REGISTRATION NO. 33
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON FEBRUARY 10, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1993
ONE LIBERTY PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED
IN ITS GOVERNING INSTRUMENTS)
60 Cutter Mill Road, Great Neck, NY 11021 - (516) 466-3100
(Address, including Zip Code, and Telephone Number,
including Area Code, of Registrant's Principal
Executive Offices)
Mark H. Lundy
60 Cutter Mill Road, Great Neck, NY 11021 - (516) 466-3100
(Name, Address, including Zip Code and Telephone Number,
including Area Code, of Agent for Service)
COPIES TO:
SIMEON BRINBERG, ESQ.
60 CUTTERMILL ROAD
GREAT NECK, NEW YORK 11021
(516) 773-2750
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
<PAGE>
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| ____________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering. |_| _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
CALCULATION OF REGISTRATION FEE
TITLE OF PROPOSED MAXIMUM
SECURITIES AMOUNT MAXIMUM AGGREGATE AMOUNT OF
BEING BEING OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT PRICE FEE
- ---------- ---------- -------- ----- ---
Common Stock
Par Value $1.00 1,574,894 SHS. $13.81 $21,749,286 $6,590.69
Per Share (1)
(1) The proposed maximum offering price per share is estimated solely for
the purposes of calculating the registration fee in accordance with Rule 457.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A) MAY DETERMINE.
<PAGE>
ONE LIBERTY PROPERTIES, INC.
Cross Reference Sheet, Showing the Localities
in the Prospectus of the Information Required
by Items 1 through 30, Part I, of Form S-11
Item #
1. Forepart of Registration Facing Page of the Registration
Statement and Outside Front Statement;Front Cover of Pros-
Cover Page of Prospectus pectus
2. Inside Front and Outside Available Information: Table
Back Cover Pages of Prospectus of Contents
3. Summary Information, Risk Prospectus Summary; Investment
Factors and Ratio of Earnings Considerations
to Fixed Charges
4. Determination of Offering Price Cover Page of Prospectus;
The Offer
5. Dilution Not Applicable
6. Selling Security-Holders Not Applicable
7. Plan of Distribution The Offer
8. Use of Proceeds Use of Proceeds
9. Selected Financial Data Selected Financial Data
10. Management's Discussion and Management's Discussion and
Analysis of Financial Condition Analysis of Financial Condition
and Results of Operations and Results of Operations
11. General Information as to Registrant The Company
12. Policy with Respect to Certain Activities The Company
13. Investment Policies of Registrant The Company
14. Description of Real Estate Properties
15. Operating Data Properties
16. Tax Treatment of Registrant Federal Income Tax Considerations
and its Security Holders
17. Market Price of and Dividends Price Range of Common Stock
on the Registrant's Common Equity and Distributions
and Related Stockholder Matters
18. Description of Registrant's Securities Description of Capital Stock
19. Legal Proceedings Properties
20. Security Ownership of Certain Principal Stockholders
Beneficial Owners and Management
21. Directors and Executive Officers Management
22. Executive Compensation Executive Compensation
23. Certain Relationships and Certain Relationships and
Related Transactions Related Transactions
24. Selection, Management and Custody The Company
of Registrant's Investments
25. Policies with Respect to Investment Consideration Certain
Transactions
26. Limitations of Liability Management
27. Financial Statements and Information Selected Financial Data;
Financial Statements
28. Interest of Named Experts and Counsel Legal Matters
29. Disclosure of Commission Position on Indemnification
Indemnification for Securities
Act Liabilities
30. Quantitative and Qualitative Not Applicable
Disclosures about Market Risk
<PAGE>
Subject to Completion, Dated ____________________, 1998
PROSPECTUS
ONE LIBERTY PROPERTIES, INC.
1,574,894 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 of record as of the close of business on __________, 1998
(the "Record Date") rights ("Rights") entitling the holders thereof to subscribe
for an aggregate of 1,574,894 shares of the Company's Common Stock (the
"Offer"). Common stockholders of record will receive one Right for each share of
Common Stock held. Each Right entitles the holder to subscribe for and purchase
one share of Common Stock ("Basic Subscription Privilege") for a price of
$__________ 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 ____________
additional shares of Common Stock.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
__________, 1998, UNLESS EXTENDED AS DESCRIBED HEREIN (THE "EXPIRATION DATE").
The Company announced the offer before the commencement of trading
on the American Stock Exchange on __________, 1998. The last reported sale price
of the Common Stock at the close of business on __________, 1998 was __________.
The last reported sale price on the American Stock Exchange on __________, 1998
was __________. The Subscription Price is approximately ____% less than the last
reported sale price on the American Stock Exchange on ____________, 1998.
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.
Price to Public Underwriting Proceeds to Company
Discounts and
Commissions
Per Share N/A (1)
Total N/A (2)
(1) Before deduction of offering expenses payable by the Company estimated
at $50,000.
(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 __________, 1998.
Information Contained Herein is Subject to Completion or Amendment.
A Registration Statement Relating to These Securities Has Been Filed with the
Securities and Exchange Commission. These Securities May Not Be Sold nor May
Offers to Buy be Accepted prior to the Time the Registration Statement Becomes
Effective. This Prospectus Shall Not Constitute An Offer to Sell or the
Solicitation of An Offer to Buy nor Shall There Be Any Sale of These Securities
in Any State in Which Such Offer, Solicitation or Sale Would Be Unlawful Prior
to Registration or Qualification Under the Securities Laws of Any Such State.
TABLE OF CONTENTS
Prospectus Summary
The Company
The Offer
Selected Financial Information
Investment Considerations
The Company
General
Investment Policy
Credit Agreement
Mortgages Receivable
Properties
Additional Information Concerning Certain of the
Properties
Lease Expirations
Indebtedness
Competition
Environmental Matters
Regulations and Insurance
Legal Proceedings
Use of Proceeds
Capitalization
Selected Financial Data
Management's Discussion and Analysis of
Financial Condition and Results of Operation Management Executive
Compensation Certain Relationships and Related Transactions Principal
Stockholders Description of Capital Stock Federal Income Tax Considerations The
Offer Experts Legal Matters Indemnification Available Information Index to
Financial Statements
<PAGE>
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 real estate leased
to retail businesses under long-term commercial net leases. The Company, from
time to time, will acquire and own commercial real estate net leased to a
corporation or government agency, and real property improved with a multi-family
apartment house, office building or industrial building leased under a long term
lease to an 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 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. Although credit of the existing or proposed tenant is investigated
and important in the acquisition decision, property location and local
demographics are given greater weight in the decision 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.
<PAGE>
THE OFFER
Securities Offered 1,574,894 shares of Common Stock, $1.00 par
value, by a Rights offering to Common Stockholders.
Subscription Price ____ per Share.
Record Date ___________, 1998
Rights One non-transferable Right is being
issued with respect to each share of
Common Stock held of record as of
"Record Date." Rights must be
exercised prior to the Expiration
Date.
Basic Subscription Each Right entitles the holder thereof
Privilege to subscribe at the Subscription
Price for shares of Common Stock at
the rate of one share for each
Right.
Over-Subscription Subject to proration, a holder of Rights
Privilege who has fully exercised the Basic
Subscription Privilege 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 __________________.
Thereafter the Rights cannot be exercised.
Rights Agent American Stock Transfer and 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 $4,605,000
due under the Credit Agreement and
the balance (estimated at $_______)
to acquire Properties and for
working capital.
Investment A purchase of Common Stock involves a
Considerations degree of investment risk. Purchasers
should carefully consider the information
set forth under "Investment Considerations".
<PAGE>
<TABLE>
SELECTED FINANCIAL INFORMATION
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
OPERATING DATA 1996 1995 1994 1993 1992 1997 1996
- -------------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $5,511,556 $4,890,962 $4,041,378 $3,348,419 $2,967,919 $4,625,875 $3,976,831
Gain On Sales
Of Investments 168,631 303,130 599,251
Provision For Valua-
tion Adjustment
and Impairment (659,000) (258,744) (459,000)
Net Income 2,173,952 3,096,302 2,861,137 2,435,269 2,436,315 2,285,265 1,735,697
Net Income
Applicable To
Common Stock-
Holders 725,593 1,649,783 1,416,434 992,362 993,943 1,197,777 649,603
PER SHARE DATA:
Net Income Per
Common Share $0.50 $1.17 $1.04 $.74 $.74 $.79 $.45
Cash Distribu-
tions Per Share
Of Common Stock $1.20 $1.03 $.86 $.94 $.70 $.90 $.90
Cash Distributions
Per Share Of
Preferred Stock $1.60 $1.60 $1.60 $1.60 $1.60 $1.20 $1.20
BALANCE SHEET DATA:
Real Estate
Investments, Net $42,889,213 $24,253,765 $10,996,534 $5,627,909 $6,271,828 $41,325,983 $34,797,472
Mortgages and Notes
Receivable 6,049,033 7,564,716 16,096,224 17,274,039 10,614,040 5,942,138 6,082,076
Total Assets 52,522,988 38,040,246 37,652,773 32,383,674 32,339,558 50,762,437 45,378,004
Mortgages Payable 16,846,921 6,590,154 6,983,647 2,753,700 2,753,700 16,283,523 13,638,199
Total Liabilities 21,987,633 7,532,267 7,680,937 3,360,236 3,199,045 19,539,681 14,769,160
Redeemable
Convertible
Preferred Stock 12,950,792 12,796,475 12,643,998 12,493,337 12,344,472 13,067,750 12,912,039
Shareholders' Equity 17,442,841 17,711,504 17,327,838 16,530,101 16,796,041 18,155,006 17,554,334
</TABLE>
<PAGE>
INVESTMENT CONSIDERATIONS
In addition to other information in this Prospectus the following
factors should be considered carefully in evaluating an investment in 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 use of
the proceeds contemplated hereby, the ratio of debt to shareholders' equity will
be approximately ______________.
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 $3,966,000 in
1999,$874,000 in 2000 and $1,283,000 in 2002. From 1999 through 2008 the Company
will have to refinance an aggregate of $16,988,000.
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 Common 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 all 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 Common
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 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 Brinberg and Lundy, 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 short-term 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 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 cover the payment due as a result of exercise of the "put"
option or might have to dispose of properties upon 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 clean-up 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 independent 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. 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 or affiliates thereof.
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 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.
<PAGE>
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 operator.
Under the typical net lease and long-term lease, rental and other payments to be
made by the lessee are payable without diminution for any reason. The lessee, in
addition to its rent obligation, is generally responsible for payment of all
charges attributable to the property, such as real estate taxes, assessments,
water and sewer rents and charges, governmental charges and all utility and
other charges incurred in the operation of the property. The lessee, is also
generally responsible for maintaining the property, including ordinary
maintenance and repair and restoration following a casualty or partial
condemnation. The rental provisions in a net lease transaction may include, but
may not be limited to, rent payable on a stepped basis (rentals increase at
specified intervals), an indexed basis (rentals increase pursuant to a formula
such as the consumer price index), a percentage basis (minimum rental payments
plus additional rentals in the form of participation in the sales derived from
the business conducted at the property), or a combination of the foregoing.
Investment Policy
The Company's business strategy is focused on acquiring improved,
commercial property subject to a long-term net lease which has scheduled rent
increases. The Company's investment policies, as articulated in its by-laws, as
amended, are as follows:
Types of Investments - The Company is permitted to invest in any type
of real property, mortgage loans (and in both cases in interests therein) and
other investments of any nature, without limitation, provided such investment
does not adversely affect the Company's ability to qualify as a REIT under the
Internal Revenue Code. No limitation is set on the number of properties or
mortgage loans in which the Company may invest, the amount or percentage of the
Company's assets which may be invested in any specific property or on the
concentration of investments in any geographic area in the United States. The
Company may consider investments in any type of real property and in mortgage
loans secured by real property; however as stated above, the current investment
policy of the Company is to invest in improved, commercial real estate under
long term net lease. The Company does not intend to make construction loans or
loans secured by mortgages on undeveloped land. Although it has not done so in
the past, the Company may issue securities in exchange for properties which fit
its investment criteria. The Company intends to pursue a national operating
strategy, but does not intend to purchase properties located outside of the
United States.
After termination of any lease relating to any of the Company's
Properties (either at lease expiration or early termination), the Company will
seek to relet or sell such Property in a manner which will maximize the return
to the Company, considering the income and residual potential of such Property.
The Company may also consider the sale or other disposition of any of the
Properties prior to termination of the relevant leases if such sale or other
disposition appears to be advantageous. The Company may take purchase money
obligations as part payment in lieu of cash in connection with any sale and may
take into account local custom and prevailing market conditions in negotiating
the terms of repayment. It will be the Company's policy to use any cash realized
from the sale or other disposition of Properties, net of required distributions
to shareholders to maintain its REIT status, in the acquisition of additional
Properties.
Incurrence of Debt - The directors of the Company, in the exercise of
their business judgment, are permitted to determine the level of debt and the
terms and conditions of any financing or refinancing. There is no limitation on
the level of debt which the Company may incur. The Company borrows money, on a
secured and unsecured basis, the proceeds of which are used for additional
property acquisitions and for working capital purpose.
The investment objectives of the Company are (i) to provide current
income; (ii) to provide the opportunity for increases in income and capital
appreciation; and (iii) to protect the Company's capital. In evaluating
potential net lease investments, the Company considers, among other factors (i)
the intrinsic value of the property, given its location (on a main thoroughfare
or artery) 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 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.
