UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-K/A
Amendment No. 1
_____________________
ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-09279
____________________
ONE LIBERTY PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND
(State or other jurisdiction of
incorporation or organization)
60 Cutter Mill Road, Great Neck, New York
(Address of principal executive offices)
13-3147497
(I.R.S. employer
identification number)
11021
(Zip Code)
Registrant's telephone number, including area code:
(516) 466-3100
____________________
Title of each class
_____________________________________________
Name of exchange on which registered
_____________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $1.00 per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.
Yes nn No nnX
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes nn No nnX
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 nnX No nn
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. nnX
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small
reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “small reporting company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer nn
Non-accelerated filer nn
Accelerated filer nn
X
Small reporting company nn
(Do not check if a small reporting company)
Indicate by check mark whether registrant is a shell company (defined in Rule 12b-2 of the Exchange Act). Yes nn No nnX
As of June 30, 2008 (the last business day of the registrant’s most recently completed second quarter), the aggregate market value of
all common equity held by non-affiliates of the registrant, computed by reference to the price at which common equity was last sold
on said date, was approximately $129.4 million.
As of March 25, 2009, the registrant had 10,175,345 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Item 1. Business.
General
PART I
We are a self-administered and self-managed real estate investment trust, also known as a REIT.
We were incorporated under the laws of the State of Maryland on December 20, 1982. We acquire, own
and manage a geographically diversified portfolio of retail (including furniture and office supply stores),
industrial, office, flex, health and fitness and other properties, a substantial portion of which are under
long-term leases. Substantially all of our leases are “net leases,” under which the tenant is typically
responsible for real estate taxes, insurance and ordinary maintenance and repairs. As of December 31,
2008, we owned 79 properties, three of which are vacant, and one of which is a 50% tenancy in common
interest, and participated in five joint ventures that own five properties, one of which is vacant. Our
properties and the properties owned by our joint ventures are located in 29 states and have an aggregate
of approximately 6.1 million square feet of space (including approximately 106,000 square feet of space
at the property in which we own a tenancy in common interest and approximately 1.5 million square feet
of space at properties owned by the joint ventures in which we participate).
As a result of a severe national economic recession during 2008, which is continuing into 2009,
consumer confidence and retail spending have declined and may continue to decline. Approximately 55%
of the rental income that is payable to us in 2009 under leases existing at December 31, 2008, including
rental income payable on our tenancy in common interest and excluding any rental income from five
properties formerly leased by Circuit City Stores, Inc. (hereinafter 2009 contractual rental income) will be
derived from rent paid by retail tenants. If the financial problems of our retail tenants continue or
deteriorate further, our revenues could decline significantly and our real estate expenses could increase.
During the fourth quarter of 2008, we recorded an impairment charge of $5.2 million relating to three
properties that were leased to Circuit City Stores, Inc. (hereinafter Circuit City). Circuit City filed for
protection under Federal bankruptcy laws in November 2008 and has rejected all of its leases on our
properties. To the extent that our other retail tenants are adversely affected by the recession and reduced
consumer spending, our portfolio may be further adversely effected.
Our 2009 contractual rental income will be approximately $42 million. In 2009, we expect that
our share of the rental income payable to our five joint ventures which own properties will be
approximately $1.4 million. On December 31, 2008, the occupancy rate of properties owned by us was
97.5% based on square footage (including the property in which we own a tenancy in common interest
and the properties formerly leased to Circuit City and the occupancy rate of properties owned by our
joint ventures was 99.5% based on square footage. The weighted average remaining term of the leases
in our portfolio, including our tenancy in common interest (excluding the properties formerly leased to
Circuit City), is 9.4 years and 10.7 years for the leases at properties owned by our joint ventures.
The Effect of the Current Economic Crisis on Us
During 2008, the national economic recession resulted in, among other things, increased
unemployment, and caused a significant decline in consumer confidence, which has dramatically
reduced consumer spending on retail goods. This affected us and our retail tenants in the following
respects:
• Circuit City, a retail tenant which leased five of our properties, filed for protection under the
Federal bankruptcy laws in November 2008, rejected leases for two of our properties in
December 2008 and the remaining three properties in March 2009. The five properties formerly
1
leased to Circuit City accounted for 2.3% of our 2008 annual rental revenues.
• We recorded an impairment charge of approximately $6 million against four properties for the year
ended December 31, 2008, including three properties formerly leased to Circuit City. The
impairment charge for each affected property is equal to the difference between the net book value,
including intangibles, and the present value of discounted cash flows of the properties based upon
certain valuation assumptions. At December 31, 2008, we had a non-recourse mortgage with an
outstanding balance of $8.7 million secured by the five properties formerly leased to Circuit City.
We have not made any payments on this mortgage since December 1, 2008 and have entered into
negotiations with representatives of the mortgagee relating to possible modifications of the
mortgage. After taking into account the impairment charge, our book value for these five
properties is $8.3 million;
• We wrote-off or recorded accelerated amortization on an aggregate of $332,000 of unbilled
“straight line” rent receivable for six retail properties, including five properties formerly leased
by Circuit City, which resulted in a decrease in our rental revenues for the year ended December
31, 2008; and
• Our quarterly distribution was reduced by 39% from $.36 in October 2008 to $.22 in January
2009.
Our rental income from our retail tenants will account for 55% of our 2009 contractual rental
revenues, including 19% which is from furniture stores and 14% from office supply stores. Two retail
tenants in the office supply and furniture business represent an aggregate of 10.6% and 10.3%,
respectively, of our 2009 contractual rental revenues.
If economic conditions in the United States do not stabilize in 2009, we will likely experience
additional tenant defaults, delinquencies and delays in payments and lease renegotiations, which could
cause a decline in our rental revenues and an increase in our real estate expenses. In addition, since the
economy has also sustained a crisis in the commercial real estate market and in the commercial banking
system, the value of properties that we hold or seek to sell could decline. As a result, we may recognize
additional impairment charges and realize losses on property sales. Also, our operating expenses will
increase as we maintain and improve vacant properties. Moreover, our ability to refinance existing
indebtedness and to secure additional funds from unencumbered properties may also be limited due to the
liquidity constraints in the credit markets.
Acquisition Strategies
We are carefully monitoring our cash needs, our liquidity and the status of our portfolio to
preserve our cash and, until the economy stabilizes, we adopted a conservative acquisition strategy.
Traditionally, we seek to acquire properties throughout the United States that have locations,
demographics and other investment attributes that we believe to be attractive. We believe that long-
term leases provide a predictable income stream over the term of the lease, making fluctuations in
market rental rates and in real estate values less significant to achieving our overall investment
objectives. Our goal is to acquire properties that are subject to long-term net leases that include periodic
contractual rental increases. Periodic contractual rental increases provide reliable increases in future rent
payments, while rent increases based on the consumer price index provide protection against inflation.
Historically, long-term leases have made it easier for us to obtain longer-term, fixed-rate mortgage
financing with principal amortization, thereby moderating the interest rate risk associated with financing
or refinancing our property portfolio by reducing the outstanding principal balance over time. Although
2
we regard long-term leases as an important element of our acquisition strategy, we may acquire a
property that is subject to a short-term lease when we believe the property represents a good opportunity
for recurring income and residual value.
Generally, we intend to hold the properties we acquire for an extended period of time. Our
investment criteria are intended to identify properties from which increased asset value and overall return
can be realized from an extended period of ownership. Although our investment criteria favor an
extended period of ownership, we may dispose of a property following a lease termination or expiration,
or even during the term of a lease if we regard the disposition of the property as an opportunity to realize
the overall value of the property sooner or to avoid future risks by achieving a determinable return from
the property.
We generally identify properties through the network of contacts of our senior management
and our affiliates, which include real estate brokers, private equity firms, banks and law firms. In
addition, we attend industry conferences and engage in direct solicitations.
There is no limit on the number of properties in which we may invest, the amount or
percentage of our assets that may be invested in any specific property or property type, or on the
concentration of investments in any geographic area in the United States. We do not intend to acquire
properties located outside of the United States. We will continue to form entities to acquire interests
in real properties, either alone or with other investors, and we may acquire interests in joint ventures
or other entities that own real property.
It is our policy, and the policy of our affiliated entities, that any investment opportunity
presented to us or to any of our affiliated entities that involves primarily the acquisition of a net leased
property, will first be offered to us and may not be pursued by any of our affiliated entities unless and
until we decline the opportunity.
Investment Evaluation
In evaluating potential net lease investments, we consider, among other criteria, the following:
•
•
•
•
•
an evaluation of the property and improvements, given its location and use;
the current and projected cash flow of the property;
the estimated return on equity to us;
local demographics (population and rental trends);
the ability of the tenant to meet operational needs and lease obligations recognizing the current
economic climate;
•
the terms of tenant leases, including the relationship between current rents and market rents;
•
the projected residual value of the property;
• potential for income and capital appreciation;
• occupancy of and demand for similar properties in the market area; and
•
alternative use for the property at lease termination.
Our Business Objective
Our business objective is to maintain and increase the cash available for distribution to our
stockholders by:
3
• monitoring and maintaining our portfolio;
• obtaining mortgage indebtedness on favorable terms and maintaining access to capital to finance
property acquisitions; and
• managing assets effectively, including lease extensions and opportunistic property sales.
Typical Property Attributes
The properties in our portfolio and owned by our joint ventures typically have the following
attributes:
• Net leases. Substantially all of the leases are net leases under which the tenant is typically
responsible for real estate taxes, insurance and ordinary maintenance and repairs. We believe
that investments in net leased properties offer more predictable returns than investments in
properties that are not net leased;
• Long-term leases. The properties acquired are generally subject to long-term leases. Excluding
leases relating to properties owned by our joint ventures, leases representing approximately 71%
of our 2009 contractual rental income expire after 2014, and leases representing approximately
37% of our 2009 contractual rental income expire after 2018; and
• Scheduled rent increases. Leases representing approximately 95% of our 2009 contractual
rental income provide for either scheduled rent increases or periodic contractual rent increases
based on the consumer price index. None of the leases on properties owned by our joint
ventures provide for scheduled rent increases.
Our Tenants
The following table sets forth information about the diversification of our tenants (excluding
tenants of our joint ventures) by industry sector as of December 31, 2008:
Type of
Property
Number of
Tenants
Number of
Properties
2009 Contractual
Rental Income (1)
Percentage of
2009 Contractual
Rental Income
Retail – various (2)
Industrial
Retail – furniture (3)
Retail – office supply (4)
Office (5)
Flex
Health & fitness
Movie theater (6)
Residential
25
9
6
13
3
3
3
1
1
64
30
10
16
13
3
2
3
1
1
79
$ 9,407,667
8,245,965
7,923,919
5,713,993
4,377,584
2,546,571
1,783,128
1,266,759
687,500
$41,953,086
22.4%
19.7
18.9
13.6
10.4
6.1
4.3
3.0
1.6
100.0%
(1) Contractual 2009 rental income includes rental income that is payable to us during 2009 under
leases existing at December 31, 2008, including rental income payable on our tenancy in
common interest and excluding any rental income from five properties formerly leased by
Circuit City.
4
(2) Thirteen of the retail properties are net leased to single tenants. Four properties are net leased
to a total of eleven separate tenants pursuant to separate leases and eight properties are net
leased to one tenant pursuant to a master lease. At December 31, 2008, three retail properties
were leased to Circuit City. Circuit City rejected two of our leases prior to December 2008 and
the remaining three in March 2009.
(3) Eleven properties are net leased to Haverty Furniture Companies, Inc. pursuant to a master
lease covering all locations. Five of the properties are net leased to single tenants, including a
property where we assumed a sublease to a retail furniture store from Circuit City in December
2008.
(4)
Includes ten properties which are net leased to one tenant pursuant to ten separate leases. Eight
of these leases contain cross-default provisions.
(5)
Includes a property in which we own a 50% tenancy in common interest.
(6) We are the ground lessee of this property under a long-term lease and net lease the movie
theater to an operator.
Most of our retail tenants operate on a national basis and include, among others, Barnes &
Noble, Best Buy, CarMax, CVS, Office Depot, Office Max, Party City, Petco, The Sports Authority, and
Walgreen, and some of our tenants operate on a regional basis, including Haverty Furniture Companies.
Our Leases
Substantially all of our leases are net leases (including the leases entered into by our joint
ventures) under which the tenant, in addition to its rental obligation, typically is responsible for
expenses attributable to the operation of the property, such as real estate taxes and assessments, water
and sewer rents and other charges. The tenant is also generally responsible for maintaining the
property, including non-structural repairs, and for restoration following a casualty or partial
condemnation. The tenant is typically obligated to indemnify us for claims arising from the property
and is responsible for maintaining insurance coverage for the property it leases. Under some net
leases, we are responsible for structural repairs, including foundation and slab, roof repair or
replacement and restoration following a casualty event, and at several properties we are responsible
for certain expenses related to the operation and maintenance of the property.
Our typical lease provides for contractual rent increases periodically throughout the term of the
lease. Some of our leases provide for rent increases pursuant to a formula based on the consumer
price index and some of our leases provide for minimum rents supplemented by additional payments
based on sales derived from the property subject to the lease. Such additional payments were not a
material part of our 2008 rental revenues and are not expected to be a material part of our 2009 rental
revenues.
Our policy has been to acquire properties that are subject to existing long-term leases or to enter
into long-term leases with our tenants. Our leases generally provide the tenant with one or more
renewal options.
The following table sets forth scheduled lease expirations of leases for our properties
(excluding joint venture properties) as of December 31, 2008:
5
Year of Lease
Expiration (1)
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018 and
thereafter
Number of
Expiring Leases
1 (2)
3
4
2
8
10
4
4
5 (3)
Approximate Square
Feet Subject to
Expiring Leases
193,496
19,038
208,428
19,000
627,268
552,067
150,795
182,715
316,285
2009 Contractual
Rental Income Under
Expiring Leases
$ 575,780
349,825
2,174,336
475,903
3,652,038
4,888,236
1,765,765
1,712,396
5,070,078
% of 2009 Contractual
Rental Income
Represented by
Expiring Leases
1.4%
.8
5.2
1.1
8.7
11.7
4.2
4.1
12.1
23
64
2,217,405
21,288,729
4,486,497
$41,953,086
50.7
100.0%
________________
(1) Lease expirations assume tenants do not exercise existing renewal options.
(2) Tenant exercised its option to renew this lease subsequent to December 31, 2008. The lease
for this property now expires in November 2014.
(3) Includes a property in which we have a tenancy in common interest.
Financing, Re-Renting and Disposition of Our Properties
Under our governing documents, there is no limit on the level of debt that we may incur. Our
credit facility, which matures on March 31, 2010, is provided by VNB New York Corp., Bank Leumi,
USA, Manufacturers and Traders Trust Company and Israel Discount Bank of New York and is a full
recourse obligation. The credit facility limits total indebtedness that we may incur to an amount equal
to 70% of the value (as defined) of our properties, among other limitations in the credit facility on our
ability to incur additional indebtedness. We borrow funds on a secured and unsecured basis and
intend to continue to do so in the future.
We also mortgage specific properties on a non-recourse basis (subject to standard carve-outs) to
enhance the return on our investment in a specific property. The proceeds of mortgage loans may be
used for property acquisitions, investments in joint ventures or other entities that own real property, to
reduce bank debt and for working capital purposes. The proceeds of our credit facility may be used to
payoff existing mortgages, fund the acquisition of additional properties, or to invest in joint ventures.
Net proceeds received from refinancing of properties are required to be used to repay amounts
outstanding under our credit facility if proceeds from the credit facility were used to purchase or
refinance the property. Through the date of this filing, all of our draw down requests have been
fulfilled by our lending banks.
With respect to properties we acquire on a free and clear basis, we usually seek to obtain long-
term fixed-rate mortgage financing, when available at acceptable terms, shortly after the acquisition of
such property to avoid the risk of movement of interest rates and fluctuating supply and demand in
the mortgage markets. We also will acquire a property that is subject to (and will assume) a fixed-rate
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mortgage. Substantially all of our mortgages provide for amortization of part of the principal balance
during the term, thereby reducing the refinancing risk at maturity. Some of our properties may be
financed on a cross-defaulted or cross-collateralized basis, and we may collateralize a single financing
with more than one property.
After termination or expiration of any lease relating to any of our properties (either at lease
expiration or early termination), we will seek to re-rent or sell such property in a manner that will
maximize the return to us, considering, among other factors, the income potential and market value of
such property. We acquire properties for long-term investment for income purposes and do not
typically engage in the turnover of investments. We will consider the sale of a property prior to
termination or expiration of the relevant lease if a sale appears advantageous in view of our
investment objectives. We may take back a purchase money mortgage as partial payment in lieu of
cash in connection with any sale and may consider local custom and prevailing market conditions in
negotiating the terms of repayment. If there is a substantial tax gain, we may seek to enter into a tax
deferred transaction and reinvest the proceeds in another property. It is our policy to use any cash
realized from the sale of properties, net of any distributions to stockholders to maintain our REIT
status, to pay down amounts due under our credit facility, if any, and for the acquisition of additional
properties. With the national economic recession and the reductions in real estate values, we may
find that the value of a property could be less than the mortgage secured by such property. In such
instance, we may seek to renegotiate the terms of the mortgage, or to the extent that our loan is non-
recourse and can not be renegotiated, forfeit the property and write-off our investment.
Our Joint Ventures
As of December 31, 2008, we are a joint venture partner in five joint ventures that own an
aggregate of five properties, including one vacant property, and have an aggregate of approximately
1.5 million square feet of space. Three of the properties are retail properties and two are industrial
properties. We own a 50% equity interest in four of the joint ventures and a 36% equity interest in
the fifth joint venture. We are designated as “managing member” or “manager” under the operating
agreements of three of these joint ventures, however, we do not exercise substantial operating control
over these entities, pursuant to EITF 04-05. At December 31, 2008, our investment in unconsolidated
joint ventures was approximately $5.9 million.
Based on existing leases, we anticipate that our share of rental income payable to our joint
ventures in 2009 will be approximately $1.4 million. The leases for two properties (each of which is
owned by one of our joint ventures), which are expected to contribute 84% of the aggregate projected
rental income payable to all of our joint ventures in 2009 will expire in 2021 and 2022.
Competition
We face competition for the acquisition of net leased properties from a variety of investors,
including domestic and foreign corporations and real estate companies, (1031 exchange buyers),
financial institutions, insurance companies, pension funds, investment funds, other REITs and
individuals, some of which have significant advantages over us, including a larger, more diverse
group of properties and greater financial and other resources than we have.
Our Structure
In 2008, five employees, Patrick J. Callan, Jr., our president and chief executive officer, Lawrence
G. Ricketts, Jr., our executive vice president and chief operating officer, and three others, devoted all of
7
their business time to our company. Our other executive, administrative, legal, accounting and clerical
personnel shared their services on a part-time basis with us and other affiliated entities that share our
executive offices.
We entered into a compensation and services agreement with Majestic Property Management
Corp. effective as of January 1, 2007. Majestic Property Management Corp. is wholly-owned by our
chairman of the board and it provides compensation to certain of our executive officers. Pursuant to the
compensation and services agreement, we pay an annual fee to Majestic Property Management Corp. and
Majestic Property Management Corp. assumes our obligations under a shared services agreement,
and provides us with the services of all affiliated executive, administrative, legal, accounting and clerical
personnel that we use on a part time basis, as well as certain property management services, property
acquisition, sales and leasing and mortgage brokerage services. In 2008, we incurred a fee of $2,025,000
to Majestic Property Management Corp. under the compensation and services agreement. Pursuant to the
compensation and services agreement, we paid $2,013,000 of the fee and the remainder of the fee,
$12,000, was offset by the $12,000 paid to Majestic Property Management Corp. by one of our joint
ventures.
In addition, we made a payment to Majestic Property Management Corp. of $175,000 for our share
of all direct office expenses, including rent, telephone, postage, computer services, and internet usage. We
also paid our chairman a fee of $250,000 in 2008 in accordance with the compensation and services
agreement.
We believe that the compensation and services agreement allows us to benefit from access to, and
from the services of, a group of senior executives with significant knowledge and experience in the real
estate industry and our company and its activities. If not for the compensation and services agreement, we
believe that a company of our size would not have access to the skills and expertise of these executives at
the cost that we have incurred and will incur in the future. For a description of the background of our
management, please see the information under the heading “Executive Officers” in Part I of this Annual
Report.
Available Information
Our Internet address is www.onelibertyproperties.com. On the Investor Information page of our
web site, we post the following filings as soon as reasonably practicable after they are electronically
filed with or furnished to the Securities and Exchange Commission (the “SEC”): our annual report on
Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended. All such filings on our Investor Information Web page, which
also includes Forms 3, 4 and 5 filed pursuant to Section 16(a) of the Securities Exchange Act of 1934,
as amended, are available to be viewed free of charge.
On the Corporate Governance page of our web site, we post the following charters and
guidelines: Audit Committee Charter, Compensation Committee Charter, Nominating and Corporate
Governance Committee Charter, Corporate Governance Guidelines and Code of Business Conduct and
Ethics, as amended and restated. All such documents on our Corporate Governance Web page are
available to be viewed free of charge.
Information contained on our web site is not part of, and is not incorporated by reference into,
this Annual Report on Form 10-K or our other filings with the SEC. A copy of this Annual Report on
Form 10-K and those items disclosed on our Investor Information Web page and our Corporate
8
Governance Web page are available without charge upon written request to: One Liberty Properties,
Inc., 60 Cutter Mill Road, Suite 303, Great Neck, New York 11021, Attention: Secretary.
Forward-Looking Statements
This Annual Report on Form 10-K, together with other statements and information publicly
disseminated by us, contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. We intend such forward-looking statements to be covered by the safe harbor provision for
forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and
include this statement for purposes of complying with these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe our future plans, strategies and
expectations, are generally identifiable by use of the words “may,” “will,” “could,” “believe,”
“expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions or variations thereof.
You should not rely on forward-looking statements since they involve known and unknown risks,
uncertainties and other factors which are, in some cases, beyond our control and which could
materially affect actual results, performance or achievements. Factors which may cause actual results
to differ materially from current expectations include, but are not limited to:
the financial condition of our tenants and the performance of their lease obligations;
•
• general economic and business conditions, including those currently affecting our
nation’s economy and real estate markets;
the availability of and costs associated with sources of liquidity;
accessibility of debt and equity capital markets;
•
•
• general and local real estate conditions, including any changes in the value of our real
estate;
• breach of credit facility covenants;
• more competition for leasing of vacant space due to current economic conditions;
•
changes in governmental laws and regulations relating to real estate and related
investments;
the level and volatility of interest rates;
competition in our industry; and
the other risks described under “Risks Related to Our Company” and “Risks Related to
the REIT Industry.”
•
•
•
Any or all of our forward-looking statements in this report, in our 2009 Annual Report to
Stockholders and in any other public statements we make may turn out to be incorrect. Actual results
may differ from our forward looking statements because of inaccurate assumptions we might make or
because of the occurrence of known or unknown risks and uncertainties. Many factors mentioned in
the discussion below will be important in determining future results. Consequently, no forward-
looking statement can be guaranteed and you are cautioned not to place undue reliance on these
forward-looking statements. Actual future results may vary materially.
Except as may be required under the United States federal securities laws, we undertake no
obligation to publicly update our forward-looking statements, whether as a result of new information,
future events or otherwise. You are advised, however, to consult any further disclosures we make in
our reports that are filed with or furnished to the SEC.
Set forth below is a detailed discussion of certain risks affecting our business. The
9
categorization of risks set forth below is meant to help you better understand the risks facing our
business and is not intended to limit your consideration of the possible effects of these risks to the
listed categories. Any adverse effects arising from the realization of any of the risks discussed,
including our financial condition and results of operation, may, and likely will, adversely affect many
aspects of our business.
Item 1A. Risk Factors.
In addition to the other information contained or incorporated by reference in this Form 10-
K, readers should carefully consider the following risk factors:
Risks Related to Our Business
If our tenants default, if we are unable to re-rent properties upon the expiration of our leases, or
if a significant number of tenants are granted rent abatements, our revenues will be reduced
and we would incur additional costs.
Substantially all of our revenues are derived from rental income paid by tenants at our
properties. The current economic crisis and recession has had a direct and significant effect on many
of our tenants, resulting in a deterioration of their business. A continuing deterioration of economic
conditions could result in additional tenants defaulting on their obligations, fewer tenants renewing
their leases upon the expiration of their terms or tenants seeking rent abatements or other
accommodations or renegotiation of their leases. As a result of any of these events, our revenues
would decline. At the same time, we would remain responsible for the payment of our mortgage
obligations and the operating expenses related to our properties, including, among other things, real
estate taxes, maintenance and insurance. In addition, we would incur expenses for enforcing our rights
as landlord. Even if we find replacement tenants or renegotiate leases with current tenants, the terms
of the new or renegotiated leases, including the cost of required renovations or concessions to tenants,
or the expense of the reconfiguration of a single tenancy property for use by multiple tenants, may be
less favorable than current lease terms and could reduce the amount of cash available to meet
expenses.
Approximately 52% of our rental revenue is derived from tenants operating in the retail
industry, which has been particularly weakened in the current recession, and the inability of
those tenants to pay rent would significantly reduce our revenues.
Approximately 52% of our rental revenues (excluding rental revenues from our joint ventures)
for the year ended December 31, 2008 was derived from retail tenants and approximately 55% of our
2009 contractual rental income is expected to be derived from retail tenants, including 18.9% and
13.6%, respectively, from tenants engaged in retail furniture and office supply operations. The current
economic crisis and recession has severely reduced consumers’ disposable income and has depressed
consumer confidence in the economy, leading to a drastic decline in consumer spending on retail
goods.
Circuit City, a retail tenant which leased five of our properties, filed for protection under the Federal
bankruptcy laws in November 2008, rejected leases for two of our properties in December 2008 and the
remaining three properties in March 2009. The five properties formerly leased to Circuit City accounted for
2.3% of our 2008 annual rental revenues.
If the recession continues at the current pace or accelerates, it could cause additional retail
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tenants of ours to fail to meet their lease obligations, which would have an adverse effect on our results
of operations, liquidity and financial condition, including making it more difficult for us to satisfy our
operating and debt service requirements, make capital expenditures and make distributions to our
stockholders.
A significant portion of our 2008 revenues and our 2009 contractual rental income is derived
from six tenants. The default, financial distress or failure of any of these tenants could
significantly reduce our revenues.
Haverty Furniture Companies, Inc., Ferguson Enterprises, Inc., DSM Nutritional Products, Inc.,
New Flyer of America, Inc., and L-3 Communications Corp, accounted for approximately 12%, 5.7%,
5.1%, 4.4% and 4.3%, respectively, of our rental revenues (excluding rental revenues from our joint
ventures) for the year ended December 31, 2008, and account for 10.3%, 5.6%, 4.7%, 3.8% and 4.3%,
respectively, of our 2009 contractual rental income. During 2008, we purchased eight properties net
leased to Office Depot, Inc. For 2009, these eight Office Depot, Inc. properties, in addition to two we
already owned, are expected to account for 10.6% of our 2009 contractual rental income. The default,
financial distress or bankruptcy of any of these tenants would cause interruptions in the receipt of, or
the loss of, a significant amount of rental revenues and would require us to pay operating expenses
currently paid by the tenant. This would result in the vacancy of the property or properties occupied
by the defaulting tenant, which would significantly reduce our rental revenues and net income until the
re-rental of the property or properties, and could decrease the ultimate sale value of the property.
Declines in the value of our properties could result in additional impairment charges or losses on
sales and may reduce our stockholder distributions.
The recent economic downturn has caused a decline in real estate values generally throughout
the country. We regularly evaluate our properties. If we are presented with indications of an
impairment in the value of a particular property or group of properties, we may be required to evaluate
the current value of such properties under such circumstances. If we determine that the fair value of
any of our properties has declined below the net book value, we will be required to recognize an
impairment charge for the difference during the quarter in which we make such determination. In
addition, we may incur losses from time to time if we dispose of properties for sales prices that are less
than our book value.
Impairment charges against owned real estate may not be adequate to cover actual losses.
Impairment charges taken by us against the value of our properties may be inadequate.
Regardless of the impairment charge taken, additional losses may be experienced as a result of specific
or systemic factors beyond our control, including, among other things, a continuing economic
recession and changes in market conditions affecting the value of our real estate assets (including real
estate assets which collateralize mortgage loans made to us).
As of December 31, 2008, we recorded an impairment charge of approximately $6 million
relating to four properties owned by us. Our impairment charges are based on an evaluation of known
risks and economic factors. The determination of an appropriate level of impairment charges is an
inherently difficult process and is based on numerous assumptions. The amount of impairment
charges of real estate is susceptible to changes in economic, operating and other conditions, that are
largely beyond our control and these losses may exceed current estimates. Our impairment charges
may not be adequate to cover actual losses and we may need to take additional impairment charges in
the future. Actual losses and additional impairment charges in the future could materially and
11
adversely affect our business, net income, stockholders’ equity and cash distributions to our
stockholders.
If a significant number of our tenants default or fail to renew expiring leases, or we take
additional impairment charges against our properties, a breach of our revolving credit facility
could occur.
Our revolving credit facility includes financial covenants that require us to maintain certain
financial ratios and requirements. If our tenants default under their leases with us or fail to renew
expiring leases, generally accepted accounting principles may require us to recognize additional
impairment charges against our properties, and our financial position could be adversely affected
causing us to be in breach of the financial covenants contained in our credit facility.
Failure to meet interest and other payment obligations under our revolving credit facility or a
breach by us of the covenants to maintain the financial ratios would place us in default under our
revolving credit facility, and, if the banks called a default and required us to repay the full amount
outstanding under the revolving credit facility, we might be required to rapidly dispose of our
properties, which could have an adverse impact on the amounts we receive on such disposition. If we
are unable to dispose of our properties in a timely fashion to the satisfaction of the banks, the banks
could foreclose on that portion of our collateral pledged to the banks, which could result in the
disposition of our properties at below market values. The disposition of our properties at below our
carrying value would adversely affect our net income, reduce our stockholders’ equity and adversely
affect our ability to pay distributions to our stockholders.
If we are unable to refinance our mortgage loans at maturity, our net income may decline or we
may be forced to sell properties at disadvantageous terms, which would result in the loss of
revenues and in a decline in the value of our portfolio.
As of December 31, 2008, we had outstanding approximately $225.5 million in long-term
mortgage indebtedness, all of which is non-recourse (subject to standard carve-outs). As of December
31, 2008, our ratio of mortgage debt to total assets was approximately 52.6%. In addition, as of
December 31, 2008, our joint ventures had approximately $18.3 million in total long-term mortgage
indebtedness (all of which is non-recourse subject to standard carve-outs). The risks associated with
our mortgage debt and the mortgage debt of our joint ventures include the risk that cash flow for the
properties securing the mortgage indebtedness will be insufficient to meet required payments of
principal and interest.
Only a small portion of the principal of our mortgage indebtedness will be repaid prior to maturity.
We do not plan to retain sufficient cash to repay such indebtedness at maturity. Accordingly, in order to
meet these obligations if they cannot be refinanced at maturity, we will have to use funds available under
our credit facility, if any, to pay our mortgage debt or seek to raise funds through the financing of
unencumbered properties, sale of properties or the issuance of additional equity. Between January 2009
and December 31, 2013, approximately $79.7 million of our mortgage debt matures, of which
approximately $4.6 million will mature in 2009 and approximately $17 million will mature in 2010. If we
(or our joint ventures) are not successful in refinancing existing mortgage indebtedness or financing
unencumbered properties, selling properties on favorable terms or raising additional equity, our cash flow
(or the cash flow of a joint venture) will not be sufficient to repay all maturing mortgage debt when
payments become due, and we (or a joint venture) may be forced to dispose of properties on
disadvantageous terms, which would lower our revenues and the value of our portfolio.
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If we are unable to extend or secure a credit facility at maturity of our current facility in March
2010 at favorable rates, our net income may decline or we may be forced to sell properties at
disadvantageous terms, which would result in the loss of revenues and in a decline in the value
of our portfolio.
