rejected in March 2009, did not
require an impairment charge for the year ended December 31,
2008. The impairment charge for each affected property is equal
to the difference between the net book value, including intangibles, and
the present value of discounted cash flows of the properties based upon
certain valuation assumptions. At December 31, 2008, we had a
non-recourse mortgage with an outstanding balance of $8.7 million secured
by five properties for which Circuit City rejected our
leases. We have not made any payments on this mortgage since
December 1, 2008 and have entered into negotiations with representatives
of the mortgagee relating to possible modifications of the
mortgage. After taking into account the impairment charge, our
book value for these five properties is $8.3
million;
|
|
·
|
We
wrote-off or recorded accelerated amortization on an aggregate of $332,000
of unbilled “straight line” rent receivable for six retail properties,
including five properties formerly leased by Circuit City which resulted
in a decrease in our rental revenues for the year ended December 31, 2008;
and
|
|
·
|
Our
quarterly distribution was reduced by 39% from $.36 in October 2008 to
$.22 in January 2009.
|
Our
rental income from our retail tenants will account for 55% of our 2009
contractual rental revenues, including 19% which is from furniture stores and
14% from office supply stores. Two retail tenants in the office
supply and furniture business represent an aggregate of 10.6% and 10.3% of our
2009 contractual rental revenues.
If
economic conditions in the United States do not stabilize in 2009, we will
likely experience additional tenant defaults, delinquencies and delays in
payments and lease renegotiations, which could cause a decline in our rental
revenues. In addition, since the economy has also sustained a crisis
in the commercial real estate market and in the commercial banking system, the
value of properties that we hold or seek to sell could decline. As a
result, we may recognize additional impairment charges and losses on property
sales. Also, our operating expenses will increase as we maintain and
improve vacant properties. Moreover, our ability to refinance
existing indebtedness and to secure additional funds from unencumbered
properties may also be limited due to the liquidity constraints in the credit
markets.
Comparison
of Years Ended December 31, 2008 and December 31, 2007
Rental
Revenues
Rental revenues. Rental
revenues increased by $2.2 million, or 5.7%, to $40.3 million for the year ended
December 31, 2008, from $38.1 million for the year ended December 31,
2007. The increase in rental revenues is substantially due to rental
revenues of $1.7 million earned during the year ended December 31, 2008 on
twelve properties acquired by us during 2008. The increase in 2008
rental income as compared to 2007 also resulted from a $253,000 write off of the
intangible lease liability related to a property where we directly assumed in
December 2008 the sublease for a property leased by us to Circuit City and
subleased by Circuit City to a furniture retailer. Additionally, in
2008 and 2007, we wrote off the entire balance of unbilled rent receivable
relating to several properties.
Operating
Expenses
Depreciation and amortization
expense. Depreciation and amortization expense increased by $723,000, or
8.8%, to $9 million for the year ended December 31, 2008, from $8.2 million for
the year ended December 31, 2007. The increase was primarily due to
depreciation and amortization of $370,000 on eleven properties acquired between
January and September 2008. The increase also was due to a $196,000
increase in depreciation in 2008 on a property which had been classified as
“held for sale” with no depreciation taken during the second half of
2007. Normal and “catch-up”depreciation on such property resumed in
2008. The increase also resulted from accelerated amortization of
tenant origination costs of $161,000 principally relating to the two properties
vacated by Circuit City in 2008 and the three properties leased to Circuit City
at December 31, 2008.
General and administrative expenses.
General and administrative expenses increased by $78,000, or 1.2%, to
$6.5 million for the year ended December 31, 2008, from $6.4 million for the
year ended December 31, 2007. The increase is due to a number of
factors including: (i) a $133,000 increase in payroll and payroll related
expenses for full-time employees; (ii) a $105,000 increase in professional fees
incurred in connection with civil litigations commenced by us as plaintiff,
arising out of the activities of our former president and chief executive
officer; and (iii) a $62,000 increase in compensation expenses related to the
amortization of restricted stock awards. These increases were offset by: (a) a
$100,000 decrease paid under the Compensation and Services Agreement, described
below; (b) a $64,000 decrease in state tax expense and (c) miscellaneous
decreases in accounting, legal and director fees.
Included
in general and administrative expenses for the years ended December 31, 2008 and
2007 was $2.19 million and $2.29 million, respectively, of expenses incurred
pursuant to a compensation and services agreement which became effective January
1, 2007, entered into between us and Majestic Property Management Corp., an
affiliated entity. Under the compensation and services agreement,
Majestic Property Management Corp. 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 executive, administrative,
legal, accounting and clerical personnel that we use on a part-time
basis. Accordingly, we no longer allocate direct office overhead or
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. We do not incur any fees or
expenses for such services, other than the annual fee to Majestic Property
Management Corp., which was $2,025,000 (before offsets provided for in the
agreement) in 2008, plus $175,000 as our share of direct office
overhead.
Impairment
charge. During the year ended December 31, 2008, we recorded
an impairment charge of approximately $6 million relating to four
properties. A charge of $5.2 million was recorded relating to three
of our Circuit City properties and $752,000 was related to a retail furniture
property. Circuit City rejected leases for two of the properties in
December 2008 and rejected the lease for the third property in March
2009. We performed an analysis and have determined that the other two
properties leased to Circuit City which were rejected in March 2009, do not at
this time require an impairment charge. Although the retail furniture
property has been vacant, the tenant is current in its rent
payments. There was no impairment charge recorded in the year ended
December 31, 2007.
Real estate expenses.
Real estate
expenses increased by $392,000, or 134%, to $685,000 for the year ended December
31, 2008, from $293,000 for the year ended December 31, 2007, resulting
primarily from real estate taxes for the five properties formerly leased by
Circuit City. Real estate expenses for the year ended December 31,
2008 also include real estate taxes for two of our other properties, including a
vacant property.
Other
Income and Expenses
Gain on dispositions of real estate
of unconsolidated joint ventures. In the years ended December 31, 2008
and 2007, two of our joint ventures each sold a vacant property and we
recognized gains on sale of $297,000 and $583,000, respectively.
Interest and other income.
Interest and other income decreased by $1.2 million, or 70%, to $533,000
for the year ended December 31, 2008, from $1.8 million for the year ended
December 31, 2007. Due to the current credit crisis, interest rates
have been steadily declining over the past several quarters resulting in a
decrease in the income we earn on our investment in short-term cash
equivalents. In addition, we had less cash available for investment
after we paid a special distribution of $6.7 million to our stockholders in
October 2007 and purchased nine properties in September 2008. Also
contributing to the decrease in interest and other income was the inclusion of a
$118,000 gain on the sale of available-for-sale securities in the year ended
December 31, 2007. We did not have a similar sale of securities in
2008.
Interest expense. Interest
expense increased by $714,000, or 4.8%, to $15.6 million for the year ended
December 31, 2008, from $14.9 million for the year ended December 31, 2007. This
increase was primarily the result of a $650,000 decrease in fair value of an
interest rate swap that we entered into in connection with a mortgage placed on
a property in November 2008. The increase was also due to interest
expense on this mortgage and on fixed rate mortgages placed on three properties
between August 2007 and September 2008, and the assumption of two fixed rate
mortgages in connection with the purchase of two properties in January and
February 2008. In addition, at the end of September 2008, we borrowed
$34 million under our line of credit which was applied to the purchase of eight
Office Depot 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. Accordingly, interest expense relating to our line of
credit increased by $360,000 during the year ended December 31,
2008. These increases were offset from the payoff in full of two
mortgage loans, as well as from the monthly principal amortization of other
mortgages.
Gain on sale of excess unimproved
land. During the year ended December 31, 2008, we sold five
acres of excess land that we acquired as part of the purchase of a flex building
in 2000 and recognized a gain of $1.8 million. There was no such gain
in the year ended December 31, 2007.
Comparison
of Years Ended December 31, 2007 and December 31, 2006
Rental
Revenues
Rental
revenues. Rental revenues increased by $4.8 million, or 14.3%,
to $38.1 million for the year ended December 31, 2007, from $33.3 million for
the year ended December 31, 2006. The increase in rental revenues was
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. Depreciation and amortization expense increased by
$1.3 million, or 17.9%, to $8.2 million for the year ended December 31, 2007,
from $7 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. 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) a $135,000 increase in payroll and
payroll related expenses of full-time employees; (ii) a $310,000 increase in
compensation expenses related to the amortization of restricted stock awards;
(iii) a $200,000 increase (from $50,000 to $250,000) in the compensation paid to
the chairman of our Board of Directors; and (iv) a $228,000 increase 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 the compensation and services
agreement. In consideration of taking over our obligations under the
shared services agreement and providing the services set forth in the
compensation and services agreement, we agreed to pay Majestic Property
Management Corp. a fee in 2007 of $2,125,000 (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
Equity in earnings (loss) of
unconsolidated joint ventures. 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
impairment charge 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 impairment charge, 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. 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.
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 resulted 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 was a
$118,000 gain on sale of available-for-sale securities.
Interest expense. 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 ten properties in
the year ended December 31, 2006, and the assumption of a fixed rate mortgage in
connection with the purchase of eleven 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. Amortization of deferred financing costs increased by $43,000, or
7.2%, to $638,000 for the year ended December 31, 2007. The increase
is due to 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.
