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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, 2004
-----------------
Or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number 001-09279
ONE LIBERTY PROPERTIES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 13-3147497
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
60 Cutter Mill Road, Great Neck, New York 11021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 466-3100
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange
Title of each class on which registered
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Common Stock, par value $1.00 New York Stock Exchange
per share
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark 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, 2004 (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
$138.8 million.
As of March 2, 2005, the aggregate market value of all common equity
held by non-affiliates of the registrant was approximately $146.7 million.
As of March 2, 2005, the registrant had 9,793,240 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 30, 2005, 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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We maintain a website at www.onelibertyproperties.com. Our annual
reports on Form 10-K, our quarterly reports on Form 10-Q and our periodic
reports on Form 8-K (and any amendments to these reports) are available free of
charge on our website as soon as reasonably practical after we file these
reports with the Securities and Exchange Commission (SEC).
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, health and fitness and
other properties, a substantial portion of which are under long-term leases.
Substantially all of our leases are "net leases", under which the tenant is
typically responsible for real estate taxes, insurance and ordinary maintenance
and repairs. As of January 31, 2005, we owned 46 properties, participated in six
joint ventures that owned a total of 14 properties and held a 50% tenancy in
common interest in one property. Our properties are located in 23 states and
have an aggregate of approximately 5.4 million square feet of space (including
all space for properties in which we have a joint venture participation, our
tenancy in common interest and five properties that we acquired in one
transaction in January 2005).
Under the terms of our current leases, our 2005 contractual rental
income will be approximately $34.8 million. Our 2005 contractual rental income
includes rental income that is payable to us during 2005 for properties owned at
December 31, 2004, our share of the rental income payable to our joint ventures,
rental income payable on our tenancy in common interest and rental income that
is payable to us during 2005 for the five properties acquired in January 2005,
but does not include rent that we would receive if any of our vacancies are
rented. On December 31, 2004, the occupancy rate of our property portfolio is
approximately 98% based on square footage. The weighted average remaining term
of the leases in our portfolio is 11.8 years based on our 2005 contractual
rental income.
We acquire our properties by balancing 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 and the return that will be realized on our
investment in a property. Most of our retail tenants operate on a national basis
and include, among others, Barnes & Noble, Inc., Walgreen Co., The Sports
Authority, Inc., Best Buy Co., Inc., OfficeMax Inc., Party City Corporation,
Circuit City Stores, Inc., Petco Animal Supplies, Inc. and CarMax Auto
Superstores, 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 82% of our 2005
contractual rental income expire after 2010, and leases representing
approximately 56% of our 2005 contractual rental income expire after
2014; and
o Scheduled rent increases. Leases representing approximately 81% of our
2005 contractual rental income provide for either scheduled rent
increases or periodic contractual rent increases based on the consumer
price index.
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, 2004 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 and financial 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 Business Objectives and Growth Strategy
- -------------------------------------------
Our business objective is to maintain and increase the cash available
for distribution to our stockholders by:
o acquiring a diversified portfolio of net leased properties subject to
long-term leases;
o obtaining mortgage indebtedness on favorable terms and increasing
access to capital to finance property acquisitions; and
o managing assets effectively through property acquisitions, lease
extensions and opportunistic property sales.
Our growth strategy includes the following elements:
o to maintain, renew and enter into new long-term leases that contain
provisions for contractual rent increases;
o to acquire additional properties within the United States that are
subject to long-term net leases and that satisfy our other investment
criteria; and
o to acquire properties in market or industry sectors that we identify,
from time to time, as offering superior risk-adjusted returns.
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 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 a 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 intend to hold the properties we acquire for an extended
period of time. Our investment criteria are intended to identify properties from
which increased asset value and overall return can be realized from an extended
period of ownership. Accordingly, we 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 the current and projected cash flow of the property;
o the estimated return on equity to us;
o local demographics (population and rental trends);
o the ability of the tenant to meet operational needs and lease obligations;
o the terms of tenant leases, including the relationship between current rents
and market rents;
o the projected residual value of the property;
o potential for income and capital appreciation; and
o occupancy of and demand for similar properties in the market area.
Our Tenants
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The following table shows information about the diversification of our
tenants and the tenants of our joint ventures by industry sector as of January
31, 2005:
Percentage of
Type of Number of 2005 Contractual 2005 Contractual
Property Tenants Rental Income (1) Rental Income
- -------- -------- ----------------- -------------
Retail 37 $13,537,168 38.8%
Flex 4 3,917,566 11.2
Industrial 8 4,822,388 13.8
Movie Theater 11 8,067,492 23.2
Health & Fitness 3 1,591,644 4.6
Office 2 2,254,693 6.5
Residential 1 650,000 1.9
-- ----------- -----
TOTAL 66 $34,840,951 100.0%
== =========== =====
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(1) 2005 contractual rental income includes rental income that is payable to
us during 2005 under existing leases, including our share of the rental
income payable to our joint ventures and the rental income payable to us
on our tenancy in common interest, and the rental income payable to us
during 2005 under leases related to five retail properties acquired by us
in January 2005, but does not include rent that we would receive if any
of our vacancies 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 owned as of January 31, 2005,
thirty are net leased to various retail operators under long-term leases and,
except for four of the retail properties, are net leased to single tenants. Of
the four properties net leased to multiple retail operators, one is net leased
to four separate tenants pursuant to separate leases, two are net leased to two
separate tenants pursuant to separate leases and one is net leased to three
separate tenants pursuant to separate leases. Eight 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 twelve movie theaters, including one which was under construction (ten owned
by two joint ventures and two by us). At December 31, 2004, two of our retail
properties, one owned by us and representing 21,043 square feet and one owned by
a venture in which we have a 50% economic interest and representing 17,108
square feet, were vacant. One of our properties, which contains 189,146 square
feet of flex space, has 78,042 square feet which is vacant. One of our retail
properties, containing 38,448 square feet of space, is subject to a lease that
will terminate March 31, 2005. One of the tenants that occupies 74,500 square
feet of space at one of our flex properties (which contains 89,500 square feet
of space) is subject to a lease which will terminate December 31, 2005. No
assurance can be given that we will find tenants for any of these vacancies.
