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UNITED STATES
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 EXCHANGE ACT OF 1934
[ X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of l934
For the fiscal year ended December 31, 2003
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Or
[ ] 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.
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(Exact name of registrant as specified in its charter)
MARYLAND 13-3147497
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
60 Cutter Mill Road, Great Neck, New York 11021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 466-3100
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Securities registered pursuant to Section
12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, par value $1.00 New York Stock Exchange
per share
Securities registered pursuant to Section
12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
--
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2).
Yes X No
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As of June 30, 2003 (the last business day of the registrant's most
recently completed second quarter), the aggregate market value of all common
equity held by non-affiliates of the registrant, computed by reference to the
price at which common equity was last sold on said date, was approximately $75.4
million.
As of March 5, 2004, the aggregate market value of all common equity
held by non-affiliates of the registrant was $181.1 million.
As of March 5, 2004, the registrant had 9,672,580 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the annual meeting of shareholders
of One Liberty Properties, Inc., to be filed pursuant to Regulation 14A not
later than April 29, 2004, are incorporated by reference into Part III of this
Form 10-K.
Forward-Looking Statements
This Annual Report on Form 10-K, together with other statements and
information publicly disseminated by One Liberty Properties, Inc., contains
certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. We intend such forward-looking statements to be covered
by the safe harbor provision for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 and include this statement for
purposes of complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe our future
plans, strategies and expectations, are generally identifiable by use of the
words "may", "will", "believe", "expect", "intend", "anticipate", "estimate",
"project" or similar expressions or variations thereof. You should not rely on
forward-looking statements since they involve known and unknown risks,
uncertainties and other factors which are, in some cases, beyond our control and
which could materially affect actual results, performance or achievements.
Factors which may cause actual results to differ materially from current
expectations include, but are not limited to:
o general economic and business conditions;
o general and local real estate conditions;
o the financial condition of our tenants and the performance of their lease
obligations;
o changes in governmental laws and regulations relating to real
estate and related investments;
o the level and volatility of interest rates;
o competition in our industry; o accessibility of debt and equity capital
markets;
o the availability of and costs associated with sources of liquidity; and
o the other risks described under "Risks Related to Our Company" and "Risks
Related to the REIT Industry".
Accordingly, there can be no assurance that our expectations will be
realized.
PART I
Item 1. Business
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General
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We are a self-administered and self-managed real estate investment
trust (REIT). We were incorporated under the laws of the State of Maryland on
December 20, 1982. We acquire, own and manage a geographically diversified
portfolio of retail, industrial, office, movie theater and other properties, a
substantial portion of which are under long-term leases. Substantially all of
our leases are "net leases", under which the tenant is typically responsible for
real estate taxes, insurance and ordinary maintenance and repairs. As of
December 31, 2003, we owned 36 properties, participated in four joint ventures
that owned a total of 12 properties and held a 50% tenancy in common interest in
one property. Our properties are located in 17 states and have an aggregate of
approximately 3.7 million square feet of rentable space (including all rentable
space for properties in which we have a joint venture participation and our
tenancy in common interest). Under the terms of our leases, our 2004 contractual
rental income will be approximately $27.2 million. Our 2004 contractual rental
income includes rental income that is payable to us during 2004 for properties
owned at December 31, 2003, including our share of the rental income payable to
our joint ventures and rental income payable on our tenancy in common interest,
and does not include rent that we would receive if our one vacant property is
rented. On December 31, 2003, the occupancy rate of our property portfolio was
approximately 99% and the weighted average remaining term of the leases in our
portfolio was 11.1 years based on our 2004 contractual rental income.
We acquire our properties by balancing fundamental real estate analysis
with tenant credit evaluation. The main focus of our analysis is the intrinsic
value of a property, determined primarily by its location, local demographics
and potential for alternative use. We also evaluate a tenant's financial ability
to meet lease obligations and operational needs. Most of our retail tenants
operate on a national basis and include, among others, Kroger Co., Barnes &
Noble, Inc., Walgreen Co., The Sports Authority, Inc., Best Buy Co., Inc.,
OfficeMax Inc., Party City Corporation and Petco Animal Supplies, Inc.
The properties in our portfolio typically have the following
attributes:
o Net leases. Substantially all of our leases are net leases under which
the tenant is typically responsible for real estate taxes, insurance
and ordinary maintenance and repairs. We believe that investments in
net leased properties offer more predictable returns than investments
in properties that are not net leased;
o Long-term leases. We generally acquire properties that are subject to
long-term leases. Leases representing approximately 76% of our 2004
contractual rental income expire after 2009, and leases representing
approximately 68% of our 2004 contractual rental income expire after
2012; and
o Scheduled rent increases. Leases representing approximately 79% of our
2004 contractual rental income provide for either scheduled rent
increases or periodic contractual rent increases based on the consumer
price index.
In October and November 2003, we sold 3,737,500 million shares of our
common stock (including 487,500 shares subject to the underwriters'
over-allotment option) in a public offering at $18.25 per share. We realized net
proceeds of approximately $64.5 million.
We share facilities, personnel and other resources with several
affiliated entities including, among others, Gould Investors L.P., a partnership
which owns 8% of our common shares at December 31, 2003 and is involved in the
ownership and operation of a diversified portfolio of real estate, and BRT
Realty Trust, a mortgage lending REIT. It is our policy, and the policy of our
affiliated entities, that any investment opportunity presented to us or to any
of our affiliated entities that involves primarily the acquisition of a net
leased property will first be offered to us and declined by us before any of our
affiliated entities may pursue the opportunity. Jeffrey Fishman, our president
and chief executive officer, and Lawrence G. Ricketts, Jr., our vice president,
acquisitions, devote substantially all of their business time to our company,
while our other management personnel share their services on a part-time basis
with us and other affiliated entities that share our executive offices. We
believe that this sharing arrangement provides us access to a group of senior
executives with real estate knowledge and experience to which a company of our
size would not otherwise have access. For a description of the background of our
management, please see the information under the heading "Executive Officers" in
Part I of this Annual Report.
Our Website
Our internet address is www.onelibertyproperties.com. Our Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 are available on our website as
soon as reasonably practicable after we electronically file such materials with
the Securities and Exchange Commission.
Our Business Objectives and Growth Strategy
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Our business objectives are to maintain and increase the cash available
for distribution to our stockholders by:
o acquiring a diversified portfolio of net leased properties subject to
long-term leases;
o obtaining mortgage indebtedness on favorable terms and increased access
to capital to finance property acquisitions; and
o managing assets effectively through property acquisitions, lease
extensions and opportunistic property sales.
Our growth strategy includes the following elements:
o to maintain, renew and enter into new long-term leases that contain
provisions for contractual rent increases;
o to acquire additional properties within the United States that are
subject to long-term net leases and that satisfy our other investment
criteria; and
o to acquire properties in market or industry sectors that we identify,
from time to time, as offering superior risk-adjusted returns.
Our acquisition strategy is to pursue properties that are subject to
long-term leases which include periodic contractual rental increases. We believe
that long-term leases provide a predictable income stream over the term of the
lease, making fluctuations in market rental rates and in real estate values less
significant to achieving our overall investment objectives. Long-term leases
also make it easier for us to obtain longer-term, fixed-rate mortgage financing
with principal amortization, thereby moderating the interest rate risk
associated with financing or refinancing our property portfolio by reducing the
outstanding principal balance over time. In addition, we believe that long-term
leases minimize the management time required and transaction costs incurred
while we own a property. Although we regard long-term leases as a central
element of our acquisition strategy, we will acquire a property that is subject
to a short-term lease where we believe the property represents an good
opportunity for recurring income and residual value.
We generally expect that the properties we acquire will also provide
internal growth derived from scheduled rent increases. Our goal is to continue,
as often as possible, to acquire properties that are subject to long-term net
leases that include periodic contractual rental increases. Periodic contractual
rental increases provide reliable increases in future rent payments, while rent
increases based on the consumer price index provide protection against
inflation.
Generally, we acquire properties based on their intrinsic value and
intend to hold these properties for an extended period of time. Our investment
criteria are intended to identify properties from which increased asset value
and overall return can be realized from an extended period of ownership.
Accordingly, we would tend to pursue a lease renewal or a new lease upon lease
termination or expiration in preference to disposing of a property. Although our
investment criteria favor an extended period of ownership of our properties, we
may dispose of a property following a lease termination or expiration or even
during the term of a lease if we regard the disposition of the property as an
opportunity to realize the overall value of the property sooner or to avoid
future risks by achieving a determinable return from the property.
Our Investment Strategy
In evaluating potential net lease investments, we consider, among other
criteria, the following:
o an evaluation of the property and improvements, given its location
and use;
o local demographics (population and rental trends);
o the ability of the tenant to meet operational needs and lease
obligations;
o the current and projected cash flow of the property;
o the estimated return on equity to us;
o the terms of tenant leases, including the relationship between current
rents and market rents;
o the projected residual value of the property;
o potential for income and capital appreciation; and
o occupancy of and demand for similar properties in the market area.
Movie Theater Joint Ventures
At December 31, 2003, we owned a 50% equity interest, with the same
venturer, in two joint ventures that own movie theaters. We had approximately
$21 million invested in the two movie theater joint ventures at December 31,
2003. At December 31, 2003 these joint ventures owned ten movie theaters having
a total of 168 screens. Eight of the ten movie theaters owned by the joint
ventures are megaplex theaters with stadium-style seating, one is an "in town"
multi-screen theater with partial stadium seating and one is a multi-screen "in
town" theater, under renovation, which will have stadium-style seating upon
completion. Megaplex movie theaters have multiple screens. Stadium-style seating
provides for seating with elevation between rows to provide unobstructed
viewing. The movie theaters owned by our movie theater joint ventures are
equipped with electronics and technology that are intended to enhance the audio
and visual experience for the patron.
It was and continues to be our belief that well-located, megaplex
stadium-style theaters that conform to our investment criteria will provide us
with above average risk-adjusted returns on our investment. In identifying the
megaplex theaters that present the most attractive acquisition candidates, our
review of potential property purchases includes an analysis of the financial
performance of each specific theater considered for purchase.
