SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
[ X] Annual Report Pursuant to Section l3 or l5(d)
of the Securities Exchange Act of l934
For the fiscal year ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 0-11083
ONE LIBERTY PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 13-3147497
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
60 Cutter Mill Road, Great Neck, New York 11021
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (5l6)466-3l00
Securities registered pursuant to Section l2(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $1.00 American Stock Exchange
$16.50 Cumulative Convertible
Preferred Stock, par value $1.00 American Stock Exchange
Securities registered pursuant to Section l2(g) of the Act:
NONE
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during
the preceding l2 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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 [ ].
As of March 2, 1998 the aggregate market value of all voting stock (Common Stock
and Preferred Stock) held by non-affiliates of the Registrant was approximately
$21,443,000.
As of March 2, 1998, the Registrant had 1,574,894 shares of Common Stock
and 808,776 shares of $16.50 Cumulative Convertible Preferred Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The proxy statement for the Registrant's Annual Meeting of Stockholders,
scheduled for June 12, 1998, will be filed with the Securities and Exchange
Commission within 120 days after the end of the Registrant's fiscal year covered
by this Form 10-K. The information required by Part III (Item 10-Directors and
Executive Officers of the Registrant, Item 11 -Executive Compensation, Item 12 -
Security Ownership of Certain Beneficial Owners and Management, and Item 13 -
Certain Relationships and Related Transactions) will be incorporated by
reference from the definitive proxy statement to be filed by the Registrant
pursuant to Regulation 14A under the Securities Exchange Act of 1934.
PART I
Item 1. Business
General
One Liberty Properties, Inc. (the "Company") is a self
administered and self managed real estate investment trust ("REIT") incorporated
under the laws of Maryland on December 20, 1982. The primary business of the
Company is to acquire, own and manage improved, free standing, commercial real
estate operated by the lessee under a long-term net lease. Its focus is the
acquisition, ownership and management of improved real property leased to retail
businesses under long term commercial net leases. The Company, from time to
time, will acquire and own improved commercial real estate net leased to a
corporation or government agency and improved commercial real property (such as
a multi family apartment building, office building or industrial building)
leased under a long-term lease to an occupant or operator. Under the typical net
lease and long-term lease, rental and other payments to be made by the lessee
are payable without diminution for any reason. The lessee, in addition to its
rent obligation, is generally responsible for payment of all charges
attributable to the property, such as real estate taxes, assessments, water and
sewer rents and charges, governmental charges and all utility and other charges
incurred in the operation of the property. The lessee, is also generally
responsible for maintaining the property, including ordinary maintenance and
repair and restoration following a casualty or partial condemnation. The rental
provisions in a net lease transaction may include, but may not be limited to,
rent payable on a stepped basis (rentals increase at specified intervals), an
indexed basis (rentals increase pursuant to a formula such as the consumer price
index), a percentage basis (minimum rental payments plus additional rentals in
the form of participation in the sales derived from the business conducted at
the property), or a combination of the foregoing.
Investment Policy
The Company's business strategy is focused on acquiring improved,
commercial property subject to a long-term net lease which has scheduled rent
increases. The Company's investment policies, as articulated in its by-laws, as
amended, are as follows:
Types of Investments - The Company is permitted to invest in any type
of real property, mortgage loans (and in both cases in interests therein) and
other investments of any nature, without limitation, provided such investment
does not adversely affect the Company's ability to qualify as a REIT under the
Internal Revenue Code. No limitation is set on the number of properties or
mortgage loans in which the Company may invest, the amount or percentage of the
Company's assets which may be invested in any specific property or on the
concentration of investments in any geographic area in the United States. The
Company may consider investments in any type of real property and in mortgage
loans secured by real property; however as stated above, the current investment
policy of the Company is to invest in improved, commercial real estate under
long-term net lease. The Company does not intend to make construction loans or
loans secured by mortgages on undeveloped land. Although it has not done so in
the past, the Company may issue securities in exchange for properties which fit
its investment criteria. The Company intends to pursue a national operating
strategy, but does not intend to purchase properties located outside of the
United States.
After termination of any lease relating to any of the Company's
properties (either at lease expiration or early termination), the Company will
seek to relet or sell such property in a manner which will maximize the return
to the Company, considering the income and residual potential of such property.
The Company may also consider the sale or other disposition of any of the
properties prior to termination of the relevant leases if such sale or other
disposition appears advantageous. The Company may take purchase money
obligations as part payment in lieu of cash in connection with any sale and may
take into account local custom and prevailing market conditions in negotiating
the terms of repayment. It will be the Company's policy to use any cash realized
from the sale or other disposition of properties, net of required distributions
to shareholders to maintain its REIT status, to pay down amounts due under the
Credit Agreement, if any, and in the acquisition of additional properties.
Incurrence of Debt - The directors of the Company, in the exercise of
their business judgment, are permitted to determine the level of debt and the
terms and conditions of any financing or refinancing. There is no limitation on
the level of debt which the Company may incur. The Company borrows money, on a
secured and unsecured basis, the proceeds of which are used for additional
property acquisitions and for working capital purposes.
The investment objectives of the Company are (i) to protect the
Company's capital, (ii) to provide current income; and (iii) to provide the
opportunity for increases in income and capital appreciation. In evaluating
potential net lease investments, the Company considers, among other factors (i)
the intrinsic value of the property, given its location and use, (ii) local
demographics (population, occupancy levels, rental trends), (iii) the lessee's
adequacy from a financial point of view to meet operational needs and lease
obligations, (iv) the return on equity to the Company, and (v) potential for
income and capital appreciation. The intrinsic value of the property,
essentially its location and the local demographics, are given greater weight in
the acquisition process than the tenant's credit worthiness, although the
tenant's financial condition is a factor given significant consideration in the
acquisition process.
From time to time, the Company may invest in shares of another REIT or
in the shares of an entity not involved in real estate investments, provided
that any such investment does not adversely affect the Company's ability to
qualify as a REIT under the Internal Revenue Code. If the Company makes any
investments in shares of another entity in the future, it will make the
investment in such a way that it will not be treated as an investment company
under the Investment Company Act of 1940. The Company does not intend to
underwrite the securities of other issuers.
Credit Agreement
On March 1, 1996 the Company entered into a revolving credit
agreement ("Credit Agreement") with Bank Leumi Trust Company of New York ("Bank
Leumi"). Borrowings under the Credit Agreement are used to provide the Company
with funds to acquire properties. The Credit Agreement matures February 28, 1999
with a right for the Company to extend the Credit Agreement until February 29,
2000. Bank Leumi has agreed to advance up to $5,000,000 on a revolving basis and
has agreed to a total $15,000,000 facility (including the $5,000,000 that Bank
Leumi has committed for) on a pro rata participating basis. In June, 1997, First
Bank of the Americas (now Commercial Bank of New York) joined in the Credit
Agreement to the extent of $4,000,000. Accordingly, the total availability under
the Credit Agreement is $9,000,000 and can be increased to a maximum of
$15,000,000 either by adding other banking institutions or by the present
participants increasing the extent of availability under the Credit Agreement.
The Company pays interest under the Credit Agreement at the rate of prime plus
1/2% on funds borrowed on an interest only basis plus a 1/4% servicing fee on
the outstanding balance to Bank Leumi. Net proceeds of certain events (e.g.,
sale of property, financing of properties) must be applied to reduce the loan.
As collateral for any advances taken by the Company under the
Credit Agreement, the Company has pledged the stock of each of its subsidiaries
and the wrap around mortgage the Company holds on a property located on East
16th Street in New York City (see "Mortgages Receivable" below). The Company has
agreed to maintain at least $250,000 on deposit with Bank Leumi.
The Credit Agreement contains affirmative and negative covenants
including a covenant that (i) through February 28, 1999 the Company's net worth,
as defined, will not be less than the greater of $28,000,000 and two times the
revolving credit loans outstanding and thereafter the $28,000,000 increases to
$30,000,000; (ii) that cash flow, as defined, for each fiscal year through the
1998 fiscal year shall be at least $3,000,000, increasing to $3,400,000 for the
1999 fiscal year and thereafter, and (iii) at least two of Fredric H. Gould,
Matthew J. Gould and Jeffrey A. Gould shall be involved in the day to day
management of the Company.
Mortgages Receivable
In 1992 and 1993, during a severe downturn in the real estate
markets nationally, the Company took advantage of opportunities to purchase
mortgages receivable at a discount and to originate a mortgage loan, all of
which resulted in the Company generating above average yields to maturity. The
Company has not acquired or originated any mortgages receivable since January,
1995. The only significant mortgage receivable held at December 31, 1997 is
described as follows:
- On July 30, 1993, the Federal Deposit Insurance Corporation ("FDIC") sold
to an entity related to the Company, a $23,000,000 first mortgage secured by an
office building located on East 16th Street in Manhattan, New York. The sale was
made by the FDIC pursuant to public auction. The successful bidder paid
$19,000,300 for the mortgage, which carries an interest rate of 8% per annum.
The office building which secures this mortgage is owned by a partnership in
which Gould Investors L.P., an affiliated entity, is a general partner and owns
substantially all partnership interests. Gould Investors L.P. is a principal
shareholder of the Company and its general partner (Fredric H. Gould) and
President of its managing general partner (Matthew Gould) are Chairman of the
Board and President, respectively, of the Company and other officers of the
Company (Jeffrey Gould, Simeon Brinberg, David Kalish, Mark Lundy, Karen
Dunleavy and Nathan Kupin) are also officers of the managing general partner of
Gould Investors L.P. Simultaneously with the closing an unrelated party advanced
$13,181,000, the Company advanced $6,080,000 (including closing costs), and the
mortgage was severed into a first mortgage of $13,181,000 paying interest at
9-1/2% per annum held by such unrelated party and a subordinate wrap mortgage of
$9,819,000 held by the Company. Both the first mortgage and wrap mortgage mature
in 2005 at which time the first mortgage will have been fully amortized and the
wrap mortgage will have a principal balance of approximately $4,000,000. The
principal balance of the wrap mortgage held by the Company was $7,974,030 at
December 31, 1997 and the net book balance, after discount, was $5,653,412 at
December 31, 1997.
The building which secures the first mortgage and the wrap mortgage is net
leased to the City of New York. The lease expires in 2005 with one renewal
option of five years. The City has a limited right to terminate the lease. The
first mortgage and the wrap mortgage are nonrecourse.
Executive Officers of the Company
The following sets forth information with respect to the executive
officers of the Company:
NAME AGE POSITION WITH THE COMPANY
Fredric H. Gould 62 Chairman of the Board
Matthew Gould 38 President and Chief Executive Officer
Simeon Brinberg 64 Vice President
David W. Kalish 51 Vice President and Chief Financial Officer
Nathan Kupin 83 Senior Vice President
Jeffrey Gould 33 Vice President
Mark H. Lundy 36 Secretary
Seth D. Kobay 43 Vice President and Treasurer
Karen Dunleavy 39 Vice President, Financial
Each of the above listed executive officers will hold office until the next
annual meeting of the Board of Directors, scheduled for June 12, 1998, or until
their respective successors are elected and shall qualify. The information below
sets forth the business experience of the officers of the Company for at least
the past five years.
