ONE LIBERTY PROPERTIES INC, 424B1, 1998-04-07

ONE LIBERTY PROPERTIES INC
424B1, 1998-04-07
REAL ESTATE INVESTMENT TRUSTS

Previous: GUARDIAN STOCK FUND INC, 497, 1998-04-07

Next: ELXSI CORP /DE//, PRE 14A, 1998-04-07

<PAGE> 1
Filed pursuant to Rule 424(b)(1)
Registration No. 333-4937

PROSPECTUS

ONE LIBERTY PROPERTIES, INC.
2,383,670 SHARES

OF
COMMON STOCK ISSUABLE UPON EXERCISE OF NON-TRANSFERABLE
RIGHTS TO SUBSCRIBE FOR SUCH SHARES OF COMMON STOCK
AMERICAN STOCK EXCHANGE SYMBOL: OLP

ONE LIBERTY PROPERTIES, INC. (THE "COMPANY") is issuing to its common
stockholders and preferred stockholders of record as of the close of business on
March 24, 1998 (the "Record Date") rights ("Rights") entitling the holders
thereof to subscribe for an aggregate of 2,383,670 shares of the Company's
Common Stock (the "Offer"). Common stockholders and preferred stockholders of
record will receive one Right for each share of Common Stock and/or Preferred
Stock held. Each Right entitles the holder to subscribe for and purchase one
share of Common Stock ("Basic Subscription Privilege") for a price of $13.25 per
share (the "Subscription Price") and, subject to proration, each Right also
entitles any holder exercising the Basic Subscription Privilege in full to
subscribe at the Subscription Price for up to two additional shares of Common
Stock for each share of Common Stock purchased by the holder under the Basic
Subscription Privilege (the "Over-Subscription Privilege"). The Rights are
non-transferable and will not be admitted for trading on the American Stock
Exchange or any other exchange. See "The Offer."

Gould Investors L.P., which owns 392,981 shares of Common Stock of the
Company (24.9% of the outstanding shares of Common Stock), will fully exercise
the Rights granted to it to purchase an aggregate of 392,981 shares of Common
Stock and will exercise the Over-Subscription Privilege for 376,250 additional
shares of Common Stock.

THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JUNE 15, 1998,
(THE "EXPIRATION DATE").

The Company announced the offer before the commencement of trading on the
American Stock Exchange on February 11, 1998. The last reported sale price of
the Common Stock at the close of business on February 10, 1998 was $14 3/8. The
last reported sale price on the American Stock Exchange on March 26, 1998 was
$14.50. The Subscription Price is approximately 9% less than the last reported
sale price on the American Stock Exchange on March 26, 1998 (the last day prior
to the date of this Prospectus that the Common Stock traded). Common and
preferred stockholders who subscribe for shares of Common Stock pursuant to the
Offer will not be entitled to receive the cash distribution of $.30 per share
which will be paid to common stockholders on or about July 1, 1998 (subject to
declaration by the Board of Directors) with respect to the shares subscribed for
pursuant to the Offer.

As a result of the terms of the Offer, holders of Common Stock who do not
fully exercise the Basic Subscription Privilege and Over-Subscription Privilege
will, upon the completion of the Offer, own a smaller proportional interest in
the Company than would otherwise be the case. Before making an investment
decision stockholders of the Company should carefully consider the factors set
forth under the caption "Investment Considerations" in addition to the other
information contained in this Prospectus.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
===========================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)(2)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................... $13.25 N/A $13.25
- ---------------------------------------------------------------------------------------------------------------------------
Total............................... $31,583,627 N/A $31,583,627
===========================================================================================================================
</TABLE>

(1) Before deduction of offering expenses payable by the Company estimated at
$120,000.

(2) Funds received by check prior to the Expiration Date will be deposited into
a segregated interest bearing account (which interest will accrue to the
benefit of the Company) pending proration and distribution of shares. Total
proceeds to the Company assumes that all Common Stock offered are sold,
either pursuant to the exercise of the Basic Subscription Privilege or the
Over-Subscription Privilege.

The date of this Prospectus is March 31, 1998.
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.......................................... 3
The Company............................................... 3
The Offer................................................. 3
Selected Financial Information............................ 4
Summary Consolidated Financial Data....................... 5

INVESTMENT CONSIDERATIONS................................... 6

THE COMPANY................................................. 10
General................................................... 10
Investment Policy......................................... 10
Credit Agreement.......................................... 11
Mortgages Receivable...................................... 11

PROPERTIES.................................................. 12
Additional Information Concerning Certain of the
Properties............................................. 15
Lease Expirations......................................... 19
Indebtedness.............................................. 19
Competition............................................... 19
Environmental Matters..................................... 20
Regulations and Insurance................................. 21
Legal Proceedings......................................... 21

USE OF PROCEEDS............................................. 21
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS............... 22
CAPITALIZATION.............................................. 23
SELECTED FINANCIAL DATA..................................... 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.................................. 25
MANAGEMENT.................................................. 28
EXECUTIVE COMPENSATION...................................... 30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 31
PRINCIPAL STOCKHOLDERS...................................... 33
DESCRIPTION OF CAPITAL STOCK................................ 34
FEDERAL INCOME TAX CONSIDERATIONS........................... 35
THE OFFER................................................... 41
EXPERTS..................................................... 42
LEGAL MATTERS............................................... 42
INDEMNIFICATION............................................. 42
AVAILABLE INFORMATION....................................... 43
INDEX TO FINANCIAL STATEMENTS............................... 44
</TABLE>

2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus.

THE COMPANY

One Liberty Properties, Inc. (the "Company" or "One Liberty") is a self
administered and self-managed real estate investment trust ("REIT") incorporated
under the laws of Maryland on December 20, 1982. The primary business of the
Company is to acquire, own and manage improved, free standing commercial real
estate operated by the lessee under a long-term net lease. The Company's focus
is the acquisition, ownership and management of improved real property leased to
retail businesses under long term commercial net leases. The Company, from time
to time, will acquire and own improved commercial real estate, including multi-
family apartment houses, office buildings and industrial buildings, leased under
a long term lease to an occupant or operator.

At December 31, 1997 the Company owned fee title to 36 properties and a
"sandwich" lease position with regard to one property (collectively the
"Properties"), located in 14 states. The Properties contain 1,118,435 square
feet of rentable commercial space. The occupancy rate of the Company's property
portfolio was 99% on January 30, 1998.

The Company's business strategy is focused on acquiring improved commercial
properties subject to long term net leases which have scheduled rent increases.
It pursues a national operating strategy and seeks property locations which are
on main thoroughfares or arteries, in areas where the demographics (growing
population, favorable occupancy levels and trends and increasing rents) are
positive. Both the credit of the existing or proposed tenant and property values
are investigated and are important in the acquisition decision, with property
location and local demographics given greater weight in the decision making
process.

The Company's principal executive officers are located at 60 Cutter Mill
Road, Great Neck, N.Y. 11021 and its telephone number is (516) 466-3100.

THE OFFER

Securities Offered......... 2,383,670 shares of Common Stock, $1.00 par value,
by a Rights offering to Common Stockholders and
Preferred Stockholders.

Subscription Price......... $13.25 per Share.

Record Date................ March 24, 1998.

Rights..................... One non-transferable Right is being issued with
respect to each share of Common Stock and Preferred
Stock held of record as of the Record Date. Rights
must be exercised prior to the Expiration Date.

Basic Subscription
Privilege.................. Each Right entitles the holder thereof to subscribe
at the Subscription Price for shares of Common
Stock at the rate of one share for each Right.

Over-Subscription
Privilege.................. Subject to proration, a holder of Rights who has
fully exercised the Basic Privilege Subscription
may oversubscribe at the Subscription Price for up
to two additional shares of Common Stock for each
share of Common Stock purchased under the Basic
Subscription Privilege. Shares acquired pursuant to
the Over-Subscription Privilege are subject to
proration as more fully discussed under the caption
"Offer-Over-Subscription Privilege."

Expiration Date............ The Rights expire at 5:00 p.m., New York City time,
on June 15, 1998. Thereafter the Rights cannot be
exercised.
3
<PAGE> 4

Rights Agent............... American Stock Transfer & Trust Company.

Use of Proceeds............ The proceeds from the sale of Common Stock in the
Rights offering will be used to pay in full the
$6,985,000 due under the Credit Agreement and the
balance (assuming all Rights are exercised,
estimated at $24,478,627) to acquire properties and
for working capital.

Investment
Considerations............. A purchase of Common Stock involves a degree of
investment risk. Purchasers should carefully
consider the information set forth under
"Investment Considerations".

SELECTED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues........................ $ 6,284,809 $ 5,511,556 $ 4,890,962 $ 4,041,378 $ 3,348,419
Gain On Sales Of Investments.... 599,251 168,631
Provision For Valuation
Adjustment and Impairment..... (659,000) (258,744)
Net Income...................... 2,984,192 2,173,952 3,096,302 2,861,137 2,435,269
Net Income
applicable To Common
Stockholders............... 1,533,972 725,593 1,649,783 1,416,434 992,362

PER SHARE DATA:
Net Income Per Common Share:
Basic......................... $ 1.01 $ 0.50 $ 1.17 $ 1.04 $ .74
Diluted....................... $ 1.00 $ 0.50 $ 1.16 $ 1.04 $ .73
Cash Distributions per share of
Common Stock.................. $ 1.20 $ 1.20 $ 1.03 $ .86 $ .94
Cash Distributions per share of
Preferred Stock............... $ 1.60 $ 1.60 $ 1.60 $ 1.60 $ 1.60

BALANCE SHEET DATA:
Real Estate Investments, Net.... $48,316,984 $42,889,213 $24,253,765 $10,996,534 $ 5,627,909
Mortgages and Notes
Receivable.................... 5,943,450 6,049,033 7,564,716 16,096,224 17,274,039
Total Assets.................... 57,647,555 52,522,988 38,040,246 37,652,773 32,383,674
Mortgages Payable............... 20,545,247 16,846,921 6,590,154 6,983,647 2,753,700
Total Liabilities............... 26,336,680 21,987,633 7,532,267 7,680,937 3,360,236
Redeemable Convertible Preferred
Stock......................... 13,106,970 12,950,792 12,796,475 12,643,998 12,493,337
Stockholders' Equity............ 18,203,905 17,442,841 17,711,504 17,327,838 16,530,101
</TABLE>

4
<PAGE> 5

ONE LIBERTY PROPERTIES, INC.
SUMMARY CONSOLDIATED FINANCIAL DATA

The following tables set forth the summary unaudited pro forma consolidated
financial data for One Liberty Properties, Inc. giving effect to the purchase of
300 Gold Street in Brooklyn, New York as if it had occurred on the dates
indicated.

The summary unaudited pro forma consolidated statement of income data are
presented as if the transaction was consummated on January 1, 1997. The summary
unaudited pro forma balance sheet data are presented as if the transaction was
consummated on December 31, 1997.

The summary unaudited pro forma consolidated financial data should be read
in conjunction with, and is qualified in its entirety by the historical
consolidated financial statements and notes thereto.

<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1997
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Revenues:
Rental income............................................ $ 6,184,656 $ 5,341,491
Interest from related parties............................ 832,579 832,579
Interest and other income................................ 104,739 110,739
----------- -----------
7,121,974 6,284,809
----------- -----------
Expenses:
Depreciation and amortization............................ 1,157,345 1,023,345
Interest -- mortgages payable............................ 1,854,626 1,517,126
Interest -- bank......................................... 389,105 210,305
Leasehold rent........................................... 288,833 288,833
General and administrative............................... 629,420 629,420
----------- -----------
4,319,329 3,669,029
----------- -----------
Income before gain on sale of real estate and minority
interest................................................. 2,802,645 2,615,780
Gain on sale of real estate................................ 599,251 599,251
----------- -----------
Income before minority interests........................... 3,401,896 3,215,031
Minority interest.......................................... (250,839) (230,839)
----------- -----------
Net income................................................. $ 3,151,057 $ 2,984,192
=========== ===========
Calculation of net income applicable to common
stockholders:
Net income............................................... $ 3,151,057 $ 2,984,192
Less dividends and accretion on preferred stock.......... 1,450,220 1,450,220
----------- -----------
Net income applicable to common stockholders............... $ 1,700,837 $ 1,533,972
=========== ===========
Net income per common share:
Basic.................................................... $ 1.12 $ 1.01
=========== ===========
Diluted.................................................. $ 1.12 $ 1.00
=========== ===========
BALANCE SHEET DATA:
Total real estate investments, net......................... $55,016,984 $48,316,984
Mortgages receivable....................................... 5,943,450 5,943,450
Total assets............................................... 64,147,555 57,647,555
Total liabilities.......................................... 32,836,680 26,336,680
Redeemable Convertible Preferred Stock..................... 13,106,970 13,106,970
Total Stockholders' Equity................................. 18,203,905 18,203,905
</TABLE>

5
<PAGE> 6

INVESTMENT CONSIDERATIONS

In addition to other information in this Prospectus the following factors
should be considered carefully in evaluating an investment in the shares of
Common Stock offered by this Prospectus.

RISKS ASSOCIATED WITH INDEBTEDNESS

Leverage. As of December 31, 1997 the Company had outstanding
approximately $20,545,000 in long term mortgage indebtedness and $4,605,000
under its Revolving Credit facility. Upon completion of the offering (and
assuming all Rights are exercised) and use of the proceeds contemplated hereby,
the ratio of debt to shareholders' equity will be approximately 41%. Assuming
only that Gould Investors L.P. exercises its Basic Subscription Right and the
Over-Subscription Privilege for 376,250 shares (see "Capitalization") the ratio
would be 73%.

Near Term Maturity of Indebtedness. The Company is subject to risks
normally associated with debt financing, including the risk that the Company's
cash flow will be insufficient to meet required payments of principal and
interest, the risk that existing indebtedness on the Properties (which in most
cases will not have been fully amortized at maturity) will not be able to be
refinanced or that the terms of such refinancing will not be as favorable as the
terms of the existing indebtedness. A portion of the Company's mortgage
indebtedness will become due by 2002, requiring payments of $4,238,000 in
1999,$1,139,000 in 2000 $256,000 in 2001 and $1,559,000 in 2002. From 1998
through 2008 the Company will have to refinance an aggregate of $18,973,461.

Because only a small portion of the principal of the Company's mortgage
indebtedness will be repaid prior to maturity and the Company does not plan to
retain sufficient cash to repay such indebtedness at maturity, it will be
necessary to refinance debt through additional debt refinancing or equity
offerings. If the Company is unable to refinance this indebtedness on acceptable
terms, the Company may be forced to dispose of properties upon disadvantageous
terms, which might result in losses to the Company and might adversely affect
cash available for distributions to stockholders. If prevailing interest rates,
or other factors at the time of refinancing result in higher interest rates on
refinancing, the Company's interest expense would increase, which would
adversely affect the Company's payments of cash distributions to common
stockholders. Further, if a property or properties are mortgaged to
collateralize payment of indebtedness and the Company is unable to meet mortgage
payments, the property or properties could be foreclosed upon by the mortgagee
with a consequent loss of income and asset value to the Company. Even with
respect to non-recourse indebtedness, the lender may have the right to recover
deficiencies from the Company in certain circumstances, including environmental
liabilities.

No Limitation on Debt. The governing instruments of the Company do not
contain any limitation on the amount of indebtedness the Company may incur.
Accordingly, the Board of Directors could permit the Company to become too
highly leveraged, which could adversely affect the Company.

REAL ESTATE INVESTMENT RISKS

General. Income from real property investments and the Company's resulting
ability to make cash distributions to stockholders may be affected by the
general economic climate, by changes in the national and/or regional economic
climate, competitive factors, changing consumer habits or retailing trends and
changing demographics and traffic patterns. In addition real estate values may
be affected by such factors as government regulations, interest rate levels,
availability of financing, zoning or tax laws, and potential liability under
environmental and other laws.

Dependence on Rental Income. A significant percentage of the Company's
income is derived from rental income from the Properties. As a result, the
Company's income and ability to make cash distributions to stockholders would be
adversely affected if the tenant of a material property (a property which
accounts for more than 10% of the Company's aggregate gross revenues) or a
significant number of tenants were unable to meet their obligations to the
Company or if a significant amount of space at the Company's Properties became
vacant. In the event of a default by a tenant, the Company may experience delays
in enforcing its rights as

6
<PAGE> 7

landlord and may incur substantial costs in protecting its investment. The
bankruptcy or insolvency of a major tenant may have an adverse effect on the
Company.

Market Illiquidity Real estate investments are relatively illiquid.
Therefore, the Company is limited in its ability to vary its portfolio in
response to economic changes and may encounter difficulty in disposing of
properties when tenants vacate (either at the expiration of the applicable lease
or otherwise).

Competition. Numerous companies compete with the Company in seeking
properties for acquisition.

Investment in Mortgages. Although the Company has successfully invested in
mortgages in the past, it has no current plans to invest in mortgages. If the
Company were to invest in mortgages in the future, it would be subject to the
risks of such investments, which include the risk that borrowers may not be able
to make debt service payments or pay principal when due and the risk that the
value of the mortgaged property may be less than the amount owed.

ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT.

Taxation as a Corporation. The Company believes that it has operated so as
to qualify as a REIT under the Internal Revenue Code ("Code") since its
organization. Qualification as a REIT involves the application of technical and
complex Code provisions for which there are only limited judicial and
administrative interpretations. The determination of various factual matters and
circumstances not entirely within the Company's control may affect the Company's
ability to qualify as a REIT. For example, in order to qualify as a REIT, at
least 95% of the Company's gross income in any year must be derived from
qualifying sources and the Company must make distributions to shareholders
aggregating annually at least 95% of its REIT taxable income (excluding capital
gains). 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. The Company is relying on
the opinion of Herrick, Feinstein LLP, tax counsel to the Company, to the effect
that the Company has been organized in conformity with the requirements under
the Code and that the Company's proposed method of operation will enable it to
meet the requirements for qualification and taxation as a REIT. See "Federal
Income Tax Considerations." Such legal opinion is based on various assumptions
and factual representations by the Company regarding the Company's ability to
meet the various requirements for qualification as a REIT, and no assurance can
be given that actual operating results will meet these requirements. Such legal
opinion is not binding on the Internal Revenue Service.

If the Company fails to qualify as a REIT, it will be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates and would not be allowed a deduction in
computing its taxable income for amounts distributed to its stockholders. In
addition, unless entitled to relief under certain statutory provisions, the
Company will be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. The additional tax would
significantly reduce the cash flow available for distribution to stockholders.
See "Federal Income Tax Considerations -- Failure to Qualify."

REIT Distribution Requirements and Potential Impact of Borrowings. To
obtain the favorable tax treatment associated with REIT's qualifying under the
Code, the Company generally will be required each year to distribute to its
stockholders at least 95% of its net taxable income. In addition, the Company
will be subject to a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar year are less than
the sum of 85% of its ordinary income, 95% of its capital gain net income and
100% of its undistributed income from prior years.

Difference in timing between the receipt of income, the payment of expenses
and the inclusion of such income and the deduction of such expenses in arriving
at taxable income, or the effect of nondeductible capital expenditures, the
creation of reserves or required debt or amortization payments, could require
the Company to borrow funds on a shortterm basis to meet the distribution
requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT. In such instances, the Company might need to borrow funds

7
<PAGE> 8

in order to avoid adverse tax consequences even if management believed that then
prevailing market conditions were not generally favorable for such borrowings.

RISKS ASSOCIATED WITH PREFERRED STOCK "PUT" OPTION.

The Company has 808,776 shares of Redeemable Convertible Preferred Stock
("Preferred Stock") outstanding. The Preferred Stock affords the preferred
stockholders the option to "put" the Preferred Stock to the Company at a price
of $16.50 per share during the ninety day period commencing July 1, 1999. It is
not contemplated that any Preferred Stock will be converted to Common Stock
unless the conversion rate is favorable. At the current market price for the
Company's Common Stock, the conversion rate is not favorable. Preferred
stockholders may determine to retain Preferred Stock because of the dividend
rate ($1.60 per annum per share) and/or because of the conversion feature. See
"Description of Capital Stock, Preferred Stock." However, if all the Preferred
Stockholders exercise the "put" option the cost to the Company will be
$13,344,804. The Company may be forced to borrow funds, on a secured or
unsecured basis, to fund the payment due as a result of exercise of the "put"
option or might have to dispose of properties on disadvantageous terms to cover
such payment. There is no assurance that loans will be available for this
purpose, when the funds are required, or that interest rates will be acceptable
at that time.

ENVIRONMENTAL RISKS

Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate may be required to investigate and clean up
hazardous or toxic substances or petroleum product releases at such property and
may be held liable to a governmental entity or to third parties for property
damage and for investigation and cleanup costs incurred by such parties in
connection with contamination. The cost of investigation, remediation or removal
of such substances may be substantial, and the presence of such substances, or
the failure to properly remediate such substances, may adversely affect the
owner's ability to sell or rent such property or to borrow using such property
as collateral. In connection with the ownership, operation and management of
real properties, the Company may be considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous or
toxic substance and, therefore, potentially liable for removal or remediation
costs, as well as certain other related costs, including governmental fines and
injuries to persons and property. For a more complete discussion of
environmental regulation affecting the Properties, see
"Properties -- Environmental Matters."

