One Liberty Properties - 10-Q quarterly report FY

UNITED STATES

Washington, DC 20549

FORM 10-Q

Securities Exchange Act of 1934

For the quarterly period ended March 31, 2008

OR

Securities Exchange Act of 1934

(Exact name of registrant as specified in its charter)

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of May 2, 2008, the registrant had 10,225,479 shares of common stock outstanding.

Part I – FINANCIAL INFORMATION

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Per Share Data)

See accompanying notes to consolidated financial statements.

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands, Except Per Share Data)

(Unaudited)

See accompanying notes to consolidated financial statements.

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the three month period ended March 31, 2008 (Unaudited)

and the year ended December 31, 2007

(Amounts in Thousands)

See accompanying notes to consolidated financial statements.

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited)

 

See accompanying notes to consolidated financial statements.

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

One Liberty Properties, Inc. (“OLP”) was incorporated in 1982 in the state of Maryland. OLP is a self-administered and self-managed real estate investment trust (“REIT”). OLP acquires, owns and manages a geographically diversified portfolio of retail, including retail furniture stores, industrial, office, flex, health and fitness and other properties, a substantial portion of which are under long-term net leases. As of March 31, 2008, OLP owns 67 properties, one of which is held for sale, and holds a 50% tenancy in common interest in one property. OLP’s joint ventures own four properties. The 72 properties are located in 28 states.

The accompanying interim unaudited consolidated financial statements as of March 31, 2008 and 2007 and for the three months ended March 31, 2008 and 2007 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 three months ended March 31, 2008 are not necessarily indicative of the results for the full year.

The preparation of the financial statements in conformity with U.S. 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.

The consolidated financial statements include the accounts and operations of OLP and its wholly-owned subsidiaries (collectively, the “Company”). Material intercompany items and transactions have been eliminated. The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting as the Company (1) is primarily the managing member but does not exercise substantial operating control over these entities pursuant to EITF 04-05, and (2) such entities are not variable-interest entities pursuant to FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities.” These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for equity in earnings and cash contributions and distributions.

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, 2007.

For the three months ended March 31, 2008 and 2007, basic earnings per share were determined by dividing net income for the period by the weighted average number of shares of the Company’s common stock outstanding, which includes unvested restricted stock during each period.

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Continued)

Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts exercisable for, or convertible into, common stock were exercised or converted or resulted in the issuance of common stock that shared in the earnings of the Company. For the three months ended March 31, 2008 and 2007, diluted earnings per share were determined by dividing net income for the period by the total of the weighted average number of shares of common stock outstanding using the treasury stock method. There were no outstanding options in the three months ended March 31, 2008 and 2007.

On March 25, 2008, one of the Company’s unconsolidated joint ventures sold its vacant property for a consideration of $1,302,000, net of closing costs. The sale resulted in a gain to the Company of $297,000 (after giving effect to the Company’s $480,000 share of a direct write down taken by the joint venture in 2006).

On March 14, 2007, another one of the Company’s unconsolidated joint ventures sold its vacant parcel of land for a consideration of $1,250,000 to a former tenant of the joint venture. The sale resulted in a gain to the Company of $583,000 (after giving effect to the Company’s $1,581,000 share of direct write downs taken by the joint venture in prior years).

The Company’s remaining four unconsolidated joint ventures each own and operate one property. At March 31, 2008 and December 31, 2007, the Company’s equity investment in unconsolidated joint ventures totaled $5,565,000 and $6,570,000, respectively and in addition to the gain on sale of properties of $297,000 and $583,000, respectively, they contributed $145,000 and $144,000 in equity earnings for the three months ended March 31, 2008 and 2007, respectively.

The following is a summary of income from discontinued operations, for the three months ended March 31, 2008 and 2007 applicable to a property held for sale at March 31, 2008, as well as to a settlement relating to a property sold in a prior year (amounts in thousands):

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Continued)

On March 11, 2008, the Board of Directors declared a quarterly cash distribution of $.36 per share totaling $3,667,000, on the Company's common stock, which was paid on April 2, 2008 to stockholders of record on March 24, 2008.

Comprehensive income for the three months ended March 31, 2008 and 2007 are as follows (amounts in thousands):

Accumulated other comprehensive income, which is solely comprised of the net unrealized gain on available-for-sale securities was $247,000 and $344,000 at March 31, 2008 and December 31, 2007, respectively.

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Continued)

Through March 31, 2008, a total of 243,150 shares were issued and 31,850 shares remain available for grant pursuant to the Incentive Plan, and approximately $2,857,000 remains as deferred compensation and will be charged to expense over the remaining weighted average vesting period of approximately 2.93 years.