As of December 31, 2008 and March 1, 2009, we had $27 million outstanding under our revolving
credit facility. The facility is guaranteed by all of our subsidiaries, which own unencumbered properties,
and the shares of stock of all other subsidiaries are pledged as collateral. Our credit facility expires on
March 31, 2010. We may be unable to extend our current facility by the maturity date,
March 31, 2010, or to negotiate a new facility at acceptable rates and may be unable to pay off the amount
then outstanding unless we find alternative means of refinancing.
The United States’ credit markets continue to experience significant price volatility and liquidity
disruptions, which thus far has caused market prices of many stocks to plummet and terms for financings
to be far less attractive, and in many cases unavailable. Continued uncertainty in the credit markets will
negatively impact our ability to refinance the amount outstanding under our revolving credit facility at
favorable terms or at all. If we are not successful in extending our current credit facility or securing a new
credit facility or financing unencumbered properties, selling properties on favorable terms or raising
additional equity, our cash flow will not be sufficient to repay all amounts outstanding under our credit
facility when it matures in March 2010, and we may be forced to dispose of properties at disadvantageous
terms, which would lower our revenues and the value of our portfolio.
The current recession and its consequences present a threat to our present growth strategy.
Our present growth strategy relies, to a large extent, on the acquisition of additional properties that
are subject to long-term net leases or that are located in market or industry sectors that we identify, from
time to time, as offering superior risk-adjusted returns. In order to fund these acquisitions, our business
model generally prescribes that we initially use funds borrowed under our credit facility and then seek
mortgage indebtedness for the purchased properties on a non-recourse basis, repaying the amount
borrowed under the credit facility.
Institutions have significantly curtailed their lending activities and it has become increasingly
challenging to identify and secure mortgage indebtedness. As a result, we have adopted a
conservative property acquisition strategy.
The banks which are parties to our credit facility may not be able to meet their funding
commitments under the facility as a result of the current credit crisis, which would force us to
conserve cash or arrange for alternative funding in a difficult market environment.
Our access to funds under our credit facility is dependent on the ability of the banks that are
parties to the credit facility to meet their funding commitments. These banks might incur losses or
might have reduced capital reserves in part because of the weakening of the U.S. economy and the
increased financial instability of many borrowers. As a result, these banks might become capital
constrained and might tighten their lending standards, or become insolvent. If they experience
shortages of capital or liquidity or if they experience excessive volumes of borrowing requests from
other borrowers within a short period of time, these banks might not be able to meet their funding
commitments under our credit facility. If we are unable to draw funds under our credit facility because
of a lender default or if we are unable to obtain other cost-effective financing from other prospective
sources of debt capital, our financial condition and results of operations would be adversely affected.
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Disruptions in the capital and credit markets as a result of uncertainty in the U.S. economy,
changing or increased regulation, reduced financing alternatives or failures of significant financial
institutions could adversely affect one or more banks in our credit facility or otherwise adversely affect our
access to funds. These disruptions could require us to take measures to conserve cash until the markets
stabilize or until alternative credit arrangements or other funding can be arranged, if such financing is
available on acceptable terms, or at all. Such measures could include deferring development and
redevelopment projects or other capital expenditures and reducing or eliminating future cash dividend
payments or other discretionary uses of cash.
If our borrowings increase, the risk of default on our repayment obligations and our debt
service requirements will also increase.
Our governing documents do not contain any limitation on the amount of indebtedness we may
incur. However, the terms of our credit facility with VNB New York Corp., Bank Leumi, USA,
Manufacturers and Traders Trust Company and Israel Discount Bank of New York limit the total
indebtedness that we may incur to an amount equal to 70% of the value (as defined in the credit
agreement) of our properties, in addition to other limitations in the credit facility on our ability to incur
additional indebtedness. Increased leverage could result in increased risk of default on our payment
obligations related to borrowings and in an increase in debt service requirements, which could reduce
our net income and the amount of cash available to meet expenses and to make distributions to our
stockholders.
We are required by certain of our net lease agreements to pay property related expenses that
are not the obligations of our tenants.
Under the terms of substantially all of our net lease agreements, in addition to satisfying their
rent obligations, our tenants are responsible for the payment of real estate taxes, insurance and ordinary
maintenance and repairs. However, in the case of certain leases, we are required to pay some
expenses, such as the costs of environmental liabilities, roof and structural repairs, insurance and
certain non-structural repairs and maintenance. If our properties incur significant expenses that must
be paid by us under the terms of our lease agreements, our business, financial condition and results of
operations will be adversely affected and the amount of cash available to meet expenses and to make
distributions to holders of our common stock may be reduced.
Uninsured and underinsured losses may affect the revenues generated by, the value of, and the
return from a property affected by a casualty or other claim.
Substantially all of our tenants obtain, for our benefit, comprehensive insurance covering our
properties in amounts that are intended to be sufficient to provide for the replacement of the
improvements at each property. However, the amount of insurance coverage maintained for any
property may not be sufficient to pay the full replacement cost of the improvements at the property
following a casualty event. In addition, the rent loss coverage under the policy may not extend for the
full period of time that a tenant may be entitled to a rent abatement as a result of, or that may be
required to complete restoration following, a casualty event. In addition, there are certain types of
losses, such as those arising from earthquakes, floods, hurricanes and terrorist attacks, that may be
uninsurable or that may not be economically insurable. Changes in zoning, building codes and
ordinances, environmental considerations and other factors also may make it impossible or
impracticable for us to use insurance proceeds to replace damaged or destroyed improvements at a
property. If restoration is not or cannot be completed to the extent, or within the period of time,
specified in certain of our leases, the tenant may have the right to terminate the lease. If any of these or
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similar events occur, it may reduce our revenues, the value of, or our return from, an affected property.
Our revenues and the value of our portfolio are affected by a number of factors that affect
investments in real estate generally.
We are subject to the general risks of investing in real estate. These include adverse changes in
economic conditions and local conditions such as changing demographics, retailing trends and traffic
patterns, declines in the rental rates, changes in the supply and price of quality properties and the
market supply and demand of competing properties, the impact of environmental laws, security
concerns, prepayment penalties applicable under mortgage financings, changes in tax, zoning, building
code, fire safety and other laws and regulations, the type of insurance coverage available in the market,
and changes in the type, capacity and sophistication of building systems. Approximately 54.9%,
19.7% and 10.4% of our 2009 contractual rental income is expected to come from retail, industrial, and
office tenants, respectively, and is vulnerable to further economic declines that negatively impact these
sectors of the economy. Any of these conditions could have an adverse effect on our results of
operations, liquidity and financial condition.
Our revenues and the value of our portfolio are affected by a number of factors that affect
investments in leased real estate generally.
We are subject to the general risks of investing in leased real estate. These include the non-
performance of lease obligations by tenants, leasehold improvements that will be costly or difficult to
remove should it become necessary to re-rent the leased space for other uses, covenants in certain retail
leases that limit the types of tenants to which available space can be rented (which may limit demand
or reduce the rents realized on re-renting), rights of termination of leases due to events of casualty or
condemnation affecting the leased space or the property or due to interruption of the tenant’s quiet
enjoyment of the leased premises, and obligations of a landlord to restore the leased premises or the
property following events of casualty or condemnation. The occurrence of any of these events could
adversely impact our results of operations, liquidity and financial condition.
Real estate investments are relatively illiquid and their values may decline.
Real estate investments are relatively illiquid. Therefore, we will be limited in our ability to
reconfigure our real estate portfolio in response to economic changes. We may encounter difficulty in
disposing of properties when tenants vacate either at the expiration of the applicable lease or
otherwise. If we decide to sell any of our properties, our ability to sell these properties and the prices
we receive on their sale may be affected by many factors, including the number of potential buyers, the
number of competing properties on the market and other market conditions, as well as whether the
property is leased and if it is leased, the terms of the lease. As a result, we may be unable to sell our
properties for an extended period of time without incurring a loss, which would adversely affect our
results of operations, liquidity and financial condition.
The concentration of our properties in certain geographic areas may make our revenues and the
value of our portfolio vulnerable to adverse changes in local economic conditions.
We do not have specific limitations on the total percentage of our real estate properties that may
be located in any one geographic area. Consequently, properties that we own may be located in the
same or a limited number of geographic regions. Approximately 30% of our rental income (excluding
our share of the rental income and assets from our joint ventures) for the year ended December 31,
2008 was, and approximately 30% of our 2009 contractual rental income will be derived from
15
properties located in Texas and New York. At December 31, 2008, 25% of the depreciated book value
of our real estate investments were located in Texas and New York. As a result, a decline in the
economic conditions in these geographic regions, or in geographic regions where our properties may
be concentrated in the future, may have an adverse effect on the rental and occupancy rates for, and the
property values of, these properties, which could lead to a reduction in our rental income and in the
results of operations.
Our inability to control our joint ventures or our tenancy in common arrangement could result
in diversion of time and effort by our management and the inability to achieve the goals of the
joint venture or the tenancy in common arrangement.
We presently are a joint venture partner in five joint ventures, which own five properties, and we
own 50% of another property as tenant in common with a group of investors pursuant to a tenancy in
common agreement. At December 31, 2008, our investment in unconsolidated joint ventures was
approximately $5.9 million and the tenancy in common interest represents a net investment of
approximately $623,000 by us. These investments may involve risks not otherwise present in
investments made solely by us, including the risk that our co-investors may have different interests or
goals than us, or that our co-investors may not be able or willing to take an action that we desire.
Disagreements with or among our co-investors could result in substantial diversion of time and effort
by our management team and the inability of the joint venture or the tenancy in common to
successfully operate, finance, lease or sell properties as intended by our joint venture agreements or
tenancy in common agreement. In addition, we may invest a significant amount of our funds into joint
ventures which ultimately may not be profitable as a result of disagreements with or among our co-
investors.
We may pay our stockholder distributions in shares of our common stock, thereby reducing the
cash a stockholder would have otherwise received from us.
In order to assist REITs to retain their cash while simultaneously satisfying their tax
distribution requirements, the Internal Revenue Service released Revenue Procedure 2008-68 effective
with respect to distributions declared on or after January 1, 2008, and applicable to REIT distributions
with respect to taxable years ending on or before December 31, 2009. Pursuant to this Revenue
Procedure, REITs may temporarily satisfy the distribution requirements of their taxable income by
offering their stockholders the option to receive the distribution in cash or the REIT’s stock. As a
result, for any distributions we declare in 2009, we may provide our stockholders with the option of
receiving such distribution in cash or shares of our common stock. If too many of our stockholders
elect to receive only cash, each such stockholder may receive up to 90% of the distribution in shares of
our stock, thereby reducing the cash such stockholder would have otherwise received from us. Our
board of directors will determine whether distributions are made in cash or a combination of cash and
stock.
If we further reduce our dividend, the market value of our common stock may decline.
The level of our common stock dividend is established by our board of directors from time to
time based on a variety of factors, including our cash available for distribution, our funds from
operations and our maintenance of REIT status. In December 2008, in view of the current economic
environment, our board determined that we should conserve cash and as a result reduced our quarterly
dividend from $.36 per share paid in October 2008 to $.22 per share paid in January 2009. Various
factors could cause our board of directors to decrease our common stock dividend level even further,
including tenant defaults or bankruptcies resulting in a material reduction in our cash flows or a
16
material loss resulting from an adverse change in the value of one or more of our properties. If we are
required to further reduce our common stock dividend, the market value of our common stock could be
adversely affected.
We cannot assure you of our ability to pay dividends in the future.
We intend to pay quarterly dividends and to make distributions to our stockholders in amounts
such that all or substantially all of our taxable income in each year, subject to certain adjustments, is
distributed. This, along with other factors, will enable us to quality for the tax benefits accorded to a
REIT under the Code. We have not established a minimum dividend payment level and our ability to
pay dividends may be adversely affected by the risk factors described in this Annual Report on Form
10-K. In December 2008, in view of the current economic environment, our board determined that we
should conserve cash and as a result reduced our quarterly dividend from $.36 per share paid in
October 2008 to $.22 per share paid in January 2009. All distributions will be made at the discretion
of our board of directors and will depend on our earnings, our financial condition, maintenance of our
REIT status and such other factors as our board of directors may deem relevant from time to time. As
the economic crisis and recession continue, our tenants may be further affected, which would likely
cause a decline in our revenues, and may reduce or eliminate our profitability and further reduce or
eliminate our dividends.
Competition in the real estate business is intense and could reduce our revenues and harm our
business.
We compete for real estate investments with all types of investors, including domestic and
foreign corporations and real estate companies, 1031 exchange buyers, financial institutions, insurance
companies, pension funds, investment funds, other REITs and individuals. Many of these competitors
have significant advantages over us, including a larger, more diverse group of properties and greater
financial and other resources.
Compliance with environmental regulations and associated costs could adversely affect our
liquidity.
Under various federal, state and local laws, ordinances and regulations, an owner or operator of
real property may be required to investigate and clean up hazardous or toxic substances or petroleum
product releases at the property and may be held liable to a governmental entity or to third parties for
property damage and for investigation and cleanup costs incurred in connection with contamination.
The cost of investigation, remediation or removal of hazardous or toxic substances may be substantial,
and the presence of such substances, or the failure to properly remediate a property, may adversely
affect our ability to sell or rent the property or to borrow money using the property as collateral. In
connection with our ownership, operation and management of real properties, we may be considered
an owner or operator of the properties and, therefore, potentially liable for removal or remediation
costs, as well as certain other related costs, including governmental fines and liability for injuries to
persons and property, not only with respect to properties we own now or may acquire, but also with
respect to properties we have owned in the past.
We cannot provide any assurance that existing environmental studies with respect to any of our
properties reveal all potential environmental liabilities, that any prior owner of a property did not
create any material environmental condition not known to us, or that a material environmental
condition does not otherwise exist, or may not exist in the future, as to any one or more of our
properties. If a material environmental condition does in fact exist, or exists in the future, the
17
remediation of costs could have a material adverse impact upon our results of operations, liquidity and
financial condition.
Our senior management and other key personnel are critical to our business and our future
success depends on our ability to retain them.
We depend on the services of Fredric H. Gould, chairman of our Board of Directors, Patrick J.
Callan, Jr., our president and chief executive officer, Lawrence G. Ricketts, Jr., our executive vice
president and chief operating officer, and other members of our senior management to carry out our
business and investment strategies. Only two of our senior officers, Messrs. Callan and Ricketts, devote all
of their business time to our company. The remainder of our senior management provide services to us on
a part-time, as-needed basis. We will need to attract and retain qualified senior management and other key
personnel, both on a full-time and part-time basis. The loss of the services of any of our senior
management or other key personnel, or our inability to recruit and retain qualified personnel in the future,
could impair our ability to carry out our business and investment strategies.
Our transactions with affiliated entities involve conflicts of interest.
From time to time we have entered into transactions with persons and entities affiliated with us
and with certain of our officers and directors. Our policy is to receive terms in transactions with affiliates
that are at least as favorable to us as similar transactions we would enter into with unaffiliated persons and
have these transactions approved by our audit committee and by a majority of our board of directors,
including a majority of our independent directors. We entered into a compensation and services agreement
with Majestic Property Management Corp. effective as of January 1, 2007. Majestic Property Management
Corp. is wholly-owned by the chairman of our Board of Directors and it provides compensation to certain
of our senior executive officers. Pursuant to the compensation and services agreement, we pay an annual
fee to Majestic Property Management Corp. and they assume our obligations under a shared services
agreement, and provide us with the services of all affiliated executive, administrative, legal, accounting
and clerical personnel that we use on a part time basis, as well as certain property management services,
property acquisition, sales and leasing and mortgage brokerage services. In 2008, we paid to Majestic a
fee of approximately $2,025,000 under the compensation and services agreement. In addition, in
accordance with the compensation and services agreement, in 2008 we paid our chairman a fee of
$250,000 and made an additional payment to Majestic Property Management Corp. of $175,000 for our
share of all direct office expenses, including rent, telephone, postage, computer services, and internet
usage. Any transactions with affiliated entities raise the potential that we may not receive terms as
favorable as those that we would receive if the transactions were entered into with unaffiliated entities or
that our executive officers might otherwise seek benefits for affiliated entities at our expense.
Compliance with the Americans with Disabilities Act could be costly.
Under the Americans with Disabilities Act of 1990, all public accommodations must meet
Federal requirements for access and use by disabled persons. A determination that our properties do
not comply with the Americans with Disabilities Act could result in liability for both governmental
fines and damages. If we are required to make unanticipated major modifications to any of our
properties to comply with the Americans with Disabilities Act, which are determined not to be the
responsibility of our tenants, we could incur unanticipated expenses that could have an adverse impact
upon our results of operations, liquidity and financial condition.
If we fail to satisfy one or more of the NYSE continued listing standards, the NYSE may delist
our common stock from trading, which could limit our stockholders' ability to make
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transactions in our common stock and subject us to additional trading restrictions.
Our common stock is listed on the NYSE, a national securities exchange, which imposes
continued listing requirements with respect to listed securities. The NYSE's continued listing standards for
REITs include, but are not limited to, a requirement that average market capitalization over any
consecutive 30 trading day period must be at least $25 million and that the average closing price of the
stock of any listed company over any consecutive 30 trading day period must be at least $1. Although the
NYSE has temporarily lowered the market capitalization standard to $15 million and suspended the
minimum stock price requirement, there can be no assurances that it will extend this temporary relief
beyond June 30, 2009, when it is scheduled to expire. On March 10, 2009, our market capitalization was
$33.5 million, based on a share price of $3.30 on that day. Our average share price over the 30 trading
days ending on March 10, 2009, was $4.44. If we fail to satisfy one or more of the continued listing
standards, the NYSE delists our common stock from trading on its exchange and we are not able to list our
securities on another national securities exchange or on Nasdaq, we would have to quote our common
stock on the OTC Bulletin Board or the "pink sheets." As a result, the ability of our stockholders to make
transactions in our common stock could be limited.
Risks Related to the REIT Industry
Failure to qualify as a REIT would result in material adverse tax consequences and would
significantly reduce cash available for distributions.
We believe that we operate so as to qualify as a REIT under the Code. Qualification as a REIT
involves the application of technical and complex legal provisions for which there are limited judicial
and administrative interpretations. The determination of various factual matters and circumstances not
entirely within our control may affect our ability to qualify as a REIT. In addition, no assurance can be
given that legislation, new regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to qualification as a REIT or the federal income tax
consequences of such qualification. If we fail to quality as a REIT, we will be subject to federal,
certain additional state and local income tax (including any applicable alternative minimum tax) on our
taxable income at regular corporate rates and would not be allowed a deduction in computing our
taxable income for amounts distributed to stockholders. In addition, unless entitled to relief under
certain statutory provisions, we would be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification is lost. The additional tax would reduce
significantly our net income and the cash available for distributions to stockholders.
We are subject to certain distribution requirements that may result in our having to borrow
funds at unfavorable rates.
To obtain the favorable tax treatment associated with being a REIT, we generally are required,
among other things, to distribute to our stockholders at least 90% of our ordinary taxable income
(subject to certain adjustments) each year. To the extent that we satisfy these distribution
requirements, but distribute less than 100% of our taxable income we will be subject to federal
corporate tax on our undistributed taxable income. In addition, we will be subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions paid by us with respect
to any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net
income and 100% of our undistributed income from prior years.
As a result of differences in timing between the receipt of income and the payment of expenses,
and the inclusion of such income and the deduction of such expenses in arriving at taxable income,
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and the effect of nondeductible capital expenditures, the creation of reserves and the timing of required
debt service (including amortization) payments, we may need to borrow funds or make distributions in
stock during 2009, in order to make the distributions necessary to retain the tax benefits associated
with qualifying as a REIT, even if we believe that then prevailing market conditions are not generally
favorable for such borrowings, such as currently is the case. Such borrowings could reduce our net
income and the cash available for distributions to holders of our common stock.
Compliance with REIT requirements may hinder our ability to maximize profits.
In order to qualify as a REIT for Federal income tax purposes, we must continually satisfy tests
concerning, among other things, our sources of income, the amounts we distribute to our stockholders
and the ownership of our stock. We may also be required to make distributions to stockholders at
disadvantageous times or when we do not have funds readily available for distribution. Accordingly,
compliance with REIT requirements may hinder our ability to operate solely on the basis of
maximizing profits.
In order to qualify as a REIT, we must also ensure that at the end of each calendar quarter, at
least 75% of the value of our assets consists of cash, cash items, government securities and qualified
REIT real estate assets. Any investment in securities cannot include more than 10% of the outstanding
voting securities of any one issuer or more than 10% of the total value of the outstanding securities of
any one issuer. In addition, no more than 5% of the value of our assets can consist of the securities of
any one issuer, other than a qualified REIT security. If we fail to comply with these requirements, we
must dispose of such portion of these securities in excess of these percentages within 30 days after the
end of the calendar quarter in order to avoid losing our REIT status and suffering adverse tax
consequences. This requirement could cause us to dispose of assets for consideration that is less than
their true value and could lead to a material adverse impact on our results of operations and financial
condition.
Item 1B. Unresolved Staff Comments.
None.
20
EXECUTIVE OFFICERS
Set forth below is a list of our executive officers whose terms expire at our 2009 annual board of
director’s meeting. The business history of our officers, who are also directors, will be provided in our
proxy statement to be filed pursuant to Regulation 14A not later than April 29, 2009.
NAME
AGE
POSITION WITH THE COMPANY
Fredric H. Gould*
Patrick J. Callan, Jr.
Lawrence G. Ricketts, Jr.
Jeffrey A. Gould*
Matthew J. Gould*
David W. Kalish
Israel Rosenzweig
Mark H. Lundy**
Simeon Brinberg**
Karen Dunleavy
Alysa Block
73
46
32
43
49
61
61
46
75
50
48
Chairman of the Board
President, Chief Executive Officer, and Director
Executive Vice President and Chief Operating Officer
Senior Vice President and Director
Senior Vice President and Director
Senior Vice President and Chief Financial Officer
Senior Vice President
Senior Vice President and Secretary
Senior Vice President
Vice President, Financial
Treasurer
* Matthew J. Gould and Jeffrey A. Gould are Fredric H. Gould’s sons.
** Mark H. Lundy is Simeon Brinberg’s son-in-law.
Lawrence G. Ricketts, Jr. Mr. Ricketts has been Chief Operating Officer of One Liberty Properties
since January 2008, and Vice President since December 1999 (Executive Vice President since June
2006), and has been employed by One Liberty Properties, Inc. since January 1999.
David W. Kalish. Mr. Kalish has served as Senior Vice President and Chief Financial Officer of
One Liberty Properties since June 1990. Mr. Kalish has served as Senior Vice President, Finance of
BRT Realty Trust since August 1998 and Vice President and Chief Financial Officer of the managing
general partner of Gould Investors L.P. since June 1990. Mr. Kalish is a certified public accountant.
Israel Rosenzweig. Mr. Rosenzweig has been a Senior Vice President of One Liberty Properties
since June 1997 and a Senior Vice President of BRT Realty Trust since March 1998. He has been a
Vice President of the managing general partner of Gould Investors L.P. since May 1997 and President
of GP Partners, Inc., a sub-advisor to a registered investment advisor, since 2000.
21
Mark H. Lundy. Mr. Lundy has served as the Secretary of One Liberty Properties since June 1993
and a Vice President since June 2000 (Senior Vice President since June 2006). Mr. Lundy has been a
Vice President of BRT Realty Trust since April 1993 (Senior Vice President since March 2005) and a
Vice President of the managing general partner of Gould Investors L.P. since July 1990. He is an
attorney-at-law and a member of the bars of New York and the District of Columbia.
Simeon Brinberg. Mr. Brinberg has served as a Senior Vice President of One Liberty Properties
since 1989. He has been Secretary of BRT Realty Trust since 1983, a Senior Vice President of BRT
Realty Trust since 1988 and a Vice President of the managing general partner of Gould Investors L.P.
since 1988. Mr. Brinberg is an attorney-at-law and a member of the bar of the State of New York.
Karen Dunleavy. Ms. Dunleavy has been Vice President, Financial of One Liberty Properties since
August 1994. She has served as Treasurer of the managing general partner of Gould Investors L.P.
since 1986. Ms. Dunleavy is a certified public accountant.
Alysa Block. Ms. Block has been Treasurer of One Liberty Properties since June 2007, and served as
Assistant Treasurer from June 1997 to June 2007. Ms. Block also serves as the Treasurer of BRT
Realty Trust since March 2008, and served as its Assistant Treasurer from March 1997 to March
2008.
22
Item 2.
Properties.
As of December 31, 2008, we owned 79 properties, three of which are vacant, three of which are
leased to a tenant in bankruptcy (which is liquidating its assets) and one of which is a 50% tenancy in
common interest, and participated in five joint ventures that own five properties, one of which is vacant. For
the year ended December 31, 2008, the average annual rental per square foot for our total portfolio of real
estate investments, including each property owned by our joint ventures was $7.08. The properties owned by
us and our joint ventures are suitable and adequate for their current uses. The aggregate net book value of
our 79 properties was $387.5 million after taking into account impairment charges of $6 million for the
year ended December 31, 2008.
The tables below set forth information as of December 31, 2008 concerning each property
which we own and in which we currently own an equity interest. Except for one movie theater
property, we and our joint ventures own fee title to each property.
Type of
Property
Industrial
Percentage
of 2009
Contractual
Rental Income (1)
5.6%
Approximate
Building
Square Feet
367,000
Our Properties
Location
Baltimore, MD
Parsippany, NJ
Hauppauge, NY
El Paso, TX
St. Cloud, MN
Hanover, PA
Plano, TX
Los Angeles, CA
Greensboro, NC
Brooklyn, NY
Knoxville, TN
Columbus, OH
Plano, TX
Philadelphia, PA
East Palo Alto, CA
Office
Flex
Retail
Industrial
Industrial
Retail (2)
Office (3)
Theater
Office
Retail
Retail (2)
Retail (4)
Industrial
Retail (5)
Tucker, GA
Health & Fitness
Ronkonkoma, NY
Flex
Lake Charles, LA
Manhattan, NY
Cedar Park, TX
Retail (6)
Residential
Retail (2)
Grand Rapids, MI
Health & Fitness
106,680
149,870
110,179
338,000
458,560
112,389
106,262
61,213
66,000
35,330
96,924
51,018
166,000
30,978
58,800
89,500
54,229
125,000
50,810
130,000
4.7
4.3
3.8
3.8
3.4
3.3
3.1
3.0
2.6
2.6
2.5
2.3
2.2
2.1
2.1
1.8
1.6
1.6
1.6
1.4
23
Location
Ft. Myers, FL
Chicago, IL
Newark, DE
Columbus, OH
Miami Springs, FL
Kennesaw, GA
Wichita, KS
Atlanta, GA
Naples, FL
Athens, GA
Saco, ME
Champaign, IL
Type of
Property
Retail
Retail (5)
Retail (5)
Industrial
Retail (5)
Retail (5)
Retail (2)
Retail
Retail (5)
Retail (7)
Industrial
Retail
New Hyde Park, NY
Industrial
Greenwood Village, CO
Retail
Tyler, TX
Melville, NY
Cary, NC
Mesquite, TX
Fayetteville, GA
Onalaska, WI
Richmond, VA
Amarillo, TX
Virginia Beach, VA
Eugene, OR
Selden, NY
Pensacola, FL
Lexington, KY
El Paso, TX
Retail (2)
Industrial
Retail (5)
Retail (2)
Retail (2)
Retail
Retail (2)
Retail (2)
Retail (2)
Retail (5)
Retail
Retail (5)
Retail (2)
Retail (5)
Approximate
Building
Square Feet
29,993
23,939
23,547
100,220
25,000
32,052
88,108
50,400
15,912
41,280
91,400
50,530
38,000
45,000
72,000
51,351
33,490
22,900
65,951
63,919
38,788
72,227
58,937
24,978
14,550
22,700
30,173
25,000
Percentage
of 2009
Contractual
Rental Income (1)
1.3
1.3
1.3
1.2
1.2
1.2
1.2
1.2
1.1
1.1
1.1
1.1
1.1
1.1
1.0
1.0
1.0
1.0
1.0
1.0
.9
.9
.9
.8
.8
.8
.8
.8
24
Location
Duluth, GA
Type of
Property
Retail (2)
Percentage
of 2009
Contractual
Rental Income (1)
.8
Approximate
Building
Square Feet
50,260
Grand Rapids, MI
Health & Fitness
.8
Newport News, VA
Retail (2)
Hyannis, MA
Batavia, NY
Gurnee, IL
Somerville, MA
Hauppauge, NY
Bluffton, SC
Houston, TX
Vicksburg, MS
Everett, MA
Killeen, TX
Flowood, MS
Marston Mills, MA
Bastrop, LA
Monroe, LA
D’Iberville, MS
Kentwood, LA
Monroe, LA
Vicksburg, MS
Rosenberg, TX
Retail
Retail (5)
Retail (2)
Retail
Retail
Retail (2)
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
Retail
West Palm Beach, FL
Industrial
Seattle, WA
St. Louis, MO
Fairview Heights, IL
Florence, KY
Antioch, TN
Ferguson, MO
Retail
Retail (8)
Retail (8)
Retail (8)
Retail (8)
Retail (8)
New Hyde Park, NY
Industrial (9)
.7
.7
.6
.6
.6
.6
.6
.5
.4
.4
.4
.4
.4
.4
.4
.4
.4
.3
.3
.3
.3
.1
-
-
-
-
-
-
100%
25
72,000
49,865
9,750
23,483
22,768
12,054
7,000
35,011
12,000
2,790
18,572
8,000
4,505
8,775
2,607
2,756
2,650
2,578
2,806
4,505
8,000
10,361
3,038
30,772
31,252
31,252
34,059
32,046
51,000
4,603,602
Properties Owned by Joint Ventures (10)
Location
Lincoln, NE
Milwaukee, WI
Miami, FL
Savannah, GA
Savannah, GA
Type of
Property
Retail
Industrial
Industrial
Retail
Retail (9)
Percentage
of Our Share
of Rent Payable
in 2009 to Our
Joint Ventures
43.3%
40.4
11.1
5.2
-
100%
Approximate
Building
Square Feet
112,260
927,685
396,000
101,550
7,959
1,545,454
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
Percentage of 2009 contractual rental income payable to us pursuant to leases as of December
31, 2008, including rental income payable on our tenancy in common interest and excluding
any rental income from five properties formerly leased by Circuit City.
This property is leased to a retail furniture operator.
An undivided 50% interest in this property is owned by us as tenant in common with an
unrelated entity. Percentage of contractual rental income indicated represents our share of the
2009 rental income. Approximate square footage indicated represents the total rentable
square footage of the property.
Property has two tenants, of which approximately 53% is leased to a retail furniture operator.
This property is leased to a retail office supply operator.
Property has three tenants, of which approximately 43% is leased to a retail office supply
operator.
Property has two tenants, of which approximately 48% is leased to a retail office supply
operator.
Property was leased to Circuit City, which in 2008 rejected the leases for properties located in
Antioch, TN, and Ferguson, MO, both of which are vacant. Circuit City rejected its
remaining leases with us in March 2009 for our properties located in St. Louis, MO, Fairview
Heights, IL and Florence, KY.
Vacant property.
Each property is owned by a joint venture in which we are a venture partner. Except for the
joint venture which owns the Miami, Florida property, in which we own a 36% economic
interest, we own a 50% economic interest in each joint venture. Approximate square footage
indicated represents the total rentable square footage of the property owned by the joint
venture.
The occupancy rate for our properties (including the property in which we own a tenancy in
common interest and the five properties formerly leased to Circuit City) based on total rentable square
footage, was 97.5% and 100% as of December 31, 2008 and 2007. The occupancy rate for the
properties owned by our joint ventures, based on total rentable square footage, was approximately
99.5% and 98.9% as of December 31, 2008 and 2007, respectively.