Management believes that environmental studies made with respect to
substantially all of the Properties have not revealed environmental liabilities
that would have a material adverse effect on the Company's business, results of
operations and liquidity. However, no assurances can be given that existing
environmental studies with respect to any of the Properties reveal all
environmental liabilities, that any prior owner of a Property did not create any
material environmental condition not known to the Company, or that a material
environmental condition does not otherwise exist (or may exist in the future) as
to any one or more Properties. If such a material environmental condition does
in fact exist (or exists in the future), it could have an adverse impact upon
the Company's financial condition, results of operations and liquidity.

CONFLICTS OF INTEREST

The Company's policy is that it will not engage in any transaction with any
director, officer, principal stockholder or affiliate of a director, officer or
principal stockholder without the approval of a majority of the directors of the
Company, including a majority of the unaffiliated directors. In addition, the
Company will not acquire a property from or dispose of a property to any
director, officer or principal stockholder or affiliate of a director, officer
or principal stockholder without a "fairness" or similar opinion from an
investment banker or real estate appraiser that the transaction is fair,
competitive and commercially reasonable and the approval of a majority of the
unaffiliated directors. Reference is made to the caption "Certain Relationships
and Related Transactions" for a discussion of transactions between the Company
and entities affiliated with officers, directors or principal stockholders of
the Company or affiliates thereof.

8
<PAGE> 9

There is no assurance that the Company's conflicts of interest policy has
or will successfully eliminate the influence of potential conflicts of interest,
and if they are not successful, decisions could be made that might fail to
reflect fully the interests of all stockholders.

DEPENDENCE ON KEY PERSONNEL

The Company is dependent on the efforts of Fredric H. Gould, Chairman of
the Board, and Matthew J. Gould, President and Chief Executive Officer. Neither
devotes full time to the affairs of the Company, but both devote such time as is
necessary to carry out their respective duties. Loss of the services of either
of them could have an adverse effect on the business of the Company. Neither has
an employment agreement with the Company.

9
<PAGE> 10

THE COMPANY

GENERAL

The Company is a self administered and self managed real estate investment
trust ("REIT") incorporated under the laws of Maryland on December 20, 1982. The
primary business of the Company is to acquire, own and manage improved, free
standing, commercial real estate operated by the lessee under a long-term net
lease. Its focus is the acquisition, ownership and management of improved real
property leased to retail businesses under long-term commercial net leases. The
Company, from time to time, will acquire and own improved commercial real estate
net leased to a corporation or government agency and improved real property
(such as a multi-family apartment building, office building or industrial
building) leased under a long-term lease to an occupant or operator. Under the
typical net lease and long-term lease, rental and other payments to be made by
the lessee are payable without diminution for any reason. The lessee, in
addition to its rent obligation, is generally responsible for payment of all
charges attributable to the property, such as real estate taxes, assessments,
water and sewer rents and charges, governmental charges and all utility and
other charges incurred in the operation of the property. The lessee, is also
generally responsible for maintaining the property, including ordinary
maintenance and repair and restoration following a casualty or partial
condemnation. The rental provisions in a net lease transaction may include, but
may not be limited to, rent payable on a stepped basis (rentals increase at
specified intervals), an indexed basis (rentals increase pursuant to a formula
such as the consumer price index), a percentage basis (minimum rental payments
plus additional rentals in the form of participation in the sales derived from
the business conducted at the property), or a combination of the foregoing.

INVESTMENT POLICY

The Company's business strategy is focused on acquiring improved,
commercial property subject to a long-term net lease which has scheduled rent
increases. The Company's investment policies, as articulated in its by-laws, as
amended, are as follows:

Types of Investments -- The Company is permitted to invest in any type
of real property, mortgage loans (and in both cases in interests therein)
and other investments of any nature, without limitation, provided such
investment does not adversely affect the Company's ability to qualify as a
REIT under the Internal Revenue Code. No limitation is set on the number of
properties or mortgage loans in which the Company may invest, the amount or
percentage of the Company's assets which may be invested in any specific
property or on the concentration of investments in any geographic area in
the United States. The Company may consider investments in any type of real
property and in mortgage loans secured by real property; however as stated
above, the current investment policy of the Company is to invest in
improved, commercial real estate under long-term net lease. The Company
does not intend to make construction loans or loans secured by mortgages on
undeveloped land. Although it has not done so in the past, the Company may
issue securities in exchange for properties which fit its investment
criteria. The Company intends to pursue a national operating strategy, but
does not intend to purchase properties located outside of the United
States.

After termination of any lease relating to any of the Company's
properties (either at lease expiration or early termination), the Company
will seek to relet or sell such property in a manner which will maximize
the return to the Company, considering the income and residual potential of
such property. The Company may also consider the sale or other disposition
of any property prior to termination of the relevant lease if such sale or
other disposition appears advantageous. The Company may take purchase money
obligations as part payment in lieu of cash in connection with any sale and
may take into account local custom and prevailing market conditions in
negotiating the terms of repayment. It will be the Company's policy to use
any cash realized from the sale or other disposition of properties, net of
required payments under its credit facility and net of required
distributions to shareholders, to maintain its REIT status, to acquire
additional properties.

10
<PAGE> 11

Incurrence of Debt -- The directors of the Company, in the exercise of
their business judgment, are permitted to determine the level of debt and
the terms and conditions of any financing or refinancing. There is no
limitation on the level of debt which the Company may incur. The Company
borrows money, on a secured and unsecured basis, the proceeds of which are
used for property acquisitions and for working capital purpose.

The investment objectives of the Company are (i) to protect the
Company's capital; (ii) to provide current income; and (iii) to provide the
opportunity for increases in income and capital appreciation. In evaluating
potential net lease investments, the Company considers, among other factors
(i) the intrinsic value of the property, given its location and use, (ii)
local demographics (population, occupancy levels, rental trends), (iii) the
lessee's adequacy from a financial point of view to meet operational needs
and lease obligations, (iv) the return on equity to the Company, and (v)
potential for capital appreciation. The intrinsic value of the property,
essentially its location and the local demographics, are given greater
weight in the acquisition process than the tenant's credit worthiness,
although the tenant's financial condition is a factor given significant
consideration in the acquisition process.

From time to time, the Company may invest in shares of another REIT or in
the shares of an entity not involved in real estate investments, provided that
any such investment does not adversely affect the Company's ability to qualify
as a REIT under the Internal Revenue Code. If the Company makes any investments
in shares of another entity in the future, it will make the investment in such a
way that it will not be treated as an investment company under the Investment
Company Act of 1940. The Company does not intend to underwrite the securities of
other issuers.

CREDIT AGREEMENT

On March 1, 1996 the Company entered into a revolving credit agreement
("Credit Agreement") with Bank Leumi Trust Company of New York ("Bank Leumi").
Borrowings under the Credit Agreement are used to provide the Company with funds
to acquire properties. The Credit Agreement matures February 28, 1999 with a
right for the Company to extend the Credit Agreement until February 29, 2000.
Bank Leumi has agreed to advance up to $5,000,000 on a revolving basis and has
agreed to a total $15,000,000 facility (including the $5,000,000 that Bank Leumi
has committed for) on a pro rata participating basis. In June, 1997, First Bank
of the Americas (now Commercial Bank of New York) joined in the Credit Agreement
to the extent of $4,000,000. Accordingly, the total availability under the
Credit Agreement is $9,000,000 and can be increased to a maximum of $15,000,000
either by adding other banking institutions or by the present participants
increasing the extent of availability under the Credit Agreement. The Company
pays interest under the Credit Agreement at the rate of prime plus 1/2% on
funds borrowed on an interest only basis, plus a 1/4% servicing fee on the
outstanding balance to Bank Leumi. Net proceeds of certain events (e.g., sale of
property, financing of properties) must be applied to reduce the loan.

As collateral for any advances taken by the Company under the Credit
Agreement, the Company has pledged the stock of each of its subsidiaries and the
wrap around mortgage the Company holds on a property located on East 16th Street
in New York City (see "Mortgages Receivable" below). The Company has agreed to
maintain at least $250,000 on deposit with Bank Leumi.

The Credit Agreement contains affirmative and negative covenants including
a covenant that (i) through February 28, 1999 the Company's net worth, as
defined, will not be less than the greater of $28,000,000 and two times the
revolving credit loans outstanding and thereafter the $28,000,000 increases to
$30,000,000; (ii) that cash flow, as defined, for each fiscal year through the
1998 fiscal year shall be at least $3,000,000, increasing to $3,4000,000 for the
1999 fiscal year and thereafter, and (iii) at least two of Fredric H. Gould,
Matthew J. Gould and Jeffrey A. Gould shall be involved in the day to day
management of the Company.

MORTGAGES RECEIVABLE

In 1992 and 1993, during a downturn in the real estate markets nationally,
the Company took advantage of opportunities to purchase mortgages receivable at
a discount and to originate a mortgage loan, all of which resulted in the
Company generating above average yields to maturity. The Company has not
acquired or
11
<PAGE> 12

originated any mortgages receivable since January, 1995. The only significant
mortgage receivable held at December 31, 1997 is described as follows:

- On July 30, 1993, the Federal Deposit Insurance Corporation ("FDIC") sold
to an entity related to the Company, a $23,000,000 first mortgage secured
by an office building located on East 16th Street in Manhattan, New York.
The sale was made by the FDIC pursuant to public auction. The successful
bidder paid $19,000,300 for the mortgage, which carries an interest rate
of 8% per annum. The office building which secures this mortgage is owned
by a partnership in which Gould Investors L.P., an affiliated entity, is
a general partner and owns substantially all partnership interests. See
"Certain Relationships and Related Transactions" for a discussion of the
affiliation of Gould Investors L.P. and certain persons affiliated with
Gould Investors L.P. with the Company. Simultaneously with the closing an
unrelated party advanced $13,181,000, the Company advanced $6,080,000
(including closing costs), and the mortgage was severed into a first
mortgage of $13,181,000 paying interest at 9 1/2% per annum held by such
unrelated party and a subordinate wrap mortgage of $9,819,000 held by the
Company. Both the first mortgage and wrap mortgage mature in 2005 at
which time the first mortgage will have been fully amortized and the wrap
mortgage will have a principal balance of approximately $4,000,000. The
principal balance of the wrap mortgage held by the Company was $7,974,030
at December 31, 1997 and the book balance, after discount, was $5,653,412
at December 31, 1997.

The building which secures the first mortgage and the wrap mortgage is
net leased to the City of New York. The lease expires in 2005 with one
renewal option of five years. The City has a limited right to terminate
the lease. The first mortgage and the wrap mortgage are nonrecourse.

PROPERTIES

The Company, at December 31, 1997, owned fee title to 36 properties and a
"sandwich" lease position with respect to one property. The 36 properties
(referred to herein collectively as the "Properties" and individually as a
"Property") are located in 14 states. On March 31, 1998, a limited liability
company, in which the Company is the majority member, purchased a property
located in Brooklyn, New York for a consideration of $6,700,000 (see "Additional
Information Concerning Certain of the Properties" under this caption for a
description of this property).

The following sets forth certain information relating to the Company's
Properties.

12
<PAGE> 13

<TABLE>
<CAPTION>
RENEWAL
NET CURRENT OPTIONS
PROPERTY RENTABLE ANNUAL EXPIRATION (NUMBER OF
PROPERTY LOCATION TENANT TYPE LAND AREA SQ. FT. RENT DATE YEARS)
----------------- ------ -------- --------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1st Ave. NE & Hwy. 100 Ultimate Freestanding 1.52 Acres 15,400 $157,850 6/30/15 4 (20 years)
Cedar Rapids, IA Akquisition Retail
Corp.(4)
900 Central Texas Hwy. Hollywood Freestanding 48,177 Sq. Ft. 8,000 $141,200 6/30/10 2 (10 years)
Killeen, TX Entertainment Retail
Corp.
US Highway 59 Hollywood Freestanding 34,000 Sq. Ft. 8,000 $111,800 1/31/10 2 (10 years)
Rosenberg, TX Entertainment Retail
Corp.
5600 S. Cedar Street Total Gasoline 53,733 Sq. Ft. 7,807 $ 69,148 5/31/11 2 (20 years)
Lansing, MI Petroleum, Svc. Station
Inc. with
Freestanding
Retail
4384 Kalamazoo Ave. Total Gasoline 45,745 Sq. Ft. 6,434 $ 45,969 5/31/11 2 (20 years)
Kentwood, MI Petroleum, Svc. Station
Inc. with
Freestanding
Retail
1499 S. Lincoln Road Total Gasoline 59,242 Sq. Ft. 7,335 $ 91,216 5/31/11 2 (20 years)
Flint, MI Petroleum, Svc. Station
Inc. with
Freestanding
Retail
1504 Center Avenue Total Gasoline 68,882 Sq. Ft. 6,980 $ 57,966 5/31/11 2 (20 years)
Essexville, MI Petroleum, Svc. Station
Inc. with
Freestanding
Retail
112 Ashman Circle Total Gasoline 24,000 Sq. Ft. 6,067 $ 78,763 5/31/11 2 (20 years)
Midland, MI Petroleum, Svc. Station
Inc. with
Freestanding
Retail
6500 Pierson Road Total Gasoline 74,910 Sq. Ft. 13,145 $ 99,044 5/31/11 2 (20 years)
Flint, MI Petroleum, Svc. Station
Inc. with
Freestanding
Retail
7492 Gratiot Road Total Gasoline 63,557 Sq. Ft. 8,781 $ 61,490 5/31/11 2 (20 years)
Saginaw, MI Petroleum, Svc. Station
Inc. with
Freestanding
Retail
2046 28th Street Total Gasoline 75,080 Sq. Ft. 10,506 $ 65,292 5/31/11 2 (20 years)
Wyoming, MI Petroleum, Svc. Station
Inc. with
Freestanding
Retail
901 South US 27 Total Gasoline 36,382 Sq. Ft. 6,588 $ 77,929 5/31/11 2 (20 years)
St. Johns, MI Petroleum, Svc. Station
Inc. with
Freestanding
Retail
1050 Columbia Ave. Total Gasoline 30,451, Sq. Ft. 6,813 $ 68,982 5/31/11 2 (20 years)
Battle Creek, MI Petroleum, Svc. Station
Inc. with
Freestanding
Retail
</TABLE>

13
<PAGE> 14

<TABLE>
<CAPTION>
RENEWAL
NET CURRENT OPTIONS
PROPERTY RENTABLE ANNUAL EXPIRATION (NUMBER OF
PROPERTY LOCATION TENANT TYPE LAND AREA SQ. FT. RENT DATE YEARS)
----------------- ------ -------- --------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1988 South Cedar Total Gasoline 66,278 Sq. Ft. 8,883 $ 98,865 5/31/11 2 (20 years)
Imlay City, MI Petroleum, Svc. Station
Inc. with
Freestanding
Retail
279 Baldwin Street Total Gasoline 62,795 Sq. Ft. 8,767 $ 60,125 5/31/11 2 (20 years)
Jennison, MI Petroleum, Svc. Station
Inc. with
Freestanding
Retail
3210 Plainfield Ave. Total Gasoline 44,283 Sq. Ft. 7,869 $ 55,911 5/31/11 2 (20 years)
Grand Rapids, MI Petroleum, Svc. Station
Inc. with
Freestanding
Retail
119 Madison Avenue Stamford Multifamily 14,658 Sq. Ft. 126 rental $550,000 2/28/38 --
New York, NY Realty Apt. House/ units and
Associates, Retail 6 retail stores
Inc.(5)
7007 N.W. 37 Ave. United States Industrial 12.5 Acres 375,000 Sq. Ft. $425,000 4/30/10 2 (30 years)
Miami, FL Cold Storage, Building + 21,000 Sq.
Inc.(6) Ft.
Mezzanine
2131 6th Avenue Twin 78 Freestanding 19,480 Sq. Ft. Two-Screen $ 18,000 12/31/51 --
Seattle, WA Associates(7) Movie Theatre
Theatre Containing
1,445 Seats
6660 Broughton Ave. Woodside 78 Industrial 246,936 Sq. Ft. 55,370 $ 42,000 6/30/04 3 (75 years)
Columbus, OH Associates(7) Building
US Hwy. 25 Bypass Athens Food Freestanding 25,359 Sq. Ft. 2,755 $ 74,000 2/28/10 1 (10 years)
Greenwood, SC Systems, Retail
Inc., an Arby
Franchise
8824 Rainier Avenue Payless Shoe Freestanding 15,625 Sq. Ft. 3,038 $ 53,078 12/31/01 3 (15 years)
Seattle, WA Source, Retail
Inc.(8)
1205 E. El Dorado St. Payless Shoe Freestanding 24,396 Sq. Ft. 3,060 $ 46,000 12/31/01 4 (20 years)
Decatur, IL Source, Retail
Inc.(8)
5670 W. 3500 St. S. Payless Shoe Freestanding 16,563 Sq. Ft. 3,200 $ 56,733 12/31/01 3 (15 years)
West Valley, UT Source, Retail
Inc.(8)
1101 Gartland Ave. Payless Shoe Freestanding 16,117 Sq. Ft. 3,053 $ 27,477 12/31/99 1 (2 years)
Nashville, TN Source, Inc. Retail
329 E. 47th Street Payless Shoe Freestanding 3,500 Sq. Ft. 3,065 $ 41,496 12/31/01 3 (15 years)
Chicago, IL Source, Retail
Inc.(8)
2818 N. Court Road Hy-Vee, Inc. Freestanding 13,020 Sq. Ft. 3,072 $ 19,200 12/31/99 2 (6 years)
Ottumwa, IA Retail
2837 E. Ledbetter Dr. Abdelsalam Freestanding 14,270 Sq. Ft. 3,060 $ 21,600 6/30/02 1 (5 years)
Dallas, TX Salaheddin Retail
628 W. 14th Street Vacant(9) Freestanding 14,028 Sq. Ft. 3,062 -- -- --
Chicago Heights, IL Retail
951 State Avenue Vacant(9) Freestanding 17,875 Sq. Ft. 3,120 -- -- --
Kansas City, KS Retail
</TABLE>

- ---------------
(1) Masco Corporation guarantees 25% of the basic rent during the original lease
term.

(2) The lease is guaranteed by Barnes & Noble, Inc.

(3) KMart Corporation has subleased the entire space to Rhodes, Inc.

14
<PAGE> 15

(4) This lease is guaranteed by Ultimate Electronics, Inc.

(5) If tenant converts the property to cooperative ownership, the lease term is
extended for 150 years from the date of conversion.

(6) The Company holds a "sandwich" lease position. It is the tenant under a
master lease and Landlord under an operating lease.

(7) The Company leases these properties to unrelated third parties. The Seattle
property is leased by the Company's tenant to United Artists Theatre
Circuit, Inc., and the Columbus Property to the Kroger Company.

(8) The May Department Store Company was the original tenant under these leases
and remains contingently liable under these leases.

(9) Formerly occupied by Payless Shoes Source, Inc., whose lease for these
properties expired on December 31, 1996 without renewal.

ADDITIONAL INFORMATION CONCERNING CERTAIN OF THE PROPERTIES

As of December 31, 1997, the following Properties owned by the Company (and
one Property which a limited liability company in which the Company is the
principal member acquired on March 31, 1998) either had a book value equal to or
greater than 10% of the total assets of the Company or revenues which accounted
for more than 10% of the Company's aggregate gross revenues.

Columbus, Ohio Property

Description of Columbus, Ohio Property

The Columbus, Ohio Property, constructed in 1996, is located at 5600
Britton Parkway, West of 1-270. The property is in a suburb of Columbus,
approximately 12 miles Northwest of downtown Columbus. This 6.228 acre property
is improved with a 97,378 square foot furniture showroom/retail store, of which
93,978 is located on grade and 3,400 is mezzanine office space. The property
contains 270 parking spaces.

Description of Columbus, Ohio Property Lease

Lease Term The Property is leased to Kittles' Home Furnishing Center, Inc.
("Kittles") for a fifteen year term expiring November 30, 2011. The Tenant has
five successive five year renewal options.

Amounts Payable Under the Columbus, Ohio Lease The basic annual rental is
$738,764 through November 1999, increasing to $807,267 per annum for the period
December 1999 to November 2002 and increasing every three years thereafter
during the original term.

The lease is a triple net lease and requires the Tenant to pay, in addition
to basic annual rent, all real estate taxes, assessments, insurance, common area
maintenance and structural and non-structural repairs.

Maintenance and Modifications The Tenant is required to keep the Property
in good condition and repair, including all structural and non-structural
portions (roof, foundations, floors, building systems) and all sidewalks,
landscaping and driveways.

The Tenant is precluded from making any structural alterations to the
building and building systems, and to the exterior of the building, without
Landlord's prior consent which is not to be unreasonably withheld or delayed.
Tenant is permitted to make interior non-structural alterations without
Landlord's consent, subject to the satisfaction of certain conditions specified
in the lease.

Insurance Landlord is required to carry fire, extended coverage,
vandalism, and malicious mischief and similar risk insurance insuring the
Property (excluding Tenants merchandise, trade fixtures, equipment and other
personal property) for the full replacement value. Tenant is to reimburse
Landlord for Landlord's annual premium costs. Tenant is required to carry
liability insurance.

15
<PAGE> 16

Damage to or Condemnation of Columbus, Ohio Property If the building is
damaged or destroyed by fire or other casualty Landlord, within 120 days, is
required to commence repair and within 210 days restore the building to
substantially the condition it was in prior to the casualty.