<PAGE>
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 of $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. The Company pays interest
under the Credit Agreement at the rate of prime plus 1/2% on funds borrowed on
an interest only basis, except that the 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
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 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 severe downturn in the real estate
markets nationally, the Company took advantage of opportunities to purchase
mortgages receivable at a discount and to originate a mortgage loan, all of
which resulted in the Company generating above average yields to maturity. The
Company has not acquired or originated any receivables since January, 1995. The
only significant mortgage receivable outstanding at December 31, 1997 is 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 principal 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.
<PAGE>
The following sets forth certain information relating to the
Company's Properties.
<TABLE>
RENEWAL
NET CURRENT OPTIONS
RENTABLE ANNUAL EXPIRATION (NUMBER
PROPERTY LOCATION TENANT PROPERTY TYPE LAND AREA SQ. FT. RENT DATE OF YEARS)
- ----------------- ------ ------------- --------- -------- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
I45 Service Road and
Mount Houston Road Freestanding 5 (25
Houston, TX The Kroger Retail 2.665 Acres 38,448 $149,947 3/7/00 years)
Company
5600 Britton Pkwy. Kittle's Home Freestanding 5 (25
Columbus, OH Furnishing Center, Retail 6.228 Acres 93,978 $738,764 11/30/2011 years)
Inc.(1)
13751 S. Tamiami Barnes & Noble Freestanding 4 (20
Trail, Ft. Myers, FL Superstores,Inc. Retail 31,315 Sq.Ft. 29,993 $467,000 1/31/17 years)
(2)
1987 Mt. Zion Rd. The Sports Freestanding 4 (20
Clayton County, GA Authority, Inc. Retail 5.5 Acres 50,400 $390,600 10/31/14 years)
9000 E. Peakview Ave. Gart Bros. Freestanding 3 (15
Greenwood Village, CO Sporting Goods Retail 3.2 Acres 45,000 $423,000 1/31/16 years)
Company
490 Oakbend Drive Just For Freestanding 10/31/16 2 (10
Lewisville, TX Feet, Inc. Retail 1.9768 Acres 21,043 $355,559 years)
6933 Lee Highway K Mart Freestanding 8 (40
Chattanooga, TN Corporation(3) Retail 6.3 Acres 72,897 $399,238 11/30/06 years)
1st Ave. NE & Hwy.100 Ultimate Freestanding 4 (20
Cedar Rapids, IA Akquisition Corp. Retail 1.52 Acres 15,400 $157,850 6/30/15 years)
(3)
<PAGE>
RENEWAL
NET CURRENT OPTIONS
RENTABLE ANNUAL EXPIRATION (NUMBER
PROPERTY LOCATION TENANT PROPERTY TYPE LAND AREA SQ. FT. RENT DATE OF YEARS)
- ----------------- ------ ------------- --------- ------- ---- ---- ---------
900 Central Texas Hwy. Hollywood Freestanding 2 (10
Killeen, TX Entertainment Corp. Retail 48,177 Sq.Ft. 8,000 $141,200 6/30/10 years)
US Highway 59 Hollywood Freestanding 2 (10
Rosenberg, TX Entertainment Corp. Retail 34,000 Sq.Ft. 8,000 $111,800 1/31/10 years)
Gasoline Svc.
Station with
5600 S. Cedar Street Total Freestanding 2 (20
Lansing, MI Petroleum, Inc. Retail 53,733 Sq.Ft. 7,807 $67,792 5/31/11 years)
Gasoline Svc.
Station with
4384 Kalamazoo Ave. Total Freestanding 2 (20
Kentwood, MI Petroleum, Inc. Retail 45,745 Sq.Ft. 6,434 $45,067 5/31/11 years)
Gasoline Svc.
Station with
1499 S. Lincoln Road Total Freestanding 2 (20
Flint, MI Petroleum, Inc. Retail 59,242 Sq.Ft. 7,335 $89,427 5/31/11 years)
Gasoline Svc.
Station with
1504 Center Avenue Total Freestanding 2 (20
Essexville, MI Petroleum, Inc. Retail 68,882 Sq.Ft. 6,980 $56,829 5/31/11 years)
Gasoline Svc.
Station with
112 Ashman Circle Total Freestanding 2 (20
Midland, MI Petroleum, Inc. Retail 24,000 Sq.Ft. 6,067 $77,218 5/31/11 years)
<PAGE>
RENEWAL
NET CURRENT OPTIONS
RENTABLE ANNUAL EXPIRATION (NUMBER
PROPERTY LOCATION TENANT PROPERTY TYPE LAND AREA SQ. FT. RENT DATE OF YEARS)
- ----------------- ------ ------------- --------- ------- ---- ---- ---------
Gasoline Svc.
Station with
6500 Pierson Road Total Freestanding 2 (20
Flint, MI Petroleum, Inc. Retail 74,910 Sq.Ft. 13,145 $97,102 5/31/11 years)
Gasoline Svc.
Station with
7492 Gratiot Road Total Freestanding 2 (20
Saginaw, MI Petroleum, Inc. Retail 63,557 Sq.Ft. 8,781 $60,284 5/31/11 years)
Gasoline Svc.
Station with
2046 28th Street Total Freestanding 2 (20
Wyoming, MI Petroleum, Inc. Retail 75,080 Sq.Ft. 10,506 $64,012 5/31/11 years)
Gasoline Svc.
Station with
901 South US 27 Total Freestanding 2 (20
St. Johns, MI Petroleum, Inc. Retail 36,382 Sq.Ft. 6,588 $76,401 5/31/11 years)
1050 Columbia Ave. Total Freestanding 2 (20
Battle Creek, MI Petroleum, Inc. Retail 30,451 Sq.Ft. 6,813 $67,629 5/31/11 years)
Gasoline Svc.
Station with
1988 South Cedar Total Freestanding 2 (20
Imlay City, MI Petroleum, Inc. Retail 66,278 Sq.Ft. 8,883 $96,926 5/31/11 years)
<PAGE>
RENEWAL
NET CURRENT OPTIONS
RENTABLE ANNUAL EXPIRATION (NUMBER
PROPERTY LOCATION TENANT PROPERTY TYPE LAND AREA SQ. FT. RENT DATE OF YEARS)
- ----------------- ------ ------------- --------- ------- ---- ---- ---------
Gasoline Svc.
Station with
279 Baldwin Street Total Freestanding 2 (20
Jennison, MI Petroleum, Inc. Retail 62,795 Sq.Ft. 8,767 $58,946 5/31/11 years)
Gasoline Svc.
Station with
3210 Plainfield Ave. Total Freestanding 2 (20
Grand Rapids, MI Petroleum, Inc. Retail 44,283 Sq.Ft. 7,869 $54,814 5/31/11 years)
126 rental
units and
119 Madison Avenue Sanford Multifamily 6 retail
New York, NY Realty Apt. House/ 14,658 Sq.Ft. stores $550,000 2/28/38 (5)
Associates, Retail
Inc.
375,000 Sq.
Ft. + 21,000
7007 N.W. 37 Ave. United States Industrial Sq.Ft. 2 (30
Miami, FL Cold Storage, Inc. Building(6) 12.5 Acres Mezzanine $425,000 4/30/10 years)
Two-Screen
Theatre
2131 6th Avenue Twin Freestanding Containing
Seattle, WA 78 Associates Movie Theatre 19,480 Sq.Ft. 1445 Seats $18,000 12/31/51 --
(7)
6660 Broughton Ave. Woodside Industrial 3 (75
Columbus, OH 78 Associates Building 246,936 Sq.Ft. 55,370 $42,000 6/30/04 years)
(7)
<PAGE>
RENEWAL
NET CURRENT OPTIONS
RENTABLE ANNUAL EXPIRATION (NUMBER
PROPERTY LOCATION TENANT PROPERTY TYPE LAND AREA SQ. FT. RENT DATE OF YEARS)
- ----------------- ------ ------------- --------- ------- ---- ---- ---------
Athens Food
US Hwy. 25 Bypass Systems, Inc. an Freestanding 1 (10
Greenwood, SC Arby Franchise Retail 25,359 Sq.Ft. 2,755 $74,000 2/28/10 years)
8824 Ranier Avenue Payless Shoe Freestanding 3 (15
Seattle, WA Source, Inc. (8) Retail 15,625 Sq.Ft. 3,038 $53,078 12/31/01 years)
1205 E. El Dorado St. Payless Shoe Freestanding 4 (20
Decatur, IL Source, Inc. (8) Retail 24,396 Sq.Ft. 3,060 $46,000 12/31/01 years)
5670 W. 3500 St. S. Payless Shoe Freestanding 3 (15
West Valley, UT Source, Inc. (8) Retail 16,563 Sq.Ft. 3,200 $56,733 12/31/01 years)
1101 Gartland Ave. Payless Shoe Freestanding 1 (2)
Nashville, TN Source, Inc. Retail 16,117 Sq.Ft. 3,053 $27,477 12/31/99 years)
329 E. 47th Street Payless Shoe Freestanding 3 (15
Chicago, IL Source, Inc. (8) Retail 3,500 Sq.Ft. 3,065 $41,496 12/31/01 years)
2818 N. Court Road Freestanding 2 (6
Ottumwa, IA Hy-Vee, Inc. Retail 13,020 Sq.Ft. 3,072 $19,200 12/31/99 years)
2837 E. Ledbetter Dr. Abdelsalam Freestanding 1 (5
Dallas, TX Salaheddin Retail 14,270 Sq.Ft. 3,060 $21,600 6/30/02 years)
628 W. 14th Street Freestanding
Chicago Heights, IL Vacant Retail 14,028 Sq.Ft. 3,062 -- -- --
951 State Avenue Freestanding
Kansas City, KS Vacant Retail 17,875 Sq.Ft. 3,120 -- -- --
</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.
(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.
<PAGE>
Additional Information Concerning Certain Of The Properties
As of September 30, 1997, three of the Properties owned by the
Company and one property acquired in November, 1997 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. Set
forth below is additional information with respect to such Properties.
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 93,978 square foot furniture showroom/retail store, of which
97,328 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, 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.
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 payment is made
on the principal in advance of the maturity date, the principal balance due at
maturity will be approximately $3,762,536. The Company has the option of
prepaying this mortgage in whole or in part provided it pays a prepayment
premium of _______.
Madison Avenue Property
Description of Madison Avenue Property
The Madison Avenue Property, located on East 30th Street and
Madison Avenue in New York, New York, is improved with two multi-family
residential properties - a twelve story elevator building and a seven story
elevator building, containing an aggregate of 126 apartments and ground floor
retail stores. The property is located in mid-Manhattan, in primarily a
commercial area, with some residential and hotels. The two buildings are located
on a 14,658 square foot plot of land, have frontage on both Madison Avenue and
East 30th Street, and were constructed separately and subsequently joined. The
properties were constructed in about 1910 and substantially renovated in
approximately 1988.
Description of Madison Avenue Lease
Lease Term The Madison Avenue Property, owned in fee by the
Company, is leased to an unaffiliated entity for a term expiring February 28,
2038. If tenant exercises its rights to convert the property to cooperative
ownership then effective with the assignment of the lease the lease can be
extended for 150 years. To the Company's knowledge, the tenant is not
contemplating a cooperative conversion at the present time.
Amounts Payable Under the Madison Avenue Property Lease The basic
annual rental is $550,000 increasing to $600,000 in 1999 and by $50,000 each
five years thereafter. If the conversion option is exercised, the basic annual
rent is fixed for ten years from the date of conversion at the basic annual
rental then being paid, increasing by $75,000 each ten years thereafter. If the
conversion option is exercised, the Company is to receive a conversion premium
which the Company has agreed to divide 50-50 with BRT Realty Trust, provided the
conversion takes place on or before June 14, 2004. The Company acquired this
property from BRT Realty Trust, an affiliated entity, in June 1994. See "Certain
Relationship and Related Transactions."
The lease is a net lease and requires Tenant to pay, in addition to basic
annual rent, all real estate taxes and all utility and other charges applicable
to the property during the term.
Maintenance and Modifications Tenant, at its expense, is required
to make all structural and non-structural repairs and is required to maintain
the property in good repair and condition, reasonable wear and tear excepted.
Tenant is permitted, under the lease, to make structural and
non-structural alterations, improvements and additions provided (i) any such
alteration, improvement or addition does not materially adversely affect the
structural integrity the buildings or the value of the property, or any interest
of Landlord and does not include structural demolition, and (ii) if the
anticipated cost exceeds a specified amount (currently $150,000 increasing
$50,000 each ten years commencing with 1999) tenant is to give landlord prior
notice and furnish landlord with such information as landlord may reasonably
request. In any event tenant can't demolish any structural portions of the
buildings without consent of landlord. The lease specifies other tenant
obligations prior to tenant commencing alterations, improvements or additions.
Insurance Tenant is required to maintain fire insurance, with
extended coverage, in an amount equal to 100% of replacement value, exclusive of
footings and foundations with the deductible not to exceed $25,000, increasing
every five years by the increase in the consumer price index. Tenant is also
required to maintain rent insurance, comprehensive general public liability
insurance, elevator and boiler insurance, and such other insurance, in such
amounts, as reasonable required by landlord. In the opinion of the Company's
management this property is adequately covered by insurance.
Damage to or Condemnation of Madison Avenue Property In the event
of a casualty, tenant at its expense, whether or not the insurance proceeds are
sufficient, is required to repair the damage and restore, replace and rebuild
the premises, at least to the extent of the value and as near as possible to the
character prior to the casualty.