Fredric H. Gould. Mr. Gould has been Chairman of the Board of the Company
since 1989. Mr. Gould has served as Chairman of the Board of Trustees of BRT
Realty Trust, a real estate investment trust, since 1984 and Chief Executive
Officer of BRT Realty Trust since 1996. Since 1985 Mr. Gould has been a
principal executive officer of the managing general partner of Gould Investors
L.P., a limited partnership engaged in the ownership and operation of real
properties and he also serves as a general partner of Gould Investors L.P. He is
President of the advisor to BRT Realty Trust and a director of Sunstone Hotel
Investors, Inc.
Matthew Gould. Mr. Gould has been President and Chief Executive Officer of
the Company since 1989. He has been a Vice President of BRT Realty Trust since
1986, a Vice President of the managing general partner of Gould Investors L.P.
from 1986 to 1996 and President since 1996. He also serves as a Vice President
of the advisor to BRT Realty Trust.
Simeon Brinberg. Mr. Brinberg has served as Vice President of the Company
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. He is a director of Witco
Corporation.
David W. Kalish. Mr. Kalish has served as Vice President and Chief
Financial Officer of the Company since June 1990. Mr. Kalish is also a Vice
President and Chief Financial Officer of BRT Realty Trust and Vice President and
Chief Financial Officer of the managing general partner of Gould Investors L.P.
since June 1990. For more than five years prior to June 1990, Mr. Kalish, a
certified public accountant, was a partner of Buchbinder Tunick & Company,
certified public accountants.
Nathan Kupin. In addition to serving as a Senior Vice President of the
Company since 1989, Mr. Kupin has been a Trustee and Vice President of BRT
Realty Trust since 1983. He is also Vice Chairman of the Board of Directors of
the managing general partner of Gould Investors L.P. and a director of the
advisor to BRT Realty Trust.
Jeffrey Gould. Mr. Gould has been a Vice President of the Company since
1989. Mr. Gould was a Vice President of BRT Realty Trust from January 1988 to
March 1993, Executive Vice President and Chief Operating Officer of BRT from
March 1993 to March 1996, and President and Chief Operating Officer since March
1996. Mr. Gould has served as a Trustee of BRT Realty Trust since March 1997.
Mark H. Lundy. In addition to being Secretary of the Company since June
1993, Mr. Lundy has been a Vice President of BRT since April 1993 and a Vice
President of the managing general partner of Gould Investors L.P. since July
1990. Prior to July 1990 he was an associate with the law firm of Dickstein,
Shapiro and Moran, Washington, D.C.
Seth D. Kobay. Mr. Kobay has been Vice President and Treasurer of the
Company 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.
Karen Dunleavy. Ms. Dunleavy has been Vice President, Financial of the
Company since August 1994. She has served as Treasurer of the managing general
partner of Gould Investors L.P. since 1986.
Matthew Gould and Jeffrey Gould are Fredric H. Gould's sons.
Item 2. Properties
The Company, at December 31, 1997, owned fee title to 36 properties and a
"sandwich" lease position with respect to one property. The 36 properties
(referred to herein collectively as the "Properties" and individually as a
"Property") are located in 14 states.
RENEWAL
NET CURRENT OPTIONS
RENTABLE ANNUAL EXPIRATION (NUMBER
PROPERTY LOCATION TENANT PROPERTY TYPE LAND AREA SQ. FT. RENT DATE OF YEARS)
- ----------------- ------ ------------- --------- -------- ---- ---- ----------
I45 Service Road and
Mount Houston Road Freestanding 5 (25
Houston, TX The Kroger Retail 2.665 Acres 38,448 $149,947 3/7/00 years)
Company
5600 Britton Pkwy. Kittle's Home Freestanding 5 (25
Columbus, OH Furnishing Center, Retail 6.228 Acres 93,978 $738,764 11/30/2011 years)
Inc.(1)
13751 S. Tamiami Barnes & Noble Freestanding 4 (20
Trail, Ft. Myers, FL Superstores,Inc. Retail 31,315 Sq.Ft. 29,993 $467,000 1/31/17 years)
(2)
1987 Mt. Zion Rd. The Sports Freestanding 4 (20
Clayton County, GA Authority, Inc. Retail 5.5 Acres 50,400 $390,600 10/31/14 years)
9000 E. Peakview Ave. Gart Bros. Freestanding 3 (15
Greenwood Village, CO Sporting Goods Retail 3.2 Acres 45,000 $423,000 1/31/16 years)
Company
490 Oakbend Drive Just For Freestanding 10/31/16 2 (10
Lewisville, TX Feet, Inc. Retail 1.9768 Acres 21,043 $355,559 years)
6933 Lee Highway K Mart Freestanding 8 (40
Chattanooga, TN Corporation(3) Retail 6.3 Acres 72,897 $399,238 11/30/06 years)
1st Ave. NE & Hwy.100 Ultimate Freestanding 4 (20
Cedar Rapids, IA Akquisition Corp. Retail 1.52 Acres 15,400 $157,850 6/30/15 years)
(3)
RENEWAL
NET CURRENT OPTIONS
RENTABLE ANNUAL EXPIRATION (NUMBER
PROPERTY LOCATION TENANT PROPERTY TYPE LAND AREA SQ. FT. RENT DATE OF YEARS)
- ----------------- ------ ------------- --------- ------- ---- ---- ---------
900 Central Texas Hwy. Hollywood Freestanding 2 (10
Killeen, TX Entertainment Corp. Retail 48,177 Sq.Ft. 8,000 $141,200 6/30/10 years)
US Highway 59 Hollywood Freestanding 2 (10
Rosenberg, TX Entertainment Corp. Retail 34,000 Sq.Ft. 8,000 $111,800 1/31/10 years)
Gasoline Svc.
Station with
5600 S. Cedar Street Total Freestanding 2 (20
Lansing, MI Petroleum, Inc. Retail 53,733 Sq.Ft. 7,807 $67,792 5/31/11 years)
Gasoline Svc.
Station with
4384 Kalamazoo Ave. Total Freestanding 2 (20
Kentwood, MI Petroleum, Inc. Retail 45,745 Sq.Ft. 6,434 $45,067 5/31/11 years)
Gasoline Svc.
Station with
1499 S. Lincoln Road Total Freestanding 2 (20
Flint, MI Petroleum, Inc. Retail 59,242 Sq.Ft. 7,335 $89,427 5/31/11 years)
Gasoline Svc.
Station with
1504 Center Avenue Total Freestanding 2 (20
Essexville, MI Petroleum, Inc. Retail 68,882 Sq.Ft. 6,980 $56,829 5/31/11 years)
Gasoline Svc.
Station with
112 Ashman Circle Total Freestanding 2 (20
Midland, MI Petroleum, Inc. Retail 24,000 Sq.Ft. 6,067 $77,218 5/31/11 years)
RENEWAL
NET CURRENT OPTIONS
RENTABLE ANNUAL EXPIRATION (NUMBER
PROPERTY LOCATION TENANT PROPERTY TYPE LAND AREA SQ. FT. RENT DATE OF YEARS)
- ----------------- ------ ------------- --------- ------- ---- ---- ---------
Gasoline Svc.
Station with
6500 Pierson Road Total Freestanding 2 (20
Flint, MI Petroleum, Inc. Retail 74,910 Sq.Ft. 13,145 $97,102 5/31/11 years)
Gasoline Svc.
Station with
7492 Gratiot Road Total Freestanding 2 (20
Saginaw, MI Petroleum, Inc. Retail 63,557 Sq.Ft. 8,781 $60,284 5/31/11 years)
Gasoline Svc.
Station with
2046 28th Street Total Freestanding 2 (20
Wyoming, MI Petroleum, Inc. Retail 75,080 Sq.Ft. 10,506 $64,012 5/31/11 years)
Gasoline Svc.
Station with
901 South US 27 Total Freestanding 2 (20
St. Johns, MI Petroleum, Inc. Retail 36,382 Sq.Ft. 6,588 $76,401 5/31/11 years)
1050 Columbia Ave. Total Freestanding 2 (20
Battle Creek, MI Petroleum, Inc. Retail 30,451 Sq.Ft. 6,813 $67,629 5/31/11 years)
Gasoline Svc.
Station with
1988 South Cedar Total Freestanding 2 (20
Imlay City, MI Petroleum, Inc. Retail 66,278 Sq.Ft. 8,883 $96,926 5/31/11 years)
RENEWAL
NET CURRENT OPTIONS
RENTABLE ANNUAL EXPIRATION (NUMBER
PROPERTY LOCATION TENANT PROPERTY TYPE LAND AREA SQ. FT. RENT DATE OF YEARS)
- ----------------- ------ ------------- --------- ------- ---- ---- ---------
Gasoline Svc.
Station with
279 Baldwin Street Total Freestanding 2 (20
Jennison, MI Petroleum, Inc. Retail 62,795 Sq.Ft. 8,767 $58,946 5/31/11 years)
Gasoline Svc.
Station with
3210 Plainfield Ave. Total Freestanding 2 (20
Grand Rapids, MI Petroleum, Inc. Retail 44,283 Sq.Ft. 7,869 $54,814 5/31/11 years)
126 rental
units and
119 Madison Avenue Sanford Multifamily 6 retail
New York, NY Realty Apt. House/ 14,658 Sq.Ft. stores $550,000 2/28/38 (5)
Associates, Retail
Inc.
375,000 Sq.
Ft. + 21,000
7007 N.W. 37 Ave. United States Industrial Sq.Ft. 2 (30
Miami, FL Cold Storage, Inc. Building(6) 12.5 Acres Mezzanine $425,000 4/30/10 years)
Two-Screen
Theatre
2131 6th Avenue Twin Freestanding Containing
Seattle, WA 78 Associates Movie Theatre 19,480 Sq.Ft. 1445 Seats $18,000 12/31/51 --
(7)
6660 Broughton Ave. Woodside Industrial 3 (75
Columbus, OH 78 Associates Building 246,936 Sq.Ft. 55,370 $42,000 6/30/04 years)
(7)
RENEWAL
NET CURRENT OPTIONS
RENTABLE ANNUAL EXPIRATION (NUMBER
PROPERTY LOCATION TENANT PROPERTY TYPE LAND AREA SQ. FT. RENT DATE OF YEARS)
- ----------------- ------ ------------- --------- ------- ---- ---- ---------
Athens Food
US Hwy. 25 Bypass Systems, Inc. an Freestanding 1 (10
Greenwood, SC Arby Franchise Retail 25,359 Sq.Ft. 2,755 $74,000 2/28/10 years)
8824 Ranier Avenue Payless Shoe Freestanding 3 (15
Seattle, WA Source, Inc. (8) Retail 15,625 Sq.Ft. 3,038 $53,078 12/31/01 years)
1205 E. El Dorado St. Payless Shoe Freestanding 4 (20
Decatur, IL Source, Inc. (8) Retail 24,396 Sq.Ft. 3,060 $46,000 12/31/01 years)
5670 W. 3500 St. S. Payless Shoe Freestanding 3 (15
West Valley, UT Source, Inc. (8) Retail 16,563 Sq.Ft. 3,200 $56,733 12/31/01 years)
1101 Gartland Ave. Payless Shoe Freestanding 1 (2)
Nashville, TN Source, Inc. Retail 16,117 Sq.Ft. 3,053 $27,477 12/31/99 years)
329 E. 47th Street Payless Shoe Freestanding 3 (15
Chicago, IL Source, Inc. (8) Retail 3,500 Sq.Ft. 3,065 $41,496 12/31/01 years)
2818 N. Court Road Freestanding 2 (6
Ottumwa, IA Hy-Vee, Inc. Retail 13,020 Sq.Ft. 3,072 $19,200 12/31/99 years)
2837 E. Ledbetter Dr. Abdelsalam Freestanding 1 (5
Dallas, TX Salaheddin Retail 14,270 Sq.Ft. 3,060 $21,600 6/30/02 years)
628 W. 14th Street Freestanding
Chicago Heights, IL Vacant Retail 14,028 Sq.Ft. 3,062 -- -- --
951 State Avenue Freestanding
Kansas City, KS Vacant Retail 17,875 Sq.Ft. 3,120 -- -- --
(1) Masco Corporation guarantees 25% of the basic rent during the original
lease term.