In the event any portion of the building is taken by eminent domain so that
Tenant is unable to carry on its business in substantially the same manner as
prior to the taking, then the lease shall terminate at the election of either
Landlord or Tenant. If more than 20% of the parking area is taken by
condemnation, Tenant has the right to terminate the lease as of the date of
taking. If, after a taking by eminent domain, neither Landlord or Tenant elects
to terminate the lease, Tenant shall remain in the portion of the building not
taken, Landlord is required to restore the remaining portion to a complete unit
of like quality and character and rental payments are to be adjusted on an
equitable basis. If Landlord is required to restore it is not required to spend
more for the restoration that it received in the condemnation as an award, less
any amount paid to a mortgagee.

Mortgage

In December, 1997 the Company obtained a $4,325,000 non-recourse first
mortgage loan from Lehman Brothers Holding, Inc. The mortgage bears interest at
7.33% per annum and matures in December, 2007. The mortgage is being amortized
based on a 30 year amortization schedule. Assuming no additional payments are
made on the principal in advance of the maturity date, the principal balance due
at maturity will be approximately $3,800,000. The Company has the option of
prepaying this mortgage in whole or in part provided it pays a prepayment
premium based on a yield maintenance formula.

Total Petroleum Properties

Description of Total Petroleum Properties

Although the Total Petroleum Properties consist of thirteen separate
properties located in various towns and cities in the State of Michigan, they
are considered as one property for the purpose of determining if they are
"materially important" real properties. The Total Petroleum Properties are all
service stations and include gasoline pumping islands, a service area and a
retail building used as a convenience store.

Description of Total Petroleum Leases

Lease Term The Total Petroleum Properties have 13 separate but identical
leases dated as of May 15, 1991 (Total Petroleum Leases). The primary lease term
for the Total Petroleum Properties is 20 years ending on May 31, 2011. Total
Petroleum has the right to extend the leases for two 10 year renewal terms, but
the renewal option can only be exercised on an all or none basis. The Total
Petroleum Leases contain a cross default provision which provides that on a
monetary default resulting in the termination of a lease, the Landlord has a
right to terminate any or all of the other leases.

Amounts Payable under the Total Petroleum Leases The combined annual rent
for all 13 properties is $912,456 through May 14, 1998, increasing by 3% each
May 15th throughout the term of the lease. The leases are net leases, which
requires Total to pay all real estate taxes, assessments, and all utility
charges.

Maintenance and Modifications Total Petroleum is required, at its expense,
to maintain the Total Petroleum Properties in good repair and is responsible to
keep each property in reasonably clean condition. The Tenant at its sole expense
may make any non-structural alterations, additions, replacements or improvements
to the property without the Landlord's consent. The Tenant is required to obtain
the Landlord's prior written consent for structural alterations, additions,
replacements or improvements which consent will not be unreasonably withheld.

Insurance Total Petroleum is required to maintain insurance at its expense
providing for fire with standard extended risk coverage to the extent of the
full replacement cost. So long as the Tenant's net worth exceeds $100,000,000
the deductible may be that which is provided in Total Petroleum's master
corporate insurance policy, and if its net worth falls below $100,000,000 then
the deductible shall not exceed $250,000

16
<PAGE> 17

without Landlord's consent. In Management's opinion the Total Petroleum
Properties are adequately covered by insurance.

Damage to or Condemnation of Property If any of the Total Petroleum
Properties is damaged or destroyed by fire or other casualty there is to be no
rent abatement and Total Petroleum is required to repair and restore the
premises in a reasonable diligent manner. If, however, the premises are rendered
untenantable, Total Petroleum may terminate the lease in which event it shall
pay to the Company an amount sufficient to restore the premises to the condition
existing as of the date the lease was executed, reasonable wear and tear
excepted.

If all or any part of any of the properties is taken by condemnation so as
to render the remaining portion of the property unsuitable for Tenant's
business, then the rent due under the lease shall be equitably adjusted until
such time as the Tenant provides Landlord with written notice that it elects to
terminate the lease. If however, the Tenant does not vacate the property within
ninety days of such taking then it is conclusively presumed that such taking is
not extensive enough to render the premises unsuitable for Total Petroleum's
business. In the event of a taking, damages awarded are payable as follows: (i)
Total Petroleum is entitled to a portion of the award attributable to the value
of its leasehold and (ii) Landlord is entitled to the value of its reversion. In
allocating between the value of the leasehold and the reversion, the value of
improvements and betterments made by the Tenant is to be equitably divided
between leasehold and reversion. Each party is entitled to file a claim in any
condemnation proceeding.

Option to Purchase Total Petroleum has been granted an option to purchase
all locations at fair market value, excluding the value of the improvements made
by it. This option may be exercised during the last six months of the term of
the lease. Fair market value is to be determined by an appraisal process.

Right of First Refusal Total Petroleum has been granted a right of first
refusal to purchase a Total Petroleum Property from the Company for the same
purchase price and on the same terms and conditions as a bona fide offer to
purchase received by the Company from an unrelated party which is engaged in, or
plans to engage in the business of selling petroleum products, which offer the
Company intends to accept.

Mortgage The Total Petroleum Properties are owned free and clear of
mortgages.

Gold Street, Brooklyn, New York Property

Purchase Contact A limited liability company, in which the Company is the
principal member, entered into a contract to purchase the Gold Street Property
for a consideration of $6,700,000. The closing was held on March 31, 1998.

Description of Gold Street Property The Gold Street Property, located on
Flatbush Avenue and Gold Street in the downtown area of Brooklyn, New York, is a
66,000 square foot training and office facility (six stories), located on a
15,000 square foot parcel of land containing 27 parking spaces.

Description of Gold Street Property Lease

Lease Term The Property is leased to the New York City Transit Authority
pursuant to a net lease which commenced on October 16, 1987 and expires on
October 15, 2002. As part of the consolidation of the Transit Police and the NYC
Police Department, the Property is now occupied by the NYC Police Department.

Amount Payable Under the Lease The annual fixed rent under the lease is
$850,000. The lease requires the Tenant to pay all real estate taxes, water and
sewer and utility charges.

Maintenance and Modifications Tenant is responsible, at its cost and
expense, for the care of the Property and is to make all repairs, interior and
exterior, and structural and non-structural; however, Landlord is responsible
(subject to reimbursement by Tenant, as described) for repair to structural
components (footings,piers or buttresses, columns, beams, exterior walls and
load bearing walls). Structural components do not include building systems, roof
or windows and window frames. The Tenant is required to reimburse Landlord for
the first $25,000 of repairs to structural components in each lease year on a
cumulative basis, up
17
<PAGE> 18

to $375,000 over the lease term. Tenant cannot make structural alterations
without Landlord's prior consent, which is not to be unreasonably withheld,
provided any such changes will not (i) change the nature or appearance of the
building, (ii) change the rentable square footage, (iii) increase or decrease
the size or change the shape of the structure, and/or (iv) cause any structure
to be erected on the parking area. Tenant can make non-structural interior
changes and alterations without Landlord's consent but is required to deliver to
Landlord copies of all permits, as-built plans and an architects certification
that the alterations are non-structural.

Insurance Tenant is self-insured. Tenant indemnifies Landlord against all
damages and losses (including reasonable attorneys fees) resulting from any
claim against Landlord regarding any item which is an obligation of Tenant under
the lease.

Damage to Gold Street Property In case of damage to or total or partial
destruction of any improvements, Landlord, at its cost, shall either restore and
rebuild or erect a new building. However, if there is total or substantial
damage of the improvement, Landlord has the option to cancel the lease on not
less than 150 days notice.

Mortgage The Company has obtained a mortgage secured by this Property from
North Fork Bank in the principal amount of $4,525,000. The mortgage has a term
of five years, bears interest at the rate of 7.5% per annum with a 25 year
amortization schedule. The Company has an option to extend the mortgage for five
years at an annual interest rate of 210 basis points over the five year treasury
rate.

Terms of Limited Liability Company The Company funded the purchase price
and closing costs. A limited liability company acquired title to the property.
The other member of the limited liability company is the person who introduced
the transaction to the Company. The minority member will receive an annual
distribution of $20,000; thereafter the Company will receive all cash flow until
it has received repayment of its entire investment plus a 15% return; thereafter
all cash flow will be distributed 95% to the Company and 5% to the minority
member.

18
<PAGE> 19

LEASE EXPIRATIONS

The following table sets forth scheduled lease expirations for all leases
for the Properties as of December 31, 1997.

<TABLE>
<CAPTION>
NET RENTABLE CURRENT
SQUARE FEET ANNUAL % OF RENTS
NUMBER OF SUBJECT TO RENTS UNDER REPRESENTED
LEASES EXPIRING EXPIRING BY EXPIRING
YEAR OF LEASE EXPIRATION EXPIRING(1) LEASES LEASES(2) LEASES
------------------------ ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
1998.............................. 0 -- -- --
1999.............................. 2 6,125 $ 46,677 0.83%
2000.............................. 1 38,448 149,947 2.68%
2001.............................. 4 12,363 197,309 3.52%
2002.............................. 1 3,060 21,600 0.39%
2003.............................. 0 -- -- --
2004.............................. 1 55,370 42,000 0.75%
2005.............................. 0 -- -- --
2006.............................. 1 72,897 359,640 6.42%
2007.............................. 0 -- -- --
2008 and thereafter............... 25 923,494 4,783,471 85.41%
--------- ---------- -----
1,111,757 5,600,644 100%
========= ========== =====
</TABLE>

- ---------------
(1) Lease expirations assume tenants do not exercise existing renewal options.

(2) Reflects monthly base rent provided for under terms of each expiring lease
as in effect on December 31, 1997 multiplied by 12 and does not take into
account any contractual rent escalations.

(3) The Company's two vacant properties are not included in the above table, the
property in which the Company has a sandwich lease position is included in
the above table.

INDEBTEDNESS

The following table sets forth certain information regarding the mortgage
indebtedness of the Company as of December 31, 1997.

<TABLE>
<CAPTION>
INTEREST CURRENT PRINCIPAL PROJECTED ANNUAL MATURITY BALANCE DUE
PROPERTY LOCATION RATE AMOUNT INTEREST PAYMENTS DATE(1) AT MATURITY
----------------- -------- ----------------- ----------------- -------- -----------
<S> <C> <C> <C> <C> <C>
Columbus, OH.............. 7.33% $4,325 321 01/01/08 3,762
Fort Myers, FL............ 7.80% 3,210 252 01/01/04 2,881
Clayton County, GA........ 8.45% 2,363 198 09/01/06 1,960
Greenwood Village, CO..... 8.75% 2,671 232 03/31/06 2,254
Lewisville, TX............ 8.75% 1,572 135 01/01/17 0
Cedar Rapids, IA.......... 8.5% 952 80 12/31/00 874
Killeen, TX............... 9.1% 715 64 08/14/02 667
Rosenberg, TX............. 8.55% 677 57 12/05/02 616
New York, NY.............. 8.75% 4,062 352 06/14/99 3,966
</TABLE>

- ---------------
(1) Assumes the Company does not extend any mortgage pursuant to the terms of
the mortgage.

COMPETITION

The Company faces competition for the acquisition of net leased properties
from other REITs, investment companies, insurance companies, pension funds and
private individuals, some of whom have greater resources than the Company. The
Company also faces indirect competition from institutions that

19
<PAGE> 20

provide or arrange for other types of commercial financing, such as traditional
mortgage financing and traditional bank financing. The Company believes that its
management's experience in real estate, mortgage lending, credit underwriting
and transaction structuring allows it to compete effectively for properties.

ENVIRONMENTAL MATTERS

Under various federal, state and local environmental laws, regulations and
ordinances, current or former owners of real estate, may be required to
investigate and clean up hazardous or toxic chemicals, substances or waste or
petroleum products or waste (collectively, "Hazardous Materials") released on,
under, in or from such property, and may be held liable to governmental entities
or to third parties for certain damage and for investigation and clean-up costs
incurred by such parties in connection with the release or threatened release of
Hazardous Materials. Such laws typically impose responsibility and liability
without regard to whether the owner knew of or was responsible for the presence
of Hazardous Materials, and the liability under such laws has been interpreted
to be joint and several under such circumstances. The Company's leases generally
provide that the tenant is responsible for all environmental liability and for
compliance with environmental regulations relating to the tenant's operations.
Such a contractual arrangement does not eliminate the Company's statutory
liability or preclude claims against the Company by governmental authorities or
persons who are not a party to such an arrangement. Contractual arrangements in
the Company's leases may provide a basis for the Company to recover from the
tenant damages or costs for which the Company has been found liable.

The cost of investigation and clean-up of Hazardous Materials on, under, in
or from property can be substantial, and the fact that the property has had a
release of Hazardous Materials, even if remediated, may adversely affect the
value of the property and the owner's ability to sell or lease the property or
to borrow using the property as collateral. In addition, some environmental laws
create a lien on a property in favor of the government for damages and costs it
incurs in connection with the release or threatened release of Hazardous
Materials, and certain state environmental laws provide that such a lien has
priority over all other encumbrances on the property or that a lien can be
imposed on other property owned by the responsible party. Finally, the presence
of Hazardous Materials on a property could result in a claim by a private party
for personal injury or a claim by a neighboring property owner for property
damage.

Other federal, state and local laws and regulations govern the removal or
encapsulation of asbestos-containing material when such material is in poor
condition or in the event of building remodeling, renovation or demolition.
Still other federal, state and local statutes, regulations and ordinances may
require the removal or upgrading of underground storage tanks that are out of
service or out of compliance. In addition, federal, state and local laws,
regulations and ordinances may impose prohibitions, limitations and operational
standards on, or require permits, approvals and notifications in connection with
the discharge of wastewater and other water pollutants, the emission of air
pollutants and operation of air polluting equipment, the generation and
management of Hazardous Materials, and workplace health and safety.
Non-compliance with environmental or health and safety requirements may also
result in the need to cease or alter operations at a property, which could
affect the financial health of a tenant and its ability to make lease payments.
Furthermore, if there is a violation of such requirement in connection with a
tenant's operations, it is possible that the Company, as the owner of the
property, could be held accountable by governmental authorities for such
violation and could be required to correct the violation.

The Company typically undertakes an investigation of potential
environmental risks when evaluating an acquisition. Where warranted, Phase I
and/or Phase II assessments are performed by independent environmental
consulting and engineering firms. Phase I assessments do not involve subsurface
testing, whereas Phase II assessments involve some degree of soil and/or
groundwater testing. The Company may acquire a property which is known to have
had a release of Hazardous Materials in the past, subject to a determination of
the level of risk and potential cost of remediation. The Company normally
requires property sellers to indemnify it against any environmental problem
existing as of the date of purchase. Additionally, the Company normally
structures its leases to require the tenant to assume all responsibility for
environmental compliance or environmental remediation relating to the tenants
operations at the Property.

20
<PAGE> 21

Except for the environmental remediation undertaken by the Company at the
Total Petroleum Properties, the Company has not been notified by any
governmental authority of or become aware of non-compliance, liability or other
claim in connection with any of the Properties.

In 1991, when the Company entered into lease agreements relating to 13
Total Petroleum Properties, the Company deposited $2,000,000 with an independent
escrow agent, to cover remediation costs relating to environmental problems
discovered at certain of the Total Petroleum Properties. The agreement between
the Company and Total Petroleum limits the Company's maximum cost to $350,000
per location, with any excess cost being the responsibility of Total Petroleum.
There are currently two locations which will require additional remediation
efforts. As of December 31, 1997 there is approximately $781,000 held by the
escrow agent, which the Company deems adequate.

REGULATIONS AND INSURANCE

Americans With Disabilities Act and Similar Laws. Under the Americans with
Disabilities Act of 1990 (the "ADA"), all places of public accommodation are
required to meet certain Federal requirements related to access and use by
disabled persons. These requirements became effective in 1992. Although
management of the Company believes that the Properties are substantially in
compliance with present requirements of the ADA, the Company has not conducted
and does not presently intend to conduct an audit or investigation to determine
its compliance. There can be no assurance that the Company will not incur
additional costs in complying with the ADA.

Additional legislation may place further burdens or restrictions on owners
with respect to access by disabled persons. The ultimate amount of the cost of
compliance with the ADA or such legislation is not currently ascertainable, but
are not expected to have a material effect on the Company.

Insurance. Under substantially all leases, the Company's tenants are
responsible for providing adequate insurance on the Properties they lease. The
Company believes the Properties are covered by adequate fire, flood and property
insurance.

LEGAL PROCEEDINGS

Neither the Company nor the Properties are presently subject to any
material litigation nor, to the Company's knowledge, is any material litigation
threatened against the Company or the Properties, other than routine litigation
arising in the ordinary course of business, which collectively are not expected
to have a material adverse effect on the business, financial condition or
results of operations of the Company.

USE OF PROCEEDS

The Company intends to use the proceeds derived from this Rights Offering,
net of expenses of approximately $120,000, to repay debt of $6,985,000 due under
its Credit Agreement and for working capital purposes. The funds allocated to
working capital will be used primarily for property acquisitions. Pending use of
such proceeds the Company will invest such proceeds in short term
income-producing investments which are consistent with the Company's
qualification for taxation as a real estate investment trust.

21
<PAGE> 22

PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS

The Company's Common Stock and Preferred Stock trade on the American Stock
Exchange under the symbols OLP and OLP Pr, respectively. The following table
sets forth the high and low prices for the Common Stock and Preferred Stock of
the Company as reported by the American Stock Exchange and the per share cash
distributions paid by the Company on the Common Stock and Preferred Stock during
each quarter of the years ended December 31, 1996 and 1997.

<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
------------------------ ------------------------
DISTRIBUTIONS DISTRIBUTIONS
HIGH LOW PER SHARE HIGH LOW PER SHARE
---- --- ------------- ---- --- -------------
<S> <C> <C> <C> <C> <C> <C>
1996
First Quarter................................. 14 1/8 13 $.30 16 7/8 16 1/4 $.40
Second Quarter................................ 13 5/8 13 3/8 $.30 17 16 1/4 $.40
Third Quarter................................. 13 1/2 12 5/8 $.30 16 7/8 16 1/4 $.40
Fourth Quarter................................ 13 1/2 12 5/8 $.30* 17 1/8 16 1/4 $.40*
1997
First Quarter................................. 13 3/4 12 3/4 $.30 17 5/8 16 1/2 $.40
Second Quarter................................ 13 3/4 13 1/4 $.30 17 1/8 16 5/16 $.40
Third Quarter................................. 14 13 1/8 $.30 17 7/8 16 1/2 $.40
Fourth Quarter................................ 14 5/8 13 5/8 $.30* 17 7/8 16 7/8 $.40*
</TABLE>

- ---------------
* A cash distribution of $.30 and $.40 was paid on the Common Stock and
Preferred Stock, respectively, on January 2 ,1997 and January 5, 1998. These
distributions are reported as being paid in the fourth quarter of the prior
year.

On March 26, 1998 (the last day before the date of this Prospectus that the
Common Stock traded), the closing sale price of the Common Stock as reported by
the American Stock Exchange was $14.50 per share. As of March 2, 1998 the
approximate number of holders of record of the Common Stock and Preferred Stock
was 397 and 175, respectively.

In the future, the Company's ability to make cash distributions to its
stockholders will be affected by a number of factors, including the revenues
received from its Properties, the operating expenses of the Company, the
interest expense incurred on outstanding indebtedness, and the ability of
tenants to meet their obligations under leases. One or more of the foregoing
factors could limit the Company's ability to maintain distributions at the
current level.

Management believes that the amount of cash not distributed will be
sufficient to cover: (i) costs associated with the renewal or replacement of
current tenants as their leases expire, (ii) recurring capital expenditures that
will not be reimbursed by tenants and, (iii) unforeseen cash needs. The expected
amount of distributions will not allow the Company, using only cash from
operations, to retire all of its debt when due, and therefore the Company will
be required to seek additional debt or equity financings, and/or sell
Properties, to repay such debt.

Distributions by the Company to the extent of its current or accumulated
earnings and profits for Federal income tax purposes, other than capital gain
dividends, will be taxable to stockholders as ordinary dividend income. Capital
gain dividends generally will be treated as long-term capital gains.
Distributions in excess of earnings and profits generally will be treated as a
non-taxable reduction of the stockholders' basis in the stock to the extent
thereof, and thereafter as taxable gain. Distributions treated as non-taxable
reduction in basis will have the effect of deferring taxation until the sale of
a stockholder's capital stock. For a discussion of the tax treatment of
distributions to holders of shares of capital stock, see "Federal Income Tax
Considerations -- Taxation of Taxable U.S. Stockholders."