Gain on sale. In
July 2006, we sold excess acreage at a property we owned 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. Income from discontinued operations
decreased by $4.2 million, or 92%, to $373,000 for the year ended December 31,
2007, from $4.5 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.
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 December 31, 2008 was approximately $46.4 million, including $10.9 million of
cash and cash equivalents and $35.5 million of available liquidity under our
revolving credit facility. Our business model includes the continued
borrowing of funds against our portfolio of properties and the refinancing of
existing debt. With the tightening of liquidity by lending
institutions, we have found that it is increasingly difficult to identify
funding sources. As a result, our ability to make new property
acquisitions or increase liquidity will be limited. We have not made
any payments since December 1, 2008 on the $8.7 million non-recourse mortgage
secured by our five properties formerly leased to Circuit City.
Short-Term
Liquidity and Financing
We expect
to meet our short-term liquidity requirements generally through our cash and
cash equivalents and cash provided by operating activities and, to the extent we
make a new property acquisition, from our revolving credit
facility. To the extent our cash flow from operating activities is
insufficient to finance property acquisitions, we will need to finance property
acquisitions through borrowings under our credit facility, and thereafter, to
seek long-term fixed rate mortgages for such properties.
As a
result of the current economic environment and the uncertainty in the credit
markets, it is difficult and/or expensive to secure financing upon reasonable
terms, if at all. In addition, the credit markets may make it
difficult and/or expensive to repay or satisfy our existing debt. All
of our requests for draws under our credit facility have been satisfied to
date. However, in view of the current uncertainties, we have adopted
a conservative acquisition strategy and will likely make few, if any,
acquisitions in the near term.
Long-Term
Liquidity and Financing
We expect
to meet our long term liquidity requirements through existing cash resources,
proceeds from debt, including under a credit facility and mortgages (including
refinances) on our properties, and if required, the liquidation of our
properties. We believe that the value of our portfolio is, and will
continue to be, sufficient to allow us to refinance the mortgage debt on it at
maturity and repay all indebtedness we owe under our credit
facility.
Our
current credit facility matures on March 31, 2010. Our ability to
meet our long term liquidity requirements is subject to securing an extension on
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 or deterioration of the
current economic recession, our compliance with the terms of our existing credit
facility, our financial performance, industry or 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. We expect that the terms of a new facility will be less favorable
than our existing facility.
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. As of December 31, 2008 and March 13, 2009, there was $27
million outstanding under the facility.
Contractual
Obligations
The
following sets forth our contractual cash obligations as of December 31, 2008,
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than
|
|
Contractual Obligations
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
5 Years
|
|
Mortgages
payable – interest and amortization
|
|
$ |
122,037 |
|
|
$ |
19,514 |
|
|
$ |
35,220 |
|
|
$ |
29,329 |
|
|
$ |
37,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages
payable – balances due at maturity
|
|
|
179,531 |
|
|
|
13,426 |
(a) |
|
|
20,044 |
|
|
|
46,269 |
|
|
|
99,792 |
|
Total
|
|
$ |
301,568 |
|
|
$ |
32,940 |
|
|
$ |
55,264 |
|
|
$ |
75,598 |
|
|
$ |
137,766 |
|
Note (a):
Included is an $8.7 million non-recourse mortgage for which we have not made any
payments since December 1, 2008. The mortgage is secured and cross
collateralized by the five Circuit City properties. We have entered into
negotiations with representatives of the mortgagee relating to possible
modifications of the mortgage. This mortgage is scheduled to mature
on December 14, 2014.
As of
December 31, 2008, we had outstanding approximately $225.5 million in long-term
mortgage indebtedness (excluding mortgage indebtedness of our unconsolidated
joint ventures), all of which is non-recourse (subject to standard
carve-outs). We expect that debt service payments of approximately
$54.7 million due in the next three years will be paid primarily from cash
generated from our operations. We anticipate that loan maturities of
approximately $24.6 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
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
5 Years
|
|
$ |
3,748,976
|
|
$ |
262,240 |
|
|
$ |
296,875 |
|
|
$ |
296,875 |
|
|
$ |
296,875 |
|
|
$ |
296,875 |
|
|
$ |
2,299,236 |
|
We had no
outstanding contingent commitments, such as guarantees of indebtedness, or any
other contractual cash obligations at December 31, 2008.
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 in stock (under Revenue Procedure 2008-68) or cash. 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 distributions to stockholders in order for us to
maintain our REIT status under the Internal Revenue Code.
Our board
has determined that, in view of the economic environment, we should conserve our
capital. As a result, the quarterly dividend paid in January 2009 was
reduced from $.36 per share to $.22 per share. Our board of directors
will review the dividend policy at each regularly scheduled quarterly board
meeting to determine if any further reductions to our dividend should be
made.
Off-Balance Sheet
Arrangements
None.
Critical
Accounting Policies
Our
significant accounting policies are more fully described in Note 2 to our
Consolidated Financial Statements, provided in this annual report on Form
10-K. 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 critical accounting policies
include the following, discussed below.
Purchase
Accounting for Acquisition of Real Estate
The fair
value of real estate acquired is allocated to 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. We assess fair value of the lease intangibles based on
estimated cash flow projections that utilize appropriate discount rates and
available market information. 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
and the financial condition of the tenant. In the event that the
collectability of an unbilled rent receivable is in doubt, we are required to
take a reserve against the receivable or a direct write off of the receivable,
which has an adverse affect on net income for the year in which the reserve or
direct write off is taken, and will 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 are any
indicators of 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 an impairment charge. 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, if the undiscounted cash flow analysis
yields an amount which is less than the asset’s carrying amount, an impairment
loss is recorded to the extent that the estimated fair value exceeds the asset’s
carrying amount. The estimated fair value is determined using a
discounted cash flow model of the expected future cash flows through the useful
life of the property. 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. We generally do not obtain any
independent appraisals in determining value but rely on our own analysis and
valuations. Any impairment charge 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 any impairment charge, but it will not
affect our cash flow or our distributions until such time as we dispose of the
property.
Item
7A.
|
Qualitative and
Quantitative 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
agreement. 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
December 31, 2008, we had one interest rate swap agreement outstanding that has
a notional value of $10.7 million. As of December 31, 2007 and 2006,
we had no interest rate swap agreements outstanding. 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 December 31, 2008, if
there had been a 50 basis point increase in forward interest rates, the fair
market value of the interest rate swap would have increased by approximately
$165,000. 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 $275,000.
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, it 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 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 net
income of $270,000 and a 1% decrease would cause an increase in net income of
$270,000 based on the $27 million outstanding on our credit facility at December
31, 2008.
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,
2008 (amounts in thousands):
|
|
For the Year Ended December
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There-
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
after
|
|
|
Total
|
|
|
FMV
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
term debt
(Note
1)
|
|
$ |
18,869 |
|
|
$ |
22,532 |
|
|
$ |
8,816 |
|
|
$ |
37,806 |
|
|
$ |
19,036 |
|
|
$ |
118,455 |
|
|
$ |
225,514 |
|
|
$ |
228,014 |
|
Weighted
average interest rate
|
|
|
6.52 |
% |
|
|
6.42 |
% |
|
|
6.37 |
% |
|
|
6.37 |
% |
|
|
6.29 |
% |
|
|
6.27 |
% |
|
|
6.33 |
% |
|
|
6.25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
term debt
(Note
2)
|
|
|
- |
|
|
$ |
27,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
27,000 |
|
|
$ |
27,000 |
|
Note 1:
Included in 2009 is an $8.7 million non-recourse mortgage for which we have not
made any payments since December 1, 2008. The mortgage is secured and
cross-collateralized by five properties formerly leased to Circuit
City. We have entered into negotiations with representatives of the
mortgagee relating to possible modifications of the mortgage. This
mortgage is scheduled to mature on December 14, 2014.
Note 2:
Our credit line facility matures in March 2010 and bears interest at the lower
of LIBOR plus 2.15% or the respective bank’s prime rate.
Item
8.
|
Financial Statements
and Supplementary Data.
|
This information appears in Item 15(a)
of this Annual Report on Form 10-K, and is incorporated into this Item 8 by
reference thereto.
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 (the “Exchange Act”), 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, 2008. 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, 2008, 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 adopted an amended and restated
Business Code of 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 Business
Code of 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
SEC 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 our 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
Exchange Act. 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, additional information required by this Item 10 shall be included
in our proxy statement for our 2009 annual meeting of stockholders,
to be filed with the SEC not later than April 30, 2009, and is
incorporated herein by reference thereto, 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 this Item 11 shall be included in our proxy
statement for our 2009 annual meeting of stockholders, to be filed with the SEC
not later than April 30, 2009, and is incorporated herein by reference thereto,
including the information set forth under the captions “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 this Item 12 shall be included in
our proxy statement for our 2009 annual meeting of stockholders, to be filed
with the SEC not later than April 30, 2009 and is incorporated herein by
reference thereto, including the information set forth under the caption “Stock
Ownership of Certain Beneficial Owners, Directors and
Officers.”
Equity compensation plan information is
incorporated herein by reference to Part II, Item 5, “Market For Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities,” of this annual report.