Movie Theater Joint Ventures
- ----------------------------
At December 31, 2004, we owned a 50% equity interest, with the same
venturer, in two joint ventures that own movie theaters in which we had
approximately $21.4 million invested. At December 31, 2004 these joint ventures
owned ten movie theater properties currently having a total of 163 screens.
Eight of the movie theaters owned by the joint ventures are megaplex theaters
with stadium-style seating, one movie theater is an "in-town" multi-screen
theater with partial stadium seating and one movie theater property was under
construction. Our joint venture and the future operator of the movie theater
under construction mutually agreed to terminate the lease to this theater and
our joint venture suspended construction while the joint venture seeks another
operator. No assurance can be given that it will find a suitable operator to
lease this theater. 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.
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 the chairman of our board and in
which certain of our executive officers are officers, receives a management fee
equal to 1% of all rents received by the movie theater 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. During the year ended December 31, 2004,
Majestic received an aggregate of $107,000 (representing management fees) from
the movie theater joint ventures.
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) - --- 3.0 -
--- ------
163 $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. The
operator assigned its interest in this property to ADM Cinema Corporation
effective February 11, 2005.
(3) A five screen theater with stadium style seating was under construction. The
lease with the former operator was terminated by mutual agreement and
construction suspended while our joint venture seeks another operator.
Our Leases
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Substantially all of our leases are net leases (including the leases
entered into by our joint ventures) under which the tenant, in addition to its
rental obligation, typically is responsible for expenses attributable to the
operation of the property, such as real estate taxes and assessments, water and
sewer rents and other charges. The tenant is also generally responsible for
maintaining the property, including non-structural repairs, and for restoration
following a casualty or partial condemnation. The tenant is typically obligated
to indemnify us for claims arising from the property and is responsible for
maintaining insurance coverage for the property it leases. Under some net
leases, we are responsible for structural repairs, including foundation and
slab, roof repair or replacement and restoration following a casualty event, and
at several properties we are responsible for certain expenses related to the
operation and maintenance of the property.
Our typical lease provides for contractual rent increases periodically
throughout the term of the lease. Some of our other leases provide for rent
increases pursuant to a formula based on the consumer price index. While some of
our leases also provide for minimum rents supplemented by additional payments
based on sales derived from the property subject to the lease, such additional
payments were not a material part of our 2004 rental revenues and are not
expected to be a material part of our 2005 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 January 31, 2005 (excluding two vacant properties which contain
a total of 38,151 square feet of space, a 78,042 square foot vacancy at a
property which contains 189,146 square feet of space and a partially constructed
movie theater):
2005 % of 2005
Approximate Contractual Contractual
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
-------------- ------ --------------- ---------- ----------------
2005 2 112,948 $ 640,447 1.8%
2006 2 87,897 548,335 1.6
2007 1 12,000 216,000 .6
2008 3 520,272 1,850,996 5.3
2009 4 311,572 2,500,113 7.2
2010 4 415,038 504,312 1.5
2011 3 193,428 1,789,476 5.1
2012 - - - -
2013 4 94,942 1,333,263 3.8
2014 and thereafter 43 3,554,199 25,458,009 73.1
-- --------- ----------- ----
Total 66 5,302,296 $34,840,951 100.0%
== ========= =========== ======
(1) Lease expirations assume tenants do not exercise existing renewal options.
(2) Includes all 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 2005 under existing leases, our share of the rental income payable to our
joint ventures, the rental income payable on our tenancy in common interest, and
the rental income that is payable to us during 2005 for the five properties
acquired in January 2005, but does not include rent that we would receive if any
of our vacancies are 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 our tenants 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. 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. We
maintain a $62.5 million revolving credit line that is a full recourse
obligation. The proceeds of mortgage loans and amounts drawn on our credit line
may be used for property acquisitions, investments in joint ventures or other
entities that own real property, to reduce bank debt and for working capital
purposes.
With respect to properties we acquire on a free and clear basis, we
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 of 1986, as amended. We do not have any plans to invest in or to originate
loans to other persons whether or not secured by real property. Although we have
not done so in the past, we may issue securities in exchange for properties that
fit our investment criteria. We have not, 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 88% of our properties, based on 2005
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 could cause a
significant reduction in our revenues. Additionally, approximately 48% of our
total revenues (excluding revenues from our movie theater and other joint
ventures) for the year ended December 31, 2004 was derived from retail tenants
and approximately 39% of our 2005 contractual rental income will be derived from
retail tenants. We also anticipate that significant revenues will be realized in
2005 by our two movie theater joint ventures. Weakening economic conditions in
the retail or theater industries could result in the financial failure, or other
default, of a significant number of our tenants and tenants of our joint
ventures. One of our former retail tenants filed for protection under the
federal bankruptcy laws in March 2004. A 21,043 square foot building owned by us
and a 17,108 square foot building owned by a joint venture in which we have a
50% economic interest, both of which were leased to this bankrupt tenant, have
been vacant since June 2004. In November 2004 and January 2005 two other retail
tenants, each of which leases a property from us, filed for protection under the
federal bankruptcy laws and we do not know, as of this date, if either lease
will be assumed or rejected. Pending this determination, the tenants have paid
the monthly rent since the month following their bankruptcy filing on a current
basis. 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 an existing lease terminates, 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 2005 contractual rental income
- -------------------------------------------------------------------------------
is derived from four tenants. The default, financial distress or failure of any
- -------------------------------------------------------------------------------
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 8.5%, 6.8% and 5.7%, respectively, of our total revenues
(excluding revenues from our movie theater and other joint ventures) for the
year ended December 31, 2004 and account for 4.5%, 4.7% and 4.1%, respectively,
of our 2005 contractual rental income. Regal Cinemas, Inc., a tenant at four
theaters owned by our movie theater joint ventures and one theater owned
directly by us, accounted for 3.9% of our total revenues and 48.9% of the total
revenues of our two movie theater joint ventures for the year ended December 31,
2004 and accounts for 10.7% of our 2005 contractual rental income. Contractual
rental income for 2005 includes rental income that is payable to us during the
year ended December 31, 2005 under existing leases from all properties owned by
us on December 31, 2004, our share of the rental income payable to our joint
ventures and the rental income payable on our tenancy in common interest, plus
the rental income that is payable to us during the year ended December 31, 2005
from five properties acquired in January 2005. 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. (GE) exercised its
right under its lease with us to terminate its lease effective December 20,
2004. Prior to the date of cancellation, we entered into a new lease with GE
pursuant to which GE leased 111,104 square feet of space in the 189,146 square
foot facility, and we have entered into an exclusive agreement with a national
real estate brokerage firm to lease the balance of the space at the property.
