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, 2005
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.
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(Exact name of registrant as specified in its charter)
MARYLAND 13-3147497
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
60 Cutter Mill Road, Great Neck, New York 11021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 466-3100
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange
Title of each class on which registered
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Common Stock, par value $1.00 New York Stock Exchange
per share
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
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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
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act (Check One):
Large Accelerated Filer Accelerated Filer X Non-Accelerated Filer
--- --- ---
Indicate by check mark whether registrant is a shell company (defined
in Rule 12b-2 of the Exchange Act).
Yes No X
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As of June 30, 2005 (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
$159.6 million.
As of March 10, 2006, the registrant had 9,924,255 shares of common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual meeting of stockholders
of One Liberty Properties, Inc., to be filed pursuant to Regulation 14A not
later than April 30, 2006, are incorporated by reference into Part III of this
Form 10-K.
PART I
Item 1. Business
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General
We are a self-administered and self-managed real estate investment
trust, also known as a REIT. We were incorporated under the laws of the State of
Maryland on December 20, 1982. We acquire, own and manage a geographically
diversified portfolio of retail, industrial, office, health and fitness, movie
theater and other properties, a substantial portion of which are under long-term
leases. Substantially all of our leases are "net leases," under which the tenant
is typically responsible for real estate taxes, insurance and ordinary
maintenance and repairs. As of December 31, 2005, we own forty five properties,
including a 50% tenancy in common interest in one property, and participate in
six joint ventures that own a total of fourteen properties (including one vacant
property held for sale). Our properties and the properties owned by our joint
ventures are located in twenty three states and have an aggregate of
approximately 5.4 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 an aggregate of approximately 2.1 million square feet of space at
properties in which we have a joint venture participation).
Under the terms of our current leases, our 2006 contractual rental
income will be approximately $29 million, including approximately $1.2 million
of rental income payable on our tenancy in common interest. In 2006, we expect
that our share of the rental income payable to our six joint ventures will be
approximately $7 million, without taking into consideration any rent that we
would receive if the vacant properties owned by our joint ventures are rented.
On December 31, 2005, the occupancy rate of properties owned by us was 100%
based on square footage (including the property owned by us as a tenant in
common) and the occupancy rate of properties owned by our joint ventures was
99.2% based on square footage (exclusive of vacant land owned by one of our
joint ventures). The weighted average remaining term of the leases in our
portfolio, including our tenancy in common interest, is 11.1 years based on our
2006 contractual rental income and 13.9 years for the leases at properties owned
by our joint ventures based on 2006 projected rent payable to our joint
ventures.
Acquisition Strategies
We seek to acquire properties throughout the United States that have
locations, demographics and other investment attributes that we believe to be
attractive. We believe that long-term leases provide a predictable income stream
over the term of the lease, making fluctuations in market rental rates and in
real estate values less significant to achieving our overall investment
objectives. Our goal is to acquire properties that are subject to long-term net
leases that include periodic contractual rental increases. Periodic contractual
rental increases provide reliable increases in future rent payments, while rent
increases based on the consumer price index provide protection against
inflation. Long-term leases also make it easier for us to obtain longer-term,
fixed-rate mortgage financing with principal amortization, thereby moderating
the interest rate risk associated with financing or refinancing our property
portfolio by reducing the outstanding principal balance over time. Although we
regard long-term leases as an important element of our acquisition strategy, we
will acquire a property that is subject to a short-term lease where we believe
the property represents a good opportunity for recurring income and residual
value.
Generally, we intend to hold the properties we acquire for an extended
period of time. Our investment criteria are intended to identify properties from
which increased asset value and overall return can be realized from an extended
period of ownership. Although our investment criteria favor an extended period
of ownership of our properties, we may dispose of a property following a lease
termination or expiration or even during the term of a lease if (i) we regard
the disposition of the property as an opportunity to realize the overall value
of the property sooner or (ii) to avoid future risks by achieving a determinable
return from the property.
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 declined by us before any of our affiliated entities may
pursue the opportunity.
Investment Evaluation
In evaluating potential net lease investments, we consider, among other
criteria, the following:
o an evaluation of the property and improvements, given its location and use;
o the current and projected cash flow of the property;
o the estimated return on equity to us;
o local demographics (population and rental trends);
o the ability of the tenant to meet operational needs and lease obligations;
o the terms of tenant leases, including the relationship between current rents
and market rents;
o the projected residual value of the property;
o potential for income and capital appreciation;
o occupancy of and demand for similar properties in the market area; and
o alternative use for the property at lease termination.
Our Business Objectives and Growth Strategy
Our business objective is to maintain and increase the cash available
for distribution to our stockholders by:
o acquiring a diversified portfolio of net leased properties subject to
long-term leases;
o obtaining mortgage indebtedness on favorable terms and increasing access to
capital to finance property acquisitions; and
o managing assets effectively through property acquisitions, lease extensions
and opportunistic property sales.
Our growth strategy includes the following elements:
o to maintain, renew and enter into new long-term leases that contain
provisions for contractual rent increases;
o to acquire additional properties within the United States that are subject
to long-term net leases and that satisfy our other investment criteria; and
o to acquire properties in market or industry sectors that we identify,
from time to time, as offering superior risk-adjusted returns.
Typical Property Attributes
The properties in our portfolio and owned by our joint ventures
typically have the following attributes:
o 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;
o 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 81% of our 2006
contractual rental income expire after 2011, and leases representing
approximately 51% of our 2006 contractual rental income expire after
2015. Leases representing approximately 98% and 89% of the rental
income payable in 2006 on properties owned by our joint ventures expire
after 2011 and 2015, respectively; and
o Scheduled rent increases. Leases representing approximately 81% of our
2006 contractual rental income provide for either scheduled rent
increases or periodic contractual rent increases based on the consumer
price index. Leases representing approximately 71% of the rental income
payable in 2006 on properties owned by our joint ventures provide for
scheduled rent increases.
Our Tenants
The following table sets forth information about the diversification of
our tenants (excluding tenants of our joint ventures) by industry sector as of
December 31, 2005:
Percentage of
Type of Number of 2006 Contractual 2006 Contractual
Property Tenants Rental Income (1) Rental Income
- -------- -------- ----------------- -------------
Retail 34 $12,804,347 44.1%
Industrial 7 5,047,124 17.4
Office (2) 3 4,109,482 14.2
Movie theater 2 2,397,019 8.3
Flex 3 2,378,830 8.2
Health & fitness 3 1,615,683 5.6
Residential 1 650,000 2.2
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53 $29,002,485 100.0%
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(1) 2006 contractual rental income includes rental income that is payable to
us during 2006 for properties owned by us at December 31, 2005, including
rental income payable on our tenancy in common interest.
(2) Includes a property in which we own a 50% tenancy in common interest.
Although the main focus of our analysis is the intrinsic value of a
property, we seek to acquire properties that we believe will provide attractive
current returns from leases with tenants that operate profitably, even if our
tenants are typically not rated or are rated below investment grade. We will
acquire a property if we believe that the quality of the underlying real estate
mitigates the risk that may be associated with any default by the tenant. Most
of our retail tenants operate on a national basis and include, among others,
Barnes & Noble, Inc., Walgreen Co., The Sports Authority, Inc., Best Buy Co.,
Inc., TGI Friday's Inc., Party City Corporation, Circuit City Stores, Inc.,
Petco Animal Supplies, Inc. and CarMax Auto Superstores, Inc. Of properties
owned by us as of December 31, 2005, 27 are net leased to various retail
operators under long-term leases of which 23 of the retail properties are net
leased to single tenants and four properties are net leased to two to four
separate tenants pursuant to separate leases. Seven of our properties are
industrial-type buildings, one of which is used as a frozen food warehouse, two
of our properties, with three tenants, are flex-type buildings (office, research
and development and warehouse) and three are health and fitness facilities. We
also own three office properties, one residential property, and two movie
theaters, one of which we hold as ground lessee under a long-term lease.
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 other leases provide for rent
increases pursuant to a formula based on the consumer price index. While some of
our leases also provide for minimum rents supplemented by additional payments
based on sales derived from the property subject to the lease, such additional
payments were not a material part of our 2005 rental revenues and are not
expected to be a material part of our 2006 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, 2005:
% of 2006 Contractual
Approximate Square 2006 Contractual Rental Income
Year of Lease Number of Feet Subject to Rental Income Under Represented by
Expiration (1)(2) Expiring Leases Expiring Leases Expiring Leases (3) Expiring Leases
- ---------- --------------- --------------- --------------- ---------------
2006 1 15,000 $ 89,587 .3%
2007 2 19,000 431,568 1.5
2008 3 520,272 1,854,504 6.4
2009 3 200,468 952,894 3.3
2010 3 19,038 349,825 1.2
2011 3 193,428 1,956,379 6.7
2012 - - - -
2013 4 94,942 1,333,263 4.6
2014 14 700,200 5,614,246 19.4
2015 and
thereafter 20 1,511,613 16,420,219 56.6
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53 3,273,961 $29,002,485 100.0%
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(1) Lease expirations assume tenants do not exercise existing renewal options.
(2) Includes a property in which we have a tenancy in common interest.
(3) 2006 contractual rental income includes rental income that is payable to us
during 2006 under existing leases on properties we owned at December 31,
2005 (including rental income payable on our 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. However, the terms of our credit facility with Valley
National Bank, Merchants Bank Division, 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 approximately 70% of the
value (as defined) of our properties, among other limitations in the credit
facility on our ability to incur additional indebtedness. We borrow funds on a
secured and unsecured basis and intend to continue to do so in the future. We
mortgage specific properties on a non-recourse basis (subject to standard
carve-outs) to enhance the return on our investment in a specific property. We
maintain a $62.5 million revolving credit line that is a full recourse
obligation. The proceeds of mortgage loans and amounts drawn on our credit line
may be used for property acquisitions, investments in joint ventures or other
entities that own real property, to reduce bank debt and for working capital
purposes.
With respect to properties we acquire on a free and clear basis, we
usually seek to obtain long-term fixed-rate mortgage financing shortly after the
acquisition of such property to avoid the risk of movement of interest rates and
fluctuating supply and demand in the mortgage markets. We also will acquire a
property that is subject to (and will assume) a fixed-rate mortgage.
Substantially all of our mortgages provide for amortization of part of the
principal balance during the term, thereby reducing the refinancing risk at
maturity. Some of our properties may be financed on a cross-defaulted or
cross-collateralized basis, and we may collateralize a single financing with
more than one property.
After termination or expiration of any lease relating to any of our
properties (either at lease expiration or early termination), we will seek to
re-rent or sell such property in a manner that will maximize the return to us,
considering, among other factors, the income potential and market value of such
property. We acquire properties for long-term investment for income purposes and
do not typically engage in the turnover of investments. We will consider the
sale of a property prior to termination or expiration of the relevant lease if a
sale appears advantageous in view of our investment objectives. We may take a
purchase money mortgage as partial payment in lieu of cash in connection with
any sale and may consider local custom and prevailing market conditions in
negotiating the terms of repayment. If there is a substantial tax gain, we may
seek to enter into a tax deferred transaction and reinvest the proceeds in
another property. It is our policy to use any cash realized from the sale of
properties, net of any distributions to stockholders to maintain our REIT
status, to pay down amounts due under our line of credit, if any, and for the
acquisition of additional properties.
Our Joint Ventures
We are a joint venture partner in six joint ventures that own a total
of fourteen properties (including one vacant property held for sale) and have an
aggregate of approximately 2.1 million square feet of space. We own a 50% equity
interest in five of our joint ventures and a 36% equity interest in the sixth
joint venture and at December 31, 2005 our investment in unconsolidated joint
ventures is approximately $27 million.
We are designated as "managing member" or "manager" under the operating
agreements of five of our six joint ventures, including our two "movie theater"
joint ventures. Our two movie theater joint ventures, with the same joint
venture partner, own nine movie theater properties having a total of 164
screens. Eight of the nine movie theaters owned by the two "movie theater" joint
ventures are megaplex theaters with stadium-style seating and are leased to and
operated by a national movie theater operator. The other theater, located in
Brooklyn, NY, is an "in town" multi-screen theater with partial stadium-style
seating and is leased to and operated by a publicly held entity. Megaplex movie
theaters have multiple screens. Stadium style seating provides for seating with
elevation between rows to provide unobstructed viewing. In addition, one of the
"movie theater" joint ventures owns a .26 of an acre parcel of land, located in
Monroe, NY, on which a movie theater was being constructed. The lease with the
lessee and proposed operator was terminated in 2004, construction was stopped
and the joint venture is seeking to lease or sell this property, which has been
written down on the joint venture's books to $640,000 from $3.2 million.
Each of the other four joint ventures in which we participate as a
joint venture partner owns one property, two of which are retail and two of
which are industrial. One of the retail properties, which contains 17,108 square
feet of rental space, has been vacant since February 2004 and we cannot at this
time project when a new lease will be consummated or, if the property is offered
for sale that the venture will be able to consummate an advantageous sale.
Based on existing leases, we anticipate that our share of rental income
payable to our joint ventures in 2006 will be approximately $7 million, of which
81.2% is expected to be attributable to our two movie theater joint ventures. In
accordance with the terms of existing leases, the lease relating to one
property, owned by a joint venture, which is expected to contribute 2.2% to the
projected rental income payable to our joint ventures in 2006, will expire in
2010. The leases relating to the other properties owned by our joint ventures
are scheduled to expire in 2015 and thereafter.
Other Types of Investments
From time to time we have invested, on a limited basis, in publicly
traded shares of other REITs and may make such investments on a limited basis in
the future. We also may invest, on a limited basis, in the shares of entities
not involved in real estate investments, provided that no such investment
adversely affects our ability to qualify as a REIT under the Internal Revenue
Code of 1986, as amended. We do not have any plans to invest in or to originate
loans to other persons, whether or not secured by real property. Although we
have not done so in the past, we may issue securities in exchange for properties
that fit our investment criteria. We have not previously invested in the
securities of another entity for the purpose of exercising control, and we do
not have any present plans to invest in the securities of another entity for
such purpose.
Competition
We face competition for the acquisition of net leased properties from a
variety of investors including domestic and foreign corporations and real estate
companies, financial institutions, insurance companies, pension funds,
investment funds, other REITs and individuals, some of which have significant
advantages over us, including a larger, more diverse group of properties and
greater financial and other resources than we have. We have recently experienced
increased competition for the acquisition of net leased properties. We believe
that our management's experience in real estate, mortgage lending, credit
underwriting and transaction structuring allows us to compete effectively for
properties.
Employees
We share executive, administrative, legal, accounting and clerical
personnel with several affiliated entities including, among others, Gould
Investors L.P., a limited partnership involved in the ownership and operation of
a diversified portfolio of real estate, which owned 8% of our common stock at
December 31, 2005, and BRT Realty Trust, a publicly-traded mortgage lending
REIT. Patrick J. Callan, Jr., our president, Lawrence G. Ricketts, Jr., a vice
president, and two other employees devote substantially all of their business
time to our company, while our other personnel share their services on a
part-time basis with us and other affiliated entities that share our executive
offices. The allocation of expenses for the shared personnel is computed in
accordance with a shared services agreement by and among us and the affiliated
entities, which we refer to as the Shared Services Agreement. The allocation is
based on the estimated time devoted by executive, administrative, legal,
accounting and clerical personnel to the affairs of each entity that is a party
to the Shared Services Agreement.
We believe that the Shared Services Agreement allows our company to
benefit from access to, and from the services of, a group of senior executives
with significant knowledge and experience. If not for the structure established
under the Shared 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 currently incur. 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 on our web site, we post the following filings as soon as
reasonably practicable after they are electronically filed with or furnished to
the Securities and Exchange Commission: our Annual Report on Form 10-K, our
quarterly reports on Form 10-Q, our current reports on Form 8-K, and any
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended. All such filings on
our Investor Information Web page, which also includes Forms 3, 4 and 5 filed
pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended,
are available to be viewed free of charge. On the Corporate Governance page of
our web site, we post the following charters and guidelines: Audit Committee
Charter, Compensation Committee Charter, Nominating and Corporate Governance
Committee Charter, Corporate Governance Guidelines and Code of Business Conduct
and Ethics. All such charters and guidelines on our Corporate Governance Web
page are available to be viewed free of charge. Information contained on our web
site is not part of, and is not incorporated by reference into, this Annual
Report on Form 10-K or our other filings with the Securities and Exchange
Commission. A copy of this Annual Report on Form 10-K and those items disclosed
on our Investor Information Web page and our Corporate Governance Web page are
available without charge upon written request to: One Liberty Properties, Inc.,
60 Cutter Mill Road, Suite 303, Great Neck, New York 11021, Attention:
Secretary.
Forward-Looking Statements
This Annual Report on Form 10-K, together with other statements and
information publicly disseminated by One Liberty Properties, Inc., contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. We intend such forward-looking statements to be covered
by the safe harbor provision for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 and include this statement for
purposes of complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe our future
plans, strategies and expectations, are generally identifiable by use of the
words "may," "will," "believe," "expect," "intend," "anticipate," "estimate,"
"project" or similar expressions or variations thereof. You should not rely on
forward-looking statements since they involve known and unknown risks,
uncertainties and other factors which are, in some cases, beyond our control and
which could materially affect actual results, performance or achievements.
Factors which may cause actual results to differ materially from current
expectations include, but are not limited to:
o general economic and business conditions;
o general and local real estate conditions;
o the financial condition of our tenants and the performance of their lease
obligations;
o changes in governmental laws and regulations relating to real estate and
related investments;
o the level and volatility of interest rates;
o competition in our industry;
o accessibility of debt and equity capital markets;
o the availability of and costs associated with sources of liquidity; and
o the other risks described under "Risks Related to Our Company" and "Risks
Related to the REIT Industry."
Any or all of our forward-looking statements in this report, in our
Annual Report to Stockholders and in any other public statements we make may
turn out to be wrong . They can be affected by inaccurate assumptions we might
make or by 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 federal securities laws, we
undertake no obligation to publicly update 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 on related subjects in our
reports to the Securities and Exchange Commission.
Set forth below is a detailed discussion of certain risks affecting our
business. The categorization of risks set forth below is meant to help you
better understand the risks facing our business and is not intended to limit
your consideration of the possible effects of these risks to the listed
categories. Any adverse effects related to the risks discussed below may, and
likely will, adversely affect many aspects of our business.
Item 1A. Risk Factors.
------------
In addition to the other information contained or incorporated by
reference in this Form 10-K, readers should carefully consider the following
risk factors:
Risks Related to Our Business
- -----------------------------
The financial failure of our tenants would be likely to cause significant
reductions in our revenues, our equity in earnings of unconsolidated joint
ventures and in the value of our real estate portfolio.
Based on 2006 contractual rental income, 85% of our rental revenues are
generated from properties which are leased to single tenants. Accordingly, the
financial failure or other default of a tenant in non-payment of rent or
property related expenses or the termination of a lease could cause a
significant reduction in our revenues. Additionally, approximately 45% of our
rental revenues (excluding rental revenues from our joint ventures) for the year
ended December 31, 2005 was derived from retail tenants and approximately 44% of
our 2006 contractual rental income will be derived from retail tenants. We also
anticipate that significant revenues will be realized in 2006 by our two movie
theater joint ventures. Weakening economic conditions in the retail or theater
industries could result in the financial failure, or other default, of a
significant number of our tenants and the tenants of our joint ventures. In 2004
and 2005 three retail tenants, each the only tenant at a retail property owned
by us, filed for protection under Chapter II of the federal bankruptcy laws. One
of these properties was vacant for approximately 17 months (until the property
was sold in December 2005) after the tenant rejected the lease. This property
was sold for a loss of $9,400, after we had previously recorded a valuation
allowance aggregating $835,000. With respect to the other two properties, each
tenant rejected its lease, one property was vacant for approximately three
months (until the property was sold in September 2005 for a gain of $639,000)
and one property was sold in November 2005 for a gain of $369,000 (we did not
experience a vacancy at this property). In addition, a building owned by a joint
venture in which we have a 50% economic interest, was leased to a tenant which
filed for protection under Chapter II. The tenant rejected the lease in June
2004 and the property has been vacant since that time. It is possible that other
tenants could file for protection under federal bankruptcy laws or state
insolvency proceedings or could face similar difficulties in the future. In the
event of a default by a tenant, we may experience delays in enforcing our rights
as landlord and sustain a loss of revenues and substantial costs in protecting
our investment. We may also face liabilities arising from the tenant's actions
or omissions that would reduce our revenues and the value of our portfolio.