Item
13. Certain
Relationships and Related Transactions.
The information concerning certain
relationships, related transactions and director independence required by this
Item 13 shall be included in our proxy statement for our 2009 annual meeting of
stockholders, to be filed with the SEC not later than April 30, 2009 and is
incorporated herein by reference thereto, including the information set forth
under the captions “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 this Item 14 shall be included in our
proxy statement for our 2009 annual meeting of stockholders, to be filed with
the SEC not later than April 30, 2009, and is incorporated herein by reference
thereto, 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-29
|
|
(2) Financial
Statement Schedules:
- Schedule
III-Real Estate and Accumulated Depreciation
|
|
F-30 through F-32
|
|
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. 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).
|
4.2
|
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. (incorporated by reference to Exhibit 10.3 to One Liberty Properties,
Inc.’s Annual Report on Form 10-K filed on March 13,
2008).
|
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 Exchange, 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 Exchange Act, 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, 2009
|
|
|
|
|
|
/s/ Patrick J. Callan, Jr.
|
|
President,
|
|
|
Patrick
J. Callan, Jr
|
|
Chief
Executive Officer and
|
|
March
13, 2009
|
|
|
Director
|
|
|
|
|
|
|
|
/s/ Joseph A. Amato
|
|
|
|
|
Joseph
A. Amato
|
|
Director
|
|
March
13, 2009
|
|
|
|
|
|
/s/ Charles Biederman
|
|
|
|
|
Charles
Biederman
|
|
Director
|
|
March
13, 2009
|
|
|
|
|
|
/s/ James J. Burns
|
|
|
|
|
James
J. Burns
|
|
Director
|
|
March
13, 2009
|
|
|
|
|
|
/s/ Jeffrey A. Gould
|
|
|
|
|
Jeffrey
A. Gould
|
|
Director
|
|
March
13, 2009
|
|
|
|
|
|
/s/ Matthew J. Gould
|
|
|
|
|
Matthew
J. Gould
|
|
Director
|
|
March
13, 2009
|
|
|
|
|
|
/s/ Joseph De Luca
|
|
|
|
|
Joseph
De Luca
|
|
Director
|
|
March
13, 2009
|
|
|
|
|
|
/s/ J. Robert Lovejoy
|
|
|
|
|
J.
Robert Lovejoy
|
|
Director
|
|
March
13, 2009
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/s/ Eugene I. Zuriff
|
|
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|
Eugene
I. Zuriff
|
|
Director
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|
March
13, 2009
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|
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/s/ David W. Kalish
|
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David
W. Kalish
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|
Senior
Vice President and
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|
March
13, 2009
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|
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, 2008, 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, 2008, 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, 2008 and 2007, and the
related consolidated statements of income, stockholders’ equity, and cash flows
for each of the three years in the period ended December 31, 2008 of the Company
and our report dated March 10, 2009 expressed an unqualified opinion
thereon.
/s/ Ernst
& Young LLP
New York,
New York
March 10,
2009
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, 2008 and 2007, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31,
2008. 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, 2008 and 2007, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2008, 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, 2008, 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 10, 2009 expressed an unqualified opinion thereon.
/s/ Ernst
& Young LLP
New York,
New York
March 10,
2009
ONE
LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
(Amounts
in Thousands, Except Per Share Data)
ASSETS
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Real
estate investments, at cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
95,545 |
|
|
$ |
72,386 |
|
Buildings
and improvements
|
|
|
336,609 |
|
|
|
307,884 |
|
|
|
|
432,154 |
|
|
|
380,270 |
|
Less
accumulated depreciation
|
|
|
44,698 |
|
|
|
36,228 |
|
|
|
|
387,456 |
|
|
|
344,042 |
|
|
|
|
|
|
|
|
|
|
Investment
in unconsolidated joint ventures
|
|
|
5,857 |
|
|
|
6,570 |
|
Cash
and cash equivalents
|
|
|
10,947 |
|
|
|
25,737 |
|
Restricted
cash
|
|
|
- |
|
|
|
7,742 |
|
Unbilled
rent receivable
|
|
|
10,916 |
|
|
|
9,893 |
|
Unamortized
intangible lease assets
|
|
|
8,481 |
|
|
|
4,935 |
|
Escrow,
deposits and other receivables
|
|
|
1,569 |
|
|
|
2,465 |
|
Investment
in BRT Realty Trust at market (related party)
|
|
|
111 |
|
|
|
459 |
|
Unamortized
deferred financing costs
|
|
|
2,856 |
|
|
|
3,119 |
|
Other
assets (including available-for-sale securities at market of $297 and
$1,024)
|
|
|
912 |
|
|
|
1,672 |
|
|
|
$ |
429,105 |
|
|
$ |
406,634 |
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
Liabilities: |
|
|
|
|
|
|
Mortgages
and loan payable
|
|
$ |
225,514 |
|
|
$ |
222,035 |
|
Line
of credit
|
|
|
27,000 |
|
|
|
- |
|
Dividends
payable
|
|
|
2,239 |
|
|
|
3,638 |
|
Accrued
expenses and other liabilities
|
|
|
5,143 |
|
|
|
4,252 |
|
Unamortized
intangible lease liabilities
|
|
|
5,234 |
|
|
|
5,470 |
|
Total
liabilities
|
|
|
265,130 |
|
|
|
235,395 |
|
|
|
|
|
|
|
|
|
|
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; 9,962 and 9,906 shares
issued and outstanding
|
|
|
9,962 |
|
|
|
9,906 |
|
Paid-in
capital
|
|
|
138,688 |
|
|
|
137,076 |
|
Accumulated
other comprehensive (loss) income – net unrealized (loss) gain on
available-for-sale securities
|
|
|
(239 |
) |
|
|
344 |
|
Accumulated
undistributed net income
|
|
|
15,564 |
|
|
|
23,913 |
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
163,975 |
|
|
|
171,239 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$ |
429,105 |
|
|
$ |
406,634 |
|
See
accompanying notes.
ONE
LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Income
(Amounts
in Thousands, Except Per Share Data)
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Rental
income
|
|
$ |
40,341 |
|
|
$ |
38,149 |
|
|
$ |
33,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
8,971 |
|
|
|
8,248 |
|
|
|
6,995 |
|
General
and administrative (including $2,188, $2,290 and $1,317, respectively, to
related parties)
|
|
|
6,508 |
|
|
|
6,430 |
|
|
|
5,250 |
|
Impairment
charge
|
|
|
5,983 |
|
|
|
- |
|
|
|
- |
|
Federal
excise tax
|
|
|
- |
|
|
|
91 |
|
|
|
490 |
|
Real
estate expenses
|
|
|
685 |
|
|
|
293 |
|
|
|
270 |
|
Leasehold
rent
|
|
|
308 |
|
|
|
308 |
|
|
|
308 |
|
Total
operating expenses
|
|
|
22,455 |
|
|
|
15,370 |
|
|
|
13,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
17,886 |
|
|
|
22,779 |
|
|
|
20,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings (loss) of unconsolidated joint ventures
|
|
|
622 |
|
|
|
648 |
|
|
|
(3,276 |
) |
Gain
on dispositions of real estate - unconsolidated joint
ventures
|
|
|
297 |
|
|
|
583 |
|
|
|
26,908 |
|
Interest
and other income
|
|
|
533 |
|
|
|
1,776 |
|
|
|
899 |
|
Interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
(15,645 |
) |
|
|
(14,931 |
) |
|
|
(12,524 |
) |
Amortization
of deferred financing costs
|
|
|
(631 |
) |
|
|
(638 |
) |
|
|
(595 |
) |
Gain
on sale of excess unimproved land and other gains
|
|
|
1,830 |
|
|
|
- |
|
|
|
413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
4,892 |
|
|
|
10,217 |
|
|
|
31,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
- |
|
|
|
373 |
|
|
|
883 |
|
Net
gain on sale
|
|
|
- |
|
|
|
- |
|
|
|
3,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
|
- |
|
|
|
373 |
|
|
|
4,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
4,892 |
|
|
$ |
10,590 |
|
|
$ |
36,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,183 |
|
|
|
10,069 |
|
|
|
9,931 |
|
Diluted
|
|
|
10,183 |
|
|
|
10,069 |
|
|
|
9,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share – basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
.48 |
|
|
$ |
1.01 |
|
|
$ |
3.21 |
|
Income
from discontinued operations
|
|
|
- |
|
|
|
.04 |
|
|
|
.46 |
|
Net
income per common share
|
|
$ |
.48 |
|
|
$ |
1.05 |
|
|
$ |
3.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
distributions per share of common stock
|
|
$ |
1.30 |
|
|
$ |
2.11 |
|
|
$ |
1.35 |
|
See
accompanying notes.
ONE
LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Stockholders' Equity
For the
Three Years Ended December 31, 2008
(Amounts
in Thousands, Except Per Share Data)
|
|
Common
Stock
|
|
|
Paid-in
Capital
|
|
|
Accumulated
Other
Comprehen-
sive
Income (Loss)
|
|
|
Unearned
Compen-
sation
|
|
|
Accumulated
Undistributed
Net Income
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 income- 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 |
|
See
accompanying notes.