The lease with GE is for a five year term and we will expend approximately
$500,000 in tenant improvements to segregate and improve the property for GE's
occupancy.
The inability to repay our indebtedness could reduce cash available for
- -----------------------------------------------------------------------
distributions and cause losses.
- -------------------------------
As of December 31, 2004, we had outstanding approximately $124 million in
long-term mortgage indebtedness, all of which is non-recourse (subject to
standard carve-outs). As of December 31, 2004, our ratio of mortgage debt to
total assets was approximately 44%. In addition, at December 31, 2004, our movie
theater joint ventures had approximately $58 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 rates or
- ------------------------------------------------------------------------------
otherwise raise funds, our net income may decline or we may be forced to sell
- -----------------------------------------------------------------------------
properties on disadvantageous terms, which would result in the loss of revenues
- -------------------------------------------------------------------------------
and in a decline in the value of our portfolio.
- -----------------------------------------------
Only a small portion of the principal of our mortgage indebtedness 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
2005 and December 31, 2008, we will have to refinance an aggregate of
approximately $18.5 million of maturing debt, of which approximately $8.2 will
have to be refinanced in 2005 and approximately $2.3 million will have to be
refinanced in 2006. 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 for distribution 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.
As of December 31, 2004, we had approximately $7.6 million outstanding on
our revolving credit facility. The facility is guaranteed by all of our
subsidiaries which own unencumbered properties and the shares of stock of all
other subsidiaries are pledged as collateral. The risks associated with our
revolving credit facility include the risk that our cash flow will be
insufficient to meet required payments of interest. Also we may be unable to
negotiate a new facility at the maturity date and also may be unable to pay off
the amount then outstanding. This could result in a reduction in the amount of
cash available to meet expenses and to make distributions to holders of our
common stock.
Increased borrowings could result in increased risk of default on our repayment
- -------------------------------------------------------------------------------
obligations and increased debt service requirements.
- ----------------------------------------------------
Our governing 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, (including
taking advantage of provisions of the federal bankruptcy laws), or whether
defaults by tenants may result in termination of their leases prior to the
expiration of their current terms. If tenants terminate or fail to renew their
leases, or if leases terminate due to defaults or in the course of a bankruptcy
proceeding, we may not be able to locate qualified replacement tenants and, as a
result, we would lose a source of revenue while remaining responsible for the
payment of our mortgage obligations and the expenses related to the properties,
including real estate taxes. Even if tenants decide to renew their leases or we
find replacement tenants, the terms of renewals or new leases, including the
cost of required renovations or concessions to tenants, or the expense of
reconfiguration of a single tenancy property for use by multiple tenants, may be
less favorable than current lease terms and could reduce the amount of cash
available to meet expenses and to make distributions to holders of our common
stock.
Uninsured and underinsured losses may affect the revenues generated by, the
- ---------------------------------------------------------------------------
value of, and the return from, a property affected by a casualty or other claim.
- --------------------------------------------------------------------------------
Substantially all of our tenants obtain, for our benefit, comprehensive
insurance covering our properties in amounts that are intended to be sufficient
to provide for the replacement of the improvements at each property. However,
the amount of insurance coverage maintained for any property may not be
sufficient to pay the full replacement cost of the improvements at the property
following a casualty event. In addition, the rent loss coverage under the policy
may not extend for the full period of time that a tenant may be entitled to a
rent abatement as a result of, or that may be required to complete restoration
following, a casualty event. In addition, there are certain types of losses,
such as those arising from earthquakes, floods, hurricanes and terrorist
attacks, that may be uninsurable or that may not be economically insurable.
Changes in zoning, building codes and ordinances, environmental considerations
and other factors also may make it impossible or impracticable for us to use
insurance proceeds to replace damaged or destroyed improvements at a property.
If restoration is not or cannot be completed to the extent, or within the period
of time specified in certain of our leases, the tenant may have the right to
terminate the lease. If any of these or similar events occur, it may reduce our
revenues, or the value of, or our return from, an affected property.
Our revenues and the value of our portfolio are affected by a number of factors
- -------------------------------------------------------------------------------
that affect investments in real estate generally.
- -------------------------------------------------
We are subject to the general risks of investing in real estate. These
include adverse changes in economic conditions and local conditions such as
changing demographics, retailing trends and traffic patterns, declines in the
rental rates 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 may be affected by many factors,
including the number of potential buyers, the number of competing properties on
the market and other market conditions, as well as whether the property is
leased and if it is leased, the terms of the lease. As a result, we may be
unable to sell our properties for an extended period of time without incurring a
loss, which would adversely affect our results of operations, liquidity and
financial condition.
The concentration of our properties in certain geographic areas may make our
- ----------------------------------------------------------------------------
revenues and the value of our portfolio vulnerable to adverse changes in local
- ------------------------------------------------------------------------------
economic conditions.