22
<PAGE> 23

CAPITALIZATION

The following table sets forth the Company's unaudited capitalization as of
December 31, 1997, after giving effect to Gould Investors L.P. fully exercising
its Basic Subscription Right relating to 392,981 Shares of Common Stock and
exercising its Over-Subscription Privilege for 376,250 shares. The information
set forth in the following table should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Prospectus, as well as "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
HISTORICAL PRO FORMA
---------- ---------
<S> <C> <C>
Mortgages and other notes payable........................... $25,150,276 $20,545,248
Redeemable Convertible Preferred Stock(1) 13,106,970 13,106,970
$1.00 par value, $1.60 cumulative annual dividend,
2,300,000 shares authorized; 808,776 shares issued and
outstanding...............................................
Stockholders' equity(2)
Common Stock, $1.00 par value, 25,000,000 shares 1,561,450 2,330,681
authorized; 1,544,314 and 2,360,639 shares issued and
outstanding, respectively..............................
Paid-in capital........................................... 14,419,609 23,722,689
Net unrealized gain on available-for-sale securities...... 146,706 146,706
Accumulated undistributed income.......................... 2,076,140 2,076,140
----------- -----------
Total stockholders' equity............................. 18,203,905 28,276,216
----------- -----------
Total capitalization.............................. $56,461,151 $61,928,434
=========== ===========
</TABLE>

- ---------------
(1) The Preferred Stock has a stated liquidation preference of $16.50 per share
and is convertible into .825 of a share of Common Stock. The holders of the
Preferred Stock have a right to "put" the shares to the Company at $16.50
per share during the ninety day period commencing July 1, 1999.

(2) Does not include (i) 44,000 shares of Common Stock reserved for issuance
under the 1989 and 1996 Stock Option Plans and (ii) 667,240 shares of Common
Stock reserved for issuance upon conversion of the Preferred Stock.

23
<PAGE> 24

SELECTED FINANCIAL DATA

The following are highlights of the Company's operations which are derived
from the audited financial statements of the Company for the years ended
December 31, 1997, 1996, 1995, 1994 and 1993.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues.................. $ 6,284,809 $ 5,511,556 $ 4,890,962 $ 4,041,378 $ 3,348,419
Gain on Sale of
Investments and Real
Estate.................. 599,251 -- -- -- 168,631
Provision for Valuation
Adjustment and
Impairment.............. -- (659,000) -- -- (258,744)
Net Income................ 2,984,192 2,173,952 3,096,302 2,861,137 2,435,269
Calculation of Net Income
Applicable to Common
Stockholders:
Net Income................ 2,984,192 2,173,952 3,096,302 2,861,137 2,435,269
Less: Dividends and
Accretion on Preferred
Stock................... 1,450,220 1,448,359 1,446,519 1,444,703 1,442,907
Net Income Applicable to
Common Stockholders..... $ 1,533,972 $ 725,593 $ 1,649,783 $ 1,416,434 $ 992,362
Weighted Average Number of
Common Shares
Outstanding
Basic................... 1,522,967 1,447,413 1,409,371 1,356,989 1,338,619
Diluted................. 1,529,203 1,459,198 1,423,361 1,365,143 1,353,935
Net Income Per Common
Share: (Note a)
Basic................... $1.01 $.50 $1.17 $1.04 $.74
Diluted................. $1.00 $.50 $1.16 $1.04 $.73
Cash Distributions Per
Share of:
Common Stock............ $1.20 $1.20 $1.03 $.86 $.94
Preferred Stock......... $1.60 $1.60 $1.60 $1.60 $1.60
BALANCE SHEET DATA
Total Real Estate
Investments, Net........ $48,316,984 $42,889,213 $24,253,765 $10,996,534 $ 5,627,909
Investments in US
Government Obligations
and Securities.......... -- -- 1,274,747 3,972,256 4,856,453
Mortgages and Note
Receivables............. 5,943,450 6,049,033 7,564,716 16,096,224 17,274,039
Total Assets.............. 57,647,555 52,522,988 38,040,246 37,652,773 32,383,674
Total Liabilities......... 26,336,680 21,987,633 7,532,267 7,680,937 3,360,236
Redeemable Convertible
Preferred Stock......... 13,106,970 12,950,792 12,796,475 12,643,998 12,493,337
Total Stockholders'
Equity.................. 18,203,905 17,442,841 17,711,504 17,327,838 16,530,101
</TABLE>

- ---------------
(a) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128, Earnings
Per Share. For further discussion of earnings per share and the impact of
Statement No. 128, see Note 2 to the Consolidated Financial Statements.

24
<PAGE> 25

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of liquidity are cash generated from
operating activities, cash and cash equivalents, funds available under a
revolving credit facility (of which approximately $4,395,000 was available at
December 31, 1997) and funds obtainable from mortgages to be secured by real
estate investments.

In March, 1996 the Company entered into a $5 million revolving credit
agreement ("Credit Agreement") with Bank Leumi Trust Company of New York ("Bank
Leumi"). Under the terms of the Credit Agreement the Company can add additional
lenders to provide a maximum total facility of $15,000,000. In June 1997, the
Company closed on a $4,000,000 participation interest with Commercial Bank of
New York (formerly First Bank of the Americas), increasing the total facility to
$9,000,000. Borrowings under the Credit Agreement will provide the Company with
funds, when needed, to acquire additional properties. The Credit Agreement
matures February 28, 1999 with a right for the Company to extend the Credit
Agreement until February 29, 2000.

The Company is currently in discussions concerning the acquisition of
additional net leased properties. Cash provided from operations and the
Company's cash position will provide funds for cash distributions to
stockholders and operating expenses. These sources of funds, as well as funds
available under the Credit Agreement, will provide funds for future property
acquisitions. Funds raised in the Rights Offering will be used primarily for
property acquisitions. It will continue to be the Company's policy to make
sufficient cash distributions to stockholders in order for the Company to
maintain its real estate investment trust status under the Internal Revenue
Code.

In connection with the lease agreements with Total Petroleum, Inc. ("Total
Petroleum") consummated in 1991, the Company agreed to expend certain funds to
remediate environmental problems at certain locations net leased to Total
Petroleum. It was agreed that the net cost to the Company would not exceed
$350,000 per location, with any excess being the responsibility of Total
Petroleum. At that time the Company deposited $2,000,000 with an independent
escrow agent to insure compliance by the Company with its obligations with
respect to the environmental clean up. At December 31, 1997 there are two
locations which require additional remediation efforts. The Company believes
that the $781,000 held by the escrow agent will be adequate to cover any
additional environmental costs at the Total Petroleum locations.

There will be no effect on the Company's liquidity relating to the year
2000 issue because during 1997 the Company acquired computer hardware and
software to handle the Company's accounting and real estate management. The
computer software is capable of handling all issues relating to the year 2000.

COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND 1996

As a result of the acquisition of five properties in 1996 and two
properties in 1997 rental income increased by $1,163,203 to $5,341,491 for the
year ended December 31, 1997 as compared to the year ended December 31, 1996.

The decrease in interest income from related parties of $299,571 from
$1,132,150 for the year ended December 31, 1996 to $832,579 for the year ended
December 31, 1997 is substantially due to the payoff in full of a senior note
receivable during August 1996.

Interest and other income decreased to $110,739 in 1997 from $201,118 in
1996 primarily due to a decrease in interest earned on U.S. Government
securities resulting from the sale of such securities, the proceeds of which
were used to purchase properties.

A $301,754 increase in depreciation and amortization expense to $1,023,345
results primarily from depreciation on properties acquired during 1996 and 1997.
Also contributing to the increase was the amortization of capitalized costs
incurred in connection with the Company's credit facility and placing mortgages
on its properties.

25
<PAGE> 26

The increase in interest-mortgages payable from $891,953 in 1996 to
$1,517,126 in 1997 is due to interest paid on mortgages placed on properties
acquired during 1996 and 1997. Interest -- bank note payable amounted to
$210,305 and $110,185 for the years ended December 31, 1997 and 1996,
respectively, resulting from borrowings under the Credit Agreement. Borrowings
under the Credit Agreement were made to facilitate property acquisitions.

General and administrative costs decreased by $33,781 from $663,201 for the
year ended December 31, 1996 to $629,420 for the year ended December 31, 1997
due to a combination of factors including a decrease in professional fees. In
addition, the year ended December 31, 1996 included various fees and costs
incurred with the implementation of the Company's distribution reinvestment
plan.

At December 31, 1996, the Company owned five properties which had been
leased to a retail chain of stores. The initial term with respect to the leases
expired on December 31, 1996. Two of these properties were under contract of
sale on December 31, 1996 (both sales closed during 1997), and three were vacant
(two of which are still vacant and one of which has since been relet). The
Company is actively seeking a buyer or tenant for the two vacant properties. At
December 31, 1996 the Company recorded a provision for valuation adjustment on
the two properties which were under contract of sale based on the sales prices.
In addition, the Company had determined that the estimated fair value of the
three vacant properties were lower than their carrying amounts and thus, the
Company had recorded a provision for the differences. The total provision taken
on these five properties amounted to $659,000. There was no comparable provision
taken in 1997.

On August 5, 1997, the property owned by a limited liability company in
which the Company was a majority member was sold and a gain of $599,251 was
realized on the sale. The Company's share of the gain is $383,915 (after
deducting the minority interest share of the gain of $215,336).

COMPARISION OF YEARS ENDED DECEMBER 31, 1996 AND 1995

In view of the Company's acquisition of nineteen properties in 1995 and
five properties in 1996, rental income increased by $1,512,831 to $4,178,288 for
the year ended December 31, 1996 from $2,665,457 for the year ended December 31,
1995. The straight-lining of rents during the year ended December 31, 1996
contributed $218,961 to the increase in rental income.

The decrease in interest income from related parties of $746,112 from
$1,878,262 to $1,132,150 is substantially due to accelerated principal
collections during 1995 on a senior note receivable which resulted in unusually
large amortization of the discount on such note during 1995 and additionally,
resulted in a substantial decrease in interest earned on such note during 1996.
This note was collected in full during August 1996. Also contributing to the
decrease in interest earned was the payoff in full during March 1996 of an
$845,000 mortgage receivable.

Interest and other income decreased to $201,118 in 1996 from $347,243 in
1995 primarily due to a decrease in interest earned on U.S. Government
securities resulting from the sale of such investments, the proceeds of which
were used to purchase properties.

A $232,946 increase in depreciation and amortization expense to $712,591
for the year ended December 31, 1996 results from depreciation on properties
acquired during 1995 and 1996. Also contributing to the increase was the
amortization of capitalized costs incurred in connection with the Company
obtaining a bank credit facility and placing mortgages on its properties.

The increase in interest-mortgages payable from $453,684 in 1995 to
$891,953 in 1996 is due to interest paid on mortgages placed in connection with
property acquisitions during 1995 and 1996. Interest -- bank note payable
amounted to $110,185 during 1996 resulting from borrowings under a revolving
credit agreement which was entered into during 1996.

General and administrative costs of $663,201 reflect an increase of $86,264
from the prior year expense of $576,937 and is due to a combination of factors
including various fees and other costs incurred with the implementation and
maintenance of the Company's distribution reinvestment plan and an increase in
professional fees.

26
<PAGE> 27

At December 31, 1996 the Company owned five properties leased to a chain of
retail stores, all of which leases expired on December 31, 1996. Two of those
properties were under contract of sale on December 31, 1996, one was relet and
two became vacant. The Company is actively seeking a buyer or tenant for the two
vacant properties. The Company recorded a provision for valuation adjustment on
the two properties under contract of sale since the sales prices were lower than
their carrying amounts and thus the Company took a provision for the difference.
The total provision taken on these five properties amounts to $659,000. There
was no comparable provision taken in 1995.

27
<PAGE> 28

MANAGEMENT

Directors and Executive Officers. The following sets forth information
with respect to the directors and executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Fredric H. Gould............................ 62 Chairman of the Board
Joseph Amato................................ 61 Director
Charles Biederman........................... 64 Director
Arthur Hurand............................... 81 Director
Marshall Rose............................... 61 Director
Matthew J. Gould............................ 38 President and Chief Executive Officer
Simeon Brinberg............................. 64 Vice President
David W. Kalish............................. 51 Vice President and Chief Financial Officer
Nathan Kupin................................ 83 Senior Vice President
Jeffrey Gould............................... 33 Vice President
Mark H. Lundy............................... 35 Secretary
Seth D. Kobay............................... 43 Vice President and Treasurer
Karen Dunleavy.............................. 39 Vice President, Financial
</TABLE>

FREDRIC H. GOULD. Mr. Gould has been Chairman of the Board of the Company
since 1989. Mr. Gould has served as Chairman of the Board of Trustees of BRT
Realty Trust, a real estate investment trust, since 1984 and Chief Executive
Officer of BRT Realty Trust since 1996. Since 1985 Mr. Gould has been a
principal executive officer of the managing general partner of Gould Investors
L.P., a limited partnership engaged in the ownership and operation of real
properties and he also serves as a general partner of Gould Investors L.P. He is
President of the advisor to BRT Realty Trust and a director of Sunstone Hotel
Investors, Inc.

JOSEPH AMATO. Mr. Amato has been engaged in real estate development and
management for approximately thirty years. He is President of Kent Management
Corp.

CHARLES BIEDERMAN. Mr. Biederman has been executive Vice President of
Sunstone Hotel Investors, Inc., a publicly traded REIT engaged in hotel
ownership, since 1994. Mr. Biederman has also been engaged in real estate
development for more than thirty years and has been President of Woodstone
Homes, Inc., engaged in luxury home construction in the Vail, Colorado area for
more than the past five years.

ARTHUR HURAND. Mr Hurand is a private investor and has been for more than
the past five years. He has been engaged in the ownership and operation of real
properties for more than forty years. He is a trustee of BRT Realty Trust.

MARSHALL ROSE. Mr. Rose has been a director of the Company since 1989. He
has been a trustee of BRT Realty Trust since 1986, and served as a general
partner of Gould Investors L.P. from 1988 to November 1997. Mr. Rose is also
President and Chief Executive Officer of Georgetown Equities, Inc., a real
estate consulting firm, and serves as a director of Estee Lauder, Inc. and
Golden Book Family Entertainment, Inc.

MATTHEW J. GOULD. Mr. Gould has been President and Chief Executive Officer
of the Company since 1989. He has been a Vice President of BRT Realty Trust
since 1986, a Vice President of the managing general partner of Gould Investors
L.P. from 1986 to 1996 and President since 1996. He also serves as a Vice
President of the advisor to BRT Realty Trust.

SIMEON BRINBERG. Mr. Brinberg has served as Vice President of the Company
since 1989. He has been Secretary of BRT Realty Trust since 1983, a Senior Vice
President of BRT Realty Trust since 1988 and a Vice President of the managing
general partner of Gould Investors L.P. since 1988. He is a director of Witco
Corporation.

DAVID W. KALISH. Mr. Kalish has served as Vice President and Chief
Financial Officer of the Company since June 1990. Mr. Kalish is also Senior Vice
President -- Finance of BRT Realty Trust and Vice President

28
<PAGE> 29

and Chief Financial Officer of the managing general partner of Gould Investors
L.P. since June 1990. For more than five years prior to June 1990, Mr. Kalish, a
certified public accountant, was a partner of Buchbinder Tunick & Company,
certified public accountants.

NATHAN KUPIN. In addition to serving as a Senior Vice President of the
Company since 1989, Mr. Kupin has been a Trustee and Vice President of BRT
Realty Trust since 1983. He is also Vice Chairman of the Board of Directors of
the managing general partner of Gould Investors L.P. and a director of the
advisor to BRT Realty Trust.

JEFFREY GOULD. Mr. Gould has been a Vice President of the Company since
1989. Mr. Gould was a Vice President of BRT Realty Trust from January 1988 to
March 1993, Executive Vice President and Chief Operating Officer of BRT from
March 1993 to March 1996, and President and Chief Operating Officer since March
1996. Mr. Gould has served as a Trustee of BRT Realty Trust since March 1997.

MARK H. LUNDY. In addition to being Secretary of the Company since June
1993, Mr. Lundy has been a Vice President of BRT since April 1993 and a Vice
President of the managing general partner of Gould Investors L.P. since July
1990. Prior to July 1990 he was an associate with the law firm of Dickstein,
Shapiro and Moran, Washington, D.C.

SETH D. KOBAY. Mr. Kobay has been Vice President and Treasurer of the
Company since August 1994. He has been Vice President and Treasurer of BRT
Realty Trust since March 1994 and Vice President of Operations of the managing
general partner of Gould Investors L.P. since 1986.

KAREN DUNLEAVY. Ms. Dunleavy has been Vice President, Financial of the
Company since August 1994. She has served as Treasurer of the managing general
partner of Gould Investors L.P. since 1986.

Matthew J. Gould and Jeffrey Gould are Fredric H. Gould's sons.

Board of Directors and Committees

The Company is managed by a five member Board of Directors, a majority of
whom are unaffiliated with the Company's management. Messrs. Amato, Biederman
and Hurand comprise the Company's unaffiliated directors (the "Independent
Directors"). The Board of Directors is divided into three classes serving
staggered three-year terms. The Board is composed of two Class 1 directors
(Messrs. Gould and Hurand), two Class 2 directors (Messrs. Rose and Biederman),
and one Class 3 director (Mr. Amato), whose terms will expire upon the election
of directors at the annual meeting of stockholders held following the fiscal
years ending December 31, 1999, 1998 and 1997, respectively. At each annual
meeting of stockholders, directors will be reelected or elected for a full term
of three years to succeed those directors whose terms are expiring.

Audit Committee. The Board of Directors has established an Audit Committee
consisting of Messrs. Amato, Biederman and Hurand. The Audit Committee makes
recommendations concerning the engagement of independent public accountants,
reviews with independent public accountants the results of the audit engagement,
approves professional services provided by the independent accountants, reviews
the independence of the independent accountants, considers the range of audit
and non-audit fees, and reviews the adequacy of the Company's internal
accounting controls.

Compensation Committee Interlocks. The Compensation Committee consists of
Messrs. Beiderman and Hurand, neither of whom is or has been an officer or
employee of the Company. Messrs. Biederman and Fredric H. Gould serve as
directors of Sunstone Hotel Investors, Inc. and Messrs. Hurand, Fredric H. Gould
and Rose are trustees of BRT Realty Trust. For a description of the background
of each of these individuals, see "Directors and Executive Officers."

Compensation of Directors. The Company compensates its directors, who are
not officers of the Company, with fees for their services as directors. The fee
paid to each of such directors currently is $10,000 annually.

Limitation of Liability. The Company's Articles of Incorporation provides
that to the maximum extent that Maryland law in effect from time to time permits
no director or officer shall be liable to the Company or its stockholders for
money damages.
29
<PAGE> 30

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following summary compensation table includes information with respect
to compensation paid and accrued by the Company for services rendered in all
capacities to the Company during the fiscal years ended December 31, 1997, 1996
and 1995 for the Chief Executive Officer of the Company. No executive officer of
the Company other than the Chief Executive Officer received, directly or
indirectly, annual compensation in 1997, 1996 or 1995 in excess of $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS
------------------------------ ------------------------
OTHER SECURITIES/ PAYOUTS
ANNUAL RESTRICTED UNDERLYING ---------
SALARY BONUS COMPEN- STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR $ $(1) SATION(2) AWARDS($) SARS(#) PAYOUT($) COMPENSATION(3)
- --------------------------- ---- -------- ------- --------- ---------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Matthew J. Gould......... 1997 $140,000 0 -- -- -- -- $ 9,600
President and Chief 1996 $132,000 0 -- -- -- -- $10,578
Executive Officer(3) 1995 $125,000 $25,000 -- -- -- -- $ 8,789
</TABLE>

- ---------------
(1) The $25,000 bonus reflected for 1995 was awarded by the Compensation
Committee subsequent to completion of the 1995 financial statements and
although attributable to 1995 the $25,000 was not paid or accrued until
1996.

(2) The only type of Other Annual Compensation for the Chief Executive Officer
was reimbursement to REIT Management Corp., an affiliated entity, for an
allocated portion of pension expense paid for the Chief Executive Officer
(see footnote 3 below).

(3) Represents the amount reimbursed by the Company to an affiliated entity for
an allocated portion of the pension expense paid for the Chief Executive
Officer.

STOCK OPTION PLAN

The Company's directors adopted a stock option plan on October 16, 1989
covering 110,000 shares ("1989 Plan") and a stock option plan on December 6,
1996 covering 125,000 shares ("1996 Plan"). Both plans were approved by
stockholders. Options are granted at per share exercise prices at least equal to
the fair market value on the date of grant. Neither the 1989 Plan or the 1996
Plan provides for stock appreciation rights.

OPTIONS GRANTED IN 1997

The following table sets forth information concerning the grant of stock
options in 1997 to the Company's Chairman of the Board and President and Chief
Executive Officer.

INDIVIDUAL GRANTS(1)

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS APPRECIATION FOR
GRANTED EXERCISE OR OPTION TERM(2)
OPTIONS TO EMPLOYEES BASE PRICE --------------------
NAME GRANTED IN FISCAL YEAR ($/SH) EXPIRATION DATE 5% 10%
---- ------- -------------- ----------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Fredric H. Gould................. 4,500 11% $13.50 3/20/02 $3,037 $6,075
Matthew J. Gould................. 6,000 15% $13.50 3/20/02 $4,050 $8,100
</TABLE>

- ---------------
(1) Options were granted on March 21, 1997.

(2) These amounts, based on assumed appreciation rates of 5% and 10% prescribed
by the Securities and Exchange Commission rules, are not intended to
forecast possible appreciation of the Company's stock

30
<PAGE> 31

price. These numbers do not take into account certain provisions of options
providing for termination of the option following termination of employment,
non-transferability or phased-in vesting. The Company did not use an
alternate formula for a grant date valuation as it is not aware of any
formula which will determine with reasonable accuracy a present value based
on future unknown or volatile factors. Future compensation resulting from
option grants is based solely on the performance of the Company stock price.