ONE
LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
(Amounts
in Thousands)
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
4,892 |
|
|
$ |
10,590 |
|
|
$ |
36,425 |
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on sale of excess unimproved land, real estate and other
|
|
|
(1,830 |
) |
|
|
(122 |
) |
|
|
(4,181 |
) |
Increase
in rental income from straight-lining of rent
|
|
|
(1,023 |
) |
|
|
(1,674 |
) |
|
|
(1,763 |
) |
Increase
in rental income from amortization of intangibles relating to
leases
|
|
|
(371 |
) |
|
|
(250 |
) |
|
|
(187 |
) |
Impairment
charge
|
|
|
5,983 |
|
|
|
- |
|
|
|
- |
|
Amortization
of restricted stock expense
|
|
|
888 |
|
|
|
826 |
|
|
|
515 |
|
Change
in fair value of non-qualifying interest rate swap
|
|
|
650 |
|
|
|
- |
|
|
|
- |
|
Gain
on dispositions of real estate related to unconsolidated joint
ventures
|
|
|
(297 |
) |
|
|
(583 |
) |
|
|
(26,908 |
) |
Equity
in (earnings) loss of unconsolidated joint ventures
|
|
|
(622 |
) |
|
|
(648 |
) |
|
|
3,276 |
|
Distributions
of earnings from unconsolidated joint ventures
|
|
|
535 |
|
|
|
1,089 |
|
|
|
24,165 |
|
Depreciation
and amortization
|
|
|
8,971 |
|
|
|
8,248 |
|
|
|
7,091 |
|
Amortization
of financing costs
|
|
|
631 |
|
|
|
638 |
|
|
|
600 |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
(increase) in escrow, deposits and other receivables
|
|
|
937 |
|
|
|
(92 |
) |
|
|
(945 |
) |
Increase
(decrease) in accrued expenses and other liabilities
|
|
|
93 |
|
|
|
(138 |
) |
|
|
839 |
|
Net
cash provided by operating activities
|
|
|
19,437 |
|
|
|
17,884 |
|
|
|
38,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of real estate and improvements
|
|
|
(60,009 |
) |
|
|
(423 |
) |
|
|
(79,636 |
) |
Net
proceeds from sale of excess unimproved land, real estate and
other
|
|
|
2,976 |
|
|
|
4 |
|
|
|
16,228 |
|
Investment
in unconsolidated joint ventures
|
|
|
(379 |
) |
|
|
(8 |
) |
|
|
(1,553 |
) |
Distributions
of return of capital from unconsolidated joint ventures
|
|
|
1,435 |
|
|
|
551 |
|
|
|
21,264 |
|
Net
proceeds from sale of securities
|
|
|
525 |
|
|
|
843 |
|
|
|
348 |
|
Purchase
of available-for-sale securities
|
|
|
- |
|
|
|
(551 |
) |
|
|
(1,364 |
) |
Net
cash (used in) provided by investing activities
|
|
|
(55,452 |
) |
|
|
416 |
|
|
|
(44,713 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowing
on bank line of credit, net
|
|
|
27,000 |
|
|
|
- |
|
|
|
- |
|
Proceeds
from mortgage financings
|
|
|
14,185 |
|
|
|
2,700 |
|
|
|
37,564 |
|
Payment
of financing costs
|
|
|
(366 |
) |
|
|
(695 |
) |
|
|
(916 |
) |
Repayment
of mortgages and loan payable
|
|
|
(13,476 |
) |
|
|
(8,588 |
) |
|
|
(4,070 |
) |
Change
in restricted cash
|
|
|
7,742 |
|
|
|
(333 |
) |
|
|
(7,409 |
) |
Cash
distributions - common stock
|
|
|
(14,640 |
) |
|
|
(21,167 |
) |
|
|
(13,088 |
) |
Exercise
of stock options
|
|
|
- |
|
|
|
- |
|
|
|
110 |
|
Repurchase
of common stock
|
|
|
(1,827 |
) |
|
|
(3,212 |
) |
|
|
- |
|
Issuance
of shares through dividend reinvestment plan
|
|
|
2,607 |
|
|
|
4,719 |
|
|
|
859 |
|
Net
cash provided by (used in) financing activities
|
|
|
21,225 |
|
|
|
(26,576 |
) |
|
|
13,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(14,790 |
) |
|
|
(8,276 |
) |
|
|
7,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
25,737 |
|
|
|
34,013 |
|
|
|
26,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year
|
|
$ |
10,947 |
|
|
$ |
25,737 |
|
|
$ |
34,013 |
|
Continued
on next page
ONE
LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows (Continued)
(Amounts
in Thousands)
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for interest expense
|
|
$ |
14,908 |
|
|
$ |
14,812 |
|
|
$ |
12,576 |
|
Cash
paid during the year for income taxes
|
|
|
81 |
|
|
|
35 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumption
of mortgages payable in connection with purchase of real
estate
|
|
$ |
2,771 |
|
|
$ |
- |
|
|
$ |
26,957 |
|
Purchase
accounting allocations – intangible lease assets
|
|
|
4,362 |
|
|
|
- |
|
|
|
2,210 |
|
Purchase
accounting allocations – intangible lease liabilities
|
|
|
(451 |
) |
|
|
- |
|
|
|
(5,556 |
) |
Purchase
accounting allocations – mortgage payable discount
|
|
|
(40 |
) |
|
|
- |
|
|
|
- |
|
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, 2008
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 December 31, 2008, OLP
owned 79 properties, three of which are vacant, and one of which is a 50%
tenancy in common interest. OLP’s joint ventures owned a total of five
properties, one of which is vacant. The 84 properties are located in 29
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.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 and the financial
condition of the tenant. 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.
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 origination
costs are amortized as an expense over the remaining minimum term of the
lease. The Company assesses fair value of the lease intangibles 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 $4,362,000, representing
the value of the acquired above market leases and assumed lease origination
costs during the year ended December 31, 2008. The Company also
recorded additional deferred intangible lease liabilities of $451,000,
representing the value of the acquired below market leases during the year ended
December 31, 2008. The Company did not acquire any properties during
the year ended December 31, 2007. The Company recognized a net
increase in rental revenue of $371,000 and $250,000 for the amortization of the
above/below market leases for the years ended 2008 and 2007, respectively. For
the years ended 2008 and 2007, the Company recognized amortization expense of
$499,000 and $290,000, respectively, relating to the amortization of the assumed
lease origination costs. The year ended 2008 included
$180,000 of additional net rental revenue and $161,000 of additional
amortization expense resulting from the accelerated expiration of certain
leases. At December 31, 2008 and 2007, accumulated amortization
of intangible lease assets was $1,813,000 and $1,213,000,
respectively. At December 31, 2008 and 2007, accumulated amortization
of intangible lease liabilities was $1,155,000 and $801,000,
respectively.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
The
unamortized balance of intangible lease assets as a result of acquired above
market leases at December 31, 2008 will be deducted from rental income through
2025 as follows:
2009
|
|
$ |
919,000 |
|
2010
|
|
|
835,000 |
|
2011
|
|
|
835,000 |
|
2012
|
|
|
835,000 |
|
2013
|
|
|
833,000 |
|
Thereafter
|
|
|
4,224,000 |
|
|
|
$ |
8,481,000 |
|
The
unamortized balance of intangible lease liabilities as a result of acquired
below market leases at December 31, 2008 will be added to rental income through
2022 as follows:
2009
|
|
$ |
407,000 |
|
2010
|
|
|
407,000 |
|
2011
|
|
|
407,000 |
|
2012
|
|
|
407,000 |
|
2013
|
|
|
407,000 |
|
Thereafter
|
|
|
3,199,000 |
|
|
|
$ |
5,234,000 |
|
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 are any indicators of impairment to the value of any of its real estate
assets, including deferred costs and intangibles, in order to determine if there
is any need for an impairment charge. 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, if the undiscounted cash
flow analysis yields an amount which is less than the asset’s carrying amount,
an impairment loss is recorded to the extent that the estimated fair value
exceeds the asset’s carrying amount. The estimated fair value is
determined using a discounted cash flow model of the expected future cash flows
through the useful life of the property. 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.
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.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Restricted
Cash
Restricted
cash at December 31, 2007 consists of a cash deposit as required by a certain
loan payable agreement for collateral. (See Note 5.)
Escrow,
Deposits and Other Receivables
Includes
$866,000 and $839,000 at December 31, 2008 and 2007, respectively, of restricted
cash relating to real estate taxes, insurance and other escrows.
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 December 31, 2008 and 2007,
the balance in allowance for doubtful accounts was $160,000 and zero,
respectively.
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”. If a property which was deemed
“held for sale” is reclassified to a “held and used” property, “catch-up”
depreciation is recorded. Leasehold interest is amortized over the initial lease
term of the leasehold position. Depreciation expense, including
amortization of the leasehold position and of lease origination costs, amounted
to $8,971,000, $8,248,000 and $6,995,000 for the three years ended December 31,
2008, 2007 and 2006, 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, 2008 and 2007, accumulated
amortization of such costs was $3,069,000 and $2,464,000,
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 2008 and 2007 included 3% and 82%, respectively, to be treated by
the stockholders as capital gain distributions, with the balance to be treated
as ordinary income.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, 2008, 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 (loss) 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, 2008 of $111,000. At December 31, 2008, the total cumulative
unrealized loss of $239,000 on all investments in equity securities is reported
as accumulated other comprehensive income (loss) in the stockholders' equity
section.