- --------------------
We do not have specific limitations on the total percentage of our real
estate properties that may be located in any one area. Consequently, properties
that we own may be located in the same or a limited number of geographic
regions. Approximately 43.3% of our total revenues (excluding revenues from our
movie theater and other joint ventures) for the year ended December 31, 2004
were, and approximately 34.7% of our 2005 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 or the tenancy in common.
- ---------------------------------
We presently are a venturer in six joint ventures which own 14 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 six joint venture investments
represent an equity investment of $37 million by us and the tenancy in common
interest represents an equity investment of approximately $4 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 of the joint venture or the tenancy in common to successfully
operate, finance, lease or sell properties as intended by our joint venture
agreements or tenancy in common agreement. In addition, 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
- -------------------------------------------------------------------------------
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 parties 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 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
- ------------------------------------------------------------------------------
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 under a Shared Services Agreement. 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 and
shared basis. The loss of the services of any of our senior management or other
key personnel, or our inability to recruit and retain qualified personnel in the
future, could impair our ability to carry out our business and investment
strategies.
Our transactions with affiliated entities involve conflicts of interest.
- ------------------------------------------------------------------------
We have entered into a number of transactions with persons and entities
affiliated with us and with certain of our officers and directors and we intend
to enter into transactions with such persons in the future. In particular,
during the year ended December 31, 2004, Majestic Property Management Corp., a
company owned by our Chairman of the Board and in which certain of our executive
officers are officers, received an aggregate of $107,000 for management fees
from our movie theater joint ventures. In addition, we paid Majestic $253,000
for mortgage brokerage, sales commission, management and supervisory fees during
2004. 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.
- --------------------------------------------------------------------
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 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. 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 are required, among other things, to distribute to our stockholders at
least 90% of our ordinary taxable income (subject to certain adjustments) each
year. To the extent that we satisfy these distribution requirements, but
distribute less than 100% of our taxable income we will be subject to federal
corporate tax on our undistributed taxable income. In addition, we will be
subject to a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by us with respect to any calendar year are less than the sum
of 85% of our ordinary income, 95% of our capital gain net income and 100% of
our undistributed income from prior years.
As a result of differences in timing between the receipt of income and
the payment of expenses, and the inclusion of such income and the deduction of
such expenses in arriving at taxable income, and the effect of nondeductible
capital expenditures, the creation of reserves and the timing of required debt
service (including amortization) payments, we may need to borrow funds on a
short-term basis in order to make the distributions necessary to retain the tax
benefits associated with qualifying as a REIT, even if we believe that then
prevailing market conditions are not generally favorable for such borrowings.
Such borrowings could reduce our net income and the cash available for
distributions to holders of our common stock.
Compliance with REIT requirements may hinder our ability to maximize profits.
- -----------------------------------------------------------------------------
In order to qualify as a REIT for federal income tax purposes, we must
continually satisfy tests concerning among other things, our sources of income,
the amounts we distribute to our stockholders and the ownership of our stock. We
may also be required to make distributions to stockholders at disadvantageous
times or when we do not have funds readily available for distribution.
Accordingly, compliance with REIT requirements may hinder our ability to operate
solely on the basis of maximizing profits.
In order to qualify as a REIT, we must also ensure that at the end of
each calendar quarter, at least 75% of the value of our assets consists of cash,
cash items, government securities and qualified REIT real estate assets. Any
investment in securities cannot include more than 10% of the outstanding voting
securities of any one issuer or more than 10% of the total value of the
outstanding securities of any one issuer. In addition, no more than 5% of the
value of our assets can consist of the securities of any one issuer, other than
a qualified REIT security. If we fail to comply with these requirements, we must
dispose of such portion of these securities in excess of these percentages
within 30 days after the end of the calendar quarter in order to avoid losing
our REIT status and suffering adverse tax consequences. This requirement could
cause us to dispose of assets for consideration that is less than their true
value and could lead to a material adverse impact on our results of operations
and financial condition.
Executive Officers
The following sets forth information with respect to our executive officers:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Fredric H. Gould 69 Chairman of the Board *
Jeffrey Fishman 46 President and Chief Executive
Officer
Jeffrey A. Gould 39 Senior Vice President *
Matthew J. Gould 45 Senior Vice President*
Israel Rosenzweig 57 Senior Vice President
Simeon Brinberg 71 Senior Vice President **
David W. Kalish 58 Senior Vice President and
Chief Financial Officer
Mark H. Lundy 42 Vice President and Secretary**
Seth D. Kobay 50 Vice President and Treasurer
Karen Dunleavy 46 Vice President, Financial
Lawrence G. Ricketts, Jr. 28 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 that focuses on mortgage
lending, since 1984 and Chief Executive Officer of BRT Realty Trust from 1996 to
December 31, 2001. Since 1985 Mr. Gould has been an executive officer (currently
Chairman of the Board) of the managing general partner of Gould Investors L.P.,
a limited partnership primarily engaged in the ownership and operation of real
properties, and he serves as sole member of a limited liability company which is
the other general partner of Gould Investors L.P. 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, has served as a
Trustee of BRT since March 1997 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, an attorney-at-law, is 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 has
served as Senior Vice President, Finance of BRT Realty Trust since August
1998 and Vice President and Chief Financial Officer of the managing general
partner of Gould Investors L.P. since June 1990. Mr. Kalish is a certified
public accountant.
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 Senior Vice President of
the managing general partner of Gould Investors L.P. since July 1990. He is an
attorney-at-law and a member of the bars of New York and 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 January 31, 2005, we owned 46 properties, participated in six joint
ventures that owned a total of 14 properties and held a 50% tenancy in common
interest in one property. The following table sets forth information as of
January 31, 2005 concerning each property in which we currently own an equity
interest. Except as otherwise noted, we own 100% of each property. We and our
joint ventures own fee title to each property, except for the movie theater
located in Greensboro, North Carolina in which we own a ground lease as ground
lessee through March 2020 with five options to renew, each for a five year
period.
Percentage
of 2005 Approx.