The following table sets forth information with respect to the exercise of
stock options by the Company's Chairman of the Board and President and Chief
Executive Officer in 1997 and the number and value of unexercised options held
by each of them at December 31, 1997.

STOCK OPTIONS EXERCISED AND FISCAL YEAR END OPTION VALUES IN 1997

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END (2)
ACQUIRED VALUE --------------------------- ----------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fredric H. Gould............. 9,000 $37,688 1,125 3,375 $5,766 $17,297
Matthew J. Gould............. -- -- 1,500 4,500 $7,688 $23,063
</TABLE>

- ---------------
(1) Value realized is the aggregate market value, on the date of exercise, of
the shares acquired, less the aggregate exercise price paid for such shares.

(2) Value of unexercised options is the aggregate market value of the underlying
shares (based on the closing price on December 31, 1997, which was $14 1/4
per share) less the aggregate exercise price for such shares.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following relationships should be noted: Fredric H. Gould, Chairman of
the Board of the Company, is Chairman of the Board of BRT Realty Trust, ("BRT"),
a General Partner of Gould Investors L.P. ("Gould")and Chairman of the Board and
sole shareholder of Georgetown Partners, Inc.,("Georgetown"), managing general
partner of Gould. Matthew Gould, President and Chief Executive Officer of the
Company, is a Vice President of BRT and President of the Managing General
Partner of Gould and Jeffrey Gould, a Vice President of the Company, is
President of BRT and Vice President of the corporate managing general partner of
Gould. In addition, David W. Kalish, Simeon Brinberg, Nathan Kupin and Mark
Lundy, executive officers of the Company, are executive officers of BRT and
executive officers of the corporate managing general partner of Gould. Nathan
Kupin also serves as a Trustee of BRT. Marshall Rose is a director of the
Company and a trustee of BRT and served as a general partner of Gould until
November 30, 1997. Arthur Hurand is a director of the Company and a trustee of
BRT Realty Trust.

The Company and related entities, including Gould, occupy common office
space and use certain personnel in common. In 1997, $179,260 of common general
and administrative expenses, including rent, telecommunication services,
computer services, bookkeeping, secretarial and other clerical services and
legal and accounting services, were allocated to the Company. This amount
includes $43,523, $47,520 and $11,595, allocated to the Company for legal
services and accounting services (a portion of which was capitalized) performed
by Simeon Brinberg and Mark H. Lundy and David W. Kalish, respectively. The
allocation of common general and administrative expenses is computed on a
quarterly basis and is based on the time devoted by executive, administrative
and clerical personnel to the affairs of each participating entity.

In January 1992, the Company made a first mortgage loan to Gould in the
amount of $1,200,000. The loan, which matured in January, 1995 was extended to
January 31, 1997 at an interest rate of 11% and required minimum amortization of
$5,000 per month. This mortgage receivable was secured by the commercial space
and four cooperative apartments located on East 86th Street, in Manhattan, N.Y.
The loan was repaid in full in March, 1996. On the date this transaction was
entered into by the Company with Gould and when it was extended it was
management's judgment that the loan was well secured and provided a yield at
least as favorable as could have been obtained from an unrelated third party.
The President of the Company, who is also an officer of the managing general
partner of Gould, presented this opportunity to the Board, which unanimously
approved the transaction.

31
<PAGE> 32

On February 26, 1993 the Company purchased from an unrelated entity 28.9%
of a 16.67% portion of an indebtedness due to various institutions by BRT. The
Company paid $3,215,142 for a $4,626,720 share of the principal amount of such
indebtedness. The Company paid the same price (i.e., received the same discount)
for its portion of the indebtedness as the unrelated entity paid. The debt was
bought by the unrelated entity from the Federal Deposit Insurance Corporation
("FDIC") in a competitive public auction. The principal earned interest at prime
plus one percent and required minimum principal payments through its maturity
date of June 30, 1997. This indebtedness was paid in full in August 1996. This
opportunity was brought to the attention of the Company by the officers of BRT
because of the beneficial yield to maturity on this investment. The purchase of
this indebtedness was unanimously approved by the directors of the Company.

On July 30, 1993, as a result of a public auction, the FDIC sold to an
entity related to the Company, for a consideration of $19,000,300 a $23,000,000
first mortgage, providing for an interest rate of 8% per annum, secured by an
office building located in Manhattan, New York. The office building which
secures this mortgage is owned by a partnership in which Gould is the general
partner and in which Gould owns substantially all of the partnership interests.
Simultaneously with the purchase, $13,181,000 was advanced by an unrelated
party, $6,080,000 (which includes closing costs) was advanced by the Company,
and the mortgage was severed into a first mortgage of $13,181,000 paying
interest at 9 1/2% per annum held by the unrelated party and a subordinate wrap
mortgage of $9,819,000 held by the Company. Both the first mortgage and the wrap
mortgage mature in 2005 at which time the first mortgage will be fully amortized
and the wrap mortgage will have a principal balance of approximately $4,000,000.
The Company receives monthly principal and interest payments of $79,318 and at
December 31, 1997 its principal balance had been reduced to approximately
$7,974,000. The largest aggregate amount outstanding on this indebtedness during
1997 was $8,387,000. Interest income, including amortization of the discount of
$334,200, amounted to $832,579 for the year ended 1997. The opportunity to bid
for this mortgage was brought to the Company's attention by Fredric H. Gould, an
executive officer of the Company and a general partner and executive officer of
the managing general partner of Gould. The Company determined the amount of its
bid after exploring its ability to obtain financing and then examining the yield
to maturity (approximately 14.5% per annum) and the risk. This transaction was
unanimously approved by the directors of the Company. The building which secures
the first mortgage and the wrap mortgage is leased to the City of New York. The
lease expires in 2005 with an option to renew for an additional five years and
provides the City with a limited right of termination. The first mortgage and
the wrap mortgage are nonrecourse to the owner of the building.

32
<PAGE> 33

PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of Common Stock and Preferred Stock of the Company by each of the
Company's executive officers, directors and executive officers and directors as
a group, and by all persons known by the Company to be the beneficial owner of
more than five percent of the Company's outstanding voting power as of December
31, 1997. To the Company's knowledge, each person identified in the table has
sole voting and investment power with respect to all shares shown as
beneficially owned by such person, except as otherwise set forth in the notes to
the table. Unless otherwise indicated, the address of each person listed below
is 60 Cutter Mill Road, Great Neck, NY 11021.

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK/ PERCENT OF PERCENT OF
NAME PREFERRED STOCK CLASS VOTING POWER
---- ----------------- ---------- ------------
<S> <C> <C> <C>
Gould Investors L.P.(1)............................. 392,981/0 24.9/0 19.6
Fredric H. Gould(1)(2).............................. 642,345/7,500 40.0/* 32.2
Matthew J. Gould(1)(3)(6)........................... 452,420/6,900 28.2/* 22.7
Jeffrey Gould(4)(6)................................. 47,498/3,000 2.9/* 2.4
Marshall Rose(5).................................... 119,752/0 7.5/0* 6.0
Joseph Amato........................................ 219/0
Charles Biederman................................... 5,000/0 * *
Arthur Hurand....................................... 32,748/0 * *
Karen Dunleavy(6)................................... 850/100 * *
Simeon Brinberg(6).................................. 9,890/500 * *
David W. Kalish(6).................................. 8,300/200 * *
Seth Kobay(6)....................................... 750 * *
Mark Lundy(6)....................................... 8,500 * *
All Executive Officers and Directors as a group (13
in number)........................................ 918,252/18,100 (6) 57.3/2.2 % 46.2
</TABLE>

- ---------------
* Less than 5%
(1) Fredric H. Gould is general partner of Gould Investors L.P. and he and
Matthew Gould are executive officers of the corporate managing general
partner of Gould Investors L.P.
(2) Includes 141,307 shares of Common Stock owned directly, 392,981 shares of
Common Stock owned by Gould Investors L.P., 106,557 owned by entities and
trusts over which Mr. Gould has shared voting and dispositive power, options
to purchase 1,500 shares (which are currently exercisable or are exercisable
within 60 days). Does not include 30,862 shares of Common Stock and 2,800
shares of Preferred Stock owned by Mr. Gould's spouse, as to which shares
Mr. Gould disclaims any beneficial interest.
(3) Includes 54,419 shares of Common Stock owned directly, 3,520 shares of
Common Stock owned as custodian for minor children (as to which shares Mr.
Gould disclaims any beneficial interest), 392,981 shares of Common Stock
owned by Gould Investors L.P. and options to purchase 1,500 shares (which
are currently exercisable or are exercisable within 60 days). With respect
to the Preferred Stock, 1,200 shares are owned as custodian for minor
children (as to which shares Mr. Gould disclaims any beneficial interest).
Does not include 1,578 shares of Common Stock and 500 shares of Preferred
Stock owned by Mr. Gould's spouse, as to which shares Mr. Gould disclaims
any beneficial interest.
(4) Includes 976 shares of Common Stock owned as custodian for minor children
(as to which shares Mr. Gould disclaims any beneficial interest) and options
to purchase 1,500 shares (which are currently exercisable or are exercisable
within 60 days). Does not include 976 shares owned by Mr. Gould's spouse, as
to which shares Mr. Gould disclaims any beneficial interest.
(5) Includes 8,630 shares of Common Stock owned directly, 1,668 shares owned by
trusts over which Mr. Rose has sole voting and dispositive power (as to
which shares Mr. Rose disclaims any beneficial interest) and 109,454 shares
of Common Stock owned by entities over which Mr. Rose has sole voting and
dispositive power.

(6) Includes all currently exercisable options or options which are exercisable
within 60 days.

33
<PAGE> 34

DESCRIPTION OF CAPITAL STOCK

The following summary of the terms of the capital stock of the Company does
not purport to be complete and is subject to and qualified in its entirety by
reference to Maryland law and to the Company's charter and bylaws.

GENERAL

The charter of the Company provides that the Company may issue up to
27,300,000 shares of capital stock, consisting of 25,000,000 shares of common
stock, par value $1.00 per share (the "Common Stock"), and 2,300,000 shares of
preferred stock, par value $1.00 per share. As of January 3, 1998, 1,574,894
shares of Common Stock and 808,776 shares of Redeemable Convertible Preferred
Stock ("Preferred Stock") were issued and outstanding. Under Maryland law,
stockholders generally are not liable for the corporation's debts or obligations
solely as a result of their status as stockholders.

COMMON STOCK

Subject to the preferential rights of any other shares or series of capital
stock, holders of shares of Common Stock are entitled to receive distributions
on such shares if, as and when authorized and declared by the Board of Directors
of the Company out of assets legally available and to share ratably in the
assets of the Company legally available for distribution to its stockholders in
the event of its liquidation, dissolution or winding-up after payment of, or
adequate provision for, all known debts and liabilities of the Company. Holders
of shares of Redeemable Convertible Preferred Stock are entitled to receive,
when and as declared by the Board of Directors cumulative cash distributions at
the annual rate of $1.60 per share in preference to dividends on the Common
Stock.

Each outstanding share of Common Stock entitles the holder to one vote and
each outstanding share of Redeemable Convertible Preferred Stock to one-half
vote on all matters submitted to a vote of stockholders, including the election
of directors. There is no cumulative voting in the election of directors, which
means that the holders of a majority of the outstanding shares of Common Stock
and Preferred Stock, voting as one class, can elect all of the directors then
standing for election and the holders of the remaining shares of Common Stock
and Preferred Stock will not be able to elect any directors.

Holders of shares of Common Stock have no preference, conversion, sinking
fund, redemption, exchange or preemptive rights to subscribe for any securities
of the Company.

Pursuant to the Maryland General Corporation Law, (MGCL) a corporation
generally cannot (except under and in compliance with specifically enumerated
provisions of the MGCL) dissolve, amend its charter, merge, sell all or
substantially all of its assets, engage in a share exchange or engage in similar
transactions outside the ordinary course of business unless approved by the
affirmative vote of stockholders holding at least two-thirds of the shares
entitled to vote on the matter unless a lesser percentage (but not less than a
majority of all of the votes entitled to be cast on the matter) is set forth in
the corporation's charter. The Company's charter provides for approval of any
such action by a majority of the votes entitled to be cast in the matter, except
in the case of amendment of the charter provisions relating to removal of
directors, classification of the Board of Directors, voting rights of the Common
Stock or voting requirements for charter amendments. In addition, a number of
other provisions of the MGCL could have a significant effect on the shares of
Common Stock and the rights and obligations of holders thereof.

PREFERRED STOCK

Dividend Rights

The holders of the Preferred Stock are entitled to receive, when and as
declared by the Company's Board of Directors, cumulative cash dividends at the
annual rate of $1.60 per share, payable quarterly on January 1, April 1, July 1
and October 1. Dividends are cumulative and have a preference over dividends on
Common Stock and any other junior stock of the Company that may be outstanding
from time to time.

34
<PAGE> 35

Voting Rights

The holders of Preferred Stock are entitled to one-half vote per share on
any matters to be voted upon by the Company's stockholders, including the
election of directors. The holders of the Preferred Stock and Common Stock vote
as one class. In addition, the holders of the Preferred Stock will have the
right to elect two directors as a class in the event of a default in the payment
of dividends in an amount equivalent to eight consecutive quarter-annual
payments. Without the approval of the holders of at least two-thirds of the
outstanding shares of Preferred Stock, additional shares of Preferred Stock
cannot be issued and the Charter can not be amended to change the rights of the
Preferred Stock or to create any class of stock having a preference as to
dividends or assets over the Preferred Stock. Without approval of the holders of
at least a majority of the outstanding shares of Preferred Stock, the Company
cannot create any additional preferred stock with preferences equal to the
Preferred Stock.

Liquidation Rights

Holders of Preferred Stock have a preference of $16.50 per share plus
accrued and unpaid dividends in case of either the voluntary or involuntary
liquidation or dissolution of the Company. No distribution ahead of the
Preferred Stock will be permitted on the Common Stock or any other junior stock
of the Company.

Redemption

Provided that there is no arrearage in the payment of dividends on the
Preferred Stock, the Preferred Stock will be redeemable upon notice, at the
option of the Company, at the following prices per share (plus, in each case,
accrued and unpaid dividends to the date fixed for redemption): (i) $16.70 per
share, if redeemed between July 1, 1997 and June 30, 1998; and (ii) $16.50 per
share, if redeemed after July 1, 1998. No sinking fund is required.

"Put" Option

Holders of Preferred Stock would have a right to require the Company to
purchase their shares of Preferred Stock at $16.50 per share, plus accrued and
unpaid dividends to the date of such purchase, during a 90 day period commending
July 1, 1999.

Conversion Rights

Each share of Preferred Stock is convertible at any time, at the option of
the holder thereof, into 0.825 of a share of Common Stock upon surrender of a
share of Preferred Stock. The conversion right is subject to adjustment in
certain events, including subdivisions or combinations of Common Stock,
declaration of stock dividends, issuance of rights to subscribe for stock or
other securities, change of shares of Common Stock into shares of any other
class or classes of stock, mergers and consolidations. Upon conversion, no
adjustment will be made for cumulative dividends except that any unpaid
dividends will constitute a debt of the Company to the converting stockholder.
No fractional shares will be issued upon conversion, but in lieu thereof the
Company will pay the then market value of any such fraction in cash.

FEDERAL INCOME TAX CONSIDERATIONS

The following summary of material federal income tax considerations
regarding the Company and the Common Stock being registered by the Company is
based on current law. The information set forth below, to the extent that it
constitutes matters of law, or legal conclusions, is the opinion of Herrick,
Feinstein LLP, tax counsel to the Company, as to the material federal income tax
considerations relevant to holders of the Common Stock. This discussion does not
purport to deal with all aspects of taxation that may be relevant to particular
stockholders in light of their personal investment or tax circumstances, or to
certain types of stockholders (including insurance companies, financial
institutions or broker-dealers, tax-exempt organizations, foreign corporations
and persons who are not citizens or residents of the United States), subject to
special treatment under the federal income tax laws. The information in this
section is based on the Code, current, temporary and proposed Treasury
Regulations thereunder, the legislative history of the Code, current

35
<PAGE> 36

administrative interpretations and practices of the IRS (including its practices
and policies as endorsed in private letter rulings, which are not binding on the
IRS except with respect to a taxpayer that receives such a ruling), and court
decisions, all as of the date hereof. The Taxpayer Relief Act of 1997 (the "1997
Act") was enacted on August 5, 1997. The 1997 Act contains provisions which
generally make it easier to operate and to continue to qualify as a REIT for
taxable years beginning after the date of enactment (which, for the Company,
would be applicable commencing with its taxable year beginning January 1, 1998).

EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP
AND SALE OF THE SHARES OF COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.

TAXATION OF THE COMPANY

General. The Company has elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), since
inception. The Company believes that it has been organized and has operated in
such a manner as to qualify for taxation as a REIT under the Code, and the
Company intends to continue to operate in such a manner.

These sections of the Code are technical and complex. The following sets
forth the material aspects of the sections that govern the federal income tax
treatment of a REIT and its stockholders. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof.

In the opinion of Herrick, Feinstein, LLP, the Company has been organized
in conformity with the requirements for qualification as a REIT, and its method
of operation has enabled and will enable it to meet the requirements for
continued qualification and taxation as a REIT under the Code. It must be
emphasized that this opinion is based on various factual assumptions relating to
the organization and operation of the Company, and is conditioned upon certain
representations made by the Company as to factual matters. In addition, this
opinion is based upon the factual representations of the Company concerning its
business and properties as set forth in this Prospectus and assumes that the
actions described in this Prospectus have been completed as described. Moreover,
such qualification and taxation as a REIT depends upon the Company's ability to
meet, through actual annual operating results, distribution levels and diversity
of stock ownership, the various qualification tests imposed under the Code
discussed below, the results of which have not been and will not be reviewed by
Herrick, Feinstein, LLP. Accordingly, no assurance can be given that the actual
results of the Company's operation for any particular taxable year will satisfy
such requirements. Further, the anticipated income tax treatment described in
this Prospectus may be changed, perhaps retroactively, by legislative or
administrative action at any time. See "Failure to Qualify."

If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a corporation. However, the Company will be subject to federal
income tax as follows: first, the Company will be taxed at regular corporate
rates on any undistributed REIT taxable income, including undistributed net
capital gains. Second, under certain circumstances, the Company may be subject
to the "alternative minimum tax" on its terms of tax preference. Third, if the
Company has (i) net income from the sale or other disposition of "foreclosure
property" which is held primarily for sale to customers in the ordinary cause of
business or (ii) other nonqualifying income from foreclosure property, it will
be subject to tax at the highest corporate rate on such income. Fourth, if the
Company has net income from prohibited transactions (which are, in general,
certain sales or other dispositions of property held primarily for sale to
customers in the ordinary course of business other than foreclosure property),
such income will be subject to a 100% tax. Fifth, if the Company should fail to
satisfy the 75% gross income test or the 95% gross income test (as discussed
below), but has nonetheless maintained its qualification as a REIT because
certain other requirements have

36
<PAGE> 37

been met, it will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which the Company fails the
75% or 95% test multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed.

Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 859 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which is owned, directly or constructively, by
five or fewer individuals (as defined in the Code to include certain entities);
and (7) which meets certain other tests, described below, regarding the nature
of its income and assets. The Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of twelve months, or
during a proportionate part of a taxable year of less than twelve months. For
purposes of conditions (5) and (6), pension funds and certain other tax-exempt
entities are treated as individuals, subject to a "look-through" exception in
the case of condition (6).

The Company has satisfied condition (5) and believes that it has issued
sufficient shares to allow it to satisfy condition (6). In addition, the
Company's charter provides for restrictions regarding ownership and transfer of
shares, which restrictions are intended to assist the Company in continuing to
satisfy the share ownership requirements described in (5) and (6) above. These
restrictions may not ensure that the Company will, in all cases, be able to
satisfy the share ownership requirements described above, primarily (though not
exclusively) as a result of fluctuations in value among the different classes of
the Company's capital stock. If the Company fails to satisfy such share
ownership requirements, the Company's status as a REIT will terminate. See
"Failure to Qualify".

In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company has and will continue to have a
calendar taxable year.

Ownership of Subsidiaries. The Company owns certain of its Properties
through subsidiaries. Code Section 856(i) provides that a corporation which is a
"qualified REIT subsidiary" (defined as any corporation if 100 percent of the
stock of such corporation is held by the REIT at all times during the period
such corporation was in existence) shall not be treated as a separate
corporation, and all assets, liabilities, and items of income, deduction, and
credit of a "qualified REIT subsidiary" shall be treated as assets, liabilities
and such items of income, etc. (as the case may be) of the REIT. Each of the
Company's subsidiaries qualify as "qualified REIT subsidiaries" within the
meaning of the Code. Thus, in applying the requirements described herein, the
Company's subsidiaries are ignored, and all assets, liabilities and items of
income, deduction and credit of such subsidiaries are treated as assets,
liabilities and items of income, deduction, and credit of the Company.

Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing). Third, for taxable years beginning on or before August 5, 1997,
short-term gain from the sale or other disposition of stock or securities, gain
from prohibited transactions, and gain on the sale or other disposition of real
property held for less than four years (apart from

37
<PAGE> 38

involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Company's gross income (including gross income from prohibited
transactions) for each taxable year.

Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an actual or constructive owner of 10% or more of
the REIT, actually or constructively owns 10% or more of such tenant (a "Related
Party Tenant"). For the Company's taxable year which begins on January 1, 1998
and for all taxable years thereafter, only partners who own 25% or more of the
capital or profits interest in a partnership are included in the determination
of whether a tenant is a "Related Party Tenant." Third, if rent attributable to
personal property, leased in connection with a lease of real property, is
greater than 15% of the total rent received under the lease, then the portion of
rent attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the REIT generally must not operate or manage the property or furnish or render
services to the tenants of such property, other than through an independent
contractor from whom the REIT derives no revenue. The REIT may, however,
directly perform certain services that are "usually or customarily rendered" in
connection with the rental of space for occupancy only and are not otherwise
considered "rendered to the occupant" of the property. The Company has not and
will not (i) charge rent for any property that is based in whole or in part on
the income or profits of any person (except by reason of being based on a
percentage of receipts or sales, as described above), (ii) rent any property to
a Related Party Tenant (unless the Board of Directors determines in its
discretion that the rent received from such Related Party Tenant is not material
and will not jeopardize the Company's status as a REIT), (iii) derive rental
income attributable to personal property (other than personal property leased in
connection with the lease of real property, the amount of which is less than 15%
of the total rent received under the lease), or (iv) perform services considered
to be rendered to the occupant of the property, other than through an
independent contractor from whom the Company derives no revenue.

For taxable years of the Company beginning after August 5, 1997, if the
Company provides services to a tenant that are other than those usually or
customarily provided in connection with the rental of space for occupancy only,
amounts received or accrued by the Company for any such services will not be
treated as "rents from real property" for purposes of the REIT gross income
tests but will not cause other amounts received with respect to the property to
fail to be treated as "rents from real property" if the amounts received in
respect of such services, together with amounts received for certain management
services, do not exceed 1% of all amounts received or accrued by the Company
during the taxable year with respect to such property. If the 1% threshold is
exceeded, then all amounts received or accrued by the Company with respect to
the property will not qualify as "rents from real property," even if the
impermissible services are provided to some, but not all, of the tenants of the
property.

If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its federal income tax
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. If these relief provisions are inapplicable to a particular set of
circumstances involving the Company, the Company will not qualify as a REIT. As
discussed above in "Taxation of the Company - General," even if these relief
provisions apply, a tax would be imposed with respect to the excess net income.
No similar mitigation provision provides relief if the Company fails the 30%
gross income test. In such case, for taxable years beginning before January 1,
1998, the Company would cease to qualify as a REIT.

Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of business will be treated as income from a prohibited
38
<PAGE> 39

transaction that is subject to a 100% penalty tax. Such prohibited transaction
income may also have an adverse effect upon the Company's ability to satisfy the
income tests for qualification as a REIT. Under existing law, whether property
is held as inventory or primarily for sale to customers in the ordinary course
of a trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Company holds it
Properties for investment with a view to long-term appreciation, engages in the
business of acquiring, owning, and operating the Properties and makes occasional
sales of Properties consistent with its investment objectives. There can be no
assurance, however, that the IRS might not contend that one or more of such
sales is subject to the 100% penalty tax.

Asset Tests. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets. First,
at least 75% of the value of the Company's total assets must be represented by
real estate assets, cash, cash items and government securities. Second, not more
than 25% of the Company's total assets may be represented by securities other
than those in the 75% asset class. Third, of the investments included in the 25%
asset class, the value of any one issuer's securities owned by the Company may
not exceed 5% of the value of the Company's total assets and the Company may not
own more than 10% of any one issuer's outstanding voting securities.

After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company has maintained and will continue to maintain adequate
records of the value of its assets to ensure compliance with the asset tests and
to take such other actions within the 30 days after the close of any quarter as
may be required to cure any noncompliance. If the Company fails to cure
noncompliance with the asset tests within such time period, the Company would
cease to qualify as a REIT.

Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of non cash income. Such distributions must be paid in the taxable year to
which they relate, or in the following taxable year if declared before the
Company timely files its tax return for such year and if paid on or before the
first regular dividend payment after such declaration. To the extent that the
Company does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax thereon at regular ordinary and capital gain corporate tax rates.
The Company has made and intends to make timely distributions sufficient to
satisfy these annual distribution requirements.

For the Company's taxable year beginning on January 1, 1998 and for all
taxable years thereafter, undistributed capital gains may be so designated by
the Company and are includable in the income of the holders of Common Shares.
Such holders are treated as having paid the capital gains tax imposed on the
Company on the designated amounts included in their income as long-term capital
gains. Such shareholders would receive an increase in their basis for income
recognized and a decrease in their basis for taxes paid by the Company. See
"Taxation of Taxable U.S. Shareholders."

Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to stockholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.

Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, the Company would be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed.

39
<PAGE> 40

FAILURE TO QUALIFY

If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. As a result, the Company's failure to qualify as a REIT
would reduce the cash available for distribution by the Company to its
stockholders. In addition, if the Company fails to qualify as a REIT, all
distributions to stockholders will be taxable as ordinary income, to the extent
of the Company's current and accumulated earnings and profits, and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief.

TAXATION OF TAXABLE U.S. STOCKHOLDERS

As used herein, the term "U.S. Stockholder" means a holder of shares of
Common Stock who (for United States federal income tax purposes) (i) is a
citizen or resident of the United States, (ii) is a corporation, partnership, or
other entity created or organized in or under the laws of the United States or
of any political subdivision thereof, or (iii) is an estate or trust the income
of which is subject to United States federal income taxation regardless of its
source.

As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
U.S. Stockholders as ordinary income. Such distributions will not be eligible
for the dividends-received deduction in the case of U.S. Stockholders that are
corporations. For purposes of determining whether distributions to holders of
Common Stock are of out of current accumulated earnings and profits, the
earnings and profits of the Company will be allocated first to the Preferred
Stock (to the extent of the preferred distribution on such stock), then to the
Common Stock.

Distributions made by the Company that are properly designated by the
Company as capital gain dividends will be taxable to taxable U.S. Stockholders
as long-term capital gains (to the extent that they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period for
which a U.S. Stockholder has held his shares of stock. U.S. Stockholders that
are corporations may, however, be required to treat up to 20% of certain capital
gain dividends as ordinary income.

To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Stockholder, reducing the adjusted basis which such U.S.
Stockholder has in his shares of stock for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of a U.S.
Stockholder's adjusted basis in his shares taxable as capital gains (provided
that the shares have been held as a capital asset). Dividends declared by the
Company in October, November, or December of any year and payable to a
stockholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the stockholder on December 31 of such
year, provided that the dividend is actually paid by the Company on or before
January 31 of the following calendar year. Stockholders may not include in their
own income tax returns any net operating losses or capital losses of the
Company.

For taxable years of the Company beginning after August 5, 1997, U.S.
shareholders holding shares at the close of the Company's taxable year will be
required to include, in computing their long-term capital gains for the taxable
year in which the last day of the Company's taxable year fails, such amounts as
the Company may designate in a written notice mailed to its shareholders. The
Company may not designate amounts in excess of the Company's undistributed net
capital gain for the taxable year. Each U.S. shareholder required to include
such a designated amount in determining such shareholder's long-term capital
gains will be deemed to have paid, in the taxable year of the inclusion, the tax
paid by the Company in respect of such undistributed net capital gains. U.S.
shareholders subject to these rules will be allowed a credit or a refund, as the
case may be, for the tax deemed to have been paid by such shareholders. U.S.
shareholders will increase their basis in their Shares by the difference between
the amount of such includable gains and the tax deemed paid by the shareholder
in respect of such gains.

40
<PAGE> 41

THE OFFER

The Company is issuing offers to holders of record of its Common Stock and
Preferred Stock at the close of business on March 24, 1998 (the "Record Date")
non-transferable Rights ("Rights") to subscribe for and purchase shares of
Common Stock at the subscription price set forth on the cover page of this
Prospectus (the "Subscription Price") pursuant to the Basic Subscription
Privilege and Over-Subscription Privilege described below.

RIGHTS TO BE ISSUED

Holders of Common Stock and Preferred Stock on the Record Date will receive
one Right with respect to each share held.

Rights Certificates: Rights to subscribe are evidenced by non-transferable
Rights Certificates, each Certificate evidencing the total number of Rights to
which the holder is entitled. Rights Certificates may not be transferred and
Rights may not be divided or combined.

Expiration Date: The Rights expire on 5:00 PM New York City time, on June
15, 1998 (the "Expiration Date"). To subscribe, the Rights Certificates and
payment must be received by the Subscription Agent, at its offices at:

<TABLE>
<S> <C> <C>
By Overnight
Express Delivery,
By Hand Delivery or First By Facsimile Transmission:
Class Mail: American Stock Transfer &
American Stock Transfer & Trust Company
Trust Company Reorganization Department
Reorganization Department (718)234-5001
40 Wall Street 46th Floor
New York, NY 10005
</TABLE>

(the "Offices"), not later than 5:00 PM New York City time, on the Expiration
Date. Rights Certificate holders who elect to send their Certificates to the
Subscription Agent by mail should allow adequate time for actual receipt prior
to the time specified above. Rights Certificates received by the Subscription
Agent at the Offices after 5:00 PM New York City time, on the Expiration Date,
will not be accepted and will be returned except under the circumstances
described under "Exercise and Payment." Payment may also be wired to Chase
Manhattan Bank, 55 Water Street, New York, N.Y., ABA #021000021, Account
323836925 provided it is received prior to the Expiration Date and a completed
Rights Certificate is received at one of the Offices prior to 5:00 PM on the
Expiration Date.

OVER-SUBSCRIPTION PRIVILEGE

A holder who exercises his Rights may oversubscribe at the Subscription
Price for up to two additional shares of Common Stock for each share of Common
Stock purchased by the holder under the Basic Subscription Privilege.
("Over-Subscription Privilege"). Common Stock will be available for purchase
pursuant to the Over-Subscription Privilege, if any, to the extent that the
maximum of 2,383,670 shares of Common Stock are not subscribed for through the
exercise of Rights by the Expiration Date. If the shares of Common Stock so
available are not sufficient to satisfy all subscriptions pursuant to the
Over-Subscription Privilege, the available shares of Common Stock will be
allocated pro rata among the holders of Rights who exercise the
Over-Subscription Privilege based upon the proportion that the number of Rights
exercised by each holder of Rights who exercises his Over-Subscription Privilege
bears to the aggregate number of Rights exercised by all holders of Rights who
exercise their Over-Subscription Privilege.

EXERCISE AND PAYMENT

Rights to subscribe may be exercised by filling in Section 1 and Section 3
on the reverse side of the Rights Certificate, signing at the place indicated on
the reverse side of the Rights Certificate and returning the Rights Certificate
together with payment in full for all shares of Common Stock subscribed for by
mail or
41
<PAGE> 42

otherwise to the Subscription Agent at the Offices. Payment in full of the
Subscription Price ($13.25 per Share) must be received at the Office of the
Subscription Agent not later than 5:00 PM New York City time on the Expiration
Date. Except in cases of satisfactory late delivery of Rights Certificates
provided for in the next paragraph, the Rights Certificates being exercised must
accompany such payment. Payment must be made by check, bank draft or money order
and should be made payable to American Stock Transfer & Trust Company or payment
may be made by wire, as set forth above.

If prior to the Expiration Date the Subscription Agent has received the
full Subscription Price, together with a written telegraphic guarantee (use
telefax number) from a bank, trust company or a member of the New York Stock
Exchange, other national securities exchange, or the National Association of
Securities Dealers, Inc. that the Rights Certificate with respect to the Shares
of Common Stock subscribed for has been properly completed and executed and will
be received by the Subscription Agent prior to 5:00 PM New York City time on
June 22, 1998 together with such other supporting material as the Subscription
Agent may request, such subscription will be accepted subject to receipt of the
duly exercised Rights Certificate.

Rights to oversubscribe pursuant to the Over-Subscription Privilege
together with the aggregate subscription price for all shares subscribed for
pursuant to the Over-Subscription Privilege may be exercised by completing
Section 2 of the Rights Certificate at the time the Rights are exercised.

All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of any subscription (including any subscription pursuant
to the Over-Subscription Privilege) will be determined by the Company, in its
sole discretion, whose determination shall be binding. The Company reserves the
absolute right to reject any subscription (including any subscription pursuant
to the Over-Subscription Privilege) if such subscription is not in proper form
or if the acceptance thereof or the issuance of Common Stock pursuant thereto
could, in the opinion of the Company's counsel, be deemed unlawful. The Company
also reserves the right to waive any defect with regard to any particular
subscription. Neither the Company nor the Subscription Agent shall be under any
duty to give notification of any defects or irregularities in subscriptions, nor
shall any of them incur any liability for failure to give such notification.

Gould Investors L.P. which owns 24.9% of the outstanding shares of Common
Stock as of the Record Date, has agreed to exercise fully to purchase an
aggregate of 392,981 shares of Common Stock. It has also advised the Company
that it will exercise its Over-Subscription Privilege to the extent of 376,250
shares.

EXPERTS

The consolidated financial statements of One Liberty Properties, Inc. as of
December 31, 1997 and 1996 and each of the three years in the period ended
December 31, 1997, and the statement of revenues and certain expenses of 300
Gold Street for the year ended December 31, 1997, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.

LEGAL MATTERS

The validity of the Common Stock offered in connection with the Rights
Offering have been passed upon by Brinberg and Lundy, 60 Cutter Mill Road, Great
Neck, NY. Simeon Brinberg and Mark Lundy, partners of Brinberg and Lundy, are
officers and stockholders of the Company.

INDEMNIFICATION

The Company's Articles of Incorporation and By-laws provide that each
director, officer and employee of the Company shall be indemnified by the
Company to the full extent permitted by the General Laws of the State of
Maryland, now or hereafter in force. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to directors, officers
or persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
42
<PAGE> 43

Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-11 (together with any amendments thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the shares of Common Stock offered hereby. For further information with respect
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement and to the exhibits and schedules filed therewith. The
Registration Statement, including exhibits and schedules thereto, may be
inspected at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part
thereof may be obtained from such office upon payment of the prescribed fees.
Statements contained in this Prospectus or in any document incorporated in this
Prospectus by reference as to the contents of any contract, agreement or other
document referred to herein or therein are not necessarily complete. With
respect to each such contract, agreement or other document filed with the
Commission as an exhibit, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 ("Exchange Act") and in accordance therewith files reports,
proxy statements, and other information with the Securities and Exchange
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington DC 20549, 7 World Trade Center,
New York, NY 10048, and 500 West Madison Street, Chicago, Illinois 60661-2511.
Copies of such materials can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, DC 20549 at prescribed
rates. Such reports, proxy statements and other information can also be
inspected at the office of the American Stock Exchange, 86 Trinity Place, New
York, NY 10006. The Company is an electronic filer. The Commission contains a
web site that contains reports, proxy statements and other information regarding
the Company at http://www.sec.gov.

43
<PAGE> 44

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ONE LIBERTY PROPERTIES, INC.
Report of Independent Auditors............................ F-1
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-2
Consolidated Statements of Income For The Three Years
Ended December 31, 1997................................ F-3
Consolidated Statements of Stockholders' Equity For The
Three Years Ended December 31, 1997.................... F-4
Consolidated Statements of Cash Flows For The Three Years
Ended December 31, 1997................................ F-5 to F-6
Notes to Consolidated Financial Statements, December 31,
1997................................................... F-7 to F-15
Schedule of Consolidated Real Estate and Accumulated
Depreciation at December 31, 1997...................... F-16 to F-17
Schedule of Mortgage Loans on Real Estate at December 31,
1997................................................... F-18 to F-19
ProForma Condensed Consolidated Balance Sheet as of
December 31, 1997 (Unaudited).......................... F-20
ProForma Condensed Consolidated Statement of Income For
the Year Ended December 31, 1997 (Unaudited)........... F-21
Notes to ProForma Financial Statements (Unaudited)........ F-22

300 GOLD STREET
Report of Independent Auditors............................ F-23
Statement of Revenues and Certain Expenses For the Year
Ended December 31, 1997................................ F-24
Notes to Statement of Revenues and Certain Expenses....... F-25
</TABLE>

44
<PAGE> 45

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
One Liberty Properties, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of One Liberty
Properties, Inc. and Subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. Our audits also included the financial statement schedules listed in the
Index to Financial Statements included in the Prospectus. These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
One Liberty Properties, Inc. and Subsidiaries at December 31, 1997 and 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.

New York, New York
February 18, 1998
ERNST & YOUNG LLP

F-1
<PAGE> 46

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS

Real estate investments, at cost (Notes 3, 4, and 6)
Land...................................................... $12,210,147 $11,040,590
Buildings................................................. 38,641,419 33,695,317
----------- -----------
50,851,566 44,735,907
Less accumulated depreciation.......................... 2,534,582 1,846,694
----------- -----------
48,316,984 42,889,213
Mortgages receivable -- less unamortized
discount -- (substantially all from related parties)
(Notes 5 and 6)........................................... 5,943,450 6,049,033
Cash and cash equivalents................................... 1,606,364 2,478,580
Unbilled rent receivable.................................... 665,052 304,828
Rent, interest, deposits and other receivables.............. 300,584 66,908
Investment in BRT Realty Trust -- (related party) (Note
2)........................................................ 240,384 199,068
Deferred financing costs.................................... 510,123 480,640
Other....................................................... 64,614 54,718
----------- -----------
$57,647,555 $52,522,988
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Mortgages payable (Note 6)................................ $20,545,247 $16,846,921
Note payable -- bank (Note 6)............................. 4,605,029 3,900,000
Accrued expenses and other liabilities.................... 394,459 475,109
Dividends payable......................................... 791,945 765,603
----------- -----------
26,336,680 21,987,633
----------- -----------
Commitments and contingencies (Notes 3 and 7)............... -- --
Minority interest in subsidiary (Note 3).................... -- 141,722
----------- -----------
Redeemable Convertible Preferred Stock, $1 par value; $1.60
cumulative annual dividend; 2,300,000 shares authorized;
808,776 shares issued; liquidation and redemption values
of $16.50 (Note 7)........................................ 13,106,970 12,950,792
----------- -----------
Stockholders' equity (Notes 6,9,10 and 11):
Common Stock, $1 par value; 25,000,000 shares authorized;
1,561,450 and 1,473,642 shares issued and
outstanding............................................ 1,561,450 1,473,642
Paid-in capital........................................... 14,419,609 13,650,737
Net unrealized gain on available-for-sale securities (Note
2)..................................................... 146,706 97,673
Accumulated undistributed net income...................... 2,076,140 2,220,789
----------- -----------
18,203,905 17,442,841
----------- -----------
$57,647,555 $52,522,988
=========== ===========
</TABLE>

See accompanying notes.

F-2
<PAGE> 47

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental income (Note 3)............................... $5,341,491 $4,178,288 $2,665,457
Interest from related parties (Note 5)............... 832,579 1,132,150 1,878,262
Interest and other income............................ 110,739 201,118 347,243
---------- ---------- ----------
6,284,809 5,511,556 4,890,962
---------- ---------- ----------
Expenses:
Depreciation and amortization........................ 1,023,345 712,591 479,645
Interest -- mortgages payable........................ 1,517,126 891,953 453,684
Interest -- bank..................................... 210,305 110,185 --
Leasehold rent....................................... 288,833 288,833 284,394
General and administrative (Note 8).................. 629,420 663,201 576,937
Provision for valuation adjustment of real estate
(Note 4).......................................... -- 659,000 --
---------- ---------- ----------
3,669,029 3,325,763 1,794,660
---------- ---------- ----------
Income before gain on sale of real estate and minority
interest............................................. 2,615,780 2,185,793 3,096,302
Gain on sale of real estate including minority interest
share of $215,336 (Note 3)........................... 599,251 -- --
---------- ---------- ----------
Income before minority interest........................ 3,215,031 2,185,793 3,096,302
Minority interest...................................... (230,839) (11,841) --
---------- ---------- ----------
Net income............................................. $2,984,192 $2,173,952 $3,096,302
========== ========== ==========
Calculation of net income applicable to common
stockholders:
Net income........................................... $2,984,192 $2,173,952 $3,096,302
Less dividends and accretion on preferred stock...... 1,450,220 1,448,359 1,446,519
---------- ---------- ----------
Net income applicable to common stockholders........... $1,533,972 $ 725,593 $1,649,783
========== ========== ==========
Weighted average number of common shares outstanding:
Basic................................................ 1,522,967 1,447,413 1,409,371
========== ========== ==========
Diluted.............................................. 1,529,203 1,459,198 1,423,361
========== ========== ==========
Net income per common share (Notes 2 and 11):
Basic................................................ $1.01 $ .50 $1.17
========== ========== ==========
Diluted.............................................. $1.00 $ .50 $1.16
========== ========== ==========
Cash distributions per share:
Common Stock......................................... $1.20 $1.20 $1.03
========== ========== ==========
Preferred Stock...................................... $1.60 $1.60 $1.60
========== ========== ==========
</TABLE>

See accompanying notes.