Realized
gains and losses are determined using the average cost method and is included in
“Interest and other income” on the income statement. During 2008,
2007 and 2006, sales proceeds and gross realized gains and losses on securities
classified as available-for-sale were:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Sales
proceeds
|
|
$ |
6,000 |
|
|
$ |
161,000 |
|
|
$ |
348,000 |
|
Gross
realized losses
|
|
$ |
4,000 |
|
|
$ |
- |
|
|
$ |
3,000 |
|
Gross
realized gains
|
|
$ |
4,000 |
|
|
$ |
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, 2008, the estimated fair value of
the Company's mortgages payable is less than their carrying value by
approximately $2,500,000, assuming a market interest rate of
6.25%. There was no outstanding loan payable at December 31,
2008.
Line of
credit: There is no material difference between the carrying amount
and fair value because the interest rate is at the lower of LIBOR plus 2.15% or
at the prime rate.
Considerable
judgment is necessary to interpret market data and develop estimated fair
value. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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-nine states, 15.8%, 16.0% and 17.9%
of the Company’s rental revenues were attributable to properties located in
Texas and 14.6%, 15.0% and 17.2% of the Company’s rental revenues were
attributable to properties located in New York for the years ended December 31,
2008, 2007 and 2006, 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 Haverty Furniture Companies, Inc. pursuant to a
master lease. The basic term of the net lease expires August 2022,
with several renewal options. These properties which represented
13.6% of the depreciated book value of real estate investments, generated rental
revenues of $4,844,000, $4,845,000 and $3,559,000, or 12.0%, 12.7% and 10.7% of
the Company’s total revenues for the years ended December 31, 2008, 2007 and
2006, respectively.
In
September 2008, the Company acquired eight retail office supply stores, located
in seven states, net leased to Office Depot, Inc. pursuant to eight separate
leases which contain cross default provisions. The basic term of the
net leases expire September 2018, with several renewal options. These
eight properties plus two properties we already owned and leased to the same
tenant, represented 12.6% of the depreciated book value of real estate
investments and generated rental revenues of $1,551,000, or 3.8% of the
Company’s total revenues for the year ended December 31,
2008. Contractual rental income for these ten properties is
$4,435,000 for the year ended December 31, 2009.
Earnings
Per Common Share
Basic
earnings per share was determined by dividing net income 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
shared in the earnings of the Company. Diluted earnings per share was
determined by dividing net income 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 shares for the year ended 2006) using
the treasury stock method. There were no outstanding options in 2008
and 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.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Derivatives
and Hedging Activities
The
Company accounts for derivative financial instruments in accordance with SFAS
No. 133 “Accounting for
Derivative Instruments and Hedging Activities”, as amended by SFAS No.
138, which requires an entity to recognize all derivatives as either assets or
liabilities in the consolidated balance sheets and to measure those instruments
at fair value. The Company relies on quotations from a third party to
determine these fair values.
In the
normal course of business the Company may use a variety of derivative financial
instruments to manage, or hedge, interest rate risk. These derivative
financial instruments must be effective in reducing its interest rate risk in
order to qualify for hedge accounting. Any derivative instrument used
for risk management that does not meet the hedging criteria is marked-to-market
with the changes in value included in net income.
The fair
value of our interest rate swap which is a non-qualifying hedge was a liability
of $650,000 as of December 31, 2008 and is recorded in other liabilities in the
consolidated balance sheet. The Company did not hold any derivative
financial instruments as of December 31, 2007 and 2006. The change in
fair value of the non-qualifying hedge was $650,000 and is recorded as interest
expense on the consolidated income statement.
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
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
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.
SFAS No. 141 (R) is effective in fiscal years
beginning after December 15, 2008 and early adoption is not permitted. 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.
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. This
statement is effective in fiscal years beginning after December 15,
2008. Adoption is prospective and early adoption is not permitted.
Based upon the current 100% ownership of the Company’s consolidated
subsidiaries, SFAS No. 160 will have no impact on the Company’s consolidated
financial statements
On March
20, 2008, the FASB issued Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133” (“SFAS No. 161”) which provides for enhanced disclosures about how
and why an entity uses derivatives and how and where those derivatives and
related hedged items are reported in the entity’s financial
statements. SFAS No. 161 also requires certain tabular formats for
disclosing such information. SFAS No. 161 applies to all entities and
all derivative instruments and related hedged items accounted for under SFAS No.
133. Among other things, SFAS No. 161 requires disclosures of an
entity’s objectives and strategies for using derivatives by primary underlying
risk and certain disclosures about the potential future collateral or cash
requirements (that is, the effect on the entity’s liquidity) as a result of
contingent credit-related features. SFAS No.161 is effective for
fiscal years and interim periods beginning after November 15, 2008 with early
application encouraged. The Company will adopt beginning January 1,
2009. The primary effect that SFAS No. 161 will have on the Company’s
consolidated financial statements will be additional disclosure requirements
surrounding derivative instruments.
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 reclassify a property that was presented as held for sale at
December 31, 2007 and as a real estate investment at December 31, 2008 and to
reclassify such property’s operations from discontinued operations 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.
NOTE
3 - REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS
During
the year ended December 31, 2008, the Company purchased twelve single tenant
properties in eight states for a total consideration of
$62,085,000. These purchases include a portfolio of eight properties
which are leased to the same tenant and was acquired in a sale-leaseback
transaction for a total purchase price, including closing costs, of
approximately $48,200,000, with approximately $14,200,000 paid in cash and
$34,000,000 borrowed under the Company’s line of credit. There were no property
acquisitions during the year ended December 31, 2007.
NOTE
3 - REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS (Continued)
With the
exception of three vacant properties, the rental properties owned at December
31, 2008 are leased under noncancellable operating leases to corporate tenants
with current expirations ranging from 2009 to 2038, with certain tenant renewal
rights. Substantially 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, 2008 are as follows:
Year Ending
December 31,
|
|
(In Thousands)
|
|
2009
|
|
$ |
41,953 |
|
2010
|
|
|
41,715 |
|
2011
|
|
|
41,032 |
|
2012
|
|
|
40,300 |
|
2013
|
|
|
38,886 |
|
Thereafter
|
|
|
221,880 |
|
Total
|
|
$ |
425,766 |
|
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.
Excluded
from the minimum future rentals is the rent originally due from three of the
Company’s properties formerly leased to Circuit City Stores, Inc. (“Circuit
City”) which filed for protection under federal bankruptcy laws in November
2008. Although the Company has received its rent for January and
February 2009, it will not be receiving any additional rent since Circuit City
rejected the leases for these properties in March 2009.
At
December 31, 2008, the Company has recorded an unbilled rent receivable
aggregating $10,916,000, 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
seventeen years.
During
the year ended December 31, 2008, the Company wrote-off or recorded accelerated
amortization of $332,000 of unbilled "straight-line" rent receivable for six
retail properties, including five properties formerly leased to Circuit
City. During the year ended December 31 2007, the Company wrote-off
$322,000 of unbilled “straight-line” rent receivable.
NOTE
3 - REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS (Continued)
Impairment
Charge
During
the year ended December 31, 2008, the Company recorded an impairment charge of
$5,983,000 relating to four properties. An impairment charge of
$5,231,000 was recorded relating to three of the five Circuit City properties
the Company owns, two of which were vacant at December 31, 2008. The
Company performed an analysis and has determined that the remaining two Circuit
City properties did not require an impairment charge. Additionally,
the Company recorded an impairment charge of $752,000 on a property leased to a
retail furniture tenant. These impairment charges were recorded as a direct
write-down of the respective investments on the balance sheet with depreciation
calculated using the new basis.
After
giving effect to the impairment charge, the net book value of the five Circuit
City properties was $8,252,000. At December 31, 2008, the
non-recourse mortgage which is secured and cross collateralized by the five
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 entered into negotiations with representatives of the mortgagee relating to
possible modifications of the mortgage. The Company continues to
accrue interest expense on this mortgage which matures in December
2014.
Sales
of Excess Unimproved Land and Other
In May
2008, the Company sold a five acre parcel of excess, unimproved land to an
unrelated third party for a sales price of $3,150,000 and realized a gain of
$1,830,000. This land, adjacent to a flex property owned by the
Company, had been acquired by the Company as part of the purchase of the flex
property in 2000.
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.
NOTE
4 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
In March
2008, one of the Company’s unconsolidated joint ventures sold its only property,
which was vacant, for a sales price 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).
In March
2007, another of the Company’s unconsolidated joint ventures sold its only
remaining property, a vacant parcel of land, for a sales price of $1,250,000 to
a former tenant of the joint venture. The sale resulted in a gain to
the Company of $583,000 (after giving effect to the Company’s $1,581,000 share
of direct write downs taken by the joint venture in prior years). In
September and October 2006, this joint venture and another joint venture 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.