We are designated the "Managing Member" under each movie theater
venture operating agreement. Each operating agreement provides that Majestic
Property Management Corp., a company owned by our chairman of the board and in
which certain of our executive officers are officers, receives a management fee
equal to 1% of all rents received by the joint ventures from single-tenant
properties and a management fee equal to 3% of all rents received by the joint
ventures from multi-tenant properties. Majestic will receive leasing and
mortgage brokerage fees for services rendered with respect to any property owned
by either joint venture at a rate equal to 80% of the commissions we reasonably
determine as being charged by third parties for comparable services in the
market where the properties are located. Majestic will also receive a
construction supervisory fee equal to 8% of the cost of any capital improvements
to any property and sale commissions equal to 1% of the sales price of any
properties that are sold.
The following table provides certain information with respect to the
ten movie theaters owned by our two movie theater joint ventures.
Expiration
No. of Purchase of Initial
Location Screens Operator Price (1) Lease Term
- --------- ------- -------- ---------- ----------
(in millions)
Norwalk, CA 20 American Multi-Cinema, Inc. $12.5 2021
Austell, GA 22 Regal Cinemas, Inc. 11.8 2019
Beavercreek, OH 20 Regal Cinemas, Inc. 9.7 2015
Morrow, GA 24 American Multi-Cinema, Inc. 14.1 2017
Roanoke, VA 16 Consolidated Theaters 9.0 2020
Holdings, G.P.
Lubbock, TX 17 Cinemark USA, Inc. 7.9 2018
Live Oak, TX 18 Regal Cinemas, Inc. 12.5 2019
Henrietta, NY 18 Regal Cinemas, Inc. 10.5 2022
Brooklyn, NY (2) 8 Pritchard Square Cinema LLC 9.5 2022
Monroe, NY (3) 5 Monroe Pavilion LLC 3.0 2023
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168 $100.5
=== ======
(1) Purchase price represents the total purchase price for each property without
giving effect to closing costs.
(2) "In town" multi-screen theater with partial
stadium-style seating.
(3) "In town" multi-screen theater with stadium-style
seating under construction. We have paid $2,000,000 of the purchase price. The
balance of the purchase price will be paid as construction progresses.
Our Tenants
The following table shows information about the diversification of our
tenants by industry sector as of December 31, 2003:
Percentage of
Type of 2004 Contractual Number of 2004 Contractual
Property Rental Income (1) Tenants Rental Income
- -------- ----------------- ------- -------------
Retail $10,552,839 29 38.73%
Flex 4,420,582 4 16.22
Industrial 2,324,587 6 8.53
Movie Theater 5,659,752 10 20.77
Health & Fitness 1,433,505 3 5.26
Office 2,220,333 2 8.15
Residential 637,500 1 2.34
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TOTAL $27,249,098 55 100.00%
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(1) Reflects 2004 contractual rental income which includes rental income that
is payable to us during 2004 under existing leases, including our share
of the rental income payable to our joint ventures and the rental income
on our tenancy in common interest, and does not include rent that we
would receive if our one vacant property is rented.
Although we focus on property value in analyzing our potential property
acquisitions, we also review the ability of the tenant to meet its lease
obligations and operational needs. Typically our tenants are not rated or are
rated below investment grade. Of our properties, 23 are net leased to various
retail operators under long-term leases and, except for three of the retail
properties, are net leased to single tenants. Of the three properties net leased
to multiple retail operators, one is net leased to four separate tenants
pursuant to separate leases, one is net leased to two separate tenants pursuant
to separate leases and one is net leased to three separate tenants pursuant to
separate leases. Six of our properties are industrial-type buildings, of which
two are used as frozen food warehouses. Three of our properties, with four
tenants, are flex-type buildings (office, research and development and
warehouse) and three are health and fitness facilities. Finally, we have two
office properties, one residential property, and ten movie theaters. At December
31, 2003, one of our retail properties, representing an aggregate of 43,200
square feet, was vacant. No assurances can be given that we will find a tenant
for this vacant property. Two properties representing approximately 8.25% of our
2004 contractual rental income are subject to leases that will terminate in
2004.
Our Leases
Substantially all of our leases are net leases, under which the tenant,
in addition to its rental obligation, typically is responsible for expenses
attributable to the operation of the property, such as real estate taxes and
assessments, water and sewer rents and other charges. The tenant is also
generally responsible for maintaining the property, including non-structural
repairs, and for restoration following a casualty or partial condemnation. The
tenant typically indemnifies us for claims arising from the property and is
responsible for maintaining insurance coverage for the property it leases. Under
some net leases, we are responsible for structural repairs, including foundation
and slab, roof repair or replacement and restoration following a casualty event,
and at several properties we are responsible for certain expenses related to the
operation and maintenance of the property.
Our typical lease provides for contractual rent increases periodically
throughout the term of the lease. Some of our other leases provide for rent
increases pursuant to a formula based on the consumer price index. While several
of our leases also provide for minimum rents supplemented by additional payments
based on sales derived from the property subject to the lease, such additional
payments were not a material part of our 2003 rental revenues and are not
expected to be a material part of our 2004 rental revenues.
Our policy has been to acquire properties that are subject to existing
long-term leases or to enter into long-term leases with our tenants. Our leases
generally provide the tenant with one or more renewal options.
The following table sets forth scheduled lease expirations of all leases for our
properties as of December 31, 2003 (excluding one vacant property which contains
43,200 square feet):
2004 % of 2004
Approximate Contractual Contractual
Rentable Square Rental Income Rental Income
Year of Lease Number of Expiring Feet Subject to Under Expiring Represented By
Expiration (1) Leases Expiring Leases (2) Leases (3) Expiring Leases
-------------- ------ ------------------- ----------- ----------------
2004 2 288,787 $ 2,247,593 8.25%
2005 3 115,986 808,592 2.97
2006 2 87,897 548,331 2.01
2007 3 33,900 667,676 2.45
2008 3 520,272 1,847,600 6.78
2009 2 100,248 394,595 1.45
2010 3 412,000 445,617 1.63
2011 3 193,428 1,768,814 6.49
2012 0 - - 0.00
2013 and thereafter 34 1,898,537 18,520,280 67.97
-- --------- ----------- -----
Total 55 3,651,055 $27,249,098 100.00%
== ========= =========== =======
(1) Lease expirations assume tenants do not exercise existing renewal options.
(2) Includes all rentable square footage in properties that are owned by our
joint ventures and our tenancy in common interest.
(3) Contractual rental income includes rental income that is payable to us
during 2004 under existing leases including our share of the rental income
payable to our joint ventures and the rental income payable on our tenancy in
common interest, and does not include rent that we would receive if our one
vacant property is rented.
Our Acquisition Policies
We seek to acquire properties throughout the United States that have
locations, demographics and other investment attributes that we believe to be
attractive. We seek to acquire properties that we believe will provide
attractive current returns from leases with tenants that operate profitably,
even if they are typically either not rated or are rated below investment grade.
We identify properties where we believe that the quality of the underlying real
estate mitigates the risk that may be associated with any default by the tenant.
We identify properties generally through the network of contacts of our
senior management and our affiliates, which includes real estate brokers,
private equity firms, banks and law firms. In addition, we attend industry
conferences and engage in direct solicitations.
There is no limit on the number of properties in which we may invest, the
amount or percentage of our assets that may be invested in any specific property
or property type, or on the concentration of investments in any geographic area
in the United States. We do not intend to acquire properties located outside of
the United States. Although we have not acquired undeveloped property in the
past, we may purchase an undeveloped property if the purchase is in connection
with the development of a facility to be net leased to a retail operation or
business upon completion of development, and we may develop for net lease
surplus acreage that is part of our existing properties. We may continue to form
entities to acquire interests in real properties, either alone or with other
investors, and we may acquire interests in joint ventures or other entities that
own real property.
Financing, Re-Renting and Disposition of Our Properties
There is no limit on the level of debt that we may incur. We borrow funds
on a secured and unsecured basis and intend to continue to do so in the future.
We mortgage specific properties on a non-recourse basis (subject to standard
carve-outs) to enhance the return on our investment in a specific property. On
March 21, 2003, we concluded a $30 million credit line that is a recourse
obligation. The proceeds of mortgage loans and amounts drawn on our credit line
may be used for property acquisitions, investments in joint ventures or other
entities that own real property, to reduce bank debt and for working capital
purposes.
With respect to properties we acquire on a free and clear basis, we
typically seek to obtain long-term fixed-rate mortgage financing shortly after
the acquisition of such property to avoid the risk of movement of interest rates
and fluctuating supply and demand in the mortgage markets. We also will acquire
a property that is subject to a fixed-rate mortgage. Substantially all of our
mortgages provide for amortization of part of the principal balance during the
term, thereby reducing the refinancing risk at maturity. Some of our properties
may be financed on a cross-defaulted or cross-collateralized basis, and we may
collateralize a single financing with more than one property.
After termination or expiration of any lease relating to any of our
properties (either at lease expiration or early termination), we will seek to
re-rent or sell such property in a manner that will maximize the return to us,
considering, among other factors, the income potential and market value of such
property. We acquire properties for long-term investment for income purposes and
do not typically engage in the turnover of investments. We will consider the
sale of a property prior to termination or expiration of the relevant lease if a
sale appears advantageous in view of our investment objectives. We may take a
purchase money mortgage as partial payment in lieu of cash in connection with
any sale and may consider local custom and prevailing market conditions in
negotiating the terms of repayment. It is our policy to use any cash realized
from the sale of properties, net of any distributions to stockholders to
maintain our REIT status, to pay down amounts due under our line of credit
(excluding real estate mortgage loans), if any, and for the acquisition of
additional properties.