The Company has a $62,500,000 revolving credit facility (“Facility”) with VNB New York Corp., Bank Leumi USA, Israel Discount Bank of New York and Manufacturers and Traders Trust Company. The Facility matures on March 31, 2010 and provides that the Company pays interest at the lower of LIBOR plus 2.15% or at the bank’s prime rate on funds borrowed and an unused facility fee of ¼%. The Company paid approximately $640,000 in fees and closing costs, in April 2007, which are being amortized over the term of the Facility. There is no balance outstanding under the Facility at March 31, 2008.

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(Continued)

The Company’s financial assets and liabilities, other than fixed-rate mortgages and loan payable, are generally short-term in nature, or bear interest at variable current market rates, and consist of cash and cash equivalents, restricted cash, rents and other receivables, other assets, and accounts payable and accrued expenses. The carrying amounts of these assets and liabilities are not measured at fair value on a recurring basis but are considered to be recorded at amounts that approximate fair value due to their short-term nature. The valuation of the Company’s available-for-sale securities ($451,000 at March 31, 2008), was determined to be a Level 1 within the valuation hierarchy established by SFAS No. 157, and are approximated on current market quotes received from financial sources that trade such securities. Accordingly, the adoption of SFAS No. 157, as it relates to fair value measurements of financial assets and liabilities, has not had a material effect on the Company’s consolidated financial statements.

With the exception of historical information, this quarterly report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words "may," "will," "believe," "expect," "intend," "anticipate," "estimate," "project," or similar expressions or variations thereof. Forward-looking statements should not be relied on since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performance or achievements. Investors are cautioned not to place undue reliance on any forward-looking statements.

We are a self-administered and self-managed real estate investment trust, or REIT, and we primarily own real estate that we net lease to tenants. As of March 31, 2008, we own 67 properties, one of which is held for sale, hold a 50% tenancy in common interest in one property and participate in four joint ventures which own a total of four properties. These 72 properties are located in 28 states.

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute currently at least 90% of ordinary taxable income to our stockholders. We intend to comply with these requirements and to maintain our REIT status.

Our principal business strategy is to acquire improved, commercial properties subject to long-term net leases. We acquire properties for their value as long-term investments and for their ability to generate income over an extended period of time. We have borrowed funds in the past to finance the purchase of real estate and we expect to do so in the future.

Although we investigated, analyzed and bid on several properties in 2007, due to a variety of factors, including increased competition and unfavorable prices, we did not acquire any properties in 2007. In January and February 2008, we acquired two single tenant retail properties for an aggregate purchase price of approximately $5.5 million. We will continue to seek properties to acquire and at this time are negotiating on a number of acquisitions that we hope to conclude in 2008.

Our rental properties are generally leased to corporate tenants under operating leases substantially all of which are noncancellable. Substantially all of our lease agreements are net lease arrangements that require the tenant to pay not only rent, but also substantially all of the operating expenses of the leased property, including maintenance, taxes, utilities and insurance. A majority of our lease agreements provide for periodic rental increases and certain of our other leases provide for increases based on the consumer price index.

At March 31, 2008, excluding mortgages payable of our unconsolidated joint ventures, we had 38 outstanding mortgages payable, aggregating approximately $217.1 million in principal amount, all of which are secured by first liens on individual real estate investments. The real properties securing our outstanding mortgages payable have an aggregate carrying value of approximately $355 million before accumulated depreciation. The mortgages bear interest at fixed rates ranging from 5.13% to 8.8%, and mature between 2008 and 2037. In addition, we had one outstanding loan payable with a balance of $6.5 million, which is collateralized by cash held in escrow and shown on the balance sheet as restricted cash. The loan bears interest at 6.25% and matures in 2018.

 

Depreciation and amortization expense increased by $22,000, or 1.1%, to $2.05 million for the three months ended March 31, 2008. The increase in depreciation and amortization expense was primarily due to depreciation taken on the two properties acquired in the current three month period.

 

General and administrative expenses decreased by $100,000, or 5.9%, to $1.6 million for the three months ended March 31, 2008. The decrease was substantially due to decreases in professional fees including $83,000 paid in the three months ended March 31, 2007 to an independent compensation consultant retained by the Compensation Committee of our Board of Directors and decreases of $53,000 in legal and accounting fees. Additionally, the annual amount paid under the Compensation and Services Agreement was reduced by $100,000 in 2008 (or $25,000 for the three months ended March 31, 2008). These decreases were offset in part in the three months ended March 31, 2008 by a $48,000 increase in compensation expense related to our restricted stock program and a $32,000 increase in payroll and payroll related expenses for full time personnel, primarily resulting from annual salary increases.

Real estate expenses decreased by $16,000, or 22.5%, for the three months ended March 31, 2008, resulting primarily from repairs incurred at one property in 2007.