Also, if we are unable to re-rent a property when an existing lease terminates,
we receive no revenues from such property and are required to pay taxes,
insurance and other operating expenses during the vacancy period, and could as a
result experience a decline in the value of the property.
A significant portion of our revenues and/or our 2006 contractual rental income
is derived from five tenants. The default, financial distress or failure of any
of these tenants could significantly reduce our revenues.
New Flyer of America, Inc., L-3 Communications Corp. and Barnes and
Noble, Inc. ( a tenant at three separate locations) accounted for approximately
6.5%, 6.1%, and 5.2%, respectively, of our rental revenues (excluding rental
revenues from our joint ventures) for the year ended December 31, 2005 and
account for 5.4%, 5.8%, and 5.2%, respectively, of our 2006 contractual rental
income. DSM Nutritional Products, Inc., a tenant at a property we acquired in
September 2005 accounts for 6.3% of our 2006 contractual rental income. Regal
Cinemas, Inc., a tenant at four theaters owned by our movie theater joint
ventures, accounted for 36% of the total rental revenues of our joint ventures
for the year ended December 31, 2005 and will account for 37% of our share of
projected rent payable in 2006 to our joint ventures. In addition, Regal
Cinemas, Inc., is a tenant at a theater owned by us and accounted for
approximately 4.3% of our rental revenues for the year ended December 31, 2005
and accounts for 4% of our 2006 contractual rental income. The default,
financial distress or bankruptcy of any of these tenants could cause
interruptions in the receipt or the loss of a significant amount of rental
revenues and result in the vacancy of the property occupied by the defaulting
tenant, which would significantly reduce our rental revenues (or the rental
revenues of our joint ventures) and net income until the property is re-rented,
and could decrease the ultimate sale value of the property.
The inability to repay our indebtedness could reduce cash available for
distributions and cause losses.
As of December 31, 2005, we had outstanding approximately $167 million in
long-term mortgage indebtedness, all of which is non-recourse (subject to
standard carve-outs). As of December 31, 2005, our ratio of mortgage debt to
total assets was approximately 51%. In addition, as of December 31, 2005, our
joint ventures had approximately $74.5 million in total long-term mortgage
indebtedness (all of which is non-recourse subject to standard carve-outs). The
mortgages on properties owned by each of our two "movie theater" joint ventures
are cross collateralized. The risks associated with our debt and the debt of our
joint ventures include the risk that cash flow for the properties securing the
mortgage indebtedness will be insufficient to meet required payments of
principal and interest. Further, if a property or properties are mortgaged to
collateralize payment of indebtedness and we or any of our joint ventures is
unable to make mortgage payments on the secured indebtedness, the lender could
foreclose upon the property or properties resulting in a loss of revenues to us
and a decline in the value of our portfolio. Even with respect to non-recourse
indebtedness, the lender may have the right to recover deficiencies from us
under certain circumstances that could result in a reduction in the amount of
cash available to meet expenses and to make distributions to our stockholders
and in a deterioration of our financial condition.
If we are unable to refinance our borrowings at maturity at favorable rates or
otherwise raise funds, our net income may decline or we may be forced to sell
properties on disadvantageous terms, which would result in the loss of revenues
and in a decline in the value of our portfolio.
Only a small portion of the principal of our mortgage indebtedness and
the mortgage indebtedness of our joint ventures will be repaid prior to maturity
and neither we nor our joint ventures plan to retain sufficient cash to repay
such indebtedness at maturity. Accordingly, in order to meet these obligations,
we will have to use funds available under our credit line, if any, to refinance
debt or seek to raise funds through the financing of unencumbered properties,
sale of properties or sale of additional equity. Between January 2006 and
December 31, 2010, we will have to refinance an aggregate of approximately $32
million of maturing debt, of which approximately $2.2 will have to be refinanced
in 2006 and approximately $3.8 million will have to be refinanced in 2007. Our
joint ventures do not have maturing debt until 2012. We can give no assurance
that we (or our joint ventures) will be able to refinance this debt or arrange
additional debt financing on unencumbered properties on terms as favorable as
the terms of existing indebtedness, or at all. If interest rates or other
factors at the time of refinancing result in interest rates higher than the
interest rates currently being paid, interest expense would increase, which
would adversely affect our net income, financial condition and the amount of
cash available for distribution to stockholders. If we (or our joint ventures)
are not successful in refinancing existing indebtedness or financing
unencumbered properties, selling properties on favorable terms or raising
additional equity, our cash flow (or the cash flow of a joint venture) will not
be sufficient to repay all maturing debt when payments become due, and we (or a
joint venture) may be forced to dispose of properties on disadvantageous terms,
which would result in the loss of revenues and in a decline in the value of our
portfolio.
As of December 31, 2005, we had zero outstanding on our revolving credit
facility. Depending on our acquisition program, we could borrow a significant
amount under our credit facility in 2006. The facility is guaranteed by all of
our subsidiaries which own unencumbered properties and the shares of stock of
all other subsidiaries are pledged as collateral. The risks associated with our
revolving credit facility include the risk that our cash flow will be
insufficient to meet required payments of interest. Also, we may be unable to
negotiate a new facility at the maturity date and may be unable to pay off the
amount then outstanding. This could result in a reduction in the amount of cash
available to meet expenses and to make distributions to holders of our common
stock.
Increased borrowings could result in increased risk of default on our repayment
obligations and increased debt service requirements.
Our governing documents do not contain any limitation on the amount of
indebtedness we may incur. However, the terms of our credit facility with Valley
National Bank, Merchants Bank Division, 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 approximately 70% of the
value (as defined) of our properties, among 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 holders of our common stock.
If we are unable to re-rent properties upon the expiration of our leases, it
could adversely affect our revenues and ability to make distributions, and could
reduce the value of our portfolio.
Substantially all of our revenues are derived from rental income paid by
tenants at our properties. We cannot predict whether current tenants will renew
their leases upon the expiration of their terms. In addition, we cannot predict
whether current tenants will attempt to terminate their leases (including taking
advantage of provisions of the federal bankruptcy laws), or whether defaults by
tenants may result in termination of their leases prior to the expiration of
their current terms. If tenants terminate or fail to renew their leases, or if
leases terminate due to defaults or in the course of a bankruptcy proceeding, we
may not be able to locate qualified replacement tenants and, as a result, we
would lose a source of revenue while remaining responsible for the payment of
our mortgage obligations and the expenses related to the properties, including
real estate taxes and insurance. Even if tenants decide to renew their leases or
we find replacement tenants, the terms of renewals or new leases, including the
cost of required renovations or concessions to tenants, or the expense of
reconfiguration of a single tenancy property for use by multiple tenants, may be
less favorable than current lease terms and could reduce the amount of cash
available to meet expenses and to make distributions to holders of our common
stock.
Uninsured and underinsured losses may affect the revenues generated by, the
value of, and the return from, a property affected by a casualty or other claim.
Substantially all of our tenants obtain, for our benefit, comprehensive
insurance covering our properties in amounts that are intended to be sufficient
to provide for the replacement of the improvements at each property. However,
the amount of insurance coverage maintained for any property may not be
sufficient to pay the full replacement cost of the improvements at the property
following a casualty event. In addition, the rent loss coverage under the policy
may not extend for the full period of time that a tenant may be entitled to a
rent abatement as a result of, or that may be required to complete restoration
following, a casualty event. In addition, there are certain types of losses,
such as those arising from earthquakes, floods, hurricanes and terrorist
attacks, that may be uninsurable or that may not be economically insurable.
Changes in zoning, building codes and ordinances, environmental considerations
and other factors also may make it impossible or impracticable for us to use
insurance proceeds to replace damaged or destroyed improvements at a property.
If restoration is not or cannot be completed to the extent, or within the period
of time specified in certain of our leases, the tenant may have the right to
terminate the lease. If any of these or similar events occur, it may reduce our
revenues, or the value of, or our return from, an affected property.
Our revenues and the value of our portfolio are affected by a number of factors
that affect investments in real estate generally.
We are subject to the general risks of investing in real estate. These
include adverse changes in economic conditions and local conditions such as
changing demographics, retailing trends and traffic patterns, declines in the
rental rates, changes in the supply and price of quality properties and the
market supply and demand of competing properties, the impact of environmental
laws, security concerns, prepayment penalties applicable under mortgage
financing, changes in tax, zoning, building code, fire safety and other laws,
the type of insurance coverages available in the market, and changes in the
type, capacity and sophistication of building systems. In particular,
approximately 44% of our 2006 contractual rental income will come from retail
tenants; therefore vulnerable to any economic decline that negatively impacts
the retail sector of the economy. Any of these conditions could have an adverse
effect on our results of operations, liquidity and financial condition.
Our revenues and the value of our portfolio are affected by a number of factors
that affect investments in leased real estate generally.
We are subject to the general risks of investing in leased real estate.
These include the non-performance of lease obligations by tenants, improvements
that will be costly or difficult to remove should it become necessary to re-rent
the leased space for other uses, covenants in certain retail leases that limit
the types of tenants to which available space can be rented (which may limit
demand or reduce the rents realized on re-renting), rights of termination of
leases due to events of casualty or condemnation affecting the leased space or
the property or due to interruption of the tenant's quiet enjoyment of the
leased premises, and obligations of a landlord to restore the leased premises or
the property following events of casualty or condemnation. Any of these
conditions could have an adverse impact on our results of operations, liquidity
and financial condition.
Our real estate investments are relatively illiquid and their values may
decline.
Real estate investments are relatively illiquid. Therefore, we will be
limited in our ability to reconfigure our real estate portfolio in response to
economic changes. We may encounter difficulty in disposing of properties when
tenants vacate either at the expiration of the applicable lease or otherwise. If
we decide to sell any of our properties, our ability to sell these properties
and the prices we receive on their sale may be affected by many factors,
including the number of potential buyers, the number of competing properties on
the market and other market conditions, as well as whether the property is
leased and if it is leased, the terms of the lease. As a result, we may be
unable to sell our properties for an extended period of time without incurring a
loss, which would adversely affect our results of operations, liquidity and
financial condition.
The concentration of our properties in certain geographic areas may make our
revenues and the value of our portfolio vulnerable to adverse changes in local
economic conditions.
We do not have specific limitations on the total percentage of our real
estate properties that may be located in any one area. Consequently, properties
that we own may be located in the same or a limited number of geographic
regions. Approximately 36% of our rental income (excluding our share of the
rental income from our joint ventures) for the year ended December 31, 2005
were, and approximately 35% of our 2006 contractual rental income will be,
derived from properties located in New York and Texas. As a result, a decline in
the economic conditions in these geographic regions, or in geographic regions
where our properties may be concentrated in the future, may have an adverse
effect on the rental and occupancy rates for, and the property values of, these
properties, which could lead to a reduction in our rental income and in the
value of these properties.
Our inability to control our joint ventures could result in diversion of time
and effort by our management and the inability to achieve the goals of the joint
venture or the tenancy in common.
We presently are a venturer in six joint ventures which own fourteen
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, 2005 our
investment in unconsolidated joint ventures is approximately $27 million and the
tenancy in common interest represents a net investment of approximately $500,000
by us. These investments may involve risks not otherwise present in investments
made solely by us, including that our co-investors may have different interests
or goals than we do, or that our co-investors may not be able or willing to take
an action that is desired by us. 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, because we may, under
the terms of our credit facility, invest a total of $90 million in joint
ventures, we may invest a significant amount of our funds into joint ventures
which ultimately may not be profitable as a result of disagreements with or
among our co-investors.
Our joint venture agreements and tenancy in common agreement contain provisions
related to the transfer of our interest, resolution of disputes and future
capital contributions that could limit our ability to liquidate our interest or
adversely affect the value of our investments.
The joint venture agreements entered into for each of our ventures generally
provide that we cannot finance or transfer our interest in the joint venture
without the consent of the other venturers. If we are unable to obtain the
consent of our co-venturers to a proposed financing or transfer of our interest,
we may be unable to dispose of such interest on favorable terms. The tenancy in
common agreement provides each party with a right of first refusal in the event
the other party decides to transfer its tenancy in common interest. The right of
first refusal may make it more difficult for us to sell our interest in the
property. In addition, the tenancy in common agreement requires the consent of
the other parties to a proposed financing of the property. Our joint venture
agreements and tenancy in common agreement also contain provisions governing
disputes that could cause us to acquire the interest of co-investors on
unfavorable terms or without adequate time to obtain satisfactory financing or
cause us to sell our interest on terms that may be disadvantageous. In addition,
if we fail to contribute any additional capital that we are required to
contribute in the future to any of these investments, our interest may be
reduced disproportionately, or a co-investor may elect to fund our portion of
the capital contribution, which would result in that co-investor acquiring a
preferred rate of return and a right to receive interest on the amount of such
contribution. The occurrence of any of these events would adversely affect the
value of our investment.
Competition in the real estate business is intense and could reduce our revenues
and harm our business.
We compete for real estate investments with all types of investors,
including domestic and foreign corporations and real estate companies, financial
institutions, insurance companies, pension funds, investment funds, other REITs
and individuals. Many of these competitors have significant advantages over us,
including a larger, more diverse group of properties and greater financial and
other resources. We have recently experienced increased competition for the
acquisition of net leased properties. Our failure to compete successfully with
these competitors could result in our inability to identify and acquire valuable
properties and to achieve our growth objectives.
Compliance with environmental regulations and associated costs could adversely
affect our liquidity.
Under various federal, state and local laws, ordinances and regulations,
an owner or operator of real property may be required to investigate and clean
up hazardous or toxic substances or petroleum product releases at the property
and may be held liable to a governmental entity or to third parties for property
damage and for investigation and cleanup costs incurred in connection with
contamination. The cost of investigation, remediation or removal of hazardous or
toxic substances may be substantial, and the presence of such substances, or the
failure to properly remediate a property, may adversely affect our ability to
sell or rent the property or to borrow money using the property as collateral.
In connection with our ownership, operation and management of real properties,
we may be considered an owner or operator of the properties and, therefore,
potentially liable for removal or remediation costs, as well as certain other
related costs, including governmental fines and liability for injuries to
persons and property, not only with respect to properties we own now or may
acquire, but also with respect to properties we have owned in the past.
We cannot provide any assurance that existing environmental studies with
respect to any of our properties reveal all potential environmental liabilities,
that any prior owner of a property did not create any material environmental
condition not known to us, or that a material environmental condition does not
otherwise exist, or may not exist in the future, as to any one or more of our
properties. If a material environmental condition does in fact exist, or exists
in the future, it could have a material adverse impact upon our results of
operations, liquidity and financial condition.
Our senior management and other key personnel are critical to our business and
our future success depends on our ability to retain them.
We depend on the services of Fredric H. Gould, chairman of our board of
directors and chief executive officer, Patrick J. Callan, Jr., our president,
Lawrence G. Ricketts, our vice president and other members of our senior
management to carry out our business and investment strategies. Only two, of our
officers, Mr. Callan and Mr. Ricketts, devote substantially all of their
business time to our company. The remainder of our senior management personnel
share their services on a part-time basis with entities affiliated with us and
located in the same executive offices under the Shared Services Agreement. As we
expand, we will continue to need to attract and retain qualified senior
management and other key personnel, both on a full-time and shared basis. The
loss of the services of any of our senior management or other key personnel, or
our inability to recruit and retain qualified personnel in the future, could
impair our ability to carry out our business and investment strategies. We do
not carry key main life insurance on members of our senior management.
Our transactions with affiliated entities involve conflicts of interest.
We have entered into a number of transactions with persons and entities
affiliated with us and with certain of our officers and directors and we intend
to enter into transactions with such persons in the future. In particular,
during the year ended December 31, 2005, Majestic Property Management Corp., a
company owned by Mr. Gould and in which certain of our executive officers are
officers, received an aggregate of $131,000 for management fees and $156,000 for
mortgage brokerage fees from our joint ventures. In addition in 2005, we paid
Majestic Property Management Corp. approximately $1 million for mortgage
brokerage fees, sales commissions, management fees and construction supervisory
fees. Our policy is to insure that we receive terms in transactions with
affiliates that are at least as favorable to us as similar transactions we would
enter into with unaffiliated persons and these transactions have been approved
by our Audit Committee and by a majority of our board of directors, including a
majority of our independent directors. However, these transactions raise the
potential that we may not receive terms as favorable as those that we would
receive if the transactions were entered into with unaffiliated entities.
We are required by certain of our net lease agreements to pay property related
expenses that are not the obligations of our tenants.
Under the terms of substantially all of our net lease agreements, in
addition to satisfying their rent obligations, our tenants are responsible for
the payment of real estate taxes, insurance and ordinary maintenance and
repairs. However, in the case of certain leases, we may pay some expenses, such
as the costs of environmental liabilities, roof and structural repairs,
insurance and certain non-structural repairs and repairs and maintenance. If our
properties incur significant expenses that must be paid by us under the terms of
our lease agreements, our business, financial condition and results of
operations will be adversely affected and the amount of cash available to meet
expenses and to make distributions to holders of our common stock may be
reduced.
Compliance with the Americans with Disabilities Act could be costly.
Under the Americans with Disabilities Act of 1990, all public
accommodations must meet federal requirements for access and use by disabled
persons. A determination that our properties do not comply with the Americans
with Disabilities Act could result in liability for both governmental fines and
damages. If we are required to make unanticipated major modifications to any of
our properties to comply with the Americans with Disabilities Act, which are
determined not to be the responsibility of our tenants, we could incur
unanticipated expenses that could have an adverse impact upon our results of
operations, liquidity and financial condition.
We cannot assure you of our ability to pay dividends in the future.
We intend to pay quarterly dividends and to make distributions to our
stockholders in amounts such that all or substantially all of our taxable income
in each year, subject to certain adjustments, is distributed. This, along with
other factors, should enable us to quality for the tax benefits accorded to a
REIT under the Internal Revenue Code of 1986, as amended. We have not
established a minimum dividend payment level and our ability to pay dividends
may be adversely affected by the risk factors described in this Annual Report.
All distributions will be made at the discretion of our board of directors and
will depend on our earnings, our financial condition, maintenance of our REIT
status and such other factors as our board of directors may deem relevant from
time to time. We cannot assure you that we will be able to pay dividends in the
future.
Risks Related to the REIT Industry
- ----------------------------------
Failure to qualify as a REIT would result in material adverse tax consequences
and would significantly reduce cash available for distributions.
We believe that we operate so as to qualify as a REIT under the Internal
Revenue Code of 1986, as amended. Qualification as a REIT involves the
application of technical and complex legal provisions for which there are
limited judicial and administrative interpretations. The determination of
various factual matters and circumstances not entirely within our control may
affect our ability to qualify as a REIT. In addition, no assurance can be given
that legislation, new regulations, administrative interpretations or court
decisions will not significantly change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. If we fail to quality as a REIT, we will be subject to federal,
certain additional state and local income tax (including any applicable
alternative minimum tax) on our taxable income at regular corporate rates and
would not be allowed a deduction in computing our taxable income for amounts
distributed to stockholders. In addition, unless entitled to relief under
certain statutory provisions, we would be disqualified from treatment as a REIT
for the four taxable years following the year during which qualification is
lost. The additional tax would reduce significantly our net income and the cash
available for distributions to stockholders.
We are subject to certain distribution requirements that may result in our
having to borrow funds at unfavorable rates.
To obtain the favorable tax treatment associated with being a REIT, we
generally are required, among other things, to distribute to our stockholders at
least 90% of our ordinary taxable income (subject to certain adjustments) each
year. To the extent that we satisfy these distribution requirements, but
distribute less than 100% of our taxable income we will be subject to federal
corporate tax on our undistributed taxable income. In addition, we will be
subject to a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by us with respect to any calendar year are less than the sum
of 85% of our ordinary income, 95% of our capital gain net income and 100% of
our undistributed income from prior years.