(2) The lease is guaranteed by Barnes & Noble, Inc.
(3) KMart Corporation has subleased the entire space to Rhodes, Inc.
(4) This lease is guaranteed by Ultimate Electronics, Inc.
(5) If tenant converts the property to cooperative ownership, the lease
term is extended for 150 years from the date of conversion.
(6) The Company holds a "sandwich" lease position. It is the tenant under a
master lease and Landlord under an operating lease.
(7) The Company leases these properties to unrelated third parties. The
Seattle property is leased by the Company's tenant to United Artists Theatre
Circuit, Inc., and the Columbus Property to the Kroger Company.
(8) The May Department Store Company was the original tenant under these
leases and remains contingently liable under these leases.
Additional Information Concerning Certain Of The Properties
As of December 31, 1997, the following Properties owned by the
Company either had a book value equal to or greater than 10% of the total assets
of the Company or revenues which accounted for more than 10% of the Company's
aggregate gross revenues.
Columbus, Ohio Property
Description of Columbus, Ohio Property
The Columbus, Ohio Property, constructed in 1996, is located at
5600 Britton Parkway, West of 1-270. The property is in a suburb of Columbus,
approximately 12 miles Northwest of downtown Columbus. This 6.228 acre property
is improved with a 97,328 square foot furniture showroom/retail store, of which
93,928 is located on grade and 3,400 is mezzanine office space. The property
contains 270 parking spaces.
Description of Columbus, Ohio Property Lease
Lease Term The Property is leased to Kittles' Home Furnishing Center, Inc.
("Kittles") for a fifteen year term expiring November 30, 2011. The Tenant has
five successive five year renewal options.
Amounts Payable Under the Columbus, Ohio Lease
The basic annual rental is $738,764 through November 1999, increasing to
$807,267 per annum for the period December 1999 to November 2002 and increasing
every three years thereafter during the original term.
The lease is a triple net lease and requires the Tenant to pay, in
addition to basic annual rent, all real estate taxes, assessments, insurance,
common area maintenance and structural and non-structural repairs.
Maintenance and Modifications
The Tenant is required to keep the Property in good condition and
repair, including all structural and non-structural portions (roof, foundations,
floors, building systems) and all sidewalks, landscaping and driveways.
The Tenant is precluded from making any structural alterations to
the building and building systems, and to the exterior of the building, without
Landlord's prior consent which is not to be unreasonably withheld or delayed.
Tenant is permitted to make interior non-structural alterations without
Landlord's consent, subject to the satisfaction of certain conditions specified
in the lease.
Insurance
Landlord is required to carry fire, extended coverage, vandalism,
and malicious mischief and similar risk insurance insuring the Property
(excluding Tenant's merchandise, trade fixtures, equipment and other personal
property) for the full replacement value. Tenant is to reimburse Landlord for
Landlord's annual premium costs.
Tenant is required to carry liability insurance.
Damage to or Condemnation of Columbus, Ohio Property
If the building is damaged or destroyed by fire or other casualty,
Landlord, within 120 days, is required to commence repair and within 210 days
restore the building to substantially the condition it was in prior to the
casualty.
In the event any portion of the building is taken by eminent domain so
that Tenant is unable to carry on its business in substantially the same manner
as prior to the taking, then the lease shall terminate at the election of either
Landlord or Tenant. If more than 20% of the parking area is taken by
condemnation, Tenant has the right to terminate the lease as of the date of
taking. If, after a taking by eminent domain, neither Landlord or Tenant elects
to terminate the lease, Tenant shall remain in the portion of the building not
taken, Landlord is required to restore the remaining portion to a complete unit
of like quality and character and rental payments are to be adjusted on an
equitable basis. If Landlord is required to restore it is not required to spend
more for the restoration that it received in the condemnation as an award, less
any amount paid to a mortgagee.
Mortgage
In December, 1997 the Company obtained a $4,325,000 nonrecourse
first mortgage loan from Lehman Brothers Holding, Inc. The mortgage bears
interest at 7.33% per annum and matures in December, 2007. The mortgage is being
amortized based on a 30 year amortization schedule. Assuming no additional
payments are made on the principal in advance of the maturity date, the
principal balance due at maturity will be approximately $3,800,000. The Company
has the option of prepaying this mortgage in whole or in part provided it pays a
prepayment premium based on a yield maintenance formula.
Total Petroleum Properties
Description of Total Petroleum Properties
Although the Total Petroleum Properties consist of thirteen
separate properties located in various towns and cities in the State of
Michigan, they are considered as one property for the purpose of determining if
they are "materially important" real properties. The Total Petroleum Properties
are all service stations and include gasoline pumping islands, a service area
and a retail building used as a convenience store.
Description of Total Petroleum Leases
Lease Term The Total Petroleum Properties have 13 separate but
identical leases dated as of May 15, 1991 (Total Petroleum Leases). The primary
lease term for the Total Petroleum Properties is 20 years ending on May 31,
2011. Total Petroleum has the right to extend the leases for two 10 year renewal
terms, but the renewal options can only be exercised on an all or none basis.
The Total Petroleum Leases contain cross default provisions which provide that
on a monetary default resulting in the termination of a lease, the Landlord has
a right to terminate any or all of the other leases.
Amounts Payable under the Total Petroleum Leases The combined
annual rent for all 13 properties is $912,456 through May 14, 1998, increasing
by 3% each May 15th throughout the term of the lease. The leases are net leases,
which requires Total Petroleum to pay all real estate taxes, assessments, and
all utility charges.
Maintenance and Modifications Total Petroleum is required, at its
expense, to maintain the Total Petroleum Properties in good repair and is
responsible to keep each property in reasonably clean condition. The Tenant at
its sole expense may make any non-structural alterations, additions,
replacements or improvements to the property without the Landlord's consent. The
Tenant is required to obtain the Landlord's prior written consent for structural
alterations, additions, replacements or improvements which consent will not be
unreasonably withheld.
Insurance Total Petroleum is required to maintain insurance at its
expense providing for fire with standard extended risk coverage to the extent of
the full replacement cost. So long as the Tenant's net worth exceeds
$100,000,000 the deductible may be that which is provided in Total Petroleum's
master corporate insurance policy, and if its net worth falls below $100,000,000
then the deductible shall not exceed $250,000 without Landlord's consent. In
Management's opinion the Total Petroleum Properties are adequately covered by
insurance.
Damage to or Condemnation of Property If any of the Total Petroleum
Properties is damaged or destroyed by fire or other casualty there is to be no
rent abatement and Total Petroleum is required to repair and restore the
premises in a reasonable diligent manner. If, however, the premises are rendered
untenantable, Total Petroleum may terminate the lease in which event it shall
pay to the Company an amount sufficient to restore the premises to the condition
existing as of the date the lease was executed, reasonable wear and tear
excepted.
If all or any part of any of the properties is taken by
condemnation so as to render the remaining portion of the property unsuitable
for Tenant's business, then the rent due under the lease shall be equitably
adjusted until such time as the Tenant provides Landlord with written notice
that it elects to terminate the lease. If however, the Tenant does not vacate
the property within ninety days of such taking then it is conclusively presumed
that such taking is not extensive enough to render the premises unsuitable for
Total Petroleum's business. In the event of a taking, damages awarded are
payable as follows: (i) Total Petroleum is entitled to a portion of the award
attributable to the value of its leasehold and (ii) Landlord is entitled to the
value of its reversion. In allocating between the value of the leasehold and the
reversion, the value of improvements and betterments made by the Tenant is to be
equitably divided between leasehold and reversion. Each party is entitled to
file a claim in any condemnation proceeding.
Option to Purchase Total Petroleum has been granted an option to
purchase all locations at fair market value, excluding the value of the
improvements made by it. This option may be exercised during the last six months
of the term of the lease. Fair market value is to be determined by an appraisal
process.
Right of First Refusal Total Petroleum has been granted a right of
first refusal to purchase a Total Petroleum Property from the Company for the
same purchase price and on the same terms and conditions as a bona fide offer to
purchase received by the Company from an unrelated party which is engaged in, or
plans to engage in the business of selling petroleum products, which offer the
Company intends to accept.
Mortgage The Total Petroleum Properties are owned free and clear of
mortgages.
Contract to Purchase Gold Street, Brooklyn Property
The Company has entered into a contract to acquire a
single-tenanted building located on Gold Street, Brooklyn, New York for a
consideration of $6,700,000. The property will be acquired by a limited
liability company in which the Company will be the principal member. Although
not yet fully agreed upon, it is contemplated that the operating agreement of
the limited liability company will provide that the minority member (who brought
the transaction to the attention of the Company) will receive an annual
distribution of $20,000; thereafter the Company will receive all cash flow until
it has received repayment of all cash invested by it plus a 15% return;
thereafter all cash flow (including sale and refinancing proceeds) will be
distributed 95% to the Company and 5% to the minority member.
In connection with the acquisition, a $4,500,000 mortgage financing
will be consummated for a five year term, providing for interest at 7.5% and a
25 year amortization schedule. North Fork Bank has issued a commitment to make
this mortgage loan. The property is net leased to the New York City Transit
Authority for a term which expires October 15, 2002 and provides for an annual
rental of $850,000.
Lease Expirations
The following table sets forth scheduled lease expirations for all
leases for the Properties as of December 31, 1997.
Current
Net Rentable Annual % of Rents
Square Feet Rents Under Represented
Year of Lease Number of Leases Subject to Expiring By Expiring
Expiration (1) Expiring Expiring Leases Leases (2) Leases
- ---------- -------- --------------- ---------- ------
1998 0 - - -
1999 2 6,125 $ 46,677 0.83%
2000 1 38,448 149,947 2.68%
2001 4 12,363 197,309 3.52%
2002 1 3,060 21,600 0.39%
2003 0 - - -
2004 1 55,370 42,000 0.75%
2005 0 - - -
2006 1 72,897 359,640 6.42%
2007 0 - - -
2008 and thereafter 25 923,494 4,783,471 85.41%
-------- --------- ------
1,111,757 $5,600,644 100%
========= ========== ====
(1) Lease expirations assume tenants do not exercise existing
renewal options.
(2) Reflects monthly base rent provided for under terms of each
expiring lease as in effect on December 31, 1997 multiplied by 12 and does not
take into account any contractual rent escalations.
(3) The Company's two vacant properties are not included in the
above table.
Competition
The Company faces competition for the acquisition of net leased
properties from other REITs, investment companies, insurance companies, pension
funds and private individuals, some of whom have greater resources than the
Company. The Company also faces indirect competition from institutions that
provide or arrange for other types of commercial financing, such as traditional
mortgage financing and traditional bank financing. The Company believes that its
management's experience in real estate, mortgage lending, credit underwriting
and transaction structuring allows it to compete effectively for properties.