26
As of December 31, 2008, the 79 properties owned by us and the five properties owned by
our joint ventures are located in 29 states. The following tables set forth certain information,
presented by state, related to our properties and properties owned by our joint ventures as of
December 31, 2008.
Our Properties
State
Texas
New York
Georgia
Maryland
Pennsylvania
California
Florida
New Jersey
North Carolina
Minnesota
Ohio
Louisiana
Illinois
Tennessee
Other
Number of
Properties
11
10
6
1
2
2
5
1
2
1
2
5
4
2
25
79
Properties Owned by Joint Ventures
State
Nebraska
Wisconsin
Florida
Georgia
Number of
Properties
1
1
1
2
5
2009 Contractual
Rental Income
$ 6,648,615
Approximate
Building
Square Feet
544,523
6,094,678
3,103,938
2,340,923
2,338,343
2,186,055
2,011,972
1,981,581
1,692,751
1,574,022
1,572,080
1,301,690
1,258,630
1,079,367
615,754
298,743
367,000
624,560
137,240
103,966
106,680
94,703
338,000
197,144
128,489
64,976
69,389
6,768,441
$ 41,953,086
912,435
4,603,602
Our Share
of Rent Payable
in 2009 to Our
Joint Ventures
$ 603,594
562,500
154,488
72,188
Approximate
Building
Square Feet
112,260
927,685
396,000
109,509
$1,392,770
1,545,454
At December 31, 2008, we had first mortgages on 61 of the 79 properties we owned as of that
date (including our 50% tenancy in common interest, but excluding properties owned by our joint
27
ventures). At December 31, 2008, we had approximately $225.5 million of mortgage loans
outstanding, bearing interest at rates ranging from 5.44% to 8.8%. Substantially all of our mortgage
loans contain prepayment penalties. The following table sets forth scheduled principal mortgage
payments due for our properties as of December 31, 2008, and assumes no payment is made on
principal on any outstanding mortgage in advance of its due date:
YEAR
2009
2010
2011
2012
2013
2014 and thereafter
Total
PRINCIPAL PAYMENTS DUE
IN YEAR INDICATED
(Amounts in Thousands)
$ 18,869
22,532
8,816
37,806
19,036
118,455
$ 225,514
Included in 2009 is a $8.7 million non-recourse mortgage which is secured and cross
collateralized by the five Circuit City properties. The Company has not made any payments on this
mortgage since December 1, 2008 and has entered into negotiations with representatives of the
mortgagee relating to possible modifications of the mortgage. The mortgage is due in 2014.
At December 31, 2008, our joint ventures had first mortgages on three properties with
outstanding balances of approximately $18.3 million, bearing interest at rates ranging from 5.8% to 6.4%.
Substantially all these mortgages contain prepayment penalties. The following table sets forth the
scheduled principal mortgage payments due for properties owned by our joint ventures as of December
31, 2008, and assumes no payment is made on principal on any outstanding mortgage in advance of its
due date:
YEAR
2009
2010
2011
2012
2013
2014 and thereafter
Total
PRINCIPAL PAYMENTS DUE
IN YEAR INDICATED
(Amounts in Thousands)
$ 435
462
490
520
552
15,882
$ 18,341
Significant Tenants
As of December 31, 2008, no single property owned by us had a book value equal to or greater
than 10% of our total assets or had revenues which accounted for more than 10% of our aggregate
annual gross revenues in the year ended December 31, 2008.
28
Haverty Furniture Companies, Inc.
As of December 31, 2008, we owned a portfolio of eleven properties leased under a master
lease to Haverty Furniture Companies, Inc., which properties had a net book value equal to 13.6% of
our depreciated book value of real estate investments, and revenues which accounted for 12% of our
aggregate annual gross revenues in the year ended December 31, 2008. Of the eleven properties, three
are located in each of Texas and Virginia, two are located in Georgia, and one is located in each of
Kansas, Kentucky and South Carolina. The properties contain buildings with an aggregate of
approximately 612,130 square feet.
The properties are net leased to Haverty Furniture Companies, Inc. pursuant to a master lease,
which expires on August 14, 2022. Haverty Furniture Companies, Inc. is a New York Stock
Exchange listed company and operates over 100 showrooms in 17 states. The master lease provides
for a current base rent of $4,310,000 per annum (which accounts for 10.3% of our 2009 contractual
rental income), increasing on August 15, 2012 and every five years thereafter and provides the tenant
with certain renewal options. Pursuant to the master lease, the tenant is responsible for maintenance
and repairs, and for real estate taxes and assessments on the properties. The 2008 annual real estate
taxes on the properties aggregated $800,000. The tenant utilizes approximately 86% of the properties
for retail and 14% for warehouse.
The mortgage loan, which our subsidiary, OLP Havertportfolio L.P. assumed when it acquired
these eleven properties in 2006, is secured by mortgages/deeds of trust on all such properties in the
principal amount of approximately $25.4 million at December 31, 2008. The mortgage loan bears
interest at 6.87% per annum, matures on September 1, 2012 and is being amortized based on a 25-year
amortization schedule. Assuming only contractual payments are made on the principal amount of the
mortgage loan, the principal balance due on the maturity date will be approximately $23 million.
Although the mortgage loan provides for defeasance, it is generally not prepayable until 90 days prior
to the maturity date.
Office Depot, Inc.
As of December 31, 2008, we owned a portfolio of ten properties, each of which is subject to a
lease with Office Depot, Inc. We purchased eight of these properties on September 26, 2008. The
ten Office Depot, Inc. properties have a net book value equal to 12.6% of our depreciated book value
of real estate investments, accounted for 3.8% of our 2008 rental income and will account for 10.6%
of our 2009 contractual rental income. Of the ten properties, two are located in each of Florida and
Georgia, and one is located in each of California, Illinois, Louisiana, North Carolina, Oregon and
Texas. The properties contain buildings with an aggregate of approximately 261,678 square feet.
Each property is subject to a separate lease. Eight of the leases contain cross-default
provisions, expire on September 30, 2018, and provide the tenant with four five-year renewal options.
One lease expires on June 30, 2013 and provides the tenant with three five-year renewal options, and
one lease expires on February 28, 2014 and provides the tenant with four five-year renewal options.
Office Depot, Inc. is a New York Stock Exchange listed company and operates over 1,700 worldwide
retail stores. The ten leases provide for an aggregate current base rent of $4,435,000. The lease rent
for eight of the properties increases every five years by 10%. The lease rent for one property
increases by 5% every five years and the lease rent for one property increases by $20,000 every five
years. Pursuant to the leases, the tenant is responsible for maintenance and repairs, and for real estate
taxes and assessments on the properties. The 2008 annual real estate taxes on the properties
aggregated $666,000.
29
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the fourth quarter of the
fiscal year covered by this Annual Report on Form 10-K.
Part II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchase of Equity Securities.
Our common stock is listed on the New York Stock Exchange. The following table sets forth
the high and low prices for our common stock as reported by the New York Stock Exchange for 2008
and for 2007 and the per share cash distributions declared on our common stock during each quarter
of the years ended December 31, 2008 and 2007.
2008
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
HIGH
$18.73
$17.95
$19.32
$18.15
LOW
$15.45
$16.01
$15.20
$ 6.35
2007
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
LOW
HIGH
$22.72
$ 26.13
$21.59
$ 24.48
$ 23.26
$18.83
$ 21.97 $17.61
CASH
DISTRIBUTION
PER SHARE
$.36
$.36
$.36
$.22
CASH
DISTRIBUTION
PER SHARE
$ .36
$ .36
$1.03*
$ .36
* Includes a regular cash dividend of $.36 per share and a special cash distribution of
$.67 per share.
As of March 3, 2009, there were 337 common stockholders of record and we estimate that at
such date there were approximately 3,500 beneficial owners of our common stock.
We qualify as a REIT for federal income tax purposes. In order to maintain that status, we are
required to distribute to our stockholders at least 90% of our annual ordinary taxable income. The
amount and timing of future distributions will be at the discretion of our Board of Directors and will
depend upon our financial condition, earnings, business plan, cash flow and other factors. We intend
to make distributions in an amount at least equal to that necessary for us to maintain our status as a
real estate investment trust for Federal income tax purposes.
30
Stock Performance Graph
The following graph compares the performance of our common stock with the Standard and
Poor’s 500 Index and a peer group index of publicly traded equity real estate investment trusts
prepared by the National Association of Real Estate Investment Trusts. As indicated, the graph
assumes $100 was invested on December 31, 2003 in our common stock and assumes the
reinvestment of dividends.
Total Return Performance
One Liberty Properties, Inc.
S&P 500
NAREIT Equity Index
225
200
175
150
125
100
75
50
e
u
l
a
V
x
e
d
n
I
25
12/31/03
12/31/04
12/31/05
12/31/06
12/31/07
12/31/08
Index
One Liberty Properties, Inc.
S&P 500
NAREIT Equity Index
Period Ending
12/31/03
100.00
100.00
100.00
12/31/04
111.08
110.88
131.58
12/31/05
105.54
116.33
147.58
12/31/06
153.29
134.70
199.32
12/31/07
123.50
142.10
168.05
12/31/08
64.81
89.53
104.65
Source : SNL Financial LC, Charlottesville, VA
© 2009
31
Equity Compensation Plan Information
The following table provides information about shares of our common stock that may be issued upon
the exercise of options, warrants, rights and restricted stock under our 2003 Stock Incentive Plan as of
December 31, 2008:
Number of
securities
to be issued
upon exercise
of outstanding
options,
warrants and
rights
(a)
Number of
securities
remaining available
for future issuance
under equity
compensation
plans (excluding
securities
reflected in
column(a))
(c)
Weighted-
average
exercise price
of outstanding
options, warrants
and rights
(b)
-
-
31,295
-
-
-
-
-
31,925
Plan Category
Equity compensation
plans approved by
security holders (1)
Equity compensation
plans not approved
by security holders
Total
(1) Our 2003 Stock Incentive Plan, which was approved by our stockholders in 2003, is our only
equity compensation plan. Our 2003 Stock Incentive Plan permits us to grant stock options and
restricted stock to our employees, officers, directors and consultants. Currently, there are no
options outstanding under our 2003 Stock Incentive Plan. Please see note 8 to our Consolidated
Financial Statements for a description of our 2003 Stock Incentive Plan.
Purchase of Securities
On November 6, 2008, we announced that our board of directors authorized a program for us to
repurchase up to 500,000 shares of our common stock in the open market from time to time, which may
continue for up to twelve months. Set forth below is a table which provides the purchases we made in the
fourth quarter of 2008:
32
Issuer Purchases of Equity Securities
Total Number of
Shares (or Units
Purchased)
Average Price
Paid per Share (or
Unit)
Total Number of
Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs
-
-
-
500,000
32,164
$8.19
32,164
467,836
Period
October 1, 2008-
October 31, 2008
November 1,
2008-
November 30,
2008
December 1, 2008-
December 31,
2008
-
-
-
467,836
Item 6. Selected Financial Data.
The following table sets forth the selected consolidated statement of operations data for each
of the periods indicated, all of which are derived from our audited consolidated financial statements
and related notes. The selected financial data for each of the three years in the period ended
December 31, 2008 should be read together with our consolidated financial statements and related
notes appearing elsewhere in this Annual Report on Form 10-K and in “Management’s Discussion
and Analysis of Financial Condition and Results of Operations”, below, where this data is discussed
in more detail.
OPERATING DATA (Note a)
Rental revenues
Impairment charge
Equity in earnings (loss) of unconsolidated
joint ventures (Note b)
Gain on dispositions of real estate of
unconsolidated joint ventures
Net gain on sale of unimproved land,
air rights and other gains
Income from continuing operations
Income from discontinued operations
Net income
As of and for the Year Ended
December 31
(Amounts in Thousands, Except Per Share Data)
2008 2007 2006 2005 2004
$40,341 $38,149 $33,370 $27,232 $20,833
5,983 - - - -
622
648 (3,276) 2,102 2,869
297
583
26,908 - -
1,830
4,892
-
4,892
-
10,217
373
10,590
413
31,882
4,543
36,425
10,248
19,182
2,098
21,280
73
7,733
3,241
10,974
33
As of and for the Year Ended
December 31
(Amounts in Thousands, Except Per Share Data)
2008 2007 2006 2005 2004
Weighted average number of common
shares outstanding:
Basic
Diluted
Net income per common share – basic and diluted:
Income from continuing operations
Income from discontinued operations
Net income
Cash distributions per share of
common stock (Note c)
BALANCE SHEET DATA
Real estate investments, net
Investment in unconsolidated joint ventures
Cash and cash equivalents
Total assets
Mortgages and loan payable
Line of credit
Total liabilities
Total stockholders' equity
OTHER DATA (Note d)
Funds from operations
Funds from operations per common share:
Basic
Diluted
10,183
10,183
10,069
10,069
$ .48
-
$ .48
$ 1.01
.04
$1.05
9,931
9,934
$3.21
.46
$3.67
9,838
9,843
$ 1.95
.21
$2.16
9,728
9,744
$ .80
.33
$1.13
$ 1.30
$2.11
$1.35
$1.32
$1.32
7,014
34,013
5,857
10,947
$387,456 $344,042 $351,841 $258,122
$228,536
27,335
37,023
26,749
6,051
284,386
422,037 330,583
227,923 167,472 124,019
7,600
241,912 175,064 138,271
146,115
180,125 155,519
6,570
25,737
429,105 406,634
225,514 222,035
-
265,130 235,395
163,975 171,239
27,000
-
-
$13,952 $18,645
$13,707 $26,658 $16,789
$1.37
$1.37
$1.85
$1.85
$1.38
$1.38
$2.71
$2.71
$1.73
$1.72
Note a: Certain amounts reported in prior periods have been reclassified to conform to the current
year’s presentation.
Note b: For the year ended December 31, 2006, “Equity in earnings (loss) of unconsolidated joint
ventures” is after giving effect to $5.3 million, our share of the mortgage prepayment premium expense
incurred in connection with dispositions of real estate of unconsolidated joint ventures. This expense is
reflected as interest expense on the books of the joint ventures and is not netted against the gain on
dispositions.
Note c: 2007 includes a special cash distribution of $.67 per share.
Note d: We consider funds from operations (FFO) to be a relevant and meaningful supplemental
measure of the operating performance of an equity REIT, and it should not be deemed to be a
measure of liquidity. FFO does not represent cash generated from operations as defined by generally
accepted accounting principles (GAAP) and is not indicative of cash available to fund all cash needs,
including distributions. It should not be considered as an alternative to net income for the purpose of
evaluating our performance or to cash flows as a measure of liquidity.
34
We compute FFO in accordance with the “White Paper on Funds From Operations” issued in
April 2002 by the National Association of Real Estate Investment Trusts (NAREIT). FFO is defined
in the White Paper as “net income (computed in accordance with generally accepting accounting
principles), excluding gains (or losses) from sales of property, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures will be calculated to reflect funds from operations on the same basis.”
In computing FFO, we do not add back to net income the amortization of costs in connection with
our financing activities or depreciation of non-real estate assets. Since the NAREIT White Paper only
provides guidelines for computing FFO, the computation of FFO may vary from one REIT to another.
We believe that FFO is a useful and a standard supplemental measure of the operating
performance for equity REITs and is used frequently by securities analysts, investors and other
interested parties in evaluating equity REITs, many of which present FFO when reporting their
operating results. FFO is intended to exclude GAAP historical cost depreciation and amortization of
real estate assets, which assures that the value of real estate assets diminish predictability over time.
In fact, real estate values have historically risen and fallen with market conditions. As a result, we
believe that FFO provides a performance measure that when compared year over year, should reflect
the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs
and other matters without the inclusion of depreciation and amortization, providing a perspective that
may not be necessarily apparent from net income. We also consider FFO to be useful to us in
evaluating potential property acquisitions.
FFO does not represent net income or cash flows from operations as defined by GAAP. FFO
should not be considered to be an alternative to net income as a reliable measure of our operating
performance; nor should FFO be considered to be an alternative to cash flows from operating,
investing or financing activities (as defined by GAAP) as measures of liquidity.
FFO does not measure whether cash flow is sufficient to fund all of our cash needs, including
principal amortization, capital improvements and distributions to stockholders. FFO does not
represent cash flows from operating, investing or financing activities as defined by GAAP.
Management recognizes that there are limitations in the use of FFO. In evaluating the
performance of our company, management is careful to examine GAAP measures such as net income
and cash flows from operating, investing and financing activities. Management also reviews the
reconciliation of net income to FFO.
The table below provides a reconciliation of net income in accordance with GAAP to FFO, as
calculated under the current NAREIT definition of FFO, for each of the years in the five year period
ended December 31, 2008.
Net income (Note 1)
Add: depreciation of properties
Add: our share of depreciation
in unconsolidated joint ventures
Add: amortization of deferred leasing costs
Deduct: gain on sale of real estate
Deduct: gain on dispositions of real estate
of unconsolidated joint ventures
Funds from operations (Note 1)
2008
2007
$ 4,892 $10,590
8,248
8,971
2005
2006
2004
$36,425 $21,280 $10,974
4,758
7,091
5,905
322
64
-
329
61
-
716
43
(3,660)
1,277
101
(1,905)
1,075
55
(73)
(297)
(583)
$13,952 $18,645
(26,908) -
-
$13,707 $26,658 $16,789
35
Note 1: For the year ended December 31, 2008, net income and funds from operations (FFO) is
after $6 million of impairment charges. For the year ended December 31, 2006, net income and FFO
is after giving effect to $5.3 million, our share of the mortgage prepayment premium expense incurred
in connection with the dispositions of real estate of unconsolidated joint ventures. This expense is
reflected as interest expense on the books of the joint ventures and not netted against gain on
dispositions. For the year ended December 31, 2005, net income and FFO include $10.2 million from
the gain on sale of air rights.
The table below provides a reconciliation of net income per common share (on a diluted basis) in
accordance with GAAP to FFO.
Net income (Note 2)
Add: depreciation of properties
Add: our share of depreciation
in unconsolidated joint ventures
Add: amortization of deferred leasing costs
Deduct: gain on sale of real estate
Deduct: gain on dispositions of real estate
of unconsolidated joint ventures
Funds from operations (Note 2)
2008
2007
2006
2005
2004
$
.48
.88
.03
.01
-
$1.05
.82
$3.67
.71
$2.16
.60
$1.13
.49
.03
.01
-
.07
.01
(.37)
.13
.01
(.19)
.11
-
(.01)
(.03)
-
$1.37 $1.85 $1.38 $2.71 $1.72
(2.71)
(.06)
-
Note 2: For the year ended December 31, 2008, net income and FFO is after $.59 of
impairment charges. For the year ended December 31, 2006, net income and FFO is after $.53, our
share of the mortgage prepayment premium expense. For the year ended December 31, 2005, net
income and FFO include $1.04 from the gain on sale of air rights. See Note 1 above.
36
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
General
We are a self-administered and self-managed REIT. We primarily own real estate that we net
lease to tenants. As of December 31, 2008, we owned 79 properties, three of which are vacant, and one
of which is a 50% tenancy in common interest, and participated in five joint ventures that own five
properties, one of which is vacant. These properties are located in 29 states.
Our rental properties are generally leased to corporate tenants under operating leases
substantially all of which are noncancellable. Substantially all of our lease agreements are net lease
arrangements that require the tenant to pay not only rent, but also substantially all of the operating
expenses of the leased property, including maintenance, taxes, utilities and insurance. A majority of
our lease agreements provide for periodic rental increases and certain of our other leases provide for
increases based on the consumer price index.
At December 31, 2008, excluding mortgages payable of our unconsolidated joint ventures,
we had 40 outstanding mortgages payable, aggregating $225.5 million in principal amount, all of
which are secured by first liens on individual real estate investments with an aggregate carrying value
of approximately $362 million, before accumulated depreciation. The mortgages bear interest at fixed
rates ranging from 5.44% to 8.8%, and mature between 2009 and 2037.
During 2008, the national economic recession resulted in, among other things, increased
unemployment, and caused a significant decline in consumer confidence, which has dramatically
reduced consumer spending on retail goods. This affected us and our retail tenants in the following
respects:
• Circuit City, a retail tenant which leased five of our properties, filed for protection under the
Federal bankruptcy laws in November 2008, rejected leases for two of our properties in
December 2008 and the remaining three properties in March 2009. The five properties formerly
leased to Circuit City accounted for 2.3% of our 2008 annual rental revenues.
• We recorded an impairment charge of approximately $6 million against four properties for the year
ended December 31, 2008, including three properties formerly leased to Circuit City. An analysis
was performed and we determined that two of the properties leased to Circuit City at December
2008, which leases were rejected in March 2009, did not require an impairment charge for the year
ended December 31, 2008. The impairment charge for each affected property is equal to the
difference between the net book value, including intangibles, and the present value of discounted
cash flows of the properties based upon certain valuation assumptions. At December 31, 2008, we
had a non-recourse mortgage with an outstanding balance of $8.7 million secured by five
properties for which Circuit City rejected our leases. We have not made any payments on this
mortgage since December 1, 2008 and have entered into negotiations with representatives of the
mortgagee relating to possible modifications of the mortgage. After taking into account the
impairment charge, our book value for these five properties is $8.3 million;
• We wrote-off or recorded accelerated amortization on an aggregate of $332,000 of unbilled
“straight line” rent receivable for six retail properties, including five properties formerly leased
by Circuit City which resulted in a decrease in our rental revenues for the year ended December
31, 2008; and
37
• Our quarterly distribution was reduced by 39% from $.36 in October 2008 to $.22 in January
2009.
Our rental income from our retail tenants will account for 55% of our 2009 contractual rental
revenues, including 19% which is from furniture stores and 14% from office supply stores. Two retail
tenants in the office supply and furniture business represent an aggregate of 10.6% and 10.3% of our 2009
contractual rental revenues.
If economic conditions in the United States do not stabilize in 2009, we will likely experience
additional tenant defaults, delinquencies and delays in payments and lease renegotiations, which could
cause a decline in our rental revenues. In addition, since the economy has also sustained a crisis in the
commercial real estate market and in the commercial banking system, the value of properties that we hold
or seek to sell could decline. As a result, we may recognize additional impairment charges and losses on
property sales. Also, our operating expenses will increase as we maintain and improve vacant properties.
Moreover, our ability to refinance existing indebtedness and to secure additional funds from
unencumbered properties may also be limited due to the liquidity constraints in the credit markets.
Comparison of Years Ended December 31, 2008 and December 31, 2007
Rental Revenues
Rental revenues. Rental revenues increased by $2.2 million, or 5.7%, to $40.3 million for the
year ended December 31, 2008, from $38.1 million for the year ended December 31, 2007. The
increase in rental revenues is substantially due to rental revenues of $1.7 million earned during the
year ended December 31, 2008 on twelve properties acquired by us during 2008. The increase in
2008 rental income as compared to 2007 also resulted from a $253,000 write off of the intangible
lease liability related to a property where we directly assumed in December 2008 the sublease for a
property leased by us to Circuit City and subleased by Circuit City to a furniture retailer.
Additionally, in 2008 and 2007, we wrote off the entire balance of unbilled rent receivable relating to
several properties.
Operating Expenses
Depreciation and amortization expense. Depreciation and amortization expense increased by
$723,000, or 8.8%, to $9 million for the year ended December 31, 2008, from $8.2 million for the
year ended December 31, 2007. The increase was primarily due to depreciation and amortization of
$370,000 on eleven properties acquired between January and September 2008. The increase also was
due to a $196,000 increase in depreciation in 2008 on a property which had been classified as “held
for sale” with no depreciation taken during the second half of 2007. Normal and “catch-
up”depreciation on such property resumed in 2008. The increase also resulted from accelerated
amortization of tenant origination costs of $161,000 principally relating to the two properties vacated
by Circuit City in 2008 and the three properties leased to Circuit City at December 31, 2008.
General and administrative expenses. General and administrative expenses increased by
$78,000, or 1.2%, to $6.5 million for the year ended December 31, 2008, from $6.4 million for the
year ended December 31, 2007. The increase is due to a number of factors including: (i) a $133,000
increase in payroll and payroll related expenses for full-time employees; (ii) a $105,000 increase in
professional fees incurred in connection with civil litigations commenced by us as plaintiff, arising
out of the activities of our former president and chief executive officer; and (iii) a $62,000 increase in
38
compensation expenses related to the amortization of restricted stock awards. These increases were
offset by: (a) a $100,000 decrease paid under the Compensation and Services Agreement, described
below; (b) a $64,000 decrease in state tax expense and (c) miscellaneous decreases in accounting,
legal and director fees.
Included in general and administrative expenses for the years ended December 31, 2008 and
2007 was $2.19 million and $2.29 million, respectively, of expenses incurred pursuant to a
compensation and services agreement which became effective January 1, 2007, entered into between
us and Majestic Property Management Corp., an affiliated entity. Under the compensation and
services agreement, Majestic Property Management Corp. took over our obligations under a shared
services agreement (including our share of direct office overhead) and agreed to continue to provide
us with the services of all executive, administrative, legal, accounting and clerical personnel that we
use on a part-time basis. Accordingly, we no longer allocate direct office overhead or payroll
expenses. The agreement also requires Majestic Property Management Corp. to continue to provide
us with certain property management services (including construction supervisory services), property
acquisition, sales and leasing services and mortgage brokerage services. We do not incur any fees or
expenses for such services, other than the annual fee to Majestic Property Management Corp., which
was $2,025,000 (before offsets provided for in the agreement) in 2008, plus $175,000 as our share of
direct office overhead.
Impairment charge. During the year ended December 31, 2008, we recorded an impairment
charge of approximately $6 million relating to four properties. A charge of $5.2 million was recorded
relating to three of our Circuit City properties and $752,000 was related to a retail furniture property.
Circuit City rejected leases for two of the properties in December 2008 and rejected the lease for the
third property in March 2009. We performed an analysis and have determined that the other two
properties leased to Circuit City which were rejected in March 2009, do not at this time require an
impairment charge. Although the retail furniture property has been vacant, the tenant is current in its
rent payments. There was no impairment charge recorded in the year ended December 31, 2007.
Real estate expenses. Real estate expenses increased by $392,000, or 134%, to $685,000 for
the year ended December 31, 2008, from $293,000 for the year ended December 31, 2007, resulting
primarily from real estate taxes for the five properties formerly leased by Circuit City. Real estate
expenses for the year ended December 31, 2008 also include real estate taxes for two of our other
properties, including a vacant property.
Other Income and Expenses
Gain on dispositions of real estate of unconsolidated joint ventures. In the years ended
December 31, 2008 and 2007, two of our joint ventures each sold a vacant property and we
recognized gains on sale of $297,000 and $583,000, respectively.
Interest and other income. Interest and other income decreased by $1.2 million, or 70%, to
$533,000 for the year ended December 31, 2008, from $1.8 million for the year ended December 31,
2007. Due to the current credit crisis, interest rates have been steadily declining over the past several
quarters resulting in a decrease in the income we earn on our investment in short-term cash
equivalents. In addition, we had less cash available for investment after we paid a special distribution
of $6.7 million to our stockholders in October 2007 and purchased nine properties in September
2008. Also contributing to the decrease in interest and other income was the inclusion of a $118,000
gain on the sale of available-for-sale securities in the year ended December 31, 2007. We did not
have a similar sale of securities in 2008.
39
Interest expense. Interest expense increased by $714,000, or 4.8%, to $15.6 million for the
year ended December 31, 2008, from $14.9 million for the year ended December 31, 2007. This
increase was primarily the result of a $650,000 decrease in fair value of an interest rate swap that we
entered into in connection with a mortgage placed on a property in November 2008. The increase
was also due to interest expense on this mortgage and on fixed rate mortgages placed on three
properties between August 2007 and September 2008, and the assumption of two fixed rate
mortgages in connection with the purchase of two properties in January and February 2008. In
addition, at the end of September 2008, we borrowed $34 million under our line of credit which was
applied to the purchase of eight Office Depot properties, of which $7 million was repaid in November
2008 with a portion of the proceeds from a mortgage financing of one of our properties. Accordingly,
interest expense relating to our line of credit increased by $360,000 during the year ended December
31, 2008. These increases were offset from the payoff in full of two mortgage loans, as well as from
the monthly principal amortization of other mortgages.
Gain on sale of excess unimproved land. During the year ended December 31, 2008, we sold
five acres of excess land that we acquired as part of the purchase of a flex building in 2000 and
recognized a gain of $1.8 million. There was no such gain in the year ended December 31, 2007.
Comparison of Years Ended December 31, 2007 and December 31, 2006
Rental Revenues
Rental revenues. Rental revenues increased by $4.8 million, or 14.3%, to $38.1 million for
the year ended December 31, 2007, from $33.3 million for the year ended December 31, 2006. The
increase in rental revenues was substantially due to rental revenues earned during the year ended
December 31, 2007 on 22 properties acquired by us between April and December 2006.
Operating Expenses
Depreciation and amortization expense. Depreciation and amortization expense increased by
$1.3 million, or 17.9%, to $8.2 million for the year ended December 31, 2007, from $7 million for the
year ended December 31, 2006. The increase in depreciation and amortization was due to the
acquisition of 22 properties between April and December 2006.
General and administrative expenses. General and administrative expenses increased by
$1.2 million, or 22.5%, to $6.4 million for the year ended December 31, 2007, from $5.3 million for
the year ended December 31, 2006. The increase is due to a number of factors including (i) a
$135,000 increase in payroll and payroll related expenses of full-time employees; (ii) a $310,000
increase in compensation expenses related to the amortization of restricted stock awards; (iii) a
$200,000 increase (from $50,000 to $250,000) in the compensation paid to the chairman of our Board
of Directors; and (iv) a $228,000 increase in professional fees, resulting from both the retention by
our Compensation Committee of an independent consultant, and an increase in legal and accounting
fees. Offsetting these increases was a $723,000 decease in professional fees incurred in the prior year
in connection with investigations by the SEC and our Audit Committee, and legal fees relating to a
civil litigation arising out of the activities of our former president and chief executive officer.
Included in the increase in general and administrative expenses was $2.29 million of
expenses incurred pursuant to the compensation and services agreement. In consideration of taking
over our obligations under the shared services agreement and providing the services set forth in the
40
compensation and services agreement, we agreed to pay Majestic Property Management Corp. a fee in
2007 of $2,125,000 (before offsets provided for in the agreement) plus $175,000 as our share of
direct office overhead. The following table compares the amounts paid by us in 2007 under the
compensation and services agreement and the expenses paid in 2006 which would be included in the
fee paid under such agreement:
Years ended December 31,
2007
2006
Compensation and
Services Agreement
Allocated expenses
Mortgage brokerage fees
Sales commissions
Management fees
Supervisory fees
Fees paid by our joint ventures
Total fees
$2,288,000
-
-
-
-
-
2,288,000
6,000
$2,294,000
$ -
1,317,000
100,000 (1)
152,000 (2)
15,000
41,000 (3)
1,625,000
691,000 (4)
$2,316,000
(1) Deferred and written off over term of mortgage.
(2) Reduced net sales proceeds.
(3) Capitalized to improvement account.
(4) Represents our 50% share of fees paid to Majestic Property Management Corp. by our joint
ventures. The 2007 amount is for management fees and the 2006 amount is primarily for sales
commissions, which reduced the net sales proceeds from the dispositions of real estate of
unconsolidated joint ventures.
Other Income and Expenses
Equity in earnings (loss) of unconsolidated joint ventures. Our equity in earnings of
unconsolidated joint ventures increased by $3.9 million to $648,000 for the year ended December 31,
2007, from a loss of $3.3 million for the year ended December 31, 2006. The $3.3 million loss for
the year ended December 31, 2006 resulted primarily from $10.5 million of mortgage prepayment
premiums, of which 50%, or $5.3 million, was our share, paid by two of our joint ventures upon the
sale of its nine movie theater properties in September and October 2006. Such sales resulted in a
decrease in income producing properties owned by our joint ventures since these properties generated
operating income of $4.6 million, of which 50%, or $2.3 million, was our share in 2006. The year
ended December 31, 2006 also included a $960,000 impairment charge by one of our joint ventures,
of which 50%, or $480,000, was our share. Additionally, during the year ended December 31, 2006,
one of our movie theater joint ventures recorded a $600,000 impairment charge, of which 50%, or
$300,000, was our share. The joint venture sold this property in March 2007. The year ended
December 31, 2007 includes an increase in our equity share of earnings from four of our other
unconsolidated joint ventures, primarily due to our participation in an additional joint venture which
acquired a property in September 2006.