Type of Contractual Building Square
Location Property Rental Income (1) Feet
- -------- -------- ----------------- ----
Hauppauge, NY Flex 4.69% 149,870
Jupiter, Fl Flex 4.54 189,146
St. Cloud, MN Industrial 4.41 338,000
El Paso, TX Retail 4.27 110,179
Hanover, PA Industrial 3.90 458,560
Plano, TX Retail 3.60 112,389
Greensboro, NC Theater 3.52 60,400
Chula Vista, CA Theater 3.32 60,000
Los Angeles, CA (2) Office 3.30 106,262
Brooklyn, NY Office 3.17 66,000
Knoxville, TN Retail 2.88 35,330
Columbus, OH Retail 2.55 96,924
Plano, TX Retail 2.52 51,018
Morrow, GA (3) Theater 2.27 88,000
Tucker, GA Health & Fitness 2.27 58,800
Norwalk, CA (3) Theater 2.27 80,000
Live Oak, TX (3) Theater 2.07 81,836
Austell, GA (3) Theater 2.03 88,660
Ronkonkoma, NY Flex 2.01 89,500
Lake Charles, LA Retail 1.90 54,229
Manhattan, NY Residential 1.87 125,000
Lincoln, NE (3) Retail 1.73 51,222
Beavercreek, OH (3) Theater 1.73 75,149
Brooklyn, NY (3) Theater 1.62 33,120
Milwaukee, WI (3) Industrial 1.61 927,685
Henrietta, NY (3) Theater 1.58 76,315
Roanoke, VA (3) Theater 1.53 112,260
Columbus, OH Industrial 1.49 100,220
Ft. Myers, FL Retail 1.47 29,993
Grand Rapids, MI Health & Fitness 1.47 130,000
Newark, DE Retail 1.45 23,547
Atlanta, GA Retail 1.41 50,400
Athens, GA Retail 1.30 41,280
Chattanooga, TN Retail 1.29 72,897
Lubbock, TX (3) Theater 1.23 60,732
Greenwood Village, CO Retail 1.21 45,000
Champaign, IL Retail 1.18 50,530
Onalaska, WI Retail 1.15 63,919
Melville, NY Industrial 1.11 51,351
Mesquite, TX Retail 1.10 22,900
Selden, NY Retail .94 14,550
Grand Rapids, MI Health & Fitness .83 72,000
Antioch, TN Retail .83 34,059
Batavia, NY Retail .75 23,483
Somerville, MA Retail .72 12,054
St. Louis, MO Retail .66 30,772
Fairview Hts., IL Retail .64 31,252
Houston, TX Retail .62 12,000
New Hyde Park, NY Industrial .58 89,000
Ferguson, MO Retail .57 32,046
Cedar Rapids, IA Retail .55 15,400
Killeen, TX Retail .47 8,000
Miami, FL (3) Industrial .44 396,000
Florence, KY Retail .43 31,252
Rosenberg, TX Retail .37 8,000
West Palm Beach, FL Industrial .30 10,361
Seattle, WA Retail .17 3,038
Houston, TX Retail .11 38,448
Shreveport, LA (3) Retail - 17,108
Lewisville, TX Retail - 21,043
Monroe, NY (3) Theater - -
------ ---------
Total: 100.00% 5,418,489
====== =========
(1) Percentage of our 2005 contractual rental income payable to us pursuant
to leases as of January 31, 2005.
(2) An undivided 50% interest in this property is owned by us as tenant in
common with an unrelated entity. Percentage of contractual rental
income indicated represents our share of the rental income. Approximate
square footage indicated represents the total rentable square footage
of the property.
(3) This property is 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 joint venture. Approximate square
footage indicated represents the total rentable square footage of the
property owned by the joint venture.
The occupancy rate for our properties, based on total rentable square
footage was approximately 98% as of January 31, 2005 and December 31, 2004 and
approximately 99% as of December 31, 2003.
Our properties are located in 23 states. The following table sets forth certain
information, presented by state, related to our properties as of January 31,
2005.
Number of 2005 Contractual Approximate Building
State Properties Rental Income (1) Square Feet
----- ---------- ----------------- -----------
New York 11 $6,380,414 718,189 (2)
Texas 11 5,696,721 526,545 (3)
Georgia 5 3,235,170 327,140 (4)
Florida 4 2,357,036 625,500 (5)
Ohio 3 2,008,435 272,293 (6)
California 3 3,094,093 246,262 (7)
Tennessee 3 1,745,119 142,286
Other 21 10,323,963 2,560,274 (8)
-- ---------- ----------
Total: 61 $34,840,951 5,418,489
== =========== =========
-------------------
(1) Reflects 2005 contractual rental income including our share of
the rental income payable to our joint ventures, rental income
on our tenancy in common interest and rental income on the
five properties acquired in January 2005 and does not include
rent that we would receive if any of our vacancies are rented.
(2) Includes the entire 109,435 rentable square footage of two
properties that are owned by a joint venture. Does not include
the movie theater owned by one of our joint ventures that was
under construction.
(3) Includes the entire 142,568 rentable square footage of
two properties that are owned by a joint venture.
(4) Includes the entire 176,660 rentable square footage of
two properties that are owned by a joint venture.
(5) Includes the entire 396,000 rentable square footage of one
property that is 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 1,108,275 rentable square footage of four
properties that are owned by a joint venture.
At January 31, 2005, we had first mortgages on 30 of the 47
properties we owned as of that date (including our 50% tenancy in
common interest, but excluding properties owned by our joint ventures).
At January 31, 2005, we had $131.3 million principal amount of
mortgages outstanding, bearing interest at rates ranging from 5.1% 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, 2004 (assumes no payment is made
on principal on any outstanding mortgage in advance of its due date;
the five properties acquired in January 2005 are unencumbered as of the
filing of this Annual Report):
PRINCIPAL PAYMENTS DUE
YEAR IN YEAR INDICATED
---- (Amounts in Thousands)
----------------------
2005 $ 10,796
2006 5,046
2007 6,788
2008 7,227
2009 7,713
2010 and thereafter 86,449
------
Total $124,019
========
As of December 31, 2004, no property owned by us had a book value equal
to or greater than 10% of our total assets and no property owned by us had
revenues in the year ended December 31, 2004 which accounted for more than 10%
of our aggregate annual gross revenues.