If there is a condemnation of all or substantially all the
premises, Tenant may elect to terminate the lease, and in such event the lease
shall terminate on the date the condemning authority takes title to the
property. In the event of a condemnation of all or substantially all the
property, the award is to be divided between landlord and tenant in the
proportion each party's interest in the premises bears to the aggregate value of
both party's interest in the property, as determined by arbitration, provided
the landlord is to receive as a priority payment an amount equal to the fixed
annual rent then being paid under the lease multiplied by 10, with interest from
the date of taking and then tenant is to receive the greater of (i) the sum of
all amounts paid by tenant for capital improvements, not to exceed $3,000,000
and (ii) all unpaid principal and interest and other sums due on any leasehold
mortgage.
If there is a partial taking tenant, at its sole expense, is to
repair and reconstruct the premises. Any award is to be applied to such repair
and reconstruction, and if the award exceeds the cost of repair and
reconstruction, the excess is divided between Landlord and Tenant as provided in
the Lease.
Mortgage Simultaneously with its purchase of the property in June,
1994 the Company obtained a $4,250,000 non-recourse first mortgage loan from M&T
Real Estate, Inc. The mortgage bears interest at 8.75% per annum during the
initial 5 year term. The Company has an option to renew the mortgage for an
additional five year term upon payment of a 1% extension fee. The interest rate
during the extension period will be the greater of 8.75% or 275 basis points
above U.S. Treasuries as defined in the mortgage agreement. The mortgage is
being amortized based on a 24 year amortization schedule. At September 30, 1997,
there was a principal balance of $4,122,873 due on this mortgage. Assuming no
payment is made on principal in advance of the maturity date, the principal
balance due at maturity will be approximately $3,960,000. The Company has the
option of prepaying this mortgage in whole or in part provided that it pays a
prepayment premium of 2% if prepaid prior to June 14, 1998, decreasing to 1%
thereafter and if the Company exercises its option during the five year
extension period, the prepayment premium is 5% in the first year, decreasing by
1% each year thereafter during the extended term.
The Tenant has the right to mortgage its leasehold position under terms and
conditions set forth in the lease. Any fee mortgage on the premises is to be
superior to any leasehold mortgage.
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
lessee is required to obtain the landlord's prior written consent for structural
alterations, additions, replacements or improvements which consent will not be
unreasonably withheld.
Insurance Total Petroleum is required to maintain insurance at its
expense providing for fire with standard extended risk coverage to the extent of
the full replacement cost. So long as the tenant's net worth exceeds
$100,000,000 the deductible may be that which is provided in Total Petroleum's
master corporate insurance policy, and if its net worth falls below $100,000,000
then the deductible shall not exceed $250,000 without landlord's consent. In
Management's opinion the Total Petroleum Properties are adequately covered by
insurance.
Damage to or Condemnation of Property If any of the Total Petroleum
Properties is damaged or destroyed by fire or other casualty there is to be no
rent abatement and Total Petroleum is required to repair and restore the
premises in a reasonable diligent manner. If, however, the premises are rendered
untenantable, Total Petroleum may terminate the lease in which event it shall
pay to the Company an amount sufficient to restore the premises to the condition
existing as of the date the lease was executed, reasonable wear and tear
excepted.
If all or any part of any of the properties is taken by
condemnation so as to render the remaining portion of the property unsuitable
for lessee'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 elected 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 lessee 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.
Fort Myers, Florida Property
Description of Fort Myers, Florida Property
The Fort Myers property is located at 13751 South Tamiami Trail (US
Highway 41 and Daniels Road), a developed commercial/retail area in Lee County.
The property, part of the Market Square Shopping Center, is approximately 6
miles south of the Fort Myers downtown business district. The property is
approximately .72 acres with parking rights to the entire Market Square Shopping
Center. The property is improved with a 29,993 square foot, free standing single
story retail store completed in 1996, leased to Barnes & Noble Superstores, Inc.
The superstore is a prototypical Barnes & Noble Superstore, selling at discount
hard cover and paperback books of all types, computer software, CD's and tapes
and containing a Starbucks Coffee shop.
Description of Barnes & Noble Lease
Lease Term The property is leased to Barnes & Noble Superstores, Inc.
pursuant to a net lease which has an initial term of 20 years expiring November
2016 The Tenant has the right to extend the lease for 4 additional 5 year terms.
Amounts Payable Under the Lease The annual fixed rent under the
lease is $467,000 for the first five years, $513,000 for years 6 through 10,
$559,000 for years 11 through 15 and $605,000 for years 16 through 20. The lease
requires the tenant to pay all real estate taxes, assessments, water and sewer
and utility charges and other governmental charges.
Maintenance and Modifications The Company is not required to make
any alterations, reconstructions, additions, improvements or repairs of any kind
to the property. Tenant is required to maintain the property and make all
repairs, structural and non-structural. The tenant cannot make alterations to
the building without the Company's consent, which is not to be unreasonably
withheld, but tenant can make exterior and interior non-structural alterations
without landlord's consent provided tenant complies with all legal requirements.
Insurance Tenant is required to carry at its expense all risk
insurance covering the building and improvements to the extent of their full
replacement value, boiler and machinery insurance, and liability insurance. In
management's opinion, this property is adequately covered by insurance.
Damage to or Condemnation of Property If the premises is damaged by
fire or other casualty and the premises cannot be repaired and restored within
eighteen months of the casualty or if the casualty occurs during the last three
years of the term, or any renewal term, such that the cost of rebuilding or
repairs exceeds 20% of the replacement cost, tenant or landlord may terminate
the lease, but if landlord exercises its right to terminate, tenant can void
such exercise by exercising any right it may have to extend. If the lease cannot
be or is not terminated after a casualty then tenant at its cost shall rebuild
or repair the premises, and all insurance proceeds are to be applied to the cost
of rebuilding or repair.
In the event of a condemnation of any part of the building or a
substantial portion of the premises tenant shall have the right, subject to the
Company's right to substitute compatible parking and/or facilities (a) to
terminate the lease as of the date of taking, or (b) continue the lease with an
appropriate rent reduction. If tenant does not or may not elect to terminate the
lease, the tenant shall restore the premises remaining after the taking and the
Company shall make the condemnation proceeds, or as much thereof as is necessary
for the reconstruction, available to tenant. In the event of termination of the
lease because of condemnation both landlord and tenant can seek to recover
compensation and damage from the condemning authority for injury or loss
sustained by them.
Mortgage The Fort Myers property is encumbered by a first mortgage
held by SouthTrust Bank of Alabama, National Association in the original
principal amount of $3,250,000. The loan bears interest at 7.8% per annum and
matures January 1, 2004. The loan provides for amortization over 25 years. As of
September 30, 1997 the principal amount due on the mortgage was $3,223,227.
Assuming no payment is made on principal in advance of the maturity date, the
principal balance due at maturity will be approximately $2,889,000. The Company
has the right to prepay this mortgage but there shall be due at the time of
prepayment a premium equal to the amount required to compensate the mortgagee
for its loss of investment (a yield maintenance formula).
<PAGE>
Lease Expirations
The following table sets forth scheduled lease expirations for all
leases for the Properties as of December 31, 1997.
<TABLE>
<CAPTION>
Current
Net Rentable Annual % of Rents
Square Feet Rents Under Represented
Year of Lease Number of Leases Subject to Expiring By Expiring
Expiration (1) Expiring Expiring Leases Leases (2) Leases
- ---------- -------- --------------- ---------- ------
<S> <C> <C> <C> <C>
1998 0 - - -
1999 2 6,125 $ 46,677 0.86%
2000 1 38,448 149,947 2.75%
2001 4 12,363 209,039 3.84%
2002 1 3,060 21,600 0.40%
2003 0 - - -
2004 1 55,370 42,000 0.77%
2005 0 - - -
2006 1 72,897 359,640 6.59%
2007 0 - - -
2008 2 920,144 4,628,468 84.8%
</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.
<PAGE>
Indebtedness
The following table sets forth certain information regarding the
mortgage indebtedness of the Company as of December 31, 1997.
<TABLE>
<CAPTION>
CURRENT
INTEREST PRINCIPAL PROJECTED ANNUAL MATURITY BALANCE DUE
PROPERTY LOCATION RATE AMOUNT INTEREST PAYMENTS DATE(1) AT MATURITY
- ----------------- ---- ------ ----------------- ------- -----------
(000) (000) (000)
<S> <C> <C> <C> <C> <C>
Columbus, OH 7.33% $4,325 321 1/1/08 3,762
Fort Myers, FL 7.80% $3,210 252 1/1/04 2,881
Clayton County, GA 8.45% $2,363 198 9/1/06 1,960
Greenwood Village, CO 8.75% $2,671 232 3/31/06 2,254
Lewisville, TX 8.75% $1,572 135 1/1/17 0
Cedar Rapids, IA 8.5% $ 952 80 12/31/00 874
Killeen, TX 9.1% $ 715 64 8/14/02 667
Rosenberg, TX 8.55% $ 677 57 12/5/02 616
New York, NY 8.75% $4,062 352 6/14/99 3,966
</TABLE>
(1) Assumes the Company does not extend any mortgage pursuant to the terms of
the mortgage.
<PAGE>
Competition
The Company faces competition for the acquisition of net leased
properties from other REITs, investment companies, insurance companies, pension
funds and private individuals, some of whom have greater resources than the
Company. The Company also faces indirect competition from institutions that
provide or arrange for other types of commercial financing, such as traditional
mortgage financing and traditional bank financing. The Company believes that its
management's experience in real estate mortgage lending, credit underwriting and
transaction structuring allows it to compete effectively for properties.
Environmental Matters
Under various federal, state and local environmental laws, regulations
and ordinances, current or former owners of real estate, may be required to
investigate and clean up hazardous or toxic chemicals, substances or waste or
petroleum product 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 and to provide that non-compliance with environmental
laws is deemed a lease default.
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 $801,000 held by the
escrow agent, which the Company deems adequate.
<PAGE>
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 their 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 $50,000, to repay debt of $4,605,000
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.
<PAGE>
PRICE RANGE OF COMMON STOCK AND DISTRIBUTIONS
The Company's Common Stock trades on the American Stock Exchange under
the symbol OLP. The following table sets forth the high and low prices for the
Common 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 during each
quarter of the years ended December 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
DISTRIBUTIONS
1995 HIGH LOW PER SHARE
- ---- ---- --- ---------
<S> <C> <C> <C>
First Quarter 10-7/8 10-1/4 $.125
Second Quarter 12-3/4 10-1/4 $.30
Third Quarter 13-3/4 12-1/4 $.30
Fourth Quarter 14-1/8 12-3/4 $.30*
1996
First Quarter 14-1/8 13 $.30
Second Quarter 13-5/8 13-5/8 $.30
Third Quarter 13-1/2 12-5/8 $.30
Fourth Quarter 13-1/2 12-5/8 $.30*
1997
First Quarter 13-3/4 12-3/4 $.30
Second Quarter 13-3/4 13-1/4 $.30
Third Quarter 14 13-1/8 $.30
Fourth Quarter 14-5/8 13-5/8 $.30*
</TABLE>
*A cash distribution of $.30 was paid on the Common Stock on January 3, 1996,
January 2 ,1997 and January 5, 1998. These distributions are reported as being
paid in the fourth quarter of the prior year.
<PAGE>
On _______________, 1998, the closing sale price of the Common Stock as
reported by the ASE was $________ per share. As of _______________, 1998 the
approximate number of holders of record of the Common Stock was ______.
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."
<PAGE>
CAPITALIZATION
The following table sets forth the Company's unaudited capitalization as
of September 30, 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 423,434 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>
September 30, 1997
------------------
Historical Pro Forma
---------- ---------
<S> <C> <C>
Mortgages and other notes payable $18,283,523 $16,283,523
Redeemable Convertible Preferred Stock $1.00
par value, $1.60 cumulative annual
dividend, 2,300,000 shares authorized;
808,776 shares issued and outstanding (1) 13,067,750 13,067,750
Stockholders' equity(1)
CommonStock, $1.00 par value,
25,000,000 shares authorized; 1,544,314 and
2,360,639 shares issued and outstanding,
respectively 1,544,314 2,360,729
Paid-in capital 14,268,741 23,403,410
Net unrealized gain on available-for-sale
securities 172,793 172,793
Accumulated undistributed income 2,169,158 2,169,158
--------- ---------
Total stockholders' equity 18,155,006 28,106,090
---------- ----------
Total capitalization $49,506,279 $57,457,363
=========== ===========
- --------------
</TABLE>
(1) The Redeemable Convertible 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 Redeemable Convertible Preferred Stock have a right to
"put" it 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 Redeemable Convertible
Preferred Stock.