Environmental Matters
Under various federal, state and local environmental laws, regulations
and ordinances, current or former owners of real estate, may be required to
investigate and clean up hazardous or toxic chemicals, substances or waste or
petroleum products or waste (collectively, "Hazardous Materials") released on,
under, in or from such property, and may be held liable to governmental entities
or to third parties for certain damage and for investigation and clean-up costs
incurred by such parties in connection with the release or threatened release of
Hazardous Materials. Such laws typically impose responsibility and liability
without regard to whether the owner knew of or was responsible for the presence
of Hazardous Materials, and the liability under such laws has been interpreted
to be joint and several under such circumstances. The Company's leases generally
provide that the tenant is responsible for all environmental liability and for
compliance with environmental regulations relating to the tenant's operations.
Such a contractual arrangement does not eliminate the Company's statutory
liability or preclude claims against the Company by governmental authorities or
persons who are not a party to such an arrangement. Contractual arrangements in
the Company's leases may provide a basis for the Company to recover from the
tenant damages or costs for which the Company has been found liable.
The cost of investigation and clean-up of Hazardous Materials on, under,
in or from property can be substantial, and the fact that the property has had a
release of Hazardous Materials, even if remediated, may adversely affect the
value of the property and the owner's ability to sell or lease the property or
to borrow using the property as collateral. In addition, some environmental laws
create a lien on a property in favor of the government for damages and costs it
incurs in connection with the release or threatened release of Hazardous
Materials, and certain state environmental laws provide that such a lien has
priority over all other encumbrances on the property or that a lien can be
imposed on other property owned by the responsible party. Finally, the presence
of Hazardous Materials on a property could result in a claim by a private party
for personal injury or a claim by a neighboring property owner for property
damage.
Other federal, state and local laws and regulations govern the removal
or encapsulation of asbestos-containing material when such material is in poor
condition or in the event of building remodeling, renovation or demolition.
Still other federal, state and local statutes, regulations and ordinances may
require the removal or upgrading of underground storage tanks that are out of
service or out of compliance. In addition, federal, state and local laws,
regulations and ordinances may impose prohibitions, limitations and operational
standards on, or require permits, approvals and notifications in connection with
the discharge of wastewater and other water pollutants, the emission of air
pollutants and operation of air polluting equipment, the generation and
management of Hazardous Materials, and workplace health and safety.
Non-compliance with environmental or health and safety requirements may also
result in the need to cease or alter operations at a property, which could
affect the financial health of a tenant and its ability to make lease payments.
Furthermore, if there is a violation of such requirement in connection with a
tenant's operations, it is possible that the Company, as the owner of the
property, could be held accountable by governmental authorities for such
violation and could be required to correct the violation.
The Company typically undertakes an investigation of potential
environmental risks when evaluating an acquisition. Where warranted, Phase I
and/or Phase II assessments are performed by independent environmental
consulting and engineering firms. Phase I assessments do not involve subsurface
testing, whereas Phase II assessments involve some degree of soil and/or
groundwater testing. The Company may acquire a property which is known to have
had a release of Hazardous Materials in the past, subject to a determination of
the level of risk and potential cost of remediation. The Company normally
requires property sellers to indemnify it against any environmental problem
existing as of the date of purchase. Additionally, the Company normally
structures its leases to require the tenant to assume all responsibility for
environmental compliance or environmental remediation relating to the tenants
operations at the Property.
Except for the environmental remediation undertaken by the Company at
the Total Petroleum Properties, the Company has not been notified by any
governmental authority of or become aware of non-compliance, liability or other
claim in connection with any of the Properties.
In 1991, when the Company entered into lease agreements relating to 13
Total Petroleum Properties, the Company deposited $2,000,000 with an independent
escrow agent, to cover remediation costs relating to environmental problems
discovered at certain of the Total Petroleum Properties. The agreement between
the Company and Total Petroleum limits the Company's maximum cost to $350,000
per location, with any excess cost being the responsibility of Total Petroleum.
There are currently two locations which will require additional remediation
efforts. As of December 31, 1997 there is approximately $781,000 held by the
escrow agent, which the Company deems adequate.
Regulations and Insurance
Americans With Disabilities Act and Similar Laws. Under the Americans
with Disabilities Act of 1990 (the "ADA"), all places of public accommodation
are required to meet certain Federal requirements related to access and use by
disabled persons. These requirements became effective in 1992. Although
management of the Company believes that the Properties are substantially in
compliance with present requirements of the ADA, the Company has not conducted
and does not presently intend to conduct an audit or investigation to determine
its compliance. There can be no assurance that the Company will not incur
additional costs in complying with the ADA.
Additional legislation may place further burdens or restrictions on
owners with respect to access by disabled persons. The ultimate amount of the
cost of compliance with the ADA or such legislation is not currently
ascertainable, but are not expected to have a material effect on the Company.
Insurance. Under substantially all leases, the Company's tenants are
responsible for providing adequate insurance on the Properties they lease. The
Company believes the Properties are covered by adequate fire, flood and property
insurance.
Item 3. Legal Proceedings
Neither the Company nor the Properties are presently subject to any
material litigation nor, to the Company's knowledge, is any material litigation
threatened against the Company or the Properties, other than routine litigation
arising in the ordinary course of business, which collectively are not expected
to have a material adverse effect on the business, financial condition or
results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this Form 10-K.
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The following table sets forth the high and low prices for the Common
Stock and the $16.50 Cumulative Convertible Preferred Stock of the Company as
reported by the American Stock Exchange and the per share cash distributions
paid by the Company on the Common Stock and Preferred Stock during each quarter
of the years ended December 31, 1996 and 1997.
COMMON STOCK PREFERRED STOCK
DISTRIBUTIONS DISTRIBUTIONS
1996 HIGH LOW PER SHARE HIGH LOW PER SHARE
- ---- ---- --- --------- ---- --- ---------
First Quarter 14-1/8 13 $.30 16-7/8 16-1/4 $.40
Second Quarter 13-5/8 13-3/8 $.30 17 16-1/4 $.40
Third Quarter 13-1/2 12-5/8 $.30 16-7/8 16-1/4 $.40
Fourth Quarter 13-1/2 12-5/8 $.30* 17-1/8 16-1/4 $.40*
1997
- ----
First Quarter 13-3/4 12-3/4 $.30 17-5/8 16-1/2 $.40
Second Quarter 13-3/4 13-1/4 $.30 17-1/8 16-5/16 $.40
Third Quarter 14 13-1/8 $.30 17-7/8 16-1/2 $.40
Fourth Quarter 14-5/8 13-5/8 $.30* 17-7/8 16-7/8 $.40*
*A cash distribution of $.30 and $.40 was paid on the Common Stock and
Preferred Stock, respectively, on January 2 ,1997 and January 5, 1998. These
distributions are reported as being paid in the fourth quarter of the prior
year.
The Common Stock and Preferred Stock of the Company trade on the
American Stock Exchange, under the symbols OLP and OLP Pr, respectively. As of
March 2, 1998 there were 397 common and 175 preferred stockholders of record and
the Company estimates that at such date there were approximately 1,300 and 1,600
beneficial owners of the Company's Common and Preferred Stock, respectively.
Item 6. Selected Financial Data
The following are highlights of the Company's operations which are derived
from the audited financial statements of the Company for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993.
YEAR ENDED DECEMBER 31,
INCOME STATEMENT DATA 1997 1996 1995 1994 1993
- --------------------- ---- ---- ---- ---- ----
- -Revenues $6,284,809 $5,511,556 $4,890,962 $4,041,378 $3,348,419
- -Gain on Sale
of Investments
and Real Estate 599,251 -- -- -- 168,631
- -Provision for
Valuation
Adjustment and
Impairment -- (659,000) -- -- (258,744)
- -Net Income 2,984,192 2,173,952 3,096,302 2,861,137 2,435,269
Calculation of
Net Income
Applicable to
Common
Stockholders:
- -Net Income 2,984,192 2,173,952 3,096,302 2,861,137 2,435,269
- -Less: Dividends
and Accretion
on Preferred
Stock 1,450,220 1,448,359 1,446,519 1,444,703 1,442,907
- -Net Income
Applicable
to Common
Stockholders $1,533,972 $725,593 $1,649,783 $1,416,434 $992,362
- -Weighted Average
Number of Common
Shares
Outstanding
- Basic 1,522,967 1,447,413 1,409,371 1,356,989 1,338,619
- Diluted 1,529,203 1,459,198 1,423,361 1,365,143 1,353,935
- -Net Income Per
Common Share: (Note a)
-Basic $1.01 $.50 $1.17 $1.04 $.74
-Diluted $1.00 $.50 $1.16 $1.04 $.73
- -Cash Distributions
Per Share of:
-Common Stock $1.20 $1.20 $1.03 $.86 $.94
-Preferred Stock $1.60 $1.60 $1.60 $1.60 $1.60
(a) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards No.
128, Earnings Per Share. For further discussion of earnings per share
and the impact of Statement No. 128, see Note 2 to the Consolidated
Financial Statements.
DECEMBER 31,
STATEMENT DATA 1997 1996 1995 1994 1993
- -------------- ---- ---- ---- ---- ----
Balance Sheet Data
- -Total Real
Estate
Investments, Net $48,316,984 $42,889,213 $24,253,765 $10,996,534 $5,627,909
- -Investments in
US Government
Obligations and
Securities -- -- 1,274,747 3,972,256 4,856,453
- -Mortgages and
Note Receivables 5,943,450 6,049,033 7,564,716 16,096,224 17,274,039
- -Total Assets 57,647,555 52,522,988 38,040,246 37,652,773 32,383,674
- -Total Liabilities 26,336,680 21,987,633 7,532,267 7,680,937 3,360,236
- -Redeemable
Convertible
Preferred Stock 13,106,970 12,950,792 12,796,475 12,643,998 12,493,337
- -Total Stock-
holders' Equity 18,203,905 17,442,841 17,711,504 17,327,838 16,530,101
Item 7. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash generated from
operating activities, cash and cash equivalents, funds available under a
revolving credit facility (of which approximately $4,395,000 was available at
December 31, 1997) and funds obtainable from mortgages to be secured by real
estate investments.
In March, 1996 the Company entered into a $5 million revolving
credit agreement ("Credit Agreement") with Bank Leumi Trust Company of New York
("Bank Leumi"). Under the terms of the Credit Agreement the Company can add
additional lenders to provide a maximum total facility of $15,000,000. In June
1997, the Company closed on a $4,000,000 participation interest with Commercial
Bank of New York (formerly First Bank of the Americas), increasing the total
facility to $9,000,000. Borrowings under the Credit Agreement will provide the
Company with funds, when needed, to acquire additional properties. The Credit
Agreement matures February 28, 1999 with a right for the Company to extend the
Credit Agreement until February 29, 2000.
The Company is currently in discussions concerning the acquisition
of additional net leased properties. Cash provided from operations and the
Company's cash position will provide funds for cash distributions to
shareholders and operating expenses. These sources of funds, as well as funds
available under the Credit Agreement, will provide funds for future property
acquisitions. The Company has filed a Registration Statement with the Securities
and Exchange Commission relating to a Rights Offering to its shareholders. Funds
raised in the Rights Offering will be used primarily for property acquisitions.
It will continue to be the Company's policy to make sufficient cash
distributions to shareholders in order for the Company to maintain its real
estate investment trust status under the Internal Revenue Code.
In connection with the lease agreements with Total Petroleum, Inc.