Gain on dispositions of real estate of unconsolidated joint ventures. Gain on dispositions of
real estate of unconsolidated joint ventures results from sales of real estate assets owned by our two
movie theater joint ventures. The year ended December 31, 2006 reflects the September 2006 sale by
one of the joint ventures of a movie theater property located in Brooklyn, New York for a
consideration of $16 million, from which it realized a gain of $6.6 million, of which our share was
41
$3.3 million. The year ended December 31, 2006 also reflects the October 2006 sale of eight movie
theater properties by both movie theater joint ventures to an unrelated party for an aggregate purchase
price of $136.7 million, from which the joint ventures realized a gain of $49 million, of which $24.5
million was our share. We wrote off the unamortized premium balance of $924,000 in our investment
in one of the joint ventures against the gain. The year ended December 31, 2007 reflects the sale by
one of the movie theater joint ventures of its last remaining real estate asset, a vacant parcel of land,
located in Monroe, New York, for a consideration of $1.25 million. The joint venture recognized a
gain of $1.2 million on this sale, of which our 50% share is $583,000.
Interest and other income. Interest and other income increased by $877,000, or 97.6%, to
$1.8 million for the year ended December 31, 2007, from $899,000 for the year ended December 31,
2006. The increase in interest and other income for the year ended December 31, 2007 resulted
substantially from our investment in short-term cash equivalents available primarily from the
distributions we received from the movie theater joint ventures upon the sales of its theater properties
in September and October 2006. Also contributing to the increase in interest and other income in the
year ended December 31, 2007 was a $118,000 gain on sale of available-for-sale securities.
Interest expense. Interest expense increased by $2.4 million, or 19.2%, to $14.9 million for
the year ended December 31, 2007, from $12.5 million for the year ended December 31, 2006. This
increase results primarily from fixed rate mortgages placed on ten properties in the year ended
December 31, 2006, and the assumption of a fixed rate mortgage in connection with the purchase of
eleven properties in April 2006. The year ended December 31, 2007 includes a full year of interest
expense on these mortgages. In addition, the increase in interest expense results from interest on a
loan payable, which was originally a mortgage collateralized by a movie theater property we sold in
October 2006.
Amortization of deferred financing costs. Amortization of deferred financing costs increased
by $43,000, or 7.2%, to $638,000 for the year ended December 31, 2007. The increase is due to
results from the amortization of deferred mortgage costs during the year ended December 31, 2007
resulting from mortgages placed on 22 properties between April 2006 and August 2007.
Gain on sale. In July 2006, we sold excess acreage at a property we owned to an unrelated
party and recognized a $185,000 gain on the sale, and in February 2006, we sold an option to buy an
interest in certain property adjacent to one of our properties and recognized a $228,000 gain on the
sale.
Discontinued Operations
Income from discontinued operations. Income from discontinued operations decreased by
$4.2 million, or 92%, to $373,000 for the year ended December 31, 2007, from $4.5 million for the
year ended December 31, 2006. This decrease was primarily due to the $3.7 million gain in the year
ended December 31, 2006 on the sale of a movie theater wholly owned by us that we sold for $15.2
million. This sale was part of a sale which closed in October 2006 pursuant to which an unrelated
party purchased one movie theater from us and eight movie theaters from two of our joint ventures.
The year ended December 31, 2006 also includes the net operating income of $487,000 from this
property.
Liquidity and Capital Resources
We require capital to fund our operations. Our capital sources include income from operating
42
activities, borrowings under our revolving credit facility and mortgage loans secured by our properties.
Our available liquidity at December 31, 2008 was approximately $46.4 million, including $10.9 million of
cash and cash equivalents and $35.5 million of available liquidity under our revolving credit facility. Our
business model includes the continued borrowing of funds against our portfolio of properties and the
refinancing of existing debt. With the tightening of liquidity by lending institutions, we have found that it
is increasingly difficult to identify funding sources. As a result, our ability to make new property
acquisitions or increase liquidity will be limited. We have not made any payments since December 1, 2008
on the $8.7 million non-recourse mortgage secured by our five properties formerly leased to Circuit City.
Short-Term Liquidity and Financing
We expect to meet our short-term liquidity requirements generally through our cash and cash
equivalents and cash provided by operating activities and, to the extent we make a new property
acquisition, from our revolving credit facility. To the extent our cash flow from operating activities is
insufficient to finance property acquisitions, we will need to finance property acquisitions through
borrowings under our credit facility, and thereafter, to seek long-term fixed rate mortgages for such
properties.
As a result of the current economic environment and the uncertainty in the credit markets, it
is difficult and/or expensive to secure financing upon reasonable terms, if at all. In addition, the
credit markets may make it difficult and/or expensive to repay or satisfy our existing debt. All of our
requests for draws under our credit facility have been satisfied to date. However, in view of the
current uncertainties, we have adopted a conservative acquisition strategy and will likely make few, if
any, acquisitions in the near term.
Long-Term Liquidity and Financing
We expect to meet our long term liquidity requirements through existing cash resources,
proceeds from debt, including under a credit facility and mortgages (including refinances) on our
properties, and if required, the liquidation of our properties. We believe that the value of our
portfolio is, and will continue to be, sufficient to allow us to refinance the mortgage debt on it at
maturity and repay all indebtedness we owe under our credit facility.
Our current credit facility matures on March 31, 2010. Our ability to meet our long term
liquidity requirements is subject to securing an extension on our credit facility or securing a new
credit facility. Any decision by our lenders (or potential lenders) to provide us with financing will
depend upon a number of factors, such as the continuation or deterioration of the current economic
recession, our compliance with the terms of our existing credit facility, our financial performance,
industry or market trends, the general availability of and rates applicable to financing transactions,
such lenders' resources and policies concerning the terms under which they make capital
commitments and the relative attractiveness of alternative investment or lending opportunities. We
expect that the terms of a new facility will be less favorable than our existing facility.
Credit Facility
We are a party to a credit agreement, as amended, with VNB New York Corp., Bank Leumi, USA,
Manufacturers and Traders Trust Company and Israel Discount Bank of New York which provides for a
$62.5 million revolving credit facility. The credit facility is available to us to pay off existing mortgages,
to fund the acquisition of additional properties or to invest in joint ventures. The facility matures on March
31, 2010. Borrowings under the facility bear interest at the lower of LIBOR plus 2.15% or the bank’s
43
prime rate and there is an unused facility fee of ¼% per annum. Net proceeds received from the sale or
refinancing of properties are required to be used to repay amounts outstanding under the facility if
proceeds from the facility were used to purchase or refinance the property. The facility is guaranteed by
our subsidiaries that own unencumbered properties and is secured by the outstanding stock of subsidiary
entities. As of December 31, 2008 and March 13, 2009, there was $27 million outstanding under the
facility.
Contractual Obligations
The following sets forth our contractual cash obligations as of December 31, 2008, which
relate to interest and amortization payments and balances due at maturity under outstanding
mortgages secured by our properties for the periods indicated (amounts in thousands):
Contractual Obligations
Mortgages payable –
interest and amortization
Mortgages payable –
balances due at maturity
Total
Payment due by period
Total
Less than
1 Year
1-3
Years
4-5
Years 5 Years
More than
$122,037
$19,514
$35,220
$29,329
$ 37,974
179,531
$301,568
13,426(a)
$32,940
20,044
$55,264
46,269
99,792
$75,598 $137,766
Note (a): Included is an $8.7 million non-recourse mortgage for which we have not made any payments
since December 1, 2008. The mortgage is secured and cross collateralized by the five Circuit City
properties. We have entered into negotiations with representatives of the mortgagee relating to possible
modifications of the mortgage. This mortgage is scheduled to mature on December 14, 2014.
As of December 31, 2008, we had outstanding approximately $225.5 million in long-term
mortgage indebtedness (excluding mortgage indebtedness of our unconsolidated joint ventures), all of
which is non-recourse (subject to standard carve-outs). We expect that debt service payments of
approximately $54.7 million due in the next three years will be paid primarily from cash generated
from our operations. We anticipate that loan maturities of approximately $24.6 million due in the
next three years will be paid primarily from mortgage financings or refinancings. If we are not
successful in refinancing our existing indebtedness or financing our unencumbered properties, our
cash flow, funds available under our credit facility and available cash, if any, may not be sufficient to
repay all maturing debt when payments become due, and we may be forced to sell additional equity or
dispose of properties on disadvantageous terms.
In addition, we, as ground lessee, are obligated to pay rent under a ground lease for a property
owned in fee by an unrelated third party. The annual fixed leasehold rent expense is as follows:
Total
$3,748,976 $262,240 $296,875 $296,875 $296,875 $296,875 $2,299,236
2009 2010 2011 2012 2013 5 Years
More than
We had no outstanding contingent commitments, such as guarantees of indebtedness, or any
other contractual cash obligations at December 31, 2008.
44
Distribution Policy
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as
amended. To qualify as a REIT, we must meet a number of organizational and operational
requirements, including a requirement that we distribute currently at least 90% of our ordinary taxable
income to our stockholders in stock (under Revenue Procedure 2008-68) or cash. It is our current
intention to comply with these requirements and maintain our REIT status. As a REIT, we generally
will not be subject to corporate federal, state or local income taxes on taxable income we distribute
currently (in accordance with the Internal Revenue Code and applicable regulations) to our
stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal, state
and local income taxes at regular corporate rates and may not be able to qualify as a REIT for four
subsequent tax years. Even if we qualify for federal taxation as a REIT, we may be subject to certain
state and local taxes on our income and to federal income taxes on our undistributed taxable income
(i.e., taxable income not distributed in the amounts and in the time frames prescribed by the Internal
Revenue Code and applicable regulations thereunder) and are subject to federal excise taxes on our
undistributed taxable income.
It is our intention to pay to our stockholders within the time periods prescribed by the Internal
Revenue Code no less than 90%, and, if possible, 100% of our annual taxable income, including
taxable gains from the sale of real estate and recognized gains on the sale of securities. It will
continue to be our policy to make sufficient distributions to stockholders in order for us to maintain
our REIT status under the Internal Revenue Code.
Our board has determined that, in view of the economic environment, we should conserve our
capital. As a result, the quarterly dividend paid in January 2009 was reduced from $.36 per share to
$.22 per share. Our board of directors will review the dividend policy at each regularly scheduled
quarterly board meeting to determine if any further reductions to our dividend should be made.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 2 to our Consolidated
Financial Statements, provided in this annual report on Form 10-K. Certain of our accounting
policies are particularly important to an understanding of our financial position and results of
operations and require the application of significant judgment by our management; as a result they are
subject to a degree of uncertainty. These critical accounting policies include the following, discussed
below.
Purchase Accounting for Acquisition of Real Estate
The fair value of real estate acquired is allocated to acquired tangible assets, consisting of
land and building, and identified intangible assets and liabilities, consisting of the value of above-
market and below-market leases and other value of in-place leases based in each case on their fair
values. The fair value of the tangible assets of an acquired property (which includes land and
building) is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is
then allocated to land and building based on management’s determination of relative fair values of
these assets. We assess fair value of the lease intangibles based on estimated cash flow projections
45
that utilize appropriate discount rates and available market information. The allocation made by
management may have a positive or negative effect on net income and may have an effect on the
assets and liabilities on the balance sheet.
Revenues
Our revenues, which are substantially derived from rental income, include rental income that
our tenants pay in accordance with the terms of their respective leases reported on a straight line basis
over the initial term of each lease. Since many of our leases provide for rental increases at specified
intervals, straight line basis accounting requires us to record as an asset and include in revenues,
unbilled rent receivables which we will only receive if the tenant makes all rent payments required
through the expiration of the initial term of the lease. Accordingly, our management must determine,
in its judgment, that the unbilled rent receivable applicable to each specific tenant is collectible. We
review unbilled rent receivables on a quarterly basis and take into consideration the tenant’s payment
history and the financial condition of the tenant. In the event that the collectability of an unbilled rent
receivable is in doubt, we are required to take a reserve against the receivable or a direct write off of
the receivable, which has an adverse affect on net income for the year in which the reserve or direct
write off is taken, and will decrease total assets and stockholders’ equity.
Value of Real Estate Portfolio
We review our real estate portfolio on a quarterly basis to ascertain if there are any indicators of
impairment in the value of any of our real estate assets, including deferred costs and intangibles, in order
to determine if there is any need for an impairment charge. In reviewing the portfolio, we examine the
type of asset, the economic situation in the area in which the asset is located, the economic situation in
the industry in which the tenant is involved and the timeliness of the payments made by the tenant under
its lease, as well as any current correspondence that may have been had with the tenant, including
property inspection reports. For each real estate asset owned for which indicators of impairment exist, if
the undiscounted cash flow analysis yields an amount which is less than the asset’s carrying amount, an
impairment loss is recorded to the extent that the estimated fair value exceeds the asset’s carrying
amount. The estimated fair value is determined using a discounted cash flow model of the expected
future cash flows through the useful life of the property. Real estate assets that are expected to be
disposed of are valued at the lower of carrying amount or fair value less costs to sell on an individual
asset basis. We generally do not obtain any independent appraisals in determining value but rely on our
own analysis and valuations. Any impairment charge taken with respect to any part of our real estate
portfolio will reduce our net income and reduce assets and stockholders’ equity to the extent of the
amount of any impairment charge, but it will not affect our cash flow or our distributions until such time
as we dispose of the property.
Item 7A. Qualitative and Quantitative Disclosures About Market Risk.
Our primary market risk exposure is the effect of changes in interest rates on the interest cost of
draws on our revolving variable rate credit facility and the effect of changes in the fair value of our interest
rate swap agreement. Interest rates are highly sensitive to many factors, including governmental monetary
and tax policies, domestic and international economic and political considerations and other factors beyond
our control.
As of December 31, 2008, we had one interest rate swap agreement outstanding that has a notional
value of $10.7 million. As of December 31, 2007 and 2006, we had no interest rate swap agreements
outstanding. The fair market value of the interest rate swap is dependent upon existing market interest
46
rates and swap spreads, which change over time. As of December 31, 2008, if there had been a 50 basis
point increase in forward interest rates, the fair market value of the interest rate swap would have increased
by approximately $165,000. If there were a 50 basis point decrease in forward interest rates, the fair
market value of the interest rate swap would have decreased by approximately $275,000.
We utilize interest rate swaps to limit interest rate risk. Derivatives are used for hedging purposes
rather than speculation. We do not enter into financial instruments for trading purposes.
In connection with our long-term mortgage debt, it bears interest at fixed rates and accordingly, the
effect of changes in interest rates would not impact the amount of interest expense that we incur under
these mortgages. Our credit facility is a revolving variable rate facility which is sensitive to interest rates.
Under current market conditions, we do not believe that our risk of material potential losses in future
earnings, fair values and/or cash flows from near-term changes in market rates that we consider reasonably
possible is material.
We assessed the market risk for our revolving variable rate credit facility and believe that a 1%
increase in interest rates would cause a decrease in net income of $270,000 and a 1% decrease would cause
an increase in net income of $270,000 based on the $27 million outstanding on our credit facility at
December 31, 2008.
The fair market value (“FMV”) of our long term debt is estimated based on discounting
future cash flows at interest rates that our management believes reflect the risks associated with long
term debt of similar risk and duration.
The following table sets forth our long-term debt obligations by scheduled principal cash
flow payments and maturity date, weighted average interest rates and estimated FMV at December
31, 2008 (amounts in thousands):
For the Year Ended December 31
2009 2010 2011
2012
There-
after
2013
Total
FMV
Fixed rate:
Long term debt $18,869
(Note 1)
Weighted
average
interest rate 6.52%
$22,532
$ 8,816
$37,806 $19,036 $118,455 $225,514 $228,014
6.42%
6.37%
6.37%
6.29%
6.27%
6.33%
6.25%
Variable rate:
Long term debt
(Note 2)
-
$27,000
-
-
-
-
$27,000 $ 27,000
Note 1: Included in 2009 is an $8.7 million non-recourse mortgage for which we have not made any
payments since December 1, 2008. The mortgage is secured and cross-collateralized by five properties
formerly leased to Circuit City. We have entered into negotiations with representatives of the mortgagee
relating to possible modifications of the mortgage. This mortgage is scheduled to mature on December 14,
2014.
Note 2: Our credit line facility matures in March 2010 and bears interest at the lower of LIBOR plus 2.15% or
the respective bank’s prime rate.
47
Item 8. Financial Statements and Supplementary Data.
This information appears in Item 15(a) of this Annual Report on Form 10-K, and is incorporated
into this Item 8 by reference thereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
Item 9A. Controls and Procedures.
A review and evaluation was performed by our management, including our Chief Executive
Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period covered by this Annual
Report on Form 10-K. Based on that review and evaluation, the CEO and CFO have concluded that
our current disclosure controls and procedures, as designed and implemented, were effective. There
have been no significant changes in our internal controls or in other factors that could significantly
affect our internal controls subsequent to the date of their evaluation. There were no significant
material weaknesses identified in the course of such review and evaluation and, therefore, we took no
corrective measures.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control
over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and
15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), as a process designed by, or under the supervision of, a company’s principal executive and
principal financial officers and effected by a company’s board, management and other personnel to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP, and includes those policies and
procedures that:
• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of a company;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with GAAP, and that receipts and expenditures of a
company are being made only in accordance with authorizations of management and directors
of a company; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of a company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to
the risks that controls may become inadequate because of changes in conditions or that the degree of
compliance with the policies or procedures may deteriorate.
48
Our management assessed the effectiveness of our internal control over financial reporting as
of December 31, 2008. In making this assessment, our management used criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-
Integrated Framework.
Based on its assessment, our management believes that, as of December 31, 2008, our
internal control over financial reporting was effective based on those criteria.
Our independent registered public accounting firm, Ernst & Young LLP, has issued an audit
report on management’s assessment of our internal control over financial reporting. This report
appears on page F1 of this Annual Report on Form 10-K.
Item 9B. Other Information.
None.
49
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
We have adopted an Amended and Restated Business Code of Conduct and Ethics that
applies to all directors, officers and employees, including our principal executive officer, principal
financial officer and principal accounting officer. You can find our Business Code of Conduct and
Ethics on our web site by going to the following address: www.onelibertyproperties.com. We will
post any amendments to our Amended and Restated Business Code of Conduct and Ethics as well as
any waivers that are required to be disclosed by the rules of either the SEC or The New York Stock
Exchange on our web site.
Our board of directors has adopted corporate governance guidelines and charters for the
audit, compensation and nominating and corporate governance committees of our board of directors.
You can find these documents on our web site by going to the following address:
www.onelibertyproperties.com.
A printed copy of any of the materials referred to above may be obtained by contacting us at
the following address: One Liberty Properties, Inc., 60 Cutter Mill Road, Great Neck, New York
11021, Attention: Secretary, or telephone number: 800-450-5816.
Directors and Executive Officers.
Pursuant to our bylaws, as amended, the number of directors has been fixed at 10 by our board of
directors. The board is divided into three classes. Each class is elected to serve a three year term and is to
be as equal in size as is possible. The classes are elected on a staggered basis.
50
Directors who hold office until the 2009 Annual Meeting:
Name and Age
Joseph A. DeLuca ........................
63 Years
Principal Occupation For The Past
Five Years and other Directorships
or Significant Affiliations
Director since June 2004; Principal of MHD Capital Partners, LLC, an
entity engaged in real estate investing and consulting since March 2006;
Principal and sole shareholder of Joseph A. DeLuca, Inc., a company
engaged in real estate capital and investment consulting since September
1998, including serving as Director of Real Estate Investments for
Equitable Life Assurance Society of America under a consulting contract
from June 1999 to June 2002; Executive Vice President and head of Real
Estate Finance at Chemical Bank from September 1990 until its merger
with the Chase Manhattan Bank in 1996 and Managing Director and
Group Head of the Chase Real Estate Finance Group of the Chase
Manhattan Bank from the merger to April 1998.
Fredric H. Gould ..........................
73 Years
Chairman of our board since June 1989, Chief Executive Officer from
December 1999 to December 2001 and from July 2005 to December
2007; Chairman of Georgetown Partners, Inc., Managing General Partner
of Gould Investors L.P., a limited partnership engaged in real estate
ownership, since December 1997; Chairman of the board of BRT Realty
Trust, a mortgage real estate investment trust, since 1984 and President
of REIT Management Corp., adviser to BRT Realty Trust, since 1986;
Director of EastGroup Properties, Inc., a real estate investment trust
engaged in the acquisition, ownership and development of industrial
properties, since 1998. Fredric H. Gould is the father of Jeffrey A. Gould
and Matthew J. Gould.
Eugene I. Zuriff............................
69 Years
Director since December 2005; Vice Chairman of PBS Real Estate LLC,
real estate brokers, since March 2008; President of The Smith &
Wollensky Restaurant Group, Inc., developer, owner and operator of a
diversified portfolio of white tablecloth restaurants in the United States,
from May 2004 to October 2007; consultant to The Smith & Wollensky
Restaurant Group, Inc., from February 1997 to May 2004 and a Director
of The Smith & Wollensky Restaurant Group, Inc., from 1997 to October
2007; Director of Doral Federal Savings Bank from 2001 to July 2007
and Chairman of the Audit Committee from 2001 to July 2003.
51
Directors to continue in office until the 2010 Annual Meeting:
Name and Age
Joseph A. Amato ..........................
73 Years
Principal Occupation For The Past
Five Years and other Directorships
or Significant Affiliations
Director since June 1989; Real estate developer; Managing partner of the
Kent Companies, an owner, manager and developer of income producing
real estate since 1970.
Jeffrey A. Gould...........................
43 Years
Director since December 1999; Vice President of our company from
1989 to December 1999 and a Senior Vice President since December
1999; President and Chief Executive Officer of BRT Realty Trust since
January 2002; President and Chief Operating Officer of BRT Realty
Trust from March 1996 to December 2001; Trustee of BRT Realty Trust
since 1997; Senior Vice President of Georgetown Partners, Inc., since
March 1996. Jeffrey A. Gould is the son of Fredric H. Gould and brother
of Matthew J. Gould.
Matthew J. Gould .........................
49 Years
Director since December 1999; President and Chief Executive Officer of
our company from June 1989 to December 1999 and a Senior Vice
President since December 1999; President of Georgetown Partners, Inc.
since 1996; Senior Vice President of BRT Realty Trust since 1993 and
Trustee since June 2004 and from March 2001 to March 2004; Vice
President of REIT Management Corp. since 1986. Matthew J. Gould is
the son of Fredric H. Gould and brother of Jeffrey A. Gould.
J. Robert Lovejoy .........................
64 Years
Director since 2004; Managing director of Groton Partners, LLC,
merchant bankers, since January 2006; Senior managing director of
Ripplewood Holdings, LLC, a private equity investment firm, from
January 2000 to December 2005; a managing director of Lazard
Freres & Co. LLC and a general partner of Lazard’s predecessor
partnership for over 15 years prior to January 2000; Director of
Orient-Express Hotels Ltd. since 2000.
52
Directors who hold office until the 2011 Annual Meeting:
Name and Age
Charles Biederman .......................
75 Years
Principal Occupation For The Past
Five Years and other Directorships
or Significant Affiliations
Director since June 1989; Chairman since January 2008 of Universal
Development Company, a commercial general contractor engaged in
turnkey hotel, commercial and residential projects; Principal of Sunstone
Hotel Investors, LLC, a company engaged in the management, ownership
and development of hotel properties, from November 1994 to December
2007; Executive Vice President of Sunstone Hotel Investors, Inc., a real
estate investment trust engaged in the ownership of hotel properties, from
September 1994 to November 1998 and Vice Chairman of Sunstone
Hotel Investors from January 1998 to November 1999.
James J. Burns .............................
69 Years
Director since June 2000; Vice Chairman from March 2006 to the
present and Senior Vice President and Chief Financial Officer of
Reis, Inc. and its predecessor, Wellsford Real Properties, Inc., from
October 1999 to March 2006; Partner of Ernst & Young LLP, certified
public accountants, and predecessor firms from January 1977 to
September 1999; Director of Cedar Shopping Centers, Inc., a real estate
investment trust engaged in the ownership, management and leasing of
retail properties, since 2001.
Patrick J. Callan, Jr.......................
46 Years
Director since June 2002; President of our company since January 2006
and Chief Executive Officer since January 2008; Senior Vice President
of First Washington Realty, Inc. from March 2004 to November 2005;
Vice President of Real Estate for Kimco Realty Corporation, a real estate
investment trust, from May 1998 to March 2004.
Information concerning our executive officers is set forth in Part I of our Annual Report filed with
the SEC on March 13, 2009. The business history of our executive officers who are also directors (Fredric
H. Gould, Patrick J. Callan, Jr., Matthew J. Gould and Jeffrey A. Gould) is set forth above in this Item 10.
See Item 13, “Certain Relationships and Related Transactions, and Director Independence,” below, for
more information regarding family relationships among our executive officers and directors.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers
and directors, and persons who beneficially own more than 10% of our issued and outstanding capital
stock, to file Initial Reports of Ownership and Reports of Changes in Ownership with the Securities and
Exchange Commission and the New York Stock Exchange. Executive officers, directors and greater than
10% beneficial owners are required by the rules and regulations promulgated by the SEC to furnish us with
copies of all Section 16(a) forms they file. We prepare and file the requisite forms on behalf of our
executive officers and directors. Based on a review of information supplied to us by our executive officers
and directors, and public filings made by any 10% beneficial owners, we believe that all Section 16(a)
filing requirements applicable to our executive officers, directors and 10% beneficial owners with respect
to fiscal 2008 were met, other than the failure to timely file a Form 4 by our treasurer, Alysa Block, in
December 2008.
53
Nominating Committee
There have not been any changes to the procedures by which security holders may recommend
nominees to our board of directors since disclosure of such procedures in our proxy statement dated April
29, 2008 for our Annual Meeting held on June 13, 2008.
Audit Committee
Our audit committee is a separately designated standing committee, the members of which are
Charles Biederman, James J. Burns and Joseph A. DeLuca. Our board of directors has adopted an audit
committee charter delineating the composition and responsibilities of the audit committee.
The audit committee charter requires that the audit committee be comprised of at least three
members, all of whom are independent directors and at least one of whom is an “audit committee financial
expert.” Our board of directors has determined that all of the members of our audit committee are
independent for the purposes of Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended,
and Section 303.01 of the Listed Company Manual of the New York Stock Exchange, that all members of
the audit committee are financially literate and that James J. Burns qualifies as an “audit committee
financial expert,” as that term is defined in Item 407(5)(ii) of Regulation S-K promulgated pursuant to the
Securities Exchange Act of 1934, as amended.
Item 11.
Executive Compensation.
Compensation Discussion and Analysis
This compensation discussion and analysis describes our compensation objectives, policies and
decisions as applied to our executive officers in 2008. This discussion and analysis focuses on the
information contained in the compensation tables that follow this discussion and analysis, but also
describes our historic compensation structure for our executive officers to enhance an understanding of our
executive compensation disclosure. Our compensation committee oversees our compensation program,
recommends the compensation of officers employed by us on a full-time basis to our board of directors for
its approval, approves the annual fee paid by us to the chairman of our board, and approves the annual fees
paid by us pursuant to a compensation and services agreement to Majestic Property Management Corp., an
affiliated entity (hereinafter, “Majestic”), which results in the payment by Majestic of compensation to our
part-time officers including Fredric H. Gould, Matthew J. Gould and David W. Kalish. Majestic is
wholly-owned by Fredric H. Gould, the chairman of our board.
Historically, including in 2008, we have had two categories of officers: (i) officers who devote
their full business time to our affairs, and (ii) officers who devote their business time to us on a part-time
basis. The officers who devote their full business time to our affairs are compensated directly and solely by
us. Prior to 2007, the basic compensation (base salary, bonus, if any, and perquisites) of certain of our part-
time officers, who perform primarily legal and accounting services on our behalf, was allocated to us and
other affiliated entities pursuant to a shared services agreement and certain officers (including officers who
did not allocate any of their compensation to us and officers who allocated their compensation to us)
received compensation from Majestic, whose gross revenues included fees paid by us for services
performed on our behalf (property management, sales and lease consulting and brokerage services,
mortgage brokerage services and construction supervisory services). All of our part-time officers and other
employees of affiliated companies who perform services for us on a part-time basis receive annual
restricted stock awards approved by the compensation committee and the board of directors.
54
In 2006, in connection with a review of our allocation methods and our related party transactions
with affiliated entities, our audit committee recommended to our compensation committee and board of
directors a change in the manner in which compensation is paid to those officers (and employees) who
perform services for us on a part-time basis, including legal and accounting services, as well as a change in
the manner in which any affiliated entity, primarily Majestic, is compensated for services performed on our
behalf. The services provided by Majestic to us included billing and collection of rent and additional rent
and property management services, property acquisition review and analysis, sales and lease consulting and
brokerage services, consulting services in respect to mortgage financings and construction supervisory
services. The audit committee recommended changes to the manner in which compensation is paid to part-
time officers and employees and the manner in which Majestic is compensated for services performed on
our behalf because, in its view, the changes would simplify the compensation structure, limit the need for
the audit committee, the internal auditor and the independent auditor to review the allocations and limit
potential conflict issues which may arise as a result of related party transactions. The audit committee, the
compensation committee and the board of directors were of the opinion that it was desirable for us to
maintain the services of those officers who perform services for us on a part-time basis, as well as the
services of Majestic, which performs necessary services on our behalf.
In order to effectuate our audit committee’s recommendation, we entered into an agreement with
Majestic, which was effective January 1, 2007, under which Majestic assumed our obligations to make
payments under the shared services agreement and agreed to provide to us the services of all executive,
administrative, legal, accounting and clerical personnel that had previously been utilized by us on a part-
time basis and for which we paid, as reimbursement, an allocated portion of the payroll expenses of such
personnel in accordance with a shared services agreement. Since Majestic now provides such personnel for
us, we no longer incur any allocated payroll expenses and the payroll expenses of such executives and part-
time employees is allocated to Majestic. Under the terms of the agreement, Majestic also agreed to
continue to provide to us the property management services, property acquisition, sales and lease
consulting and brokerage services, consulting services in respect to mortgage financings, and construction
supervisory services that it provided to us in the past and we, therefore, do not incur any fees or expenses
for such services, except for the annual fee referred to below. As consideration for providing the services
of such personnel to us, and for providing property management services, property acquisition, sales and
lease consulting and brokerage services, consulting services in respect to mortgage financings and
construction supervisory services, we agreed to pay to Majestic a fee of $2,025,000 for 2008. Majestic
may earn a profit from payments under the agreement. Majestic credits against the fee due to it any
management or other fees received by it from any of our joint ventures (except for fees paid by the tenant-
in-common on a property located in Los Angeles, CA). In addition, under the agreement, we agreed to pay
compensation to the chairman of our board of $250,000 per annum and to make an additional payment to
Majestic of $175,000 in 2008 for our share of all direct office expenses, including rent, telephone,
computer services, internet usage, etc., previously allocated under the shared services agreement and since
2007 allocated to Majestic. The annual payments made by us to Majestic are to be reviewed and
renegotiated by our audit committee and Majestic annually and at other times as may be determined by our
audit committee.
For the year ended December 31, 2008, our named executive officers are Patrick J. Callan, Jr.,
president (and chief executive officer effective January 1, 2008) and Lawrence G. Ricketts, Jr., executive
vice president (and chief operating officer effective January 1, 2008), both of whom devote their full time
to our affairs, and Fredric H. Gould, chairman of our board (chief executive officer through December 31,
2007), David W. Kalish, senior vice president and chief financial officer, and Matthew J. Gould, a senior
vice president, who devote time to our affairs on a part-time basis.