NOTE
4 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (Continued)
The
remaining five unconsolidated joint ventures each own and operate one
property. At December 31, 2008 and 2007, the Company’s equity
investment in unconsolidated joint ventures totaled $5,857,000 and $6,570,000,
respectively. These balances are net of distributions, including
distributions of $1,970,000 and $1,640,000 received in 2008 and 2007,
respectively. In addition to the gain on sale of properties of $297,000 and
$583,000 for the years ended December 31, 2008 and 2007, respectively, the
unconsolidated joint ventures contributed $622,000 and $648,000 in equity
earnings, respectively. See Note 7 for related party fees paid by the
unconsolidated joint ventures.
NOTE
5 – DEBT OBLIGATIONS
Mortgages
Payable
At
December 31, 2008, there are 40 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 $362,190,000. The
mortgage payments bear interest at fixed rates ranging from 5.44% to 8.8%, and
mature between 2009 and 2037. The weighted average interest rate was
6.33% and 6.30% for the years ended December 31, 2008 and 2007,
respectively.
Scheduled
principal repayments during the next five years and thereafter are as
follows:
Year Ending
December 31,
|
|
(In Thousands)
|
|
2009
|
|
$ |
18,869 |
|
2010
|
|
|
22,532 |
|
2011
|
|
|
8,816 |
|
2012
|
|
|
37,806 |
|
2013
|
|
|
19,036 |
|
Thereafter
|
|
|
118,455 |
|
Total
|
|
$ |
225,514 |
|
See Note
3 for information regarding a $8,706,000 mortgage loan included in the above as
due in 2009 for which the Company has not made any payments on since December 1,
2008. The maturity date of the mortgage is in 2014.
Loan
Payable
On
October 31, 2008, the Company repaid in full its only loan payable, which had a
balance of $6,375,000, with cash held in escrow and shown on the balance sheet
as restricted cash. The excess escrow funds of $1,402,000 was
returned to the Company and is no longer restricted. 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 of 110% of the principal balance at the date of
sale.
NOTE
5 – DEBT OBLIGATIONS (Continued)
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 March 31, 2010 and provides that
the Company pays 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 December 31, 2008, there was $27,000,000 outstanding under the
Facility.
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 in compliance with all 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 - ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
On
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
No. 157, “Fair Value
Measurements” (SFAS No. 157). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. SFAS No. 157 applies to reported balances
that are required or permitted to be measured at fair value under existing
accounting pronouncements; accordingly, the standard does not require any new
fair value measurements of reported balances.
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). In
February 2008, the FASB delayed the effective date of SFAS 157 for non-
financial assets and non-financial liabilities to fiscal years beginning after
November 15, 2008.
The
Company’s financial assets and liabilities, other than fixed-rate mortgages and
loan payable, are generally short-term in nature, or bear interest at variable
current market rates, and consist of cash and cash equivalents, restricted cash,
rents and other receivables, other assets, and accounts payable and accrued
expenses. The carrying amounts of these assets and liabilities are not measured
at fair value on a recurring basis, but are considered to be recorded at amounts
that approximate fair value due to their short-term nature. The fair
value of the Company’s available-for-sale securities and derivative financial
instrument was determined using the following inputs as of December 31,
2008:
NOTE
6 - ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (Continued)
|
|
|
|
|
|
|
|
Fair Value Measurements
Using Fair Value Hierarchy
|
|
|
|
Carrying
Value
|
|
|
Fair Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Financial
assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$ |
412,000 |
|
|
$ |
412,000 |
|
|
$ |
412,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
financial instrument
|
|
|
650,000 |
|
|
|
650,000 |
|
|
|
- |
|
|
|
650,000 |
|
|
|
- |
|
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 $651,000 and the aggregate amount of unrealized
losses is $239,000. Fair values are approximated on current market
quotes from financial sources that track such securities.
Derivative
financial instrument
During
the year ended December 31, 2008, the Company entered into an interest rate swap
to manage its interest rate risk in connection with one mortgage in the
principal amount of $10,675,000. The valuation of the
instrument is determined using widely accepted valuation techniques including
discounted cash flow analysis on the expected cash flows of the derivative. This
analysis reflects the contractual terms of the derivative, including the period
to maturity, and uses observable market-based inputs, including interest rate
curves, foreign exchange rates, and implied volatilities.
Although
the Company has determined that the majority of the inputs used to value its
derivative fall within Level 2 of the fair value hierarchy, the
credit valuation adjustments associated with its derivative utilize Level 3
inputs, such as estimates of current credit spreads to evaluate the likelihood
of default by itself and its counterparty. However, as of December
31, 2008, the Company has assessed the significance of the impact of the credit
valuation adjustments on the overall valuation of its derivative position and
has determined that the credit valuation adjustments are not significant to the
overall valuation of its derivative. As a result, the Company has
determined that its derivative valuation is classified in Level 2 of the fair
value hierarchy.
In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” ("SFAS No. 159") which 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. The Company adopted SFAS No. 159 and has
elected not to report selected financial assets and liabilities at fair
value.
NOTE
7 – RELATED PARTY TRANSACTIONS
At
December 31, 2008 and 2007, Gould Investors L.P. (“Gould”), a related party,
owned 991,707 and 913,241 shares of the common stock of the Company or
approximately 9.7% and 9%, respectively, of the equity
interest. During 2008 and 2007, Gould purchased 78,466 and 82,330
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. (“Majestic”), 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 $2,025,000 and $2,125,000 in 2008 and
2007, respectively, 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 2008 and 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
year ended December 31, 2006, the Company reimbursed Gould for allocated
expenses and paid fees to Majestic. 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
7 – RELATED PARTY TRANSACTIONS (Continued)
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Compensation
and services agreement (A)
|
|
$ |
2,188,000 |
|
|
$ |
2,288,000 |
|
|
$ |
- |
|
Allocated
expenses (A)
(B)
|
|
|
- |
|
|
|
- |
|
|
|
1,317,000 |
|
Mortgage
brokerage fees (C)
|
|
|
- |
|
|
|
- |
|
|
|
100,000 |
|
Sales
commissions (D)
|
|
|
- |
|
|
|
- |
|
|
|
152,000 |
|
Management
fees (E)
|
|
|
- |
|
|
|
- |
|
|
|
15,000 |
|
Supervisory
fees (F)
|
|
|
- |
|
|
|
- |
|
|
|
41,000 |
|
Total
fees
|
|
$ |
2,188,000 |
|
|
$ |
2,288,000 |
|
|
$ |
1,625,000 |
|
The
Company’s unconsolidated joint ventures paid the following fees to
Majestic. Such amounts represent 100% of the fees paid by the joint
ventures, of which the Company’s share is 50%:
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Sales
commissions (G)
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,277,000 |
|
Management
fees
(H)
|
|
|
12,000 |
|
|
|
12,000 |
|
|
|
97,000 |
|
Supervisory
fees (I)
|
|
|
- |
|
|
|
- |
|
|
|
8,000 |
|
Total
fees
|
|
$ |
12,000 |
|
|
$ |
12,000 |
|
|
$ |
1,382,000 |
|
(A) Does not include payments
under a direct lease, with a subsidiary of Gould, for approximately 1,200 square
feet, expiring in 2011, at an annual rent of $43,000, increasing 3% per
year.
(B) 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.
(C) Fees paid to
Majestic relating to mortgages placed on nine of the Company’s properties for
mortgages in the aggregate amount of $12,900,000. Substantially all
fees were based on 1% of the principal balances of the
mortgages. These fees were deferred and are being amortized over the
life of the respective mortgages.
(D) Fee paid to Majestic
relating to the sale of one property for a sales price of
$15,227,000. This fee was based on 1% of the sales price and reduced
the net sales proceeds.
(E) Fees paid to Majestic
relating to management of one of the Company’s properties. Such fees
were based on 2% of rent collections and were charged to
operations.
(F) Fees paid to
Majestic for supervision of improvements to properties. Such fees
were based on 8% of the cost of the improvements and were
capitalized.
(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. See
Note 4 for further information regarding the Company’s unconsolidated joint
ventures.
NOTE
7 – RELATED PARTY TRANSACTIONS (Continued)
(H)Fees paid to Majestic for
the management of various joint venture properties at 1% of rent collections for
the years ended December 31, 2008, 2007 and 2006, 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.
NOTE
8 - RESTRICTED STOCK AND STOCK OPTIONS
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.
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Restricted
share grants
|
|
|
50,550 |
|
|
|
51,225 |
|
|
|
50,050 |
|
Average
per share grant price
|
|
$ |
17.50 |
|
|
$ |
24.50 |
|
|
$ |
20.66 |
|
Recorded
as deferred compensation
|
|
$ |
885,000 |
|
|
$ |
1,255,000 |
|
|
$ |
1,034,000 |
|
Total
charge to operations, all outstanding restricted grants
|
|
$ |
888,000 |
|
|
$ |
826,000 |
|
|
$ |
515,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested
beginning of period
|
|
|
186,300 |
|
|
|
140,175 |
|
|
|
92,725 |
|
Grants
|
|
|
50,550 |
|
|
|
51,225 |
|
|
|
50,050 |
|
Vested
during period
|
|
|
(22,650 |
) |
|
|
(5,050 |
) |
|
|
- |
|
Forfeitures
|
|
|
(575 |
) |
|
|
(50 |
) |
|
|
(2,600 |
) |
Non-vested
end of period
|
|
|
213,625 |
|
|
|
186,300 |
|
|
|
140,175 |
|
Through
December 31, 2008, a total of 243,075 shares were issued and 31,925 shares
remain available for grant pursuant to the Incentive Plan, and approximately
$2,177,000 remains as deferred compensation and will be charged to expense over
the remaining weighted average vesting period of approximately 2.4
years. As of December 31, 2008, there are no options outstanding
under the Incentive Plan.