("Total Petroleum") consummated in 1991, the Company agreed to expend certain
funds to remediate environmental problems at certain locations net leased to
Total Petroleum. It was agreed that the net cost to the Company would not exceed
$350,000 per location, with any excess being the responsibility of Total
Petroleum. At that time the Company deposited $2,000,000 with an independent
escrow agent to insure compliance by the Company with its obligations with
respect to the environmental clean up. At December 31, 1997, there are two
locations which require additional remediation efforts. The Company believes the
$781,000, held by the escrow agent will be adequate to cover any additional
environmental costs at the Total Petroleum locations.
There will be no effect on the Company's liquidity relating to the
year 2000 issue because during 1997 the Company acquired computer hardware and
software to handle the Company's accounting and real estate management. The
computer software is capable of handling all issues relating to the year 2000.
Comparison of Years Ended December 31, 1997 and 1996
As a result of the acquisition of five properties in 1996 and two
properties in 1997 rental income increased by $1,163,203 to $5,341,491 for the
year ended December 31, 1997 as compared to the year ended December 31, 1996.
The decrease in interest income from related parties of $299,571 from $1,132,150
for the year ended December 31, 1996 to $832,579 for the year ended December 31,
1997 is substantially due to the payoff in full of a senior note receivable
during August 1996.
Interest and other income decreased to $110,739 in 1997 from $201,118 in 1996
primarily due to a decrease in interest earned on U.S. Government securities
resulting from the sale of such securities, the proceeds of which were used to
purchase properties.
A $310,754 increase in depreciation and amortization expense to $1,023,345
results primarily from depreciation on properties acquired during 1996. Also
contributing to the increase was the amortization of capitalized costs incurred
in connection with the Company's credit facility and placing mortgages on its
properties.
The increase in interest-mortgages payable from $891,953 in 1996 to $1,517,126
in 1997 is due to interest paid on mortgages placed on properties acquired
during 1996 and 1997. Interest - bank note payable amounted to $210,305 and
$110,185 for the years ended December 31, 1997 and 1996, respectively, resulting
from borrowings under the Credit Agreement. Borrowings under the Credit
Agreement were made to facilitate property acquisitions.
General and administrative costs decreased by $33,781 from $663,201 for the year
ended December 31, 1996 to $629,420 for the year ended December 31, 1997 due to
a combination of factors including a decrease in professional fees. In addition,
the year ended December 31, 1996 included various fees and costs incurred with
the implementation of the Company's distribution reinvestment plan.
At December 31, 1996, the Company owned five properties which had been leased to
a retail chain of stores. The initial term with respect to the leases expired on
December 31, 1996. Two of these properties were under contract of sale on
December 31, 1996 (both sales closed during 1997), and three were vacant (two of
which are still vacant and one has since been re-leased). The Company is
actively seeking a buyer or tenant for the two vacant properties. At December
31, 1996 the Company recorded a provision for valuation adjustment on the two
properties which were under contract of sale based on the sales prices. In
addition, the Company had determined that the estimated fair value of the three
vacant properties were lower than their carrying amounts and thus, the Company
had recorded a provision for the differences. The total provision taken on these
five properties amounted to $659,000. There was no comparable provision taken in
1997.
On August 5, 1997, the property owned by a limited liability company in which
the Company was a majority member was sold and a gain of $599,251 was realized
on the sale. The Company's share of the gain is $383,915 (after deducting the
minority interest share of the gain of $215,336).
Comparision of Years Ended December 31, 1996 and 1995
In view of the Company's acquisition of nineteen properties in 1995
and five properties in 1996, rental income increased by $1,512,831 to $4,178,288
for the year ended December 31, 1996 from $2,665,457 for the year ended December
31, 1995. The straight-lining of rents during the year ended December 31, 1996
contributed $218,061 to the increase in rental income.
The decrease in interest income from related parties of $746,112
from $1,878,262 to $1,132,150 for the year ended December 31, 1996 is
substantially due to accelerated principal collections during 1995 on a senior
note receivable which resulted in unusually large amortization of the discount
on such note during 1995 and additionally, resulted in a substantial decrease in
interest earned on such note during 1996. This note was collected in full during
August 1996. Also contributing to the decrease in interest earned was the payoff
in full during March 1996 of an $845,000 mortgage receivable.
Interest and other income decreased to $201,118 in 1996 from
$347,243 in 1995 primarily due to a decrease in interest earned on U.S.
Government securities resulting from the sale of such investments, the proceeds
of which were used to purchase properties.
A $232,946 increase in depreciation and amortization expense to
$712,591 for the year ended December 31, 1996 results from depreciation on
properties acquired during 1995 and 1996. Also contributing to the increase was
the amortization of capitalized costs incurred in connection with the Company
obtaining a bank credit facility and placing mortgages on its properties.
The increase in interest-mortgages payable from $453,684 in 1995 to
$891,953 in 1996 is due to interest paid on mortgages placed in connection with
property acquisitions during 1995 and 1996. Interest - bank note payable
amounted to $110,185 during 1996 resulting from borrowings under a revolving
credit agreement which was entered into during 1996.
General and administrative costs of $663,201 reflect an increase of
$86,264 from the prior year expense of $576,937 and is due to a combination of
factors including various fees and other costs incurred with the implementation
and maintenance of the Company's distribution reinvestment plan and an increase
in professional fees.
At December 31, 1996 the Company owned five properties leased to a
chain of retail stores, all of which leases expired on December 31, 1996. Two of
those properties were under contract of sale on December 31, 1996, one was relet
and two became vacant. The Company is actively seeking a buyer or tenant for the
two vacant properties. The Company has recorded a provision for valuation
adjustment on the two properties under contract of sale since the sales prices
are lower than their carrying amounts and thus the Company has taken a provision
for the difference. The total provision taken on these five properties amounts
to $659,000. There was no comparable provision taken in 1995.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data listed in Items
14(a)(1) and 14(a)(2) hereof are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Information required by Part III (Item 10 - "Directors and Executive
Officers of the Registrant", Item 11 - "Executive Compensation", Item 12
- -"Security Ownership of Certain Beneficial Owners and Management" and Item 13
- -"Certain Relationships and Related Transactions") will be contained in the
definitive proxy statement to be filed within 120 days of the end of the
Company's fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K
(a) Documents filed as part of this Report:
1. The following financial statements of the Company are included in
this Report on Form 10-K:
Page
- Report of Independent Auditors F-1
- Statements:
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of
Stockholders' Equity F-4
Consolidated Statements
of Cash Flows F-5-F-6
Notes to Consolidated
Financial Statements F-7-F-18
2. Financial Statement Schedules:
- Schedule III-Real Estate
and Accumulated Depreciation F-19-F-20
- Schedule IV-Mortgage Loans on
Real Estate F-21-F-22
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or the
notes thereto.
3. Exhibits
3.1 Articles of Incorporation, as amended, of the Company, filed as Exhibit
3.1 to the Company's Form 10-Q for the quarter ended September 30, 1985, which
Exhibit is incorporated herein by reference.
3.2 Amendment to Articles of Incorporation, filed as Exhibit to the
Company's Form 10-Q for the quarter ended June 30, 1989, which Exhibit is
incorporated herein by reference.
3.3 Amendment to Articles of Incorporation, filed as an Exhibit to the
Company's Form 10-Q for the quarter ended June 30, 1990, which Exhibit is
incorporated herein by reference.
3.4 By-Laws of the Company, as amended, filed as an Exhibit to the
Company's Form 10-Q for the quarter ended June 30, 1989, which Exhibit is
incorporated herein by reference.
3.5 Amendment to By-Laws filed as an Exhibit to the Company's Form 10-Q for
the quarter ended June 30, 1990, which Exhibit is incorporated herein by
reference.
10.1 Form of lease entered into with Total Petroleum with respect to 13
Total Petroleum properties filed as an exhibit to the Company's Form 10-K dated
March 23, 1995 and incorporated herein by reference.
10.2 Lease dated September 14, 1995 between Galbreath Equities, Inc. as
Landlord and Kittle's Home Furnishing Center, as Tenant with respect to Columbus
Ohio Property, filed as an exhibit to the Company's Form 8-K dated December 12,
1997 and incorporated herein by reference.
10.3 Credit Agreement dated March 1, 1996 between the Company and Bank
Leumi Trust Company of New York filed as an exhibit to the Company's Form 10-K
for the year ended December 31, 1995, which Exhibit is incorporated herein by
reference.
21.1 Subsidiaries of registrant (filed herewith)
(b) No reports on Form 8-K were filed by the Registrant during the
last quarter of the period covered by this report, except for
a Form 8-K dated December 12, 1997 relating to the acquisition
of the Columbus, Ohio property.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf of the undersigned, thereunto duly authorized.
ONE LIBERTY PROPERTIES, INC.
Dated: March 17, 1997 By:s/Matthew Gould
Matthew Gould, 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
Fredric H. Gould Chairman of the March 17, 1998
Board of Directors
s/Matthew Gould
Matthew Gould President and
Chief Executive
Officer March 17, 1998
s/Marshall Rose
Marshall Rose Director March 17, 1998
s/Joseph A. Amato
Joseph A. Amato Director March 17, 1998
s/Charles Biederman
Charles Biederman Director March 17, 1998
s/Arthur Hurand
Arthur Hurand Director March 17, 1998
s/David W. Kalish
David W. Kalish Vice President
and Chief Financial
Officer March 17, 1998
Exhibit 21.1
Subsidiaries of the Company
Company State of Incorporation
OLP Action, Inc. Michigan
OLP Arby's II South Carolina
OLP Iowa, Inc. Delaware
OLP Texas, Inc. Texas
OLP-TSA Georgia, Inc. Georgia
OLP Dixie Drive Houston, Inc. Texas
OLP Greenwood Village,
Colorado, Inc. Colorado
OLP Ft. Myers, Inc. Florida
OLP Rabro Drive Corp. New York
OLP Chattanooga, Inc. Tennessee
OLP Columbus, Inc. Ohio
ONE LIBERTY PROPERTIES, INC.