55
Objectives of our Compensation Program
The overriding objective of our compensation program for full-time officers is to ensure that the
total compensation paid to such officers is fair, reasonable and competitive. The compensation committee
believes that relying on this principal will permit us to both retain and motivate our officers. With respect
to our part-time officers, the compensation committee must be satisfied that such officers provide us with
sufficient time and attention to fully meet our needs and fully perform their duties on our behalf. The
compensation committee has considered this issue and is of the opinion that our part-time officers devote
sufficient time and attention to our business needs, are able to fully meet our needs and that this
arrangement does not adversely affect their ability to perform their duties effectively on our behalf. The
compensation committee is of the opinion that our part-time officers perform valuable services on our
behalf, are not distracted by their activities on behalf of affiliated entities and the performance of activities
on behalf of affiliated entities does not adversely affect their ability to perform duties on our behalf. The
compensation committee is also of the opinion that utilizing the services of various senior officers with
diverse skills on a part-time basis enables us to benefit from a greater degree of executive experience and
competence than an organization of our size could otherwise afford.
We have historically experienced an extremely low level of officer and employee turnover. Fredric
H. Gould, Matthew J. Gould and David W. Kalish each has been an officer with us for over 18 years and
Mr. Lawrence G. Ricketts, Jr. has been employed by us for approximately 10 years. Mr. Patrick J. Callan,
Jr. has been a member of our board of directors for seven years and has been our president for in excess of
three years.
Compensation Setting Process
Full-time Officers
Our compensation committee refers to the compensation survey prepared for the National
Association of Real Estate Investment Trusts (NAREIT) to understand the base salary, bonus, long-term
incentives and total compensation paid by other REITs to their officers to assist it in providing a fair,
reasonable and competitive compensation package to our full-time officers. Although there are many
REITs engaged in acquiring and managing real estate portfolios, there are few equity REITs which have a
market capitalization comparable to ours. As a result, the NAREIT compensation survey, although
informative, does not provide information which is directly applicable to us. Accordingly, we determine
compensation for our full-time officers, including our full-time named executive officers, on a case-by-case
basis. In addition, from time to time our compensation committee retains an independent compensation
consultant to provide the committee with an analysis of the compensation paid to our executive officers in
comparison to a selected peer group (see “Compensation Consultant” below). We do not utilize
performance targets.
In determining compensation for 2008, the recommendations of Fredric H. Gould, chairman of our
board (and formerly chief executive officer), played a significant role in the compensation-setting process
since, as the chairman of the board, he was aware of each officer’s duties and responsibilities and was most
qualified to assess the level of each officer’s performance. The chairman of our board, prior to making
recommendations to the compensation committee concerning each full-time officer’s compensation,
consulted with certain senior officers. During the process, they considered our overall performance for the
immediately preceding fiscal year, including, rental income, funds from operations, net income and cash
distributions paid to stockholders. None of these measures of performance was given more weight than any
other and they were used to provide an overall view of our performance for the preceding year. The
chairman of the board and other senior officers also assessed each individual’s performance in such year,
56
which assessment was highly subjective. Positively impacting the compensation decisions with respect to
our full-time named executive officers for 2008 was the recognition of certain corporate accomplishments
in 2007, including increases in rental income and funds from operations. Also taken into consideration
was the fact that, although we had a decline in net income year over year, the decline was due primarily to
gains in 2006 on the disposition of real estate by unconsolidated joint ventures, offset by mortgage
prepayment premiums required as part of these sales. During this process, the chairman of our board
proposed to the compensation committee with respect to each full-time named executive officer, a base
salary for the 2008 calendar year, a bonus applicable to the 2007 calendar year (paid in 2008) and the
number of shares of restricted stock to be awarded to each individual full-time named executive officer. At
its annual compensation committee meeting, the compensation committee reviewed these
recommendations. The compensation committee has discretion to accept, reject or modify the
recommendations. The final decision by the compensation committee on compensation matters related to
all officers was reported to the board of directors, which approved the actions of the committee.
Part-time Officers
We believe that utilizing part-time officers pursuant to the shared services agreement through
December 31, 2006, and, since January 1, 2007 pursuant to the compensation and services agreement,
enables us to benefit from access to, and the services of, a group of senior officers with experience and
knowledge in real estate ownership, operations and management and finance, legal, accounting and tax
matters that an organization our size could not otherwise afford. Our chairman, in consultation with certain
of our part-time senior officers, determines the total annual base compensation, bonus, if any, and
perquisites to be paid by all parties to the shared services agreement to our part-time officers.
Pursuant to the compensation and services agreement, Majestic assumed our obligations under the
shared services agreement, and agreed to provide to us the services of all affiliated executive,
administrative, legal, accounting and clerical personnel that we previously used on a part-time basis. For
2008, the portion of our part-time officers’ compensation which was allocated to us in prior years pursuant
to the shared services agreement, and would have been allocated to us in 2008 if the compensation and
services agreement was not in effect, was allocated to Majestic. The terms of the compensation and
services agreement were negotiated by our audit committee, approved by our compensation committee and
our board of directors and the agreement was effective as of January 1, 2007. For 2006, the audit
committee reviewed the amount of compensation of part-time officers allocated to us to determine if the
allocation process was performed in accordance with the shared services agreement, and the compensation
committee reviewed the reasonableness of the compensation allocated to us. For 2006, the audit committee
determined that each part-time officer’s compensation was properly allocated to us in accordance with the
shared services agreement. The fee paid to Majestic in 2008 and 2007 under the compensation and services
agreement was negotiated by the audit committee and management of Majestic and approved by our
compensation committee and board of directors. The compensation committee was advised of the total
compensation received by each part-time officer from Majestic and other affiliated entities in 2008 and
2007.
Compensation Consultant
In October 2008, our compensation committee engaged an independent compensation consultant,
FPL Associates L.P., a nationally recognized compensation consulting firm specializing in the real estate
industry. FPL Associates L.P. has no relationship with us or any of our affiliates, except that it was also
retained in 2008 as the independent compensation consultant for BRT Realty Trust, which may be deemed
an affiliate of ours. The primary purpose of the engagement was for the compensation consultant to
conduct a comprehensive benchmarking analysis for our senior executives, to enable our compensation
57
committee to determine if the compensation of our senior executive officers is fair and reasonable and to
assist our compensation committee in making any necessary adjustments to the compensation components.
The compensation consultant reviewed the compensation of seven of our senior executive officers,
including our named executive officers other than Matthew J. Gould. Matthew J. Gould was not included
in the compensation consultant’s study since none of his basic compensation (salary or bonus) is paid by us
or allocated to Majestic.
Prior to commencing its benchmarking analysis, the compensation consultant and management
discussed and agreed upon a methodology for determining the comparative peer groups. Based upon such
discussions it was determined to use two peer groups as follows:
• A Full-Time Peer Group; to be used for executives who dedicate all, or substantially all, of
their business time to our affairs. The Full Time Peer Group includes public REITs active in
the net lease space; public real estate companies comparable in size to us (measured by market
and total capitalization); and/or public real estate companies located in New York. The Full
Time Peer Group selected for benchmarking purposes consists of eleven public real estate
companies with a market capitalization which is generally larger than our capitalization. The
compensation consultant noted in its report to the compensation committee that none of the
specific peer group companies are a perfect match to us, due to our small size position among
our most direct peers.
• A Shared Peer Group; to be used for executives who dedicate a portion of their business time
to our affairs and who also dedicate time to affiliated companies (primarily BRT Realty Trust,
a public company engaged in mortgage originations). The Shared Peer Group exude similar
characteristics as described for the Full Time Peer Group and include public REITs focused on
the debt side of the business and consists of six public equity REITs and six public debt REITs
that are comparable to us in terms of focus, size and/or geographic location. The market
capitalization of the peer group companies is generally larger than our capitalization.
• The following is the full-time peer group companies used by the consultant:
Agree Realty Corporation
AmReit
CapLease, Inc.
Getty Realty Corp.
Lexington Realty Trust
Lodgian, Inc.
National Retail Properties, Inc.
Ramco-Gershenson Properties Trust
Realty Income Corporation
Urstadt Biddle Properties, Inc.
W.P. Carey & Co. LLC.
•
The following is the shared peer group companies used by the consultant:
CapLease, Inc.
Cousins Properties Incorporated
Getty Realty Corp.
Lexington Realty Trust
Urstadt Biddle Properties, Inc.
W.P. Carey and Co. LLC
Arbor Realty Trust, Inc.
CapitalTrust, Inc.
iStar Financial Inc.
New York Mortgage Trust, Inc.
NorthStar Realty Financing Corp.
RAIT Financial Trust.
The compensation consultant used the 25th percentile as the market comparison in its conclusions
because of our relatively smaller size compared to the peer group companies. The compensation consultant
58
also used a plus/minus 15% threshold to define “in line” (competitive) with the market. Based on its
benchmarking analysis, the compensation consultant advised that in 2008: (i) the compensation paid by us
to Patrick J. Callan, Jr., our president and chief executive officer, is slightly above the 25th percentile, (ii)
the compensation paid by us to Lawrence G. Ricketts, Jr., our executive vice president and chief operating
officer, is in line with or slightly below the 25th percentile, (iii) the compensation of part-time senior
executives (including Fredric H. Gould, chairman of the board and David W. Kalish, a senior vice
president and chief financial officer paid) by us or allocated to Majestic is below the 25th percentile,
(iv) the total compensation paid to Fredric H. Gould (including all compensation paid by affiliated
companies), and the total compensation paid to part-time senior executives by us and affiliated companies
(including David W. Kalish) is above the 25th percentile and (v) the equity awards we provide to all of our
officers are a smaller portion of total compensation compared to peers.
Components of Executive Compensation
Full-time Officers
The principal elements of our compensation program for our full-time officers are:
•
•
•
•
base salary;
annual bonus;
long-term equity incentive in the form of restricted stock; and
special benefits and perquisites.
Additional benefits and perquisites which are provided to our full-time executive officers consist
of:
•
•
•
additional disability insurance;
an automobile allowance; and
automobile maintenance and repairs.
Base salary and annual bonus are cash-based, while long-term incentives consist of restricted stock
awards. In determining compensation, the compensation committee does not have a specific allocation goal
between cash and equity-based compensation.
Part-time Officers
In 2008, except for the $250,000 annual compensation we paid to the chairman of our board
pursuant to the compensation and services agreement, the only form of direct compensation we provided to
our part-time officers was the granting of long-term equity incentives in the form of restricted stock
awards. For services rendered to us, our part-time officers are compensated by Majestic, which was paid a
fee of $2,025,000 (including $6,000 by one of our joint venture partners, but excluding $175,000 for our
share of direct office expenses) in 2008 pursuant to the compensation and services agreement. The
compensation committee was advised of the amount allocated by each part-time officer to Majestic for
service rendered on our behalf and the total compensation received by each part-time officer in 2008 from
Majestic and other affiliated companies.
59
Base Salary
Base salary is the basic, least variable form of compensation for the job an officer performs and
provides each officer with a guaranteed monthly income.
Full-time Officers: Base salaries of full-time officers are targeted to be competitive with the
salaries paid to officers at other REITs with a market capitalization similar to ours. Any increase in base
salary is determined on a case by case basis, is not based upon a structured formula and is based upon,
among other considerations (i) our performance in the preceding fiscal year, (ii) such officer’s current base
salary, (iii) amounts paid by peer group companies for officers performing substantially similar functions,
(iv) years of service, (v) current job responsibilities, (vi) the individual’s performance and (vii) the
recommendation of the chairman of the board.
Part-time Officers: The portion of our part-time officers’ base salary, which would have been
allocated to us in 2008 pursuant to the shared services agreement, has been assumed by Majestic pursuant
to the compensation and services agreement and is paid by Majestic. Since the fee paid to Majestic was
approved by the compensation committee and the board of directors, the compensation committee does not
review the base salaries of our part-time officers.
Bonus
Full-time Officers: We provide the opportunity for our full-time officers to earn an annual cash
bonus. We provide this opportunity both to reward our personnel for past performance and to motivate and
retain talented people. We recognize that annual bonuses are almost universally provided by other
companies with which we might compete for talent. In view of the fact that only two of our named
executive officers devote their full-time to our affairs, annual cash bonuses for such named executive
officers are determined on a case-by-case basis by our compensation committee. During the process, we
considered our overall performance for the immediately preceding fiscal year, including rental income,
funds from operations, net income and cash distributions paid to stockholders. None of these measures of
performance is given more weight than any other and they are used to provide an overall view of our
performance for the preceding year. Once it has approved the annual bonus to be paid to each named
executive officer, the compensation committee presents its recommendations to the board of directors for
their approval. Based on our present structure and the small number of full-time officers, our compensation
committee has not adopted formulas or performance goals to determine cash bonuses for our officers.
Part-time Officers: The portion of our part-time officers’ annual bonus, if any, which would have
been allocated to us in 2008 pursuant to the shared services agreement, has been assumed by Majestic
pursuant to the compensation and services agreement. Since the fee paid to Majestic was approved by the
compensation committee and the board of directors, the compensation committee does not review the
bonus, if any, paid to part-time officers.
Long-term Equity Awards
We provide the opportunity for our full-time and part-time officers to receive long-term equity
incentive awards. Our long-term equity incentive compensation program is designed to recognize
responsibilities, reward performance, motivate future performance, align the interests of our officers with
those of our stockholders and retain our officers. The compensation committee reviews long-term equity
incentives for all our employees, including part-time officers and employees of affiliates who perform
services for us, at its regularly scheduled annual meeting (usually held in December of each year) and
makes recommendations to our board of directors for the grant of equity awards. In determining the long-
60
term equity compensation component, the compensation committee considers all relevant factors,
including our performance and individual performance. Existing ownership levels are not a factor in award
determinations. All equity awards are granted under our stockholder approved Incentive Plan.
We do not have a formal policy with respect to whether equity compensation should be paid in the
form of stock options or restricted stock. Prior to 2003, we awarded stock options rather than restricted
stock, but in 2003 a determination was made to grant only restricted stock. The compensation committee
believes restricted stock awards are more effective in achieving our compensation objectives, as restricted
stock has a greater retention value and, because fewer shares are normally awarded, it is potentially less
dilutive. Additionally, before vesting, cash dividends to stockholders are paid on all outstanding awards of
restricted stock as an additional element of compensation.
All the restricted stock awards made to date contain a five-year “cliff” vesting requirement. The
compensation committee believes that restricted stock awards with five-year “cliff” vesting provide a
strong retention incentive and better align the interests of our officers with those of our stockholders. We
view our capital stock as a valuable asset that should be awarded judiciously.
We do not have a formal policy on timing equity compensation grants in connection with the
release of material non-public information and in view of the five year “cliff” vesting requirement, we do
not believe such a formal policy is necessary. In December, our board of directors, upon the compensation
committee’s recommendation, generally approves the granting of equity awards effective on or about the
last business day in February of the following year. In December 2007, the board of directors, upon the
compensation committee’s recommendation, set the grant date for our restricted stock incentive awards
effective on February 28, 2008.
The amount of restricted stock recommended by the compensation committee for approval by the
board of directors in December 2007 was related to the number of shares of our common stock issued and
outstanding at the time the awards were approved by our compensation committee. The aggregate
restricted stock authorized in December 2007 and awarded by us in February 2008, 50,550 shares, was
approximately 0.5% of our issued and outstanding shares of common stock as of December 31, 2007.
Chairman of the Board’s Compensation
The compensation and services agreement, which was approved by our audit committee and board
of directors in 2007, provides that we pay Fredric H. Gould, the chairman of our board, annual
compensation for his services to us. Our chairman does not receive any additional direct compensation
from us, other than any long-term equity awards granted to him by our board of directors based upon our
compensation committee’s recommendation. Our chairman also receives compensation from Majestic. In
2008, we paid our chairman compensation of $250,000 and granted 3,000 shares of restricted stock to him
valued at $52,500 ($17.50 per share) on the date of the grant. In 2008, our chairman also received
compensation of $264,100 from Majestic. For additional information regarding compensation of our
chairman, see the “Summary Compensation Table,” below.
Executive Benefits and Perquisites
Full-time Officers: We provide our full-time officers with a competitive benefits and perquisites
program. We recognize that similar benefits and perquisites are commonly provided at other companies
that we might compete with for talent. We review our benefits and perquisites program periodically to
ensure it remains fair to our officers and employees and supportable to our stockholders. For 2008, the
benefits and perquisites we provided to our officers were a small percentage of the compensation provided
61
by us to them. The benefits and perquisites we may provide to our full-time executive officers, in addition
to the benefits and perquisites we provide to all our full time employees, consist of an automobile
allowance, payments for automobile maintenance and repairs, or payment of the premium for additional
disability insurance.
Part-time Officers: Our chairman of the board, in consultation with certain part-time senior
officers, determines the perquisites of our part-time officers. The portion of our part-time officers’
perquisites, which was previously allocated to us pursuant to the shared services agreement, is paid,
effective as of January 1, 2007, by Majestic in accordance with the compensation and services agreement.
Since the fee we paid to Majestic was approved by the compensation committee and the board of directors,
the compensation committee does not review the perquisites of our part-time officers.
Severance and Change of Control Agreements
Neither our officers nor our employees have employment or severance agreements with us. They
are “at will” employees who serve at the pleasure of our board of directors.
Except for provisions for accelerated vesting of awards of our restricted stock in a “change of
control” transaction, we do not provide for any change of control protection to our officers, directors or
employees. Under the terms of each restricted stock awards agreement, accelerated vesting occurs with
respect to each person who has been awarded restricted stock if (i) any person, corporation or other entity
purchases our stock for cash, securities or other consideration pursuant to a tender offer or an exchange
offer, without the prior consent of our board, or (ii) any person, corporation or other entity shall become
the “beneficial owner” (as such term is defined in Rule 13-d-3 under the Securities and Exchange Act of
1934, as amended), directly or indirectly, of our securities representing 20% or more of the combined
voting power of our then outstanding securities ordinarily having the right to vote in the election of
directors, other than in a transaction approved by our board of directors.
Deductibility of Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a limitation on the
deductibility of certain non-cash compensation in excess of $1 million earned by each of the chief
executive officer and the four other most highly compensated officers of publicly held companies. In 2008,
all compensation paid to our full-time officers was deductible by us. The compensation committee intends
to preserve the deductibility of compensation payments and benefits to the extent reasonably practicable.
The compensation committee has not adopted a formal policy that requires all compensation paid to the
officers to be fully deductible.
Analysis
Base Salary and Bonus
In accordance with the compensation setting process described above, the following base salaries
and bonuses were approved as follows for our full-time named executive officers:
62
Jr.
(1)
(2)
Name
Patrick J. Callan, Jr.
Lawrence G. Ricketts,
2007 Base
Salary ($)(1)
375,000
2008 Base
Salary ($)(1)
400,000
Percentage
%
Salary
Increase
6.67
2007
Bonus
($)(2)
200,000
2008
Bonus
($)(2)
210,000
205,000
230,000
12.20
25,000
35,000
Percentage
%
Bonus
Increase
5
40
The compensation committee and board of directors determined 2007 base salary in December
2006 and 2008 base salary in December 2007. The bonus amounts correspond to performance in
2006 and 2007, respectively.
The bonuses for 2007 and 2008 were approved by the compensation committee and the board of
directors as of December 2006 and 2007, respectively, and the bonus amounts correspond to
performance in 2006 and 2007, respectively.
The increase in base salary for Patrick J. Callan, Jr. and Lawrence G. Ricketts, Jr., and the increase
in their respective bonuses were due in part to increases in our rental income (14.3%), and funds from
operations (36%) in 2007 compared to 2006. These increases were also due to an evaluation of the
individual performance of each of them in 2007.
In 2008, the total compensation of Patrick J. Callan, Jr., our president and chief executive officer,
is .96% greater (slightly less than 2x) than the total compensation of Lawrence G. Ricketts, Jr., our
executive vice president and chief operating officer. We have not adopted a policy with regard to the
relationship of compensation among our executive officers or other employees. The compensation
committee has considered the differential in compensation and, based upon their respective responsibilities
and experience, concluded that the differential was appropriate.
Long-term Equity Awards
We believe that our long-term equity compensation program, using restricted stock awards with
five-year cliff vesting, provides motivation for our officers and is a beneficial retention tool. We are
mindful of the potential dilution and compensation cost associated with awarding shares of restricted stock
and, therefore our policy is to minimize dilution. In 2008, we awarded an aggregate of 50,550 shares
representing .5% of our issued and outstanding shares. In the past five years, we have awarded an
aggregate of 228,275 shares of common stock, representing an average of .46% per annum of our
outstanding shares of common stock. We believe the cumulative effect of the awards is not overly dilutive
and has created significant incentive for our officers and employees.
After reviewing the aggregate compensation received by our full-time named executive officers,
our performance in 2007, and the performance and responsibilities of each named executive officer, and
taking into account our policy of minimizing stockholder dilution, in 2008 we awarded 6,000 shares of
restricted stock to Patrick J. Callan, Jr., 5,000 shares of restricted stock to Lawrence G. Ricketts, Jr., and
3,000 shares of restricted stock to each of Fredric H. Gould, David W. Kalish and Matthew J. Gould.
We intend to continue to award restricted stock as we believe (i) restricted stock awards align
management’s interests and goals with stockholders’ interests and goals and (ii) officers and employees are
63
more desirous of participating in a restricted stock award program and, therefore, it is an excellent
motivator and employee retention tool.
Equity Compensation Policies
We do not have any policy regarding ownership requirements for officers or directors. In view of
the fact that all of our officers and directors own our shares of common stock (and many of our officers
hold a significant number of shares of our common stock), we do not believe there is a need to adopt of a
policy regarding ownership of shares of our common stock by our officers and directors.
Perquisites
The perquisites we provide to our full-time officers account for a small percentage of the
compensation paid by us to these officers. We believe that such perquisites are competitive and
appropriate.
Severance and Change of Control Agreements
We do not enter into employment agreements, severance agreements or change of control
agreements with any of our officers or employees as we believe such agreements are not beneficial to us,
and that we can provide sufficient motivation to officers by using other types of compensation.
Potential Payments upon Termination of Employment or Change of Control
Except for provisions for accelerated vesting of awards of our restricted stock in a “change of
control” transaction, we do not provide for any severance, termination or change of control payment or
protection to our officers, directors or employees. Accordingly, upon a change of control, the restricted
stock issued to our officers, directors, employees and consultants would automatically vest. This is the
only automatic compensation benefit our officers would receive in a change of control transaction. In the
event that a change of control occurred as of December 31, 2008, the restricted stock held by our named
executives officers would have automatically vested and the value of each such officer’s restricted stock,
based upon the closing price of our stock on December 31, 2008, would have been as follows:
Name
Patrick J. Callan, Jr.
Fredric H. Gould
David W. Kalish
Lawrence G. Ricketts, Jr.
Matthew J. Gould
Number of Shares of
Unvested
Restricted Stock Held as of
December 31, 2008
Value of Outstanding Shares of
Unvested Restricted Stock
Upon
a Change of Control at
December 31, 2008($)(1)
18,000
15,125
15,125
15,700
15,125
158,400
133,100
133,100
138,160
133,100
(1)
The closing price on the New York Stock Exchange for a share of our common stock on
December 31, 2008 was $8.80.
64
SUMMARY COMPENSATION TABLE
Name and Principal Position
Patrick J. Callan, Jr., President
and Chief Executive Officer(4)
Fredric H. Gould, Chairman of the
Board(6)
David W. Kalish, Senior Vice
President and Chief Financial
Officer(8)
Lawrence G. Ricketts, Jr.,
Executive Vice President and
Chief Operating Officer(4)
Matthew J. Gould, Senior Vice
President(11)
Year
2008
2007
2006
2008
2007
2006
2008
2007
2006
2008
2007
2006
2008
2007
2006
Salary($)
400,000
375,000
350,000
250,000
250,000
50,000
—
—
111,742
230,000
205,000
180,000
—
—
—
Bonus($)
210,000
200,000
175,000
—
—
—
—
—
—
35,000
25,000
90,000 (10)
—
—
—
Stock
Awards($)
(1)
All Other
Compensation
($)(2)(3)
72,041
51,616
27,756
64,334
56,531
42,215
64,334
56,531
42,215
62,896
46,281
27,193
64,334
56,531
42,215
83,383(5)
85,384(5)
61,213 (5)
285,347(7)
475,059(7)
651,711(7)
160,247(9)
173,710(9)
281,216(9)
62,305(10)
67,411(10)
49,587 (10)
264,497(12)
319,737(12)
414,835(12)
Total
($)
765,424
712,000
613,969
599,681
781,590
743,926
224,581
230,241
435,173
390,201
343,692
346,780
328,831
376,268
457,050
(1)
Represents the dollar amounts expensed for financial reporting purposes for the years ended
December 31, 2008, 2007 and 2006 in accordance with Statement of Financial Accounting
Standards No. 123R (“SFAS 123R”). See Note 8 to the Consolidated Financial Statements
included in our Annual Report on Form 10-K for the year ended December 31, 2008 for a
discussion of restricted stock awards.
(2) We maintain a tax qualified defined contribution plan for our full-time officers and employees. We
make an annual contribution to the plan for our full-time officers and employees equal to 15% of
such person’s annual earnings, not to exceed $34,500 in 2008, $33,750 in 2007 and $33,000 in
2006. The entities which are subject to the shared services agreement maintain substantially
similar defined contribution plans and make annual contributions to their respective plans for
officers and employees equal to 15% of such person’s annual earnings, not to exceed $34,500 in
2008, $33,750 in 2007 and $33,000 in 2006. With respect to Patrick J. Callan, Jr. and Lawrence
G. Ricketts, Jr., the amount set forth in the “All Other Compensation” column includes annual
contributions made on their behalf in 2008, 2007 and 2006 to the defined contribution plan. With
respect to David W. Kalish, the “All Other Compensation” column for 2006 includes the amount
allocated to us for the contribution, in the maximum amount, made on his behalf by one of the
parties to the shared services agreement to its defined contribution plan. With respect to Fredric
H. Gould and Matthew J. Gould for 2008, 2007 and 2006 and to David W. Kalish for 2008 and
2007, no amount was contributed for their benefit under our defined contribution plan and no
amount was allocated to us for contributions made to the defined contribution plan of any affiliated
entity. Any amounts which would have been allocated to us in 2008 or 2007 was allocated to
Majestic. See Item 13, “Certain Relationships and Related Transactions, and Director
Independence” below.
(3)
Majestic Property Management Corp. provided services to us in 2008, 2007and 2006. See Item
13, “Certain Relationships and Related Transactions, and Director Independence” below. Majestic
also provides services to other affiliated entities and to non-affiliated entities. We accounted for
approximately 40%, 40% and 34%, respectively, of Majestic’s revenues in 2008, 2007 and 2006.
Neither we nor Majestic can estimate with any certainty the percentage of 2008, 2007 and 2006
net income of Majestic which resulted from its activities on our behalf. Accordingly, we have
65
(4)
(5)
included in the “All Other Compensation” column for Fredric H. Gould, David W. Kalish and
Matthew J. Gould 100% of the compensation each received from Majestic in 2008, 2007 and
2006, even though the amount attributable to their activities on our behalf would be less than is set
forth in the “All Other Compensation” column.
All compensation received by Patrick J. Callan, Jr. and Lawrence J. Ricketts, Jr. is paid solely and
directly by us.
Includes $34,500, $33,750 and $33,000, our contribution on behalf of Patrick J. Callan, Jr. in
2008, 2007 and 2006, respectively, to our defined contribution plan, and dividends of $23,940,
$26,903 and $10,463 paid to Mr. Callan in 2008, 2007 and 2006, respectively, on restricted stock
awarded to him. Also includes perquisites totaling $24,943, $24,731 and $17,750, of which
$19,018, $18,806 and $15,775 represents an automobile allowance and automobile maintenance
and repairs in 2008, 2007 and 2006, respectively, and $5,925, $5,925 and $1,975 represents the
annual premium paid by us for additional disability insurance in each of 2008, 2007 and 2006.
(6) We paid annual compensation of $250,000, $250,000 and $50,000 directly to Fredric H. Gould in
2008, 2007 and 2006, respectively, as a fee for services as chairman of our board of directors. We
did not pay, nor were we allocated, any portion of his base salary, bonus, defined contribution plan
contributions or perquisites in 2008, 2007 or 2006.
(7)
Includes dividends of $21,247, $30,226 and $15,289 paid to Fredric H. Gould in 2008, 2007 and
2006, respectively, on restricted stock awarded to him, and compensation of $264,100, $444,833
and $636,422 paid to him in 2008, 2007 and 2006, respectively, by Majestic, which provided
services to us in 2008, 2007 and 2006. See Item 13, “Certain Relationships and Related
Transactions, and Director Independence” below.
(8) We did not pay, nor were we allocated, any portion of David W. Kalish’s base salary, bonus,
defined contribution plan payments or perquisites in 2008 or 2007. In 2006, pursuant to the
shared services agreement, a portion of the base salary, bonus, defined contribution plan
contribution and perquisites for David W. Kalish was allocated to us under the shared services
agreement. Pursuant to the compensation and services agreement, which became effective as of
January 1, 2007, Majestic assumed our obligation to pay our portion of the compensation (other
than restricted stock awards) of David W. Kalish under the shared services agreement.
(9)
(10)
Includes dividends of $21,247, $30,226 and $15,289 paid to David W. Kalish in 2008, 2007 and
2006, respectively, on restricted stock awarded to him, and compensation of $139,000, $143,484
and $253,080 paid to him in 2008, 2007 and 2006, respectively, by Majestic. Also includes in
2006 perquisites of $12,847, representing an allocation pursuant to the shared services agreement
of a contribution to the defined contribution plan of one of the parties to the shared services
agreement, an allocation incurred for additional disability and long-term care insurance and an
automobile allowance and automobile maintenance and repairs.
The 2006 bonus includes a $50,000 bonus paid to Lawrence G. Ricketts, Jr. by two joint ventures
in which we are a 50% member. Our share of the $50,000 bonus was $25,000. The amount set
forth in the “All Other Compensation” column for Lawrence G. Ricketts, Jr. includes our
contribution on Lawrence G. Ricketts, Jr.’s behalf of $34,500, $33,750 and $33,000, in 2008,
2007 and 2006, respectively, to our defined contribution plan, dividends of $20,986, $24,265 and
$10,125 paid to Lawrence G. Ricketts, Jr. in 2008, 2007 and 2006, respectively, on restricted stock
awarded to him, and perquisites of $6,819, $9,396 and $6,462 in 2008, 2007 and 2006,
respectively, representing an automobile allowance.
(11) We did not pay, nor were we allocated, any portion of Matthew J. Gould’s base salary, bonus,
defined contribution plan payments or perquisites in 2008, 2007 or 2006.
66
(12)
Includes dividends of $21,247, $30,226 and $15,289 paid to Matthew J. Gould in 2008, 2007 and
2006, respectively, on restricted stock awarded to him and compensation of $243,250, $289,511
and $399,546 paid to him in 2008, 2007 and 2006, respectively, by Majestic. See Item 13,
“Certain Relationships and Related Transactions, and Director Independence” below.
GRANT OF PLAN-BASED AWARDS DURING 2008
Estimated Future Payouts Under
Equity Incentive Plan Awards
Name
Patrick J. Callan, Jr.
Fredric H. Gould
David W. Kalish
Lawrence G.
Ricketts, Jr.
Matthew J. Gould
Grant
Date
2/29/08
2/29/08
2/29/08
2/29/08
Committee
Action
Date
12/10/07
12/10/07
12/10/07
12/10/07
2/29/08
12/10/07
Threshold
(#)
Target(#)
(1)
Maximum
(#)
—
—
—
—
—
6,000
3,000
3,000
5,000
3,000
—
—
—
—
—
Grant Date
Fair Value
of Stock and
Option
Awards(2)($)
105,000
52,500
52,500
87,500
52,500
(1)
(2)
This column represents the grant in 2008 of restricted stock to each of our named executive
officers. These shares of restricted stock were granted pursuant to agreements which provide for
“cliff” vesting five years from the grant date.