Other Types of Investments
From time to time we have invested, on a limited basis, in publicly
traded shares of other REITs and may make such investments on a limited basis in
the future. We also may invest, on a limited basis, in the shares of entities
not involved in real estate investments, provided that no such investment
adversely affects our ability to qualify as a REIT under the Internal Revenue
Code. We do not have any plans to invest in or to originate loans to other
persons whether or not secured by real property. Although we have not done so in
the past, we may issue securities in exchange for properties that fit our
investment criteria. We have not, in the past, invested in the securities of
another entity for the purpose of exercising control, and we do not have any
present plans to invest in the securities of another entity for such purpose.
Competition
We face competition for the acquisition of net leased properties from a
variety of investors including domestic and foreign corporations and real estate
companies, financial institutions, insurance companies, pension funds,
investment funds, other REITs and individuals, some of which have significant
advantages over us including a larger, more diverse group of properties and
greater financial and other resources than we have. We believe that our
management's experience in real estate, mortgage lending, credit underwriting
and transaction structuring allows us to compete effectively for properties.
Risks Related to Our Company
The financial failure of our tenants would be likely to cause significant
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reductions in our revenues and our equity in earnings of unconsolidated joint
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ventures and in the value of our real estate portfolio.
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Substantially all of our revenues are derived from rental income
generated by our properties, and 86.5% of our properties, based on 2004
contractual rental income, are leased to single tenants. Accordingly, the
financial failure or other default of a tenant in non-payment of rent or
property-related expenses or the termination of a lease would cause a
significant reduction in our revenues. Additionally, approximately 46.7% and
51.8% of our total revenues (excluding revenues from our movie theater and other
joint ventures) for the years ended December 31, 2003 and December 31, 2002,
respectively, were derived from retail tenants and approximately 38.7% of our
2004 contractual rental income will be derived from retail tenants. In addition,
we anticipate that significant revenues will be realized in 2004 by our two
movie theater joint ventures. Weakening of economic conditions in the retail or
theater industries could result in the financial failure, or other default, of a
significant number of our tenants. Two of our former retail tenants filed for
protection under the federal bankruptcy laws. A 43,200 square feet building,
that was rented by one of the bankrupt tenants, has been vacant since February,
2003. With respect to the other property, our tenant had entered into a sublease
with an unrelated party which has continued to occupy the property and pay its
monthly rent to us. In March 2004, one of our retail tenants that leases a
property directly from us and a property from one of our joint ventures filed
for protection under the federal bankruptcy laws, and we do not know, as of this
date, if the leases, or either of them, will be rejected or assumed. It is
possible that other tenants could file for protection under federal bankruptcy
laws or state insolvency proceedings or could face similar difficulties in the
future. In the event of a default by a tenant, we may experience delays in
enforcing our rights as landlord and sustain a loss of revenues and substantial
costs in protecting our investment. We may also face liabilities arising from
the tenant's actions or omissions that would reduce our revenues and the value
of our portfolio. Also, if we are unable to re-rent any property when the
existing lease terminates, for an extended period of time, we would receive no
revenues from such property and could experience a decline in the value of the
property.
A significant portion of our revenues and/or our 2004 contractual rental income
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is derived from four tenants. The default, financial distress or failure of any
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of these tenants could significantly reduce our revenues.
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GE Medical Systems Information Technologies, Inc., L-3 Communications
Corp. and Barnes & Noble, Inc. (a tenant at three separate properties) accounted
for approximately 10.2%, 8.8% and 7.4%, respectively, of our total revenues
(excluding revenues from our movie theater and other joint ventures) for the
year ended December 31, 2003 and account for 7.8%, 5.8% and 5.1%, respectively,
of our 2004 contractual rental income. Regal Cinemas, Inc., a tenant at four
theaters owned by our movie theater joint ventures, accounted for 45.1% of the
total revenues of our two movie theater joint ventures for the year ended
December 31, 2003 and accounts for 9.2% of our 2004 contractual rental income.
Contractual rental income for 2004 includes rental income that is payable to us
during the year ended December 31, 2004 under existing leases from all
properties owned by us on December 31, 2003, including our share of the rental
income payable to our joint ventures and the rental income payable on our
tenancy in common interest. The default, financial distress or bankruptcy of any
of these tenants could cause interruptions in the receipt or the loss of a
significant amount of rental income and result in the vacancy of the property
occupied by the defaulting tenant, which would significantly reduce our rental
income and net income until the property is re-rented, and could decrease the
ultimate sale value of the property.
GE Medical Systems Information Technologies, Inc., has exercised its
right under its lease with us to cancel the lease effective December 20, 2004.
We are presently in discussions with GE Medical Systems Information
Technologies, Inc. to lease to them up to 90,000 square feet of space in the
188,567 square foot facility, and we have entered into an exclusive agreement
with a national real estate brokerage firm to lease the property. There are no
assurances that we will re-let the space soon after the effective date of the
termination by GE Medical Systems or if re-let, in whole or in part, that we
will receive rent comparable to the rent we are currently receiving for the
space. If we are unable to rent at least a significant amount of the space
occupied by GE Medical Systems when the lease terminates on December 20, 2004,
we will receive little or no revenues from the asset until the property is
re-rented, and we will have to pay the property's operating expenses, such as
real estate taxes and insurance, all of which could result in a decline in the
value of the property.
The inability to repay our indebtedness could reduce cash available for
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distributions and cause losses.
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As of December 31, 2003, we had outstanding approximately $106.1 million
in long-term mortgage indebtedness, all of which is non-recourse (subject to
standard carve-outs). As of December 31, 2003, our ratio of debt to total assets
was approximately 41%. In addition, at December 31, 2003, our movie theater
joint ventures had approximately $59.6 million in long-term mortgage
indebtedness outstanding secured by nine megaplex theaters. The risks associated
with our debt include the risk that our cash flow will be insufficient to meet
required payments of principal and interest. Further, if a property or
properties are mortgaged to collateralize payment of indebtedness and we are
unable to make mortgage payments on the secured indebtedness, the lender could
foreclose upon the property or properties resulting in a loss of revenues to us
and a decline in the value of our portfolio. Even with respect to non-recourse
indebtedness, the lender may have the right to recover deficiencies from us
under certain circumstances that could result in a reduction in the amount of
cash available to meet expenses and to make distributions to our stockholders
and in a deterioration of our financial condition.
If we are unable to refinance our borrowings at maturity at favorable
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rates or otherwise raise funds, our net income may decline or we may be forced
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to sell properties on disadvantageous terms, which would result in the loss of
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revenues and in a decline in the value of our portfolio.
- --------------------------------------------------------
Only a small portion of the principal of our mortgage indebtedness will
be repaid prior to maturity and we do not plan to retain sufficient cash to
repay such indebtedness at maturity. Accordingly, in order to meet these
obligations, we will have to use funds available under our credit line, if any,
to refinance debt or seek to raise funds through the financing of unencumbered
properties, sale of properties or sale of additional equity. Between January,
2004 and December 31, 2007, we will have to refinance an aggregate of
approximately $14 million of maturing debt, of which nothing will have to be
refinanced in 2004 and approximately $8.2 million will have to be refinanced in
2005. We can give no assurance that we will be able to refinance this debt or
arrange additional debt financing on unencumbered properties on terms as
favorable as the terms of existing indebtedness, or at all. If prevailing
interest rates or other factors at the time of refinancing result in interest
rates higher than the interest rates we are paying, our interest expense would
increase, which would adversely affect our net income, financial condition and
the amount of cash available to make distributions to stockholders. If we are
not successful in refinancing our existing indebtedness or financing our
unencumbered properties, selling properties on favorable terms or selling
additional equity, our cash flow will not be sufficient to repay all maturing
debt when payments become due, and we may be forced to dispose of properties on
disadvantageous terms, which would result in the loss of revenues and in a
decline in the value of our portfolio.
Increased borrowings could result in increased risk of default on our repayment
- --------------------------------------------------------------------------------
obligations and increased debt service requirements.
- ----------------------------------------------------
Our governing instruments do not contain any limitation on the amount of
indebtedness we may incur. Accordingly, increased leverage could result in
increased risk of default on our payment obligations related to borrowings and
in an increase in debt service requirements which would reduce our net income
and the amount of cash available to meet expenses and to make distributions to
holders of our common stock.
If we are unable to re-rent properties upon the expiration of our leases, it
- ----------------------------------------------------------------------------
could adversely affect our revenues and ability to make distributions and could
- -------------------------------------------------------------------------------
reduce the value of our portfolio.
- ----------------------------------
Substantially all of our revenues are derived from rental income paid by
tenants at our properties. We cannot predict whether current tenants will renew
their leases upon the expiration of their terms. In addition, we cannot predict
whether current tenants will attempt to terminate their leases, or whether
defaults by tenants may result in termination of their leases prior to the
expiration of their current terms. If tenants terminate or fail to renew their
leases, or if leases terminate due to defaults, we may not be able to locate
qualified replacement tenants and, as a result, we would lose a source of
revenues while remaining responsible for the payment of our mortgage obligations
and the expenses related to the properties, including real estate taxes. Even if
tenants decide to renew their leases or we find replacement tenants, the terms
of renewals or new leases, including the cost of required renovations or
concessions to tenants, or the expense of reconfiguration of a single tenancy
property for use by multiple tenants, may be less favorable than current lease
terms and could reduce the amount of cash available to meet expenses and to make
distributions to holders of our common stock.
As described above, GE Medical Systems, the tenant at a 188,567 square
foot facility, has exercised the cancellation option contained in its lease with
us effective December 20, 2004. If a significant portion of the facility is not
re-rented, we will lose the revenues attributable to the property and will be
responsible for the property operating expenses (the property is not subject to
a mortgage). Although we are negotiating with the current tenant regarding the
rental of up to 48% of the space for a term up to five years, consummation of a
lease with the current tenant may require a reconfiguration and renovation of
the property. There is no assurance a new lease will be consummated with the
current tenant (or any other tenant) and we cannot estimate the cost of the
reconfiguration and renovation, which could be substantial.
Uninsured and underinsured losses may affect the revenues generated by, the
- ---------------------------------------------------------------------------
value of, and the return from, a property affected by a casualty or other claim.