<PAGE>
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, 1996, 1995, 1994, 1993, and 1992, and the unaudited financial
statements of the Company for the nine months ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
STATEMENT INCOME DATA 1996 1995 1994 1993 1992
- --------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
- -Revenues $5,511,556 $4,890,962 $4,041,378 $3,348,419 $2,967,919
- -Gain on Sale
of Investments
and real estate -- -- -- 168,631 303,130
- -Provision for
Valuation
Adjustment and
Impairment (659,000) -- -- (258,744) --
- -Net Income 2,173,952 3,096,302 2,861,137 2,435,269 2,436,315
Calculation of
net Income
Applicable to
Common
Stockholders:
- -Net Income 2,173,952 3,096,302 2,861,137 2,435,269 2,436,315
- -Less: Dividends
and Accretion
of Preferred
Stock 1,448,359 1,446,519 1,444,703 1,442,907 1,442,372
- -Net Income
Applicable
to Common
Stockholders $725,593 $1,649,783 $1,416,434 $992,362 $993,943
- -Weighted Average
Number of Common
Shares
Outstanding 1,447,413 1,409,371 1,356,989 1,338,619 1,338,619
- -Net Income Per
Common Share $.50 $1.17 $1.04 $.74 .74
- -Cash Distributions
Per Share of:
-Common Stock $1.20 $1.03 $.86 $.94 $.70
-Preferred Stock $1.60 $1.60 $1.60 $1.60 $1.60
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 31,
Income Statement Data 1997 1996
- --------------------- ---- ----
<S> <C> <C>
- -Revenues $4,625,875 $3,976,831
- -Gain on Sale of Investments
and real estate 599,251 --
- -Provision for Valuation
Adjustment and Impairment -- (459,000)
- -Net Income 2,285,265 1,735,697
- -Calculation of Net Income
Application to Common
Stockholders:
- -Net Income 2,285,265 1,735,265
- -Less: Dividends and
Accretion on Preferred
Stock 1,087,488 1,086,094
- -Net Income Applicable
to Common Stockholders $1,197,777 $649,603
- -Weighted Average Number
of Common Shares
Outstanding 1,511,042 1,439,051
- -Net Income Per
Common Share $.79 $.45
- -Cash Distributions Per
Share of:
-Common Stock $.90 $.90
-Preferred Stock $1.20 $1.20
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
STATEMENT DATA 1996 1995 1994 1993 1992
- -------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
- -Total Real
Estate
Investments, Net $42,889,213 $24,797,472 $10,996,534 $5,627,909 $6,271,828
- -Investments in
US Government
Obligations and
Securities -- 1,274,747 3,972,256 4,856,453 13,954,329
- -Mortgages and
Note Receivables 6,049,033 7,564,716 16,096,224 17,274,039 10,614,040
- -Total Assets 52,522,988 38,040,246 37,652,773 32,383,674 32,339,558
- -Total Liabilities 21,987,633 7,532,267 7,680,937 3,360,236 3,199,045
- -Redeemable
Convertible
Preferred Stock 12,950,792 12,796,475 12,643,998 12,493,337 12,344,472
- -Total Stock-
holders' Equity 17,442,841 17,711,504 17,327,838 16,530,101 16,796,041
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
STATEMENT DATA 1997 1996
- -------------- ---- ----
<S> <C> <C>
Balance Sheet Data
- -Total Real
Estate
Investments,
Net $41,325,983 $34,797,472
- -Investments in
US Government
Obligations and
Securities -- 705,123
- -Mortgages and
Note Receivables 5,942,138 6,082,076
- -Total Assets 50,762,437 45,378,004
- -Total Liabilities 19,539,681 14,769,160
- -Redeemable
Convertible
Preferred Stock 13,067,750 12,912,039
- -Total Stock-
holders' Equity 18,155,006 17,554,334
</TABLE>
<PAGE>
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 $7,000,000 was available at September 30,
1997) and funds obtainable from mortgages to be secured by real estate
investments.
In March, 1996 the Company entered into a $5 million revolving
credit agreement ("Credit Agreement") with Bank Leumi Trust Company of New York
("Bank Leumi"). Under the terms of the Credit Agreement the Company can add
additional lenders to provide a maximum total facility of $15,000,000. In June
1997, the Company closed on a $4,000,000 participation interest with Commercial
Bank of New York (formerly First Bank of the Americas), increasing the total
facility to $9,000,000. Borrowings under the Credit Agreement will provide the
Company with funds, when needed, to acquire additional properties. The Credit
Agreement matures February 28, 1999 with a right for the Company to extend the
Credit Agreement until February 29, 2000.
The Company is currently in discussions concerning the acquisition
of additional net leased properties. Cash provided from operations and the
Company's cash position will provide funds for cash distributions to
shareholders and operating expenses. These sources of funds, as well as funds
available under the Credit Agreement, will provide funds for future property
acquisitions. It will continue to be the Company's policy to make sufficient
cash distributions to shareholders in order for the Company to maintain its real
estate investment trust status under the Internal Revenue Code.
In connection with the lease agreements with Total Petroleum, Inc.
("Total Petroleum") consummated in 1991, the Company agreed to expend certain
funds to remediate environmental problems at certain locations net leased to
Total Petroleum. It was agreed that the net cost to the Company would not exceed
$350,000 per location, with any excess being the responsibility of Total
Petroleum. At that time the Company deposited $2,000,000 with an independent
escrow agent to insure compliance by the Company with its obligations with
respect to the environmental clean up. The escrow agent held approximately
$881,000 as of September 30, 1997, which the Company deems adequate to cover any
additional environmental costs at the Total Petroleum locations.
There will be no effect on the Trust's liquidity relating to the
year 2000 issue because during 1997 the Trust acquired computer hardware and
software to handle the companies accounting and real estate management. The
computer software is capable of handling all issues relating to the year 2000.
<PAGE>
RESULTS OF OPERATIONS
Nine months ended September 30, 1997 and 1996
As a result of the acquisition of five properties in 1996 and one
property in 1997 rental income increased by $1,108,383 to $3,949,729 for the
nine months ended September 30, 1997 as compared to the nine months ended
September 30, 1996. The properties acquired in 1996 were acquired at various
times between April and November 1996; accordingly, two of such properties
(purchased in the last quarter of 1996), and the property acquired in 1997,
contributed to rental income for only a portion of the 1996 nine month period.
Rental income for the 1997 nine month period was negatively affected by the
vacancy of two properties effective January 1, 1997, (one of these properties
was sold in January 1997 and the other in May 1997) and the sale of a third
property in August 1997.
The decrease in interest income from related parties of $295,466 from
$921,462 in the nine months ended September 30, 1996 to $625,996 in the 1997
nine month period is substantially due to the payoff in full of a senior note
receivable during August 1996.
Interest and other income decreased to $50,150 in the current nine
month period from $214,023 in the prior nine month period due to a combination
of factors including 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.
Increases in depreciation and amortization expense of $271,005 for
the nine months ended September 30, 1997 to $754,580 results primarily from
depreciation on properties acquired during 1996. Also contributing to the
increase was the amortization of capitalized costs incurred in connection with
the Company's credit facility and placing mortgages on its properties.
The increase in interest-mortgages payable to $1,157,027 in the
current nine month period from $557,880 in the prior nine month period is due to
interest paid on mortgages placed on properties acquired during 1996.
Interest-bank note payable amounted to $96,771 during the nine months ended
September 30, 1997 resulting from borrowings under the Credit Agreement. Such
interest amounted to $15,418 during the 1996 comparable period. Borrowings under
the Credit Agreement were made to facilitate property acquisitions.
During the nine months ended September 30, 1996 the Company
determined that the estimated fair value of certain of its properties were lower
than the carrying amount and thus recorded a provision for valuation adjustment
for the difference. The valuation adjustment was $459,000 for the nine months
ended September 30, 1996, covering three properties. Two of these properties
were sold during the nine months ended September 30, 1997 and one property is
vacant. There were no comparable provisions taken in 1997.
On August 5, 1997, a property owned by a limited liability company
in which the Company is a significant 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 the
minority interest share of the gain of $215,336).
<PAGE>
Comparison 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
for the year ended December 31, 1996 from $1,878,262 for the year ended December
31, 1995 to $1,132,150 for the year ended December 31, 1996 is substantially due
to accelerated principal collections during 1995 on a senior note receivable
which resulted in unusually large amortization of the discount on such note
during 1995 and additionally, resulted in a substantial decrease in interest
earned on such note during 1996. This note was collected in full during August
1996. Also contributing to the decrease in interest earned was the payoff in
full during March 1996 of an $845,000 mortgage receivable.
Interest and other income decreased to $201,118 in 1996 from
$333,303 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 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.
General and administrative costs of $663,201 reflect an increase of
$86,264 from the prior year expense of $576,937 and is due to a combination of
factors including various fees and other costs incurred with the implementation
and maintenance of the Company's distribution reinvestment plan and an increase
in professional fees.
At December 31, 1996 the Company owned five properties leased to a
chain of retail stores, all of which leases expired on December 31, 1996. Two of
those properties were under contract of sale on December 31, 1996, one was relet
and two became vacant. The Company is actively seeking a buyer or tenant for the
two vacant properties. The Company has recorded a provision for valuation
adjustment on the two properties under contract of sale since the sales prices
are lower than their carrying amounts and thus the Company has taken a provision
for the difference. The total provision taken on these five properties amounts
to $659,000. There was no comparable provision taken in 1995.
Comparison of Years ended December 31, 1995 and 1994
Total revenues increased to $4,890,962 for the year ended December
31, 1995 from $4,041,378 for the year ended December 31, 1994. The increase of
approximately $850,000 is the result of a substantial increase in rental income,
offset in part by decreases in interest, dividends and other income, resulting
form Management's decision during 1994 to concentrate on investments in improved
real estate net leased on a long term basis. Rental income increased by
$1,682,084, from $983,373 in 1994 to $2,665,457 in 1995, primarily due to rents
earned on sixteen properties acquired from Gould Investors L.P. ("Gould") in
January 1995 ("January 1995 Transaction") and four other properties acquired
during 1995 and 1994. Interest income from related parties decreased from
$2,361,013 in 1994 to $1,878,262 in 1995, principally due to the extinguishment
of a mortgage receivable as part of the January 1995 Transaction. The decrease
was partly offset by an increase in the discount amortization of a senior note
during 1995.
Dividends from related party decreased to $13,940 in 1995 from
$270,000 in 1994 due to the transfer of preferred shares of BRT Realty Trust as
part of the January 1995 Transaction. Interest and other income decreased to
$333,303 in 1995 from $462,992 in 1994 primarily due to a decrease in the amount
received or accrued from the Michigan Underground Storage Tank Fund
Administration.
The $242,804 increase in depreciation and amortization from
$236,841 in 1994 to $479,645 in 1995 results substantially from depreciation on
properties acquired during 1995 and 1994. The decrease in interest - mortgages
payable from $484,440 in 1994 to $453,684 in 1995 is the net result of the
elimination of interest paid on a $2,753,700 mortgage which was fully repaid in
March 1995, offset by interest paid on new mortgages obtained in connection with
property acquisitions during 1995 and 1994.
Effective January 1, 1995, the Company became self-managed, thereby
eliminating the management fee. In connection with the January 1995 Transaction,
the Company must pay annual fixed leasehold rent on one property of $289,000
through April 2010. There was no such expense in 1994.
General and administrative costs increased in 1995 to $576,937 from
$355,874 in 1994 substantially due to salary and related payroll costs for the
Company's President, as the Company converted to self-management effective
January 1995. To a lesser extent, the increase results from additional payroll
charges, as the Company's level of activity increased.
<PAGE>
MANAGEMENT
Directors and Executive Officers. The following sets forth information with
respect to the directors and executive officers of the Company:
NAME AGE POSITION WITH THE COMPANY
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 Gould 38 President and Chief
Executive Officer
Simeon Brinberg 64 Vice President
David W. Kalish 51 Vice President and
Chief Financial Officer
Nathan Kupin 83 Senior Vice President
Jeffrey Gould 33 Vice President
Mark H. Lundy 36 Secretary
Seth D. Kobay 43 Vice President and
Treasurer
Karen Dunleavy 39 Vice President, Financial
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.
<PAGE>
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 for his own account
and has been for more than the past five years. He has been engaged in the
ownership and operations 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 the Board of Trustees 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 Gould. Mr. Gould has been President and Chief Executive Officer of
the Company since 1989. He has been a Vice President of BRT Realty Trust since
1986, a Vice President of the managing general partner of Gould Investors L.P.
from 1986 to 1996 and President since 1996. He also serves as a Vice President
of the advisor to BRT Realty Trust.
Simeon Brinberg. Mr. Brinberg has served as Vice President of the Company
since 1989. He has been Secretary of BRT Realty Trust since 1983, a Senior Vice
President of BRT Realty Trust since 1988 and a Vice President of the managing
general partner of Gould Investors L.P. since 1988. He is a director of Witco
Corporation.
David W. Kalish. Mr. Kalish has served as Vice President and Chief
Financial Officer of the Company since June 1990. Mr. Kalish is also a Vice
President and Chief Financial Officer of BRT Realty Trust and Vice President and
Chief Financial Officer of the managing general partner of Gould Investors L.P.
since June 1990. For more than five years prior to June 1990, Mr. Kalish, a
certified public accountant, was a partner of Buchbinder Tunick & Company,
certified public accountants.
Nathan Kupin. In addition to serving as a Senior Vice President of
the Company since 1989, Mr. Kupin has been a Trustee and Vice President of BRT
Realty Trust since 1983. He is also Vice Chairman of the Board of Directors of
the managing general partner of Gould Investors L.P. and a director of the
advisor to BRT Realty Trust.
Jeffrey Gould. Mr. Gould has been a Vice President of the Company since
1989. Mr. Gould was a Vice President of BRT Realty Trust from January 1988 to
March 1993, Executive Vice President and Chief Operating Officer of BRT from
March 1993 to March 1996, and President and Chief Operating Officer since March
1996. Mr. Gould has served as a Trustee of BRT Realty Trust since March 1997.
Mark H. Lundy. In addition to being Secretary of the Company since
June 1993, Mr. Lundy has been a Vice President of BRT since April 1993 and a
Vice President of the managing general partner of Gould Investors L.P. since
July 1990. Prior to July 1990 he was an associate with the law firm of
Dickstein, Shapiro and Moran, Washington, D.C.
Seth D. Kobay. Mr. Kobay has been Vice President and Treasurer of the
Company since August 1994. He has been Vice President and Treasurer of BRT
Realty Trust since March 1994 and Vice President of Operations of the managing
general partner of Gould Investors L.P. since 1986.