Shown is the aggregate grant date fair value computed in accordance with SFAS 123R for
restricted stock awards in 2008. On the date the fair value was computed, the closing price on the
New York Stock Exchange for a share of our common stock was $17.50. By contrast, the amount
shown for restricted stock awards in the Summary Compensation Table is the amount expensed by
us for financial statement purposes for awards granted in 2008 and prior years to the named
executive officers.
67
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
Stock Awards
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
($)
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)
—
—
—
—
—
—
—
—
—
—
Number of
Shares
or Units of Stock
That Have Not
Vested
(#)(1)
18,000
15,125
15,125
15,700
15,125
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(2)
158,400
133,100
133,100
138,160
133,100
Name
Patrick J. Callan, Jr.
Fredric H. Gould
David W. Kalish
Lawrence G. Ricketts, Jr.
Matthew J. Gould
(1)
(2)
Since 2003, we have only issued shares of restricted stock under our 2003 Incentive Plan. All
shares of restricted stock issued by us vest five years from the date of grant. Such awards pay
dividends on a current basis.
The closing price on the New York Stock Exchange on December 31, 2008 for a share of our
common stock was $8.80.
None of the named executive officers hold any stock options and none were granted to any of the
named executive officers during the year.
Option Exercises and Stock Vested
None of the named executive officers had any stock options outstanding in 2008.
The following table sets forth shares of restricted common stock which vested in 2008:
Name
Patrick J. Callan, Jr.
Fredric H. Gould
David W. Kalish
Lawrence G. Ricketts, Jr.
Matthew J. Gould
Stock Awards
Number of Shares
Acquired on Vesting (#)
750
2,200
2,200
800
2,200
Value Realized on
Vesting ($)
12,585
36,916
36,916
13,424
36,916
68
Pension Benefits
Since the only pension benefit plan we maintain is a tax qualified defined contribution plan, a
Pension Benefits Table is not provided. Contributions to the defined contribution plan for Patrick J. Callan,
Jr. and Lawrence G. Ricketts, Jr. is included in the Summary Compensation Table. In 2008 and 2007, we
neither paid nor were allocated any contribution to a defined contribution plan for the benefit of Fredric H.
Gould, David W. Kalish or Matthew J. Gould.
We have adopted a tax qualified defined contribution pension plan covering all our full-time
employees. The plan is administered by Fredric H. Gould, Simeon Brinberg and David W. Kalish (Simeon
Brinberg and David W. Kalish are non-director officers). Annual contributions are based on 15% of an
employee’s annual earnings (including any cash bonus), not to exceed, pursuant to IRS limitations,
$34,500 per employee in 2008. Partial vesting commences two years after employment, increasing
annually until full vesting is achieved at the completion of six years of employment. The method of
payment of benefits to participants upon retirement is determined solely by the participant, who may elect a
lump sum payment or the purchase of an annuity, the amount of which is based on the amount of
contributions and the results of the plan’s investments. For the year ended December 31, 2008, $34,500
was contributed for the benefit of Patrick J. Callan, Jr., with three years of credited service and $34,500
was contributed for the benefit of Lawrence G. Ricketts, Jr. with ten years of credited service. The
aggregate amount accumulated to date for Patrick J. Callan, Jr. and Lawrence G. Ricketts, Jr. is
approximately $89,000 and $186,000, respectively.
Non-Qualified Deferred Compensation
We do not provide any non-qualified deferred compensation to our executive officers. For a
description of any potential payments upon termination or change-in-control, see “Compensation
Discussion and Analysis(cid:1)Analysis(cid:1)Potential Payments upon Termination of Employment or Change of
Control,” above.
Director Compensation—2008
Name(1)
Joseph A. Amato
Charles Biederman
James J. Burns
Joseph A. DeLuca
Jeffrey A. Gould
J. Robert Lovejoy
Eugene I. Zuriff
Fees Earned or
Paid in Cash
($)(2)
26,000
39,000
45,500
34,000
—
27,500
36,500
Stock
Awards
($)(3)
23,284(5)
32,316(6)
32,316(6)
30,347(7)
64,334(8)
21,315(9)
13,903(10)
All Other
Compensation
($)(4)
7,690
10,290
10,290
9,750
21,247
7,150
4,550
Total ($)
56,974
81,606
88,106
74,097
85,581
55,965
54,953
(1)
(2)
(3)
The compensation received by Fredric H. Gould, chairman of the board, Patrick J. Callan, Jr.,
president, and Matthew J. Gould, senior vice president, directors of our company, is set forth in the
Summary Compensation Table and are not included in the above table.
Includes all fees earned or paid in cash for services as a director, including annual retainer fees,
committee and committee chairman fees and meeting fees.
Sets forth the amount expensed for financial statement reporting purposes for 2008 in accordance
with SFAS 123R.
69
The table below shows the aggregate number of unvested restricted shares held by the directors
listed in the above table as of December 31, 2008, all of which vest five years from the grant date.
RESTRICTED
SHARES
NAME
Joseph A. Amato ......................................................................................5,500
Charles Biederman ...................................................................................7,500
James J. Burns ..........................................................................................7,500
Joseph A. DeLuca.....................................................................................7,500
Jeffrey A. Gould .......................................................................................15,125
J. Robert Lovejoy .....................................................................................5,500
Eugene I. Zuriff ........................................................................................3,500
(4)
(5)
(6)
(7)
(8)
Sets forth the cash dividends paid to directors in 2008 on unvested restricted shares awarded under
the One Liberty Properties, Inc. 2003 Incentive Plan. Does not include compensation of $243,250
received in 2008 by Jeffrey A. Gould from Majestic Property Management Corp., an entity wholly
owned by Fredric H. Gould, which performs services on our behalf. See Item 13, “Certain
Relationships and Related Transactions, and Director Independence,” below.
On April 15, 2004, we awarded 1,000 shares of restricted stock, with a grant date fair value of
$19,750. On April 15, 2005, we awarded 1,000 shares of restricted stock, with a grant date fair
value of $19,050. On February 24, 2006, we awarded 1,000 shares of restricted stock, with a grant
date fair value of $20,660. On February 28, 2007, we awarded 1,250 shares of restricted stock,
with a grant date fair value of $30,625. On February 28, 2008, we awarded 1,250 shares of
restricted stock, with a grant date fair value of $21,875. Each share of restricted stock vests five
years after the date of grant.
On April 15, 2004, we awarded 1,000 shares of restricted stock, with a grant date fair value of
$19,750. On April 15, 2005, we awarded 1,000 shares of restricted stock, with a grant date fair
value of $19,050. On February 24, 2006, we awarded 2,000 shares of restricted stock, with a grant
date fair value of $41,320. On February 28, 2007, we awarded 2,250 shares of restricted stock,
with a grant date fair value of $55,125. On February 28, 2008, we awarded 1,250 shares of
restricted stock, with a grant date fair value of $21,875. Each share of restricted stock vests five
years after the date of grant.
On June 14, 2004, we awarded 1,000 shares of restricted stock, with a grant date fair value of
$18,010. On April 15, 2005, we awarded 1,000 shares of restricted stock, with a grant date fair
value of $19,050. On February 24, 2006, we awarded 2,000 shares of restricted stock, with a grant
date fair value of $41,320. On February 28, 2007, we awarded 2,250 shares of restricted stock,
with a grant date fair value of $55,125. On February 28, 2008, we awarded 1,250 shares of
restricted stock, with a grant date fair value of $21,875. Each share of restricted stock vests five
years after the date of grant.
All of the directors in this table are non-management directors, except for Jeffrey A. Gould.
Jeffrey A. Gould was and continues to be an officer of the Company. The award of shares to him
was in his capacity as an officer and not in his capacity as a director. On April 15, 2004, we
awarded 2,825 shares of restricted stock, with a grant date fair value of $55,794. On April 15,
2005, we awarded 3,300 shares of restricted stock, with a grant date fair value of $62,865. On
February 24, 2006, we awarded 3,000 shares of restricted stock, with a grant date fair value of
$61,980. On February 28, 2007, we awarded 3,000 shares of restricted stock, with a grant date fair
70
value of $73,500. On February 28, 2008, we awarded 3,000 shares of restricted stock, with a grant
date fair value of $52,500. Each share of restricted stock vests five years after the date of grant.
(9)
On June 14, 2004, we awarded 1,000 shares of restricted stock, with a grant date fair value of
$18,010. On April 15, 2005, we awarded 1,000 shares of restricted stock, with a grant date fair
value of $19,050. On February 24, 2006, we awarded 1,000 shares of restricted stock, with a grant
date fair value of $20,660. On February 28, 2007, we awarded 1,250 shares of restricted stock,
with a grant date fair value of $30,625. On February 28, 2008, we awarded 1,250 shares of
restricted stock, with a grant date fair value of $21,875. Each share of restricted stock vests five
years after the date of grant.
(10) On February 24, 2006, we awarded 1,000 shares of restricted stock, with a grant date fair value of
$20,660. On February 28, 2007, we awarded 1,250 shares of restricted stock, with a grant date fair
value of $30,625. On February 28, 2008, we awarded 1,250 shares of restricted stock, with a grant
date fair value of $21,875. Each share of restricted stock vests five years after the date of grant.
The compensation for our non-management directors is essentially the same for each non-
management director. Non-management members of our board of directors are paid an annual retainer of
$20,000. In addition to regular board fees, each member of the audit committee is paid an annual retainer
of $5,000, the chairman of the audit committee and the chairman of the compensation committee is each
paid an additional annual retainer of $2,000, the audit committee financial expert is paid an additional
annual retainer of $7,500, each member of the compensation committee is paid an annual retainer of
$3,000 and each member of the nominating and corporate governance committee is paid an annual retainer
of $3,000. Each non-management director is also paid $1,000 for each board and committee meeting
attended in person and $500 for each meeting attended by telephone conference, except for audit
committee members who are paid $1,000 for each audit committee meeting attended, whether in person or
by telephone conference. In each year the compensation committee has awarded restricted shares to each
director. In 2008 1,250 restricted shares were awarded to each.
Compensation of our non-management directors is reviewed by our compensation committee and
recommended by the committee to the board of directors, which makes the final determination. On two
occasions the compensation committee retained a compensation consultant to provide information with
respect to board of directors’ compensation pay practices, comparing the compensation of our directors to
comparable companies. In November 2008, the committee retained FPL Associates LP to provide
compensation information with respect to our board of directors. In December 2008, the compensation
consultant reported the following key findings to our compensation committee:
• our board compensation program generally ranks with market practices compared to the peer
group companies. The compensation consultant did not recommend materially changing
compensation levels of the director compensation components, particularly given our smaller size
compared to our peers; and
•
from a structural perspective our program is unique in that we pay committee members retainers,
which is not a prevalent practice among peer companies, and we do not emphasize committee
chair retainers (except audit committee), which is a prevalent practice among peer companies.
In comparing the compensation of our directors to practices at comparable firms, the compensation
consultant used the full-time peer group it used in the executive compensation benchmarking discussed
under the caption “Executive Compensation – Compensation Consultant.”
71
Jeffrey A. Gould, a management director and an executive officer, was awarded 3,000 shares of
restricted common stock under our Incentive Plan in 2008. With respect to the compensation of Patrick J.
Callan, Jr., our president and chief executive officer and a management director, Fredric H. Gould,
chairman of our board and a management director, and Matthew J. Gould, a senior vice president and
management director reference is made to “Executive Compensation – Summary Compensation Table.”
Compensation Committee Interlocks and Insider Participation
During 2008, Eugene I. Zuriff , J. Robert Lovejoy and Charles Biederman served on our
compensation committee. None of these committee members were officers or employees of our company
during 2008, or at any other time in the past. While serving on the committee, these members were
independent directors pursuant to applicable NYSE rules, and none had any relationship requiring
disclosure by the Company under any paragraph of Item 404 (Transaction with Related Persons, Promoters
and Certain Control Persons).
Report of the Compensation Committee
The compensation committee of the board of directors has reviewed the Compensation Discussion
and Analysis, set forth herein, and discussed it with management, and based on such review and
discussions, recommends to the board of directors that the Compensation Discussion and Analysis be
included in this Annual Report.
Compensation Committee:
Eugene I. Zuriff (chair)
J. Robert Lovejoy
Charles Biederman
72
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The following table sets forth information as of March 24, 2009 concerning shares of our common
stock owned by (i) all persons known to own beneficially 5% or more of our outstanding stock, (ii) all
directors, (iii) each executive officer named in the Summary Compensation Table, and (iv) all directors and
executive officers as a group.
Name and Address
Amount of
Beneficial
Ownership(1)
Percent
of Class
Joseph A. Amato .......................................................................................................................
7,161
615 Route 32
Highland Mills, NY 10930-0503
Charles Biederman ....................................................................................................................
17,399
5 Sunset Drive
Englewood, CO 80110
James J. Burns...........................................................................................................................
10,476
390 Dogwood Lane
Manhasset, NY 10030
Patrick J. Callan, Jr.(2).............................................................................................................. 19,750
Joseph A. DeLuca .....................................................................................................................
9,300
154 East Shore Road
Huntington Bay, NY 11743
*
*
*
*
*
Fredric H. Gould(2)(3)(4) ......................................................................................................... 1,510,912
14.8%
Jeffrey A. Gould(2)(5) .............................................................................................................. 170,853
1.7%
Matthew J. Gould(2)(3)(6) ........................................................................................................ 1,264,822
12.4%
Gould Investors L.P.(2)(3) ........................................................................................................ 1,031,806
10.1%
David W. Kalish(2)(7) .............................................................................................................. 203,623
2.0%
J. Robert Lovejoy(8) .................................................................................................................
6,523
640 Fifth Avenue
New York, NY 10019
Lawrence G. Ricketts, Jr.(2)................................................................................................
25,500
Eugene I. Zuriff.........................................................................................................................
3,500
*
*
*
145 Central Park West
New York, NY 10023
Barclays Global Investors, N.A.(9) ...........................................................................................
869,795
8.5%
400 Howard Street
San Francisco, CA 94105
Directors and officers as a group (18 individuals)(10).............................................................. 2,321,674
22.8%
*
Less than 1%
73
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Securities are listed as beneficially owned by a person who directly or indirectly holds or shares
the power to vote or to dispose of the securities, whether or not the person has an economic
interest in the securities. In addition, a person is deemed a beneficial owner if he has the right to
acquire beneficial ownership of shares within 60 days, whether upon the exercise of a stock option
or otherwise. The percentage of beneficial ownership is based on 10,175,345 shares of common
stock outstanding on March 24, 2009.
Address is 60 Cutter Mill Road, Great Neck, NY 11021.
Fredric H. Gould is sole stockholder, sole director and chairman of the board of the corporate
managing general partner of Gould Investors L.P. and sole member of a limited liability company
which is the other general partner of Gould Investors L.P. Matthew J. Gould is president of the
corporate managing general partner of Gould Investors L.P. Fredric H. Gould and Matthew J.
Gould have shared voting and dispositive power with respect to the shares owned by Gould
Investors L.P.
Includes 333,393 shares of common stock owned directly, 1,031,806 shares of common stock
owned by Gould Investors L.P. and 145,713 shares of common stock owned by entities and trusts
over which Fredric H. Gould has sole or shared voting and dispositive power. Does not include
49,566 shares of common stock owned by Mrs. Fredric H. Gould, as to which shares Fredric H.
Gould disclaims any beneficial interest and Mrs. Gould has sole voting and investment power.
Includes 160,153 shares of common stock owned directly and 10,700 shares of common stock
owned as custodian for minor children (as to which shares Jeffrey A. Gould disclaims any
beneficial interest).
Includes 198,282 shares of common stock owned directly, 34,734 shares of common stock owned
as custodian for minor children (as to which shares Matthew J. Gould disclaims any beneficial
interest) and 1,031,806 shares of common stock owned by Gould Investors L.P. Does not include
3,552 shares of common stock owned by Mrs. Matthew J. Gould, as to which shares Matthew J.
Gould disclaims any beneficial interest and Mrs. Gould has sole voting and investment power.
Includes 50,568 shares of common stock owned directly, 2,750 shares of common stock owned by
David W. Kalish’s IRA and profit sharing trust, of which David W. Kalish is the sole beneficiary,
and 150,305 shares of common stock owned by pension trusts over which David W. Kalish has
shared voting and dispositive power. Does not include 416 shares of common stock owned by
Mrs. Kalish, as to which shares David W. Kalish disclaims any beneficial interest and Mrs. Kalish
has sole voting and investment power.
Includes 6,223 shares of common stock owned directly and 300 shares of common stock owned as
custodian for minor children and another child (as to which shares J. Robert Lovejoy disclaims any
beneficial interest).
Barclays Global Investors, N.A., Barclays Global Fund Advisors, Barclays Global Investors, Ltd.,
Barclays Global Investors Japan Limited, Barclays Global Investors Canada Limited, Barclays
Global Investors Australia Limited and Barclays Global Investors (Deutschland) AG jointly filed
with the Securities and Exchange Commission a Schedule 13G, dated February 6, 2009, reflecting
the beneficial ownership of 869,795 shares of common stock with respect to which they have sole
power to vote 869,785 shares and sole power to dispose of 869,795 shares. The above information
has been obtained from such Schedule 13G.
(10) This total is qualified by notes (3) through (8).
74
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Introduction
Fredric H. Gould, chairman of our board of directors, is chairman of the board of trustees of BRT
Realty Trust, a REIT engaged in mortgage lending. He is also the chairman of the board of directors and
sole stockholder of the managing general partner of Gould Investors L.P. and sole member of a limited
liability company which is also a general partner of Gould Investors L.P. Gould Investors L.P. owns
approximately 10% of our outstanding shares of common stock. Matthew J. Gould, a director and senior
vice president of our company, is a senior vice president of BRT Realty Trust and president of the
managing general partner of Gould Investors L.P. Jeffrey A. Gould, a director and senior vice president of
our company, is president and chief executive officer of BRT Realty Trust and a senior vice president of
the managing general partner of Gould Investors L.P. Matthew J. Gould and Jeffrey A. Gould are brothers
and the sons of Fredric H. Gould. In addition, David W. Kalish, Mark H. Lundy, Simeon Brinberg and
Israel Rosenzweig, each of whom is an officer of our company, are officers of BRT Realty Trust and of the
managing general partner of Gould Investors L.P. Mark H. Lundy is Simeon Brinberg’s son-in-law.
Related Party Transactions
In 2006, in connection with a review of our allocation policy and procedures under a shared
services agreement and our related party transactions with affiliated entities, our audit committee
recommended to the compensation committee and our board of directors a change in the manner in which
compensation is paid to our part-time officers and employees. The audit committee proposed and, after
discussions with our part-time officers, our audit committee, compensation committee and board of
directors authorized and approved a compensation and services agreement between us and Majestic, which
became effective as of January 1, 2007. Pursuant to the compensation and services agreement, we agreed
to pay an annual fee to Majestic and annual compensation to the chairman of our board, and Majestic
agreed to assume all of our obligations under a shared services agreement, and to provide to us the services
of all affiliated executive, administrative, legal, accounting and clerical personnel that we had previously
utilized on a part-time basis, as well as property management services, property acquisition, sales and lease
consulting and brokerage services, consulting services in respect to mortgage financings and construction
supervisory services. In accordance with the compensation and services agreement, we paid a fee of
$2,025,000 to Majestic in 2008 for our obligations under the shared services agreement and the provision
of the referenced services, of which $12,000 was paid by one of our joint ventures ($6,000 of this payment
being attributable to us as a joint venture partner). In addition, in accordance with the compensation and
services agreement, in 2008 we paid our chairman compensation of $250,000 and paid Majestic an
additional $175,000 for our share of direct office expenses, including rent, telephone, computer services,
internet usage. Majestic is wholly owned by the chairman of our board, and certain of our part-time
officers, including our part-time named executive officers, are officers of, and receive compensation from,
Majestic. The annual payments made by us to Majestic pursuant to the compensation and services
agreement are reviewed and renegotiated by our audit committee with our part-time officers annually and
at other times as may be determined by our audit committee. Any payments to Majestic are approved by
our compensation committee and board of directors.
Of the amount paid by us and our joint venture in 2008 under the compensation and services
agreement, $175,000 represented a negotiated payment of our share of direct office expenses, including
rent, telephone, postage, computer services, internet usage. Our full-time and part-time officers and
employees occupy space in an office building owned by a subsidiary of Gould Investors L.P. The rent
expense for this space is included in the $175,000 expenditure. We also lease under a direct lease with the
subsidiary of Gould Investors L.P. approximately 1,200 square feet of additional space in the same office
building at an annual rent of $43,000, which is competitive rent for comparable office space in the area in
which the building is located.
75
The amount paid by us and our joint venture to Majestic in 2008 pursuant to the compensation and
services agreement represented approximately 40% of the revenues of Majestic in 2008. Majestic provides
property management services, property acquisition, sales and lease consulting and brokerage services,
consulting services in respect to mortgage financings, and construction supervisory services for affiliated
and non-affiliated entities. In 2008, the following officers of ours (some of whom are also officers of
Majestic) received the following compensation from Majestic: Fredric H. Gould, $264,100; Matthew J.
Gould, $243,250; David W. Kalish, $139,000; Jeffrey A. Gould, $243,250; Simeon Brinberg, $69,500;
Mark H. Lundy, $194,600 and Israel Rosenzweig, $180,700. A portion of the compensation received by
these individuals from Majestic results from services performed and fees earned by Majestic from entities
(both affiliated and non-affiliated) other than us. Messrs. Fredric H. Gould, Matthew J. Gould, David W.
Kalish, Jeffrey A. Gould, Simeon Brinberg, Mark H. Lundy and Israel Rosenzweig also received
compensation in 2008 from other entities wholly owned by Mr. Fredric H. Gould, all of which are parties
to the shared services agreement and none of which provided services to us in 2008.
Effective January 1, 2007, we, Gould Investors L.P., BRT Realty Trust and Mr. Fredric H. Gould
(personally) purchased from Citation Share Sales, Inc., a fractional 6.25% interest in an airplane. We
purchased our fractional interest in order to facilitate property site inspections by our officers. We
purchased 20% of the 6.25% of interest for $86,000 (depreciable over five years), representing our pro rata
share of the total purchase price and agreed to pay our pro rata share of the operating costs, which totaled
$45,000 in 2008. The management agreement for the airplane with Citation Share Sales, Inc. is for a
period of five years and provides for the monthly operating costs to be adjusted annually, based upon a
fixed schedule set forth in the agreement. Georgetown Partners, Inc., managing general partner of Gould
Investors L.P., acting as nominee for the purchasers, executed the purchase agreement and “management
agreement.” We are allotted our pro rata share of 250 hours of usage under the purchase agreement for the
five years of the agreement. The airplane (or any substitute airplane used pursuant to the terms of the
agreement) is used by us for business purposes only. All payments made by us in this transaction are made
directly to the seller of the aircraft and the manager, both unrelated parties. At the conclusion of each year,
the parties which purchased the fractional interest and pay a pro rata share of operating expenses “true up”
operating expenses in the event any participant uses hours in excess of those allotted to it. In fiscal 2008,
we incurred net maintenance charges of $32,000 (after reimbursement to us of $13,000 after completion of
the “true up” process) and expensed depreciation of $17,000 with respect to the fractional interest. The
purchasers of the 6.25% fractional interest, as a group, have the right to reconvey the interest to a seller at
any time, twelve months subsequent to the date that title to the aircraft is acquired, at a price equal to the
fair market value of the interest, determined by negotiation, and, if the parties cannot agree on a price, then
independent third party appraisals are to be performed.
Policies and Procedures
Any transaction with affiliated entities raises the potential that we may not receive terms as
favorable as those that we would receive if the transactions were entered into with unaffiliated entities or
that our officers might otherwise seek benefits for affiliated entities at our expense. Our amended and
restated code of business conduct and ethics, in the “Conflicts of Interest” section, provides that we may
enter into a contract or transaction with an affiliated entity provided that any such transaction is approved
by our audit committee which is satisfied that the fees, charges and other payments made to the affiliated
entities are at no greater cost or expense to us then would be incurred if we were to obtain substantially the
same services from unrelated and unaffiliated persons. The term “affiliated entities” is defined in the code
as all parties to the shared services agreement and other entities in which officers and directors have an
interest.
If a related party transaction is entered into, our audit committee is advised of such transaction and
reviews the facts of the transaction and either approves or disapproves the transaction. If a transaction
relates to a member of our audit committee, such member will not participate in the audit committee’s
76
deliberations. If our audit committee approves or ratifies, as the case may be, a related party transaction, it
will present the facts of the transaction to our board of directors and recommend that our board of directors
approve or ratify such related party transaction. Our board of directors then reviews the transaction and a
majority of our board of directors, including a majority of our independent directors, must approve/ratify or
disapprove such related party transaction. If a transaction relates to a member of our board of directors,
such member will not participate in the board’s deliberations.
Director Independence
The board has affirmatively determined that Joseph A. Amato, Charles Biederman, James J.
Burns, Joseph A. DeLuca, J. Robert Lovejoy and Eugene I. Zuriff, a majority of our board of directors, are
“independent” for the purposes of Section 303A of the Listed Company Manual of the New York Stock
Exchange; that the members of our audit committee are independent for the purposes of Section
10A(m)(3) of the Securities Exchange Act of 1934, as amended, and Section 303.01 of the Listed
Company Manual; and that the members of our compensation and our nominating and corporate
governance committees are independent under Section 303A of the Listed Company Manual.
The board based these determinations primarily on a review of the responses of the directors to
questions regarding employment and compensation history, affiliations, family and other relationships and
discussions with the directors. To be considered independent a director must not have a material
relationship with us that could interfere with a director’s independent judgment and must be “independent”
within the meaning of the New York Stock Exchange’s requirements. In determining the independence of
each of the foregoing, the board considered (i) a passive investment by Gould Investors L.P., an affiliate of
the company, in a real estate project sponsored and managed by an entity affiliated with Mr. Biederman,
which investment was liquidated in February 2006; (ii) Mr. DeLuca’s rental of an office in a suite of
offices from an affiliate of the company for $800 per month, on a month to month basis, which rental was
terminated in April 2006, and (iii) fees totaling $1,382,400 paid in 2007 to a merchant banking firm in
which Mr. Lovejoy is a managing director by BRT Realty Trust, an entity which may be deemed an
affiliate of ours, for investment banking services which such firm performed for BRT Realty Trust.
Item 14. Principal Accounting Fees and Services.
The following table presents the fees for professional audit services billed by Ernst & Young LLP
for the audit of our annual consolidated financial statements for the years ended December 31, 2008 and
2007, and fees billed for other services rendered to us by Ernst & Young LLP for each of such years:
Audit fees(1)...............................................................................$373,100
Audit-related fees(2)................................................................
-----
Tax fees(3)..................................................................................14,400
Total fees ................................................................................$387,500
Fiscal
2008
Fiscal
2007
$330,000
58,200
8,600
$396,800
(1)
(2)
Audit fees include fees for the audit of our annual consolidated financial statements and for review
of financial statements included in our quarterly reports on Form 10-Q. Included in the audit fees
for Fiscal 2008 and 2007 are $94,500 and $105,000, respectively, for services rendered in
connection with our compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
Audit-related fees include fees for audits performed for significant property acquisitions and
dispositions required by the rules and regulations of the Securities and Exchange Commission and
fees related to services rendered in connection with registration statements filed with the Securities
and Exchange Commission.
77
(3)
Tax fees consist of fees for tax advice, tax compliance and tax planning.
The audit committee has concluded that the provision of non-audit services listed above is
compatible with maintaining the independence of Ernst & Young LLP.
Pre-Approval Policy for Audit and Non-Audit Services
The audit committee must pre-approve all audit and non-audit services involving our independent
registered public accounting firm.
In addition to the audit work necessary for us to file required reports under the Securities
Exchange Act of 1934, as amended (i.e., quarterly reports on Form 10-Q and annual reports on Form 10-
K), our independent registered public accounting firm may perform non-audit services, other than those
prohibited by the Sarbanes-Oxley Act of 2002, provided they are approved by the audit committee. The
audit committee approved all audit and non-audit services performed by our independent registered public
accounting firm in 2008 and 2007.
Approval Process
Annually, the audit committee reviews and approves the audit scope concerning the audit of our
consolidated financial statements for that year, including the proposed audit fee associated with the audit
and services in connection with our compliance with Section 404 of the Sarbanes-Oxley Act of 2002. The
audit committee may, at the time it approves the audit scope or subsequently thereafter, approve the
provision of tax related non-audit services and the maximum expenditure which may be incurred for such
tax services for such year. Any fees for the audit in excess of those approved and any fees for tax related
services in excess of the maximum established by the audit committee must receive the approval of the
audit committee.
Proposals for any other non-audit services to be performed by the independent registered public
accounting firm must be approved by the audit committee.
78
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
Documents filed as part of this Report:
(1) The following financial statements of the Company are included in this Report on Form
10-K:
- Reports of Independent Registered
Public Accounting Firm
- Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
- Schedule III-Real Estate
and Accumulated Depreciation
F-1 through F-2
F-3
F-4
F-5
F-6 through F-7
F-8 through F-29
F-30 through F-32
All other schedules are omitted because they are not applicable or the required information is
shown in the consolidated financial statements or the notes thereto.
(3) Exhibits:
3.1
3.2
3.3
3.4
4.1
Articles of Amendment and Restatement of One Liberty Properties, Inc., dated July 20, 2004
(incorporated by reference to Exhibit 3.1 to One Liberty Properties, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004).
Articles of Amendment to Restated Articles of Incorporation of One Liberty Properties, Inc.
filed with the State of Assessments and Taxation of Maryland on June 17, 2005 (incorporated
by reference to Exhibit 3.1 to One Liberty Properties, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2005).
Articles of Amendment to Restated Articles of Incorporation of One Liberty Properties, Inc.
filed with the State of Assessments and Taxation of Maryland on June 21, 2005 (incorporated
by reference to Exhibit 3.2 to One Liberty Properties, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2005).
By-Laws of One Liberty Properties, Inc., as amended (incorporated by reference to Exhibit
3.1 to One Liberty Properties, Inc.'s Current Report on Form 8-K filed on December 12,
2007).
One Liberty Properties, Inc. 2003 Incentive Plan (incorporated by reference to Exhibit 4.1 to
One Liberty Properties, Inc.'s Registration Statement on Form S-8 filed on July 15, 2003).
79
4.2
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to One Liberty
Properties, Inc.'s Registration Statement on Form S-2, Registration No. 333-86850, filed on
April 24, 2002 and declared effective on May 24, 2002).
10.1 Amended and Restated Loan Agreement, dated as of June 4, 2004, by and among One
Liberty Properties, Inc., Valley National Bank, Merchants Bank Division, Bank Leumi USA,
Israel Discount Bank of New York and Manufacturers and Traders Trust Company
(incorporated by reference to the Exhibit to One Liberty Properties, Inc.'s Current Report on
Form 8-K filed on June 8, 2004).
10.2 First Amendment to Amended and Restated Loan Agreement, dated as of March 15, 2007,
between VNB New York Corp. as assignee of Valley National Bank, Merchants Bank
Division, Bank Leumi, USA, Manufacturers and Traders Trust Company, Israel Discount
Bank of New York, and One Liberty Properties, Inc. (incorporated by reference to Exhibit
10.1 to One Liberty Properties, Inc.’s Current Report on Form 8-K filed on March 15, 2007).
10.3
Second Amendment to Amended and Restated Loan Agreement effective as of September
30, 2007, between VNB New York Corp., as assignee, of Valley National Bank, Merchants
Bank Division, Bank Leumi USA, Israel Discount Bank of New York, Manufacturers and
Traders Trust Company and One Liberty Properties, Inc. (incorporated by reference to
Exhibit 10.3 to One Liberty Properties, Inc.’s Annual Report on Form 10-K filed on March
13, 2008).