- -------------------------------------------------------------------------------
Substantially all of our tenants obtain, for our benefit, comprehensive
insurance covering our properties in amounts that are intended to be sufficient
to provide for the replacement of the improvements at each property. However,
the amount of insurance coverage maintained for any property may not be
sufficient to pay the full replacement cost of the improvements at the property
following a casualty event. In addition, the rent loss coverage under the policy
may not extend for the full period of time that a tenant may be entitled to a
rent abatement as a result of, or that may be required to complete restoration
following, a casualty event. In addition, there are certain types of losses,
such as those arising from earthquakes, floods, hurricanes and terrorist
attacks, that may be uninsurable or that may not be economically insurable.
Changes in zoning, building codes and ordinances, environmental considerations
and other factors also may make it impossible or impracticable for us to use
insurance proceeds to replace damaged or destroyed improvements at a property.
If restoration is not or cannot be completed to the extent, or within a period
of time, specified in certain of our leases, the tenant may have the right to
terminate the lease. If any of these or similar events occur, it may reduce our
revenues, or the value of, or our return from, an affected property.
Our revenues and the value of our portfolio are affected by a number of factors
- -------------------------------------------------------------------------------
that affect investments in real estate generally.
- -------------------------------------------------
We are subject to the general risks of investing in real estate. These
include adverse changes in economic conditions and local conditions such as
changing demographics, retailing trends and traffic patterns, declines in the
rental rates we are able to obtain, changes in the supply and price of quality
properties and the market supply and demand of competing properties, the impact
of environmental laws, security concerns, prepayment penalties applicable under
mortgage financing, changes in tax, zoning, building code, fire safety and other
laws, the type of insurance coverages available in the market, and changes in
the type, capacity and sophistication of building systems. Any of these
conditions could have an adverse effect on our results of operations, liquidity
and financial condition.
Our revenues and the value of our portfolio are affected by a number of factors
- -------------------------------------------------------------------------------
that affect investments in leased real estate generally.
- --------------------------------------------------------
We are subject to the general risks of investing in leased real estate.
These include the non-performance of lease obligations by tenants, improvements
that will be costly or difficult to remove should it become necessary to re-rent
the leased space for other uses, covenants in certain retail leases that limit
the types of tenants to which available space can be rented (which may limit
demand or reduce the rents realized on re-renting), rights of termination of
leases due to events of casualty or condemnation affecting the leased space or
the property or due to interruption of the tenant's quiet enjoyment of the
leased premises, and obligations of a landlord to restore the leased premises or
the property following events of casualty or condemnation. Any of these
conditions could have an adverse impact on our results of operations, liquidity
and financial condition.
Our real estate investments are relatively illiquid and their values may
- ------------------------------------------------------------------------
decline.
- --------
Real estate investments are relatively illiquid. Therefore, we will be
limited in our ability to reconfigure our real estate portfolio in response to
economic changes. We may encounter difficulty in disposing of properties when
tenants vacate either at the expiration of the applicable lease or otherwise. If
we decide to sell any of our properties, our ability to sell these properties
and the prices we receive on their sale will be affected by the number of
potential buyers, the number of competing properties on the market and other
market conditions, as well as whether the property is leased and if it is
leased, the terms of the lease. As a result, we may be unable to sell our
properties for an extended period of time without incurring a loss, which would
adversely affect our results of operations, liquidity and financial condition.
The concentration of our properties in certain geographic areas may make our
- ----------------------------------------------------------------------------
revenues and the value of our portfolio vulnerable to adverse changes in local
- ------------------------------------------------------------------------------
economic conditions.
- --------------------
We do not have specific limitations on the total percentage of our real
estate properties that may be located in any one area. Consequently, properties
that we own may be located in the same or a limited number of geographic
regions. Approximately 46.2% of our total revenues (excluding revenues from our
movie theater and other joint ventures) for the year ended December 31, 2003
were, and approximately 46% of our 2004 contractual rental income will be,
derived from properties located in New York and Texas. As a result, a decline in
the economic conditions in these geographic regions, or in geographic regions
where our properties may be concentrated in the future, may have an adverse
effect on the rental and occupancy rates for, and the property values of, these
properties, which could lead to a reduction in our revenues and in the value of
these properties.
Our inability to control our joint ventures could result in diversion of time
- -----------------------------------------------------------------------------
and effort by our management and the inability to achieve the goals of the joint
- --------------------------------------------------------------------------------
venture agreement or the tenancy in common agreement.
- -----------------------------------------------------
We presently are a venturer in four joint ventures which own 12
properties and we own 50% of another property as tenant in common with a group
of investors pursuant to a tenancy in common agreement. The four joint venture
investments represent an equity investment of $24.4 million by us and the
tenancy in common interest represents an equity investment of $3.7 million by
us. These investments may involve risks not otherwise present in investments
made solely by us, including that our co-investors may have different interests
or goals than we do, or that our co-investors may not be able or willing to take
an action that is desired by us. Disagreements with or among our co-investors
could result in substantial diversion of time and effort by our management team
and the inability to successfully acquire, operate, finance, lease or sell
properties as intended by our joint venture agreements or tenancy in common
agreement. In addition, since there is no limitation under our organizational
documents as to the amount of funds that may be invested in joint ventures or
tenancies in common, we may invest a significant amount of our funds into joint
ventures or tenancy in common positions which ultimately may not be profitable
as a result of disagreements with or among our co-investors.
Our joint venture agreements and tenancy in common agreement contain provisions
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related to the transfer of our interest, resolution of disputes and future
- --------------------------------------------------------------------------
capital contributions that could limit our ability to liquidate our interest or
- -------------------------------------------------------------------------------
adversely affect the value of our investments.
- ----------------------------------------------
The joint venture agreements entered into for each of our ventures generally
provide that we cannot finance or transfer our interest in the venture without
the consent of the other venturers. If we are unable to obtain the consent of
our co-venturers to a proposed financing or transfer of our interest, we may be
unable to dispose of such interest on favorable terms. The tenancy in common
agreement provides each party with a right of first refusal in the event the
other party decides to transfer its tenancy in common interest. The right of
first refusal may make it more difficult for us to sell our interest in the
property. In addition the tenancy in common agreement requires the consent of
the other party to a proposed financing of the property. Our joint venture
agreements and tenancy in common agreement also contain provisions governing
disputes that could obligate us to acquire the interest of co-investors on
unfavorable terms or without adequate time to obtain satisfactory financing or
force us to sell our interest on terms that may be disadvantageous. In addition,
if we fail to contribute any additional capital that we are required to
contribute in the future to any of these investments, our interest may be
reduced disproportionately, or a co-investor may elect to fund our portion of
the capital contribution, which would result in that a co-investor acquiring a
preferred rate of return and a right to receive interest on the amount of such
contribution. The occurrence of any of these events would adversely affect the
value of our investment.
Competition in the real estate business is intense and could reduce our revenues
- --------------------------------------------------------------------------------
and harm our business.
- ----------------------
We compete for real estate investments with all types of investors,
including domestic and foreign corporations and real estate companies, financial
institutions, insurance companies, pension funds, investment funds, other REITs
and individuals. Many of these competitors have significant advantages over us,
including a larger, more diverse group of properties and greater financial and
other resources. Our failure to compete successfully with these competitors
could result in our inability to identify and acquire valuable properties and to
achieve our growth objectives.
Compliance with environmental regulations and associated costs could adversely
- ------------------------------------------------------------------------------
affect our liquidity.
- ---------------------
Under various federal, state and local laws, ordinances and regulations,
an owner or operator of real property may be required to investigate and clean
up hazardous or toxic substances or petroleum product releases at the property
and may be held liable to a governmental entity or to third parties for property
damage and for investigation and cleanup costs incurred in connection with
contamination. The cost of investigation, remediation or removal of hazardous or
toxic substances may be substantial, and the presence of such substances, or the
failure to properly remediate a property, may adversely affect our ability to
sell or rent the property or to borrow money using the property as collateral.
In connection with our ownership, operation and management of real properties,
we may be considered an owner or operator of the properties and, therefore,
potentially liable for removal or remediation costs, as well as certain other
related costs, including governmental fines and liability for injuries to
persons and property, not only with respect to properties we own now or may
acquire, but also with respect to properties we have owned in the past.
We cannot provide any assurance that existing environmental studies with
respect to any of our properties reveal all potential environmental liabilities,
that any prior owner of a property did not create any material environmental
condition not known to us, or that a material environmental condition does not
otherwise exist, or may not exist in the future, as to any one or more of our
properties. If a material environmental condition does in fact exist, or exists
in the future, it could have a material adverse impact upon our results of
operations, liquidity and financial condition.
Our senior management and other key personnel are critical to our business and
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our future success depends on our ability to retain them.
- ---------------------------------------------------------
We depend on the services of Fredric H. Gould, chairman of our board of
directors, Jeffrey Fishman, our president and chief executive officer, and other
members of our senior management to carry out our business and investment
strategies. Only two officers, Mr. Fishman and Lawrence G. Ricketts, Jr., our
vice president, acquisitions, devote substantially all of their business time to
our company. The remainder of our management personnel share their services on a
part-time basis with entities affiliated with us and located in the same
executive offices. In addition, Messrs. Fishman and Ricketts devote a limited
amount of their business time to entities affiliated with us. As we expand, we
will continue to need to attract and retain qualified senior management and
other key personnel, both on a full-time, as well as on a shared basis. The loss
of the services of any of our senior management or other key personnel, or our
inability to recruit and retain qualified personnel in the future, could impair
our ability to carry out our business and investment strategies.
Our transactions with affiliated entities involve conflicts of interest.
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We have entered into a number of transactions with persons and entities
affiliated with us and with certain of our officers and directors and we intend
to enter into transactions with such persons in the future. Although our policy
is to insure that we receive terms in transactions with affiliates that are at
least as favorable to us as similar transactions we would enter into with
unaffiliated persons, these transactions raise the potential that we may not
receive terms as favorable as those that we would receive if the transactions
were entered into with unaffiliated entities.