During
the year ended December 31, 2006, the options to purchase 9,000 shares of common
stock outstanding at December 31, 2005 were exercised. There were no
additional grants, forfeitures or expiration of options occurring during
2006. These options had been granted under the Company’s 1996 Stock
Option Plan, which terminated in 2006.
NOTE
9 - DISTRIBUTION REINVESTMENT PLAN
On
December 9, 2008, the Company suspended its Dividend Reinvestment Plan (the
“Plan”). The Plan had provided 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
was determined at the Company’s sole discretion and had been offered at a 5%
discount from market. Under the Plan, the Company issued 158,242 and
236,645 common shares during the years ended December 31, 2008 and 2007,
respectively.
NOTE
10 – STOCK REPURCHASE PROGRAM
In
November 2008, the Company announced that its Board of Directors had authorized
a common 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. During November 2008, the Company repurchased
32,000 shares of common stock for a consideration of $263,000. The
Company has not purchased any additional shares of common stock since November
2008. In August 2007, the Company announced that its Board of
Directors had authorized a twelve month common stock repurchase program, which
allowed for the repurchase of up to 500,000 shares of the Company’s common stock
in open market transactions. From January 2008 through July 2008 and
from August 2007 through December 2007, the Company repurchased 93,000 and
159,000 shares of common stock for consideration of $1,564,000 and $3,212,000,
respectively.
NOTE
11 – 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 2008, 2007 and 2006 financial statement
amounts. During 2008, an asset previously presented as held for sale
at December 31, 2007 was reclassified and presented as a real estate investment
at December 31, 2008.
The
components of income from discontinued operations for each of the three years in
the period ended December 31, 2008, are shown below. These include
the results of operations through the date of the sale for one property sold
during 2006 and includes settlements relating to properties sold in a prior year
(amounts in thousands):
NOTE
11 – DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE (Continued)
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Revenues,
primarily rental income and settlements
|
|
$ |
- |
|
|
$ |
405 |
|
|
$ |
1,362 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
- |
|
|
|
- |
|
|
|
97 |
|
Real
estate expenses
|
|
|
- |
|
|
|
32 |
|
|
|
47 |
|
Interest
expense
|
|
|
- |
|
|
|
- |
|
|
|
335 |
|
Total
expenses
|
|
|
- |
|
|
|
32 |
|
|
|
479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations before gain on
sale
|
|
|
- |
|
|
|
373 |
|
|
|
883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
gain on sale of discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
3,660 |
(A) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations
|
|
$ |
- |
|
|
$ |
373 |
|
|
$ |
4,543 |
|
(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
12 – COMMITMENTS AND CONTINGENCIES
The
Company maintains a non-contributory defined contribution pension plan covering
eligible employees. 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 $107,000, $100,000 and
$90,000 for the years ended December 31, 2008, 2007 and 2006,
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.
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.
NOTE
13 – TAXES (Continued)
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
the year ended December 31, 2008. Included in general
and administrative expenses for the years ended December 31, 2008, 2007 and 2006
are state tax expense of $162,000, $226,000 and $143,000,
respectively.
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, 2008, 2007 and 2006 (amounts in
thousands):
|
|
2008
Estimate
|
|
|
2007
Actual
|
|
|
2006
Actual
|
|
Net
income
|
|
$ |
4,892 |
|
|
$ |
10,590 |
|
|
$ |
36,425 |
|
Straight
line rent adjustments
|
|
|
(1,023 |
) |
|
|
(1,600 |
) |
|
|
(269 |
) |
Excess
of capital losses over capital gains
|
|
|
- |
|
|
|
868 |
|
|
|
- |
|
Financial
statement gain on sale in excess of tax gain (A)
|
|
|
(1,685 |
) |
|
|
(1,581 |
) |
|
|
(3,976 |
) |
Rent
received in advance, net
|
|
|
(82 |
) |
|
|
95 |
|
|
|
(33 |
) |
Financial
statement impairment charge
|
|
|
5,983 |
|
|
|
- |
|
|
|
780 |
|
Federal
excise tax, non-deductible
|
|
|
- |
|
|
|
91 |
|
|
|
490 |
|
Financial
statement adjustment for above/below market leases
|
|
|
(371 |
) |
|
|
(285 |
) |
|
|
(223 |
) |
Non-deductible
portion of restricted stock expense
|
|
|
507 |
|
|
|
710 |
|
|
|
515 |
|
Financial
statement adjustment of fair value of derivative
|
|
|
650 |
|
|
|
- |
|
|
|
- |
|
Financial
statement depreciation in excess of tax depreciation
|
|
|
1,267 |
|
|
|
702 |
|
|
|
773 |
|
Other
adjustments
|
|
|
(81 |
) |
|
|
2 |
|
|
|
(83 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
taxable income
|
|
$ |
10,057 |
|
|
$ |
9,592 |
|
|
$ |
34,399 |
|
(A)
|
For
the year ended December 31, 2006, amount includes $3,660 GAAP gain on sale
of real estate which was deferred for federal tax purposes in accordance
with Section 1031 of the Internal Revenue Code of 1986, as
amended.
|
NOTE
13 – TAXES (Continued)
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, 2008, 2007 and 2006 (amounts in
thousands):
|
|
2008
Estimate
|
|
|
2007
Actual
|
|
|
2006
Actual
|
|
Cash
dividends paid
|
|
$ |
13,241 |
|
|
$ |
21,218 |
|
|
$ |
13,420 |
|
Dividend
reinvestment plan (B)
|
|
|
96 |
|
|
|
268 |
|
|
|
59 |
|
|
|
|
13,337 |
|
|
|
21,486 |
|
|
|
13,479 |
|
Less:
Spillover dividends designated to previous year
(C)
|
|
|
(5,861 |
) |
|
|
(17,705 |
) |
|
|
- |
|
Plus:
Spillover dividends designated from prior year
|
|
|
- |
|
|
|
- |
|
|
|
3,265 |
|
Plus:
Dividends designated from following year (C)
|
|
|
2,631 |
|
|
|
5,861 |
|
|
|
17,705 |
|
Dividends
paid deduction (D)
|
|
$ |
10,107 |
|
|
$ |
9,642 |
|
|
$ |
34,449 |
|
(B)
|
Amount
reflects the 5% discount on the Company's common shares purchased through
the dividend reinvestment plan.
|
(C)
|
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.
|
(D)
|
Dividends
paid deduction is slightly higher than federal taxable income in 2008,
2007 and 2006
so as to account for adjustments made to federal taxable income as a
result of the impact
of the alternative minimum
tax.
|
NOTE
14 – SUBSEQUENT EVENT
In
February 2009, the Company entered into a $400,000 lease termination agreement
with a retail tenant of a Texas property who had been paying its rent on a
current basis, but had vacated the property in 2006. On March 5,
2009, the Company sold this property to an unrelated party for consideration of
$1,900,000. As a result of the lease termination agreement and sale
of the property, the Company will recognize during the quarter ended March 31,
2009, net income for accounting purposes of approximately $200,000, after taking
into account an impairment charge of $752,000 taken by the Company during the
quarter ended June 30, 2008. As of December 31, 2008, this property
had a net book value of $2,072,000 and was classified as a real estate
investment.
NOTE
15 - QUARTERLY FINANCIAL DATA (Unaudited):
|
(In
Thousands, Except Per Share Data)
|
|
|
Quarter Ended
|
|
|
|
|
2008
|
|
March 31
|
|
|
June 30
|
|
|
Sept. 30
|
|
|
Dec. 31
|
|
|
Total
For Year
|
|
Rental
revenues as previously reported
|
|
$ |
9,398 |
|
|
$ |
9,686 |
|
|
$ |
9,950 |
|
|
$ |
10,954 |
|
|
$ |
39,988 |
|
Revenues
from discontinued operations (A)
|
|
|
353 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
353 |
|
Revenues
|
|
$ |
9,751 |
|
|
$ |
9,686 |
|
|
$ |
9,950 |
|
|
$ |
10,954 |
|
|
$ |
40,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations (B)
|
|
$ |
2,779 |
|
|
$ |
3,246 |
|
|
$ |
2,468 |
|
|
$ |
(3,601 |
) |
|
$ |
4,892 |
|
Income
from discontinued operations (B)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
income
|
|
$ |
2,779 |
|
|
$ |
3,246 |
|
|
$ |
2,468 |
|
|
$ |
(3,601 |
) |
|
$ |
4,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
outstanding - basic and diluted
|
|
|
10,152 |
|
|
|
10,219 |
|
|
|
10,169 |
|
|
|
10,192 |
|
|
|
10,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share – basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations (B)
|
|
$ |
.27 |
|
|
$ |
.32 |
|
|
$ |
.24 |
|
|
$ |
(.35 |
) |
|
$ |
.48 |
(C) |
Income
from discontinued operations (B)
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
income (loss)
|
|
$ |
.27 |
|
|
$ |
.32 |
|
|
$ |
.24 |
|
|
$ |
(.35 |
) |
|
$ |
.48 |
(C) |
(A)
|
Adds back revenues from a
property which was presented as held for sale at March 31,
2008. At June 30, 2008, the operations of this property was
reclassified to continuing
operations.