Gain on dispositions of real estate of unconsolidated joint ventures for the three months ended March 31, 2008 reflects the sale by one of our joint ventures of a vacant property for a consideration of $1.3 million, resulting in a gain to us of $297,000. The three months ended March 31, 2007 reflects the sale by another of our joint ventures of a vacant parcel of land, for a consideration of $1.25 million, resulting in a gain to us of $583,000.

Interest and other income decreased by $375,000, or 64.2%, to $209,000 for the three months ended March 31, 2008. The decrease in interest and other income for the three months ended March 31, 2008 results substantially from the decrease in interest rates available for our investment in short-term cash equivalents. There was also less cash available for investment after we paid a special distribution of $6.7 million to our stockholders in October 2007. Also contributing to the decrease in interest and other income was the inclusion in interest and other income of a $117,000 gain on sale of available-for-sale securities in the three months ended March 31, 2007, while there was no sale of securities in 2008.

Interest expense decreased by $65,000, or 1.7%, to $3.67 million for the three months ended March 31, 2008. The decrease results from the payoff in full of a mortgage which matured in December 2007, offset in part by interest expense on a fixed rate mortgage placed on a property in August 2007 and the assumption of two fixed rate mortgages in connection with the purchase of two properties in January and February 2008.

Net income declined from $3.1 million during the three months ended March 31, 2007 to $2.8 million during the three months ended March 31, 2008, despite an increase in operating income from $5.4 million during the three months ended March 31, 2007 to $5.6 million during the three months ended March 31, 2008. This divergence between operating income and net income results primarily from the decline in “Gain on dispositions of real estate of unconsolidated joint ventures” from $583,000 to $297,000 and the decline in “Interest and other income” from $584,000 to $209,000, in each case from the three months ended March 31, 2007 compared to the three months ended March 31, 2008.

At March 31, 2008, we had cash and cash equivalents of approximately $24.9 million. On April 2, 2008, we paid a quarterly cash distribution of $.36 per share, aggregating $3,667,000. Our primary sources of liquidity are cash and cash equivalents, cash generated from operating activities, including mortgage financings and property dispositions, and our revolving credit facility. We have a $62.5 million revolving credit facility with VNB New York Corp., Bank Leumi USA, Manufacturers and Traders Trust Company and Israel Discount Bank of New York. The facility is available to us to pay down existing and maturing mortgages, to fund the acquisition of additional properties or to invest in joint ventures. The facility matures on March 31, 2010. Borrowings under the facility bear interest at the lower of LIBOR plus 2.15% or the bank's prime rate, and there is an unused facility fee of one-quarter of 1% per annum. Net proceeds received from the sale or refinancing of properties are required to be used to repay amounts outstanding under the facility if proceeds from the facility were used to purchase or refinance such properties. There is no outstanding balance on our facility at March 31, 2008.

We continue to seek additional property acquisitions. We will use our available cash and cash equivalents, cash provided from operations, cash provided from mortgage financings and property dispositions and funds available under our credit facility to fund acquisitions.

We had no outstanding contingent commitments, such as guarantees of indebtedness, or any other contractual cash obligations, other than mortgage and loan payable debt, at March 31, 2008.

Cash Distribution Policy

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute currently at least 90% of our ordinary taxable income to our stockholders. It is our current intention to comply with these requirements and maintain our REIT status. As a REIT, we generally will not be subject to corporate federal, state or local income taxes on taxable income we distribute currently (in accordance with the Internal Revenue Code and applicable regulations) to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal, state and local income taxes at regular corporate rates and may not be able to qualify as a REIT for four subsequent tax years. Even if we qualify as a REIT for federal taxation purposes, we may be subject to certain state and local taxes on our income and to federal income and/or excise taxes on our undistributed taxable income (i.e., taxable income not distributed in the amounts and in the time frames prescribed by the Internal Revenue Code and applicable regulations thereunder).

It is our intention to pay to our stockholders no less than 90% of our taxable income within the time periods prescribed by the Internal Revenue Code. It will continue to be our policy to make sufficient cash distributions to stockholders in order for us to maintain our REIT status under the Internal Revenue Code.

All of our long-term mortgage debt bears interest at fixed rates and accordingly, the effect of changes in interest rates would not impact the amount of interest expense that we incur under these mortgages. Our credit line is a variable rate facility which is sensitive to interest rates. However, for the three months ended March 31, 2008, there was no balance outstanding on the credit line, and thus, the effect of changes in interest rates would not have impacted the amount of interest expense incurred during this period.

As required under Rules 13a-15 (e) and 15d-15 (e) under the Securities Exchange Act of 1934, as amended, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of March 31, 2008 are effective.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the three months ended March 31, 2008 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.