We are required by certain of our net lease agreements to pay property related
- ------------------------------------------------------------------------------
expenses that are not the obligations of our tenants.
- -----------------------------------------------------
Under the terms of substantially all of our net lease agreements, in
addition to satisfying their rent obligations, our tenants are responsible for
the payment of real estate taxes, insurance and ordinary maintenance and
repairs. However, in the case of certain leases, we may pay some expenses, such
as the costs of environmental liabilities, structural repairs, insurance and
certain non-structural repairs and repairs and maintenance. If our properties
incur significant expenses that must be paid by us under the terms of our lease
agreements, our business, financial condition and results of operations will be
adversely affected and the amount of cash available to meet expenses and to make
distributions to holders of our common stock may be reduced.
Compliance with the Americans with Disabilities Act could be costly.
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Under the Americans with Disabilities Act of 1990, all public
accommodations must meet federal requirements for access and use by disabled
persons. A determination that our properties do not comply with the Americans
with Disabilities Act could result in liability for both governmental fines and
damages. If we are required to make unanticipated major modifications to any of
our properties to comply with the Americans with Disabilities Act, which are
determined not to be the responsibility of our tenants, we could incur
unanticipated expenses that could have an adverse impact upon our results of
operations, liquidity and financial condition.
We cannot assure you of our ability to pay dividends in the future.
- -------------------------------------------------------------------
We intend to pay quarterly dividends and to make distributions to our
stockholders in amounts such that all or substantially all of our taxable income
in each year, subject to certain adjustments, is distributed. This, along with
other factors, should enable us to quality for the tax benefits accorded to a
REIT under the Internal Revenue Code. We have not established a minimum dividend
payment level and our ability to pay dividends may be adversely affected by the
risk factors described in this Annual Report. All distributions will be made at
the discretion of our board of directors and will depend on our earnings, our
financial condition, maintenance of our REIT status and such other factors as
our board of directors may deem relevant from time to time. We cannot assure you
that we will be able to pay dividends in the future.
Risks Related to the REIT Industry
Failure to qualify as a REIT would result in a material adverse tax consequences
- --------------------------------------------------------------------------------
and would significantly reduce cash available for distributions.
- ----------------------------------------------------------------
We believe that we operate so as to qualify as a REIT under the Internal
Revenue Code of 1986, as amended. Qualification as a REIT involves the
application of technical and complex legal provisions for which there are
limited judicial and administrative interpretations. The determination of
various factual matters and circumstances not entirely within our control may
affect our ability to qualify as a REIT. In addition, no assurance can be given
that legislation, new regulations, administrative interpretations or court
decisions will not significantly change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of such
qualification. If we fail to quality as a REIT, we will be subject to federal,
state and local income tax (including any applicable alternative minimum tax) on
our taxable income at regular corporate rates and would not be allowed a
deduction in computing our taxable income for amounts distributed to
stockholders. In addition, unless entitled to relief under certain statutory
provisions, we would be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification is lost. The
additional tax would reduce significantly our net income and the cash available
for distributions to stockholders.
We are subject to certain distribution requirements that may result in our
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having to borrow funds at unfavorable rates.
- --------------------------------------------
To obtain the favorable tax treatment associated with being a REIT, we
generally will be required, among other things, to distribute to our
stockholders at least 90% of our ordinary taxable income (subject to certain
adjustments) each year. To the extent that we satisfy the distribution
requirements, but distribute less than 100% of our taxable income we will be
subject to federal corporate tax on our undistributed taxable income. In
addition, we will be subject to a 4% nondeductible excise tax on the amount, if
any, by which certain distributions paid by us with respect to any calendar year
are less than the sum of 85% of our ordinary income, 95% of our capital gain net
income and 100% of our undistributed income from prior years.
As a result of differences in timing between the receipt of income and
the payment of expenses, and the inclusion of such income and the deduction of
such expenses in arriving at taxable income, and the effect of nondeductible
capital expenditures, the creation of reserves and the timing of required debt
service (including amortization) payments, we may need to borrow funds on a
short-term basis in order to make the distributions necessary to retain the tax
benefits associated with qualifying as a REIT, even if we believe that then
prevailing market conditions are not generally favorable for such borrowings.
Such borrowings could reduce our net income and the cash available for
distributions to holders of our common stock.
Compliance with REIT requirements may hinder our ability to maximize profits.
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In order to qualify as a REIT for federal income tax purposes, we must
continually satisfy tests concerning among other things, our sources of income,
the amounts we distribute to our stockholders and the ownership of our stock. We
may also be required to make distributions to stockholders at disadvantageous
times or when we do not have funds readily available for distribution.
Accordingly, compliance with REIT requirements may hinder our ability to operate
solely on the basis of maximizing profits.
In order to qualify as a REIT, we must also ensure that at the end of
each calendar quarter, at least 75% of the value of our assets consists of cash,
cash items, government securities and qualified REIT real estate assets. Any
investment in securities cannot include more than 10% of the outstanding voting
securities of any one issuer or more than 10% of the total value of the
outstanding securities of any one issuer. In addition, no more than 5% of the
value of our assets can consist of the securities of any one issuer, other than
a qualified REIT security. If we fail to comply with these requirements, we must
dispose of a portion of our assets within 30 days after the end of the calendar
quarter in order to avoid losing our REIT status and suffering adverse tax
consequences. This requirement could cause us to dispose of assets for
consideration of less than their true value and could lead to a material adverse
impact on our results of operations and financial condition.
Executive Officers
The following sets forth information with respect to our executive officers:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Fredric H. Gould 68 Chairman of the Board *
Jeffrey Fishman 45 President and Chief Executive
Officer
Jeffrey A. Gould 38 Senior Vice President *
Matthew J. Gould 44 Senior Vice President*
Israel Rosenzweig 56 Senior Vice President
Simeon Brinberg 70 Senior Vice President **
David W. Kalish 57 Senior Vice President and
Chief Financial Officer
Mark H. Lundy 41 Vice President and Secretary **
Seth D. Kobay 49 Vice President and Treasurer
Karen Dunleavy 45 Vice President, Financial
Lawrence G. Ricketts, Jr. 27 Vice President, Acquisitions
* Matthew J. Gould and Jeffrey A. Gould are Fredric H. Gould's sons.
** Mark H. Lundy is Simeon Brinberg's son-in-law.
Fredric H. Gould. Mr. Gould has served as Chairman of the Board of One Liberty
Properties since 1989 and as Chief Executive Officer from December, 1999 to
December 31, 2001. 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 from 1996 to December 31, 2001. Since 1985 Mr. Gould
has been an executive officer (currently Chairman of the Board) of the managing
general partner of Gould Investors L.P., a limited partnership primarily engaged
in the ownership and operation of real properties and he serves as sole member
of a limited liability company which is the other general partner of Gould
Investors L.P. He is President of the advisor to BRT Realty Trust and a director
of EastGroup Properties, Inc. EastGroup Properties, Inc. is a real estate
investment trust that focuses on ownership of industrial properties in major
sunbelt markets throughout the United States.
Jeffrey Fishman. Mr. Fishman was President and Chief Operating Officer of One
Liberty Properties from December, 1999 until December, 2001 and has been
President and Chief Executive Officer since January 1, 2002. From 1996 to
December 1999, Mr. Fishman was a Senior Managing Director of Cogswell
Properties, LLC, a real estate property owner and manager. For more than five
years prior to 1996, he was President of Britannia Management Services, Inc., a
real estate property owner and manager.
Jeffrey A. Gould. Mr. Gould has been a Vice President of One Liberty Properties
since 1989 and a Senior Vice President and Director since December, 1999. He was
President and Chief Operating Officer of BRT Realty Trust from March 1996 to
December 2001 and has been President and Chief Executive Officer of BRT Realty
Trust since January 1, 2002. Mr. Gould has served as a Trustee of BRT Realty
Trust since March 1997. He is also a Senior Vice President of the managing
general partner of Gould Investors L.P. since 1996.
Matthew J. Gould. Mr. Gould served as President and Chief Executive Officer of
One Liberty Properties from 1989 to December, 1999 and became a Senior Vice
President and Director of One Liberty Properties in December 1999. He has served
as President of the managing general partner of Gould Investors L.P. since 1996.
He has been a Vice President of BRT Realty Trust since 1986, a Trustee of BRT
from March, 2001 to March, 2004, and he serves as a Vice President of the
advisor to BRT Realty Trust.
Israel Rosenzweig. Mr. Rosenzweig has been a Senior Vice President of One
Liberty Properties since June, 1997 and a Senior Vice President of BRT Realty
Trust since March 1998. He has been a Vice President of the managing general
partner of Gould Investors L.P. since May 1997 and President of GP Partners,
Inc., a sub-advisor to a registered investment advisor, since 2000.
Simeon Brinberg. Mr. Brinberg has served as a Senior Vice President of One
Liberty Properties since 1989. He has been Secretary of BRT Realty Trust since
1983, a Senior Vice President of BRT Realty Trust since 1988 and a Vice
President of the managing general partner of Gould Investors L.P. since 1988.
Mr. Brinberg is an attorney-at-law, a member of the bar of New York.
David W. Kalish. Mr. Kalish has served as Senior Vice President and Chief
Financial Officer of One Liberty Properties since June 1990. Mr. Kalish is
also Senior Vice President, Finance of BRT Realty Trust and Vice President
and Chief Financial Officer of the managing general partner of Gould Investors
L.P. Mr. Kalish is a certified public accountant.
Mark H. Lundy. In addition to being Secretary of One Liberty Properties since
June 1993 and a Vice President since June 2000, Mr. Lundy has been a Vice
President of BRT Realty Trust since April 1993 and a Vice President of the
managing general partner of Gould Investors L.P. since July 1990. He is an
attorney-at-law, a member of the bars of New York and District of Columbia.