F-3
<PAGE> 48

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------
NET UNREALIZED
GAIN (LOSS) ON ACCUMULATED
COMMON PAID-IN AVAILABLE-FOR- UNDISTRIBUTED
STOCK CAPITAL SALE SECURITIES NET INCOME TOTAL
---------- ----------- ---------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1994.... $1,399,119 $13,233,109 $ (34,913) $ 2,730,523 $17,327,838
Net income..................... -- -- -- 3,096,302 3,096,302
Distributions -- Common Stock
($1.03 per share)............ -- -- -- (1,449,397) (1,449,397)
Distributions -- Preferred
Stock ($1.60 per share)...... -- -- -- (1,294,042) (1,294,042)
Accretion on Preferred Stock... -- (152,477) -- -- (152,477)
Exercise of options............ 17,000 138,125 -- -- 155,125
Net unrealized gain on
available-
for-sale-securities (Note
2)........................... -- -- 28,155 -- 28,155
---------- ----------- --------- ----------- -----------
Balances, December 31, 1995.... 1,416,119 13,218,75 (6,758) 3,083,386 17,711,504
Net income..................... -- -- -- 2,173,952 2,173,952
Distributions -- Common Stock
($1.20 per share)............ -- -- -- (1,742,507) (1,742,507)
Distributions -- Preferred
Stock ($1.60 per share)...... -- -- -- (1,294,042) (1,294,042)
Accretion on Preferred Stock... -- (154,317) -- -- (154,317)
Exercise of options............ 23,500 190,937 -- -- 214,437
Shares issued through dividend
reinvestment plan............ 34,023 395,360 -- -- 429,383
Net unrealized gain on
available-for-sale securities
(Note 2)..................... -- -- 104,431 -- 104,431
---------- ----------- --------- ----------- -----------
Balances, December 31, 1996.... 1,473,642 13,650,737 97,673 2,220,789 17,442,841
Net income..................... -- -- -- 2,984,192 2,984,192
Distributions -- Common Stock
($1.20 per share)............ -- -- -- (1,834,799) (1,834,799)
Distributions -- Preferred
Stock ($1.60 per share)...... -- -- -- (1,294,042) (1,294,042)
Accretion on Preferred Stock... -- (156,178) -- -- (156,178)
Exercise of options............ 29,000 235,625 -- -- 264,625
Shares issued through dividend
reinvestment plan............ 58,808 689,425 -- -- 748,233
Net unrealized gain on
available-for-sale securities
(Note 2)..................... -- -- 49,033 -- 49,033
---------- ----------- --------- ----------- -----------
Balances, December 31, 1997.... $1,561,450 $14,419,609 $ 146,706 $ 2,076,140 $18,203,905
========== =========== ========= =========== ===========
</TABLE>

See accompanying notes.

F-4
<PAGE> 49

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 2,984,192 $ 2,173,952 $ 3,096,302
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of real estate...................... (599,251) -- --
(Increase) decrease in rental income from
straightlining of rent......................... (360,224) (218,061) 86,780
Provision for valuation adjustment............... -- 659,000 --
Depreciation and amortization.................... 1,023,345 712,591 479,645
Minority interest in earnings of subsidiary...... 230,839 11,841 --
Changes in assets and liabilities:
Decrease (increase) in rent, interest, deposits
and other receivables....................... (221,508) 611,739 (328,461)
Increase (decrease) in accrued expenses and
other liabilities........................... (80,650) 281,342 (5,123)
------------ ------------ -----------
Net cash provided by operating activities... 2,976,743 4,232,404 3,329,143
------------ ------------ -----------
Cash flows from investing activities:
Additions to real estate............................ (10,058,389) (19,940,571) (3,819,323)
Net proceeds from sale of real estate............... 4,347,429 -- --
Costs of acquisition of real estate and mortgage
receivable from Gould Investors L.P. -- related
party............................................ -- -- (90,514)
Collection of mortgages receivable -- (including
$79,032, $961,789 and $148,291 from related
parties in 1997, 1996 and 1995).................. 105,583 987,108 169,388
Collection of senior secured note receivable -- BRT
Realty Trust -- related party.................... -- 528,575 1,579,618
Sale of U.S. Government obligations and securities,
net.............................................. -- 1,310,553 2,806,713
Investment by minority interest in subsidiary....... -- 167,980 --
Payments to minority interest by subsidiary......... (396,333) (38,099) --
Other............................................... 42,249 (2,248) (14,986)
------------ ------------ -----------
Net cash (used in) provided by investing
activities................................ (5,959,461) (16,986,702) 630,896
------------ ------------ -----------
Cash flows from financing activities:
Proceeds from bank borrowings, net of repayments.... 705,029 3,900,000 --
Proceeds from mortgages payable..................... 5,925,000 10,375,000 2,413,350
Payment of financing costs.......................... (203,212) (392,826) (85,225)
Repayment of mortgages payable...................... (2,226,674) (118,233) (2,806,843)
Exercise of stock options............................. 264,625 214,437 155,125
Cash distributions -- Common Stock.................. (1,808,457) (1,725,250) (1,199,451)
Cash distributions -- Preferred Stock............... (1,294,042) (1,294,042) (1,294,042)
Issuance of shares through dividend reinvestment
plan............................................. 748,233 429,383 --
------------ ------------ -----------
Net cash provided by (used in) financing
activities................................ 2,110,502 11,388,469 (2,817,086)
------------ ------------ -----------
Net (decrease) increase in cash and cash
equivalents......................................... (872,216) (1,365,829) 1,142,953
Cash and cash equivalents at beginning of year........ 2,478,580 3,844,409 2,701,456
------------ ------------ -----------
Cash and cash equivalents at end of year.............. $ 1,606,364 $ 2,478,580 $ 3,844,409
============ ============ ===========
</TABLE>

See accompanying notes.

F-5
<PAGE> 50

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
---------- -------- -----------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for interest expense....... $1,727,603 $914,506 $ 467,116
Cash paid during the year for income taxes........... 17,058 58,437 43,784
Supplemental schedule of noncash investing and
financing activities:
Acquisition of real estate and mortgage receivable
from Gould Investors L.P., a related party........ -- -- (9,861,729)
Consideration for acquisition from Gould Investors
L.P.:
Extinguishment of mortgage receivable............. -- -- 6,850,000
Transfer of BRT preferred stock................... -- -- 2,455,355
Transfer of BRT common stock...................... -- -- 556,374
</TABLE>

See accompanying notes.

F-6
<PAGE> 51

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1997

NOTE 1 -- ORGANIZATION AND BACKGROUND

One Liberty Properties, Inc. (the "Company") was incorporated in 1982 in
the state of Maryland. The Company is a self-managed Real Estate Investment
Trust ("REIT") which currently participates in net leasing transactions and has
engaged in other real property transactions and invested in real property
mortgages.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of One Liberty
Properties, Inc., its wholly-owned subsidiaries and a majority-owned limited
liability company (see Note 3). Material intercompany items and transactions
have been eliminated. One Liberty Properties, Inc., its subsidiaries and the
limited liability company are hereinafter referred to as the Company.

RECLASSIFICATION OF FINANCIAL STATEMENTS

Certain amounts reported in previous consolidated financial statements have
been reclassified in the accompanying consolidated financial statements to
conform to the current year's presentation.

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

INCOME RECOGNITION

Rental income includes the base rent that each tenant is required to pay in
accordance with the terms of their respective leases reported on a straight-line
basis over the initial term of the lease. Mortgage receivable discount is
amortized over the remaining life, utilizing the interest method, based on the
Company's evaluation of the collectibility of the carrying amount of the
mortgage.

DEPRECIATION

Depreciation of buildings is computed on the straight-line method over an
estimated useful life of 40 years for commercial properties and 27 and one half
years for residential properties.

DEFERRED FINANCING COSTS

Mortgage and credit line costs are deferred and amortized on a
straight-line basis over the terms of the respective debt obligations.

FEDERAL INCOME TAXES

The Company has qualified as a real estate investment trust under the
applicable provisions of the Internal Revenue Code. Under these provisions, the
Company will not be subject to federal income taxes on amounts distributed to
stockholders providing it distributes substantially all of its taxable income
and meets certain other conditions.

Distributions made during 1997 included approximately 3% attributable to
capital gains, with the balance to ordinary income. All distributions made
during 1996 were attributable to ordinary income.

F-7
<PAGE> 52
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INVESTMENTS IN DEBT AND EQUITY SECURITIES

In accordance with Statement of Financial Accounting Standards #115,
Accounting for Certain Investments in Debt and Equity Securities, the Company
accounts for its investment in common shares of BRT Realty Trust ("BRT"), a
related party of the Company, at fair value as "available-for-sale" securities.

The Company's investment in 30,048 common shares of BRT (accounting for
less than 1% of the total voting power of BRT), purchased at a cost of $97,656
has a fair market value at December 31, 1997 of $240,384 resulting in an
unrealized holding gain of $142,728. In addition, the Company has invested
$33,194 in equity securities which have a fair market value of $37,172 at
December 31, 1997. The aggregate net unrealized holding gain of $146,706 is
excluded from earnings and reported as a separate component of stockholders'
equity.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

Mortgages receivable: Two mortgage loans of the Company with
outstanding balances aggregating $290,038 are currently fixed at interest
rates which approximate market. Accordingly, these balances approximate
their fair values. The remaining mortgage loan was purchased by the Company
at a discount, which is being amortized by the Company over the life of the
mortgage. The Company expects to receive a yield to maturity of
approximately 14.5%. The Company estimates the fair value of the loan to
approximate its face amount of $7,974,030 at December 31, 1997. The loan is
being carried on the balance sheet at $5,653,412, the difference
representing the remaining unamortized discount of $2,320,618.

Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.

Investment in BRT Realty Trust: Since this investment is considered
"available-for-sale", it is reported in the balance sheet based upon quoted
market price.

Note and mortgages payable: The Company determined the estimated fair
value of its debt by discounting future cash payments at their effective
rates of interest, which approximate current market rates of interest for
similar loans. Accordingly, there is no material difference between their
carrying amount and fair value.

Redeemable convertible preferred stock: Based on the December 31,
1997 quoted market price per share of $16.875, the fair value of the
Company's redeemable convertible preferred stock is $13,648,095.

ACCRETION ON PREFERRED STOCK

The Company has Preferred Stock outstanding which is both redeemable and
convertible. The stock was initially recorded in the financial statements at its
fair value based upon the initial average trades on the American Stock Exchange.
The amount by which the redemption value exceeds the carrying value is being
accreted using the interest method over the life of the redemption period.

EARNINGS PER COMMON SHARE

In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously

F-8
<PAGE> 53
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where appropriate, restated to conform to
the Statement 128 requirements.

For the years ended December 31, 1997, 1996 and 1995, basic earnings per
share was determined by dividing net income applicable to common stockholders
for the year by the weighted average number of shares of Common Stock
outstanding during each year.

Diluted earnings per share reflects the potential dilution that could occur
if securities or other contracts to issue Common Stock were exercised or
converted into Common Stock or resulted in the issuance of Common Stock that
then shared in the earnings of the Company. For the years ended December 31,
1997, 1996 and 1995 diluted earnings per share was determined by dividing net
income applicable to common stockholders for the year by the total of the
weighted average number of shares of Common Stock outstanding plus the dilutive
effect of the Company's outstanding options (6,236, 11,785 and 13,990 for the
years ended 1997, 1996 and 1995, respectively) using the treasury stock method.
The Preferred Stock was not considered for the purpose of computing diluted
earnings per share because their assumed conversion is antidilutive. See Note 11
for information regarding a Registration Statement filed February 1998 by the
Company with the Securities and Exchange Commission with respect to a rights
offering to be made to its shareholders.

CASH AND CASH EQUIVALENTS

Cash equivalents consist of highly liquid investments with maturities of
three months or less when purchased.

VALUATION ALLOWANCE ON REAL ESTATE OWNED

During the year ended December 31, 1996, the Company adopted Statement of
Financial Accounting Standards Board No. 121 ("FASB 121"), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires the Company to make a review of each real estate asset held for
use for which indicators of impairment are present, to determine whether the
carrying amount of the asset will be recovered. Recognition of impairment is
required if the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Measurement is based upon the
fair market value of the asset. FASB 121 also requires that long-lived assets
that are expected to be disposed of be reported at the lower of carrying amount
or fair value less costs to sell.

SEGMENT REPORTING

In June, 1997 the Financial Accounting Standards Board issued Statement No.
131, Disclosure About Segments of an Enterprise and Related Information, which
is effective for financial statements issued for periods beginning after
December 15, 1997. Statement No. 131 requires disclosures about segments of an
enterprise and related information regarding the different types of business
activities in which an enterprise engages and the different economic
environments in which it operates. The Company does not believe that the
implementation of Statement No. 131 will have a material impact on its financial
statements.

NOTE 3 -- REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS

The rental properties owned at December 31, 1997 are leased under
noncancellable operating leases to corporate tenants with current expirations
ranging from 1999 to 2051, with certain tenant renewal rights. All lease
agreements are net lease arrangements which require the tenant to pay not only
rent but all the expenses of the leased property including maintenance, taxes,
utilities and insurance. Certain lease agreements provide for periodic rental
increases and others provide for increases based on the consumer price index.

F-9
<PAGE> 54
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The minimum future rentals to be received over the next five years on the
operating leases in effect at December 31, 1997 are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1998................................................. $5,600,644
1999................................................. 5,675,774
2000................................................. 5,659,776
2001................................................. 5,694,085
2002................................................. 5,595,962
</TABLE>

Included in the minimum future rentals are rentals from a property owned in
fee by an unrelated third party. The Company pays annual fixed leasehold rent of
$288,833 through April 2010 and has a right to extend the lease for up to three
15 year and one 14 year renewal options.

At December 31, 1997, the Company has recorded an unbilled rent receivable
aggregating $665,052, representing rent reported on a straight-line basis in
excess of rental payments required under the initial term of the respective
leases. This amount is to be billed and received pursuant to the lease terms
over the next twenty years. The minimum future rentals presented above include
amounts applicable to the repayment of these unbilled rent receivables.

For the year ended December 31, 1997, the following assets generated
revenues for the Company in amounts exceeding 10% of the Company's total
revenues:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
---------------------------------
DESCRIPTION REVENUE % OF TOTAL REVENUES
- ----------- ---------- -------------------
<S> <C> <C>
Mortgage receivable -- related party(a)................ $ 832,579 13.25%
Total Petroleum properties(b).......................... 1,092,606 17.38%
</TABLE>

- ---------------
(a) See note 5 -- Mortgages Receivable (i) for other information.

(b) Total Petroleum, an operator of combination gas station and retail
convenience stores, is a tenant in thirteen of the Company's properties, all
located in the State of Michigan.

In connection with the Total Petroleum lease agreement in 1991, the Company
deposited $2,000,000 with an independent escrow agent, which represented the
estimated maximum amount to remediate environmental problems discovered at
certain locations. The agreement limits the maximum payment to approximately
$350,000 per location. At December 31, 1997, there are two locations which
require additional remediation efforts. The Company believes the approximate
$781,000 held by the escrow agent will be adequate to cover any additional
environmental costs.

SALE OF REAL ESTATE

On August 5, 1997, the property owned by a limited liability company in
which the Company was a majority member was sold and the limited liability
company was liquidated. A gain of approximately $599,000 was realized on the
sale. The Company's share of the gain is approximately $384,000 after deducting
the minority interest portion.

NOTE 4 -- PROVISION FOR VALUATION ADJUSTMENT

At December 1996, the Company owned five retail properties which had been
leased to a retail chain of stores. The initial term with respect to the leases
expired on December 31, 1996. As of December 31, 1996 two of these properties
were under contract of sale (both sales closed during 1997) and three were
vacant (two are still vacant). The Company is actively seeking a buyer or tenant
for the two vacant properties.

F-10
<PAGE> 55
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1996 the Company recorded a provision for valuation
adjustment on the two properties which were under contract of sale based on the
sales prices. In addition, the Company had determined that the estimated fair
value of the three vacant properties were lower than their carrying amounts and
thus, the Company had taken a provision for the differences. The total provision
taken on these five properties during the year ended December 31, 1996 which
amounted to $659,000 had been presented as a reduction to real estate
investments on the balance sheet.

NOTE 5 -- MORTGAGES RECEIVABLE AND PRINCIPAL RELATED PARTY TRANSACTION

Mortgages receivable at December 31, 1997 and 1996 consist of the
following:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Affiliate
Entity substantially owned by Gould Investors L.P. (net of
unamortized discount of $2,320,618 and $2,654,818)(i)..... $5,653,412 $5,732,445
Non-affiliate
Other..................................................... 290,038 316,588
---------- ----------
$5,943,450 $6,049,033
========== ==========
</TABLE>

Annual maturities of mortgages receivable during the next five years and
thereafter are summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1998................................................... $ 768,574
1999................................................... 508,251
2000................................................... 532,820
2001................................................... 555,355
2002................................................... 567,871
2003 and thereafter.................................... 5,331,197
----------
Total............................................. 8,264,068
Less: Unamortized discount.................................. 2,320,618
----------
Net carrying amount -- mortgages receivable................. $5,943,450
==========
</TABLE>

- ---------------
(i) On July 30, 1993, as a result of a public auction, the Federal Deposit
Insurance Corporation sold to an entity related to the Company, for a
consideration of $19,000,300, a $23,000,000 first mortgage, providing for an
interest rate of 8% per annum, secured by a single tenant office building
located in Manhattan, New York. The office building which secures this
mortgage is owned by a partnership in which Gould Investors L.P. ("Gould")
is General Partner and in which Gould owns substantially all of the
partnership interests. Simultaneously with the purchase, $13,181,000 was
advanced by an unrelated party, $6,080,000 (which includes closing costs)
was advanced by the Company, and the mortgage was severed into a first
mortgage of $13,181,000 paying interest at 9 1/2% per annum held by the
unrelated party and a subordinate wrap mortgage of $9,819,000 held by the
Company. Both the first mortgage and the wrap mortgage mature in 2005 at
which time the first mortgage will be fully amortized and the wrap mortgage
will have a principal balance of approximately $4,000,000. The Company
receives monthly principal and interest payments of $79,318 and at December
31, 1997 and 1996 its principal balance had been reduced to approximately
$7,974,000 and $8,387,000, respectively. The original discount of $3,738,400
is being amortized by the Company over the life of the mortgage. The Company
expects to receive a yield to maturity of approximately 14.5%. Interest
income, including amortization of the discount of $334,200, $327,600 and
$319,500, amounted to $832,579, $848,200 and $861,750 for the years ended
1997, 1996 and 1995, respectively.

The building which secures the first mortgage and the wrap mortgage is
leased in its entirety to the City of New York. The lease expires in 2005 with
an option to renew for an additional five years and provides the

F-11
<PAGE> 56
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

City with a limited right of termination. The first mortgage and the wrap
mortgage are nonrecourse to the owner of the building. The transaction was
approved by the independent directors of the Company. The directors who are
affiliated with the Company and Gould abstained from voting on the transaction.

At December 31, 1997 and 1996 Gould owned 384,462 and 542,825 shares of the
common stock of the Company or 24.6% and 36.8% of the equity interest and 19.6%
and 28.9% of the voting rights, respectively.

NOTE 6 -- DEBT OBLIGATIONS

MORTGAGES PAYABLE

At December 31, 1997 there are nine outstanding mortgages payable, all of
which are secured by individual real estate investments with an aggregate
carrying value of $33,163,742 before accumulated depreciation. The mortgages
bear interest at rates ranging from 7.3% to 9.1%, and mature between 1999 and
2017.

Scheduled principal repayments during the next five years and thereafter
are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1998.................................................. $ 281,128
1999.................................................. 4,237,515
2000.................................................. 1,139,019
2001.................................................. 255,795
2002.................................................. 1,559,362
2003 and thereafter................................... 13,072,428
-----------
Total.............................................. $20,545,247
===========
</TABLE>

NOTE PAYABLE -- BANK

On March 1, 1996 the Company entered into a $5 million revolving credit
agreement ("Credit Agreement") with Bank Leumi Trust Company of New York ("Bank
Leumi"). Under the terms of the Credit Agreement the Company can add additional
lenders to provide a maximum total facility of $15,000,000. In June 1997, the
Company closed on a $4,000,000 participation interest with Commercial Bank of
New York (formerly First Bank of the Americas), increasing the total facility to
$9,000,000. Borrowings under the Credit Agreement are being used to provide the
Company with funds, when needed, to acquire additional properties. The Credit
Agreement matures February 28, 1999 with a right for the Company to extend the
Credit Agreement until February 29, 2000. The Company pays interest under the
Credit Agreement at the rate of prime plus 1/2% on funds borrowed on an
interest only basis, plus a 1/4% servicing fee on the outstanding balance to
Bank Leumi. Net proceeds of certain events (e.g. sale of property, financing of
properties) must be applied to reduce the loan.

As collateral for any advances taken by the Company under the Credit
Agreement, the Company has pledged the stock of each of its subsidiaries and
certain mortgages receivable. In addition, the Company's subsidiaries have
guaranteed all loans under the Credit Agreement. The Credit Agreement contains
certain affirmative and negative convenants as well as specified guarantees. The
Company has agreed to maintain at least $250,000 on deposit with Bank Leumi and
is in compliance with all requirements.

At December 31, 1997, $4,605,029 was outstanding under the Credit
Agreement.