10.4 Compensation and Services and Agreement effective as of January 1, 2007 between One
Liberty Properties Inc. and Majestic Property Management Corp. (incorporated by reference
to One Liberty Properties Inc.’s Current Report on Form 8-K filed March 14, 2007).
14.1 Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to One
Liberty Properties, Inc.’s Form Current Report on Form 8-K filed on March 14, 2006).
21.1
Subsidiaries of Registrant*
23.1 Consent of Ernst & Young LLP*
31.1 Certification of President and Chief Executive Officer*
31.2 Certification of Senior Vice President and Chief Financial Officer*
32.1 Certification of President and Chief Executive Officer *
32.2 Certification of Senior Vice President and Chief Financial Officer*
* Filed herewith
80
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange, the Registrant has
duly caused this report to be signed on its behalf of the undersigned, thereunto duly authorized.
March 31, 2009
ONE LIBERTY PROPERTIES, INC.
By:
/s/ Simeon Brinberg
Simeon Brinberg
Senior Vice President
81
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
One Liberty Properties, Inc. and Subsidiaries
We have audited One Liberty Properties, Inc. and Subsidiaries’ (the “Company”) internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
The Company’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of One Liberty Properties, Inc. and Subsidiaries as of
December 31, 2008 and 2007, and the related consolidated statements of income, stockholders’ equity, and
cash flows for each of the three years in the period ended December 31, 2008 of the Company and our
report dated March 10, 2009 expressed an unqualified opinion thereon.
New York, New York
March 10, 2009
/s/ Ernst & Young LLP
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
One Liberty Properties, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of One Liberty Properties, Inc. and
Subsidiaries (the "Company") as of December 31, 2008 and 2007, and the related consolidated statements
of income, stockholders' equity and cash flows for each of the three years in the period ended December 31,
2008. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These
financial statements and schedule are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of One Liberty Properties, Inc. and Subsidiaries at December 31, 2008 and
2007, and the consolidated results of their operations and their cash flows for each of the three years in the
period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), One Liberty Properties, Inc. and Subsidiaries’ internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2009
expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
New York, New York
March 10, 2009
F-2
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Amounts in Thousands, Except Per Share Data)
ASSETS
Real estate investments, at cost
Land
Buildings and improvements
Less accumulated depreciation
Investment in unconsolidated joint ventures
Cash and cash equivalents
Restricted cash
Unbilled rent receivable
Unamortized intangible lease assets
Escrow, deposits and other receivables
Investment in BRT Realty Trust at market (related party)
Unamortized deferred financing costs
Other assets (including available-for-sale securities at market
of $297 and $1,024)
December 31,
2008
2007
$ 95,545
336,609
432,154
44,698
387,456
5,857
10,947
-
10,916
8,481
1,569
111
2,856
$ 72,386
307,884
380,270
36,228
344,042
6,570
25,737
7,742
9,893
4,935
2,465
459
3,119
912
$429,105
1,672
$406,634
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages and loan payable
Line of credit
Dividends payable
Accrued expenses and other liabilities
Unamortized intangible lease liabilities
Total liabilities
Commitments and contingencies
$225,514
27,000
2,239
5,143
5,234
265,130
$222,035
-
3,638
4,252
5,470
235,395
-
-
-
-
9,962
138,688
(239)
15,564
9,906
137,076
344
23,913
163,975
171,239
Stockholders' equity:
Preferred stock, $1 par value; 12,500 shares authorized; none issued
Common stock, $1 par value; 25,000 shares authorized;
9,962 and 9,906 shares issued and outstanding
Paid-in capital
Accumulated other comprehensive (loss) income – net unrealized
(loss) gain on available-for-sale securities
Accumulated undistributed net income
Total stockholders' equity
Total liabilities and stockholders’ equity
$429,105
$406,634
See accompanying notes.
F-3
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Amounts in Thousands, Except Per Share Data)
Year Ended December 31,
2007
2006
2008
Revenues:
Rental income
Operating expenses:
Depreciation and amortization
General and administrative (including $2,188, $2,290
and $1,317, respectively, to related parties)
Impairment charge
Federal excise tax
Real estate expenses
Leasehold rent
Total operating expenses
$40,341
$38,149
$33,370
8,971
8,248
6,995
6,508
5,983
-
685
308
22,455
6,430
-
91
293
308
15,370
5,250
-
490
270
308
13,313
Operating income
17,886
22,779
20,057
Other income and expenses:
Equity in earnings (loss) of unconsolidated joint ventures
Gain on dispositions of real estate - unconsolidated
joint ventures
Interest and other income
Interest:
Expense
Amortization of deferred financing costs
Gain on sale of excess unimproved land and other gains
648
(3,276)
622
297
533
583
1,776
26,908
899
(12,524)
(595)
413
(15,645)
(631)
1,830
(14,931)
(638)
-
Income from continuing operations
4,892
10,217
31,882
Discontinued operations:
Income from operations
Net gain on sale
-
-
373
-
883
3,660
Income from discontinued operations
-
373
4,543
Net income
$ 4,892
$10,590
$36,425
Weighted average number of common shares outstanding:
Basic
Diluted
10,183
10,183
10,069
10,069
Net income per common share – basic and diluted:
Income from continuing operations
Income from discontinued operations
Net income per common share
$ .48
-
$ .48
$ 1.01
.04
$ 1.05
9,931
9,934
$ 3.21
.46
$ 3.67
Cash distributions per share of common stock
$ 1.30
$ 2.11
$ 1.35
See accompanying notes.
F-4
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Three Years Ended December 31, 2008
(Amounts in Thousands, Except Per Share Data)
Common
Stock
Paid-in
Capital
Accumulated
Other
Comprehen-
sive
Income (Loss)
Unearned
Compen-
sation
Accumulated
Undistributed
Net Income
Total
Balances, December 31, 2005
$ 9,770
$134,645
$ 818
$ (1,250)
$11,536
$155,519
Reclassification upon the adoption
of FASB No. 123 (R)
Distributions –
common stock ($1.35 per share)
Exercise of options
Shares issued through
dividend reinvestment plan
Compensation expense –
restricted stock
Net income
Other comprehensive income –
net unrealized gain on
available-for-sale securities
Comprehensive income
-
-
9
44
-
-
(1,250)
-
101
815
515
-
-
-
-
-
-
-
1,250
-
-
-
-
-
-
-
(13,420)
-
(13,420)
110
-
859
-
36,425
515
36,425
-
_______
-
_______
117
_______
-
_______
-
_______
117
36,542
Balances, December 31, 2006
9,823
134,826
935
-
(159)
-
(3,053)
237
5
-
-
4,482
(5)
826
-
-
-
-
-
-
-
-
-
-
-
-
-
-
34,541
180,125
(21,218)
-
-
-
-
10,590
(21,218)
(3,212)
4,719
-
826
10,590
Distributions –
common stock ($2.11 per share)
Repurchase of common stock
Shares issued through
dividend reinvestment plan
Restricted stock vesting
Compensation expense –
restricted stock
Net income
Other comprehensive income-
net unrealized loss on
available-for-sale securities
Comprehensive income
-
_______
-
_______
(591)
_______
-
_______
-
_______
__(591)
_9,999
Balances, December 31, 2007
9,906
137,076
344
-
23,913
171,239
Distributions –
common stock ($1.30 per share)
Repurchase of common stock
Shares issued through
dividend reinvestment plan
Restricted stock vesting
Compensation expense –
restricted stock
Net income
Other comprehensive income-
net unrealized loss on
available-for-sale securities
Comprehensive income
-
(125)
-
(1,702)
158
23
-
-
2,449
(23)
888
-
-
-
-
-
-
-
-
-
-
-
-
-
(13,241)
-
(13,241)
(1,827)
-
-
-
4,892
2,607
-
888
4,892
-
-
-
-
(583)
-
-
-
-
-
(583)
4,309
Balances, December 31, 2008
$ 9,962
$138,688
$ (239)
$ -
$ 15,564
$ 163,975
See accompanying notes.
F-5
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Amounts in Thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sale of excess unimproved land, real estate and other
Increase in rental income from straight-lining of rent
Increase in rental income from amortization
of intangibles relating to leases
Impairment charge
Amortization of restricted stock expense
Change in fair value of non-qualifying interest rate swap
Gain on dispositions of real estate related to unconsolidated
joint ventures
Equity in (earnings) loss of unconsolidated joint ventures
Distributions of earnings from unconsolidated joint ventures
Depreciation and amortization
Amortization of financing costs
Changes in assets and liabilities:
Decrease (increase) in escrow, deposits and other receivables
Increase (decrease) in accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of real estate and improvements
Net proceeds from sale of excess unimproved land, real estate
and other
Investment in unconsolidated joint ventures
Distributions of return of capital from unconsolidated
joint ventures
Net proceeds from sale of securities
Purchase of available-for-sale securities
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Borrowing on bank line of credit, net
Proceeds from mortgage financings
Payment of financing costs
Repayment of mortgages and loan payable
Change in restricted cash
Cash distributions - common stock
Exercise of stock options
Repurchase of common stock
Issuance of shares through dividend reinvestment plan
Net cash provided by (used in) financing activities
Year Ended December 31,
2008
2007
2006
$ 4,892
$10,590
$36,425
(1,830)
(1,023)
(371)
5,983
888
650
(297)
(622)
535
8,971
631
937
93
19,437
(122)
(1,674)
(4,181)
(1,763)
(250)
-
826
-
(583)
(648)
1,089
8,248
638
(92)
(138)
17,884
(187)
-
515
-
(26,908)
3,276
24,165
7,091
600
(945)
839
38,927
(60,009)
(423)
(79,636)
2,976
(379)
1,435
525
-
(55,452)
27,000
14,185
(366)
(13,476)
7,742
(14,640)
-
(1,827)
2,607
21,225
4
(8)
551
843
(551)
416
-
2,700
(695)
(8,588)
(333)
(21,167)
-
(3,212)
4,719
(26,576)
16,228
(1,553)
21,264
348
(1,364)
(44,713)
-
37,564
(916)
(4,070)
(7,409)
(13,088)
110
-
859
13,050
Net (decrease) increase in cash and cash equivalents
(14,790)
(8,276)
7,264
Cash and cash equivalents at beginning of year
25,737
34,013
26,749
Cash and cash equivalents at end of year
$10,947
$25,737
$34,013
Continued on next page
F-6
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
(Amounts in Thousands)
Supplemental disclosures of cash flow information:
Cash paid during the year for interest expense
Cash paid during the year for income taxes
Supplemental schedule of non-cash investing and financing
activities:
Assumption of mortgages payable in connection with
purchase of real estate
Purchase accounting allocations – intangible lease assets
Purchase accounting allocations – intangible lease liabilities
Purchase accounting allocations – mortgage payable discount
Reclassification of 2005 deposit in connection with
purchase of real estate
Year Ended December 31,
2008
2007
2006
$14,908
81
$14,812
35
$12,576
16
$2,771
4,362
(451)
(40)
$ -
-
-
-
$26,957
2,210
(5,556)
-
-
-
2,525
See accompanying notes.
F-7
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND BACKGROUND
December 31, 2008
One Liberty Properties, Inc. (“OLP”) was incorporated in 1982 in the state of Maryland. OLP is a
self-administered and self-managed real estate investment trust ("REIT"). OLP acquires, owns and
manages a geographically diversified portfolio of retail (including furniture and office supply stores),
industrial, office, flex, health and fitness and other properties, a substantial portion of which are
under long-term net leases. As of December 31, 2008, OLP owned 79 properties, three of which
are vacant, and one of which is a 50% tenancy in common interest. OLP’s joint ventures owned a
total of five properties, one of which is vacant. The 84 properties are located in 29 states.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts and operations of OLP and its wholly-
owned subsidiaries. OLP and its subsidiaries are hereinafter referred to as the Company. Material
intercompany items and transactions have been eliminated.
Investment in Unconsolidated Joint Ventures
The Company accounts for its investments in unconsolidated joint ventures under the equity method
of accounting as the Company (1) is primarily the managing member but does not exercise
substantial operating control over these entities pursuant to EITF 04-05, and (2) such entities are not
variable-interest entities pursuant to FASB Interpretation No. 46R, “Consolidation of Variable Interest
Entities”. These investments are recorded initially at cost, as investments in unconsolidated joint
ventures, and subsequently adjusted for equity in earnings and cash contributions and distributions.
None of the joint venture debt is recourse to the Company.
The Company has elected to follow the cumulative earnings approach when assessing for the
statement of cash flows whether the distribution from the investee is a return of the investor’s
investment as compared to a return on its investment. The source of the cash generated by the
investee to fund the distribution is not a factor in the analysis (that is, it does not matter whether the
cash was generated through investee refinancing, sale of assets or operating results). Rather, the
investor need only consider the relationship between the cash received from the investee to its
equity in the undistributed earnings of the investee, on a cumulative basis, in assessing whether
the distribution from the investee is a return on or return of its investment. Cash received from the
unconsolidated entity is presumed to be a return on the investment to the extent that, on a
cumulative basis, distributions received by the investor are less than its share of the equity in the
undistributed earnings of the entity. The Company monitors on a cumulative basis the distributions
received versus the cumulative equity earned in order to properly present the distribution in the
cash flow statement.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and assumptions
F-8
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
that affect the amounts reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Management believes that the estimates and assumptions that are most important to the portrayal of
the Company’s financial condition and results of operations, in that they require management’s most
difficult, subjective or complex judgments, form the basis of the accounting policies deemed to be
most significant to the Company. These significant accounting policies relate to revenues and the
value of the Company’s real estate portfolio. Management believes its estimates and assumptions
related to these significant accounting policies are appropriate under the circumstances; however,
should future events or occurrences result in unanticipated consequences, there could be a material
impact on the Company’s future financial condition or results of operations.
Revenue Recognition
Rental income includes the base rent that each tenant is required to pay in accordance with the
terms of their respective leases reported on a straight-line basis over the term of the lease. In order
for management to determine, in its judgment, that the unbilled rent receivable applicable to each
specific property is collectible, management reviews unbilled rent receivables on a quarterly basis
and takes into consideration the tenant’s payment history and the financial condition of the tenant.
Some of the leases provide for additional contingent rental revenue in the form of percentage rents
and increases based on the consumer price index. The percentage rents are based upon the level
of sales achieved by the lessee and are recorded once the required sales levels are reached.
Gains or losses on disposition of properties are recorded when the criteria for recognizing such
gains or losses under generally accepted accounting principles have been met.
Purchase Accounting for Acquisition of Real Estate
In accordance with Statement of Financial Accounting Standards No. 141, or SFAS 141, “Business
Combinations,” the Company allocates the purchase price of real estate to land and building and
intangibles, such as the value of above, below and at-market leases and origination costs
associated with in-place leases. The Company depreciates the amount allocated to building and
intangible assets or liabilities over their estimated useful lives, which generally range from two to
forty years. The values of the above and below market leases are amortized and recorded as either
an increase (in the case of below market leases) or a decrease (in the case of above market leases)
to rental income over the remaining minimum term of the associated lease. The origination costs
are amortized as an expense over the remaining minimum term of the lease. The Company
assesses fair value of the lease intangibles based on estimated cash flow projections that utilize
appropriate discount rates and available market information.
As a result of its evaluation under SFAS 141 of the acquisitions made, the Company recorded
additional deferred intangible lease assets of $4,362,000, representing the value of the acquired
above market leases and assumed lease origination costs during the year ended December 31,
2008. The Company also recorded additional deferred intangible lease liabilities of $451,000,
representing the value of the acquired below market leases during the year ended December 31,
2008. The Company did not acquire any properties during the year ended December 31, 2007. The
Company recognized a net increase in rental revenue of $371,000 and $250,000 for the
amortization of the above/below market leases for the years ended 2008 and 2007, respectively. For
the years ended 2008 and 2007, the Company recognized amortization expense of $499,000 and
F-9
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
$290,000, respectively, relating to the amortization of the assumed lease origination costs. The
year ended 2008 included $180,000 of additional net rental revenue and $161,000 of additional
amortization expense resulting from the accelerated expiration of certain leases. At December 31,
2008 and 2007, accumulated amortization of intangible lease assets was $1,813,000 and
$1,213,000, respectively. At December 31, 2008 and 2007, accumulated amortization of intangible
lease liabilities was $1,155,000 and $801,000, respectively.
The unamortized balance of intangible lease assets as a result of acquired above market leases at
December 31, 2008 will be deducted from rental income through 2025 as follows:
2009
2010
2011
2012
2013
Thereafter
$ 919,000
835,000
835,000
835,000
833,000
4,224,000
$8,481,000
The unamortized balance of intangible lease liabilities as a result of acquired below market leases at
December 31, 2008 will be added to rental income through 2022 as follows:
2009
2010
2011
2012
2013
Thereafter
$ 407,000
407,000
407,000
407,000
407,000
3,199,000
$5,234,000
Accounting for Long-Lived Assets and Impairment of Real Estate Owned
The Company reviews its real estate portfolio on a quarterly basis to ascertain if there are any
indicators of impairment to the value of any of its real estate assets, including deferred costs and
intangibles, in order to determine if there is any need for an impairment charge. In reviewing the
portfolio, the Company examines the type of asset, the economic situation in the area in which the
asset is located, the economic situation in the industry in which the tenant is involved and the
timeliness of the payments made by the tenant under its lease, as well as any current
correspondence that may have been had with the tenant, including property inspection reports. For
each real estate asset owned for which indicators of impairment exist, if the undiscounted cash flow
analysis yields an amount which is less than the asset’s carrying amount, an impairment loss is
recorded to the extent that the estimated fair value exceeds the asset’s carrying amount. The
estimated fair value is determined using a discounted cash flow model of the expected future cash
flows through the useful life of the property. Real estate assets that are expected to be disposed of
are valued at the lower of carrying amount or fair value less costs to sell on an individual asset basis.
In accordance with FIN 47, “Accounting for Conditional Asset Retirement Obligations”, the Company
records a conditional asset retirement obligation (“CARO”) if the liability can be reasonable
estimated. A CARO is an obligation that is settled at the time the asset is retired or disposed of and
for which the timing and/or method of settlement are conditional on future events. The Company
F-10
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
currently is not aware of any conditional asset retirement obligations that would require remediation.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with maturities of three months or less when
purchased.
Restricted Cash
Restricted cash at December 31, 2007 consists of a cash deposit as required by a certain loan
payable agreement for collateral. (See Note 5.)
Escrow, Deposits and Other Receivables
Includes $866,000 and $839,000 at December 31, 2008 and 2007, respectively, of restricted cash
relating to real estate taxes, insurance and other escrows.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the
inability of our tenants to make required rent payments. If the financial condition of a specific tenant
were to deteriorate, resulting in an impairment of its ability to make payments, additional allowances
may be required. At December 31, 2008 and 2007, the balance in allowance for doubtful accounts
was $160,000 and zero, respectively.
Depreciation and Amortization
Depreciation of buildings and improvements is computed on the straight-line method over an
estimated useful life of 40 years for commercial properties and 27 1/2 years for the Company’s
residential property. Depreciation ceases when a property is deemed “held for sale”. If a property
which was deemed “held for sale” is reclassified to a “held and used” property, “catch-up”
depreciation is recorded. Leasehold interest is amortized over the initial lease term of the leasehold
position. Depreciation expense, including amortization of the leasehold position and of lease
origination costs, amounted to $8,971,000, $8,248,000 and $6,995,000 for the three years ended
December 31, 2008, 2007 and 2006, respectively.
Leasehold Rent
Ground lease payments on a leasehold position are computed on the straight line method.
Deferred Financing Costs
Mortgage and credit line costs are deferred and amortized on a straight-line basis over the terms of
the respective debt obligations, which approximates the effective interest method. At December 31,
2008 and 2007, accumulated amortization of such costs was $3,069,000 and $2,464,000,
respectively.
F-11
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Federal Income Taxes
The Company has qualified as a real estate investment trust under the applicable provisions of the
Internal Revenue Code. Under these provisions, the Company will not be subject to federal income
taxes on amounts distributed to stockholders providing it distributes substantially all of its taxable
income and meets certain other conditions.
Distributions made during 2008 and 2007 included 3% and 82%, respectively, to be treated by the
stockholders as capital gain distributions, with the balance to be treated as ordinary income.
Investment in Equity Securities
The Company determines the appropriate classification of equity securities at the time of purchase
and reassesses the appropriateness of the classification at each reporting date. At December 31,
2008, all marketable securities have been classified as available-for-sale and, as a result, are stated
at fair value. Unrealized gains and losses on available-for-sale securities are recorded as
accumulated other comprehensive income (loss) in the stockholders' equity section.
The Company's investment in 30,048 common shares of BRT Realty Trust ("BRT"), a related party
of the Company, (accounting for less than 1% of the total voting power of BRT), purchased at a cost
of $97,000, has a fair market value at December 31, 2008 of $111,000. At December 31, 2008, the
total cumulative unrealized loss of $239,000 on all investments in equity securities is reported as
accumulated other comprehensive income (loss) in the stockholders' equity section.
Realized gains and losses are determined using the average cost method and is included in
“Interest and other income” on the income statement. During 2008, 2007 and 2006, sales proceeds
and gross realized gains and losses on securities classified as available-for-sale were:
Sales proceeds
Gross realized losses
Gross realized gains
Fair Value of Financial Instruments
2008
2007
2006
$ 6,000
$ 4,000
$ 4,000
$161,000
$ -
$118,000
$348,000
$ 3,000
$111,000
The following methods and assumptions were used to estimate the fair value of each class of
financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet for these
instruments approximate their fair values.
Restricted cash: The carrying amount reported in the balance sheet for this instrument
approximates its fair value.
Investment in equity securities: Since these investments are considered "available-for-sale", they
are reported in the balance sheet based upon quoted market prices.
F-12
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Mortgages and loan payable: At December 31, 2008, the estimated fair value of the Company's
mortgages payable is less than their carrying value by approximately $2,500,000, assuming a
market interest rate of 6.25%. There was no outstanding loan payable at December 31, 2008.
Line of credit: There is no material difference between the carrying amount and fair value because
the interest rate is at the lower of LIBOR plus 2.15% or at the prime rate.
Considerable judgment is necessary to interpret market data and develop estimated fair value. The
use of different market assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
Concentration of Credit Risk
The Company maintains accounts at various financial institutions. While the Company attempts to
limit any financial exposure, its deposit balances exceed federally insured limits. The Company has
not experienced any losses on such accounts.
While the Company’s properties are located in twenty-nine states, 15.8%, 16.0% and 17.9% of the
Company’s rental revenues were attributable to properties located in Texas and 14.6%, 15.0% and
17.2% of the Company’s rental revenues were attributable to properties located in New York for the
years ended December 31, 2008, 2007 and 2006, respectively. No other state contributed over
10% to the Company’s rental revenues.
In April 2006, the Company acquired eleven retail furniture stores, located in six states, net leased
to Haverty Furniture Companies, Inc. pursuant to a master lease. The basic term of the net lease
expires August 2022, with several renewal options. These properties which represented 13.6% of
the depreciated book value of real estate investments, generated rental revenues of $4,844,000,
$4,845,000 and $3,559,000, or 12.0%, 12.7% and 10.7% of the Company’s total revenues for the
years ended December 31, 2008, 2007 and 2006, respectively.
In September 2008, the Company acquired eight retail office supply stores, located in seven states,
net leased to Office Depot, Inc. pursuant to eight separate leases which contain cross default
provisions. The basic term of the net leases expire September 2018, with several renewal options.
These eight properties plus two properties we already owned and leased to the same tenant,
represented 12.6% of the depreciated book value of real estate investments and generated rental
revenues of $1,551,000, or 3.8% of the Company’s total revenues for the year ended December 31,
2008. Contractual rental income for these ten properties is $4,435,000 for the year ended
December 31, 2009.
Earnings Per Common Share
Basic earnings per share was determined by dividing net income for each year by the weighted
average number of shares of common stock outstanding, which includes unvested restricted stock
during each year.
Diluted earnings per share reflects the potential dilution that could occur if securities or other
contracts exercisable for, or convertible into, common stock were exercised or converted or resulted
in the issuance of common stock that shared in the earnings of the Company. Diluted earnings per
share was determined by dividing net income for each year by the total of the weighted average
number of shares of common stock outstanding plus the dilutive effect of the Company’s
F-13
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
outstanding options (2,315 shares for the year ended 2006) using the treasury stock method. There
were no outstanding options in 2008 and 2007.
Segment Reporting
Virtually all of the Company's real estate assets are comprised of real estate owned that is net
leased to tenants on a long-term basis. Therefore, the Company operates predominantly in one
industry segment.
Derivatives and Hedging Activities
The Company accounts for derivative financial instruments in accordance with SFAS No. 133
“Accounting for Derivative Instruments and Hedging Activities”, as amended by SFAS No. 138,
which requires an entity to recognize all derivatives as either assets or liabilities in the consolidated
balance sheets and to measure those instruments at fair value. The Company relies on quotations
from a third party to determine these fair values.
In the normal course of business the Company may use a variety of derivative financial instruments
to manage, or hedge, interest rate risk. These derivative financial instruments must be effective in
reducing its interest rate risk in order to qualify for hedge accounting. Any derivative instrument
used for risk management that does not meet the hedging criteria is marked-to-market with the
changes in value included in net income.
The fair value of our interest rate swap which is a non-qualifying hedge was a liability of $650,000 as
of December 31, 2008 and is recorded in other liabilities in the consolidated balance sheet. The
Company did not hold any derivative financial instruments as of December 31, 2007 and 2006. The
change in fair value of the non-qualifying hedge was $650,000 and is recorded as interest expense
on the consolidated income statement.
Consolidation of Variable Interest Entities
In January 2003, the Financial Accounting Standards Board (FASB) issued Interpretation No. 46,
“Consolidation of Variable Interest Entities”, which explains how to identify variable interest entities
(“VIE”) and how to assess whether to consolidate such entities. In December 2003, a revision was
issued (46R) to clarify some of the original provisions. Management has reviewed its
unconsolidated joint venture arrangements and determined that none represent variable interest
entities pursuant to the interpretation.
Share Based Compensation
The Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”)
No. 123R, “Share-Based Payments”, effective January 1, 2006. SFAS No. 123R established
financial accounting and reporting standards for stock-based employee compensation plans,
including all arrangements by which employees and others receive shares of stock or other equity
instruments of the Company, or the Company incurs liabilities to employees in amounts based on
the price of the employer’s stock. The statement also defined a fair value based method of
accounting for an employee stock option or similar equity instrument whereby the fair-value is
recorded based on the market value of the common stock on the grant date and is amortized to
general and administrative expense over the respective vesting periods.
F-14
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Pronouncements
In December 2007, the FASB issued Statement No. 141 (R), “Business Combinations - a
replacement of FASB Statement No. 141” (“SFAS No. 141 (R)”), which applies to all transactions or
events in which an entity obtains control of one or more businesses. SFAS No. 141 (R) (i)
establishes the acquisition-date fair value as the measurement objective for all assets acquired and
liabilities assumed, (ii) requires expensing of most transaction costs, and (iii) requires the acquirer
to disclose to investors and other users of the information needed to evaluate and understand the
nature and financial effect of the business combination. SFAS No. 141 (R) is effective in fiscal
years beginning after December 15, 2008 and early adoption is not permitted. The principal impact
of the adoption of SFAS No. 141 (R) on the Company’s consolidated financial statements will be
the requirement that the Company expense most of its transaction costs relating to its acquisition
activities.
In December 2007, the FASB issued Statement No. 160, “Non-controlling Interests in Consolidated
Financial Statements, an amendment of ARB No 51” (“SFAS No. 160”). SFAS No. 160 requires
non-controlling interests in consolidated subsidiaries to be displayed in the statement of financial
position as a separate component of equity. Earnings and losses attributable to non-controlling
interests are no longer reported as part of consolidated earnings, rather they are disclosed on the
face of the income statement. This statement is effective in fiscal years beginning after December
15, 2008. Adoption is prospective and early adoption is not permitted. Based upon the current
100% ownership of the Company’s consolidated subsidiaries, SFAS No. 160 will have no impact on
the Company’s consolidated financial statements.
On March 20, 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No. 133” (“SFAS No. 161”) which
provides for enhanced disclosures about how and why an entity uses derivatives and how and
where those derivatives and related hedged items are reported in the entity’s financial statements.
SFAS No. 161 also requires certain tabular formats for disclosing such information. SFAS No. 161
applies to all entities and all derivative instruments and related hedged items accounted for under
SFAS No. 133. Among other things, SFAS No. 161 requires disclosures of an entity’s objectives
and strategies for using derivatives by primary underlying risk and certain disclosures about the
potential future collateral or cash requirements (that is, the effect on the entity’s liquidity) as a result
of contingent credit-related features. SFAS No.161 is effective for fiscal years and interim periods
beginning after November 15, 2008 with early application encouraged. The Company will adopt
beginning January 1, 2009. The primary effect that SFAS No. 161 will have on the Company’s
consolidated financial statements will be additional disclosure requirements surrounding derivative
instruments.
Reclassification
Certain amounts reported in previous financial statements have been reclassified in the
accompanying financial statements to conform to the current year’s presentation, primarily to
reclassify a property that was presented as held for sale at December 31, 2007 and as a real estate
investment at December 31, 2008 and to reclassify such property’s operations from discontinued
operations to continuing operations. This property had been marketed for sale from August 2007
until May 2008 when the Company determined that the market was not favorable for a sale of such
property.
F-15
NOTE 3 - REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS
During the year ended December 31, 2008, the Company purchased twelve single tenant properties
in eight states for a total consideration of $62,085,000. These purchases include a portfolio of eight
properties which are leased to the same tenant and was acquired in a sale-leaseback transaction for
a total purchase price, including closing costs, of approximately $48,200,000, with approximately
$14,200,000 paid in cash and $34,000,000 borrowed under the Company’s line of credit. There were
no property acquisitions during the year ended December 31, 2007.
With the exception of three vacant properties, the rental properties owned at December 31, 2008 are
leased under noncancellable operating leases to corporate tenants with current expirations ranging
from 2009 to 2038, with certain tenant renewal rights. Substantially all of the lease agreements are
net lease arrangements which require the tenant to pay not only rent but all the expenses of the
leased property including maintenance, taxes, utilities and insurance. Certain lease agreements
provide for periodic rental increases and others provide for increases based on the consumer price
index.
The minimum future rentals to be received over the next five years and thereafter on the operating
leases in effect at December 31, 2008 are as follows:
Year Ending
December 31,
2009
2010
2011
2012
2013
Thereafter
Total
(In Thousands)
$ 41,953
41,715
41,032
40,300
38,886
221,880
$425,766
Included in the minimum future rentals are rentals from a property not owned in fee (ground lease)
by an unrelated third party. The Company pays annual fixed leasehold rent of $237,500 through July
2009 with 25% increases every five years through March 3, 2020 and has a right to extend the lease
for up to five 5-year and one 7 month renewal options.
Excluded from the minimum future rentals is the rent originally due from three of the Company’s
properties formerly leased to Circuit City Stores, Inc. (“Circuit City”) which filed for protection under
federal bankruptcy laws in November 2008. Although the Company has received its rent for January
and February 2009, it will not be receiving any additional rent since Circuit City rejected the leases
for these properties in March 2009.
At December 31, 2008, the Company has recorded an unbilled rent receivable aggregating
$10,916,000, representing rent reported on a straight-line basis in excess of rental payments
required under the term of the respective leases. This amount is to be billed and received pursuant
to the lease terms during the next seventeen years.
During the year ended December 31, 2008, the Company wrote-off or recorded accelerated
amortization of $332,000 of unbilled "straight-line" rent receivable for six retail properties, including
five properties formerly leased to Circuit City. During the year ended December 31 2007, the
Company wrote-off $322,000 of unbilled “straight-line” rent receivable.