As a result of differences in timing between the receipt of income and
the payment of expenses, and the inclusion of such income and the deduction of
such expenses in arriving at taxable income, and the effect of nondeductible
capital expenditures, the creation of reserves and the timing of required debt
service (including amortization) payments, we may need to borrow funds on a
short-term basis in order to make the distributions necessary to retain the tax
benefits associated with qualifying as a REIT, even if we believe that then
prevailing market conditions are not generally favorable for such borrowings.
Such borrowings could reduce our net income and the cash available for
distributions to holders of our common stock.
Compliance with REIT requirements may hinder our ability to maximize profits.
In order to qualify as a REIT for federal income tax purposes, we must
continually satisfy tests concerning among other things, our sources of income,
the amounts we distribute to our stockholders and the ownership of our stock. We
may also be required to make distributions to stockholders at disadvantageous
times or when we do not have funds readily available for distribution.
Accordingly, compliance with REIT requirements may hinder our ability to operate
solely on the basis of maximizing profits.
In order to qualify as a REIT, we must also ensure that at the end of
each calendar quarter, at least 75% of the value of our assets consists of cash,
cash items, government securities and qualified REIT real estate assets. 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
The following sets forth information with respect to our executive officers:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Fredric H. Gould* 70 Chairman of the Board and
Chief Executive Officer
Patrick J. Callan, Jr. 44 President and Director
Jeffrey A. Gould* 40 Senior Vice President and Director
Matthew J. Gould* 46 Senior Vice President and Director
David W. Kalish 59 Senior Vice President and Chief
Financial Officer
Israel Rosenzweig 58 Senior Vice President
Simeon Brinberg** 72 Senior Vice President
Mark H. Lundy** 43 Senior Vice President and
Secretary
Lawrence G. Ricketts, Jr. 29 Vice President
Seth D. Kobay 51 Vice President and Treasurer
Karen Dunleavy 47 Vice President, Financial
* Matthew J. Gould and Jeffrey A. Gould are Fredric H. Gould's sons.
** Mark H. Lundy is Simeon Brinberg's son-in-law.
Fredric H. Gould. Mr. Gould has served as Chairman of the Board of One Liberty
Properties since 1989 and as Chief Executive Officer from December 1999 to
December 31, 2001, and from July 2005 to the present. He also served as our
President from July 2005 to December 31, 2005. Mr. Gould has served as Chairman
of the Board of Trustees of BRT Realty Trust, a real estate investment trust
that focuses on mortgage lending, since 1984 and Chief Executive Officer of BRT
Realty Trust from 1996 to December 31, 2001. Since 1985, Mr. Gould has been an
executive officer (currently Chairman of the Board) of the managing general
partner of Gould Investors L.P., a limited partnership primarily engaged in the
ownership and operation of real properties, and he serves as sole member of a
limited liability company which is the other general partner of Gould Investors
L.P. Mr. Gould is President of the advisor to BRT Realty Trust and a director of
EastGroup Properties, Inc., a New York Stock Exchange listed real estate
investment trust that focuses on ownership of industrial properties in major
sunbelt markets throughout the United States.
Patrick J. Callan, Jr. Mr. Callan has been President of One Liberty Properties
since January 3, 2006 and a Director since June 2002. Mr. Callan was Senior Vice
President of First Washington Realty, Inc. from March 2004 to December 2005, and
Vice President of Real Estate for Kimco Realty Corporation, a real estate
investment trust, from May 1998 to March 2004.
Jeffrey A. Gould. Mr. Gould has been a Vice President of One Liberty Properties
since 1989 and a Senior Vice President and Director since December 1999. He was
President and Chief Operating Officer of BRT Realty Trust from March 1996 to
December 2001 and has been President and Chief Executive Officer of BRT Realty
Trust since January 1, 2002. Mr. Gould has served as a Trustee of BRT Realty
Trust since March 1997. He has also served as a Senior Vice President of the
managing general partner of Gould Investors L.P. since 1996.
Matthew J. Gould. Mr. Gould served as President and Chief Executive Officer of
One Liberty Properties from 1989 to December 1999 and became a Senior Vice
President and Director of One Liberty Properties in December 1999. He has served
as President of the managing general partner of Gould Investors L.P. since 1996.
He has been a Vice President of BRT Realty Trust since 1986, has served as a
Trustee of BRT from March 2001 to March 2004 and since June 2004 and serves as a
Vice President of the advisor to BRT Realty Trust.
David W. Kalish. Mr. Kalish has served as Senior Vice President and Chief
Financial Officer of One Liberty Properties since June 1990. Mr. Kalish has
served as Senior Vice President, Finance of BRT Realty Trust since August 1998
and Vice President and Chief Financial Officer of the managing general partner
of Gould Investors L.P. since June 1990. Mr. Kalish is a certified public
accountant.
Israel Rosenzweig. Mr. Rosenzweig has been a Senior Vice President of One
Liberty Properties since June 1997 and a Senior Vice President of BRT Realty
Trust since March 1998. He has been a Vice President of the managing general
partner of Gould Investors L.P. since May 1997 and President of GP Partners,
Inc., a sub-advisor to a registered investment advisor, since 2000.
Simeon Brinberg. Mr. Brinberg has served as a Senior Vice President of One
Liberty Properties since 1989. He has been Secretary of BRT Realty Trust since
1983, a Senior Vice President of BRT Realty Trust since 1988 and a Vice
President of the managing general partner of Gould Investors L.P. since 1988.
Mr. Brinberg, an attorney-at-law, is a member of the bar of New York.
Mark H. Lundy. In addition to being Secretary of One Liberty Properties since
June 1993 and a Vice President since June 2000 (Senior Vice President since June
2005), 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.
Seth D. Kobay. Mr. Kobay has been Vice President and Treasurer of One Liberty
Properties since August 1994. He has been Vice President and Treasurer of BRT
Realty Trust since March 1994 and Vice President of Operations of the managing
general partner of Gould Investors L.P. since 1986. Mr. Kobay is a certified
public accountant.
Lawrence G. Ricketts, Jr. Mr. Ricketts has been Vice President of One Liberty
Properties since December 1999 and has been employed by One Liberty Properties,
Inc. since January 1999.
Karen Dunleavy. Ms. Dunleavy has been Vice President, Financial of One Liberty
Properties since August 1994. She has served as Treasurer of the managing
general partner of Gould Investors L.P. since 1986. Ms. Dunleavy is a certified
public accountant.
Item 2. Properties.
----------
As of December 31, 2005, we owned forty five properties, including a 50%
tenancy in common interest in one property, and participated in six joint
ventures that owned a total of fourteen properties (including one vacant
property held for sale). The tables below set forth information as of December
31, 2005 concerning each property which we own and in which we currently own an
equity interest. We and our joint ventures own fee title to each property,
except for a movie theater located in Greensboro, North Carolina, which we own
as ground lessee under a long term lease.
Our Properties
Percentage
of 2006 Approximate
Type of Contractual Building
Location Property Rental Income (1) Square Feet
-------- -------- ----------------- -----------
Parsippany, NJ Office 6.3% 106,680
Hauppauge, NY Flex 5.8 149,870
El Paso, TX Retail 5.4 110,179
St. Cloud, MN Industrial 5.4 338,000
Hanover, PA Industrial 4.7 458,560
Plano, TX Retail 4.3 112,389
Greensboro, NC Theater 4.3 61,213
Los Angeles, CA (2) Office 4.1 106,262
Chula Vista, CA Theater 4.0 60,000
Brooklyn, NY Office 3.8 66,000
Knoxville, TN Retail 3.5 35,330
Columbus, OH Retail 3.3 96,924
Plano, TX Retail 3.0 51,018
Philadelphia, PA Flex 3.0 166,000
Tucker, GA Health & Fitness 2.7 58,800
Ronkonkoma, NY Flex 2.4 89,500
Lake Charles, LA Retail 2.3 54,229
Manhattan, NY Residential 2.2 125,000
Columbus, OH Industrial 1.9 100,220
Grand Rapids, MI Health & Fitness 1.8 130,000
Ft. Myers, FL Retail 1.8 29,993
Newark, DE Retail 1.8 23,547
Atlanta, GA Retail 1.7 50,400
Champaign, IL Retail 1.6 50,530
Athens, GA Retail 1.6 41,280
Greenwood Village, CO Retail 1.5 45,000
Onalaska, WI Retail 1.4 63,919
Melville, NY Industrial 1.3 51,351
Mesquite, TX Retail 1.3 22,900
Selden, NY Retail 1.1 14,550
Antioch, TN Retail 1.1 34,059
Grand Rapids, MI Health & Fitness 1.0 72,000
Batavia, NY Retail .9 23,483
Somerville, MA Retail .9 12,054
St. Louis, MO Retail .9 30,772
Fairview Heights, IL Retail .8 31,252
Houston, TX Retail .8 12,000
Hauppauge, NY Retail .7 7,000
Ferguson, MO Retail .7 32,046
New Hyde Park, NY Industrial .7 89,000
Florence, KY Retail .6 31,252
Killeen, TX Retail .6 8,000
Rosenberg, TX Retail .4 8,000
West Palm Beach, FL Industrial .4 10,361
Seattle, WA Retail .2 3,038
---- ---------
100% 3,273,961
==== =========
Properties Owned
by Joint Ventures (3)
Percentage
of Our Share
of Rent Payable Approximate
Type of in 2006 to Our Building
Location Property Joint Ventures Square Feet
-------- -------- -------------- -----------
Norwalk, CA Theater 11.4% 80,000
Morrow, GA Theater 11.3 88,000
Live Oak, TX Theater 10.2 81,836
Austell, GA Theater 10.1 88,660
Lincoln, NE Retail 8.6 112,260
Beavercreek, OH Theater 8.5 75,149
Brooklyn, NY Theater 8.0 33,120
Milwaukee, WI Industrial 8.0 927,685
Roanoke, VA Theater 7.8 51,222
Henrietta, NY Theater 7.8 76,315
Lubbock, TX Theater 6.1 60,732
Miami, FL Industrial 2.2 396,000
Shreveport, LA Retail Vacant 17,108
Monroe, NY Land Vacant -
------ ---------
100% 2,088,087
====== =========
(1) Percentage of 2006 contractual rental income payable to us pursuant
to leases as of December 31, 2005.
(2) 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 2006 rental income.
Approximate square footage indicated represents the total rentable
square footage of the property.
(3) 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), based on total rentable square footage,
was 100% and 96.9% as of December 31, 2005 and 2004, respectively. The occupancy
rate for the properties owned by our joint ventures (except for the Monroe, NY
property which is vacant land), based on total rentable square footage, was
approximately 99.2% as of December 31, 2005 and 2004.
Our properties and properties owned by our joint ventures (aggregating
59 properties) are located in 23 states. The following table sets forth certain
information, presented by state, related to our properties and properties owned
by our joint ventures as of December 31, 2005.
Our Properties
Approximate
Number of 2006 Contractual Building
State Properties Rental Income Square Feet
----- ---------- ------------- -----------
New York 9 $ 5,525,359 615,754
Texas 7 4,600,811 324,486
California 2 2,337,321 166,262
Pennsylvania 2 2,230,019 624,560
New Jersey 1 1,821,561 106,680
Georgia 3 1,735,220 150,480
Minnesota 1 1,565,802 338,000
Ohio 2 1,518,237 197,144
Tennessee 2 1,314,697 69,389
North Carolina 1 1,242,019 61,213
Other 15 5,111,439 619,993
-- ----------- ---------
45 $29,002,485 3,273,961
== =========== =========
Properties Owned
by Joint Ventures
Our Share
of Rent Payable Approximate
Number of in 2006 to Our Building
State Properties Joint Ventures Square Feet
----- ---------- -------------- -----------
Georgia 2 $1,499,950 176,660
Texas 2 1,148,698 142,568
New York 2 (1) 1,114,613 109,435
California 1 801,667 80,000
Nebraska 1 603,594 112,260
Ohio 1 601,192 75,149
Wisconsin 1 562,500 927,685
Virginia 1 552,420 51,222
Florida 1 154,488 396,000
Louisiana 1 (2) - 17,108
- ---------- ---------
13 $7,039,122 2,088,087
== ========== =========
(1) Excludes vacant land located in Monroe, NY.
(2) This property has been vacant since February 2004.
At December 31, 2005, we had first mortgages on 37 of the 45 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, 2005, we had
$167 million principal amount of mortgage loans outstanding, bearing interest at
rates ranging from 5.13% 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, 2005 (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)
---- ----------------------
2006 $ 5,814
2007 7,758
2008 8,243
2009 8,787
2010 20,950
2011 and thereafter 115,920
--------
Total $167,472
========
At December 31, 2005 our joint ventures had first mortgages on 11
properties, aggregating $74.5 million in principal amount and bearing interest
at rates ranging from 5.8% to 8.9%. Substantially all these mortgages contain
prepayment penalties. The mortgages on properties owned by each of our two
"movie theater" joint ventures are cross-collateralized. The following table
sets forth the scheduled principal mortgage payments due for properties owned by
our joint ventures as of December 31, 2005 (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)
---- ----------------------
2006 $ 1,928
2007 2,075
2008 2,233
2009 2,403
2010 2,586
2011 and thereafter 63,276
-------
Total $74,501
=======
As of December 31, 2005, no property owned by us had a book value equal
to or greater than 10% of our total assets and no property owned by us had
revenues in the year ended December 31, 2005 which accounted for more than 10%
of our aggregate annual gross revenues.
Item 3. Legal Proceedings.
-----------------
On July 21, 2005, we announced that Jeffrey Fishman resigned as our
president, chief executive officer and a member of our Board of Directors. Mr.
Fishman's resignation followed the discovery by the Company of what appeared to
be inappropriate financial dealings by Mr. Fishman with the former tenant of a
movie theater property located in Brooklyn, NY, owned by a joint venture in
which we are a 50% venture partner and the managing member. The Audit Committee
of the Board of Directors has been conducting an investigation of this matter
and related matters and retained special counsel to assist the committee in the
investigation. The investigation has been substantially completed. Based on
materials which have been gathered and interviews which have been conducted
during the investigation, there is no indication that any other officer or
employee of the Company assisted in or benefited from Mr. Fishman's
inappropriate financial dealings.
On August 12, 2005, the former tenant of the Brooklyn, NY theater
property, Pritchard Square Cinema LLC, and Pritchard Square LLC, commenced
litigation in the Supreme Court of the State of New York, Nassau County against
us, certain of our affiliated entities, Mr. Fishman and Britannia Management,
LLC ("Britannia"), a company which we believe is owned and/or controlled by Mr.
Fishman. Pritchard Square LLC was the seller and Pritchard Square Cinema LLC was
the tenant of the Brooklyn, NY property which was acquired in a "sale and
leaseback transaction" by the joint venture. The Brooklyn, NY property is still
owned by the joint venture and is now leased to a party unrelated to the former
tenant. The former tenant and its related entity allege that it or its
affiliates paid $815,000 in the aggregate to Mr. Fishman and/or Britannia. As
against Mr. Fishman, Britannia, the Company and affiliated entities, the
complaint alleges fraud, breach of contract, intentional tort, negligent
supervision, respondeat superior, negligent misrepresentation, tortious
interference with prospective economic relations and conduct in violation of the
Racketeer Influenced and Corrupt Organizations Act ("RICO"). The damages sought
in the complaint are $9 million plus punitive damages, interest and costs and a
demand for treble damages under RICO.
On the same date that the complaint was filed against us and certain of
our affiliated entities, we filed suit in the Supreme Court of the State of New
York, Nassau County against the former tenant of the Brooklyn, NY property,
Norman Adie, the former tenant's principal, Jeffrey Fishman, Britannia and
others. Our complaint alleges that Mr. Adie, Mr. Fishman and other defendants
conspired to defraud us. Our lawsuit alleges commercial bribery, fraud, breach
of fiduciary duty, tortious interference, intentional tort, violation of the New
York Enterprise Corruption Act, respondeat superior, unjust enrichment and
violations of RICO. The damages alleged in this lawsuit exceed $1 million, plus
punitive damages, interest and costs.
Motions were made by both parties to consolidate the two actions. The
Court has ordered a consolidation of the actions for all purposes and determined
that we will be deemed the plaintiff and Pritchard Square Cinema LLC and its
related entity will be deemed the defendants. We believe that the claims against
us and our affiliates are without merit and we will defend the claims against us
vigorously. The litigation is in the preliminary stages and discovery has not
commenced.
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 and Related Stockholder
-----------------------------------------------------------------
Matters.
--------
Since January 15, 2004, our common stock has been listed on the New York
Stock Exchange. Prior to January 15, 2004, our common stock was listed on the
American 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 2005 and for
2004 and the per share cash distributions paid on our common stock during each
quarter of the years ended December 31, 2005 and 2004.
DISTRIBUTIONS
2005 HIGH LOW PER SHARE
---- ---- --- ---------
First Quarter $20.70 $18.50 $.33
Second Quarter $21.40 $18.65 $.33
Third Quarter $22.64 $19.20 $.33
Fourth Quarter $20.19 $18.41 $.33
DISTRIBUTIONS
2004 HIGH LOW PER SHARE
---- ---- --- ---------
First Quarter $24.05 $19.80 $.33
Second Quarter $22.66 $16.30 $.33
Third Quarter $19.20 $17.45 $.33
Fourth Quarter $20.81 $17.98 $.33
As of March 3, 2006, there were 389 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 shareholders at least
90% of our annual ordinary taxable income. The amount and timing of future
distributions will be at the discretion of the Board of Directors and will
depend upon our financial condition, earnings, business plan, cash flow and
other factors. We intend to pay cash distributions in an amount at least equal
to that necessary for us to maintain our status as a real estate investment
trust for federal income tax purposes.
Equity Compensation Plan Information
The following table provides information as of December 31, 2005 with
respect to shares of our common stock that may be issued under the One Liberty
Properties, Inc. 1996 Stock Option Plan and the One Liberty Properties, Inc.
2003 Incentive Plan:
Number of
Securities
Remaining
Available for
Number of Future
Securities Issuance Under
to be Issued Weighted- Equity
Upon Exercise Average Compensation
of Outstanding Exercise Price Plans (Excluding
Options, of Outstanding Securities
Warrants and Options, Warrants Reflected in
Rights and Rights Column(a))
------ ---------- ----------
(a) (b) (c)
Equity compensation
plans approved by
security holders 9,000 $12.19 180,525
Equity compensation
plans not approved
by security holders - - -
----- ------ -------
TOTAL 9,000 $12.19 180,525
===== ====== =======
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, 2005
and as of December 31, 2004 and 2005 should be read together with our
consolidated financial statements and related notes appearing elsewhere in this
Annual Report on Form 10-K and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
As of and for the Year Ended
December 31
(Amounts in Thousands, Except Per Share Data)
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
OPERATING DATA (Note a)
- --------------
Rental revenues $28,445 $21,844 $16,170 $13,718 $13,989
Equity in earnings of unconsolidated joint ventures 2,102 2,869 2,411 1,078 83
Net gain (loss) on sale of air rights, other and
real estate 10,248 73 14 (29) 126
Income from continuing operations 19,721 8,539 6,406 5,133 4,201
Income from discontinued operations 1,559 2,435 2,119 747 665
Net income 21,280 10,974 8,525 5,880 4,866
Calculation of net income
applicable to common stockholders (Note a):
Net income 21,280 10,974 8,525 5,880 4,866
Less: dividends and accretion on preferred stock - - 1,037 1,037 1,037
Net income applicable to common stockholders $21,280 $10,974 $ 7,488 $ 4,843 $ 3,829
Weighted average number of common
shares outstanding:
Basic 9,838 9,728 6,340 4,614 3,019
Diluted 9,843 9,744 6,372 4,644 3,036
Net income per common share - basic:
Income from continuing operations $2.00 $ .88 $ .85 $ .89 $1.05
Income from discontinued operations .16 .25 .33 .16 .22
------- ----- ----- ----- -----
Net income $2.16 $1.13 $1.18 $1.05 $1.27
Net income per common share - diluted:
Income from continuing operations $2.00 $ .88 $ .85 $ .88 $1.04
Income from discontinued operations .16 .25 .33 .16 .22
------- ------ ----- ----- -----
Net income $2.16 $1.13 $1.18 $1.04 $1.26
Cash distributions per share of:
Common Stock $1.32 $1.32 $1.32 $1.32 $1.20
Preferred Stock (Note b) - - $1.60 $1.60 $1.60
BALANCE SHEET DATA
- ------------------
Real estate investments, net $258,122 $228,536 $177,316 $140,437 $118,564
Investment in unconsolidated joint ventures 27,335 37,023 24,441 23,453 6,345
Cash and cash equivalents 26,749 6,051 45,944 2,624 2,285
Total assets 329,800 284,386 259,089 179,609 132,939
Mortgages payable 167,472 124,019 106,133 77,367 76,587
Line of credit - 7,600 - 10,000 -
Total liabilities 174,281 138,271 113,120 90,915 78,591
Total stockholders' equity 155,519 146,115 145,969 88,694 54,348
OTHER DATA
- ----------
Funds from operations applicable to
common stockholders (Note c) $26,658 $16,789 $11,776 $7,757 $6,303
Funds from operations per common share:
Basic $2.71 $1.73 $1.86 $1.68 $2.09
Diluted $2.71 $1.72 $1.85 $1.67 $2.08
Note a: Certain amounts reported in prior periods have been reclassified
to conform to the current year's presentation.