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 Annual Report on Form 10-K.
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
-----------------------------------------------------------------
Matters
-------
Since January 15, 2004, our Common Stock has been listed on the New York
Stock Exchange. Prior to January 15, 2004, our Common Stock was listed on the
American Stock Exchange. The following table sets forth the high and low prices
for our Common Stock as reported by the New York Stock Exchange for 2004 and the
American Stock Exchange for 2003 and the per share cash distributions paid on
our Common Stock during each quarter of the years ended December 31, 2004 and
2003.
DISTRIBUTIONS
2004 HIGH LOW PER SHARE
---- ---- --- ---------
First Quarter $24.05 $19.80 $.33
Second Quarter $22.66 $16.30 $.33
Third Quarter $19.20 $17.45 $.33
Fourth Quarter $20.81 $17.98 $.33 *
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 *
* A cash distribution of $.33 was paid on our Common Stock on January 1, 2004
and January 3, 2005.
As of March 3, 2005, there were 367 common stockholders of record and we
estimate that at such date there were approximately 2,800 beneficial owners of
our Common Stock.
We qualify as a REIT for federal income tax purposes. In order to
maintain that status, we are required to distribute to our shareholders at least
90% of our annual ordinary taxable income. The amount and timing of future
distributions will be at the discretion of the Board of Directors and will
depend upon our financial condition, earnings, business plan, cash flow and
other factors. We intend to pay cash distributions in an amount at least equal
to that necessary for us to maintain our status as a real estate investment
trust for federal income tax purposes.
Equity Compensation Plan Information
- ------------------------------------
The following table provides information as of December 31, 2004
with respect to shares of our Common Stock that may be issued under the One
Liberty Properties, Inc. 1996 Stock Option Plan and the One Liberty Properties,
Inc. 2003 Incentive Plan:
Number of
Securities
Remaining
Available for
Number of Future
Securities Issuance Under
to be Issued Weighted- Equity
Upon Exercise Average Compensation
of Outstanding Exercise Price Plans (Excluding
Options, of Outstanding Securities
Warrants and Options, Warrants Reflected in
Rights and Rights Column(a))
------ ---------- ----------
(a) (b) (c)
Equity compensation
plans approved by
security holders 19,500 $11.75 212,950
Equity compensation - - -
plans not approved
by security holders _____ _____ _______
Total 19,500 $11.75 212,950
====== ====== =======
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, 2004
and as of December 31, 2003 and 2004 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)
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
OPERATING DATA
- --------------
Revenues $26,527 $19,796 $15,705 $15,237 $12,669
Earnings before equity in earnings of unconsolidated
joint ventures and gain on sale 8,030 6,100 4,813 4,671 4,142
Equity in earnings of unconsolidated joint ventures 2,869 2,411 1,078 83 -
Net gain (loss) on sale of real estate and gain on
sale of available-for-sale securities 75 14 (11) 112 3,790
Net income 10,974 8,525 5,880 4,866 7,932
Calculation of net income
applicable to common stockholders (Note a):
Net income 10,974 8,525 5,880 4,866 7,932
Less: dividends and accretion on preferred stock - 1,037 1,037 1,037 1,044
Net income applicable to common stockholders $10,974 $7,488 $4,843 $3,829 $6,888
Weighted average number of common
shares outstanding:
Basic 9,728 6,340 4,614 3,019 2,993
Diluted 9,744 6,372 4,644 3,036 3,528
Net income per common share:
Basic $1.13 $1.18 $1.05 $1.27 $2.30
Diluted $1.13 $1.18 $1.04 $1.26 $2.25
Cash distributions per share of:
Common Stock $1.32 $1.32 $1.32 $1.20 $1.20
Preferred Stock (Note a) - $1.60 $1.60 $1.60 $1.60
BALANCE SHEET DATA
- ------------------
Real estate investments, net $228,536 $177,316 $140,437 $118,564 $121,620
Investment in unconsolidated joint ventures 37,023 24,441 23,453 6,345 -
Cash and cash equivalents 6,051 45,944 2,624 2,285 2,069
Total assets 284,386 259,089 179,609 132,939 128,219
Mortgages payable 124,019 106,133 77,367 76,587 64,123
Line of credit 7,600 - 10,000 - 10,000
Total liabilities 138,271 113,120 90,915 78,591 74,843
Total stockholders' equity 146,115 145,969 88,694 54,348 53,376
OTHER DATA
- ----------
Funds from operations applicable to
common stockholders (Note b) $16,789 $11,776 $7,757 $6,303 $5,199
Funds from operations per common share:
Basic $1.73 $1.86 $1.68 $2.09 $1.74
Diluted $1.72 $1.85 $1.67 $2.08 $1.74
Cash flow provided by (used in):
Operating activities $16,363 $11,606 $8,344 $6,764 $5,840
Investing activities (61,577) (18,614) (48,056) (5,702) (39,324)
Financing activities 5,321 50,328 40,051 (846) 24,306
Note a: On December 30, 2003, we redeemed of all of our outstanding
preferred stock.
Note b: We consider funds from operations (FFO) to be a relevant and
meaningful supplemental measure of our performance because it is predicated on a
cash flow analysis, contrasted with net income, a measure predicated by GAAP,
which gives effect to non-cash items such as depreciation and amortization. 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.
We compute FFO in accordance with the "White Paper" on FFO published by
the National Association of Real Estate Investment Trusts (NAREIT), which
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. Adjustments for unconsolidated partnerships and
joint ventures are computed to reflect FFO on the same basis. In computing FFO,
we do not add back to net income the amortization of costs incurred in
connection with our financing activities, or depreciation of non-real estate
assets, but those items that are defined as "extraordinary" under GAAP are added
back to net income. Since the NAREIT White Paper only provides guidelines for
computing FFO, the computation of FFO may vary from one company to another.