and SUBSIDIARIES
Consolidated Financial Statements
December 31, 1997
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
One Liberty Properties, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of One Liberty
Properties, Inc. and Subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. Our audits also included the financial statement schedules listed in the
Index at Item 14(a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated 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, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
New York, New York s/Ernst & Young, LLP
February 18, 1998
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
December 31,
1997 1996
---- ----
Real estate investments, at cost (Notes 3, 4, and 6)
Land $ 12,210,147 $ 11,040,590
Buildings 38,641,419 33,695,317
---------- ----------
50,851,566 44,735,907
Less accumulated depreciation 2,534,582 1,846,694
--------- ---------
48,316,984 42,889,213
Mortgages receivable - less unamortized discount -
(substantially all from related parties) (Notes 5 and 6) 5,943,450 6,049,033
Cash and cash equivalents 1,606,364 2,478,580
Unbilled rent receivable 665,052 304,828
Rent, interest, deposits and other receivables 300,584 66,908
Investment in BRT Realty Trust - (related party) (Note 2) 240,384 199,068
Deferred financing costs 510,123 480,640
Other 64,614 54,718
------ ------
$ 57,647,555 $ 52,522,988
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable (Note 6) $ 20,545,247 $ 16,846,921
Note payable - bank (Note 6) 4,605,029 3,900,000
Accrued expenses and other liabilities 394,459 475,109
Dividends payable 791,945 765,603
------- -------
26,336,680 21,987,633
---------- ----------
Commitments and contingencies (Notes 3 and 7) - -
Minority interest in subsidiary (Note 3) - 141,722
- ----------- -------
Redeemable Convertible Preferred Stock,
$1 par value; $1.60 cumulative annual dividend;
2,300,000 shares authorized; 808,776 shares issued;
liquidation and redemption values of $16.50 (Note 7) 13,106,970 12,950,792
------ - ---------- ----------
Stockholders' equity (Notes 6,9,10 and 11):
Common Stock, $1 par value; 25,000,000 shares authorized;
1,561,450 and 1,473,642 shares issued and outstanding 1,561,450 1,473,642
Paid-in capital 14,419,609 13,650,737
Net unrealized gain on available-for-sale securities (Note 2) 146,706 97,673
Accumulated undistributed net income 2,076,140 2,220,789
--------- ---------
18,203,905 17,442,841
---------- ----------
$57,647,555 $52,522,988
=========== ===========
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Year Ended December 31,
1997 1996 1995
---- ---- ----
Revenues:
Rental income (Note 3) $ 5,341,491 $ 4,178,288 $ 2,665,457
Interest from related parties (Note 5) 832,579 1,132,150 1,878,262
Interest and other income 110,739 201,118 347,243
------- ------- -------
6,284,809 5,511,556 4,890,962
--------- --------- ---------
Expenses:
Depreciation and amortization 1,023,345 712,591 479,645
Interest - mortgages payable 1,517,126 891,953 453,684
Interest - bank 210,305 110,185 -
Leasehold rent 288,833 288,833 284,394
General and administrative (Note 8) 629,420 663,201 576,937
Provision for valuation adjustment of real estate
(Note 4) - 659,000 -
- --------- ------- ---------
3,669,029 3,325,763 1,794,660
--------- --------- ---------
Income before gain on sale of real estate
and minority interest 2,615,780 2,185,793 3,096,302
Gain on sale of real estate including minority
interest share of $215,336 (Note 3) 599,251 - -
------- --------- ---------
Income before minority interest 3,215,031 2,185,793 3,096,302
Minority interest (230,839) (11,841) -
-------- ------- ----------
Net income $ 2,984,192 $ 2,173,952 $3,096,302
=========== =========== ==========
Calculation of net income applicable
to common stockholders:
Net income $ 2,984,192 $ 2,173,952 $ 3,096,302
Less dividends and accretion on preferred stock 1,450,220 1,448,359 1,446,519
--------- --------- ---------
Net income applicable to common stockholders $ 1,533,972 $ 725,593 $ 1,649,783
=========== =========== ===============
Weighted average number of common
shares outstanding:
Basic 1,522,967 1,447,413 1,409,371
========= ========= =========
Diluted 1,529,203 1,459,198 1,423,361
========= ========= =========
Net income per common share (Notes 2 and 11):
Basic $ 1.01 $ .50 $ 1.17
============ ============ ============
Diluted $ 1.00 $ .50 $ 1.16
============ ============ ============
Cash distributions per share:
Common Stock $ 1.20 $ 1.20 $ 1.03
============ ============ ============
Preferred Stock $ 1.60 $ 1.60 $ 1.60
============ ============ ============
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the three years ended December 31, 1997
Net Unrealized
Gain (Loss) on Accumulated
Common Paid-in Available-for- Undistributed
Stock Capital Sale Securities Net Income Total
----- ------- --------------- ---------- -----
Balances, December 31, 1994 $ 1,399,119 $ 13,233,109 $ (34,913) $ 2,730,523 $17,327,838
Net income - - - 3,096,302 3,096,302
Distributions - Common Stock
($1.03 per share) - - - (1,449,397) (1,449,397)
Distributions - Preferred Stock
($1.60 per share) - - - (1,294,042) (1,294,042)
Accretion on Preferred Stock - (152,477) - - (152,477)
Exercise of options 17,000 138,125 - - 155,125
Net unrealized gain on available-
for-sale securities (Note 2) - - 28,155 - 28,155
--------- --------- ------ --------- ------
Balances, December 31, 1995 1,416,119 13,218,757 (6,758) 3,083,386 17,711,504
Net income - - - 2,173,952 2,173,952
Distributions - Common Stock
($1.20 per share) - - - (1,742,507) (1,742,507)
Distributions - Preferred Stock
($1.60 per share) - - - (1,294,042) (1,294,042)
Accretion on Preferred Stock - (154,317) - - (154,317)
Exercise of options 23,500 190,937 - - 214,437
Shares issued through dividend
reinvestment plan 34,023 395,360 - - 429,383
Net unrealized gain on available-
for-sale securities (Note 2) - - 104,431 - 104,431
--------- --------- ------- ------- --------
Balances, December 31, 1996 1,473,642 13,650,737 97,673 2,220,789 17,442,841
Net income - - - 2,984,192 2,984,192
Distributions - Common Stock
($1.20 per share) - - - (1,834,799) (1,834,799)
Distributions - Preferred Stock
($1.60 per share) - - - (1,294,042) (1,294,042)
Accretion on Preferred Stock - (156,178) - - (156,178)
Exercise of options 29,000 235,625 - - 264,625
Shares issued through dividend
reinvestment plan 58,808 689,425 - - 748,233
Net unrealized gain on available-
for-sale securities (Note 2) - - 49,033 - 49,033
---------- ---------- ------ --------- ------
Balances, December 31, 1997 $ 1,561,450 $14,419,609 $ 146,706 $ 2,076,140 $18,203,905
=========== =========== ========== ============ ===========
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended December 31,
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income $ 2,984,192 $ 2,173,952 $ 3,096,302
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of real estate (599,251) - -
(Increase) decrease in rental income from
straightlining of rent (360,224) (218,061) 86,780
Provision for valuation adjustment - 659,000 -
Depreciation and amortization 1,023,345 712,591 479,645
Minority interest in earnings of subsidiary 230,839 11,841 -
Changes in assets and liabilities:
Decrease (increase) in rent, interest, deposits and
other receivables (221,508) 611,739 (328,461)
Increase (decrease) in accrued expenses
and other liabilities (80,650) 281,342 (5,123)
------- ------- ------
Net cash provided by operating activities 2,976,743 4,232,404 3,329,143
--------- --------- ---------
Cash flows from investing activities:
Additions to real estate (10,058,389) (19,940,571) (3,819,323)
Net proceeds from sale of real estate 4,347,429 - -
Costs of acquisition of real estate and mortgage receivable
from Gould Investors L.P. - related party - - (90,514)
Collection of mortgages receivable - (including $79,032,
$961,789 and $148,291 from related parties in 1997,
1996 and 1995) 105,583 987,108 169,388
Collection of senior secured note receivable - BRT Realty
Trust - related party - 528,575 1,579,618
Sale of U.S. Government obligations and
securities, net - 1,310,553 2,806,713
Investment by minority interest in subsidiary - 167,980 -
Payments to minority interest by subsidiary (396,333) (38,099) -
Other 42,249 (2,248) (14,986)
------ ------ -------
Net cash (used in) provided by investing activities (5,959,461) (16,986,702) 630,896
---------- ----------- -------
Cash flows from financing activities:
Proceeds from bank borrowings, net of repayments 705,029 3,900,000 -
Proceeds from mortgages payable 5,925,000 10,375,000 2,413,350
Payment of financing costs (203,212) (392,826) (85,225)
Repayment of mortgages payable (2,226,674) (118,233) (2,806,843)
Exercise of stock options 264,625 214,437 155,125
Cash distributions - Common Stock (1,808,457) (1,725,250) (1,199,451)
Cash distributions - Preferred Stock (1,294,042) (1,294,042) (1,294,042)
Issuance of shares through dividend reinvestment plan 748,233 429,383 -
------- ------- -----------
Net cash provided by (used in) financing activities 2,110,502 11,388,469 (2,817,086)
--------- ---------- ----------
Net (decrease) increase in cash and cash equivalents (872,216) (1,365,829) 1,142,953
Cash and cash equivalents at beginning of year 2,478,580 3,844,409 2,701,456
--------- --------- ---------
Cash and cash equivalents at end of year $ 1,606,364 $ 2,478,580 $ 3,844,409
=========== ============ ============
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - Continued
Year Ended December 31,
1997 1996 1995
---- ---- ----
Supplemental disclosures of cash flow information:
Cash paid during the year for interest expense $1,727,603 $ 914,506 $ 467,116
Cash paid during the year for income taxes 17,058 58,437 43,784
Supplemental schedule of noncash investing and
financing activities:
Acquisition of real estate and mortgage receivable
from Gould Investors L.P., a related party - - (9,861,729)
Consideration for acquisition from Gould
Investors L.P.:
Extinguishment of mortgage receivable - - 6,850,000
Transfer of BRT preferred stock - - 2,455,355
Transfer of BRT common stock - - 556,374
See accompanying notes.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
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-managed Real Estate Investment
Trust ("REIT") which currently participates in net leasing transactions and has
engaged in other real property transactions and invested in real property
mortgages.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of One Liberty
Properties, Inc., its wholly-owned subsidiaries and a majority-owned limited
liability company (see Note 3). Material intercompany items and transactions
have been eliminated. One Liberty Properties, Inc., its subsidiaries and the
limited liability company are hereinafter referred to as the Company.
Reclassification of Financial Statements
Certain amounts reported in previous consolidated financial statements have
been reclassified in the accompanying consolidated financial statements to
conform to the current year's presentation.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Recognition
Rental income includes the base rent that each tenant is required to pay in
accordance with the terms of their respective leases reported on a straight-line
basis over the initial term of the lease. Mortgage receivable discount is
amortized over the remaining life, utilizing the interest method, based on the
Company's evaluation of the collectibility of the carrying amount of the
mortgage.
Depreciation
Depreciation of buildings is computed on the straight-line method over an
estimated useful life of 40 years for commercial properties and 27 and one half
years for residential properties.
Deferred Financing Costs
Mortgage and credit line costs are deferred and amortized on a
straight-line basis over the terms of the respective debt obligations.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 1997 included approximately 3% attributable to
capital gains, with the balance to ordinary income. All distributions made
during 1996 were attributable to ordinary income.
Investments in Debt and Equity Securities
In accordance with Statement of Financial Accounting Standards #115,
Accounting for Certain Investments in Debt and Equity Securities, the Company
accounts for its investment in common shares of BRT Realty Trust ("BRT"), a
related party of the Company, at fair value as "available-for-sale" securities.
The Company's investment in 30,048 common shares of BRT (accounting for
less than 1% of the total voting power of BRT), purchased at a cost of $97,656
has a fair market value at December 31, 1997 of $240,384 resulting in an
unrealized holding gain of $142,728. In addition, the Company has invested
$33,194 in equity securities which have a fair market value of $37,172 at
December 31, 1997. The aggregate net unrealized holding gain of $146,706 is
excluded from earnings and reported as a separate component of stockholders'
equity.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Mortgages receivable: Two mortgage loans of the Company with outstanding
balances aggregating $290,038 are currently fixed at interest rates which
approximate market. Accordingly, these balances approximate their fair values.
The remaining mortgage loan was purchased by the Company at a discount, which is
being amortized by the Company over the life of the mortgage. The Company
expects to receive a yield to maturity of approximately 14.5%. The Company
estimates the fair value of the loan to approximate its face amount of
$7,974,030 at December 31, 1997. The loan is being carried on the balance sheet
at $5,653,412, the difference representing the remaining unamortized discount of
$2,320,618.
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
Investment in BRT Realty Trust: Since this investment is considered
"available-for-sale", it is reported in the balance sheet based upon quoted
market price.
Note and mortgages payable: The Company determined the estimated fair value
of its debt by discounting future cash payments at their effective rates of
interest, which approximate current market rates of interest for similar loans.