Note b: On December 30, 2003, we redeemed of all of our outstanding
preferred stock.
Note c: We consider funds from operations (FFO) to be a relevant and
meaningful supplemental measure of the operating performance of an equity REIT,
and it should not be deemed to be a measure of liquidity. FFO does not represent
cash generated from operations as defined by generally accepted accounting
principles (GAAP) and is not indicative of cash available to fund all cash
needs, including distributions. It should not be considered as an alternative to
net income for the purpose of evaluating our performance or to cash flows as a
measure of liquidity.
We compute FFO in accordance with the "White Paper on Funds From
Operations" issued in April 2002 by the National Association of Real Estate
Investment Trusts (NAREIT). FFO is defined in the White Paper as "net income
(computed in accordance with generally accepting accounting principles),
excluding gains (or losses) from sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect funds from operations on the same basis." In computing
FFO, we do not add back to net income the amortization of costs in connection
with our financing activities, or depreciation of non-real estate assets, but
those items that are defined as "extraordinary" under GAAP are added back to net
income. Since the NAREIT White Paper only provides guidelines for computing FFO,
the computation of FFO may vary from one REIT to another.
We believe that FFO is a useful and a standard supplemental measure of
the operating performance for equity REITs and is used frequently by securities
analysts, investors and other interested parties in evaluating equity REITs,
many of which present FFO when reporting their operating results. FFO is
intended to exclude GAAP historical cost depreciation and amortization of real
estate assets, which assures that the value of real estate assets diminish
predictability over time. In fact, real estate values have historically risen
and fallen with market conditions. As a result, we believe that FFO provides a
performance measure that when compared year over year, should reflect the impact
to operations from trends in occupancy rates, rental rates, operating costs,
interest costs and other matters without the inclusion of depreciation and
amortization, providing a perspective that may not be necessarily apparent from
net income. We also consider FFO to be useful to us in evaluating potential
property acquisitions.
FFO does not represent net income or cash flows from operations as
defined by GAAP. FFO should not be considered to be an alternative to net income
as a reliable measure of our operating performance; nor should FFO be considered
to be an alternative to cash flows from operating, investing or financing
activities (as defined by GAAP) as measures of liquidity.
FFO does not measure whether cash flow is sufficient to fund all of our
cash needs, including principal amortization, capital improvements and
distributions to stockholders. FFO does not represent cash flows from operating,
investing or financing activities as defined by GAAP.
Management recognizes that there are limitations in the use of FFO. In
evaluating the performance of our company, management is careful to examine GAAP
measures such as net income and cash flows from operating, investing and
financing activities. Management also reviews the reconciliation of net income
to FFO.
The table below provides a reconciliation of net income in accordance
with GAAP to FFO, as calculated under the current NAREIT definition of FFO, for
each of the years in the five year period ended December 31, 2005.
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
Net income $21,280 $10,974 $8,525 $5,880 $4,866
Add: depreciation of properties 5,905 4,758 3,473 2,617 2,584
Add: our share of depreciation
in unconsolidated joint ventures 1,277 1,075 790 268 16
Add: amortization of deferred leasing costs 101 55 39 - -
Deduct: (gain) loss on sale of real estate (1,905) (73) (14) 29 (126)
Deduct: preferred distributions - - (1,037) (1,037) (1,037)
------- ------- ------- ------- -------
Funds from operations applicable
to common stockholders $26,658 $16,789 $11,776 $7,757 $6,303
======= ======= ======= ====== ======
The table below provides a reconciliation of net income per common share
(on a diluted basis) in accordance with GAAP to FFO.
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
Net income $2.16 $1.13 $1.34 $1.27 $1.60
Add: depreciation of properties .60 .49 .55 .56 .85
Add: our share of depreciation
in unconsolidated joint ventures .13 .11 .12 .06 .01
Add: amortization of deferred leasing costs .01 - - - -
Deduct: (gain) loss on sale of real estate (.19) (.01) - - (.04)
Deduct: preferred distributions - - (.16) (.22) (.34)
----- ----- ----- ----- -----
Funds from operations applicable
to common stockholders $2.71 $1.72 $1.85 $1.67 $2.08
===== ===== ===== ===== =====
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
----------------------
General
We are a self-administered and self-managed REIT and we primarily own
real estate that we net lease to tenants. As of December 31, 2005, we owned
forty five properties, including a 50% tenancy in common interest in one
property, and participated in six joint ventures that owned a total of fourteen
properties (including one vacant property held for sale). These fifty nine
properties are located in twenty three states.
We have elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended. To qualify as a REIT, we must meet a number of organizational
and operational requirements, including a requirement that we currently
distribute at least 90% of ordinary taxable income to our stockholders. We
intend to comply with these requirements and to maintain our REIT status.
Our principal business strategy is to acquire improved, commercial
properties subject to long-term net leases. We acquire properties for their
value as long-term investments and for their ability to generate income over an
extended period of time. We have borrowed funds in the past to finance the
purchase of real estate and we expect to do so in the future.
Our rental properties are generally leased to corporate tenants under
operating leases substantially all of which are noncancellable. Substantially
all of our lease agreements are net lease arrangements that require the tenant
to pay not only rent, but also substantially all of the operating expenses of
the leased property, including maintenance, taxes, utilities and insurance. A
majority of our lease agreements provide for periodic rental increases and
certain of our other leases provide for increases based on the consumer price
index.
During the year ended December 31, 2005, we purchased eight single tenant
properties located in seven states, for a total consideration of $58.9 million.
An aggregate of $32.7 million of first mortgage financing was completed with
respect to seven of these properties.
We are a venturer in two joint ventures organized for the purpose of
acquiring and owning megaplex stadium-style movie theaters. We own a 50% equity
interest and are the managing member in each of these ventures with the same
co-venturer. These joint ventures own one partial stadium-style theater, eight
megaplex stadium-style movie theaters and a parcel of vacant land held for sale.
Our equity investment in these movie theater ventures at December 31, 2005 was
$20.3 million, net of distributions from the joint ventures. We are also a joint
venturer in four additional joint ventures, each of which owns one
single-tenanted property. Our equity investment in these four joint ventures at
December 31, 2005 was $7 million, net of distributions.
At December 31, 2005, excluding mortgages payable of our unconsolidated
joint ventures, we had 37 outstanding mortgages payable, aggregating $167
million in principal amount, all of which are secured by first liens on
individual real estate investments with an aggregate carrying value, as adjusted
for intangibles, of approximately $253 million before accumulated depreciation.
The mortgages bear interest at fixed rates ranging from 5.13% to 8.8%, and
mature between 2006 and 2023.
Results of Operations
Outlook
We anticipate that in 2006 we will use our available cash funds (which
was primarily derived from mortgages placed on unencumbered properties and the
refinancing of existing mortgages and from property sales), funds derived from
the placement of additional mortgages and our credit line to acquire additional
properties, either directly or through joint ventures. As a result, we will own
more properties in 2006 and unless we experience an unexpected number of lease
terminations and/or cancellations in 2006 (taking into consideration the lease
expirations and terminations that we know will occur in 2006, and without giving
effect to any re-letting of such properties), we anticipate that our revenues
and possibly our net income will increase in 2006.
Comparison of Years Ended December 31, 2005 and December 31, 2004
- -----------------------------------------------------------------
Rental Revenues
Rental revenues increased by $6.6 million, or 30.2%, to $28.4 million
for the year ended December 31, 2005 from $21.8 million dollars for the year
ended December 31, 2004. The increase in rental revenues is substantially due to
rental revenues earned during the year ended December 31, 2005 on fourteen
properties acquired by us between March 2004 and November 2005.
Operating Expenses
Depreciation and amortization expense increased by $1.5 million, or
35%, to $5.7 million for the year ended December 31, 2005 from $4.2 million for
the year ended December 31, 2004. The increase in depreciation and amortization
was due to the acquisition of fourteen properties between March 2004 and
November 2005.
General and administrative expenses increased by $1 million, or 32.4%,
to $4.1 million for the year ended December 31, 2005 from $3.1 million for the
year ended December 31, 2004. The increase was due to a number of factors, the
largest of which (totaling $560,000 and representing approximately 55% of the
increase) relates to the fees of Special Counsel retained by our Audit Committee
in connection with its investigation into certain financial dealings of our
former president and chief executive officer. Additional legal fees were
incurred relating to a litigation arising out of the matter involving our former
president and chief executive officer. In addition, for the year ended December
31, 2005 expenses allocated to us under a Shared Services Agreement among us and
various affiliated companies, increased by $228,000, primarily due to an
increase in our level of business activity, including property acquisitions,
mortgage financings, Sarbanes-Oxley Act compliance, and activities related to
the Audit Committee's investigation. Also included in the year ended December
31, 2005 is a $73,000 increase in compensation expense relating to the
restricted stock program established in July 2003. The balance of the increase
in general and administrative expenses for the year ended December 31, 2005, as
compared to the year ended December 31, 2004, is due to increases in a number of
items including auditing expenses, fees relating to our internal control audit,
as required by Section 404 of the Sarbanes-Oxley Act, an increase in directors'
fees (resulting primarily from additional fees to members of our Audit Committee
in connection with its investigation), an increase in directors and officers
liability insurance, and an increase in state taxes. Offsetting these increases
in expenses was a decrease in payroll and payroll related expenses resulting
from the resignation of our president and chief executive officer in July 2005
and a decrease in public company expense as we incurred a listing fee in 2004 in
connection with the listing of our common stock on the New York Stock Exchange.
Real estate expenses decreased by $143,000, or 28.9%, to $352,000 for
the year ended December 31, 2005. This decrease was primarily due to real estate
operating expenses incurred at two vacant properties in 2004, one of which was
sold in 2004 and the other renovated and relet.
Other Income and Expenses
Our equity in earnings of unconsolidated joint ventures decreased by
$767,000, or 26.7%, to $2.1 million for the year ended December 31, 2005 from
$2.9 million for the year ended December 31, 2004. The decrease resulted
primarily from a $2.56 million provision for valuation adjustment taken by one
of our movie theater joint ventures against one of its five properties, of which
50%, or $1.3 million, is our share. The decrease in our equity in earnings of
joint ventures year versus year was also a result of the vacancy (due to the
rejection of the lease by the bankrupt tenant) of a retail property owned by a
joint venture in which we have a 50% equity position, and the sale in 2004 by
this venture of its bankruptcy claim against the former tenant. The decrease in
our equity in earnings of unconsolidated joint ventures was offset in part by
our share of income earned by two joint ventures organized in the second half of
2004. Additionally, in 2005, the operator of one of the movie theaters owned by
one of our joint ventures sold its business to an independent third party, which
sale resulted in the payment to us in 2005 of rental arrearages totaling
$592,000. We have a 50% interest in this joint venture and the payment resulted
in an additional $296,000 in equity earnings to us for the year ended December
31, 2005. An additional increase in equity earnings to us in 2005 resulted from
rent payments from the new tenant of this movie theater and the write off during
the year ended December 31, 2004 of the entire balance of the unbilled rent
receivable relating to this movie theater.
Interest and other income decreased by $72,000, or 18.7% to $314,000
for the year ended December 31, 2005. The primary reason for the decrease was
the receipt by us in 2004 of $134,000 of net acquisition fees from a joint
venture we organized in that year. The net acquisition fee reflects a 50%
reduction based on our ownership in the joint venture. This decrease was offset,
in part, by an increase of $57,000 in interest income earned in 2005 from the
investment of funds obtained from mortgage financings and property sales.
Interest expense increased by $2 million, or 24.4%, $1.8 million of
which resulted from mortgages placed on twelve properties between September 2004
and December 2005 and the assumption of a mortgage in connection with the
purchase of one property in November 2004. The increases were offset by a
$432,000 decrease in interest on a mortgage which was paid in full at its
maturity during May 2005. Interest expense related to our line of credit
increased by $229,000 due to borrowings made to facilitate the purchase of
several properties.
On June 30, 2005, we closed on the sale of unused development or "air
rights" relating to our property located in Brooklyn, New York. The purchase
price was approximately $11 million and in addition, the purchaser paid some of
our closing expenses. The financial statement gain of $10.25 million, recognized
in the year ended December 31, 2005, has been deferred for tax purposes since we
entered into a 1031 tax deferred exchange and used the sale proceeds to acquire
an additional property.
Discontinued Operations
In May 2005, we sold a property located in Jupiter, Florida for $16.5
million and recognized a gain of $582,000.
In September 2005, we sold a property located in Cedar Rapids, Iowa for
$1.8 million and recognized a gain of $639,000.
In October 2005, we sold a property located in Houston, Texas for $1.5
million and recognized a gain of $324,000.
In November 2005, we sold a property located in Chattanooga, Tennessee
for $3 million and recognized a gain of $369,000.
During the year ended December 31, 2005, we determined that the
estimated fair value of a property held for sale was lower then the carrying
amount and we recorded a $469,000 provision for the difference. This provision
was in addition to the $366,000 provision on this property recorded by us for
the year ended December 31, 2004. In early 2004, the retail tenant at this
property filed for bankruptcy protection, disaffirmed its lease and vacated the
store. This property was sold for a loss of $9,000 (after giving effect to the
$835,000 in total provisions) in December 2005.
The operations of these five properties and the gain or loss recognized
on sale are reported as discontinued operations. For the year ended December 31,
2005 these properties operated at a $346,000 loss as compared to positive
operations in the year ended December 31, 2004 of $2.4 million. The net gain on
sale of these five properties was $1.9 million. Accordingly, we reported income
from discontinued operations of $1.6 million for the year ended December 31,
2005 as compared to $2.4 million for the year ended December 31, 2004, a
decrease of $876,000 year versus year.
Comparison of Years Ended December 31, 2004 and December 31, 2003
- -----------------------------------------------------------------
Rental Revenues
Rental income increased by $5.7 million, or 35.1%, to $21.8 million for
the year ended December 31, 2004 from $16.2 million for the year ended December
31, 2003. The increase in rental income is primarily due to $5.4 million of
rental revenues earned during the year ended December 31, 2004 on eleven
properties acquired by us during 2003 and 2004. There were also increases in
rental income at several of our other properties.
Operating Expenses
Depreciation and amortization expense increased by $1.3 million, or
44.1%, to $4.2 million for the year ended December 31, 2004 from $2.9 million
for the year ended December 31, 2003 . The increase in depreciation and
amortization expense was primarily due to the acquisition of eleven properties
during 2003 and 2004.
General and administrative expenses increased by $924,000, or 41.9%, to
$3.1 million for the year ended December 31, 2004 from $2.2 million for the year
ended December 31, 2003. The increase was due to a number of factors, including
a $101,000 non-recurring fee for the initial listing of our common stock on the
New York Stock Exchange in January 2004. Also, payroll and payroll expenses
increased by $264,000 for the year ended December 31, 2004, including an
increase of approximately $129,000, for executive and support personnel,
primarily for legal and accounting services, allocated to us pursuant to a
Shared Services Agreement among us and related entities. The increase in the
allocated payroll expenses resulted from an increase in our level of business
activity, primarily property acquisitions, the negotiation of an increased
revolving credit facility, mortgage financings and compliance with the
Sarbanes-Oxley Act of 2002, including Section 404 requirements. The increase in
payroll expenses is due to a $125,000 increase in the annual base salaries and
bonuses paid to our principal executive officers and additional staff. Also
included in the year ended December 31, 2004 is compensation expense of $221,000
compared to $41,000 in the prior year relating to the restricted stock program
which was established in July 2003. The balance of the increase in general and
administrative expenses for the year ended December 31, 2004 is due to an
increase in a number of items including professional fees of approximately
$180,000 relating to costs associated with the internal control audit, including
a review of the internal control documentation and testing relating to
compliance with Section 404 of the Sarbanes-Oxley Act, legal expenses relating
to compliance with the Sarbanes-Oxley Act and legal fees relating to
transactions that were not consummated. Additionally, for the year ended
December 31, 2004, state taxes increased by approximately $56,000, director and
officer insurance and directors' fees increased by approximately $69,000, and
travel and other miscellaneous expenses increased by approximately $74,000 due
to our increased business activity.
Real estate expenses increased by $179,000, or 56.6%, to $495,000 for the
year ended December 31, 2004. This increase was primarily due to approximately
$163,000 of utilities and operating expenses on a property which became vacant
on July 1, 2004 when the tenant did not renew its lease. This property was
re-let as of November 15, 2004. The increase was also due to real estate
expenses on another vacant property in which the tenant filed for bankruptcy
protection and disaffirmed its lease.
Other Income and Expenses
Our equity in earnings of unconsolidated joint ventures increased by
$458,000, or 19%, to $2.9 million for the year ended December 31, 2004. This
increase resulted primarily from our purchase of an additional 25% interest in
one of our movie theater joint ventures as of October 1, 2003, resulting in an
increase in our equity in earnings of this joint venture of $590,000 for the
year ended December 31, 2004. Another joint venture in which we have a 50%
interest received $859,000 from the sale of its bankruptcy claim in connection
with the bankruptcy proceeding involving its retail tenant which disaffirmed its
lease and vacated the property. Our equity in earnings from this joint venture
increased $211,000 for the year ended December 31, 2004. We also participate in
two joint ventures, one organized in August 2004 and one organized in November
2004. These joint ventures each purchased one property, and in 2004 we
recognized income of $165,000 and $61,000, respectively, from these joint
ventures. These increases were offset in part as a result of a $1 million direct
write off of unbilled rent receivable balances by one of our joint ventures in
which we have a 50% interest that were previously recorded relating to two movie
theaters under common control. We executed a lease termination agreement
regarding one of these theaters (which was under construction) and since
September 2004, rent was paid in compliance with a stipulation relating to the
other theater. During February 2005, the operator of this movie theater sold its
business to an independent third party and the arrearages of rent and other
miscellaneous charges of approximately $670,000 that were due in August 2005
were paid. In exchange for the joint venture's agreement to consent to the lease
assignment and lease amendment and to waive the requirement for a security
deposit under the amended lease, the joint venture received 40,000 restricted
shares of Class A common stock of the tenant's parent company, which trades on
the American Stock Exchange. Our equity in earnings of this joint venture
decreased by $569,000 for the year ended December 31, 2004.
Interest and other income decreased by $126,000, or 24.6%, to $386,000
for the year ended December 31, 2004 from $512,000 for the year ended December
31, 2003. The primary reason for the decrease was the receipt by us in the year
ended 2003 of $355,000 of interest earned on short-term mortgages receivable
acquired or originated by us to facilitate acquisitions. This decrease was
offset, in part, by $134,000 of net acquisition fees received by us from a joint
venture we recently organized. The net acquisition fee, calculated pursuant to
the joint venture agreement at 2% of the purchase price of the acquired
property, reflects a 50% reduction based on our share of ownership in the joint
venture. The decrease was also offset, by a lesser extent, by interest earned on
our investment of the balance of the net proceeds received from our October 2003
public offering of common stock.