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, 2004.
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Net income $10,974 $ 8,525 $5,880 $ 4,866 $ 7,932
Add: depreciation of properties 4,758 3,473 2,617 2,584 2,113
Add: our share of depreciation in unconsolidated
joint ventures 1,075 790 268 16 -
Add: amortization of deferred leasing costs 55 39 - - -
Deduct: (gain) loss on sale of real estate (73) (14) 29 (126) (3,802)
Deduct: preferred distributions - (1,037) (1,037) (1,037) (1,044)
------- ------- ------- ------- -------
Funds from operations applicable to common stockholders $16,789 $11,776 $7,757 $ 6,303 $ 5,199
======= ======= ====== ======= =======
Item 7. Management's Discussion And Analysis Of Financial Condition And Results
- -------------------------------------------------------------------------------
Of Operations.
- --------------
General
- -------
We are a self-administered and self-managed REIT and we primarily own
real estate that we net lease to tenants. As of December 31, 2004, we owned 41
properties, participated in six joint ventures that owned a total of 14
properties and held a 50% tenancy in common interest in one property. In January
2005 we acquired five additional properties. These 61 properties are located in
23 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 have borrowed funds in the past to finance the
purchase of real estate and we expect to do so in the future.
Our rental properties are generally leased to corporate tenants under
operating leases substantially all of which are noncancellable. Substantially
all of our lease agreements are net lease arrangements that require the tenant
to pay not only rent, but also substantially all of the operating expenses of
the leased property, including maintenance, taxes, utilities and insurance. A
majority of our lease agreements provide for periodic rental increases and
certain of our other leases provide for increases based on the consumer price
index.
During the year ended December 31, 2004, we purchased five single tenant
properties and one property with two tenants, in six states, for a total
consideration of $58 million. We assumed pre-existing first mortgages
aggregating $9.9 million on two of these properties. An aggregate of $10.4
million of first mortgage financing was completed with respect to two of the
other properties. In January 2005, we purchased five additional single tenant
properties for a total consideration of approximately $15 million.
We are a venturer in two joint ventures organized for the purpose of
acquiring and owning megaplex stadium-style movie theaters. We own a 50% equity
interest and are the managing member in each of these ventures with the same
co-venturer. These joint ventures own one partial stadium-style theater, one
stadium-style theater under construction (construction has been suspended
pending leasing the site to an operator), and eight megaplex stadium-style movie
theaters for a total consideration of approximately $100 million. Our equity
investment in these movie theater ventures at December 31, 2004 was $21.4
million, net of distributions from the joint ventures. We are also a joint
venturer in four additional joint ventures, each of which was organized to
acquire one single-tenanted property. Our equity investment in these four joint
ventures at December 31, 2004 was $15.6 million, net of distributions.
At December 31, 2004, excluding mortgages payable of our unconsolidated
joint ventures, we had 31 outstanding mortgages payable, aggregating $124
million in principal amount, all of which are secured by first liens on
individual real estate investments with an aggregate carrying value, as adjusted
for intangibles, of approximately $190.3 million before accumulated
depreciation. The mortgages bear interest at fixed rates ranging from 5.13% 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 of our Common Stock 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 five properties, both directly
by us and through joint ventures. Through December 31, 2004, we had used
substantially all of the net proceeds from the 2003 offering as follows: $8.4
million to redeem all of our outstanding preferred stock; $14 million to pay
down our credit line and the balance to acquire five properties both directly by
us and through joint ventures. In 2005, we anticipate that we will use our
available cash funds derived from mortgages placed on our unencumbered
properties and our credit line to acquire additional properties, either directly
or through joint ventures. As a result, we will own more properties in 2005 and
unless we experience an unusual number of lease terminations and/or
cancellations in 2005 (taking into consideration the lease expirations and
terminations that we know will occur in 2005, and without giving effect to any
re-letting of such properties), we anticipate that our revenues and possibly our
net income will increase in 2005.
Comparison of Years Ended December 31, 2004 and December 31, 2003
- -----------------------------------------------------------------
Revenues
- --------
Our revenues consist primarily of rental income from tenants in our
rental properties. Rental income increased by $6.5 million, or 33.7%, to $25.8
million for the year ended December 31, 2004 from $19.3 million for the year
ended December 31, 2003. The increase in rental income is primarily due to $5.4
million of rental revenues earned during the year ended December 31, 2004 on
eleven properties acquired by us during 2003 and 2004. The increase in rental
income also includes $767,000 received from the sale of our bankruptcy claim in
connection with the bankruptcy proceedings involving a retail tenant which
disaffirmed its lease and vacated the property. There were also increases in
rental income at several of our other properties.
Interest and other income increased by $223,000, or 43.6%, to $735,000
for the year ended December 31, 2004 from $512,000 for the year ended December
31, 2003. The primary reason for the increase was $350,000 received in 2004 from
the settlement of a claim made by us regarding the purchase of one of our
properties. The increase in interest and other income also includes $134,000 of
net acquisition fees received by us from a joint venture we recently organized.
The net acquisition fee, calculated pursuant to the joint venture agreement at
2% of the purchase price of the acquired property, reflects a 50% reduction
based on our share of ownership in the joint venture. To a lesser extent, the
increase is due to interest earned on our investment of the balance of the net
proceeds received from our October 2003 offering. These increases were offset in
part by the receipt in the year ended 2003 of $355,000 of interest earned on
short-term mortgages receivable acquired or originated by us to facilitate
acquisitions.