Karen Dunleavy. Ms. Dunleavy has been Vice President, Financial of the
Company since August 1994. She has served as Treasurer of the managing general
partner of Gould Investors L.P. since 1986.
Matthew Gould and Jeffrey Gould are Fredric H. Gould's sons.
Board of Directors and Committees
The Company is managed by a five member Board of Directors, a
majority of whom are independent of the Company's management. Messrs. Amato,
Biederman and Hurand comprise the Company's current independent 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, 2000, 1999 and 1998, 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 Gould serve as directors
of Sunstone Hotel Investors, Inc. and Messrs. Hurand, Fredric 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 limitation of liability of directors and officers, no director or
officer shall be liable to the Company or its stockholders for money damages.
<PAGE>
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.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long Term Compensation
Awards
Other Securities/
Annual Restricted Underlying Payouts
Name and Principal Salary Bonus Compen- Stock Options/ LTIP All Other
Position Year $ $(2) sation (1) Awards($) SARs(#) Payout($) Compensation (3)
- ----------------- --------- ------- -------- ----------- --------- ------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Matthew J. Gould 1997 $140,000 0 - - - - $9,600
President and 1996 $132,000 0 - - - - $10,578
Chief Executive 1995 $125,000 $25,000 - - - - $8,789
Officer (3)
- ----------
</TABLE>
(1) 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).
(2) 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 $25,000 was not paid or accrued until 1996. The
Compensation Committee has not yet met to determine 1997 bonuses, to be paid in
1998.
(3) Represents the amount reimbursed by the Company to an affiliated entity
for an allocated portion of the pension expense paid for the Chief Executive
Officer.
<PAGE>
Stock Option Plan
The Company's directors adopted a stock option plan on October 16,
1989 covering 110,000 shares ("1989 Plan") and a stock option plan on December
6, 1996 covering 125,000 shares ("1996 Plan"). Both plans were approved by
stockholders. Options are granted at per share exercise prices at least equal to
the fair market value on the date of grant. Neither the 1996 Plan or the 1989
Plan provides for stock appreciation rights.
Options Granted in 1997
The following table sets forth information concerning the grant of
stock options in 1997 to the Company's Chairman of the Board and President and
Chief Executive Officer.
<TABLE>
<CAPTION>
Individual Grants(1)
Potential Realizable
% of Total Value at Assumed
Options Annual Rates of Stock
Granted Exercise or Price Appreciation For
Options to Employees Base Price Option Term (2)
Name Granted in Fiscal Year ($/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 A. 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 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.
<PAGE>
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.
<PAGE>
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, and
Nathan Kupin also serves as a Trustee of BRT. Marshall Rose is Vice Chairman 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 transation 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.
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 brought 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 approved by the independent
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 has 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 approved by the independent
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.
<PAGE>
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 24.8/0 19.8
Fredric H. Gould (1) (2) 632,326/7,500 39.9/* 31.9
Matthew Gould (1) (3) 443,901/6,900 28.0/* 22.5
Jeffrey Gould (4) 47,498/3,000 2.9/* 2.6
Marshall Rose (5) 119,751/0 7.6/0* 6.0
Joseph Amato 219/0
Charles Biederman 5,000/0 * *
Arthur Hurand 32,748/0 * *
Karen Dunleavy 850/100(6) * *
Simeon Brinberg 9,890/500 * *
David W. Kalish 8,300/200 * *
Seth Kobay 750(6) * *
Mark Lundy 8,500(6) * *
All Executive Officers and
Directors as a group (13 in
number) 916,752/18,100(6) 57.8/2.2% 46.5
* Less than 5%
</TABLE>
(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. and 106,557 owned by entities and
trusts over which Mr. Gould has shared voting and dispositive power. 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.
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. See "Certain
Provisions of Maryland Law and the Company's Charter and Bylaws--Control Share
Acquisitions."
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.
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.
<PAGE>
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 Brinberg and
Lundy, 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
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 many 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 Brinberg and Lundy, 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
Brinberg and Lundy. 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 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. Such
ownership and transfer restrictions are described in "Description of Capital
Stock-Restrictions on Ownership, Transfer and Conversion." 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
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 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 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.
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
taxable 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.
<PAGE>
THE OFFER
The Company is issuing offers to holders of record of its Common
Stock at the close of business on _______________ (the "Record Date") 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 on the Record Date will receive one Right
with respect to each share of Common Stock 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
_______________ (the "Expiration Date"). To subscribe, the Rights Certificates
and payment must be received by the Subscription Agent, at their offices at:
(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."
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 1,574,894 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 and signing the
subscription form on the Rights Certificate and returning the Rights Certificate
together with payment in full for all shares of Common Stock subscribed for by
mail or otherwise to the Subscription Agent at the Office. Payment in full of
the Subscription Price ($_____ 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 cashier's check, bank draft or
money order and should be made payable to One Liberty Properties, Inc.
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 10:00 AM New York City time on
_______________, 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 Form
2 on the reverse side 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 Oversubscription Privilege) if such subscription is
not in proper form or if the acceptance thereof or the issuance of Common Shares
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 of 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
__________ shares.
EXPERTS
The consolidated financial statements sheets of One Liberty
Properties, Inc. as of December 31, 1996 and 1995 and each of the three years in
the period ended December 31, 1996, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP., independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report 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
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 Commission such
indemnification is against public policy as expressed and 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.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report Of Independent Auditors F-1
Consolidated Balance Sheets
As Of December 31, 1996 And
1995 (Audited) F-2
Consolidated Statements Of Income
For The Three Years Ended
December 31, 1996 (Audited) F-3
Consolidated Statements Of Stockholders'
Equity For The Three Years Ended
December 31, 1996 (Audited) F-4
Consolidated Statements Of Cash Flows
For The Three Years Ended
December 31, 1996 (Audited) F-5
Notes To Consolidated Financial
Statements, December 31, 1996 F-7
Consolidated Balance Sheets As Of
September 30, 1997 (Unaudited) And
December 31, 1996 F-22
Consolidated Statements Of Income For The
Three And Nine Months Ended
September 30, 1997 And 1996
(Unaudited) F-23
Consolidated Statements Of Stockholders'
Equity For The Nine Month Period
Ended September 30, 1997 And
The Year Ended December 31, 1996
(Unaudited) F-24
Consolidated Statements Of Cash Flows
For The Nine Months Ended
September 30, 1997 And 1996
(Unaudited) F-25
Notes To Consolidated
Financial Statements -
September 30, 1997 (Unaudited) F-26
<PAGE>
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, 1996 and
1995, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. Our audits also included the financial statement schedules listed in the
Item 36 of Part II of this Registration Statement. 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, 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 26, 1997
F-1
<PAGE>
<TABLE>
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Real estate investments,at cost(Notes 3, 4,5 and 6)
Land $ 11,040,590 $ 7,299,417
Buildings 33,695,317 18,154,919
---------- ----------
44,735,907 25,454,336
Less accumulated depreciation 1,846,694 1,200,571
--------- ---------
42,889,213 24,253,765
Mortgages receivable - less unamortized discount -
(substantially all from related parties)
(Notes 3 and 6) 6,049,033 7,036,141
Senior secured note receivable-less unamortized
discount - (related party) (Note 3) - 528,575
Cash and cash equivalents 2,478,580 3,844,409
Unbilled rent receivable 304,828 86,767
Rent, interest, deposits and other receivables 66,908 696,790
Investments in U.S. Government obligations and
securities - (Note 2) - 1,274,747
Investment in BRT Realty Trust - (related party) -
(Notes 2 and 3) 199,068 127,704
Deferred financing costs 480,640 129,282
Other 54,718 62,066
------ ------
$ 52,522,988 $ 38,040,246
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable (Note 6) $ 16,846,921 $ 6,590,154
Note payable - bank (Note 6) 3,900,000 -
Accounts payable and accrued expenses 475,109 193,767
Dividends payable 765,603 748,346
------- -------
21,987,633 7,532,267
---------- ---------
Commitments and contingencies (Notes 4, 7 and 8) - -
Minority interest in subsidiary 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) 12,950,792 12,796,475
---------- ----------
Stockholders' equity (Note 6):
Common Stock, $1 par value; 25,000,000
shares authorized; 1,473,642 and
1,416,119 shares issued and outstanding 1,473,642 1,416,119
Paid-in capital 13,650,737 13,218,757
Net unrealized gain (loss) on
available-for-sale securities (Note 2) 97,673 (6,758)
Accumulated undistributed net income 2,220,789 3,083,386
--------- ---------
17,442,841 17,711,504
---------- ----------
$ 52,522,988 $ 38,040,246
============== ==============
</TABLE>
See accompanying notes.
F-2
<PAGE>
<TABLE>
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
<CAPTION>
Consolidated Statements of Income
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental income (Note 4) $ 4,178,288 $ 2,665,457 $ 983,373
Interest from related parties (Note 3) 1,132,150 1,878,262 2,361,013
Dividends from related party (Note 3) - 13,940 270,000
Interest and other income 201,118 333,303 426,992
------- ------- -------
5,511,556 4,890,962 4,041,378
--------- --------- ---------
Expenses:
Depreciation and amortization 712,591 479,645 236,841
Interest - mortgages payable 891,953 453,684 484,440
Interest - bank 110,185 - -
Management fee (Note 8) - - 103,086
Leasehold rent 288,833 284,394 -
General and administrative (Note 8) 663,201 576,937 355,874
Provision for valuation adjustment of real
estate - (Note 5) 659,000 - -
------- --------- ---------
3,325,763 1,794,660 1,180,241
--------- --------- ---------
Operating income before minority interest in earnings
of subsidiary 2,185,793 3,096,302 2,861,137
Minority interest in earnings of subsidiary (11,841) - -
------- --------- ---------
Net income $ 2,173,952 $ 3,096,302 $ 2,861,137
=========== =========== ===========
Calculation of net income applicable to common stockholders:
Net income $ 2,173,952 $ 3,096,302 $ 2,861,137
Less dividends and accretion on preferred stock 1,448,359 1,446,519 1,444,703
--------- --------- ---------
Net income applicable to common stockholders $ 725,593 $ 1,649,783 $ 1,416,434
=========== =========== ===========
Weighted average number of common
shares outstanding 1,447,413 1,409,371 1,356,989
========= ========= =========
Net income per common share (Note 2) $ .50 $ 1.17 $ 1.04
=========== =========== ===========
Cash distributions per share:
Common Stock $ 1.20 $ 1.03 $ .86
=========== =========== ===========
Preferred Stock $ 1.60 $ 1.60 $ 1.60
=========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the three years ended December 31, 1996
<CAPTION>
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, 1993 $ 1,338,619 $ 12,854,707 $ - $ 2,336,775 $
16,530,101
Net income - - - 2,861,137 2,861,137
Distributions - Common Stock
($.86 per share) - - - (1,173,347) (1,173,347)
Distributions - Preferred Stock
($1.60 per share) - - - (1,294,042) (1,294,042)
Accretion on Preferred Stock - (150,661) - - (150,661)
Exercise of options 60,500 529,063 - - 589,563
Net unrealized loss on available-
for-sale securities (Note 2) - - (34,913) - (34,913)
------------ ------------ ------------- ------------ ------------
Balances, December 31, 1994 1,399,119 13,233,109 (34,913) 2,730,523 17,327,838
Net income - - - 3,096,302 3,096,302
Distributions - Common Stock
($1.03 per share) - - - (1,449,397) (1,449,397)
Distributions - Preferred Stock
($1.60 per share) - - - (1,294,042) (1,294,042)
Accretion on Preferred Stock - (152,477) - - (152,477)
Exercise of options 17,000 138,125 - - 155,125
Net unrealized gain on available-
for-sale securities (Note 2) - - 28,155 - 28,155
------------ ------------ --------- ----------- ----------
Balances, December 31, 1995 1,416,119 13,218,757 (6,758) 3,083,386 17,711,504
Net income - - - 2,173,952 2,173,952
Distributions - Common Stock
($1.20 per share) - - - (1,742,507) (1,742,507)
Distributions - Preferred Stock
($1.60 per share) - - - (1,294,042) (1,294,042)
Accretion on Preferred Stock - (154,317) - - (154,317)
Exercise of options 23,500 190,937 - - 214,437
Shares issued through dividend
reinvestment plan 34,023 395,360 - - 429,383
Net unrealized gain on available-
for-sale securities (Note 2) - - 104,431 - 104,431
----------- ----------- --------- ----------- ----------
Balances, December 31, 1996 $ 1,473,642 $ 13,650,737 $ 97,673 $ 2,220,789 $ 17,442,841
=========== ============ ============= ============= ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows Year Ended December 31,
<CAPTION>
1996 1995 1994
---- ---- ----
<S>
<C> <C> <C>
Cash flows from operating activities:
Net income $ 2,173,952 $ 3,096,302 $ 2,861,137
Adjustments to reconcile net income to net cash
provided by operating activities:
(Increase) decrease in rental income from
straightlining of rent (218,061) 86,780 48,866
Provision for valuation adjustment 659,000 - -
Depreciation and amortization 712,591 479,645 236,841
Minority interest in earnings of subsidiary 11,841 - -
Changes in assets and liabilities:
Decrease (increase) in rent, interest, deposits and
other receivables 611,739 (328,461) (103,526)
Increase (decrease) in accounts payable
and accrued expenses 281,342 (5,123) 49,726
------- ------ ------
Net cash provided by operating activities 4,232,404 3,329,143 3,093,044
--------- --------- ---------
Cash flows from investing activities:
Additions to real estate (19,940,571) (3,819,323) (5,549,182)
Costs of acquisition of real estate and mortgage receivable
from Gould Investors L.P. - related party - (90,514) -
Collection of mortgages receivable - (including $961,789,
$148,291 and $236,625 from related parties in 1996,
1995 and 1994) 987,108 169,388 249,712
Collection of senior secured note receivable - BRT Realty
Trust - related party 528,575 1,579,618 928,103
Sale of U.S. Government obligations and
securities, net 1,310,553 2,806,713 739,188
Net investment by minority interest in subsidiary 129,881 - -
Other (2,248) (14,986) -
---------- --------- ---------
Net cash (used in) provided by investing activities (16,986,702) 630,896 (3,632,179)
----------- ------- ----------
Cash flows from financing activities:
Proceeds from bank borrowings, net of repayments 3,900,000 - -
Proceeds from mortgages payable 10,375,000 2,413,350 4,250,000
Satisfaction of mortgage payable - (2,753,700) -
Payment of financing costs (392,826) (85,225) (100,355)
Repayment of mortgages payable (118,233) (53,143) (20,053)
Exercise of stock options 214,437 155,125 589,563
Cash distributions - Common Stock (1,725,250) (1,199,451) (1,132,319)
Cash distributions - Preferred Stock (1,294,042) (1,294,042) (1,294,042)
Issuance of shares through dividend reinvestment plan 429,383 - -
---------- --------- ---------
Net cash provided by (used in) financing activities 11,388,469 (2,817,086) 2,292,794
---------- ---------- ---------
Net (decrease) increase in cash and cash equivalents (1,365,829) 1,142,953 1,753,659
Cash and cash equivalents at beginning of year 3,844,409 2,701,456 947,797
--------- --------- -------
Cash and cash equivalents at end of year $ 2,478,580 $ 3,844,409 $ 2,701,456
============ ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - Continued
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Supplemental disclosures of cash flow imformation:
Cash paid during the year for interest expense $ 914,506 $ 467,116 $ 430,076
Cash paid during the year for income taxes 59,437 43,784 10,981
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 -
Accretion on Preferred Stock 154,317 152,477 150,661
Net unrealized gain (loss) on available-for-sale securities 104,431 (6,758) (34,913)
</TABLE>
See accompanying notes.