Interest expense increased by $1.3 million, or 19.2%, to $8.2 million for
the year ended December 31, 2004 from $6.9 million for the year ended December
31, 2003. The increase includes a $1.6 million increase on our mortgages payable
resulting from mortgages placed on two properties during 2003 and two properties
during the last few months of 2004, the assumption of mortgages in connection
with the purchase of five properties during 2003 and 2004 and refinancing the
mortgage on one property in May 2003. Interest expense relating to our line of
credit decreased by $261,000, resulting from our repayment of all of the
outstanding indebtedness under our line of credit during 2003. We subsequently
borrowed $12.6 million under our line of credit during October and November
2004, which was used to purchase a property and to fund our contribution to a
joint venture which purchased a property. During December 2004, $5 million of
the borrowings were repaid with the proceeds from a mortgage financing of one of
our properties.
Discontinued Operations
Income from discontinued operations of five properties which were sold
during the year ended December 31, 2005 increased by $316,000, or 14.9%, to $2.4
million for the year ended December 31, 2004 from $2.1 million for the year
ended December 31, 2003. Included in discontinued operations for the year ended
December 31, 2004 is $767,000 received from the sale of our bankruptcy claim in
connection with the bankruptcy proceedings involving a retail tenant which
disaffirmed its lease and vacated the property. This income was offset, in part,
by a $366,000 provision for valuation allowance we took due to our determination
that the estimated fair value of this property was lower than its carrying
amount.
Net Income
For the year ended December 31, 2004, net income applicable to common
stockholders increased by $2.5 million to $11 million. However, due to the
issuance of 3.7 million common shares in October 2003 in an underwritten public
offering, net income per common share decreased by $.05 to $1.13, for the year
ended December 31, 2004 as compared to the year ended December 31, 2003.
Liquidity and Capital Resources
Our primary sources of liquidity are cash and cash equivalents, our
revolving credit facility and cash generated from operating activities,
including mortgage financings. We are a party to a credit agreement with Valley
National Bank, Merchants Bank Division, 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 down existing mortgages, to fund the acquisition of additional properties
or to invest in joint ventures. The facility matures on March 31, 2007.
Borrowings under the facility bear interest at the lower of LIBOR plus 2.5% or
at the bank's prime rate and there is an unused facility fee of one-quarter of
1% per annum. Net proceeds received from the sale or 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,
2005, and as of March 1, 2006 there is zero outstanding under the facility.
We are actively engaged in seeking additional property acquisitions and
are involved in various stages of negotiation with respect to the acquisition of
additional net leased properties. We will use cash provided from operations,
cash provided from mortgage financings and funds available under our credit
facility to fund acquisitions.
The following sets forth our contractual cash obligations as of December
31, 2005, which relate to interest and amortization payments and balances due at
maturity under outstanding mortgages secured by our properties for the periods
indicated (amounts in thousands):
Payment due by period
Less than 1-3 4-5 More than
Contractual Obligations Total 1 Year Years Years 5 Years
- ----------------------- ----- ------ ----- ----- -------
Mortgages payable -
interest and amortization $131,725 $13,944 $28,590 $25,558 $63,633
Mortgages payable -
balances due at maturity 116,823 2,276 8,004 21,507 85,036
------- ----- ----- ------ ------
Total $248,548 $16,220 $36,594 $47,065 $148,669
======== ======= ======= ======= ========
As of December 31, 2005, we had outstanding approximately $167 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
$42.5 million due in the next three years will be paid primarily from cash
generated from our operations. We anticipate that loan maturities of
approximately $10.3 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 2006 2007 2008 2009 2010 5 Years
----- ---- ---- ---- ---- ---- -------
$4,461,476 $237,500 $237,500 $237,500 $262,240 $296,875 $3,189,861
We had no outstanding contingent commitments, such as guarantees of
indebtedness, or any other contractual cash obligations at December 31, 2005.
Cash Distribution Policy
We have elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended. To qualify as a REIT, we must meet a number of organizational
and operational requirements, including a requirement that we distribute
currently at least 90% of our ordinary taxable income to our stockholders. It is
our current intention to comply with these requirements and maintain our REIT
status. As a REIT, we generally will not be subject to corporate federal, state
or local income taxes on taxable income we distribute currently (in accordance
with the Internal Revenue Code and applicable regulations) to our stockholders.
If we fail to qualify as a REIT in any taxable year, we will be subject to
federal, state and local income taxes at regular corporate rates and may not be
able to qualify as a REIT for four subsequent tax years. Even if we qualify for
federal taxation as a REIT, we may be subject to certain state and local taxes
on our income and to federal income and excise taxes on our undistributed
taxable income (i.e., taxable income not distributed in the amounts and in the
time frames prescribed by the Internal Revenue Code and applicable regulations
thereunder).
It is our intention to pay to our stockholders within the time periods
prescribed by the Internal Revenue Code no less than 90%, and, if possible, 100%
of our annual taxable income, including taxable gains from the sale of real
estate and recognized gains on the sale of securities. It will continue to be
our policy to make sufficient cash distributions to stockholders in order for us
to maintain our REIT status under the Internal Revenue Code.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Significant Accounting Policies
Our significant accounting policies are more fully described in Note 2 to
our consolidated financial statements. Certain of our accounting policies are
particularly important to an understanding of our financial position and results
of operations and require the application of significant judgment by our
management; as a result they are subject to a degree of uncertainty. These
significant accounting policies include:
Revenues
Our revenues, which are substantially derived from rental income, include
rental income that our tenants pay in accordance with the terms of their
respective leases reported on a straight line basis over the initial term of
each lease. Since many of our leases provide for rental increases at specified
intervals, straight line basis accounting requires us to record as an asset and
include in revenues, unbilled rent receivables which we will only receive if the
tenant makes all rent payments required through the expiration of the initial
term of the lease. Accordingly, our management must determine, in its judgment,
that the unbilled rent receivable applicable to each specific tenant is
collectible. We review unbilled rent receivables on a quarterly basis and take
into consideration the tenant's payment history, the financial condition of the
tenant, business conditions in the industry in which the tenant is engaged and
economic conditions in the area in which the property is located. In the event
that the collectability of an unbilled rent receivable is in doubt, we would be
required to take a reserve against the receivable or a direct write off of the
receivable, which would have an adverse affect on net income for the year in
which the reserve or direct write off is taken and would decrease total assets
and stockholders' equity.
Value of Real Estate Portfolio
We review our real estate portfolio on a quarterly basis to ascertain if
there has been any impairment in the value of any of our real estate assets in
order to determine if there is any need for a provision for valuation
adjustment. In reviewing the portfolio, we examine the type of asset, the
economic situation in the area in which the asset is located, the economic
situation in the industry in which the tenant is involved and the timeliness of
the payments made by the tenant under its lease, as well as any current
correspondence that may have been had with the tenant, including property
inspection reports. For each real estate asset owned for which indicators of
impairment exist, recognition of impairment is required if the calculated value
is less than the asset's carrying amount. We generally do not obtain any
independent appraisals in determining value but rely on our own analysis and
valuations. Any provision taken with respect to any part of our real estate
portfolio will reduce our net income and reduce assets and stockholders' equity
to the extent of the amount of the valuation adjustment, but it will not affect
our cash flow until such time as the property is sold.
Purchase Accounting for Acquisition of Real Estate
The fair value of the real estate acquired is allocated to the acquired
tangible assets, consisting of land and building, and identified intangible
assets and liabilities, consisting of the value of above-market and below-market
leases and other value of in-place leases based in each case on their fair
values. The fair value of the tangible assets of an acquired property (which
includes land and building) is determined by valuing the property as if it were
vacant, and the "as-if-vacant" value is then allocated to land and building
based on management's determination of relative fair values of these assets. The
allocation made by management may have a positive or negative effect on net
income and may have an effect on the assets and liabilities on the balance
sheet. During the year ended December 31, 2005 the effect on the financial
statements was not material.
Item 7A. Qualitative and Quantitative Disclosures About Market Risk.
----------------------------------------------------------
All of our long-term mortgage debt bears interest at fixed rates and
accordingly, the effect of changes in interest rates would not impact the amount
of interest expense that we incur under these mortgages. Our credit line is a
variable rate facility which is sensitive to interest rates. Therefore, our
primary market risk exposure is the effect of changes in interest rates on the
interest cost of draws on our line of credit. Under current market conditions,
we do not believe that our risk of material potential losses in future earnings,
fair values and/or cash flows from near-term changes in market rates that we
consider reasonably possible is material.
The fair market value (FMV) of our long term debt is estimated based on
discounting future cash flows at interest rates that our management believes
reflect the risks associated with long term debt of similar risk and duration.
The following table sets forth our long-term debt obligations by
scheduled principal cash flow payments and maturity date, weighted average
interest rates and estimated FMV at December 31, 2005 (amounts in thousands):
For the Year Ended December 31,
-------------------------------
There-
2006 2007 2008 2009 2010 after Total FMV
---- ---- ---- ---- ---- ----- ----- ---
Long term debt $5,814 $7,758 $8,243 $8,787 $20,950 $115,920 $167,472 $169,893
Fixed rate
weighted
average
interest rate 6.61% 6.60% 6.58% 6.59% 6.43% 6.36% 6.41% 6.25%
Variable rate - - - - - - - -
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
This information appears in Item 15(a) of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
---------------------
None.
Item 9A. Controls and Procedures.
-----------------------
A review and evaluation was performed by our management, including our
Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this Annual Report on Form
10-K. Based on that review and evaluation, the CEO and CFO have concluded that
our current disclosure controls and procedures, as designed and implemented,
were effective. There have been no significant changes in our internal controls
or in other factors that could significantly affect our internal controls
subsequent to the date of their evaluation. There were no significant material
weaknesses identified in the course of such review and evaluation and,
therefore, we took no corrective measures.
Management Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial
reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the
Securities Exchange Act of 1934, as amended, as a process designed by, or under
the supervision of, a company's principal executive and principal financial
officers and effected by a company's board, management and other personnel to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with GAAP and includes those policies and procedures that:
o pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the
assets of a company;
o 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
o 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, 2005. 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, 2005, our internal control over financial reporting was effective based on
those criteria.
Our independent registered public accounting firm, Ernst & Young LLP,
have 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 and Executive Officers of the Registrant.
--------------------------------------------------
We have a Code of Business Conduct and Ethics that applies to all
directors, officers and employees, including our principal executive officer,
principal financial officer and principal accounting officer. You can find our
Code of Business Conduct and Ethics on our web site by going to the following
address: www.onelibertyproperties.com. We will post any amendments to the
Business Code of Conduct and Ethics as well as any waivers that are required to
be disclosed by the rules of either the Securities and Exchange Commission or
The New York Stock Exchange, on our web site.
Our Board of Directors has adopted Corporate Governance Guidelines and
Charters for the Audit, Compensation and Nominating and Corporate Governance
Committees of the Board of Directors. You can find these documents on our web
site by going to the following address: www.onelibertyproperties.com.
You can also obtain a printed copy of any of the materials referred to
above by contacting us at the following address: One Liberty Properties, Inc.,
60 Cutter Mill Road, Great Neck, New York 11021, Attention: Secretary, telephone
number (1-800-450-5816).
The Audit Committee of our Board of Directors is an "Audit Committee"
for the purposes of Section 3(a) (58) of the Securities Exchange Act of 1934, as
amended. The members of that Committee are Charles Biederman, Chairman, Joseph
A. DeLuca and James J. Burns.
Apart from certain information concerning our Executive Officers which
is set forth in Part I of this Annual Report, the other information required by
this item is incorporated herein by reference to the applicable information in
the proxy statement for our 2006 Annual Meeting of Stockholders including the
information set forth under the captions "Election of Directors, Section 16(a)
Beneficial Ownership Reporting Compliance and Governance of the Company - Audit
Committee."
Item 11. Executive Compensation.
----------------------
The information concerning our executive compensation required by Item
11 shall be included in the Proxy Statement to be filed relating to our 2006
Annual Meeting of Stockholders and is incorporated herein by reference,
including the information set forth under the caption "Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
and Related Stockholder Matters.
--------------------------------
The information concerning our beneficial owners required by Item 12
shall be included in the Proxy Statement to be filed relating to our 2006 Annual
Meeting of Stockholders and is incorporated herein by reference, including the
information set forth under the caption "Share Ownership of Certain Beneficial
Owners, Directors and Officers."
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information concerning certain relationships and related
transactions required by Item 13 shall be included in the Proxy Statement to be
filed relating to our 2006 Annual Meeting of Stockholders and is incorporated
herein by reference, including the information set forth under the caption
"Certain Relationships and Related Transactions."
Item 14. Principal Accountant Fees and Services.
--------------------------------------
The information concerning our principal accounting fees required by
Item 14 shall be included in the Proxy Statement to be filed relating to our
2006 Annual Meeting of Stockholders and is incorporated herein by reference,
including the information set forth under the caption "Independent Registered
Public Accounting Firm."
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this Report:
(1) The following financial statements of the Company are included
in this Report on Form 10-K:
Page
----
- 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-26
(2) Financial Statement Schedules:
- Schedule III-Real Estate
and Accumulated Depreciation F-27 through F-28
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 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 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 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 3.2 to One Liberty Properties, Inc.'s Form 10-K for
the year ended December 31, 2004).
3.5 Amendment to By-Laws of One Liberty Properties, Inc. (incorporated by
reference to Exhibit 3.1 to One Liberty Properties, Inc.'s Form 8-K filed
on March 14, 2006).
4.1 One Liberty Properties, Inc. 1996 Stock Option Plan (incorporated by
reference to Exhibit 10.5 to One Liberty Properties, Inc.'s Registration
Statement on Form S-2, Registration No. 333-86850, filed on April 24, 2002
and declared effective on May 24, 2002).
4.2 One Liberty Properties, Inc. 2003 Incentive Plan (incorporated by reference
to Exhibit 4.1 to One Liberty Properties, Inc.'s Registration Statement on
Form S-8 filed on July 15, 2003).
4.3 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1
to One Liberty Properties, Inc.'s Registration Statement on Form S-2,
Registration No. 333-86850, filed on April 24, 2002 and declared effective
on May 24, 2002).
10.1 Amended and Restated Loan Agreement, dated as of June 4, 2005, 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 Form 8-K filed on June 7, 2004).
10.2 Shared Services Agreement, dated as of January 1, 2002, by and among One
Liberty Properties, Inc., Gould Investors L.P., BRT Realty Trust, Majestic
Property Management Corp., Majestic Property Affiliates, Inc. and REIT
Management Corp. (incorporated by reference to Exhibit 15 to One Liberty
Properties, Inc.'s Form 10-K for the year ended December 31, 2002).
10.3 Purchase and Sale Agreement dated as of November 22, 2005 between OLP
Haverty's LLC and Havertacq 11 LLC (incorporated by reference to Exhibit
10.1 to One Liberty Properties, Inc.'s Form 8-K filed on November 23,
2005).
14.1 Code of Business Conduct and Ethics (incorporated by reference to Exhibit
14.1 to One Liberty Properties, Inc.'s Form 8-K filed on March 14, 2006).
21.1 Subsidiaries of Registrant*
23.1 Consent of Ernst & Young LLP*
31.1 Certification of Chairman of the Board and Chief Executive Officer*
31.2 Certification of Senior Vice President and Chief Financial Officer*
32.1 Certification of Chairman of the Board and Chief Executive Officer*
32.2 Certification of Senior Vice President and Chief Financial Officer*
* Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf of the undersigned, thereunto duly authorized.
ONE LIBERTY PROPERTIES, INC.
By: /s/ Patrick J. Callan, Jr.
---------------------------
Patrick J. Callan, Jr.
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on the dates indicated.
Signature Title Date
/s/ Fredric H. Gould Chairman of the
- -------------------- Board of Directors
Fredric H. Gould and Chief Executive Officer March 13, 2006
/s/ Patrick J. Callan, Jr. President and March 13, 2006
- -------------------------- Director
Patrick J. Callan, Jr.
/s/ Joseph A. Amato
- -------------------
Joseph A. Amato Director March 13, 2006
/s/ Charles Biederman
- ---------------------
Charles Biederman Director March 13, 2006
/s/ James J. Burns
- ------------------
James J. Burns Director March 13, 2006
/s/ Jeffrey A. Gould
- --------------------
Jeffrey A. Gould Director March 13, 2006
/s/ Matthew J. Gould
- --------------------
Matthew J. Gould Director March 13, 2006
/s/ Marshall Rose
- -----------------
Marshall Rose Director March 13, 2006
/s/ Joseph De Luca
- ------------------
Joseph De Luca Director March 13, 2006
/s/ J. Robert Lovejoy
- ----------------------
J. Robert Lovejoy Director March 13, 2006
/s/ Eugene I. Zuriff
- ---------------------
Eugene I. Zuriff Director March 13, 2006
/s/ David W. Kalish
- -------------------
David W. Kalish Senior Vice President and
Chief Financial Officer March 13, 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
One Liberty Properties, Inc. and Subsidiaries
We have audited management's assessment, included in the accompanying Management
Report on Internal Control over Financial Reporting in Item 9A, Controls and
Procedures, of Form 10K, that One Liberty Properties, Inc. and Subsidiaries (the
"Company") maintained effective internal control over financial reporting as of
December 31, 2005, 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.
Our responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of 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, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, 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, management's assessment that the Company maintained effective
internal control over financial reporting as of December 31, 2005, is fairly
stated, in all material respects, based on the COSO criteria. Also, in our
opinion, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2005, 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, 2005 and 2004,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2005 of
the Company and our report dated March 6, 2006 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
New York, New York
March 6, 2006
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, 2005 and
2004, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2005. 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, 2005 and 2004, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2005, 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), the effectiveness of One Liberty
Properties, Inc. and Subsidiaries' internal control over financial reporting as
of December 31, 2005, 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 6, 2006 expressed an unqualified
opinion thereon.