|
(B)
|
Amounts have been adjusted to
give effect to the reclassification of income from a property previously
presented as held for sale. The 10Q for the period ended March
31, 2008 had reported income from continuing operations of $2,431,000 and
income from discontinued operations of $348,000 for a total net income of
$2,779,000.
|
(C)
|
Calculated on weighted average
shares outstanding for the
year.
|
|
|
Quarter Ended
|
|
|
|
|
2007
|
|
March 31
|
|
|
June 30
|
|
|
Sept. 30
|
|
|
Dec. 31
|
|
|
Total
For Year
|
|
Rental
revenues as previously reported
|
|
$ |
9,263 |
|
|
$ |
9,311 |
|
|
$ |
9,238 |
|
|
$ |
8,993 |
|
|
$ |
36,805 |
|
Reclassification
of revenues (D)
|
|
|
330 |
|
|
|
331 |
|
|
|
330 |
|
|
|
353 |
|
|
|
1,344 |
|
Revenues
(E)
|
|
$ |
9,593 |
|
|
$ |
9,642 |
|
|
$ |
9,568 |
|
|
$ |
9,346 |
|
|
$ |
38,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
3,040 |
|
|
$ |
2,536 |
|
|
$ |
2,464 |
|
|
$ |
2,177 |
|
|
$ |
10,217 |
|
Income
(loss) from discontinued operations
|
|
|
106 |
|
|
|
(4 |
) |
|
|
115 |
|
|
|
156 |
|
|
|
373 |
|
Net
income
|
|
$ |
3,146 |
|
|
$ |
2,532 |
|
|
$ |
2,579 |
|
|
$ |
2,333 |
|
|
$ |
10,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares
outstanding - basic and diluted
|
|
|
10,001 |
|
|
|
10,055 |
|
|
|
10,078 |
|
|
|
10,140 |
|
|
|
10,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share – basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
$ |
.30 |
|
|
$ |
.25 |
|
|
$ |
.25 |
|
|
$ |
.21 |
|
|
$ |
1.01 |
(F) |
Income
from discontinued operations
|
|
|
.01 |
|
|
|
- |
|
|
|
.01 |
|
|
|
.02 |
|
|
|
.04 |
(F) |
Net
income
|
|
$ |
.31 |
|
|
$ |
.25 |
|
|
$ |
.26 |
|
|
$ |
.23 |
|
|
$ |
1.05 |
(F) |
NOTE
15 - QUARTERLY FINANCIAL DATA (Continued)
(D)
|
Adds
back revenues from a property which was presented as held for sale at
December 31, 2007. At June 30, 2008, the operations of this
property was reclassified to continuing
operations.
|
(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, 2008
(Amounts
in Thousands)
|
|
|
|
|
Initial Cost To
Company
|
|
|
Cost
Capitalized
Subsequent
to Acquisition
|
|
|
Gross Amount at Which Carried at
December 31, 2008
|
|
|
Accumulated
Depreciation
|
|
Date of
Construction
|
|
Date
Acquired
|
|
Life on
Which
Depreciation
in Latest
Income
Statement is
Computed
(Years)
|
|
|
|
Encumbrances
|
|
|
Land
|
|
|
Buildings
|
|
|
Improvements
|
|
|
Land
|
|
|
Buildings and
Improvements
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Free
Standing Retail Locations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Properties – Note
1
|
|
$ |
2,860 |
|
|
$ |
19,929 |
|
|
$ |
29,720 |
|
|
$ |
- |
|
|
$ |
19,929 |
|
|
$ |
29,720 |
|
|
$ |
49,649 |
|
|
$ |
749 |
|
Various
|
|
Various
|
|
|
40
|
|
11
Properties – Note
2
|
|
|
25,399 |
|
|
|
10,286 |
|
|
|
45,414 |
|
|
|
- |
|
|
|
10,286 |
|
|
|
45,414 |
|
|
|
55,700 |
|
|
|
3,075 |
|
Various
|
|
04/07/06
|
|
|
40
|
|
Miscellaneous
|
|
|
78,474 |
|
|
|
33,179 |
|
|
|
114,029 |
|
|
|
1,010 |
|
|
|
33,179 |
|
|
|
115,039 |
|
|
|
148,218 |
|
|
|
19,206 |
|
Various
|
|
Various
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Flex
Buildings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
|
|
|
11,816 |
|
|
|
2,993 |
|
|
|
15,125 |
|
|
|
683 |
|
|
|
2,993 |
|
|
|
15,808 |
|
|
|
18,801 |
|
|
|
3,089 |
|
Various
|
|
Various
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
Buildings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parsippany,
NJ
|
|
|
15,989 |
|
|
|
6,055 |
|
|
|
23,300 |
|
|
|
- |
|
|
|
6,055 |
|
|
|
23,300 |
|
|
|
29,355 |
|
|
|
1,917 |
|
1997
|
|
09/16/05
|
|
|
40
|
|
Miscellaneous
|
|
|
16,235 |
|
|
|
3,537 |
|
|
|
13,688 |
|
|
|
2,524 |
|
|
|
3,537 |
|
|
|
16,212 |
|
|
|
19,749 |
|
|
|
2,901 |
|
Various
|
|
Various
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apartment
Building:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
|
|
|
4,223 |
|
|
|
1,110 |
|
|
|
4,439 |
|
|
|
- |
|
|
|
1,110 |
|
|
|
4,439 |
|
|
|
5,549 |
|
|
|
2,347 |
|
1910
|
|
06/14/94
|
|
|
27.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baltimore,
MD - Note
3
|
|
|
23,000 |
|
|
|
6,474 |
|
|
|
25,282 |
|
|
|
- |
|
|
|
6,474 |
|
|
|
25,282 |
|
|
|
31,756 |
|
|
|
1,291 |
|
1960
|
|
12/20/06
|
|
|
40
|
|
Miscellaneous
|
|
|
31,937 |
|
|
|
9,749 |
|
|
|
40,828 |
|
|
|
779 |
|
|
|
9,749 |
|
|
|
41,607 |
|
|
|
51,356 |
|
|
|
5,749 |
|
Various
|
|
Various
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theater:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
|
|
|
6,060 |
|
|
|
- |
|
|
|
8,328 |
|
|
|
- |
|
|
|
- |
|
|
|
8,328 |
|
|
|
8,328 |
|
|
|
2,360 |
|
2000
|
|
08/10/04
|
|
|
15.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
Clubs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous
|
|
|
9,521 |
|
|
|
2,233 |
|
|
|
8,729 |
|
|
|
2,731 |
|
|
|
2,233 |
|
|
|
11,460 |
|
|
|
13,693 |
|
|
|
2,014 |
|
Various
|
|
Various
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
225,514 |
|
|
$ |
95,545 |
|
|
$ |
328,882 |
|
|
$ |
7,727 |
|
|
$ |
95,545 |
|
|
$ |
336,609 |
|
|
$ |
432,154 |
|
|
$ |
44,698 |
|
|
|
|
|
|
|
|
Note 1 –
These ten properties are retail office supply stores net leased to the same
tenant, pursuant to separate leases. Eight of these leases contain
cross default provisions. They are located in eight states (Florida, Illinois,
Louisiana, North Carolina, Texas, California, Georgia and Oregon) and no
individual property is greater than 5% of the Company’s total
assets.
Note 2 –
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 3 –
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"
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Investment
in real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
380,270 |
|
|
$ |
380,111 |
|
|
$ |
280,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Addition:
Land, buildings and improvements
|
|
|
59,015 |
|
|
|
576 |
|
|
|
112,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of properties sold
|
|
|
(1,148 |
) |
|
|
(1 |
) |
|
|
(12,398 |
) |
Impairment
charge (c)
|
|
|
(5,983 |
) |
|
|
- |
|
|
|
- |
|
Rental
reserve received (see Note 3 above)
|
|
|
- |
|
|
|
(416 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
$ |
432,154 |
|
|
$ |
380,270 |
|
|
$ |
380,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
depreciation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of year
|
|
$ |
36,228 |
|
|
$ |
28,270 |
|
|
$ |
21,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Addition:
Depreciation
|
|
|
8,470 |
|
|
|
7,958 |
|
|
|
6,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deduction:
Accumulated depreciation related to property
sold
|
|
|
- |
|
|
|
- |
|
|
|
(512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
end of year
|
|
$ |
44,698 |
|
|
$ |
36,228 |
|
|
$ |
28,270 |
|
(b)
|
The
aggregate cost of the properties is approximately $9,324 lower for federal
income tax purposes at December 31,
2008.
|
(c)
|
During
the year ended December 31, 2008, the Company recorded an impairment
charge totaling $5,983.
|