NOTE 7 -- REDEEMABLE CONVERTIBLE PREFERRED STOCK

The Preferred Stock has the following rights, qualifications and
conditions: (i) a cumulative dividend preference of $1.60 per share per annum;
(ii) a liquidation preference of $16.50 per share; (iii) a right to convert each
share of Preferred Stock at any time into .825 of a share of Common Stock; (iv)
redeemable by

F-12
<PAGE> 57
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Company after July 1, 1997 at $16.70 per share and at premiums declining to
$16.50 on July 1, 1998 and thereafter; (v) an option by each preferred holder to
put the Preferred Stock to the Company at $16.50 per share for the period
commencing July 1, 1999 and ending on September 28, 1999; and (vi) one-half vote
per share.

NOTE 8 -- OTHER RELATED PARTY TRANSACTIONS

Gould charged the Company $179,260, $175,969, $210,357 during the years
ended December 31, 1997, 1996 and 1995, respectively, for allocated general and
administrative expenses and payroll based on time incurred by various employees.

A company controlled by certain directors and officers of the Company was
paid mortgage brokerage fees of $24,134 during the year ended December 31, 1995.

See Note 5 for other related party transaction information.

NOTE 9 -- STOCK OPTIONS

On December 6, 1996, the directors of the Company adopted the 1996 Stock
Option Plan (Incentive/Nonstatutory Stock Option Plan), whereby a maximum of
125,000 shares of common stock of the Company are reserved for issuance to
employees, officers, directors, consultants and advisors to the Company.
Incentive stock options are granted at per share amounts at least equal to their
fair market value at the date of grant, whereas for nonstatutory stock options
the exercise price may be any amount determined by the Board of Directors. The
options will expire no later than ten years after the date on which the option
was granted.

On March 21, 1997, the Directors of the Company granted, under the 1996
Stock Option Plan, options to purchase a total of 40,500 shares of common stock
at $13.50 per share to a number of the Company's officers and employees. The
options are cumulatively exercisable at a rate of 25% per annum, commencing
after six months, and expire five years after the date of grant. At December 31,
1997 options to purchase 10,125 shares are exercisable, none of which have been
exercised.

On November 17, 1989, the directors of the Company granted, under the 1989
Stock Option Plan, options to purchase a total of 110,000 shares of Common Stock
at $11 per share to a number of the Company's officers and employees. In 1994,
one officer exercised 20,000 of these options and the balance expired. On June
6, 1991, the directors of the Company granted to each of the three independent
directors of the Company an option to purchase 5,000 shares of Common Stock at
$9.125 per share. During 1995 and 1996, two directors exercised 10,000 of these
options and during 1996 the remaining 5,000 options expired. On March 4, 1993,
the Board of Directors granted, also under the 1989 Stock Option Plan, options
to purchase a total of 100,000 common shares at $9.125 per share to a number of
officers and employees of the Company. At December 31, 1997, all 100,000 options
had been exercised.

Stock options under the 1989 Stock Option Plan are granted at per share
amounts at least equal to their fair market value at the date of grant. The
options are cumulatively exercisable at a rate of 25% per annum and expire five
years after the date of grant. A maximum of 225,000 common shares were reserved
for issuance under the 1989 Stock Option Plan, of which 95,000 are available for
grant at December 31, 1997.

The Company elected Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), and related interpretations in
accounting for its employee stock options. Under APB 25, no compensation expense
is recognized because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant. The
alternative fair value accounting provided for under FASB No. 123, Accounting
for Stock-Based Compensation, is not applicable because it requires use of
option valuation models that were not developed for use in valuing employee
stock options.

F-13
<PAGE> 58
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pro forma information regarding net income and earnings per share is
required by FASB No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method. The fair
value for these options was estimated at the date of the grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions: risk free interest rate of 6.49%, dividend yield of 8.5%,
volatility factor of the expected market price of the Company's Common Stock
based on historical results of .117; and an expected life of 4 years.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and changes in the
subjective input assumptions can materially affect the fair value estimate,
management believes the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. The Company has
elected not to present pro forma information because the impact on the reported
net income and earnings per share is immaterial.

Changes in the number of common shares under all option arrangements are
summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
------------- ------- ------
<S> <C> <C> <C>
Outstanding at beginning of period................ 29,000 57,500 74,500
Granted........................................... 40,500 -- --
Option prices..................................... $13.50-$9.125 -- --
Exercisable at end of period...................... 10,125 29,000 32,500
Exercised......................................... 29,000 23,500 17,000
Expired........................................... -- 5,000 --
Outstanding at end of period...................... 40,500 29,000 57,500
Option price per share outstanding................ $13.50 $9.125 $9.125
</TABLE>

As of December 31, 1997 the outstanding options had a remaining contractual
life of approximately 4.2 years and an exercise price of $13.50.

NOTE 10 -- DISTRIBUTION REINVESTMENT PLAN

In May, 1996, the Company implemented a Distribution Reinvestment Plan (the
"Plan"). The Plan provides owners of record of 100 shares or more of its common
and/or preferred stock the opportunity to reinvest cash distributions in
newly-issued common stock of the Company at a five percent discount from the
market price. No open market purchases are made under the Plan. During the years
ended December 31, 1997 and 1996, the Company issued 58,808 and 34,023 common
shares, respectively, under the Plan.

NOTE 11 -- SUBSEQUENT EVENTS

On February 10, 1998, the Company filed a Registration Statement with the
Securities and Exchange Commission ("SEC") with respect to a rights offering to
be made to its stockholders. Upon effectiveness of the Registration Statement,
the Company will issue to each common and preferred stockholder, one
nontransferable right for each share owned of record on the record date
entitling the holder to purchase one share of common stock at a price which will
be approximately 5% to 10% below market at or about the time the Registration
Statement is declared effective by the SEC. In addition, each common and
preferred stockholder will be afforded the opportunity to over-subscribe to the
extent of two additional shares, but, in order for the over-subscription
privilege to come into effect a stockholder must have fully exercised the basic
subscription privilege.

A limited liability company, in which the Company is the majority member,
expects to close on the purchase of a commercial building during March, 1998.
The purchase price will be $6,700,000. The Company expects to close on mortgage
financing for $4,500,000 simultaneously with the purchase. Interest on the

F-14
<PAGE> 59
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

mortgage will be at the rate of 7.5% per annum. The entire property is leased to
the New York City Transit Authority at an annual rental of $850,000 with a lease
that expires in October, 2002.

NOTE 12 -- QUARTERLY FINANCIAL DATA (UNAUDITED):

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------- TOTAL
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 FOR YEAR
-------- ------- ------------ ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1997
Revenues..................... $1,566 $1,567 $1,493 $1,659 $6,285
Net income................... 639 641 1,005(a) 699 2,984
Net income applicable to
common stockholders........ 277 279 642 336 1,534
Net income per common
share(b):
Basic...................... .19 .18 .42 .22 1.01
Diluted.................... .18 .18 .42 .22 1.00
</TABLE>

- ---------------
(a) Net income includes gain on sale of real estate of $599,251 and is after
minority interest of $230,839 (substantially attributable to such gain). See
Note 3.

(b) The earnings per share amounts for the quarter ended March 31, 1997 have
been restated to comply with Statement of Financial Accounting Standards No.
128, Earnings Per Share.

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------- TOTAL
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 FOR YEAR
-------- ------- ------------ ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1996
Revenues(b).................. $1,094 $1,288 $1,594 $1,536 $5,512
Net income(a)(b)............. 577 368 791 438 2,174
Net income applicable to
common stockholders(b)..... 215 6 429 76 726
Basic and diluted net income
per common share........... .15 -- .29 .05 .50
</TABLE>

- ---------------
(a) Net income reflects provision for valuation adjustment of real estate
amounting to $314,000, $145,000 and $200,000 for the quarters ending June
30, 1996, September 30, 1996 and December 31, 1996, respectively.

(b) Includes approximately $41,000, $103,000 and $88,000 (or $.03, $.07 and $.06
per common share) of income from accelerated payments on a senior note
receivable for the quarters ending March 31, 1996, June 30, 1996 and
September 30, 1996, respectively. The note receivable was paid in full
during August 1996.

F-15
<PAGE> 60

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

SCHEDULE III -- CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 1997
<TABLE>
<CAPTION>

GROSS AMOUNT AT WHICH CARRIED
AT
INITIAL COST DECEMBER 31, 1997
TO COMPANY LATEST INCOME
------------------------- --------------------------------------- ACCUMULATED
ENCUMBRANCES LAND BUILDINGS LAND BUILDINGS TOTAL DEPRECIATION
------------ ---- --------- ---- --------- ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FREE STANDING
RETAIL LOCATIONS:
Columbus, OH............ $ 4,325,000 $ 1,445,232 $ 5,780,926 $ 1,445,232 $ 5,780,926 $ 7,226,158 $ 18,065
Ft. Myers, FL........... 3,209,748 1,013,463 4,053,848 1,013,463 4,053,848 5,067,311 114,020
Denver, CO.............. 2,670,659 811,896 3,247,582 811,896 3,247,582 4,059,478 138,699
Atlanta, GA............. 2,363,061 802,721 3,210,886 802,721 3,210,886 4,013,607 110,374
Lewisville, TX.......... 1,571,786 685,737 2,742,946 685,737 2,742,946 3,428,683 82,860
Miscellaneous........... 2,343,078 5,693,337 14,366,139 5,589,037 14,170,439 19,759,476 1,425,208

APARTMENT BUILDING:
New York, NY............ 4,061,915 1,109,836 4,439,346 1,109,836 4,439,346 5,549,182 571,735

LAND UNDER
IMPROVEMENTS:
Miscellaneous........... -- 752,225 -- 752,225 -- 752,225 --

INDUSTRIAL:
Miami, FL............... -- -- 995,446 -- 995,446 995,446 73,621
----------- ----------- ----------- ----------- ----------- ----------- ----------
$20,545,247 $12,314,447 $38,837,119 $12,210,147 $38,641,419 $50,851,566 $2,534,582
=========== =========== =========== =========== =========== =========== ==========

<CAPTION>
LIFE ON
WHICH
DEPRECIATION
IN LATEST
INCOME
STATEMENT IS
DATE OF DATE COMPUTED
CONSTRUCTION ACQUIRED (YEARS) (YEARS)
------------ ---------------- ------------
<S> <C> <C> <C>
FREE STANDING
RETAIL LOCATIONS:
Columbus, OH............ 1996 November 19, 1997 40
Ft. Myers, FL........... 1996 November 7, 1996 40
Denver, CO.............. 1995 April 9, 1996 40
Atlanta, GA............. 1994 August 14, 1996 40
Lewisville, TX.......... 1996 October 11, 1996 40
Miscellaneous........... Various Various 40
APARTMENT BUILDING:
New York, NY............ 1910 June 14, 1994 27.5
LAND UNDER
IMPROVEMENTS:
Miscellaneous........... Various Various --
INDUSTRIAL:
Miami, FL............... 1967 January 19, 1955 40
</TABLE>

F-16
<PAGE> 61

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO SCHEDULE III -- CONSOLIDATED REAL ESTATE
AND ACCUMULATED DEPRECIATION

(a) Reconciliation of "Real Estate and Accumulated Depreciation"

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Investment in real estate:
Balance, beginning of year.......................... $44,735,907 $25,454,336 $11,750,268
Addition: Land and buildings........................ 10,058,389 19,940,571 13,704,068
Deductions:
Cost of properties sold........................... (3,942,730) -- --
Valuation allowance(c)............................ -- (659,000) --
----------- ----------- -----------
Balance, end of year................................ $50,851,566 $44,735,907 $25,454,336
=========== =========== ===========
Accumulated depreciation:
Balance, beginning of year.......................... $ 1,846,694 $ 1,200,571 $ 753,734
Addition: depreciation.............................. 893,123 646,123 446,837
Deduction: accumulated depreciation related to
properties sold................................... (205,235) -- --
----------- ----------- -----------
Balance, end of year................................ $ 2,534,582 $ 1,846,694 $ 1,200,571
=========== =========== ===========
</TABLE>

(b) The aggregate cost of the properties is the same for federal income tax
purposes.

(c) During the year ended December 31, 1996, the Company took a provision
for valuation adjustment of real estate totaling $659,000. See Note 4 to the
consolidated financial statements for other information.

F-17
<PAGE> 62

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 1997
<TABLE>
<CAPTION>

NUMBER OF INTEREST MATURITY FACE AMOUNT
DESCRIPTION LOANS RATE DATE PERIODIC PAYMENT TERMS OF MORTGAGE
----------- --------- -------- -------- ---------------------- -----------
<S> <C> <C> <C> <C> <C>
First mortgage loans:
Land and building/retail 1 9.75% Month to $3,550 monthly allocated to $ 246,144
Bad Axe, MI Month interest and principal.
Land and building/office 1 14.5%(b) Feb-05 $79,318 monthly allocated to 7,974,030(c)
New York NY interest and principal,
balance of $4,073,525 due at
maturity.

Second mortgage loan:
Land and building/commercial 1 10.25% Oct-01 $1,158 monthly allocated to 43,894
Seattle, WA interest and principal, self-
liquidates by maturity.
Total 3 $8,264,068

<CAPTION>
CARRYING
AMOUNT OF
DESCRIPTION MORTGAGE
----------- ---------
<S> <C>
First mortgage loans:
Land and building/retail $ 246,144
Bad Axe, MI
Land and building/office 5,653,412
New York NY

Second mortgage loan:
Land and building/commercial 43,894
Seattle, WA

Total $5,943,450
</TABLE>

F-18
<PAGE> 63

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 1997

Notes to the Schedule:

(a) The following summary reconciles mortgages receivable at their carrying
values:

<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of year.......................... $6,049,033 $7,036,141
Addition:
Amortization of discount.............................. 334,200 327,600
Deduction:
Collections of principal.............................. 439,783 1,314,708
Balance at end of year................................ $5,943,450 $6,049,033
</TABLE>

(b) Represents the expected yield to maturity which includes amortization
of discount and interest collections.

(c) The face amount of mortgage is before an unamortized discount of
$2,320,618. Mortgage was pledged as collateral to Credit Agreement.

F-19
<PAGE> 64

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
PROFORMA
HISTORICAL ADJUSTMENTS(A) PROFORMA
----------- --------------- -----------
(AUDITED)
<S> <C> <C> <C>
ASSETS
Real estate investments, at cost
Land............................................ $12,210,147 $1,340,000 $13,550,147
Buildings....................................... 38,641,419 5,360,000 44,001,419
----------- ---------- -----------
50,851,566 6,700,000 57,551,566
Less accumulated depreciation................ 2,534,582 2,534,582
----------- ---------- -----------
48,316,984 6,700,000 55,016,984
Mortgages receivable -- less unamortized
discount -- (substantially all from related
parties)........................................ 5,943,450 5,943,450
Cash and cash equivalents......................... 1,606,364 (200,000) 1,406,364
Unbilled rent receivable.......................... 665,052 665,052
Rent, interest, deposits and other receivables.... 300,584 300,584
Investment in BRT Realty Trust -- (related
party).......................................... 240,384 240,384
Deferred financing costs.......................... 510,123 510,123
Other............................................. 64,614 64,614
----------- ---------- -----------
$57,647,555 $6,500,000 $64,147,555
=========== ========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable............................... $20,545,247 $4,500,000 $25,045,247
Note payable -- bank............................ 4,605,029 2,000,000 6,605,029
Accrued expenses and other liabilities.......... 394,459 394,459
Dividends payable............................... 791,945 791,945
----------- ---------- -----------
26,336,680 6,500,000 32,836,680
----------- ---------- -----------
Redeemable Convertible Preferred Stock, $1 par
value; $1.60 cumulative annual dividend;
2,300,000 shares authorized; 808,776 shares
issued; liquidation and redemption values of
$16.50.......................................... 13,106,970 13,106,970
----------- ---------- -----------
Stockholders' equity:
Common Stock, $1 par value; 25,000,000 shares
authorized; 1,561,450 and 1,473,642 shares
issued and outstanding....................... 1,561,450 1,561,450
Paid-in capital................................. 14,419,609 14,419,609
Net unrealized gain on available-for-sale
securities................................... 146,706 146,706
Accumulated undistributed net income............ 2,076,140 2,076,140
----------- ---------- -----------
18,203,905 18,203,905
----------- ---------- -----------
$57,647,555 $6,500,000 $64,147,555
=========== ========== ===========
</TABLE>

See accompanying notes.
F-20
<PAGE> 65

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

PROFORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
PROFORMA
HISTORICAL ADJUSTMENTS(B) PROFORMA
---------- --------------- ----------
(AUDITED)
<S> <C> <C> <C>
Revenues:
Rental income..................................... $5,341,491 $843,165 $6,184,656
Interest from related parties..................... 832,579 832,579
Interest and other income......................... 110,739 (6,000) 104,739
---------- -------- ----------
6,284,809 837,165 7,121,974
---------- -------- ----------
Expenses:
Depreciation and amortization..................... 1,023,345 134,000 1,157,345
Interest -- mortgages payable..................... 1,517,126 337,500 1,854,626
Interest -- bank.................................. 210,305 178,800 389,105
Leasehold rent.................................... 288,833 288,833
General and administrative........................ 629,420 629,420
---------- -------- ----------
3,669,029 650,300 4,319,329
---------- -------- ----------
Income before gain on sale of real estate and
minority interest................................. 2,615,780 186,865 2,802,645
Gain on sale of real estate including minority
interest share
of $215,336....................................... 599,251 599,251
---------- -------- ----------
Income before minority interest..................... 3,215,031 186,865 3,401,896
Minority interest................................... (230,839) (20,000) (250,839)
---------- -------- ----------
Net income.......................................... $2,984,192 $166,865 $3,151,057
========== ======== ==========
Calculation of net income applicable to common
stockholders:
Net income........................................ $2,984,192 $3,151,057
Less dividends and accretion on preferred stock... 1,450,220 1,450,220
---------- ----------
Net income applicable to common stockholders........ $1,533,972 $1,700,837
========== ==========
Weighted average number of common shares
outstanding:
Basic............................................. 1,522,967 1,522,967
========== ==========
Diluted........................................... 1,529,203 1,529,203
========== ==========
Net income per common share:
Basic............................................. $1.01 $1.12
========== ==========
Diluted........................................... $1.00 $1.12
========== ==========
Cash distributions per share:
Common Stock...................................... $1.20
==========
Preferred Stock................................... $1.60
==========
</TABLE>

See accompanying notes.
F-21
<PAGE> 66

NOTES TO PROFORMA FINANCIAL STATEMENTS
(UNAUDITED)

PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997

(A) Reflects the expected acquisition of 300 Gold Street in Brooklyn, New York
at December 31, 1997 with cash, borrowings under a mortgage note and
borrowings under the line of credit.

PROFORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER
31, 1997

(B) Reflects the revenues and expenses of 300 Gold Street in Brooklyn, New York
in addition to the increase in interest expense associated with additional
borrowings and a decrease in interest income as a result of a decrease in
cash and cash equivalents as if the property were purchased at January 1,
1997.

F-22
<PAGE> 67

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
One Liberty Properties, Inc.

We have audited the statement of revenues and certain expenses of the
property at 300 Gold Street (the "Property"), as described in Note 1, for the
year ended December 31, 1997. This financial statement is the responsibility of
management of the Property. Our responsibility is to express an opinion on this
financial statement based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.

The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement (Form S-11)
of One Liberty Properties, Inc., and is not intended to be a complete
presentation of the Property's revenues and expenses.

In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of the Property as
described in Note 1 for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

March 11, 1998
New York, New York

F-23
<PAGE> 68

300 GOLD STREET

STATEMENT OF REVENUES AND CERTAIN EXPENSES (NOTE 1)

<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Revenues:
Base rent................................................. $768,333
Certain expenses:
Management fees........................................... 12,000
--------
Revenues in excess of certain expenses...................... $756,333
========
</TABLE>

See accompanying notes.
F-24
<PAGE> 69

300 GOLD STREET

NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES

DECEMBER 31, 1997

1. BASIS OF PRESENTATION

Presented herein is the statement of revenues and certain expenses related
to the operations of the property, located at 300 Gold Street (also known as
131-143 Flatbush Avenue) in the borough of Brooklyn in New York City, (the
"Property"). The Property is comprised of an office building containing 66,000
square feet.

The accompanying financial statements have been prepared in accordance with
the applicable rules and regulations of the Securities and Exchange Commission
for the acquisition of real estate properties. Accordingly, the financial
statements exclude certain expenses that may not be comparable to those expected
to be incurred by One Liberty Properties, Inc. (the "Company") in the proposed
future operations of the Property. It is expected that the Property will be
acquired by the Company in April, 1998. Items excluded consist of interest,
amortization and depreciation.

2. USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

3. REVENUE RECOGNITION AND CONCENTRATION OF REVENUE

The Property is leased by the New York City Transit Authority (the
"Tenant") under an operating lease which expires on October 15, 2002. The lease
provides for fixed net rent payments of $800,000 per annum until October 15,
1997 at which time the fixed net rent payments increase to $850,000 per annum
through the lease expiration. The fixed net rent is net to the landlord, with
the Tenant assuming the sole responsibility for the condition, operation,
maintenance and management of the Property. Minimum rental income is recognized
on a straight-line basis over the term of the lease. The excess of amounts due
pursuant to the underlying lease over amounts so recognized amounted to
approximately $42,083 for the year ended December 31, 1997.

4. MANAGEMENT AGREEMENT

During 1997 the Property was managed by CRG Management, LLC. As
consideration for performing such services, CRG Management, LLC receives a fee
equal to $1,000 per month.

F-25