F-6
<PAGE>
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996
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. Material intercompany items and transactions have been
eliminated. The Company, its subsidiaries and its majority-owned 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. Note receivable discount is amortized over the remaining life, based
on principal collections.
F-7
<PAGE>
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Measurement of Loan Impairment
During the year ended December 31, 1995 the Company adopted Statement of
Financial Accounting Standards No. 114 ("SFAS #114"), Accounting by Creditors
for Impairment of a Loan. SFAS #114 defines impairment as the probability that
all amounts due under a loan agreement will not be collected according to the
contractual terms.
The Company did not have any impaired loans at December 31, 1996 and
December 31, 1995.
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.
All distributions made during 1996 were attributable to ordinary income.
Distributions made during 1995 included approximately 8% attributable to capital
gains, with the balance to ordinary income.
F-8
<PAGE>
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investments in Debt and Equity Securities
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards #115, Accounting for Certain Investments in Debt and Equity
Securities. The SFAS addresses accounting and reporting for (1) investments in
equity securities that have readily determinable fair values and (2) all
investments in debt securities. The Company has determined in accordance with
SFAS #115 that its investment in common shares of BRT Realty Trust ("BRT"), a
related party of the Company (see Note 3 as to the Company's relationship to
BRT), and its investment (at December 31, 1995) in U.S. Government obligations
and securities are "available-for-sale" securities. The accounting treatment of
such securities at December 31, 1996 and 1995 is fair value, with unrealized
holding gains and losses excluded from earnings and reported as a separate
component of stockholders' equity.
The Company's investment in 30,048 common shares of BRT, purchased at a
cost of $97,656 has a fair market value at December 31, 1996 of $199,068
resulting in an unrealized holding gain of $101,412. In addition, the Company
has invested $18,847 in equity securities which have a fair market value of
$15,108 at December 31, 1996. The aggregate net unrealized holding gain of
$97,673 is included 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 $316,588 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
$8,387,263 at December 31, 1996. The loan is being carried on the balance sheet
at $5,732,445, the difference representing the remaining unamortized discount of
$2,654,818.
Cash and short term investments: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
F-9
<PAGE>
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, 1996
quoted market price per share of $16.625, the fair value of the Company's
redeemable convertible preferred stock is $13,445,901.
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.
Stock Based Compensation
Effective for the year ended December 31, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, ("FASB 123"), Accounting
for Stock-Based Compensation. In accordance with the provisions of FASB 123, the
Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations in accounting for its stock
option plans and accordingly, does not recognize compensation expense. During
1995 and 1996, no stock options were granted and accordingly the adoption of
FASB 123 had no effect on reported net earnings and earnings per share.
Earnings Per Common Share
Primary earnings per common share data is based upon the weighted average
number of common shares and assumed equivalent shares outstanding during the
year, after giving effect to the dividends and accretion relating to the
Company's Preferred Stock. The Preferred Stock is not considered a common stock
equivalent for the purpose of computing earnings per share because their assumed
conversion is anti- dilutive. The assumed exercise of outstanding share options,
using the treasury stock method, is not materially dilutive for the primary
F-10
<PAGE>
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (Continued)
primary earnings per common share computation.
Fully diluted earnings per common share is based on an increase in the
number of common shares that would be outstanding assuming the exercise of
common share options. Since fully diluted earnings per share amounts are not
materially dilutive, such amounts are not presented.
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 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 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.
NOTE 3 - REAL ESTATE PURCHASES (RELATED PARTY),MORTGAGES AND SENIOR SECURED NOTE
RECEIVABLE AND PRINCIPAL RELATED PARTY TRANSACTIONS
Real Estate Purchases
On January 19, 1995, the Company acquired from Gould Investors L.P.
("Gould") in a single transaction, sixteen net leased real estate properties
(including the reacquisition of thirteen retail locations net leased to Total
Petroleum and sold to Gould in December 1991 for an aggregate consideration of
$8,107,020) and one mortgage receivable. The properties are all net leased on a
long term basis to third parties with current expirations ranging from 2004 to
2051, and have certain tenant renewal rights. The consideration paid for the
F-11
<PAGE>
NOTE 3 - REAL ESTATE PURCHASES (RELATED PARTY),MORTGAGES AND SENIOR SECURED NOTE
RECEIVABLE AND PRINCIPAL RELATED PARTY TRANSACTIONS (Continued)
properties was comprised of 1) the extinguishment of a $6,850,000 mortgage loan
($33,145 and $685,000 were included in "Interest from related parties" in the
consolidated statement of income for the years ended December 31, 1995 and 1994,
respectively) which the Company held on thirteen of the acquired properties and
2) 1,030,000 restricted convertible preferred shares of BRT and 173,719
Beneficial Shares of BRT owned by the Company. The closing price of the BRT
Beneficial Shares on the New York Stock Exchange on January 19, 1995 (the date
of the transaction) was $3 5/8. The preferred shares did not trade publicly. The
Company's Board of Directors received, prior to and as a condition to
consummation of the transaction, valuation analyses on the sixteen properties
acquired and an opinion from an independent investment banker relating to the
fairness of the transaction. The Company recorded the assets acquired at the
carrying amount of the assets exchanged (plus transaction costs), resulting in a
reclassification from investments in BRT and mortgages receivable to real estate
investments, at cost.
In connection with the Total Petroleum lease agreement, the Company
deposited $2,000,000 with an independent escrow agent, which represents the
estimated maximum amount to remediate environmental problems discovered at
certain locations. The agreement limits the maximum payment to approximately
$350,000 per location. The escrow agent holds approximately $1,288,000 in escrow
as of December 1996, which the Company believes is adequate to cover any
additional environmental costs.
At December 31, 1996 and 1995 Gould owned 542,825 and 715,227 shares of the
common stock of the Company or 36.8% and 50.5% of the equity interest and 28.9%
and 39.3% of the voting rights, respectively.
At December 31, 1996 and 1995, the Company owned 30,048 shares of
Beneficial Interest of BRT, accounting for less than 1% of the total voting
power of BRT. For the years ended December 31, 1995 and 1994, the Company earned
$13,940 and $270,000, respectively, on its shares of BRT preferred stock which
was disposed of January 1995.
F-12
<PAGE>
NOTE 3 - REAL ESTATE PURCHASES (RELATED PARTY),MORTGAGES AND SENIOR SECURED NOTE
RECEIVABLE AND PRINCIPAL RELATED PARTY TRANSACTIONS (Continued)
Mortgages Receivable
Mortgages receivable at December 31, 1996 and 1995 consist of the following:
1996 1995
---- ----
Affiliates
(i) Entity substantially owned by
Gould Investors L.P. (net of
unamortized discount of
$2,654,818 and $2,982,418) $ 5,732,445 $ 5,834,234
(ii) Entity substantially owned
by Gould Investors L.P. - 860,000
Non-affiliates
Other 316,588 341,907
------- -------
$ 6,049,033 $ 7,036,141
============ ============
(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 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, 1996 and
1995 its principal balance had been reduced to approximately $8,387,000 and
$8,817,000, 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 $327,600, $319,500 and $310,200, amounted to
$848,200, $861,750 and $873,459 for the years ended 1996, 1995 and 1994,
respectively.
F-13
<PAGE>
NOTE 3 - REAL ESTATE PURCHASES (RELATED PARTY),MORTGAGES AND SENIOR SECURED NOTE
RECEIVABLE AND PRINCIPAL RELATED PARTY TRANSACTIONS (Continued)
The building which secures the first mortgage and the wrap mortgage is
leased in its entirety to the City of New York. The lease expires in 2005 with
an option to renew for an additional five years and provides the City with a
limited right of termination. The first mortgage and the wrap mortgage are
nonrecourse to the owner of the building.
(ii) In January 1992, the Company made a first mortgage loan to a
partnership in which Gould is General Partner and in which Gould owns
substantially all of the partnership interests, in the amount of $1,200,000. The
mortgage was paid in full during March, 1996. The mortgage note bore interest at
11% per annum, through January 31, 1994, 10% through January 31, 1995 and 11%
through March 1996 with minimum amortization of $5,000 per month. The interest
income amounted to $22,343, $96,863 and $99,859 for the years ended 1996, 1995
and 1994, respectively.
The transactions listed above in items (i) and (ii) were approved by the
independent directors of the Company. The directors who are affiliated with the
Company and Gould abstained from the voting on these transactions.
Annual maturities of mortgages receivable during the next five years and
thereafter are summarized as follows:
Year Ending December 31,
1997 $ 724,259
1998 484,097
1999 508,251
2000 532,820
2001 555,356
2002 and thereafter 5,899,068
---- ---------
Total 8,703,851
Less: Unamortized discount 2,654,818
---------
Net carrying amount - mortgages receivable $ 6,049,033
============
F-14
<PAGE>
NOTE 3 - REAL ESTATE PURCHASES (RELATED PARTY),MORTGAGES AND SENIOR SECURED NOTE
RECEIVABLE AND PRINCIPAL RELATED PARTY TRANSACTIONS (Continued)
Senior Secured Note Receivable
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 discount of $1,411,578 was amortized by the Company as
principal payments were received. The principal earned interest at prime plus
one percent. At December 31, 1996 and 1995 the Company's portion of the
indebtedness has been reduced to zero and $760,638, respectively, and the
carrying amount net of unamortized discount amounted to $528,575 at December 31,
1995. The purchase of the portion of this indebtedness was approved by the
independent directors of the Company. The directors who are affiliated with the
Company and BRT abstained from the voting on this transaction.
NOTE 4 - REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS
The rental properties owned at December 31, 1996 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.
Year Ending
December 31,
1997 $ 5,007,052
1998 5,061,293
1999 5,136,141
2000 5,057,352
2001 5,091,661
F-15
<PAGE>
NOTE 4 - REAL ESTATE INVESTMENTS AND MINIMUM FUTURE RENTALS
(Continued)
Included in the minimum future rentals is 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, 1996, the Company has recorded an unbilled rent receivable
aggregating $304,828, 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, 1996, the following assets generated
revenues for the Company in amounts exceeding 10% of the Company's total
revenues:
For the Year Ended December 31, 1996
Description Revenue % of Total Revenues
Mortgage receivable-related party(a) $848,200 15.39%
Total Petroleum properties (b) 1,092,714 19.83
(a) See note 3 -- 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.
NOTE 5 - PROVISION FOR VALUATION ADJUSTMENT
At December 31, 1996 the Company owned eleven properties leased to a retail
chain of stores. The initial term with respect to the leases expired on December
31, 1996. The tenant extended the leases on four of the eleven properties, two
have been leased to another entity, two were under contract of sale on December
31, 1996 (one sale closed in January, 1997), and three were vacant (and are
still vacant). The Company is actively seeking a buyer or tenant for the three
vacant properties.
F-16
<PAGE>
NOTE 5 - PROVISION FOR VALUATION ADJUSTMENT (Continued)
The Company has recorded a provision for valuation adjustment on the two
properties under contract of sale based on the sales prices. In addition, the
Company has determined that the estimated fair value of the three vacant
properties are lower than their carrying amounts and thus, the Company has
provided a provision for the differences. The total provision taken on these
five properties during the year ended December 31,1996 which amounts to $659,000
has been presented as a reduction to real estate investments on the balance
sheet.