Seth D. Kobay. Mr. Kobay has been Vice President and Treasurer of One Liberty
Properties since August 1994. He has been Vice President and Treasurer of BRT
Realty Trust since March 1994 and Vice President of Operations of the managing
general partner of Gould Investors L.P. since 1986. Mr. Kobay is a certified
public accountant.
Karen Dunleavy. Ms. Dunleavy has been Vice President, Financial of One Liberty
Properties since August 1994. She has served as Treasurer of the managing
general partner of Gould Investors L.P. since 1986. Ms. Dunleavy is a
certified public accountant.
Lawrence G. Ricketts, Jr. Mr. Ricketts has been Vice President, Acquisitions
of One Liberty Properties since December 1999 and has been employed by One
Liberty Properties, Inc. since January 1999.
Item 2. Properties
As of December 31, 2003, we owned 36 properties, participated in four
joint ventures that owned a total of 12 properties and held a 50% tenancy in
common interest in one property. The following table sets forth information as
of December 31, 2003 concerning each property in which we currently own an
equity interest and the operator of the business occupying the property (which
is not necessarily the same enterprise as the actual tenant). Except as
otherwise noted, we own 100% of each property:
Percentage Approx.
of 2004 Building
Type of Contractual Rental Square
Location Property Operator Income (1) Feet
- -------- -------- -------- ---------- ----
Jupiter, FL Flex GE Medical Systems Information Technologies Inc. 7.80% 188,567
Hauppauge, NY Flex L-3 Communications Corporation 5.85 149,870
El Paso, TX Retail Barnes & Noble, Inc.; Best Buy, Inc.; CompUSA,
Inc.; Mattress Firm 5.44 110,179
Hanover, PA Industrial The ESAB Group, Inc. 4.98 458,560
Plano, TX Retail Robb & Stucky, Ltd. 4.60 112,389
Los Angeles, CA Office Playboy Entertainment Group, Inc. (2) 4.10 106,262
Brooklyn, NY Office The City of New York 4.05 66,000
Columbus, OH Retail Kittle's Home Furnishing Center, Inc. 3.24 96,924
Plano, TX Retail Golfsmith; Franchisee of Bassett Furniture 3.13 51,018
Morrow, GA Theater American Multi-Cinema, Inc. (3) 2.91 88,000
Norwalk, CA Theater American Multi-Cinema, Inc. (3) 2.90 80,000
Austell, GA Theater Regal Cinemas, Inc. (3) 2.60 88,660
Ronkonkoma, NY Flex Cedar Graphics, Inc.; Gavin Mfg. 2.57 89,500
Live Oak, TX Theater Regal Cinemas, Inc. (3) 2.46 81,836
Lake Charles, LA Retail Office Max, Inc.; Party City Corporation;
PetsMart, Inc. 2.40 54,229
Tucker, GA Health &
Fitness LA Fitness International, LLC 2.37 58,800
Manhattan, NY Residential Sanford Realty Associates, Inc. 2.35 125,000
Brooklyn, NY Theater Pritchard Square Cinema LLC (3) 2.13 33,120
Beavercreek, OH Theater Regal Cinemas, Inc. (3) 2.11 75,149
Henrietta, NY Theater Regal Cinemas, Inc. (3) 2.02 76,315
Ft. Myers, FL Retail Barnes & Noble, Inc. 1.88 29,993
Grand Rapids, MI Health &
Fitness Trinity Health Michigan 1.85 130,000
Newark, DE Retail OfficeMax, Inc. 1.85 23,547
Roanoke, VA Theater Consolidated Theaters Holdings, G.P. (3) 1.84 51,222
Chattanooga, TN Retail Rhodes, Inc. 1.65 72,897
Atlanta, GA Retail The Sports Authority, Inc. 1.65 50,400
Lubbock, TX Theater Cinemark USA, Inc. (3) 1.57 60,732
Greenwood Village, CO Retail Gart Bros. Sporting Goods Company 1.55 45,000
Champaign, IL Retail Barnes & Noble, Inc. 1.48 50,530
Lewisville, TX Retail Footstar, Inc. 1.43 21,043
Melville, NY Industrial Airborne Express, Inc. 1.42 51,351
Mesquite, TX Retail Franchisee of Bassett Furniture 1.41 22,900
Selden, NY Retail Petco, Inc. 1.20 14,550
Grand Rapids, MI Health &
Fitness Trinity Health - Michigan 1.04 72,000
Batavia, NY Retail OfficeMax, Inc. .96 23,483
Somerville, MA Retail Walgreen Co. .92 12,054
Houston, TX Retail Party City Corporation .79 12,000
New Hyde Park, NY Industrial Lawson Mardon USA Inc. .74 89,000
Cedar Rapids, IA Retail Ultimate Electronics, Inc. .66 15,400
Shreveport, LA Retail Footstar, Inc. (3) .66 17,108
Killeen, TX Retail Hollywood Entertainment Corp. .60 8,000
Miami, FL Industrial United States Cold Storage Inc. (3) .57 396,000
Houston, TX Retail Kroger Company .55 38,448
Rosenberg, TX Retail Hollywood Entertainment Corp. .47 8,000
Columbus, OH Industrial Kroger Company .45 100,220
West Palm Beach, FL Industrial BellSouth Telecommunications .38 10,361
Monroe, NY Theater Monroe Pavilion LLC (3) .22 31,400
Seattle, WA Retail Payless Shoesource, Inc. .20 3,038
Hamilton, NY Retail Vacant .00 43,200
--- -----------
Total: 100.00% 3,694,255
======= ===========
(1) Percentage of our 2004 contractual rental income payable to us pursuant
to existing leases.
(2) An undivided 50% interest is owned by us as tenant in common with an
unrelated entity. Percentage of contractual rental income indicated
represents our share of the rental income. Approximate square footage
indicated represents the total rentable square footage of the property.
(3) Owned by a joint venture in which we are a venture partner. Percentage
of contractual rental income indicated represents our share of the
rental income of the venture. Approximate square footage indicated
represents the total rentable square footage of the property owned by
the venture.
The occupancy rate for our properties, based on total rentable square
footage was approximately 99% as of December 31, 2003, and for each of 2002 and
2001.
Our properties are located in 17 states. The following table sets forth
certain information, presented by state, related to our properties as of
December 31, 2003.
Number of 2004 Contractual Approximate Building
State Properties Rental Income (1) Square Feet
----- ---------- ----------------- -----------
New York 12 $6,401,250 792,789 (2)
Texas 11 6,120,596 526,545 (3)
Florida 4 2,896,501 624,921(4)
Georgia 4 2,596,530 285,860(5)
Ohio 3 1,579,764 272,293(6)
California 2 1,906,833 186,262(7)
Pennsylvania 1 1,358,519 458,560
Other 12 4,389,105 547,025(8)
-- ---------- -------
Total: 49 $27,249,098 3,694,255
== =========== =========
-------------------
(1) Reflects 2004 contractual rental income including our share of
the rental income payable to our joint ventures and the rental
income on our tenancy in common interest, and does not include
rent that we would receive if our one vacant property is
rented.
(2) Includes the entire 140,835 rentable square footage of
three properties that are owned by a joint venture.
(3) Includes the entire 142,568 rentable square footage
of two properties that are owned by a joint venture.
(4) Includes the entire 396,000 rentable square footage of one
property that is owned by a joint venture.
(5) Includes the entire 176,660 rentable square footage of
two properties that are owned by a joint venture.
(6) Includes the entire 75,149 rentable square footage of one
property that is owned by a joint venture.
(7) Includes the entire 80,000 rentable square footage of one
property that is owned by a joint venture.
(8) Includes the entire 68,330 rentable square footage of two
properties that are owned by a joint venture.
At December 31, 2003, we had first mortgages on 27 of the 37
properties we owned as of that date (including our 50% tenancy in
common interest and excluding properties owned by our joint ventures).
At December 31, 2003, we had $106.1 million principal amount of
mortgages outstanding, bearing interest at rates ranging from 5.125% to
8.8%. Substantially all mortgages contain prepayment penalties. The
following table sets forth scheduled principal mortgage payments due
for our properties as of December 31, 2003 (assuming no payment is made
on principal on any outstanding mortgage in advance of its due date):
PRINCIPAL PAYMENTS DUE
YEAR IN YEAR INDICATED
---- (Amounts in Thousands)
----------------------
2004 $ 2,070
2005 10,433
2006 7,938
2007 6,171
2008 6,569
2009 and thereafter 72,952
--------
Total $106,133
========
Significant Properties
- ----------------------
As of December 31, 2003, no property owned by us had a book value equal
to or greater than 10% of our total assets. Only the Jupiter, Florida property
leased to GE Medical Systems Information Technologies, Inc. ("GE Medical
Systems") had revenues in the year ending December 31, 2003 which accounted for
more than 10% of our aggregate annual gross revenues. The property accounted for
10.2% of our revenues in the year ended December 31, 2003, contributed 9% to our
2003 contractual rental income and will contribute 7.8% to our 2004 contractual
rental income. GE Medical Systems has cancelled its lease effective as of
December 20, 2004. Contractual rental income includes rental income from all
properties owned 100% by us and our share of the rental income from our joint
ventures and the rental income on our tenancy in common interest. Under
generally accepted accounting principles gross revenues does not include our
share of revenues from our joint ventures. The following sets forth the
information concerning the Jupiter, Florida property.
Jupiter, Florida Property
- -------------------------
Description of Jupiter, Florida Property
- ----------------------------------------
The Jupiter, Florida Property, owned in fee, was constructed in 1990 and
acquired by us in December, 2002. It is located at 100 Marquette Drive, Jupiter,
Florida. The Jupiter, Florida Property, a 16 acre parcel, is improved with a
188,567 square foot flex building. The property is adequate for its current use
and there are no current plans in place for renovation or improvement to the
property. However, as described below, GE Medical Systems, the current tenant,
has exercised its right to cancel the lease effective December 20, 2004 and upon
termination of such lease there may be a need to reconfigure and/or renovate the
property for occupancy by other tenants.