Accordingly, there is no material difference between their carrying amount and
fair value.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Redeemable convertible preferred stock: Based on the December 31, 1997
quoted market price per share of $16.875, the fair value of the Company's
redeemable convertible preferred stock is $13,648,095.
Accretion on Preferred Stock
The Company has Preferred Stock outstanding which is both redeemable and
convertible. The stock was initially recorded in the financial statements at its
fair value based upon the initial average trades on the American Stock Exchange.
The amount by which the redemption value exceeds the carrying value is being
accreted using the interest method over the life of the redemption period.
Earnings Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the Statement 128 requirements.
For the years ended December 31, 1997, 1996 and 1995, basic earnings per
share was determined by dividing net income applicable to common stockholders
for the year by the weighted average number of shares of Common Stock
outstanding during each year.
Diluted earnings per share reflects the potential dilution that could occur
if securities or other contracts to issue Common Stock were exercised or
converted into Common Stock or resulted in the issuance of Common Stock that
then shared in the earnings of the Company. For the years ended December 31,
1997, 1996 and 1995 diluted earnings per share was determined by dividing net
income applicable to common stockholders for the year by the total of the
weighted average number of shares of Common Stock outstanding plus the dilutive
years ended 1997, 1996 and 1995, respectively) using the treasury stock method.
The Preferred Stock was not considered for the purpose of computing diluted
earnings per share because their assumed conversion is antidilutive. See Note 11
for information regarding a Registration Statement filed February 1998 by the
Company with the Securities and Exchange Commission with respect to a rights
offering to be made to its shareholders.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of
three months or less when purchased.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Valuation Allowance on Real Estate Owned
During the year ended December 31, 1996, the Company adopted Statement of
Financial Accounting Standards Board No. 121 ("FASB 121"), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires the Company to make a review of each real estate asset held for
use for which indicators of impairment are present, to determine whether the
carrying amount of the asset will be recovered. Recognition of impairment is
required if the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Measurement is based upon the
fair market value of the asset. FASB 121 also requires that long-lived assets
that are expected to be disposed of be reported at the lower of carrying amount
or fair value less costs to sell.
Segment Reporting
In June, 1997 the Financial Accounting Standards Board issued Statement No.
131, Disclosure About Segments of an Enterprise and Related Information, which
is effective for financial statements issued for periods beginning after
December 15, 1997. Statement No. 131 requires disclosures about segments of an
enterprise and related information regarding the different types of business
activities in which an enterprise engages and the different economic
environments in which it operates. The Company does not believe that the
implementation of Statement No. 131 will have a material impact on its financial
statements.
NOTE 3 - REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS
The rental properties owned at December 31, 1997 are leased under
noncancellable operating leases to corporate tenants with current expirations
ranging from 1999 to 2051, with certain tenant renewal rights. All 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 on the
operating leases in effect at December 31, 1997 are as follows:
Year Ending
December 31,
------------
1998 $ 5,600,644
1999 5,675,774
2000 5,659,776
2001 5,694,085
2002 5,595,962
NOTE 3 - REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS (Continued)
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
$288,833 through April 2010 and has a right to extend the lease for up to three
15 year and one 14 year renewal options.
At December 31, 1997, the Company has recorded an unbilled rent receivable
aggregating $665,052, representing rent reported on a straight-line basis in
excess of rental payments required under the initial term of the respective
leases. This amount is to be billed and received pursuant to the lease terms
over the next twenty years. The minimum future rentals presented above include
amounts applicable to the repayment of these unbilled rent receivables.
For the year ended December 31, 1997, the following assets generated
revenues for the Company in amounts exceeding 10% of the Company's total
revenues:
For the Year Ended December 31, 1997
------------------------------------
Description Revenue % of Total Revenues
- ----------- ------- -------------------
Mortgage receivable - related party (a) $ 832,579 13.25%
Total Petroleum properties (b) 1,092,606 17.38%
(a) See note 5 - Mortgages Receivable (i) for other information.
(b) Total Petroleum, an operator of combination gas station and retail
convenience stores, is a tenant in thirteen of the Company's properties, all
located in the State of Michigan.
In connection with the Total Petroleum lease agreement in 1991, the Company
deposited $2,000,000 with an independent escrow agent, which represented the
estimated maximum amount to remediate environmental problems discovered at
certain locations. The agreement limits the maximum payment to approximately
$350,000 per location. At December 31, 1997, there are two locations which
require additional remediation efforts. The Company believes the approximate
$781,000 held by the escrow agent will be adequate to cover any additional
environmental costs.
Sale of Real Estate
On August 5, 1997, the property owned by a limited liability company in
which the Company was a majority member was sold and the limited liability
company was liquidated. A gain of approximately $599,000 was realized on the
sale. The Company's share of the gain is approximately $384,000 after deducting
the minority interest portion.
NOTE 4 - PROVISION FOR VALUATION ADJUSTMENT
At December 1996, the Company owned five retail properties which had been
leased to a retail chain of stores. The initial term with respect to the leases
expired on December 31, 1996. As of December 31, 1996 two of these properties
were under contract of sale (both sales closed during 1997) and three were
vacant (two are still vacant). The Company is actively seeking a buyer or tenant
for the two vacant properties.
At December 31, 1996 the Company recorded a provision for valuation
adjustment on the two properties which were under contract of sale based on the
sales prices. In addition, the Company had determined that the estimated fair
value of the three vacant properties were lower than their carrying amounts and
thus, the Company had taken a provision for the differences. The total provision
taken on these five properties during the year ended December 31, 1996 which
amounted to $659,000 had been presented as a reduction to real estate
investments on the balance sheet.
NOTE 5 - MORTGAGES RECEIVABLE AND PRINCIPAL RELATED PARTY TRANSACTION
Mortgages receivable at December 31, 1997 and 1996 consist of the
following:
1997 1996
---- ----
Affiliate
---------
Entity substantially owned by
Gould Investors L.P. (net of
unamortized discount of
$2,320,618 and $2,654,818) (i) $ 5,653,412 $ 5,732,445
Non-affiliate
-------------
Other 290,038 316,588
------- -------
$ 5,943,450 $ 6,049,033
=========== ===========
Annual maturities of mortgages receivable during the next five years and
thereafter are summarized as follows:
Year Ending December 31,
------------------------
1998 $ 768,574
1999 508,251
2000 532,820
2001 555,355
2002 567,871
2003 and thereafter 5,331,197
---- ---------
Total 8,264,068
Less: Unamortized discount 2,320,618
---------
Net carrying amount - mortgages receivable $ 5,943,450
============
(i) On July 30, 1993, as a result of a public auction, the Federal Deposit
Insurance Corporation sold to an entity related to the Company, for a
consideration of $19,000,300, a $23,000,000 first mortgage, providing for an
interest rate of 8% per annum, secured by a single tenant office building
located in Manhattan, New York. The office building which secures this mortgage
is owned by a partnership in which
NOTE 5 - MORTGAGES RECEIVABLE AND PRINCIPAL RELATED PARTY TRANSACTION
(Continued)
Gould Investors L.P. ("Gould") is General Partner and in which Gould owns
substantially all of the partnership interests. Simultaneously with the
purchase, $13,181,000 was advanced by an unrelated party, $6,080,000 (which
includes closing costs) was advanced by the Company, and the mortgage was
severed into a first mortgage of $13,181,000 paying interest at 9 1/2% per annum
held by the unrelated party and a subordinate wrap mortgage of $9,819,000 held
by the Company. Both the first mortgage and the wrap mortgage mature in 2005 at
which time the first mortgage will be fully amortized and the wrap mortgage will
have a principal balance of approximately $4,000,000. The Company receives
monthly principal and interest payments of $79,318 and at December 31, 1997 and
1996 its principal balance had been reduced to approximately $7,974,000 and
$8,387,000, respectively. The original discount of $3,738,400 is being amortized
by the Company over the life of the mortgage. The Company expects to receive a
yield to maturity of approximately 14.5%. Interest income, including
amortization of the discount of $334,200, $327,600 and $319,500, amounted to
$832,579, $848,200 and $861,750 for the years ended 1997, 1996 and 1995,
respectively.
The building which secures the first mortgage and the wrap mortgage is
leased in its entirety to the City of New York. The lease expires in 2005 with
an option to renew for an additional five years and provides the City with a
limited right of termination. The first mortgage and the wrap mortgage are
nonrecourse to the owner of the building. The transaction was approved by the
independent directors of the Company. The directors who are affiliated with the
Company and Gould abstained from voting on the transaction.
At December 31, 1997 and 1996 Gould owned 384,462 and 542,825 shares of the
common stock of the Company or 24.6% and 36.8% of the equity interest and 19.6%
and 28.9% of the voting rights, respectively.
NOTE 6 - DEBT OBLIGATIONS
Mortgages Payable
At December 31, 1997 there are nine outstanding mortgages payable, all of
which are secured by individual real estate investments with an aggregate
carrying value of $33,163,742 before accumulated depreciation. The mortgages
bear interest at rates ranging from 7.3% to 9.1%, and mature between 1999 and
2017.
Scheduled principal repayments during the next five years and thereafter
are as follows:
Year Ending
December 31,
------------
1998 $ 281,128
1999 4,237,515
2000 1,139,019
2001 255,795
2002 1,559,362
2003 and thereafter 13,072,428
---- ----------
Total $ 20,545,247
=============
NOTE 6 - DEBT OBLIGATIONS (Continued)
Note Payable - Bank
On March 1, 1996 the Company entered into a $5 million revolving credit
agreement ("Credit Agreement") with Bank Leumi Trust Company of New York ("Bank
Leumi"). Under the terms of the Credit Agreement the Company can add additional
lenders to provide a maximum total facility of $15,000,000. In June 1997, the
Company closed on a $4,000,000 participation interest with Commercial Bank of
New York (formerly First Bank of the Americas), increasing the total facility to
$9,000,000. Borrowings under the Credit Agreement are being used to provide the
Company with funds, when needed, to acquire additional properties. The Credit
Agreement matures February 28, 1999 with a right for the Company to extend the
Credit Agreement until February 29, 2000. The Company pays interest under the
Credit Agreement at the rate of prime plus 1/2% on funds borrowed on an interest
only basis,plus a 1/4% servicing fee on the outstanding balance to Bank Leumi.
Net proceeds of certain events (e.g. sale of property, financing of properties)
must be applied to reduce the loan.
As collateral for any advances taken by the Company under the Credit
Agreement, the Company has pledged the stock of each of its subsidiaries and
certain mortgages receivable. In addition, the Company's subsidiaries have
guaranteed all loans under the Credit Agreement. The Credit Agreement contains
certain affirmative and negative convenants as well as specified guarantees. The
Company has agreed to maintain at least $250,000 on deposit with Bank Leumi and
is in compliance with all requirements.
At December 31, 1997, $4,605,029 was outstanding under the Credit
Agreement.
NOTE 7 - REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Preferred Stock has the following rights, qualifications and
conditions: (i) a cumulative dividend preference of $1.60 per share per annum;
(ii) a liquidation preference of $16.50 per share; (iii) a right to convert each
share of Preferred Stock at any time into .825 of a share of Common Stock; (iv)
redeemable by the Company after July 1, 1997 at $16.70 per share and at premiums
declining to $16.50 on July 1, 1998 and thereafter; (v) an option by each
preferred holder to put the Preferred Stock to the Company at $16.50 per share
for the period commencing July 1, 1999 and ending on September 28, 1999; and
(vi) one-half vote per share.