NOTE 6 - DEBT OBLIGATIONS
Debt obligations consist of the following:
In January 1997, the Company closed on the financing of one of its
properties in the amount of $1,600,000. After giving effect to such financing,
scheduled principal repayments during the next five years and thereafter are as
follows:
Year Ending
December 31,
1997 $ 264,187
1998 293,956
1999 4,243,096
2000 2,970,245
2001 211,266
2002 and thereafter 10,464,171
----------
Total $ 18,446,921
==============
Note Payable - Bank: 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 being used to provide
the Company with funds to acquire properties. The Credit Agreement will mature
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
F-17
<PAGE>
NOTE 6 - DEBT OBLIGATIONS (Continued)
$5,000,000 on a revolving basis and to a total $15,000,000 facility
(including the $5,000,000) on a pro rata participating basis. The Company pays
interest under the Credit Agreement at the rate of prime plus 1/2% on funds
borrowed on an interest only basis, except that the net proceeds of certain
events (e.g. sale of property, financing of properties) must be applied to
reduce the loan.
At December 31, 1996, $3,900,000 was outstanding under the Credit Agreement.
NOTE 7 - REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Preferred Stock has the following rights, qualifications and
conditions: (i) a cumulative dividend preference of $1.60 per share per annum;
(ii) a liquidation preference of $16.50 per share; (iii) a right to convert each
share of Preferred Stock at any time into .825 of a share of Common Stock; (iv)
redeemable by the Company after July 1, 1996 at $16.90 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 - MANAGEMENT AGREEMENT AND OTHER RELATED PARTY TRANSACTIONS
On January 1,1995, the Company became self-managed incurring payroll and payroll
related costs for the Company's President of $172,640 and $137,460 for the years
ended December 31, 1996 and 1995, respectively. From July 1989 through December
31, 1994 the Company was managed by an entitiy ("Manager") controlled by the
Chairman and Vice Chairman of the Company's Board of Directors,and its President
all of whom are officers of the managing general partner of Gould.
F-18
<PAGE>
NOTE 8 - MANAGEMENT AGREEMENT AND OTHER RELATED PARTY
TRANSACTIONS (Continued)
In addition to the Manager's fee which amounted to $103,086 during the year
ended December 31, 1994, the Company paid $42,500 to the Manager for services
rendered in connection with obtaining mortgage financing on a property the
Company purchased in June 1994.
Gould charged the Company $175,969, $210,357 and $167,727 during the years
ended December 31, 1996, 1995, and 1994, 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 3 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. No options have been granted under this plan.
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.
F-19
<PAGE>
NOTE 9 - STOCK OPTIONS (Continued)
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,
1996.
Changes in the number of common shares under all option arrangements are
summarized as follows:
<TABLE>
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of period 57,500 74,500 225,000
Granted - - -
Option prices per share granted - - -
Exercisable at end of period 29,000 32,500 20,750
Exercised 23,500 17,000 60,500
Expired 5,000 - -
Outstanding at end of period 29,000 57,500 74,500
Option prices per share outstanding $9.125 $9.125 $9.125
</TABLE>
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. On July 2, 1996,
October 2, 1996 and January 2, 1997 the Company issued 18,859, 15,164 and 15,859
common shares, respectively, under the Plan.
F-20
<PAGE>
NOTE 11 - 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)
1996
<S> <C> <C> <C> <C> <C>
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 215 6 429 76 726
common stockholders (b)
Net income per common share (b) 0.15 - 0.29 0.05 .50 (c)
(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 the Senior Secured
Note Receivable (see Note 3) for the quarters ending March 31, 1996, June 30,
1996 and September 30, 1996, respectively.
(c) Calculated on weighted average shares outstanding during the year.
Quarter Ended
Total
March 31 June 30 September 30 December 31 For Year
(In thousands, except per share data)
1995
<S> <C> <C> <C> <C> <C>
Revenues (d) $1,217 $1,178 $1,367 $1,129 $4,891
Net income (d) 742 740 907 707 3,096
Net income applicable to 380 378 545 347 1,650
common stockholders (d)
Net income per common share (d) 0.27 0.27 0.39 0.24 1.17 (e)
(d) Includes approximately $156,000, $118,000, $315,000 and $105,000 (or
$.11, $.08, $.22 and $.07 per common share) of income from accelerated principal
payments on the Senior Secured Note Receivable (see Note 3) for the quarters
ending March 31, 1995, June 30, 1995, September 30, 1995 and December 31, 1995,
respectively.
(e) Calculated on weighted average shares outstanding during the year.
</TABLE>
F-21
Item 1. Financial Statements
<TABLE>
<CAPTION>
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Assets
Real estate investments, at cost
Land $10,598,515 $11,040,590
Buildings 33,029,157 33,695,317
---------- ----------
43,627,672 44,735,907
Less accumulated depreciation 2,301,689 1,846,694
--------- ---------
41,325,983 42,889,213
Mortgages receivable-less unamortized
discount-(substantially all from
related parties) 5,942,138 6,049,033
Cash and cash equivalents 1,843,879 2,478,580
Unbilled rent receivable 563,403 304,828
Rent, interest, deposits and
other receivables 318,283 66,908
Investment in BRT Realty Trust-
(related party) 274,188 199,068
Deferred financing costs 431,697 480,640
Other 62,866 54,718
------ ------
Total assets $50,762,437 $52,522,988
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Mortgages payable $ 16,283,523 $16,846,921
Note payable-bank 2,000,000 3,900,000
Accrued expenses and other liabilities 469,353 475,109
Dividends payable 786,805 765,603
------- -------
Total liabilities 19,539,681 21,987,633
---------- ----------
Commitments and contingencies - -
Minority interest in subsidiary - 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 13,067,750 12,950,792
---------- ----------
Stockholders' equity:
Common stock, $1 par value;
25,000,000 shares authorized;
1,544,314 and 1,473,642
shares issued and outstanding 1,544,314 1,473,642
Paid-in capital 14,268,741 13,650,737
Net unrealized gain on
available-for-sale securities 172,793 97,673
Accumulated undistributed net income 2,169,158 2,220,789
--------- ---------
Total stockholders' equity 18,155,006 17,442,841
---------- ----------
Total liabilities and stockholders'equity $50,762,437 $52,522,988
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
F-22
<PAGE>
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental income $1,267,217 $1,247,777 $3,949,729 $2,841,346
Interest from related parties 207,596 301,591 625,996 921,462
Interest and other income 17,703 44,522 50,150 214,023
------ ------ ------ -------
1,492,516 1,593,890 4,625,875 3,976,831
--------- --------- --------- ---------
Expenses:
Depreciation and amortization 252,476 187,699 754,580 483,575
Interest - mortgages payable 368,788 216,331 1,157,027 557,880
Interest - bank 25,635 15,418 96,771 15,418
Leasehold rent 72,208 72,208 216,625 216,625
General and administrative 150,119 161,010 484,019 503,387
Provision for valuation adjustment
of real estate - 145,000 - 459,000
------- ------- -------- -------
869,226 797,666 2,709,022 2,235,885
------- ------- --------- ---------
Income before gain on sale of real
estate and minority interest 623,290 796,224 1,916,853 1,740,946
Gain on sale of real estate 599,251 - 599,251 -
------- ------- ------- -------
Income before minority interest 1,222,541 796,224 2,516,104 1,740,946
Minority interest (217,532) (5,249) (230,839) (5,249)
-------- ------ -------- ------
Net income $1,005,009 $ 790,975 $2,285,265 $1,735,697
========== =========== ========== ==========
Calculation of net income applicable
to common stockholders:
Net income $1,005,009 $ 790,975 $2,285,265 $1,735,697
Less: dividends and accretion
on preferred stock 362,613 362,147 1,087,488 1,086,094
------- ------- --------- ---------
Net income applicable to
common stockholders $ 642,396 $ 428,828 $1,197,777 $ 649,603
=========== ============ ========== ==========
Weighted average number of
common shares outstanding 1,535,982 1,457,273 1,511,042 1,439,051
========= ========= ========= =========
Net income per common share (Note 2) $ .42 $ .29 $ .79 $ .45
========== ============= =========== ===========
Cash distributions per share:
Common Stock $ .30 $ .30 $ .90 $ .90
=========== ============= =========== ===========
Preferred Stock $ .40 $ .40 $ 1.20 $ 1.20
=========== ============= =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
F-23
<PAGE>
<TABLE>
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
For the nine month period ended September 30, 1997
and the year ended December 31, 1996
(Unaudited)
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,
January 1, 1996 $1,416,119 $13,218,757 $ ( 6,758) $3,083,386 $17,711,504
Net income - - - 2,173,952 2,173,952
Distributions -
common stock - - - (1,742,507) (1,742,507)
Distributions -
preferred stock - - - (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 - - 104,431 - 104,431
--------- --------- -------- ---------- ---------
Balances,
December 31, 1996 1,473,642 13,650,737 97,673 2,220,789 17,442,841
Net income - - - 2,285,265 2,285,265
Distributions -
common stock - - - (1,366,365) (1,366,365)
Distributions -
preferred stock - - - (970,531) (970,531)
Accretion on
preferred stock - (116,958) - - (116,958)
Exercise of options 25,500 207,188 - - 232,688
Shares issued through
dividend reinvestment
plan 45,172 527,774 - - 572,946
Net unrealized gain
on available-for-sale
securities - - 75,120 - 75,120
---------- ---------- ---------- --------- ----------
Balances,
September 30, 1997 $1,544,314 $14,268,741 $ 172,793 $ 2,169,158 $18,155,006
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
<TABLE>
<CAPTION>
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,285,265 $ 1,735,697
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on sale of real estate (599,251) -
(Increase) in rental income from straight-lining of rent (258,575) -
Provision for valuation adjustment of real estate - 459,000
Depreciation and amortization 754,580 483,575
Minority interest 230,839 5,249
Changes in assets and liabilities:
(Increase) in rent, interest,
deposits and other receivables (259,523) (109,182)
Increase (decrease) in accrued expenses and other liabilities (5,756) 176,441
------ -------
Net cash provided by operating activities 2,147,579 2,750,780
--------- ---------
Cash flows from investing activities:
Additions to real estate (2,832,231) (11,442,313)
Net proceeds from sale of real estate 4,347,603 -
Collection of mortgages receivable -
(including $86,466 and $934,984
from related parties) 106,895 954,066
Collection of senior secured note
receivable - BRT Realty Trust - related party - 528,575
Sale of U.S. Government
obligations and securities, net - 569,598
Investment by minority interest in subsidiary - 167,980
Payments to minority interest by subsidiary (396,333) (30,757)
Other 54,332 (2,248)
Net cash provided by (used in) investing activities 1,280,266 (9,255,099)
--------- ----------
Cash flows from financing activities:
Proceeds from mortgages payable 1,600,000 7,125,000
Repayment of mortgages payable (2,163,398) (76,955)
Repayments on note payable-bank (1,900,000) -
Payment of financing costs (89,088) (204,269)
Exercise of stock options 232,688 205,312
Cash distributions - common stock (1,345,163) (1,288,008)
Cash distributions - preferred stock (970,531) (970,531)
Issuance of shares through
dividend reinvestment plan 572,946 238,511
------- -------
Net cash provided by (used in) financing activities (4,062,546) 5,029,060
---------- ---------
Net (decrease) increase in cash
and cash equivalents (634,701) (1,475,259)
Cash and cash equivalents at beginning of period 2,478,580 3,844,409
--------- ---------
Cash and cash equivalents at end of period $1,843,879 $2,369,150
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest expense $ 1,272,646 $ 549,524
Cash paid during the period for income taxes 17,035 59,444
Supplemental schedule of noncash
investing and financing activities:
Accretion on preferred stock 116,958 115,563
See accompanying notes to consolidated financial statements.
</TABLE>
F-25
<PAGE>
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Basis of Preparation
The accompanying interim unaudited consolidated financial statements as of
September 30, 1997 and for the nine and three months ended September 30, 1997
and 1996 reflect all normal, recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for such interim
periods. The results of operations for the nine and three months ended September
30, 1997 are not necessarily indicative of the results for the full year.
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 5). 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"
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.
These statements should be read in conjunction with the consolidated
financial statements and related notes which are included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
Note 2 - Per Share Data
Primary earnings per common share data is based upon the weighted average
number of common shares and assumed equivalent shares outstanding during the
period, after giving effect to dividends and accretion relating to the Company's
preferred stock. The preferred stock is not considered a common stock equivalent
for the purposes of computing earnings per share because their assumed
conversion is anti-dilutive. The assumed exercise of outstanding stock options,
using the treasury stock method, is not materially dilutive for the primary
earnings per common share computation for the nine and three month periods ended
September 30, 1997 and 1996.
Fully diluted earnings per common share are based on an increase in the
number of common shares that would be outstanding assuming the exercise of
common share options. Since fully diluted earnings per share amounts are not
materially dilutive, such amounts are not presented.
F-26
<PAGE>
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Note 2 - Per Share Data (Continued)
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of primary and fully diluted earnings per share is not
expected to be material.
Note 3 - Preferred and Common Stock Dividend Distributions
On August 25, 1997 the Board of Directors declared quarterly cash
distributions of $.30 and $.40 per share on the Company's common and preferred
stock, respectively, payable on October 1, 1997 to stockholders of record on
September 17, 1997.
Note 4 - Stock Options
Options to purchase a total of 25,500 shares of the Company's common stock
at $9.125 per share were exercised in September and June 1997. The options had
been granted under the 1989 Stock Option Plan.
Note 5 - Sale of Real Estate
On August 5, 1997, the property owned by a limited liability company in
which the Company is a significant 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.
Note 6 - Financial Accounting Standards Board Statement No. 131
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.