Our equity in earnings of unconsolidated joint ventures increased by
$458,000, or 19%, to $2.9 million for the year ended December 31, 2004. This
increase resulted primarily from our purchase of an additional 25% interest in
one of our movie theater joint ventures as of October 1, 2003, resulting in an
increase in our equity in earnings of this joint venture of $590,000 for the
year ended December 31, 2004. Another joint venture in which we have a 50%
interest received $859,000 from the sale of its bankruptcy claim in connection
with the bankruptcy proceeding involving its retail tenant which disaffirmed its
lease and vacated the property. Our equity in earnings from this joint venture
increased $211,000 for the year ended December 31, 2004. We also participate in
two joint ventures, one organized in August 2004 and one organized in November
2004. These joint ventures each purchased one property, and in 2004 we
recognized income of $165,000 and $61,000, respectively, from these joint
ventures. These increases were offset in part as a result of a $1 million direct
write off of unbilled rent receivable balances by one of our joint ventures in
which we have a 50% interest that were previously recorded relating to two movie
theaters under common control. We executed a lease termination agreement
regarding one of these theaters (which was under construction) and since
September 2004, rent was paid in compliance with a stipulation relating to the
other theater. During February 2005, the operator of this movie theater sold its
business to an independent third party and the arrearages of rent and other
miscellaneous charges of approximately $670,000 that were due in August 2005
were accelerated. In exchange for the joint venture's agreement to consent to
the lease assignment and lease amendment and to waive the requirement for a
security deposit under the amended lease, the joint venture received 40,000
restricted shares of Class A common stock of the tenant's parent company, which
trades on the American Stock Exchange. Our equity in earnings of this joint
venture decreased by $569,000 for the year ended December 31, 2004.
We will continue to acquire, solely for our own account, improved
commercial properties in accordance with our business and investment strategies.
We may from time to time acquire other properties with joint venture partners.
Expenses
- --------
Depreciation and amortization expense increased by $1.3 million, or 37%,
to $4.8 million for the year ended December 31, 2004 from $3.5 million for the
year ended December 31, 2003 . The increase in depreciation and amortization
expense was primarily due to the acquisition of eleven properties during 2003
and 2004.
Interest-mortgages payable increased by $1.6 million, or 23.2%, to $8.4
million for the year ended December 31, 2004 from $6.8 million for the year
ended December 31, 2003. The increase results from mortgages placed on two
properties during 2003 and two properties during the last few months of 2004,
the assumption of mortgages in connection with the purchase of five properties
during 2003 and 2004 and refinancing the mortgage on one property in May 2003.
Interest-line of credit, which includes amortization of deferred line of
credit costs in 2004 and a 1/4% unused facility fee in both years, decreased by
$97,000, or 17.2%, to $467,000 for the year ended December 31, 2004. This
decrease resulted from our repayment of all of the outstanding indebtedness
under our line of credit during 2003. We subsequently borrowed $12.6 million
under our line of credit during October and November 2004, which was used to
purchase a property and to fund our contribution to a joint venture which
purchased a property. During December 2004, $5 million of the borrowings were
repaid with the proceeds from a mortgage financing of one of our properties.
General and administrative expenses increased by $924,000, or 41.9%, to
$3.1 million for the year ended December 31, 2004 from $2.2 million for the year
ended December 31, 2003. The increase was due to a number of factors, including
a $101,000 non-recurring fee for the initial listing of our common stock on the
New York Stock Exchange in January 2004. Also, payroll and payroll expenses
increased by $264,000 for the year ended December 31, 2004, including an
increase of approximately $129,000, for executive and support personnel,
primarily for legal and accounting services, allocated to us pursuant to a
Shared Services Agreement among us and related entities. The increase in the
allocated payroll expenses resulted from an increase in our level of business
activity, primarily property acquisitions, the negotiation of an increased
revolving credit facility, mortgage financings and compliance with the
Sarbanes-Oxley Act of 2002, including Section 404 requirements. The increase in
payroll expenses is due to a $125,000 increase in the annual base salaries and
bonuses paid to our principal executive officers and additional staff. Also
included in the year ended December 31, 2004 is compensation expense of $221,000
compared to $41,000 in the prior year relating to the restricted stock program
which was established in July 2003. The balance of the increase in general and
administrative expenses for the year ended December 31, 2004 is due to an
increase in a number of items including professional fees of approximately
$180,000 relating to costs associated with the internal control audit, including
the review of the internal control documentation and testing relating to
compliance with Section 404 of the Sarbanes-Oxley Act, legal expenses relating
to compliance with the Sarbanes-Oxley Act and legal fees relating to
transactions that were not consummated. Additionally, for the year ended
December 31, 2004, state taxes increased by approximately $56,000, director and
officer insurance and directors' fees increased by approximately $69,000, and
travel and other miscellaneous expenses increased by approximately $74,000 due
to our increased business activity.
Real estate expenses increased by $687,000, or 127%, to $1.2 million for
the year ended December 31, 2004. This increase was primarily due to real estate
operating expenses of approximately $343,000 incurred at one of our properties.
With respect to this property, we entered into a lease with the tenant effective
July 1, 2004, after the tenant had exercised its right to terminate its prior
lease. According to the new lease, we pay the first lease year operating costs
and the tenant is to pay operating costs over and above the current year costs.
Real estate operating expenses also include approximately $163,000 of utilities
and operating expenses on a property which became vacant on July 1, 2004 when
the tenant did not renew its lease. This property was re-let as of November 15,
2004. The increase was also due to real estate expenses on another vacant
property in which the tenant filed for bankruptcy protection and disaffirmed its
lease.
During the year ended December 31, 2004, we determined that the estimated
fair value of a property was lower than the carrying amount and we recorded a
$366,000 provision for valuation allowance. In early 2004, the retail tenant at
this property filed for bankruptcy protection, disaffirmed its lease and vacated
this store. There was no comparable provision in the year ended December 31,
2003.
Net Income
- ----------
For the year ended December 31, 2004, net income applicable to common
stockholders increased by $2.5 million to $11 million. However, due to the
issuance of 3.7 million common shares in October 2003 in an underwritten public
offering, net income per common share decreased by $.05 to $1.13, for the year
ended December 31, 2004 as compared to the year ended December 31, 2003.
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 ye