/s/ Ernst & Young LLP
New York, New York
March 6, 2006
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in Thousands, Except Per Share Data)
ASSETS
December 31,
------------
2005 2004
---- ----
Real estate investments, at cost
Land $ 53,846 $ 47,447
Buildings and improvements 226,200 199,736
-------- --------
280,046 247,183
Less accumulated depreciation 21,924 18,647
-------- --------
258,122 228,536
Investment in unconsolidated joint ventures 27,335 37,023
Cash and cash equivalents 26,749 6,051
Unbilled rent receivable 6,613 5,301
Escrow, deposits and other receivables 4,027 2,285
Investment in BRT Realty Trust at market (related party) 717 731
Deferred financing costs 2,822 2,408
Other (including available-for-sale securities at market
of $163 and $173) 3,415 2,051
-------- --------
$329,800 $284,386
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable $167,472 $124,019
Line of credit - 7,600
Dividends payable 3,255 3,230
Accrued expenses and other liabilities 3,554 3,422
-------- --------
Total liabilities 174,281 138,271
-------- --------
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;
9,770 and 9,728 shares issued and outstanding 9,770 9,728
Paid-in capital 134,645 133,350
Accumulated other comprehensive income - net unrealized
gain on available-for-sale securities 818 717
Unearned compensation (1,250) (926)
Accumulated undistributed net income 11,536 3,246
-------- --------
Total stockholders' equity 155,519 146,115
-------- --------
$329,800 $284,386
======== ========
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Amounts in Thousands, Except Per Share Data)
Year Ended December 31,
-----------------------
2005 2004 2003
---- ---- ----
Revenues:
Rental income $28,445 $21,844 $16,170
------- ------- -------
Operating expenses:
Depreciation and amortization 5,664 4,197 2,913
General and administrative (including $1,208, $980,
and $832, respectively, to related party) 4,140 3,127 2,203
Public offering expenses - related party - - 69
Real estate expenses 352 495 316
Leasehold rent 308 119 -
------- ------- -------
Total operating expenses 10,464 7,938 5,501
------- ------- -------
Operating income 17,981 13,906 10,669
Other income and expenses:
Equity in earnings of unconsolidated joint ventures 2,102 2,869 2,411
Interest and other income (including $194
from an affiliated joint venture in 2003) 314 386 512
Interest:
Expense (10,192) (8,195) (6,876)
Amortization of deferred financing costs (732) (500) (324)
Gain on sale of air rights and other 10,248 60 -
Gain on sale of real estate - 13 14
------- -------- -------
Income from continuing operations 19,721 8,539 6,406
------- -------- -------
Discontinued operations:
(Loss) income from operations (346) 2,435 2,119
Net gain on sale 1,905 - -
------- -------- -------
Income from discontinued operations 1,559 2,435 2,119
------- -------- -------
Net income $21,280 $10,974 $ 8,525
======= ======= =======
Calculation of net income applicable to common stockholders:
Net income $21,280 $10,974 $ 8,525
Less dividends on preferred stock - - 1,037
------- ------- ------
Net income applicable to common stockholders $21,280 $10,974 $ 7,488
======= ======= =======
Weighted average number of common shares outstanding:
Basic 9,838 9,728 6,340
===== ===== =====
Diluted 9,843 9,744 6,372
===== ===== =====
Net income per common share - basic and diluted:
Income from continuing operations $ 2.00 $ .88 $ .85
Income from discontinued operations .16 .25 .33
------ ------ ------
Net income per common share $ 2.16 $ 1.13 $ 1.18
====== ====== ======
Cash distributions per share:
Common stock $ 1.32 $ 1.32 $ 1.32
====== ====== ======
Preferred stock $ - $ - $ 1.60
====== ====== ======
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Three Years Ended December 31, 2005
(Amounts in Thousands, Except Per Share Data)
Accum-
ulated Accum-
Other ulated
Compre- Unearned Undis-
Preferred Common Paid-in hensive Compen- tributed
Stock Stock Capital Income sation Net Income Total
----- ----- ------- ------ ------ ---------- -----
Balances, December 31, 2002 $ 10,693 $ 5,626 $ 65,646 $ 312 $ - $ 6,417 $ 88,694
Distributions - Common Stock
($1.32 per share) - - - - - (8,780) (8,780)
Distributions - Preferred Stock
($1.60 per share) - - - - - (1,037) (1,037)
Exercise of options - 67 801 - - - 868
Shares issued through public offering - 3,737 60,811 - - - 64,548
Shares issued through dividend
reinvestment plan - 61 943 - - - 1,004
Redemption of preferred stock (10,693) 114 2,174 - - - (8,405)
Issuance of restricted stock - - 488 - (488) - -
Compensation expense -
restricted stock - - - - 41 - 41
Net income - - - - - 8,525 8,525
Other comprehensive income -
net unrealized gain on available-
for-sale securities - - - 511 - - 511
-------
Comprehensive income - - - - - - 9,036
------- ------- -------- ------- ------- ------- -------
Balances, December 31, 2003 - 9,605 130,863 823 (447) 5,125 145,969
Distributions - Common Stock
($1.32 per share) - - - - - (12,853) (12,853)
Exercise of options - 49 543 - - - 592
Shares issued through dividend
reinvestment plan - 72 1,247 - - - 1,319
Issuance of restricted stock - - 699 - (699) - -
Restricted stock vesting - 2 (2) - - - -
Compensation expense -
restricted stock - - - - 220 - 220
Net income - - - - - 10,974 10,974
Other comprehensive income -
net unrealized loss on available-
for-sale securities - - - (106) - - (106)
--------
Comprehensive income - - - - - - 10,868
------- ------- ------- ------- ------- ------- --------
Balances, December 31, 2004 - 9,728 133,350 717 (926) 3,246 146,115
Distributions - Common Stock
($1.32 per share) - - - - - (12,990) (12,990)
Exercise of options - 11 109 - - - 120
Shares issued through dividend
reinvestment plan - 31 569 - - - 600
Issuance of restricted stock - - 617 - (617) - -
Compensation expense -
restricted stock - - - - 293 - 293
Net income - - - - - 21,280 21,280
Other comprehensive income -
net unrealized gain on available-
for-sale securities - - - 101 - - 101
--------
Comprehensive income - - - - - - 21,381
------- -------- -------- -------- ------- -------- --------
Balances, December 31, 2005 $ - $ 9,770 $134,645 $ 818 $(1,250) $ 11,536 $155,519
======= ======== ======== ======== ======== ======== ========
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in Thousands)
Year Ended December 31,
----------------------------------------------
2005 2004 2003
---- ---- ----
Cash flows from operating activities:
Net income $21,280 $ 10,974 $ 8,525
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale (12,152) (75) (14)
Increase in rental income from straight-lining of rent (1,311) (1,037) (1,058)
Decrease in rental income from amortization of intangibles
relating to leases 29 43 54
Provision for valuation adjustment 469 366 -
Amortization of restricted stock expense 293 220 41
Equity in earnings of unconsolidated joint ventures (2,102) (2,869) (2,411)
Distributions of earnings from unconsolidated joint ventures 3,108 2,775 2,476
Payments to minority interest by subsidiary - - (18)
Depreciation and amortization 5,905 4,758 3,473
Amortization of financing costs 758 503 325
Changes in assets and liabilities:
Increase in escrow, deposits and other receivables (1,640) (848) (478)
Increase in accrued expenses and other liabilities 132 891 760
-------- -------- --------
Net cash provided by operating activities 14,769 15,701 11,675
-------- -------- --------
Cash flows from investing activities:
Purchase of real estate and improvements (59,427) (49,734) (24,327)
Net proceeds from sale of real estate 34,114 1,302 159
Net proceeds from condemnation of real estate - - 32
Investment in unconsolidated joint ventures, net 8,802 (12,487) (1,053)
Investment in mortgages receivable - - (7,000)
Collection of mortgages receivable (including $6,260
from an affiliated joint venture) - - 13,516
Net proceeds from sale of available-for-sale securities 5 4 -
Purchase of available-for-sale securities - - (10)
-------- -------- --------
Net cash used in investing activities (16,506) (60,915) (18,683)
-------- -------- --------
Cash flows from financing activities:
(Repayments) proceeds from bank line of credit, net (7,600) 7,600 (10,000)
Proceeds from mortgages payable 64,706 12,150 13,508
Payment of financing costs (1,172) (949) (1,215)
Repayment of mortgages payable (21,253) (2,368) (1,612)
Collection of notes receivable - officer - - 166
Proceeds from issuance of shares through public offering - - 68,160
Underwriters' discounts and commissions and other
public offering costs - - (3,613)
Cash distributions - Common Stock (12,966) (13,023) (7,496)
Cash distributions - Preferred Stock - - (1,037)
Exercise of stock options 120 592 868
Redemption of preferred stock - - (8,405)
Issuance of shares through dividend reinvestment plan 600 1,319 1,004
-------- -------- -------
Net cash provided by financing activities 22,435 5,321 50,328
-------- -------- -------
Net increase (decrease) in cash and cash equivalents 20,698 (39,893) 43,320
Cash and cash equivalents at beginning of year 6,051 45,944 2,624
-------- -------- -------
Cash and cash equivalents at end of year $26,749 $ 6,051 $45,944
======= ======== =======
Continued on next page
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Amounts in Thousands)
Year Ended December 31,
----------------------------------------------
2005 2004 2003
---- ---- -----
Supplemental disclosures of cash flow information:
Cash paid during the year for interest expense $10,150 $ 8,347 $ 7,156
Cash paid during the year for income taxes 15 18 18
Supplemental schedule of non-cash investing and financing activities:
Assumption of mortgages payable in connection with
purchase of real estate - $ 9,854 $15,121
Additions to real estate included in other liabilities - (1,413) 1,413
Conversion of preferred stock to common stock - - 2,284
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2005
NOTE 1 - ORGANIZATION AND BACKGROUND
One Liberty Properties, Inc. (the "Company") was incorporated in 1982 in the
state of Maryland. The Company is a self-administered and self-managed real
estate investment trust ("REIT"). The Company acquires, owns and manages a
geographically diversified portfolio of retail, industrial, office, health and
fitness, movie theater, and other properties, a substantial portion of which are
under long-term net leases. As of December 31, 2005, the Company owns forty-four
properties, holds a 50% tenancy in common interest in one property and
participates in six joint ventures that own a total of fourteen properties,
including one vacant parcel of land that is held for sale. The fifty-nine
properties are located in twenty-three states.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of One Liberty
Properties, Inc., its wholly-owned subsidiaries and a limited liability company
("LLC"), in which the Company held a 95% interest until September 8, 2003 when
it purchased the 5% minority owned interest. One Liberty Properties, Inc., its
subsidiaries and the LLC 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 exercises significant influence
over, but does not control, these 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. Any difference between the carrying amount of these investments
on the balance sheet of the Company and the underlying equity in net assets is
amortized as an adjustment to equity in earnings of unconsolidated joint
ventures over 40 years. See Note 4. 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 initial term of the lease. Some of the leases provide for
additional contingent rental revenue in the form of percentage rents and
increases based on the consumer price index. The percentage rents are based upon
the level of sales achieved by the lessee and are recorded once the required
sales levels are reached.
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.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of three
months or less when purchased.
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, if determined to be material, 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 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 term of the associated lease. The tenant
improvements and origination costs are amortized as an expense over the
remaining life of the lease (or charged against earnings if the lease is
terminated prior to its contractual expiration date). The Company assesses fair
value of the leases based on estimated cash flow projections that utilize
appropriate discount rates and available market information.
As a result of its evaluation under SFAS 141 of the acquisitions made, the
Company recorded additional deferred assets of $1,655,000 and $1,105,000, which
is included in other assets on the balance sheet, representing the net value of
the acquired above and below market leases and assumed lease origination costs
for the years ended December 31, 2005 and 2004, respectively. The Company
recognized a reduction in rental revenue of $29,000 and $43,000, for the
amortization of the above/below market leases and amortization expense of
$150,000 and $145,000 relating to lease origination costs, resulting from the
reallocation of the purchase price of the acquired properties for the years
ended 2005 and 2004, respectively. At December 31, 2005 and 2004, accumulated
amortization of intangible lease assets was $271,000 and $341,000, respectively.
For the year ended December 31, 2004, the Company also recorded a deferred
liability of $187,000 representing the value of a mortgage loan assumed at an
above market rate. The Company recognized a $35,000 and $3,000 reduction of
interest expense for the amortization of the above market mortgage for the years
ended December 31, 2005 and 2004, respectively.
The unamortized balance of intangible lease assets at December 31, 2005 will be
deducted from future operations through 2025 as follows:
2006 $ 218,000
2007 221,000
2008 247,000
2009 235,000
2010 235,000
Thereafter 1,515,000
----------
$2,671,000
==========
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Depreciation and Amortization
Depreciation of buildings is computed on the straight-line method over an
estimated useful life of 40 years for commercial properties and 27 1/2 years for
residential properties. Leasehold interest is amortized over the initial lease
term of the leasehold position.
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, 2005 and 2004, accumulated
amortization of such costs was $1,367,000 and $1,213,000, 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 2005 and 2004 included approximately 18% and 10%,
respectively, to be treated by the stockholders as return of capital and 5% and
less than 1%, respectively, as capital gain distributions, with the balance to
be treated as ordinary income.
Investment in Equity Securities
The Company determines the appropriate classification of equity securities at
the time of purchase and reassesses the appropriateness of the classification at
each reporting date. At December 31, 2005, all marketable securities have been
classified as available-for-sale and, as a result, are stated at fair value.
Unrealized gains and losses on available-for-sale securities are recorded as
accumulated other comprehensive income in the stockholders' equity section.
The Company's investment in 30,048 common shares of BRT Realty Trust ("BRT"), a
related party of the Company, (accounting for less than 1% of the total voting
power of BRT), purchased at a cost of $97,000, has a fair market value at
December 31, 2005 of $717,000. At December 31, 2005, the total cumulative
unrealized gain of $818,000 on all investments in equity securities is reported
as accumulated other comprehensive income in the stockholders' equity section.
Realized gains and losses are determined using the average cost method. During
2005, 2004 and 2003, sales proceeds and gross realized gains and losses on
securities classified as available-for-sale were:
2005 2004 2003
---- ---- ----
Sales proceeds $ 5,000 $ 4,000 $ -
======= ======= =======
Gross realized losses $ 1,000 $ - $ -
======= ======= =======
Gross realized gains $ - $ 2,000 $ -
======= ======= =======
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.
Investment in equity securities: Since these investments are considered
"available-for-sale", they are reported in the balance sheet based upon quoted
market prices.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Mortgages payable: At December 31, 2005, the estimated fair value of the
Company's mortgages payable exceeded its carrying value by approximately
$2,421,000, assuming a market interest rate of 6.25%.
Line of credit: There is no material difference between the carrying amounts and
fair value because the interest rate is at the lower of LIBOR plus 2.5% 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.
Concentration of Credit Risk
The Company maintains accounts at various financial institutions. While the
Company attempts to limit any financial exposure, its deposit balances may, at
times, exceed federally insured limits. The Company has not experienced any
losses on such accounts.
Earnings Per Common Share
Basic earnings per share was determined by dividing net income applicable to
common stockholders for each year by the weighted average number of shares of
Common Stock outstanding during each year.
Diluted earnings per share reflects the potential dilution that could occur if
securities or other contracts exercisable for or convertible into Common Stock
were exercised or converted or resulted in the issuance of Common Stock that
then shared in the earnings of the Company. Diluted earnings per share was
determined by dividing net income applicable to common stockholders for each
year by the total of the weighted average number of shares of Common Stock
outstanding plus the dilutive effect of the Company's outstanding options
(4,738, 16,288 and 32,052 shares for the years ended 2005, 2004 and 2003,
respectively) using the treasury stock method. The Preferred Stock was not
considered for the purpose of computing diluted earnings per share because the
assumed conversion was antidilutive.
Accounting for Long-Lived Assets and Impairment of Real Estate Owned
The Company reviews each real estate asset owned for which indicators of
impairment are present to determine whether the carrying amount of the asset
will be recovered. Recognition of impairment is required if the aggregate future
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Measurement is based upon the fair market value of
the asset determined by applying the appropriate capitalization rate in the area
in which the property is located, and applying such capitalization rate to the
net operating income derived from that asset. Real estate assets that are
expected to be disposed of are valued at the lower of carrying amount or fair
value less costs to sell on an individual asset basis.
During the year ended December 31, 2004, the Company determined that the
estimated fair value of a retail property, where the tenant filed for bankruptcy
protection and vacated the premises, was lower than its carrying value and
recorded a $366,000 provision for the difference. At June 30, 2005, the Company
wrote down the asset by an additional $469,000 based on an updated evaluation of
market conditions in the geographic area in which the property is located. The
provisions were recorded as direct write-downs of the investment on the balance
sheet and depreciation was calculated using the new basis. The Company sold this
property in December 2005 and recognized a loss of $9,000.
During the year ended December 31, 2005, one of the Company's joint ventures
determined that the fair value of one of the five properties owned by it was
lower than its carrying value and recorded a provision for valuation adjustment
of $2,562,000, of which the Company's share was $1,281,000. This provision was
based on a third party appraisal of the property, which is a vacant property,
which valued the land only and a report by an independent engineering firm which
estimated the value of the construction completed to date, against which
management had taken a significant discount. The provision was recorded as a
direct write down on the balance sheet of the joint venture.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Segment Reporting
Virtually all of the Company's real estate assets are comprised of real estate
owned that is net leased to tenants on a long-term basis. Therefore, the Company
operates predominantly in one industry segment.
Consolidation of Variable Interest Entities
In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, "Consolidation of Variable Interest Entities", which
explains how to identify variable interest entities ("VIE") and how to assess
whether to consolidate such entities. In December 2003, a revision was issued
(46R) to clarify some of the original provisions. Management has reviewed its
unconsolidated joint ventures and determined that none represent variable
interest entities which would require consolidation by the Company pursuant to
the interpretation.
Restricted Stock
The Company records compensation expense under APB 25 over the vesting period of
the restricted stock, measuring the compensation cost based on the market value
of the shares on the date of grant.
New Accounting Pronouncements
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations". This interpretation of FASB Statement
No. 143 clarified that the term "conditional asset retirement obligations"
refers to a legal obligation to perform an asset retirement activity in which
the timing and (or) method of settlement are conditional on a future event that
may be within the control of the entity. This interpretation is effective no
later than the end of fiscal years ending after December 15, 2005. The Company
adopted FASB Interpretation No. 47 and has determined that it has no material
effect on its financial statements.
Emerging Issues Task Force ("EITF") Issue 04-5, "Investor's Accounting for an
Investment in a Limited Partnership when the Investor is the Sole General
Partner and the Limited Partners Have Certain Rights" was ratified by the FASB
in June 2005. This EITF provides guidance in determining whether a general
partner controls a limited partnership and what rights held by the limited
partner(s) preclude the sole general partner from consolidating the limited
partnership in accordance with the U.S. generally accepted accounting
principles. This EITF covers entities that are equivalent to limited
partnerships, such as LLC's, in which the Company is a managing member of. This
issue is effective no later than for fiscal years beginning after December 15,
2005 and as of June 29, 2005 for new or modified arrangements. Management is
evaluating the impact of the EITF issue and does not anticipate that its
adoption will have a significant effect on earnings or the financial position of
the Company.
On December 16, 2004, the FASB issued Statement No. 123 (revised 2004),
"Share-Based Payment", which is a revision of FASB Statement No. 123,
"Accounting for Stock-Based Compensation". Statement 123 (R) supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees", and amends FASB
Statement No. 95, "Statement of Cash Flows". Statement 123 (R) requires all
share-based payments to employees, including grants of employee stock options,
be recognized in the financial statements based on their fair value. The pro
forma disclosure is no longer an alternative. The Statement is effective for
public companies at the beginning of the next fiscal year that begins after June
15, 2005. Management is evaluating the impact of the pronouncement and does not
anticipate that its adoption will have a significant effect on earnings or the
financial position of the Company.
Reclassification
Certain amounts reported in previous financial statements have been reclassified
in the accompanying financial statements to conform to the current year's
presentation.
NOTE 3 - REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS
During the year ended December 31, 2005, the Company purchased eight single
tenant properties in seven states for a total consideration of $58,887,000.
The rental properties owned at December 31, 2005 are leased under noncancellable
operating leases to corporate tenants with current expirations ranging from 2006
to 2038, with certain tenant renewal rights. Virtually all of the lease
agreements are net lease arrangements which require the tenant to pay not only
rent but all the expenses of the leased property including maintenance, taxes,
utilities and insurance. Certain lease agreements provide for periodic rental
increases and others provide for increases based on the consumer price index.
The minimum future rentals to be received over the next five years and
thereafter on the operating leases in effect at December 31, 2005 are as
follows:
Year Ending
December 31, (In Thousands)
------------ --------------
2006 $ 29,002
2007 29,164
2008 28,397
2009 27,446
2010 27,688
Thereafter 215,558
--------
Total $357,255
========
Included in the minimum future rentals are rentals from a property owned in fee
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 seven
month renewal options.
At December 31, 2005, the Company has recorded an unbilled rent receivable
aggregating $6,613,000, representing rent reported on a straight-line basis in
excess of rental payments required under the initial term of the respective
leases. This amount is to be billed and received pursuant to the lease terms
during the next twenty years. The minimum future rentals presented above include
amounts applicable to the repayment of these unbilled rent receivables.
Sales of Air Rights, Other and Real Estate
In June 2005, the Company sold the unused development or "air" rights relating
to a property located in Brooklyn, New York for a sales price of approximately
$11,000,000, which resulted in a gain after closing costs of $10,248,000 for
financial statement purposes. This gain has been deferred for federal tax
purposes in accordance with Section 1031 of the Internal Revenue Code of 1986,
as amended. (See Note 8 for the related party fee paid as a result of this
sale).
In August 2004, the Company realized a gain of $60,000 resulting from its grant
of an underground easement to a power company at one of its properties.
In July 2004, the Company sold a retail property, which had been vacant since
February 2003, for a sales price of $1,340,000 and realized a gain of $13,000.
The net operating loss for the property was $74,000 and $134,000 for the years
ended December 31, 2004 and 2003, respectively.
In May 2003, the Company sold one property for a sales price of $170,000 and
recognized a gain of $14,000. The net operating loss for the property was $8,000
for the year ended December 31, 2003.