F-16
NOTE 3 - REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS (Continued)
Impairment Charge
During the year ended December 31, 2008, the Company recorded an impairment charge of
$5,983,000 relating to four properties. An impairment charge of $5,231,000 was recorded relating
to three of the five Circuit City properties the Company owns, two of which were vacant at December
31, 2008. The Company performed an analysis and has determined that the remaining two Circuit
City properties did not require an impairment charge. Additionally, the Company recorded an
impairment charge of $752,000 on a property leased to a retail furniture tenant. These impairment
charges were recorded as a direct write-down of the respective investments on the balance sheet
with depreciation calculated using the new basis.
After giving effect to the impairment charge, the net book value of the five Circuit City properties was
$8,252,000. At December 31, 2008, the non-recourse mortgage which is secured and cross
collateralized by the five Circuit City properties had an outstanding balance of $8,706,000. The
Company has not made any payments on this mortgage since December 1, 2008 and has entered
into negotiations with representatives of the mortgagee relating to possible modifications of the
mortgage. The Company continues to accrue interest expense on this mortgage which matures in
December 2014.
Sales of Excess Unimproved Land and Other
In May 2008, the Company sold a five acre parcel of excess, unimproved land to an unrelated third
party for a sales price of $3,150,000 and realized a gain of $1,830,000. This land, adjacent to a flex
property owned by the Company, had been acquired by the Company as part of the purchase of the
flex property in 2000.
In July 2006, the Company sold excess acreage to an unrelated third party for a sales price of
$975,000 and realized a gain of $185,000. In February 2006, the Company sold an option it owned
to buy an interest in certain property adjacent to one of the Company’s properties and realized a gain
of $228,000.
NOTE 4 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
In March 2008, one of the Company’s unconsolidated joint ventures sold its only property, which
was vacant, for a sales price of $1,302,000, net of closing costs. The sale resulted in a gain to the
Company of $297,000 (after giving effect to the Company’s $480,000 share of a direct write down
taken by the joint venture in a prior year).
In March 2007, another of the Company’s unconsolidated joint ventures sold its only remaining
property, a vacant parcel of land, for a sales price of $1,250,000 to a former tenant of the joint
venture. The sale resulted in a gain to the Company of $583,000 (after giving effect to the
Company’s $1,581,000 share of direct write downs taken by the joint venture in prior years). In
September and October 2006, this joint venture and another joint venture sold their portfolio of nine
movie theater properties to a single unrelated purchaser for an aggregate sales price of
$152,658,000 and realized a gain, for book purposes, after expenses, fees and brokerage
commissions, of $55,665,000, of which the Company’s 50% share was $27,832,000. The joint
ventures paid a prepayment premium of $10,538,000, of which the Company’s 50% share was
$5,269,000, on the outstanding mortgage loans secured by the properties which were sold, which
was considered as interest expense on the books of the joint ventures and was not netted against
the gain recognized on the sale.
F-17
NOTE 4 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (Continued)
The remaining five unconsolidated joint ventures each own and operate one property. At
December 31, 2008 and 2007, the Company’s equity investment in unconsolidated joint ventures
totaled $5,857,000 and $6,570,000, respectively. These balances are net of distributions, including
distributions of $1,970,000 and $1,640,000 received in 2008 and 2007, respectively. In addition to
the gain on sale of properties of $297,000 and $583,000 for the years ended December 31, 2008
and 2007, respectively, the unconsolidated joint ventures contributed $622,000 and $648,000 in
equity earnings, respectively. See Note 7 for related party fees paid by the unconsolidated joint
ventures.
NOTE 5 – DEBT OBLIGATIONS
Mortgages Payable
At December 31, 2008, there are 40 outstanding mortgages payable, all of which are secured by first
liens on individual real estate investments with an aggregate carrying value before accumulated
depreciation of $362,190,000. The mortgage payments bear interest at fixed rates ranging from
5.44% to 8.8%, and mature between 2009 and 2037. The weighted average interest rate was
6.33% and 6.30% for the years ended December 31, 2008 and 2007, respectively.
Scheduled principal repayments during the next five years and thereafter are as follows:
Year Ending
December 31,
2009
2010
2011
2012
2013
Thereafter
Total
(In Thousands)
$ 18,869
22,532
8,816
37,806
19,036
118,455
$ 225,514
See Note 3 for information regarding a $8,706,000 mortgage loan included in the above as due in
2009 for which the Company has not made any payments on since December 1, 2008. The maturity
date of the mortgage is in 2014.
Loan Payable
On October 31, 2008, the Company repaid in full its only loan payable, which had a balance of
$6,375,000, with cash held in escrow and shown on the balance sheet as restricted cash. The
excess escrow funds of $1,402,000 was returned to the Company and is no longer restricted. The
loan was originally a mortgage collateralized by a movie theater property the Company owned in
California. During 2006, the property was sold and cash was substituted for collateral of 110% of
the principal balance at the date of sale.
Line of Credit
The Company has a $62,500,000 revolving credit facility (“Facility”) with VNB New York Corp., Bank
Leumi USA, Israel Discount Bank of New York and Manufacturers and Traders Trust Company. The
F-18
NOTE 5 – DEBT OBLIGATIONS (Continued)
Facility matures March 31, 2010 and provides that the Company pays interest at the lower of
LIBOR plus 2.15% or the respective bank’s prime rate on funds borrowed and has an unused
facility fee of ¼%. At December 31, 2008, there was $27,000,000 outstanding under the Facility.
The Facility is guaranteed by all of the Company’s subsidiaries which own unencumbered
properties and is secured by the outstanding stock of subsidiary entities. The Facility is available to
pay off existing mortgages, to fund the acquisition of additional properties, or to invest in joint
ventures. The Company is in compliance with all covenants. Net proceeds received from the sale
or refinancing of properties are required to be used to repay amounts outstanding under the Facility
if proceeds from the Facility were used to purchase or refinance the property.
NOTE 6 - ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
On January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157,
“Fair Value Measurements” (SFAS No. 157). SFAS No. 157 defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value measurements.
SFAS No. 157 applies to reported balances that are required or permitted to be measured at fair
value under existing accounting pronouncements; accordingly, the standard does not require any
new fair value measurements of reported balances.
SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific
measurement. Therefore, a fair value measurement should be determined based on the
assumptions that market participants would use in pricing the asset or liability. As a basis for
considering market participant assumptions in fair value measurements, SFAS No. 157
establishes a fair value hierarchy that distinguishes between market participant assumptions
based on market data obtained from sources independent of the reporting entity (observable
inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own
assumptions about market participant assumptions (unobservable inputs classified within Level 3
of the hierarchy). In February 2008, the FASB delayed the effective date of SFAS 157 for non-
financial assets and non-financial liabilities to fiscal years beginning after November 15, 2008.
The Company’s financial assets and liabilities, other than fixed-rate mortgages and loan payable,
are generally short-term in nature, or bear interest at variable current market rates, and consist of
cash and cash equivalents, restricted cash, rents and other receivables, other assets, and accounts
payable and accrued expenses. The carrying amounts of these assets and liabilities are not
measured at fair value on a recurring basis, but are considered to be recorded at amounts that
approximate fair value due to their short-term nature. The fair value of the Company’s available-for-
sale securities and derivative financial instrument was determined using the following inputs as of
December 31, 2008:
F-19
NOTE 6 - ASSETS AND LIABILITIES MEASURED AT FAIR VALUE (Continued)
Fair Value Measurements
Using Fair Value Hierarchy
Carrying
Value
Fair Value
Level 1
Level 2
Level 3
$412,000
$412,000
$412,000
$ -
$ -
650,000
650,000
-
650,000
-
Financial assets:
Available-for-sale securities
Financial liabilities:
Derivative financial
instrument
Available-for-sale securities
All of the Company’s marketable securities and its investment in common shares of BRT Realty
Trust are classified as available-for-sale securities. The total cost of such securities is $651,000
and the aggregate amount of unrealized losses is $239,000. Fair values are approximated on
current market quotes from financial sources that track such securities.
Derivative financial instrument
During the year ended December 31, 2008, the Company entered into an interest rate swap to
manage its interest rate risk in connection with one mortgage in the principal amount of
$10,675,000. The valuation of the instrument is determined using widely accepted valuation
techniques including discounted cash flow analysis on the expected cash flows of the derivative.
This analysis reflects the contractual terms of the derivative, including the period to maturity, and
uses observable market-based inputs, including interest rate curves, foreign exchange rates, and
implied volatilities.
Although the Company has determined that the majority of the inputs used to value its derivative
fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its
derivative utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the
likelihood of default by itself and its counterparty. However, as of December 31, 2008, the
Company has assessed the significance of the impact of the credit valuation adjustments on the
overall valuation of its derivative position and has determined that the credit valuation adjustments
are not significant to the overall valuation of its derivative. As a result, the Company has
determined that its derivative valuation is classified in Level 2 of the fair value hierarchy.
In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” ("SFAS No. 159") which provides companies with an option to
report selected financial assets and liabilities at fair value. The objective of SFAS No. 159 is to
reduce both complexity in accounting for financial instruments and the volatility in earnings caused
by measuring related assets and liabilities differently. The FASB believes that SFAS No. 159 helps
to mitigate this type of accounting-induced volatility by enabling companies to report related assets
and liabilities at fair value, which would likely reduce the need for companies to comply with
detailed rules for hedge accounting. SFAS No. 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose different
measurement attributes for similar types of assets and liabilities. The Company adopted SFAS
No. 159 and has elected not to report selected financial assets and liabilities at fair value.
F-20
NOTE 7 – RELATED PARTY TRANSACTIONS
At December 31, 2008 and 2007, Gould Investors L.P. (“Gould”), a related party, owned 991,707
and 913,241 shares of the common stock of the Company or approximately 9.7% and 9%,
respectively, of the equity interest. During 2008 and 2007, Gould purchased 78,466 and 82,330
shares, respectively, of the Company through the Company’s dividend reinvestment plan.
Effective as of January 1, 2007, the Company entered into a compensation and services
agreement with Majestic Property Management Corp. (“Majestic”), a company wholly-owned by our
Chairman and in which certain of the Company’s executive officers are officers and from which they
receive compensation. Under the terms of the agreement, Majestic took over the Company’s
obligations to make payments to Gould (and other affiliated entities) under a shared services
agreement and agreed to provide to the Company the services of all affiliated executive,
administrative, legal, accounting and clerical personnel that the Company has heretofore utilized on
an as needed, part time basis and for which the Company had paid, as a reimbursement, an
allocated portion of the payroll expenses of such personnel in accordance with the shared services
agreement. Accordingly, the Company, no longer incurs any allocated payroll expenses. Under the
terms of the agreement, Majestic (or its affiliates) continues to provide to the Company certain
property management services (including construction supervisory services), property acquisition,
sales and leasing services and mortgage brokerage services that it has provided to the Company
in the past, some of which were capitalized, deferred or reduced net sales proceeds in prior years.
The Company does not incur any fees or expenses for such services except for the annual fees
described below. As consideration for providing to the Company the services described above, the
Company paid Majestic an annual fee of $2,025,000 and $2,125,000 in 2008 and 2007,
respectively, in equal monthly installments. Majestic credits against the fee payments due to it
under the agreement any management or other fees received by it from any joint venture in which
the Company is a joint venture partner (exclusive of fees paid by the tenant in common on a
property located in Los Angeles, California). The agreement also provides for an additional
payment to Majestic of $175,000 in 2008 and 2007 for the Company’s share of all direct office
expenses, such as rent, telephone, postage, computer services, internet usage, etc., previously
allocated to the Company under the shared services agreement. The annual payments the
Company makes to Majestic will be negotiated each year by the Company and Majestic, and will be
approved by the Company’s Audit Committee and the Company’s independent directors. The
Company also agreed to pay compensation to the Company’s Chairman of $250,000 per annum
effective January 2007. Previously, the Company’s Chairman was paid $50,000 per annum.
For the year ended December 31, 2006, the Company reimbursed Gould for allocated expenses
and paid fees to Majestic. The Company’s policy had been to receive terms in transactions with
affiliates that are at least as favorable to the Company as similar transactions the Company would
enter into with unaffiliated persons. Such fees and costs paid directly by the Company are as
follows:
F-21
NOTE 7 – RELATED PARTY TRANSACTIONS (Continued)
Compensation and services
agreement (A)
Allocated expenses (A) (B)
Mortgage brokerage fees (C)
Sales commissions (D)
Management fees (E)
Supervisory fees (F)
Total fees
Years Ended December 31,
2007
2008
2006
$2,188,000
-
-
-
-
-
$2,188,000
$2,288,000
-
-
-
-
-
$2,288,000
$ -
1,317,000
100,000
152,000
15,000
41,000
$1,625,000
The Company’s unconsolidated joint ventures paid the following fees to Majestic. Such amounts
represent 100% of the fees paid by the joint ventures, of which the Company’s share is 50%:
Sales commissions (G)
Management fees (H)
Supervisory fees (I)
Total fees
Years Ended December 31,
2008
$ -
12,000
-
$12,000
2007
$ -
12,000
-
$ 12,000
2006
$1,277,000
97,000
8,000
$1,382,000
(A) Does not include payments under a direct lease, with a subsidiary of Gould, for approximately
1,200 square feet, expiring in 2011, at an annual rent of $43,000, increasing 3% per year.
(B) The Company reimbursed Gould for allocated general and administrative expenses and payroll
based on estimated time incurred by various employees pursuant to a Shared Services Agreement.
(C) Fees paid to Majestic relating to mortgages placed on nine of the Company’s properties for
mortgages in the aggregate amount of $12,900,000. Substantially all fees were based on 1% of
the principal balances of the mortgages. These fees were deferred and are being amortized over
the life of the respective mortgages.
(D) Fee paid to Majestic relating to the sale of one property for a sales price of $15,227,000. This
fee was based on 1% of the sales price and reduced the net sales proceeds.
(E) Fees paid to Majestic relating to management of one of the Company’s properties. Such fees
were based on 2% of rent collections and were charged to operations.
(F) Fees paid to Majestic for supervision of improvements to properties. Such fees were based on
8% of the cost of the improvements and were capitalized.
(G) Fee paid to Majestic relating to the sale by two of the Company’s joint ventures of eight movie
theater properties at approximately 1% of the aggregate sales price. These fees reduced the net
sales proceeds from the dispositions of real estate of unconsolidated joint ventures. See Note 4 for
further information regarding the Company’s unconsolidated joint ventures.
F-22
NOTE 7 – RELATED PARTY TRANSACTIONS (Continued)
(H) Fees paid to Majestic for the management of various joint venture properties at 1% of rent
collections for the years ended December 31, 2008, 2007 and 2006, respectively and were charged
to operations.
(I) Fee paid to Majestic for supervision of improvements to a property at 8% of the cost of the
improvements and was capitalized.
NOTE 8 - RESTRICTED STOCK AND STOCK OPTIONS
The Company’s 2003 Stock Incentive Plan (the “Incentive Plan”), approved by the Company’s
stockholders in June 2003, permits the Company to grant stock options and restricted stock to its
employees, officers, directors and consultants. The maximum number of shares of the Company’s
common stock that may be issued pursuant to the Incentive Plan is 275,000. The restricted stock
grants are valued at the fair value as of the date of the grant and all restricted share awards made
to date provide for vesting upon the fifth anniversary of the date of grant and under certain
circumstances may vest earlier. For accounting purposes, the restricted stock is not included in the
outstanding shares shown on the balance sheet until they vest, however dividends are paid on the
unvested shares. The value of such grants is initially deferred, and amortization of amounts
deferred is being charged to operations over the respective vesting periods.
Restricted share grants
Average per share grant price
Recorded as deferred compensation
Total charge to operations, all outstanding
restricted grants
Non-vested shares:
Non-vested beginning of period
Grants
Vested during period
Forfeitures
Non-vested end of period
Years Ended December 31,
2007
51,225
$ 24.50
$1,255,000
2006
50,050
$ 20.66
$1,034,000
2008
50,550
$ 17.50
$885,000
$888,000
$ 826,000
$515,000
186,300
50,550
(22,650)
(575)
213,625
140,175
51,225
(5,050)
(50)
186,300
92,725
50,050
-
(2,600)
140,175
Through December 31, 2008, a total of 243,075 shares were issued and 31,925 shares remain
available for grant pursuant to the Incentive Plan, and approximately $2,177,000 remains as
deferred compensation and will be charged to expense over the remaining weighted average vesting
period of approximately 2.4 years. As of December 31, 2008, there are no options outstanding
under the Incentive Plan.
During the year ended December 31, 2006, the options to purchase 9,000 shares of common stock
outstanding at December 31, 2005 were exercised. There were no additional grants, forfeitures or
expiration of options occurring during 2006. These options had been granted under the Company’s
1996 Stock Option Plan, which terminated in 2006.
F-23
NOTE 9 - DISTRIBUTION REINVESTMENT PLAN
On December 9, 2008, the Company suspended its Dividend Reinvestment Plan (the “Plan”). The
Plan had provided owners of record the opportunity to reinvest cash dividends paid on the
Company’s common stock in additional shares of its common stock, at a discount of 0% to 5% from
the market price. The discount was determined at the Company’s sole discretion and had been
offered at a 5% discount from market. Under the Plan, the Company issued 158,242 and 236,645
common shares during the years ended December 31, 2008 and 2007, respectively.
NOTE 10 – STOCK REPURCHASE PROGRAM
In November 2008, the Company announced that its Board of Directors had authorized a common
stock repurchase program of up to 500,000 shares of the Company’s common stock in open
market transactions. (All purchases will be executed in accordance with applicable federal
securities laws.) The timing and exact number of shares purchased will be determined at the
Company’s discretion and will depend upon market conditions. The stock repurchase program will
continue for twelve months and may be suspended or terminated by the Company at any time.
During November 2008, the Company repurchased 32,000 shares of common stock for a
consideration of $263,000. The Company has not purchased any additional shares of common
stock since November 2008. In August 2007, the Company announced that its Board of Directors
had authorized a twelve month common stock repurchase program, which allowed for the
repurchase of up to 500,000 shares of the Company’s common stock in open market transactions.
From January 2008 through July 2008 and from August 2007 through December 2007, the
Company repurchased 93,000 and 159,000 shares of common stock for consideration of
$1,564,000 and $3,212,000, respectively.
NOTE 11 – DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
In accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long Lived Assets,”
the Company reports as discontinued operations assets held for sale (as defined by SFAS No. 144)
as of the end of the current period and assets sold subsequent to the adoption of SFAS No. 144.
All results of these discontinued operations are included in a separate component of income on the
Consolidated Statements of Income under the caption Discontinued Operations. This has resulted
in certain reclassification of 2008, 2007 and 2006 financial statement amounts. During 2008, an
asset previously presented as held for sale at December 31, 2007 was reclassified and presented
as a real estate investment at December 31, 2008.
The components of income from discontinued operations for each of the three years in the period
ended December 31, 2008, are shown below. These include the results of operations through the
date of the sale for one property sold during 2006 and includes settlements relating to properties
sold in a prior year (amounts in thousands):
F-24
NOTE 11 – DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE (Continued)
Revenues, primarily rental income and settlements
Years Ended December 31,
2007
$ 405
2006
$ 1,362
2008
$ -
Depreciation and amortization
Real estate expenses
Interest expense
Total expenses
-
-
-
-
-
32
-
32
97
47
335
479
Income from discontinued operations before gain
on sale
-
373
883
Net gain on sale of discontinued operations
-
-
3,660 (A)
Income from discontinued operations
$ -
$ 373
$ 4,543
(A)
The $3,660 gain has been deferred for federal tax purposes in accordance with Section
1031 of the Internal Revenue Code of 1986, as amended.
NOTE 12 – COMMITMENTS AND CONTINGENCIES
The Company maintains a non-contributory defined contribution pension plan covering eligible
employees. Contributions by the Company are made through a money purchase plan, based
upon a percent of qualified employees’ total salary as defined. Pension expense approximated
$107,000, $100,000 and $90,000 for the years ended December 31, 2008, 2007 and 2006,
respectively.
In the ordinary course of business the Company is party to various legal actions which
management believes are routine in nature and incidental to the operation of the Company’s
business. Management believes that the outcome of the proceedings will not have a material
adverse effect upon the Company’s consolidated statements taken as a whole.
NOTE 13 – TAXES
The Company elected to be taxed as a real estate investment trust (REIT) under the Internal
Revenue Code, commencing with its taxable year ended December 31, 1983. To qualify as a
REIT, the Company must meet a number of organizational and operational requirements, including
a requirement that it currently distribute at least 90% of its adjusted taxable income to its
stockholders. It is management’s current intention to adhere to these requirements and maintain
the Company’s REIT status. As a REIT, the Company generally will not be subject to corporate
level federal, state and local income tax on taxable income it distributes currently to its
stockholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to
federal, state and local income taxes at regular corporate rates (including any applicable alternative
minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even
though the Company qualifies for taxation as a REIT, the Company is subject to certain state and
local taxes on its income and property, and to federal income and excise taxes on its undistributed
taxable income.
F-25
NOTE 13 – TAXES (Continued)
On January 1, 2007, the Company adopted the provisions of Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (“FIN 48”). This interpretation, among other things, creates a two
step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an
enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not
to be sustained upon examination. Measurement (step two) determines the amount of benefit that
more-likely-than-not will be realized upon settlement. Derecognition of a tax position that was
previously recognized would occur when a company subsequently determines that a tax position no
longer meets the more-likely-than-not threshold of being sustained. FIN 48 specifically prohibits the
use of a valuation allowance as a substitute for derecognition of tax positions, and it has expanded
disclosure requirements. The adoption of FIN 48 had no material effect on the Company’s
consolidated financial statements.
The Company recorded $91,000 and $490,000 of federal excise tax which is based on taxable
income generated but not yet distributed for the years ended December 31, 2007 and 2006,
respectively. There was no federal excise tax for the year ended December 31, 2008. Included in
general and administrative expenses for the years ended December 31, 2008, 2007 and 2006 are
state tax expense of $162,000, $226,000 and $143,000, respectively.
Reconciliation between Financial Statement Net Income and Federal Taxable Income:
The following unaudited table reconciles financial statement net income to federal taxable income
for the years ended December 31, 2008, 2007 and 2006 (amounts in thousands):
Net income
Straight line rent adjustments
Excess of capital losses over capital gains
Financial statement gain on sale in excess of tax gain (A)
Rent received in advance, net
Financial statement impairment charge
Federal excise tax, non-deductible
Financial statement adjustment for above/below market
leases
Non-deductible portion of restricted stock expense
Financial statement adjustment of fair value of derivative
Financial statement depreciation in excess of tax
depreciation
Other adjustments
2008
Estimate
$ 4,892
(1,023)
-
(1,685)
(82)
5,983
-
2007
Actual
$10,590
(1,600)
868
(1,581)
95
-
91
(371)
507
650
(285)
710
-
2006
Actual
$36,425
(269)
-
(3,976)
(33)
780
490
(223)
515
-
1,267
(81)
702
2
773
(83)
Federal taxable income
$10,057
$ 9,592
$34,399
(A) For the year ended December 31, 2006, amount includes $3,660 GAAP gain on sale of real
estate which was deferred for federal tax purposes in accordance with Section 1031 of the
Internal Revenue Code of 1986, as amended.
F-26
NOTE 13 – TAXES (Continued)
Reconciliation between Cash Dividends Paid and Dividends Paid Deduction:
The following unaudited table reconciles cash dividends paid with the dividends paid deduction for
the years ended December 31, 2008, 2007 and 2006 (amounts in thousands):
Cash dividends paid
Dividend reinvestment plan (B)
Less: Spillover dividends designated to previous
year (C)
Plus: Spillover dividends designated from prior year
Plus: Dividends designated from following year (C)
Dividends paid deduction (D)
2008
Estimate
$13,241
96
13,337
(5,861)
-
2,631
$10,107
2007
Actual
$21,218
268
21,486
2006
Actual
$13,420
59
13,479
(17,705)
-
5,861
$ 9,642
-
3,265
17,705
$34,449
(B) Amount reflects the 5% discount on the Company's common shares purchased through
the dividend reinvestment plan.
(C)
Includes a special dividend paid on October 2, 2007 of $.67 per share or $6,731, which
represents the remaining undistributed portion of the taxable income recognized by the
Company in 2006 primarily from gains on sale by two of its 50% owned joint ventures of
their portfolio of movie theater properties.
(D) Dividends paid deduction is slightly higher than federal taxable income in 2008, 2007 and
2006 so as to account for adjustments made to federal taxable income as a result of the
impact of the alternative minimum tax.
NOTE 14 – SUBSEQUENT EVENT
In February 2009, the Company entered into a $400,000 lease termination agreement with a retail
tenant of a Texas property who had been paying its rent on a current basis, but had vacated the
property in 2006. On March 5, 2009, the Company sold this property to an unrelated party for
consideration of $1,900,000. As a result of the lease termination agreement and sale of the
property, the Company will recognize during the quarter ended March 31, 2009, net income for
accounting purposes of approximately $200,000, after taking into account an impairment charge of
$752,000 taken by the Company during the quarter ended June 30, 2008. As of December 31,
2008, this property had a net book value of $2,072,000 and was classified as a real estate
investment.
F-27
NOTE 15 - QUARTERLY FINANCIAL DATA (Unaudited):
(In Thousands, Except Per Share Data)
2008
Rental revenues as previously reported
Revenues from discontinued operations (A)
Revenues
March 31
$9,398
353
$9,751
Income (loss)from continuing operations (B)
Income from discontinued operations (B)
Net income
$2,779
-
$2,779
Quarter Ended
June 30
$9,686
-
$9,686
$3,246
-
$3,246
Sept. 30
$9,950
-
$9,950
Dec. 31
$10,954
-
$10,954
Total
For Year
$39,988
353
$40,341
$2,468
-
$2,468
$(3,601)
-
$(3,601)
$4,892
-
$4,892
Weighted average number of common
shares outstanding - basic and diluted
10,152
10,219
10,169
10,192
10,183
Net income per common share – basic and diluted:
Income (loss)from continuing operations (B)
Income from discontinued operations (B)
Net income (loss)
$ .27
-
$ .27
$ .32
-
$ .32
$ .24
-
$ .24
$ (.35)
-
$ (.35)
$ .48 (C)
-
$ .48 (C)
(A) Adds back revenues from a property which was presented as held for sale at March 31, 2008.
At June 30, 2008, the operations of this property was reclassified to continuing operations.
(B) Amounts have been adjusted to give effect to the reclassification of income from a property
previously presented as held for sale. The 10Q for the period ended March 31, 2008 had
reported income from continuing operations of $2,431,000 and income from discontinued
operations of $348,000 for a total net income of $2,779,000.
(C) Calculated on weighted average shares outstanding for the year.
Quarter Ended
2007
Rental revenues as previously reported
Reclassification of revenues (D)
Revenues (E)
March 31
$9,263
330
$9,593
June 30
$9,311
331
$9,642
Sept. 30
$9,238
330
$9,568
Dec. 31
$8,993
353
$9,346
Total
For Year
$36,805
1,344
$38,149
Income from continuing operations
Income (loss) from discontinued operations
Net income
$3,040
106
$3,146
$2,536
(4)
$2,532
$2,464
115
$2,579
$2,177
156
$2,333
$10,217
373
$10,590
Weighted average number of common
shares outstanding - basic and diluted
10,001
10,055
10,078
10,140
10,069
Net income per common share – basic and diluted:
Income from continuing operations
Income from discontinued operations
Net income
$ .30
.01
$ .31
$ .25
-
$ .25
$ .25
.01
$ .26
$ .21
.02
$ .23
$1.01 (F)
.04 (F)
$1.05 (F)
F-28
NOTE 15 - QUARTERLY FINANCIAL DATA (Continued)
(D)
Adds back revenues from a property which was presented as held for sale at December 31,
2007. At June 30, 2008, the operations of this property was reclassified to continuing
operations.
(E)
Amounts have been adjusted to give effect to the Company’s discontinued operations in
accordance with Statement No. 144.
(F)
Calculated on weighted average shares outstanding for the year.
F-29
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Schedule III - Consolidated Real Estate and Accumulated Depreciation
December 31, 2008
(Amounts in Thousands)
Initial Cost To
Company
Cost
Capitalized
Subsequent
to Acquisition
Gross Amount at Which Carried at
December 31, 2008
Accumulated
Depreciation
Date of
Construction
Date
Acquired
Encumbrances
Land
Buildings
Improvements
Land
Buildings and
Improvements
Total
$ 2,860
$19,929 $29,720
$ -
$19,929
$ 29,720
$ 49,649
$ 749
Various
Various
25,399
10,286
45,414
-
10,286
45,414
55,700
3,075
Various
04/07/06
78,474
33,179
114,029
1,010
33,179
115,039
148,218
19,206
Various
Various
11,816
2,993
15,125
683
2,993
15,808
18,801
3,089
Various
Various
15,989
16,235
6,055
3,537
23,300
13,688
-
2,524
6,055
3,537
23,300
16,212
29,355
19,749
1,917
2,901
1997
Various
09/16/05
Various
Free Standing
Retail Locations:
10 Properties –
Note 1
11 Properties –
Note 2
Miscellaneous
Flex Buildings:
Miscellaneous
Office Buildings:
Parsippany, NJ
Miscellaneous
Life on
Which
Depreciation
in Latest
Income
Statement is
Computed
(Years)
40
40
40
40
40
40
Apartment Building:
Miscellaneous
4,223
1,110
4,439
1,110
4,439
5,549
2,347
1910
06/14/94
27.5
Industrial:
Baltimore, MD -
Note 3
Miscellaneous
Theater:
Miscellaneous
Health Clubs:
Miscellaneous
23,000
6,474
25,282
6,474
25,282
31,756
1,291
1960
12/20/06
31,937
9,749
40,828
779
9,749
41,607
51,356
5,749
Various
Various
40
40
6,060
-
8,328
-
-
8,328
8,328
2,360
2000
08/10/04
15.6
9,521
2,233
8,729
2,731
2,233
11,460
13,693
2,014
Various
Various
40
-
-
Totals
$225,514
$95,545 $328,882
$7,727
$95,545 $336,609
$432,154
$44,698
F-30
Note 1 – These ten properties are retail office supply stores net leased to the same tenant, pursuant to separate leases. Eight of these leases contain cross
default provisions. They are located in eight states (Florida, Illinois, Louisiana, North Carolina, Texas, California, Georgia and Oregon) and no individual property
is greater than 5% of the Company’s total assets.
Note 2 – These 11 properties are retail furniture stores covered by one master lease and one loan that is secured by crossed mortgages. They are located
in six states (Georgia, Kansas, Kentucky, South Carolina, Texas and Virginia) and no individual property is greater than 5% of the Company’s total assets.
Note 3 – Upon purchase of the property in December 2006, a $416,000 rental reserve was posted for the Company’s benefit, since the property was not
producing sufficient rent at the time of acquisition. The Company recorded the receipt of this rental reserve as a reduction to land and building.
F-31
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Notes to Schedule III
Consolidated Real Estate and Accumulated Depreciation
(a) Reconciliation of "Real Estate and Accumulated Depreciation"
(Amounts In Thousands)
Year Ended December 31,
2007
2008
2006
Investment in real estate:
Balance, beginning of year
$380,270
$380,111
$280,047
Addition: Land, buildings and improvements
59,015
576
112,462
Deductions:
Cost of properties sold
Impairment charge (c)
Rental reserve received (see Note 3 above)
(1,148)
(5,983)
-
(1)
-
(416)
(12,398)
-
-
Balance, end of year
$432,154
$380,270
$380,111
Accumulated depreciation:
Balance, beginning of year
$36,228
$28,270
$21,925
Addition: Depreciation
8,470
7,958
6,857
Deduction: Accumulated depreciation related to
property sold
-
-
(512)
Balance, end of year
$ 44,698
$ 36,228
$ 28,270
(b)
The aggregate cost of the properties is approximately $9,324 lower for federal
income tax purposes at December 31, 2008.
(c) During the year ended December 31, 2008, the Company recorded an impairment
charge totaling $5,983.
F-32