Description of Lease
- --------------------
The existing building on the property is occupied by GE Medical Systems
under a lease which had an initial term expiring December 20, 2009. However, the
tenant has the right under the lease to cancel the lease during the initial term
on not less than 12 months notice. The tenant has exercised such right and has
cancelled the lease effective December 20, 2004. The lease provides for a base
rent of $2,126,093 per annum in 2004. The tenant is responsible to keep the
interior of the premises in good condition and repair and the landlord is
responsible to keep the structural elements of the building, the mechanical,
electrical and plumbing systems, the common areas, the roof, the exterior
windows and the elevators in good repair and working order. The tenant utilizes
the facility for offices, light manufacturing and storage. We are currently in
discussions with GE Medical Systems to lease up to 90,000 square feet of space
for a term of up to five years but there is no assurance that a lease will be
concluded or if concluded, that it will be on terms favorable to us.
The tenant is responsible for all real estate taxes and assessments on
all or any portion of the property. The realty tax rate for this property is
$21.0287 per $1,000 of assessed value and the 2003 annual real estate taxes were
$245,844. The tenant is also responsible for maintaining, at its expense,
casualty insurance covering the building and in management's judgment the
property is adequately protected by insurance.
Mortgage
- --------
No mortgage has been placed on this property and the property is owned
free and clear by us.
Item 3. Legal Proceedings
-----------------
Neither we nor our properties are presently subject to any material
litigation in which we are defendant nor, to our knowledge, is any material
litigation threatened against us or our properties, other than routine
litigation arising in the ordinary course of business, which collectively are
not expected to have a material adverse effect on our business, financial
condition or results of operations.
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 our Common
Stock as reported by the American Stock Exchange (effective January 15, 2004 our
Common Stock was listed on the New York Stock Exchange) and the per share cash
distributions paid on our Common Stock during each quarter of the years ended
December 31, 2003 and 2002.
DISTRIBUTIONS
2003 HIGH LOW PER SHARE
---- ---- --- ---------
First Quarter $17.50 $15.21 $.33
Second Quarter $18.75 $16.55 $.33
Third Quarter $19.20 $16.90 $.33
Fourth Quarter $20.05 $18.25 $.33 *
2002
----
First Quarter $17.00 $14.60 $.33
Second Quarter $17.50 $14.90 $.33
Third Quarter $15.30 $13.50 $.33
Fourth Quarter $15.47 $14.30 $.33 *
* A cash distribution of $.33 was paid on the Common Stock on January 1, 2004
and January 2, 2003. For tax purposes, a portion of the distributions paid in
January 2004 and January 2003 are considered as being paid in the fourth quarter
of 2003 and 2002, respectively.
The Common Stock traded on the American Stock Exchange, under the symbol
OLP, through January 14, 2004. Commencing on January 15, 2004 the Common Stock
trades on the New York Stock Exchange. As of March 5, 2004 there were 369 common
stockholders of record and we estimate that at such date there were
approximately 3,000 beneficial owners of the Common Stock.
On December 30, 2003, we completed the redemption of all of our
outstanding $16.50 convertible preferred stock. Of the 648,058 shares of
preferred stock outstanding, 509,185 shares were redeemed for a total
consideration of $8,402,000 and 138,873 shares of preferred stock were converted
into 114,539 shares of common stock. The conversion ratio was .825 of a share of
common for each share of preferred stock converted.
We qualify as a real estate investment trust for federal income tax
purposes. In order to maintain that status, we are required to distribute to our
shareholders at least 90% of our annual ordinary taxable income. The amount and
timing of future distributions will be at the discretion of the Board of
Directors and will depend upon the financial condition, earnings, business plan,
cash flow and other factors. We intend to pay cash distributions in an amount at
least equal to that necessary for us to maintain our status as a real estate
investment trust for federal income tax purposes.
Equity Compensation Plan Information
- ------------------------------------
The following table provides information as of December 31, 2003
with respect to shares of Common Stock that may be issued under the One Liberty
Properties, Inc. 1996 Stock Option Plan and the One Liberty Properties, Inc.
2003 Incentive Plan:
Number of
Securities
Remaining
Available-for
Number of Future
Securities Issuance Under
to be Issued Weighted- Equity
Upon Exercise Average Compensation
of Outstanding Exercise Price Plans (Excluding
Options, of Outstanding Securities
Warrants and Options, Warrants Reflected in
Rights and Rights Column(a))
------ ---------- ----------
(a) (b) (c)
Equity compensation
plans approved by
security holders 68,688 $11.95 248,650
Equity compensation - - -
plans not approved
by security holders ------ ------ -------
Total 68,688 $11.95 248,650
====== ====== =======
Item 6. Selected Financial Data
The following table sets forth the selected consolidated statement of operations
data for each of the periods indicated, all of which are derived from our
audited consolidated financial statements and related notes. The selected
financial data for each of the three years in the period ended December 31, 2003
and as of December 31, 2002 and 2003 should be read together with our
consolidated financial statements and related notes appearing elsewhere in this
Annual Report on Form 10-K and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
As of and for the Year Ended
December 31
(Amounts in Thousands, Except Per Share Data)
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
OPERATING DATA
- --------------
Revenues $19,796 $15,705 $15,237 $12,669 $10,180
Earnings before equity in earnings of unconsolidated
joint ventures and gain on sale 6,100 4,813 4,671 4,142 4,753
Equity in earnings of unconsolidated joint ventures 2,411 1,078 83 - -
Net gain (loss) on sale of real estate and gain on
sale of available-for-sale securities 14 (11) 112 3,790 126
Net income 8,525 5,880 4,866 7,932 4,879
Calculation of net income
applicable to common stockholders (Note a):
Net income 8,525 5,880 4,866 7,932 4,879
Less: dividends and accretion on preferred stock 1,037 1,037 1,037 1,044 1,247
Net income applicable to common stockholders $7,488 $4,843 $3,829 $6,888 $ 3,632
Weighted average number of common
shares outstanding:
Basic 6,329 4,614 3,019 2,993 2,960
Diluted 6,361 4,644 3,036 3,528 2,963
Net income per common share:
Basic $1.18 $1.05 $1.27 $2.30 $1.23
Diluted $1.18 $1.04 $1.26 $2.25 $1.23
Cash distributions per share of:
Common Stock $1.32 $1.32 $1.20 $1.20 $1.20
Preferred Stock (Note a) $1.60 $1.60 $1.60 $1.60 $1.60
BALANCE SHEET DATA
- ------------------
Real estate investments, net $177,316 $140,437 $118,564 $121,620 $70,770
Investment in unconsolidated joint ventures 24,441 23,453 6,345 - -
Cash and cash equivalents 45,944 2,624 2,285 2,069 11,247
Total assets 259,089 179,609 132,939 128,219 85,949
Mortgages payable 106,133 77,367 76,587 64,123 35,735
Line of credit - 10,000 - 10,000 -
Total liabilities 113,120 90,915 78,591 74,843 36,147
Total stockholders' equity 145,969 88,694 54,348 53,376 49,802
OTHER DATA
- ----------
Funds from operations applicable to
common stockholders (Note b) $11,776 $7,757 $6,303 $5,324 $5,127
Funds from operations per common share:
Basic $1.86 $1.68 $2.09 $1.78 $1.73
Diluted $1.85 $1.67 $2.08 $1.78 $1.73
Cash flow provided by (used in):
Operating activities $11,606 $8,344 $6,764 $5,840 $5,826
Investing activities (18,614) (48,056) (5,702) (39,324) (10,743)
Financing activities 50,328 40,051 (846) 24,306 (2,926)
Note a: On December 30, 2003, we completed the redemption of all of our
outstanding preferred stock.
Note b: We consider funds from operations ("FFO") as defined by the
National Association of Real Estate Investment Trusts ("NAREIT") to be an
appropriate, but limited, supplemental disclosure of operating performance for
an equity REIT. FFO does not represent cash generated from operations as defined
by GAAP and is not indicative of cash available to fund all cash needs,
including distributions. It should not be considered as an alternative to net
income for the purpose of evaluating our performance or to cash flows as a
measure of liquidity.
NAREIT defines FFO as net income (computed in accordance with GAAP),
excluding gains (or losses) from sales of property, plus real estate related
depreciation and amortization (including amortization of deferred leasing costs,
but excluding amortization of financing costs) and after adjustments for
unconsolidated partnerships and joint ventures. Effective January 1, 2000,
NAREIT clarified the definition of FFO to include non-recurring events except
those that are defined as "extraordinary items" under GAAP.
The table below provides a reconciliation of net income in accordance
with GAAP to FFO, as calculated under the current NAREIT definition of FFO, for
each of the years in the five year period ended December 31, 2003.
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Net income $ 8,525 $5,880 $ 4,866 $ 7,932 $ 4,879
Add: depreciation of properties 3,473 2,617 2,584 2,113 1,478
Add: our share of depreciation in unconsolidated
joint ventures 790 268 16 - -
Add: amortization of deferred leasing costs 39 - - - -
Add: provision for valuation adjustment of real estate - - - 125 -
Deduct: (gain) loss on sale of real estate (14) 29 (126) (3,802) (62)
Deduct: preferred distributions (1,037) (1,037) (1,037) (1,044) (1,168)
------- ------- ------- ------- -------
Funds from operations applicable to common stockholders $11,776 $7,757 $ 6,303 $ 5,324 $ 5,127
======= ====== ======= ======= =======
Item 7. Management's Discussion And Analysis Of Financial Condition And Results
- -------------------------------------------------------------------------------
Of Operations.
- --------------
General
- -------
We are a self-administered REIT and we primarily own real estate that we
net lease to tenants. As of December 31, 2003, we owned 36 properties,
participated in four joint ventures that owned a total of 12 properties and held
a 50% tenancy in common interest in one property. These 49 properties are
located in 17 states.
We have elected to be taxed as a REIT under the Internal Revenue Code. To
qualify as a REIT, we must meet a number of organizational and operational
requirements, including a requirement that we currently distribute at least 90%
of ordinary taxable income to our stockholders. We intend to comply with these
requirements and to maintain our REIT status.