Unaudited Pro Forma Information
On September 16, 2005, the Company purchased a property located in New Jersey
for $30,000,000. The following table summarizes, on an unaudited pro forma
basis, the combined results of continuing operations
NOTE 3 - REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS (Continued)
of the Company for the years ended December 31, 2005 and 2004 as though the
acquisition of this property during September 2005 was completed on January 1,
2004. The information does not purport to be indicative of what the operating
results of the Company would have been had the acquisition been consummated on
January 1, 2004. Results of operations acquired are included in the consolidated
statements of income from the date of acquisition. (Amounts in thousands, except
per share data.)
2005 2004
---- ----
Pro forma revenues $30,498 $25,074
Pro forma income from continuing operations 20,431 9,661
Pro forma common shares:
Basic 9,838 9,728
Diluted 9,843 9,744
Pro forma income from continuing operations
Basic and Diluted $2.08 $ .99
NOTE 4 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The Company is a member in six unconsolidated joint ventures which own and
operate fourteen properties. Summaries of the two most significant joint
ventures in which the Company was designated the managing member are below.
At December 31, 2005, the Company owns a 50% equity interest in two joint
ventures, with MTC Investors LLC ("MTC"), an unrelated entity. Approval of both
members of these two joint ventures is needed for all material decisions
including property acquisitions, financing and transfer of interest. These
ventures were organized in 2001 and 2002, respectively, for the purpose of
acquiring and owning megaplex movie theaters. The first joint venture (Joint
Venture #1) owns five megaplex stadium-style movie theaters and the second joint
venture (Joint Venture #2) owns one partial stadium-style movie theater located
in Brooklyn, NY, three megaplex stadium-style movie theaters and a vacant
property held for sale located in Monroe, NY. A stadium-style movie theater was
under construction at this site until September 2004, at which time the lease
with the former operator was terminated by mutual agreement and construction
stopped. The joint venture is seeking alternative uses for this property and is
also offering this property for sale.
The following tables present condensed financial statements for the two movie
theater joint ventures at December 31, 2005 and for the year then ended (amounts
in thousands):
Condensed Balance Sheets Joint Venture #1 Joint Venture #2
------------------------ ---------------- ----------------
Cash and cash equivalents $ 368 $ 927
Real estate investments, net 53,384 37,989
Property held for sale - 640 (A)
Deferred financing costs 458 419
Unbilled rent receivable 1,390 1,136
Other assets, primarily investment in
Access Integrated Technologies, Inc.
Class A common stock 3 432 (B)
--------- ---------
Total assets $ 55,603 $ 41,543
========= =========
Mortgage loans payable $ 31,720 $ 25,514
Other liabilities 337 559
Equity 23,546 15,470
--------- ---------
Total liabilities and equity $ 55,603 $ 41,543
========= =========
Company's equity investment $ 12,706 (C) $ 7,632
========= =========
Condensed Statements of Operations Joint Venture #1 Joint Venture #2
---------------------------------- ---------------- ----------------
Rental income $ 7,351 $ 5,415
--------- ---------
Depreciation and amortization 1,154 810
Operating expenses (D) 301 130
--------- ---------
Total operating expenses 1,455 940
--------- ---------
Operating income 5,896 4,475
Other income and expenses:
Interest and other income 3 -
Interest:
Expense (2,515) (1,989)
Amortization of deferred
financing costs (70) (32)
--------- ---------
Income from continuing operations 3,314 2,454
Loss from discontinued operations - (2,583) (A)
--------- ---------
Net income (loss) attributable to members $ 3,314 $ (129)
========= =========
Company's share of net income (loss) $ 1,657 $ (65)
========= =========
Amount recorded in income statement $ 1,637(C) $ (65)
========= =========
Distributions received by the Company:
From operations $ 1,645 $ 840
========= =========
From capital $ 39 $ 235
========= =========
(A) During the year ended December 31, 2005, the joint venture
determined that the fair value of one of the five properties owned by
it, where the joint venture was funding the construction of a six screen
movie theater, located in Monroe, NY, pursuant to the lease entered into
with the former tenant, was lower than its carrying value. The lease
with the former tenant was terminated by mutual agreement in September
2004 and construction was suspended. The joint venture is seeking
alternative uses for this property and is also offering this property
for sale. Included in loss from discontinued operations is a provision
for valuation adjustment of $2,562 which is based on a third party
appraisal which values the land only and a report by an independent
engineering firm which estimates the value of the construction completed
to date, against which management has taken a significant discount. The
provision was recorded as a direct write down on the balance sheet.
(B) During February 2005, the tenant/operator of one of the joint
venture's movie theaters, located in Brooklyn, NY, who had the same
principal as the tenant described in (A) above, sold its business to an
independent third party. In consideration of the joint venture's consent
to the lease assignment and a lease amendment and its waiver of the
requirement for a security deposit under the amended lease, the joint
venture received 40,000 restricted shares of Class A common stock of
Access Integrated Technologies, Inc., the new tenant's parent company
(AMEX:AIX). The closing price per share on the date of the transaction
for these shares was $4.40 and at December 31, 2005 was $10.38. These
shares have certain restrictions regarding the disposition thereof.
(C) The difference between the carrying amount of the Company's
investment in the joint venture and the underlying equity in net assets
is a premium amortized as an adjustment to equity in earnings of
unconsolidated joint ventures over 40 years.
(D) Includes management fees of $68 and $51, respectively, paid to a
company wholly owned by the Chairman of the Board of Directors and Chief
Executive Officer and in which certain executive officers of the Company
are officers. The management fee is equal to 1% of rent paid by the
tenants.
NOTE 4 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (Continued)
The following tables present condensed financial statements for the two movie
theater joint ventures at December 31, 2004 and for the year then ended (amounts
in thousands):
Condensed Balance Sheets Joint Venture #1 Joint Venture #2
------------------------ ---------------- ----------------
Cash and cash equivalents $ 720 $ 413
Real estate investments, net 54,533 42,012
Deferred financing costs 527 450
Unbilled rent receivable 1,105 839 (A)
Other assets 3 18
--------- ---------
Total assets $ 56,888 $ 43,732
========= =========
Mortgage loans payable $ 32,600 $ 25,606
Other liabilities 687 610
Equity 23,601 17,516
---------- ---------
Total liabilities and equity $ 56,888 $ 43,732
========= =========
Company's equity investment $ 12,752 $ 8,652
========= =========
Condensed Statements of Operations Joint Venture #1 Joint Venture #2
---------------------------------- ---------------- ----------------
Rental income $ 7,334 $ 4,022
--------- ---------
Depreciation and amortization 1,154 809
Operating expenses (B) 291 79
--------- ---------
Total operating expenses 1,445 888
--------- ---------
Operating income 5,889 3,134
Other income and expenses:
Interest:
Expense (2,581) (2,034)
Amortization of deferred
financing costs (70) (32)
--------- ---------
Income from continuing operations 3,238 1,068
Loss from discontinued operations - (53)
--------- ---------
Net income attributable to members $ 3,238 $ 1,015
========= =========
Company's share of net income $ 1,619 $ 507
========= =========
Amount recorded in income statement $ 1,599 (C) $ 507
========= =========
Distributions received by the Company:
From operations $ 1,591 $ 460
========= =========
From capital $ 21 $ 141
========= =========
(A) The $839 balance in unbilled rent receivable is net of a $724
direct write off against the entire balance of unbilled rent
receivable related to a movie theater, located in Brooklyn, NY,
which had been paying its rent in compliance with a stipulation.
(B) Includes management fees of $67 and $40, respectively, paid to
a company wholly owned by the Chairman of the Board of Directors
and Chief Executive Officer and in which certain executive
officers of the Company are officers. The management fee is equal
to 1% of rent paid by the tenants.
NOTE 4 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (Continued)
(C) The difference between the carrying amount of the Company's
investment in the joint venture and the underlying equity in net
assets is a premium amortized as an adjustment to equity in
earnings of unconsolidated joint ventures over 40 years.
At December 31, 2005, Joint Venture #1 has one consolidated outstanding mortgage
payable, which is secured by first mortgage liens on the five megaplex
stadium-style movie theaters it owns. The mortgage loan, which matures July 1,
2012, bears interest at the rates of 8.06% (four movie theaters) and 6.6% (one
movie theater) per annum (on outstanding principal balances of $26,674,000 and
$5,046,000), respectively. Total monthly payments of principal and interest of
$283,000 are required with approximately $24,000,000 due at maturity.
At December 31, 2005, there are two outstanding mortgage loans in Joint Venture
#2. One mortgage loan with an outstanding principal balance of $16,645,000 at
December 31, 2005 is secured by first mortgage liens on three of the movie
theater properties, matures May 1, 2018 and bears interest at 6.94%. Monthly
payments of principal and interest of $138,000 are required with approximately
$7,200,000 due at maturity. The other mortgage loan has an outstanding balance
of $8,869,000 at December 31, 2005, is secured by a first mortgage lien on one
movie theater property and bears interest at 8.94% through June 2017 and
thereafter, the greater of 10.94% or the Treasury Rate plus two percentage
points through the maturity date of March 1, 2022. Monthly payments of principal
and interest of $77,994 are required through March 1, 2007 increasing every five
years through maturity.
Scheduled principal repayments during the next five years and thereafter are as
follows (in thousands):
Year Ending
December 31, Joint Venture #1 Joint Venture #2
------------ ---------------- ----------------
2006 $ 951 $ 647
2007 1,028 697
2008 1,112 750
2009 1,202 807
2010 1,300 869
Thereafter 26,127 21,744
------- -------
Total $31,720 $25,514
======= =======
The movie theater properties are net leased under noncancellable operating
leases to experienced theater operators with current expirations ranging from
2015 to 2022, with certain tenant renewal rights. The minimum future rentals to
be received over the next five years and thereafter on the operating leases in
effect at December 31, 2005 are as follows (in thousands):
Year Ending
December 31, Joint Venture #1 Joint Venture #2
------------ ---------------- ----------------
2006 $ 6,910 $4,527
2007 6,935 4,588
2008 7,015 4,609
2009 7,040 4,675
2010 7,155 4,783
Thereafter 59,631 49,969
------- -------
Total $94,686 $73,151
======= =======
The remaining four unconsolidated joint ventures each own one property. At
December 31, 2005 and 2004, the Company's equity investment in these four joint
ventures totaled $6,997,000 and $15,619,000, respectively. The December 31, 2005
balance is net of distributions of financing proceeds the Company received from
two of the joint ventures aggregating $8,715,000. These four unconsolidated
joint ventures contributed $530,000 and $763,000 in equity earnings for the
years ended December 31, 2005 and 2004, respectively.
NOTE 4 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (Continued)
Mortgage brokerage fees relating to the financings of the two properties
mentioned in the previous paragraph, aggregating $156,000, were paid by the two
ventures to a company wholly owned by the Chairman of the Board of Directors and
Chief Executive Officer and in which certain executive officers of the Company
are officers. These fees were deferred and are being amortized over the life of
the respective mortgages. In addition, one of these joint ventures paid such
company $12,000 and $1,000 in management fees for the years ended December 31,
2005 and 2004, respectively.
NOTE 5 - DEBT OBLIGATIONS
Mortgages Payable
At December 31, 2005, there are thirty-seven outstanding mortgages payable, all
of which are secured by first liens on individual real estate investments with
an aggregate carrying value before accumulated depreciation, as adjusted for
intangibles, of $253,480,000. The mortgages bear interest at rates ranging from
5.13% to 8.8%, and mature between 2006 and 2023. The weighted average interest
rate was 6.4% and 7.1% for the years ended December 31, 2005 and 2004,
respectively.
Scheduled principal repayments during the next five years and thereafter are as
follows:
Year Ending
December 31, (In Thousands)
------------ --------------
2006 $ 5,814
2007 7,758
2008 8,243
2009 8,787
2010 20,950
Thereafter 115,920
--------
Total $167,472
========
Line of Credit
On June 4, 2004, the Company amended its existing $30,000,000 revolving credit
facility to add two new lenders, increase the total amount of the facility to
$62,500,000 ("Facility") and extend its maturity from March 21, 2005 to March 3,
2007. The two original lenders were Valley National Bank, Merchants Bank
Division and Bank Leumi USA and the two new lenders are Israel Discount Bank of
New York and Manufacturers and Traders Trust Company. The Facility provides that
the Company pay interest at the lower of LIBOR plus 2.5% or at the bank's prime
rate on funds borrowed and an unused facility fee of 1/4%. The Company paid
$636,000 in fees and closing costs relating to the Facility increase which are
being amortized over the term of the Facility.
The Facility is guaranteed by all of the Company's subsidiaries which own
unencumbered properties and the shares of stock of all other subsidiaries are
pledged as collateral. The Company has agreed that it and its affiliates
(including entities that are participants in a Shared Services Agreement - see
Note 8) will maintain on deposit with the banks at least 10% of the average
outstanding annual principal balance under the Facility. If minimum balances are
not maintained by the Company and its affiliates, a deficiency fee will be
charged to the Company.
The Facility is available to finance the acquisition or financing of interests
in commercial real estate. The Company is required to comply with certain
covenants. Net proceeds received from the sale or refinance of properties are
required to be used to repay amounts outstanding under the Facility if proceeds
from the Facility were used to purchase the property.
NOTE 6 - PREFERRED STOCK
At the Company's Annual Meeting of Stockholders held on June 14, 2005, the
stockholders approved an Amendment to the Company's Restated Articles of
Incorporation to increase the aggregate number of shares of authorized capital
stock by authorizing the issuance of 12,500,000 shares of preferred stock, par
value $1.00 per share. To date, none have been issued.
On December 30, 2003, the Company completed the redemption of all of its
outstanding $16.50 convertible preferred stock. Of the 648,058 shares of
preferred stock outstanding, 509,185 shares were redeemed for a total
consideration of approximately $8,400,000 and 138,873 shares were converted by
the owners into 114,539 shares of common stock. The conversion ratio was .825 of
a share of common for each share of preferred stock converted.
NOTE 7 - PUBLIC OFFERING
During October and November 2003, the Company sold, pursuant to a shelf
registration statement filed with the U.S. Securities and Exchange Commission in
September 2003, 3,737,500 shares of common stock (including 487,500 shares sold
resulting from the exercise in full of the over-allotment option held by the
underwriters) at a public offering price of $18.25 per share and received net
proceeds of approximately $64,500,000 (after underwriting discounts and
commissions and expenses of the offering).
The shelf registration statement, which was declared effective by the U.S.
Securities and Exchange Commission on October 2, 2003, allows the Company to
sell common stock from time to time in one or more public offerings (at prices
and terms to be determined at the time of the offering) up to an aggregate
public offering price of $200,000,000.
NOTE 8 - RELATED PARTY TRANSACTIONS
At December 31, 2005 and 2004, Gould Investors L.P. ("Gould"), a related party,
owned 818,679 shares of the common stock of the Company or approximately 8% of
the equity interest. During 2004, Gould purchased 53,089 shares of the Company
through the Company's dividend reinvestment plan.
Gould charged the Company $1,208,000, $980,000 and $901,000 during the years
ended December 31, 2005, 2004 and 2003, respectively, for allocated general and
administrative expenses and payroll based on estimated time incurred by various
employees pursuant to a Shared Services Agreement. Such amounts included $69,000
in 2003 attributable to time spent on the public offering. At December 31, 2005
and 2004, $268,000 and $228,000 remain unpaid and is reflected in accrued
expenses on the balance sheet.
The Company paid the following fees to companies wholly owned by the Chairman of
the Board of Directors and Chief Executive Officer and in which certain
executive officers of the Company are officers. The Company's policy is to
insure that it receives 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.
Years Ended December 31,
2005 2004 2003
---- ---- ----
Mortgage brokerage fees (A) $ 543,000 $122,000 $291,000
Sales commissions (B) 404,000 47,000 -
Lease commissions - - 309,000
Management fees 42,000 58,000 15,000
Supervisory fees (C) 37,000 26,000 172,000
---------- -------- --------
Total fees $1,026,000 $253,000 $787,000
========== ======== ========
(A) Relating to mortgages placed on eleven, three and six of the Company's
properties for the years ended December 31, 2005, 2004 and 2003, respectively.
These fees were deferred and are being amortized over the life of the respective
mortgages.
NOTE 8 - RELATED PARTY TRANSACTIONS (Continued)
(B) Relating to the sales of two properties and air rights for the year ended
December 31, 2005 for an aggregate sales price of $30,524,000. Relates to the
sale of one property for the year ended December 31, 2004 for a sales price of
$1,340,000.
(C) For supervision of improvements to properties.
See Note 4 for other related party transactions involving the Company's
unconsolidated joint ventures.
NOTE 9 - STOCK OPTIONS AND RESTRICTED STOCK
Stock Options
On December 6, 1996, the directors of the Company adopted the 1996 Stock Option
Plan (Incentive/Nonstatutory Stock Option Plan), which was approved by the
Company's stockholders on June 6, 1997. The options granted under the Plan were
granted at per share amounts at least equal to their fair market value at the
date of grant, were cumulatively exercisable at a rate of 25% per annum,
commencing six months after the date of grant, and expire five years after the
date of grant. The 9,000 options outstanding at December 31, 2005 expire on
September 9, 2006. A maximum of 225,000 shares of common stock of the Company
were reserved for issuance to employees, officers, directors, consultants and
advisors to the Company, of which none are available for grant at December 31,
2005.
Changes in the number of common shares under all option arrangements are
summarized as follows:
Years Ended December 31,
----------------------------------------
2005 2004 2003
---- ---- ----
Outstanding at beginning of period 19,500 68,688 142,302
Exercised (10,500) (49,188) (66,864)
Expired - - (6,750)
Outstanding at end of period 9,000 19,500 68,688
Exercisable at end of period 9,000 19,500 54,938
Option price per share outstanding $12.19 $11.125-$12.19 $11.125-$12.375
As of December 31, 2005, the outstanding options had a remaining contractual
life of approximately eight months and an exercise price of $12.19.
The Company adopted Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), and related interpretations in
accounting for its employee stock options. Under APB 25, no compensation
expense is recognized because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant.
Pro forma information regarding net income and earnings per share is required
by FASB No. 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method. The fair value for the
outstanding options was estimated at the date of the grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for these options which were granted in 2001: risk free interest
rate of 4.06%, dividend yield of 10.07%, volatility factor of the expected
market price of the Company's Common Stock based on historical results of
.141; and expected life of 5 years.
NOTE 9 - STOCK OPTIONS AND RESTRICTED STOCK (Continued)
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and changes in the
subjective input assumptions can materially affect the fair value estimate,
management believes the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. The Company
has elected not to present pro forma information for 2005, 2004 and 2003
because the impact on the reported net income and earnings per share is
immaterial.
Restricted Stock
During the years ended December 31, 2005 and 2004, the Company awarded 40,750
and 35,700 shares of restricted stock under its 2003 Incentive Plan which was
approved by the Company's stockholders in June 2003. The total number of
shares issuable under this Plan is 275,000. The restricted shares vest five
years from the date of issuance 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. The Company
records compensation expense under APB 25 over the vesting period, measuring
the compensation cost based on the market value of the shares on the date of
grant. For the years ended December 31, 2005 and 2004 the total value of
restricted stock grants was $776,000 and $699,000. Compensation expense of
$293,000, $220,000 and $41,000 was recognized in 2005, 2004 and 2003,
respectively and at December 31, 2005, $1,250,000 has been deferred as
unearned compensation and will be charged to expense over the vesting period.
Included in the 2004 compensation expense is $28,000 related to the
accelerated vesting of 1,750 shares of restricted stock upon the retirement of
a board member.
Changes in the number of shares under the 2003 One Liberty Incentive Plan is
shown below:
Years Ended December 31,
2005 2004
---- ----
Outstanding at beginning of period 60,300 26,350
Issued 40,750 35,700
Cancelled (8,325) -
Accelerated vesting - (1,750)
------ ------
Outstanding at the end of period 92,725 60,300
====== ======
NOTE 10 - DISTRIBUTION REINVESTMENT PLAN
In May 1996, the Company implemented a Distribution Reinvestment Plan (the
"Plan"). The Plan provides owners of record of 100 shares or more of its common
and/or preferred stock the opportunity to reinvest cash distributions in
newly-issued common stock of the Company at a five percent discount from the
market price. No open market purchases are made under the Plan. During the years
ended December 31, 2005 and 2004, the Company issued 31,441 and 72,214 common
shares, respectively, under the Plan.