NOTE 8 - OTHER RELATED PARTY TRANSACTIONS
Gould charged the Company $179,260, $175,969, $210,357 during the years
ended December 31, 1997, 1996 and 1995, respectively, for allocated general and
administrative expenses and payroll based on time incurred by various employees.
A company controlled by certain directors and officers of the Company was
paid mortgage brokerage fees of $24,134 during the year ended December 31, 1995.
See Note 5 for other related party transaction information.
NOTE 9 - STOCK OPTIONS
On December 6, 1996, the directors of the Company adopted the 1996 Stock
Option Plan (Incentive/Nonstatutory Stock Option Plan), whereby a maximum of
125,000 shares of common stock of the Company are reserved for issuance to
employees, officers, directors, consultants and advisors to the Company.
Incentive stock options are granted at per share amounts at least equal to their
fair market value at the date of grant, whereas for nonstatutory stock options
the exercise price may be any amount determined by the Board of Directors. The
options will expire no later than ten years after the date on which the option
was granted.
On March 21, 1997, the Directors of the Company granted, under the 1996
Stock Option Plan, options to purchase a total of 40,500 shares of common stock
at $13.50 per share to a number of the Company's officers and employees. The
options are cumulatively exercisable at a rate of 25% per annum, commencing
after six months, and expire five years after the date of grant. At December 31,
1997 options to purchase 10,125 shares are exercisable, none of which have been
exercised.
On November 17, 1989, the directors of the Company granted, under the 1989
Stock Option Plan, options to purchase a total of 110,000 shares of Common Stock
at $11 per share to a number of the Company's officers and employees. In 1994,
one officer exercised 20,000 of these options and the balance expired. On June
6, 1991, the directors of the Company granted to each of the three independent
directors of the Company an option to purchase 5,000 shares of Common Stock at
$9.125 per share. During 1995 and 1996, two directors exercised 10,000 of these
options and during 1996 the remaining 5,000 options expired. On March 4, 1993,
the Board of Directors granted, also under the 1989 Stock Option Plan, options
to purchase a total of 100,000 common shares at $9.125 per share to a number of
officers and employees of the Company. At December 31, 1997, all 100,000 options
had been exercised.
Stock options under the 1989 Stock Option Plan are granted at per share
amounts at least equal to their fair market value at the date of grant. The
options are cumulatively exercisable at a rate of 25% per annum and expire five
years after the date of grant. A maximum of 225,000 common shares were reserved
for issuance under the 1989 Stock Option Plan, of which 95,000 are available for
grant at December 31, 1997.
The Company elected Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), and related interpretations in
accounting for its employee stock options. Under APB 25, no compensation expense
is recognized because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant. The
alternative fair value accounting provided for under FASB No. 123, Accounting
for Stock-Based Compensation, is not applicable because it requires use of
option valuation models that were not developed for use in valuing employee
stock options.
NOTE 9 - STOCK OPTIONS (Continued)
Pro forma information regarding net income and earnings per share is
required by FASB No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method. The fair
value for these options was estimated at the date of the grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk free interest rate of 6.49%, dividend yield of 8.5%,
volatility factor of the expected market price of the Company's Common Stock
based on historical results of .117; and an expected life of 4 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and changes in the
subjective input assumptions can materially affect the fair value estimate,
management believes the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. The Company has
elected not to present pro forma information because the impact on the reported
net income and earnings per share is immaterial.
Changes in the number of common shares under all option arrangements are
summarized as follows:
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Outstanding at beginning of period 29,000 57,500 74,500
Granted 40,500 - -
Option prices $13.50-$9.125 - -
Exercisable at end of period 10,125 29,000 32,500
Exercised 29,000 23,500 17,000
Expired - 5,000 -
Outstanding at end of period 40,500 29,000 57,500
Option price per share outstanding $13.50 $9.125 $9.125
As of December 31, 1997 the outstanding options had a remaining contractual
life of approximately 4.2 years and an exercise price of $13.50.
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, 1997 and 1996, the Company issued 58,808 and 34,023 common
shares, respectively, under the Plan.
NOTE 11 - SUBSEQUENT EVENTS
On February 10, 1998, the Company filed a Registration Statement with the
Securities and Exchange Commission ("SEC") with respect to a rights offering to
be made to its stockholders. Upon effectiveness of the Registration Statement,
the Company will issue to each common and preferred stockholder, one
nontransferable right for each share owned of record on the record date
entitling the holder to purchase one share of common stock at a price which will
be approximately 5% to 10% below market at or about the time the Registration
Statement is declared effective by the SEC. In addition, each common and
preferred stockholder will be afforded the opportunity to over-subscribe to the
extent of two additional shares, but, in order for the over-subscription
privilege to come into effect a stockholder must have fully exercised the basic
subscription privilege.
A limited liability company, in which the Company is the majority member,
expects to close on the purchase of a commercial building during March, 1998.
The purchase price will be $6,700,000. The Company expects to close on mortgage
financing for $4,500,000 simultaneously with the purchase. Interest on the
mortgage will be at the rate of 7.5% per annum. The entire property is leased to
the New York City Transit Authority at an annual rental of $850,000 with a lease
that expires in October, 2002.
NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED):
Quarter Ended
-------------
Total
March 31 June 30 September 30 December 31 For Year
-------- ------- ------------ ----------- --------
(In thousands, except per share data)
1997
- ----
Revenues $1,566 $1,567 $1,493 $1,659 $6,285
Net income 639 641 1,005 (a) 699 2,984
Net income applicable to
common stockholders 277 279 642 336 1,534
Net income per common share (b):
Basic .19 .18 .42 .22 1.01
Diluted .18 .18 .42 .22 1.00
(a) Net income includes gain on sale of real estate of $599,251 and is
after minority interest of $230,839 (substantially attributable to such gain).
See Note 3.
(b) The earnings per share amounts for the quarter ended March 31, 1997
have been restated to comply with Statement of Financial Accounting Standards
No. 128, Earnings Per Share.
Quarter Ended
-------------
Total
March 31 June 30 September 30 December 31 For Year
-------- ------- ------------ ----------- --------
(In thousands, except per share data)
1996
- ----
Revenues(b) $1,094 $1,288 $1,594 $1,536 $5,512
Net income (a) (b) 577 368 791 438 2,174
Net income applicable to
common stockholders (b) 215 6 429 76 726
Basic and diluted net
income per common share .15 - .29 .05 .50
(a) Net income reflects provision for valuation adjustment of real estate
amounting to $314,000, $145,000 and $200,000 for the quarters ending June 30,
1996, September 30, 1996 and December 31, 1996, respectively.
(b) Includes approximately $41,000, $103,000 and $88,000 (or $.03, $.07 and
$.06 per common share) of income from accelerated payments on a senior note
receivable for the quarters ending March 31, 1996, June 30, 1996 and September
30, 1996, respectively. The note receivable was paid in full during August 1996.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Schedule III - Consolidated Real Estate and Accumulated Depreciation
December 31, 1997
Initial Cost Gross Amount at Which Carried At Life on Which
to Company December 31, 1997 Depreciation in
Latest Income
Statement Is
Accumulated Date Of Date Computed
Encumbrances Land Buildings Land Buildings Total Depreciation Construction Acquired (Years)
------------ ---- --------- ---- --------- ----- ------------ ------------ -------- -------
Free Standing
Retail Locations:
Columbus, OH $4,325,000 $1,445,232 $5,780,926 $1,445,232 $5,780,926 $7,226,158 $18,065 1996 November 19, 1997 40
Ft. Myers, FL 3,209,748 1,013,463 4,053,848 1,013,463 4,053,848 5,067,311 114,020 1996 November 7, 1996 40
Denver, CO 2,670,659 811,896 3,247,582 811,896 3,247,582 4,059,478 138,699 1995 April 9, 1996 40
Atlanta, GA 2,363,061 802,721 3,210,886 802,721 3,210,886 4,013,607 110,374 1994 August 14, 1996 40
Lewisville, TX 1,571,786 685,737 2,742,946 685,737 2,742,946 3,428,683 82,860 1996 October 11, 1996 40
Miscellaneous 2,343,078 5,693,337 14,366,139 5,589,037 14,170,439 19,759,476 1,425,208 Various Various 40
Apartment Building:
New York, NY 4,061,915 1,109,836 4,439,346 1,109,836 4,439,346 5,549,182 571,735 1910 June 14, 1994 27.5
Land Under
Improvements:
Miscellaneous - 752,225 - 752,225 - 752,225 - Various Various -
Industrial:
Miami, FL - - 995,446 - 995,446 995,446 73,621 1967 January 19, 1995 40
$20,545,24 $12,314,447 $38,837,119 $12,210,147 $38,641,41 $50,851,566 $2,534,582
========== =========== =========== =========== ========== =========== ==========
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Notes To Schedule III - Consolidated Real Estate
And Accumulated Depreciation
(a) Reconciliation of "Real Estate and Accumulated Depreciation"
Year Ended December 31,
-----------------------
1997 1996 1995
---- ---- ----
Investment in real estate:
Balance, beginning of year $ 44,735,907 $ 25,454,336 $ 11,750,268
Addition: Land and buildings 10,058,389 19,940,571 13,704,068
Deductions:
Cost of properties sold (3,942,730) - -
Valuation allowance (c) - (659,000) -
---------- -------- ----------
Balance, end of year $ 50,851,566 $ 44,735,907 $ 25,454,336
============ ============ =============
Accumulated depreciation:
Balance, beginning of year $ 1,846,694 $ 1,200,571 $ 753,734
Addition: depreciation 893,123 646,123 446,837
Deduction: accumulated
depreciation related to
properties sold (205,235) - -
-------- ---------- -----------
Balance, end of year $ 2,534,582 $ 1,846,694 $ 1,200,571
============ ============== =============
(b) The aggregate cost of the properties is the same for federal income tax
purposes.
(c) During the year ended December 31, 1996, the Company took a provision
for valuation adjustment of real estate totaling $659,000. See Note 4 to the
consolidated financial statements for other information.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Schedule IV - Mortgage Loans on Real Estate
December 31, 1997
Carrying
Number of Intrest Maturity Periodic Face Amount Amount of
Description Loans Rate Date Payment Terms of Mortgage Mortgage
First mortgage loans:
Land and building/retail 1 9.75% Month to $3,550 monthly allocated $246,144 $246,144
Bad Axe, MI Month to interest and principal.
Land and building/office 1 14.5%(b) Feb-05 $79,318 monthly allocated to 7,974,030 (c) 5,653,412
New York, NY interest and principal, balance of
$4,073,525 due at maturity.
Second mortgage loan:
Land and building/commercial 1 10.25% Oct-01 $1,158 monthly allocated to 43,894 43,894
- ------ ------
Seattle, WA interest and principal,
self-liquidates by maturity
Total 3 $8,264,068 $5,943,450
= ========== ==========
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Schedule IV - Mortgage Loans on Real Estate
December 31, 1997
Notes to the Schedule:
(a) The following summary reconciles mortgages receivable at their carrying
values:
1997 1996
---- ----
Balance at beginning of year $ 6,049,033 $ 7,036,141
Addition:
Amortization of discount 334,200 327,600
Deduction:
Collections of principal 439,783 1,314,708
Balance at end of year $ 5,943,450 $ 6,049,033
(b) Represents the expected yield to maturity which includes amortization
of discount and interest collections.
(c) The face amount of mortgage is before an unamortized discount of
$2,320,618. Mortgage was pledged as collateral to Credit Agreement.