F-27
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 31. Other Expenses of Issuance and Distribution
The following is an estimate of the expenses to be incurred in connection
with the sale of the Common Stock registered hereby, all of which will be paid
by the Registrant:
Accounting Fees $10,000
Printing 10,000
Listing Fee - 7,500
American Stock Exchange 10,000
Agents Fees 5,000
Registration Fees 6,590
Miscellaneous 910
------
Total Expenses $50,000
Item 32. Sales to Special Parties
See Item 33.
Item 33. Recent Sale of Unexpected Securities
The only securities sold by the Company within the past three years
which were not registered under the Securities Act of 1933 were shares sold upon
the exercise stock options as follows:
<TABLE>
<CAPTION>
PRICE TOTAL
DATE OF NUMBER PER PURCHASE
NAME SALE OF SHARES SHARE PRICE
---- ---- --------- ----- -----
<S> <C> <C> <C> <C>
Fredric H. Gould 6/20/97 9,000 9.125 $82,125
Marshall Rose 6/19/95 1,500 9.125 13,688
3/12/96 1,500 9.125 13,688
Charles Biederman 3/29/95 5,000 9.125 45,625
Matthew J. Gould 6/19/96 3,250 9.125 29,656
3/12/96 3,250 9.125 29,656
Israel Rosenzweig 6/19/95 3,250 9.125 29,656
6/20/97 3,250 9.125 29,656
Jeffrey Gould 6/19/95 3,000 9.125 27,375
6/20/97 3,000 9.125 27,375
David W. Kalish 6/19/95 1,000 9.125 9,125
2/12/96 2,500 9.125 22,813
Mark H. Lundy 3/12/96 7,000 9.125 63,875
Hurand & Hurand LLC 3/12/96 5,000 9.125 45,625
Simeon Brinberg 12/18/96 1,000 9.125 9,125
6/20/97 3,000 9.125 27,375
9/12/97 1,500 9.125 13,688
12/18/97 3,500 9.125 31,938
Daniel Lembo 12/18/97 3,500 9.125 31,938
----- ------
TOTAL 64,000 $584,000
====== ========
</TABLE>
All shares were sold for cash. Each purchaser was an
officer/director or employee of the Company or affiliate thereof and took the
shares for investment purposes. Accordingly, the shares were issued pursuant to
the exemption provided for in Section 4(2) of the Act. The Certificates issued
were legended and stop transfer orders were placed against the shares.
Item 34. Indemnification of Officers and Directors.
- -------- ------------------------------------------
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. The Articles of Incorporation further
provide that to the maximum extent that Maryland law in effect from time to time
permits limitation of liability of directors and officers, no director or
officer shall be liable to the Company or its stockholders for money damages.
The Company does not maintain officers and directors liability insurance.
Item 35. Treatment of Proceeds from Stock Being Registered.
- -------- --------------------------------------------------
The difference between $1.00 per share and the net cash proceeds
from the sale of the shares of Common Stock offered by this Registration
Statement will be credited to the Company's Paid-in Capital account.
Item 36. Financial Statements and Exhibits
- -------- ---------------------------------
(a) The following financial statements of the Company are included
in this Registration Statement.
Report of Independent Auditors
Statements (Audited)
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income for the
three years ended December 31, 1996
Consolidated Statements of
Stockholders' Equity for the three years ended
December 31, 1996
Consolidated Statements of
Cash Flows for the three years ended
December 31, 1996
Notes to Consolidated Financial Statements
Statements (Unaudited)
Consolidated Balance Sheets -
September 30, 1997
and December 31, 1996
Consolidated Statements of Income for the
three and nine months ended September 30, 1997
and 1996
Consolidated Statements of Stockholders' Equity for the nine month
period ended September 30, 1997 and the year ended December 31,
1996
Consolidated Statements of Cash Flows
for the nine months ended
September 30, 1997 and 1996
Notes to Consolidated Financial -
September 30, 1997
Schedules
Schedule III - Consolidated Real Estate
and Accumulated Depreciation -
December 31, 1996 (Audited)
Schedule IV - Mortgage Loans on Real Estate -
December 31, 1996 (Audited)
(b) Exhibits
--- --------
3.1 Articles of Incorporation, as amended, of the Company, filed as Exhibit
3.1 to the Company's Form 10-Q for the quarter ended September 30, 1985, which
Exhibit is incorporated herein by reference.
3.2 Amendment to Articles of Incorporation, filed as Exhibit to the
Company's Form 10-Q for the quarter ended June 30, 1989, which Exhibit is
incorporated herein by reference.
3.3 Amendment to Articles of Incorporation, filed as an Exhibit to the
Company's Form 10-Q for the quarter ended June 30, 1990, which Exhibit is
incorporated herein by reference.
3.4 By-Laws of the Company, as amended, filed as an Exhibit to the
Company's Form 10-Q for the quarter ended June 30, 1989, which Exhibit is
incorporated herein by reference.
3.5 Amendment to By-Law filed as an Exhibit to the Company's Form 10-Q for
the quarter ended June 30, 1990, which Exhibit is incorporated herein by
reference.
5.1 Opinion of Brinberg and Lundy to be filed by Amendment.
8.1 Opinion regarding tax matters to be filed by Amendment.
10.1 Lease dated January 17, 1989 and modification thereof dated as of
February 15, 1989 between Crystal Management, Inc., as Landlord and Stamford
Realty Associates, Inc. as tenant with respect to Madison Avenue, New York, New
York, filed as an exhibit to the Company's Form 8-K dated June 27, 1994 and
incorporated herein by reference.
10.2 Form of lease entered into with Total Petroleum with respect to 13
Total Petroleum properties filed as an exhibit to the Company's Form 10-K dated
March 23, 1995 and incorporated herein by reference.
10.3 Lease dated November 7, 1996 between OLP Ft. Myers, Inc. and Barnes &
Noble Superstores, Inc. with respect to the Fort Myers, Florida property. Filed
as an exhibit to the Company's 10-K for the year ended December 31, 1996, which
Exhibit is incorporated herein by reference.
10.4 Credit Agreement dated March 1, 1996 between the Company and Bank Leumi
Trust Company of New York filed as an exhibit to the Company's Form 10-K for the
year ended December 31, 1995, which Exhibit is incorporated herein by reference.
10.5 Lease dated September 14, 1995 between Galbreath Equities, Inc; as
Landlord, and Kittle's Home Furnishings Center, as Tenant, with respect to
Columbus, Ohio Property, filed as an exhibit to the Company's Form 8-K dated
December 12, 1997 and incorporated herein by reference.
10.6 Subscription Form for Exercise of Rights (to be filed by Amendment).
21.1 Subsidiaries of registrant (to be filed by Amendment).
23.1 Consent of Ernst & Young LLP
23.2 Consent of Brinberg and Lundy to be contained in opinion to be filed
by Amendment.
Item 37. Undertakings
- -------- ------------
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
B. The undersigned Registrant hereby undertakes to supplement the
prospectus after the expiration of the subscription period, to set forth the
results of the subscription offer.
C. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the SEC such indemnification is against
public policy, as expressed in the Securities Act, and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether or not such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
<PAGE>
<TABLE>
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
<CAPTION>
Schedule III - Consolidated Real Estate and Accumulated Depreciation
December 31, 1996
Gross Amount at Which Carried At
Initial Cost to Company December 31, 1996
Encumbrances Land Buildings Land Buildings Total
Free Standing
Retail Locations:
<S> <C> <C> <C> <C> <C> <C>
Ft. Myers, FL $3,250,000 $1,013,915 $4,055,659 $1,013,915 $4,055,659 $5,069,574
Denver, CO 2,706,872 811,896 3,247,582 811,896 3,247,582 4,059,478
Atlanta, GA 2,392,916 802,721 3,210,886 802,721 3,210,886 4,013,607
Lewisville, TX (b) - 685,737 2,742,946 685,737 2,742,946 3,428,683
Miscellaneous 2,380,009 5,437,357 12,720,127 5,192,678 12,305,806 17,498,484
Apartment Building:
New York, NY 4,122,874 1,109,836 4,439,346 1,109,836 4,439,346 5,549,182
Office/Flex:
Hauppauge, NY 1,994,250 671,582 2,697,646 671,582 2,697,646 3,369,228
Land Under
Improvements:
Miscellaneous - 752,225 - 752,225 - 752,225
Industrial:
Miami, FL - - 995,446 - 995,446 995,446
---------- ---------- ---------- ---------- ---------- ----------
$16,846,921 $11,285,269 $34,109,638 $11,040,590 $33,695,317 $44,735,907
=========== =========== =========== =========== =========== ===========
Life on Which
Depreciation
Latest Income
Statement
Accumulated Date Of Date Computed
Depreciation Construction Acquired (Years)
Free Standing
Retail Locations:
<C> <C> <C> <C>
Ft. Myers, FL $12,674 1996 November 7, 1996 40
Denver, CO 57,509 1995 April 9, 1996 40
Atlanta, GA 30,102 1994 August 14, 1996 40
Lewisville, TX (b) 14,286 1996 October 11, 1996 40
Miscellaneous 1,242,303 Various Various
Apartment Building:
New York, NY 410,304 1910 June 14, 1994 27.5
Office/Flex:
Hauppauge, NY 30,781 1982 July 16, 1996 40
Land Under
Improvements:
Miscellaneous - Various Various -
Industrial:
Miami, FL 48,735 1967 January 19, 1995 40
---------
$1,846,694
==========
</TABLE>
<PAGE>
<TABLE>
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
<CAPTION>
NOTES TO SCHEDULE III - CONSOLIDATED REAL ESTATE
AND ACCUMULATED DEPRECIATION
(a) Reconciliation of "Real Estate and Accumulated Depreciation"
Year Ended December 31,
1996 1995 1994
Investment in real estate:
<S> <C> <C> <C>
Balance, beginning of year $ 25,454,336 $ 11,750,268 $ 6,201,086
Addition - land and buildings 19,940,571 13,704,068 5,549,182
Less valuation allowance (d) (659,000) - -
----------- ---------- ----------
Balance, end of year $ 44,735,907 $ 25,454,336 $11,750,268
============ ============ ===========
Accumulated depreciation:
Balance, beginning of year $ 1,200,571 $ 753,734 $ 573,177
Addition - depreciation 646,123 446,837 180,557
------- ------- -------
Balance, end of year $ 1,846,694 $ 1,200,571 $ 753,734
============ ============ =============
</TABLE>
(b) In January 1997, the Company closed on the financing on this property
in the amount of $1,600,000.
(c) The aggregate cost of the properties is the same for federal income tax
purposes.
(d) During the year ended December 31, 1996, the Company took a provision
for valuation adjustment of real estate totaling $659,000. See Note 5 to the
consolidated financial statements for other information.
<PAGE>
<TABLE>
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
<CAPTION>
Schedule IV - Mortgage Loans on Real Estate
December 31, 1996
Carrying
Description Number Maturity Face Amount Amount of
of Loans Interest Rate Date Periodic Payment Terms of Mortgage Mortgage
First mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
Land and building/retail 1 9.75% Month to $3,550 monthly allocated to $263,798 $263,798
Bad Axe, MI Month interest and principal.
Land and building/office 1 14.5%(b) Feb-05 $79,318 monthly allocated 8,387,263 (c) 5,732,445
New York, NY to 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 52,790 52,790
- ------ ------
Seattle, WA interest and principal, self-
liquidates by maturity
Total 3 $8,703,851 $6,049,033
= ========== ==========
</TABLE>
<PAGE>
<TABLE>
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
<CAPTION>
Schedule IV - Mortgage Loans on Real Estate
December 31, 1996
Notes to the Schedule:
(a) The following summary reconciles mortgages receivable at their carrying
values:
1996 1995
<S> <C> <C>
Balance at beginning of year $ 7,036,141 $ 13,988,031
Additions:
New mortgage loan (d) - 67,498
Amortization of discount 327,600 319,500
Deductions:
Cancellation of mortgage receivable
from Gould Investors L.P. (e) - 6,850,000
Collections of principal 1,314,708 488,888
--------- -------
$ 6,049,033 $ 7,036,141
=========== ===========
(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
$2,654,818. Mortgage was pledged as collateral to line of credit.
(d) Acquired mortgage when Company acquired fee title to the land. See Note
3 to consolidated financial statements for other information.
(e) Mortgage was cancelled when the Company acquired fee title to the
properties. See Note 3 to consolidated financial statements for other
information.
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
Village of Great Neck Plaza, State of New York, on the 9th day of February,
1998.
ONE LIBERTY PROPERTIES, INC.
Registrant
S/Matthew Gould
Matthew Gould, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Matthew Gould his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereof, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said Attorney-in-fact and agent, full power and authority to do and perform
each and every act and thing requisite or necessary to be done on and about the
premises, as fully and to all extents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<PAGE>
Directors, Principal Executive Officers and Principal Financial Officers:
Signature Title Date
S/Fredric H. Gould Chairman of the Board of February 9, 1998
- ------------------
Fredric H. Gould Directors
S/Matthew Gould President and Chief February 9, 1998
- ------------------
Matthew Gould Executive Officer
S/Charles Biederman Director February 9, 1998
- -------------------
Charles Biederman
S/Joseph A. Amato Director February 9, 1998
- -----------------
Joseph A. Amato
- ----------------- Director February 9, 1998
Marshall Rose
S/Arthur Hurand Director February 9, 1998
- ---------------
Arthur Hurand
S/David W. Kalish Vice President and Chief February 9, 1998
- -----------------
David W. Kalish Financial Officer
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 26, 1997, in the Registration Statement
(Form S-11 No. pending) and related Prospectus of One Liberty Properties, Inc.
for the registration of 1,574,894 shares of its common stock.
New York, New York
February 6, 1998