NOTE 11 - DISCONTINUED OPERATIONS
During the year ended December 31, 2005, the Company sold five properties. In
accordance with SFAS 144, "Accounting for Impairment or Disposal of Long Lived
Assets," the Company recorded the results of operations and the related gain as
income from discontinued operations. (See Note 8 for the related party fees paid
as a result of these transactions.)
NOTE 11 - DISCONTINUED OPERATIONS (Continued)
The following is a summary of income from discontinued operations for the years
ended December 31, 2005, 2004 and 2003 (in thousands):
Years Ended December 31,
2005 2004 2003
---- ---- ----
Revenues, primarily rental income $ 1,173 $ 4,298 $ 3,114
------- ------- -------
Depreciation and amortization 241 561 560
Real estate expenses 690 734 227
Interest expense 119 202 208
Provision for valuation adjustment
of real estate 469 366 -
------- ------- -------
Total expenses 1,519 1,863 995
------- ------- -------
(Loss) income from discontinued
operations before gain on sale (346) 2,435 2,119
Net gain on sale of discontinued operations 1,905 - -
------- ------- -------
Income from discontinued operations $ 1,559 $ 2,435 $ 2,119
======= ======= =======
Real estate investments, net of accumulated depreciation, and mortgages
payable for these five properties at December 31, 2004 was $22,550,000 and
$2,225,000, respectively.
NOTE 12 - PRESIDENT RESIGNATION AND CONTINGENCY
On July 21, 2005, the Company announced that Jeffrey Fishman resigned as the
Company's president, chief executive officer and a member of its Board of
Directors. Mr. Fishman's resignation followed the discovery by the Company of
what appeared to be inappropriate financial dealings by Mr. Fishman with a
former tenant of a movie theater property located in Brooklyn, NY, owned by a
joint venture in which the Company is a 50% venture partner and the managing
member. The Audit Committee of the Board of Directors has been conducting an
investigation of this matter and related matters and retained special counsel
to assist the committee in the investigation. The investigation has been
substantially completed. Based on materials which have been gathered and
interviews which have been conducted during the investigation, there is no
indication that any other officer or employee assisted in or benefited from
Mr. Fishman's inappropriate financial dealings. In the opinion of management,
the activities of the former president and chief executive officer have not
had a material adverse effect on the Company's business operations or its
financial condition.
On August 12, 2005, the former tenant of the Brooklyn, NY theater property,
(referred to in the preceding paragraph), Pritchard Square Cinema LLC, and
Pritchard Square LLC, commenced litigation in the Supreme Court of the State
of New York, Nassau County against the Company, certain of its affiliated
entities, Mr. Fishman and Britannia Management, LLC ("Britannia"), a company
which the Company believes is owned and/or controlled by Mr. Fishman.
Pritchard Square LLC was the seller and Pritchard Square Cinema LLC was the
tenant of the Brooklyn, NY property which was acquired in a "sale and
leaseback transaction" by the joint venture. The Brooklyn, NY property is
still owned by the joint venture and is now leased to a party unrelated to the
former tenant. The former tenant and its related entity allege that it or its
affiliates paid $815,000 in the aggregate to Mr. Fishman and/or Britannia. As
against Mr. Fishman, Britannia, the Company and affiliated entities, the
complaint alleges fraud, breach of contract, intentional tort, negligent
supervision, respondeat superior, negligent misrepresentation, tortious
interference with prospective economic relations and conduct in violation of
the Racketeer Influenced and Corrupt Organizations Act ("RICO"). The damages
sought in the complaint are $9 million plus punitive damages, interest and
costs and a demand for treble damages under RICO.
NOTE 12 - PRESIDENT RESIGNATION AND CONTINGENCY (Continued)
On the same date that the complaint was filed against the Company and certain
of its affiliated entities, the Company filed suit in the Supreme Court of the
State of New York, Nassau County against the former tenant of the Brooklyn, NY
property, Norman Adie, the former tenant's principal, Jeffrey Fishman,
Britannia and others. The Company's complaint alleges that Mr. Adie, Mr.
Fishman and other defendants conspired to defraud the Company. The Company's
lawsuit alleges commercial bribery, fraud, breach of fiduciary duty, tortious
interference, intentional tort, violation of the New York Enterprise
Corruption Act, respondeat superior, unjust enrichment and violations of RICO.
The damages alleged in this lawsuit exceed $1 million, plus punitive damages,
interest and costs.
Motions were made by both parties to consolidate the two actions. The Court
has ordered a consolidation of the actions for all purposes and determined
that the Company will be deemed the plaintiff and Pritchard Square Cinema LLC
and its related entity will be deemed the defendants. The Company believes
that the claims against the Company and its affiliates are without merit and
the Company will defend the claims against it vigorously. The litigation is in
the preliminary stages and discovery has not commenced.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company maintains a non-contributory defined contribution pension plan
covering eligible employees and officers. Contributions by the Company are
made through a money purchase plan, based upon a percent of qualified
employees' total salary as defined. Pension expense approximated $60,000,
$56,000 and $47,000 during the years ended December 31, 2005, 2004 and 2003,
respectively. At December 31, 2005, the entire 2005 contribution had been paid
by the Company to the plan.
In the ordinary course of business the Company is party to various legal
actions which management believes are routine in nature and incidental to the
operation of the Company's business. Management believes that the outcome of
the proceedings will not have a material adverse effect upon the Company's
consolidated statements taken as a whole.
NOTE 14 - INCOME TAXES
The Company elected to be taxed as a real estate investment trust (REIT) under
the Internal Revenue Code, commencing with its taxable year ended December 31,
1983. To qualify as a REIT, the Company must meet a number of organizational
and operational requirements, including a requirement that it currently
distribute at least 90% of its adjusted taxable income to its stockholders. It
is management's current intention to adhere to these requirements and maintain
the Company's REIT status. As a REIT, the Company generally will not be
subject to corporate level federal, state and local income tax on taxable
income it distributes currently to its stockholders. If the Company fails to
qualify as a REIT in any taxable year, it will be subject to federal, state
and local income taxes at regular corporate rates (including any applicable
alternative minimum tax) and may not be able to qualify as a REIT for four
subsequent taxable years. Even though the Company qualifies for taxation as a
REIT, the Company is subject to certain state and local taxes on its income
and property, and to federal income and excise taxes on its undistributed
taxable income.
NOTE 14 - INCOME TAXES (Continued)
Reconciliation Between Financial Statement Net Income and Federal Taxable
Income:
The following unaudited table reconciles financial statement net income to
federal taxable income for the years ended December 31, 2005, 2004 and 2003
(amounts in thousands):
2005 2004 2003
Estimate Actual Actual
-------- ------ ------
Net income $21,280 $10,974 $ 8,525
Straight line rent adjustments (1,602) (1,205) (1,576)
Financial statement gain on sale
in excess of tax gain (10,840) (A) - (48)
Rent received in advance, net (589) 275 748
Financial statement provisions for
valuation adjustment 1,281 366 -
Fee income subject to tax,
not recorded for books - 134 5
Financial statement adjustment for
above/below market leases 179 188 153
Restricted stock expense, non-deductible 294 189 41
Financial statement depreciation
in excess of tax depreciation 409 207 70
Other adjustments - 35 4
------- ------- ------- -
Federal taxable income $10,412 $11,163 $ 7,922
======= ======= =======
(A) Amount includes $10,248 GAAP gain on sale of air rights,
which was deferred for federal tax purposes in accordance
with Section 1031 of the Internal Revenue Code of 1986, as
amended.
Reconciliation Between Cash Dividends Paid and Dividends Paid Deduction:
The following unaudited table reconciles cash dividends paid with the dividends
paid deduction for the years ended December 31, 2005, 2004 and 2003 (amounts in
thousands):
2005 2004 2003
Estimate Actual Actual
-------- ------ ------
Cash dividends paid $12,990 $12,854 $ 9,817
Dividend reinvestment plan (B) 37 57 66
------- ------- -------
13,027 12,911 9,883
Less: Spillover dividends designated to
following year (C) (3,265) (3,235) (2,646)
Less: Return of capital (2,535) (1,109) -
Plus: Spillover dividends designated from
prior year 3,235 2,646 1,238
------- ------- -------
Dividends paid deduction (D) $10,462 $11,213 $ 8,475
======= ======= =======
(B) Amount reflects the 5% discount on the Company's common shares
purchased through the dividend reinvestment plan.
(C) The entire dividend paid in January 2006 and 2005 and a
portion of the dividend paid in January 2004 will be considered
2006, 2005 and 2004 dividends, respectively, as it was in excess
of the Company's accumulated earnings and profits through 2005,
2004 and 2003, respectively.
(D) Dividends paid deduction is higher than federal taxable income
in 2005, 2004 and 2003 so as to account for adjustments made to
federal taxable income as a result of the impact of the
alternative minimum tax.
NOTE 15 - QUARTERLY FINANCIAL DATA (Unaudited):
(In Thousands, Except Per Share Data)
Quarter Ended
-------------
Total
March 31 June 30 September 30 December 31 For Year
-------- ------- ------------ ----------- --------
2005
Rental revenues as previously
reported $7,106 $7,174 $7,107 $7,545 $28,932
Revenues from discontinued
operations (A) (329) (158) - - (487)
------- ------ ------ ------ -------
Revenues (B) $6,777 $7,016 $7,107 $7,545 $28,445
====== ====== ====== ====== =======
Income from continuing
operations $2,860 $12,896 (C) $1,163 $2,802 $19,721
Income (loss) from discontinued
operations (137) 387 566 743 1,559
------ ------- ------ ------ -------
Net income $2,723 $13,283 (C) $1,729 $3,545 $21,280
====== ======= ====== ====== =======
Weighted average number of common shares outstanding:
Basic 9,795 9,841 9,852 9,863 9,838
Diluted 9,802 9,845 9,857 9,868 9,843
Net income per common share - basic and diluted:
Income from continuing
operations $ .29 $ 1.31 $ .12 $ .28 $2.00 (D)
Income (loss) from
discontinued operations (.01) .04 .06 .08 .16 (D)
------ ------ ------ ------ ------
Net income $ .28 $ 1.35 $ .18 $ .36 $ 2.16 (D)
====== ====== ====== ====== ======
(A) Excludes revenues from discontinued operations which were previously
excluded from total revenues as previously reported in the September and
December 2005 quarters.
(B) Amounts have been adjusted to give effect to the Company's
discontinued operations in accordance with Statement No. 144.
(C) Includes $10,248 (or $1.04 per common share) from the sale of air
rights.
(D) Calculated on weighted average shares outstanding for the
year.
NOTE 15 - QUARTERLY FINANCIAL DATA (Unaudited) (Continued):
(In Thousands, Except Per Share Data)
Quarter Ended
-------------
Total
March 31 June 30 September 30 December 31 For Year
-------- ------- ------------ ----------- --------
2004
Rental revenues as previously
reported $5,558 $6,137 $6,275 $7,822 (E) $25,792
Revenues from discontinued
operations (782) (796) (726) (1,644)(E) (3,948)
------ ------ ------ ------- ------
Revenues (F) $4,776 $5,341 $5,549 $6,178 $21,844
====== ====== ====== ====== =======
Income from continuing
operations $1,706 $1,742 $2,115 $2,976 $8,539
Income from discontinued
operations 539 479 384 1,033 2,435
------ ------ ------ ------- -------
Net income $2,245 $2,221 $2,499 $4,009 $10,974
====== ====== ====== ====== =======
Weighted average number of common shares outstanding:
Basic 9,662 9,721 9,749 9,780 9,728
Diluted 9,688 9,736 9,762 9,790 9,744
Net income per common share - basic and diluted:
Income from continuing
operations $ .18 $ .18 $ .22 $ .30 $ .88 (G)
Income from
discontinued operations .05 .05 .04 .11 .25 (G)
------ ------ ------ ------ ------
Net income $ .23 $ .23 $ .26 $ .41 $ 1.13 (G)
====== ====== ====== ====== ======
(E) The quarter ended December 31, 2004 includes the receipt of
$767,000 from the sale by the Company of a claim in connection
with the bankruptcy proceeding involving a retail tenant which
disaffirmed its lease and vacated the property.
(F) Amounts have been adjusted to give effect to the Company's
discontinued operations in accordance with Statement No. 144.
(G) 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, 2005
(Amounts in Thousands)
Life on Which
Initial Cost Gross Amount at Which Carried At Depreciation in
to Company December 31, 2005 Latest Income
--------- ----------------- Date Of Statement is
Accumulated Construc- Date Computed
Encumbrances Land Buildings Land Buildings Total Depreciation tion Acquired (Years)
------------ ---- --------- ---- --------- ----- ------------ ---- -------- --------
Free Standing
Retail Locations:
- -----------------
Miscellaneous $73,003 $25,289 $100,684 $25,289 $100,684 $125,973 $11,246 Various Various 40
Flex Buildings:
- ---------------
Miscellaneous 12,640 3,780 15,279 3,780 15,279 19,059 1,921 Various Various 40
Office Buildings:
- -----------------
Parsippany, NJ 17,000 6,055 23,300 6,055 23,300 29,355 170 1997 Sept.16, 2005 40
Miscellaneous 17,933 3,537 16,203 3,537 16,203 19,740 1,685 Various Various 40
Apartment Building:
- -------------------
Miscellaneous 4,434 1,110 4,439 1,110 4,439 5,549 1,863 1910 June 14, 1994 27.5
Industrial:
- -----------
St. Cloud, MN 9,852 3,407 13,151 3,407 13,151 16,558 397 2001 Oct.18, 2004 40
Miscellaneous 9,167 6,104 24,077 6,104 24,077 30,181 2,315 Various Various 40
Theater:
- --------
Miscellaneous 13,225 2,331 17,607 2,331 17,607 19,938 1,173 Various Various Various
Health Clubs:
- -------------
Miscellaneous 10,218 2,233 11,460 2,233 11,460 13,693 1,154 Various Various 40
------ ----- ------ ----- ------ ------ -----
$167,472 $53,846 $226,200 $53,846 $226,200 $280,046 $21,924
======== ======= ======== ======= ======== ======== =======
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Notes To Schedule III
Consolidated Real Estate And Accumulated Depreciation
(a) Reconciliation of "Real Estate and Accumulated Depreciation"
(Amounts In Thousands)
Year Ended December 31,
2005 2004 2003
---- ---- ----
Investment in real estate:
Balance, beginning of year $247,183 $191,471 $151,294
Addition: Land, buildings and
improvements 57,772 57,427 40,431
Deductions:
Cost of properties sold (24,440) (1,349) (222)
Valuation allowance (c) (469) (366) -
Other - - (32)
-------- -------- --------
Balance, end of year $280,046 $247,183 $191,471
======== ======== ========
Accumulated depreciation:
Balance, beginning of year $ 18,647 $ 14,155 $ 10,857
Addition: depreciation 5,755 4,614 3,375
Deductions:
Accumulated depreciation
related to properties sold (2,478) (122) ( 77)
-------- -------- --------
Balance, end of year $ 21,924 $ 18,647 $ 14,155
======== ======== ========
(b) The aggregate cost of the properties is approximately $14,641 lower for
federal income tax purposes.
(c) During the years ended December 31, 2005 and 2004, the Company recorded
provisions for valuation adjustment of real estate totaling $469 and
$366, respectively. See Note 2 to the consolidated financial statements
for further information.
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
Company State of Organization
------- ---------------------
OLP Iowa, Inc. Delaware
OLP Texas, Inc. Texas
OLP-TSA Georgia, Inc. Georgia
OLP Dixie Drive Houston, Inc. Texas
OLP Greenwood Village, Colorado, Inc. Colorado
OLP Ft. Myers, Inc. Florida
OLP Rabro Drive Corp. New York
OLP Chattanooga, Inc. Tennessee
OLP Columbus, Inc. Ohio
OLP Mesquite, Inc. Texas
OLP South Highway Houston, Inc. Texas
OLP Selden, Inc. New York
OLP Palm Beach, Inc. Florida
OLP New Hyde Park, Inc. New York
OLP Champaign, Inc. Illinois
OLP Batavia, Inc. New York
OLP Hanover PA, Inc. Pennsylvania
OLP Grand Rapids, Inc. Michigan
OLP El Paso, Inc. Texas
OLP Plano, Inc. Texas
OLP Hamilton, Inc. New York
OLP Hauppauge, LLC New York
OLP Ronkonkoma, LLC New York
OLP Plano 1, L.P. Texas
OLP El Paso 1, L.P. Texas
OLP Plano, LLC Delaware
OLP El Paso 1, LLC Delaware
OLP Hanover 1, LLC Pennsylvania
OLP Theaters, LLC Delaware
OLP Movies, LLC Delaware
OLP Tucker, LLC Georgia
OLP Lake Charles, LLC Louisiana
OLP Lake Worth, LLC Florida
OLP Marcus Drive, LLC New York
OLP Sommerville, LLC Massachusetts
OLP Newark, LLC Delaware
OLP Texas, LLC Delaware
OLP GP Inc. Texas
OLP Texas 1, L.P. Texas
OLP Los Angeles, Inc. California
OLP Chula Vista Corp. California
OLP Knoxville LLC Tennessee
OLP Athens LLC Delaware
OLP NNN Manager LLC Delaware
OLP Greensboro LLC Delaware
OLP South Milwaukee Manager LLC Delaware
OLP Onalaska LLC Delaware
OLP Saint Cloud LLC Minnesota
OLP CC Antioch LLC Tennessee
Company State of Organization
------- ---------------------
OLP CC Fairview Heights LLC Illinois
OLP CC Ferguson LLC Missouri
OLP CC St. Louis LLC Missouri
OLP CC Florence LLC Kentucky
OLP Tomlinson LLC Pennsylvania
OLP Parsippany LLC Delaware
OLP Veterans Highway LLC New York
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 333-108765) of One Liberty Properties, Inc. and in the related
Prospectus (Form S-8 No. 333-101681) pertaining to the 1996 Stock Option Plan of
One Liberty Properties, Inc.; and (Form S-8 No. 333-104461) pertaining to the
2003 Incentive Plan of One Liberty Properties, Inc., of our reports dated March
6, 2006, with respect to the consolidated financial statements and schedule of
One Liberty Properties, Inc., One Liberty Properties, Inc. management's
assessment of the effectiveness of internal control over financial reporting,
and the effectiveness of internal control over financial reporting of One
Liberty Properties, Inc., included in this Annual Report (Form 10-K) for the
year ended December 31, 2005.
New York, New York
March 6, 2006
Exhibit 31.1
CERTIFICATION
I, Fredric H. Gould, Chairman of the Board and Chief Executive Officer of One
Liberty Properties, Inc., certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year
ended December 31, 2005 of One Liberty Properties, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed
under our supervision, 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;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal controls over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 15, 2006
/s/ Fredric H. Gould
--------------------
Fredric H. Gould
Chairman of the Board and Chief
Executive Officer
Exhibit 31.2
CERTIFICATION
I, David W. Kalish, Senior Vice President and Chief Financial Officer of
One Liberty Properties, Inc., certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year
ended December 31, 2005 of One Liberty Properties, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 (e) and 15d-15 (e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed
under our supervision, 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;
(c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as
of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal controls over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: March 15, 2006
/s/ David W. Kalish
-------------------
David W. Kalish
Senior Vice President and
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
The undersigned, Fredric H. Gould, Chairman of the Board and Chief Executive
Officer of One Liberty Properties, Inc. (the "Registrant"), does hereby certify
to his knowledge, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that based upon a review of the
Annual Report on Form 10-K for the year ended December 31, 2005 of the
Registrant, as filed with the Securities and Exchange Commission on the date
hereof (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: March 15, 2006 /s/ Fredric H. Gould
--------------------
Fredric H. Gould
Chairman of the Board and Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION OF SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
The undersigned, David W. Kalish, Senior Vice President and Chief Financial
Officer of One Liberty Properties, Inc. (the "Registrant"), does hereby certify
to his knowledge, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that based upon a review of the
Annual Report on Form 10-K for the year ended December 31, 2005 of the
Registrant, as filed with the Securities and Exchange Commission on the date
hereof (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
Date: March 15, 2006 /s/ David W. Kalish
------------------------------------
David W. Kalish
Senior Vice President and Chief
Financial Officer