Our principal business strategy is to acquire improved, commercial
properties subject to long-term net leases. We acquire properties for their
value as long-term investments and for their ability to generate income over an
extended period of time. We borrow funds on a secured and unsecured basis to
finance the purchase of real estate and we intend to continue to do so in the
future.
Our rental properties are generally leased to corporate tenants under
operating leases, substantially all of which are noncancellable. Substantially
all of our lease agreements are net lease arrangements that require the tenant
to pay not only rent, but also substantially all of the operating expenses of
the leased property including maintenance, taxes, utilities and insurance. A
majority of our lease agreements provide for periodic rental increases and
certain of our other leases provide for increases based on the consumer price
index.
During the year ended December 31, 2003, we purchased five single tenant
properties (including our purchase of one tenancy in common interest) in five
states, for a total consideration of $35,389,000. We assumed pre-existing first
mortgages aggregating $15,121,000 on three of these properties. An aggregate of
$16,500,000 of first mortgage financing was completed with respect to the other
two acquisitions, one of which represents a $14,000,000 mortgage loan secured by
the property owned by us and another investor as tenants in common.
We are a venturer in two joint ventures organized for the purpose of
acquiring and owning megaplex stadium-style movie theaters. We own a 50% equity
interest in each of these ventures with the same co-venturer. These joint
ventures have acquired one partial stadium-style theater, one stadium-style
theater under construction, and eight megaplex stadium-style movie theaters for
a total consideration of approximately $100 million. Our equity investment in
these ventures at December 31, 2003 was $21.2 million, net of distributions from
the joint ventures.
In February 2002, we contributed our leasehold interest in an industrial
property in Miami, Florida to a joint venture with the owners of the fee estate
in that property in exchange for an approximately 36% interest in the joint
venture. In December 2002, we invested $2.4 million for a 50% interest in a
joint venture which owns a free standing retail property located in Shreveport,
Louisiana.
At December 31, 2003, excluding mortgages payable of our unconsolidated
joint ventures, we had 27 outstanding mortgages payable, aggregating $106.1
million in principal amount, all of which are secured by first liens on
individual real estate investments with an aggregate carrying value of
approximately $158 million before accumulated depreciation. The mortgages bear
interest at fixed rates ranging from 5.125% to 8.8%, and mature between 2005 and
2023.
Results of Operations
- ---------------------
Outlook
- -------
In May, 2002 and in October and November 2003 we completed two public
offerings resulting in net proceeds to us of approximately $35 million and $64.5
million, respectively. A major portion of the net proceeds from the May 2002
offering was applied to acquire, both directly by us and through joint ventures,
five properties. These acquisitions contributed to a 29.6% increase in rental
income and a 45% increase in net income in fiscal 2003. Through December 31,
2003 we had used $22.4 million of the net proceeds from the 2003 offering ($8.4
million to redeem our preferred stock and $14 million to pay down our credit
line) and at December 31, 2003 we had approximately $46 million of cash and cash
equivalents available plus $30 million available under our credit line. In 2004,
we anticipate that we will use our available cash and our credit line to acquire
additional properties, either directly or through joint ventures. As a result,
we will own more properties and unless we experience an unusual number of lease
terminations and/or cancellations in 2004 (taking into consideration the lease
expirations and terminations that we know will occur in 2004, and without giving
effect to any re-letting of such properties), we anticipate that our revenues
and possibly our net income will increase in 2004 and 2005.
Comparison of Years Ended December 31, 2003 and December 31, 2002.
- ------------------------------------------------------------------
Revenues
- --------
Our revenues consist primarily of rental income from tenants in our
rental properties. Rental income increased by $4.4 million, or 29.6%, to $19.3
million for the year ended December 31, 2003 from $14.9 million for the year
ended December 31, 2002. The increase in rental income is due to $4.6 million of
rental income earned on eight properties acquired by us between September 2002
and September 2003, offset to the extent of $124,000 due to the vacancy of one
of our retail properties.
Interest and other income decreased by $314,000, or 38%, to $512,000 for
the year ended December 31, 2003 from $826,000 for the year ended December 31,
2002. The primary reason for the decrease was the receipt in the year ended
December 31, 2002 of non-recurring net acquisition fees from our movie theater
joint ventures of $268,000, compared to $5,000 of such fees in the year ended
December 31, 2003, and the receipt in 2002 of other non-recurring income of
$73,000. We also experienced a $106,000 decrease in interest income in the year
ended December 31, 2003 due to the investment in cash equivalents and treasury
bills of the balance of the net proceeds received from our May 2002 public
offering, a significant portion of which was utilized for property acquisitions
by December 31, 2002. The net proceeds from our October 2003 public offering
were invested for the two months remaining in fiscal 2003. Offsetting these
decreases in interest and other income was a $125,000 increase in the year ended
December 31, 2003 in interest earned on short-term mortgages receivable which
were acquired or originated by us to facilitate acquisitions.
Our equity in earnings of unconsolidated joint ventures increased by $1.3
million, or 124%, to $2.4 million for the year ended December 31, 2003 from $1.1
million for the year ended December 31, 2002. The increase is due to the
purchase of nine movie theaters by our two movie theater joint ventures at
various times between April 2002 and July 2003 and our purchase of an additional
25% interest in one of the movie theater joint ventures on October 3, 2003. The
increase is also due to the purchase of a retail property by another joint
venture in December 2002.
Expenses
- --------
Depreciation and amortization expense increased by $856,000, or 32.7% to
$3.5 million for the year ended December 31, 2003 from $2.6 million for the year
ended December 31, 2002. The increase in depreciation and amortization expense
was primarily due to the acquisition of eight properties between September 2002
and September 2003.
Interest on mortgages payable increased by $642,000, or 10.4%, to $6.8
million for the year ended December 31, 2003 from $6.2 million for the year
ended December 31, 2002 as a result of increased borrowings related to property
acquisitions. This increase resulted from mortgages placed on three properties
in December 2002 and October 2003, the assumption of mortgages in connection
with the purchase of three properties between February 2003 and September 2003
and the refinancing of one property.
Interest-line of credit increased by $489,000 to $564,000 for the year
ended December 31, 2003 from $75,000 for the year ended December 31, 2002. This
increase resulted from increased borrowings under our line of credit to
facilitate the purchase of several properties. The borrowings were repaid with
the proceeds of two mortgage financings and with a portion of the proceeds
received from our public offering in October 2003.
General and administrative expenses increased $528,000, or 31.5%, to $2.2
million for the year ended December 31, 2003 from $1.7 million for the year
ended December 31, 2002. This increase was primarily due to a $311,000 increase
in payroll and payroll expenses in the year ended December 31, 2003, including
an increase of approximately $219,000 for executive and support personnel,
primarily for legal and accounting services, allocated to us pursuant to a
Shared Services Agreement between us and related entities. This increase in the
allocated payroll expenses resulted from a significant increase in our level of
business activity, primarily property acquisitions, the negotiation and
consummation of a revolving credit facility, mortgage refinancings, lease
negotiations and corporate governance matters. General and administrative
expenses in 2003 also reflects an increase in direct payroll expenses resulting
from a $25,000 increase in the annual base salary and a $25,000 bonus to our
president and chief executive officer. Also included in the year ended December
31, 2003 is compensation expense of $41,000 relating to the issuance of
restricted stock. The general and administrative expenses for the year ended
December 31, 2002 is net of a $75,000 partial reimbursement from one of our
movie theater joint ventures for legal services allocated to us under the Shared
Services Agreement relating to movie theater acquisitions and mortgage
financing. The balance of the increase in general and administrative expenses
for the year ended December 31, 2003 is due to an increase in a number of items
including professional fees of approximately $62,000 and travel expenses of
approximately $29,000, a major portion of which is related to our property
acquisition activities.
In October and November, 2003, we sold 3.7 million shares of our common
stock (including 487,500 shares subject to the underwriters' over-allotment
option) in a public offering in which we raised approximately $64.5 million.
Allocated payroll and payroll related expenses of $69,000 (primarily for legal
and accounting services resulting from time expended by various executive and
administrative personnel in connection with the preparation and filing of a
shelf registration statement on Form S-3 on September 12, 2003, declared
effective by the SEC on October 2, 2003, and the related prospectus supplement)
have been included in "Public Offering Expenses" for the year ended December 31,
2003. In the year ended December 31, 2002, $125,000 of public offering expenses
were allocated to us in connection with an offering consummated in May 2002
pursuant to which we raised approximately $35 million.
Real estate expenses increased by $369,000, or 212%, to $543,000 for the
year ended December 31, 2003 from $174,000 for the year ended December 31, 2002.
This increase was primarily due to legal fees relating to properties, as well as
utilities and real estate tax expense on our vacant property. Additionally, 2003
includes the amortization of a commission relating to a renegotiated lease,
non-recurring landlord repairs and an increase in insurance expense.
Comparison of Years Ended December 31, 2002 and December 31, 2001.
- ------------------------------------------------------------------
Revenues
- --------
Our revenues consist primarily of rental income from tenants in our
rental properties. In the latter part of 2001 we identified megaplex movie
theaters, particularly stadium-style movie theaters, as an attractive investment
opportunity and made a business judgment to invest in this class of assets with
joint venture partners. Our equity investment in movie theater joint ventures
was $20 million at December 31, 2002, net of distributions from the joint
ventures. In February 2002 we contributed our leasehold position in an
industrial building to a joint venture organized by us with the owners of the
fee estate of the property and in December 2002, we invested $2.4 million in a
joint venture which owns one free standing retail property.
Investments by us in 2002 in joint venture activities, particularly in
the movie theater joint ventures, rather than solely in properties owned by us,
and the contribution of our leasehold position in an industrial property to a
joint venture, were the major reasons for a decrease in rental income of
$174,000, or 1%, to $14.9 million for the year ended December 31, 2002 from
$15.1 million for the year ended December 31, 2001. Rental income also decreased
as a result of the sale of three retail properties and the vacancy of two retail
properties in 2002. R