UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended SeptemberJune 30, 20172018
OR
oTransition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 001-09279
ONE LIBERTY PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND |
| 13-3147497 |
(State or other jurisdiction of |
| (I.R.S. employer |
incorporation or organization) |
| identification number) |
|
|
|
60 Cutter Mill Road, Great Neck, New York |
| 11021 |
(Address of principal executive offices) |
| (Zip code) |
(516) 466-3100
(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.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
| Accelerated filer x | ||
|
|
| ||
Non-accelerated filer o |
| Smaller reporting company o | ||
|
| |||
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Yes o No o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of NovemberAugust 1, 2017,2018, the registrant had 18,782,25219,288,127 shares of common stock outstanding.
One Liberty Properties, Inc. and Subsidiaries
Part I — FINANCIAL INFORMATION
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
(Amounts in Thousands, Except Par Value)
|
| September 30, |
| December 31, |
| ||
|
| (Unaudited) |
| ||||
Assets |
|
|
|
|
| ||
Real estate investments, at cost |
|
|
|
|
| ||
Land |
| $ | 210,211 |
| $ | 211,432 |
|
Buildings and improvements |
| 554,772 |
| 536,633 |
| ||
Total real estate investments, at cost |
| 764,983 |
| 748,065 |
| ||
Less accumulated depreciation |
| 105,150 |
| 96,852 |
| ||
Real estate investments, net |
| 659,833 |
| 651,213 |
| ||
|
|
|
|
|
| ||
Investment in unconsolidated joint ventures |
| 10,648 |
| 10,833 |
| ||
Cash and cash equivalents |
| 14,926 |
| 17,420 |
| ||
Restricted cash |
| 530 |
| 643 |
| ||
Unbilled rent receivable |
| 13,839 |
| 13,797 |
| ||
Unamortized intangible lease assets, net |
| 31,774 |
| 32,645 |
| ||
Escrow, deposits and other assets and receivables |
| 6,032 |
| 6,894 |
| ||
Total assets(1) |
| $ | 737,582 |
| $ | 733,445 |
|
|
|
|
|
|
| ||
Liabilities and Equity |
|
|
|
|
| ||
Liabilities: |
|
|
|
|
| ||
Mortgages payable, net of $3,960 and $4,294 of deferred financing costs, respectively |
| $ | 397,093 |
| $ | 394,898 |
|
Line of credit, net of $702 and $936 of deferred financing costs, respectively |
| 5,698 |
| 9,064 |
| ||
Dividends payable |
| 8,053 |
| 7,806 |
| ||
Accrued expenses and other liabilities |
| 11,890 |
| 10,470 |
| ||
Unamortized intangible lease liabilities, net |
| 17,990 |
| 19,280 |
| ||
Total liabilities(1) |
| 440,724 |
| 441,518 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
|
|
| ||
|
|
|
|
|
| ||
Equity: |
|
|
|
|
| ||
One Liberty Properties, Inc. stockholders’ equity: |
|
|
|
|
| ||
Preferred stock, $1 par value; 12,500 shares authorized; none issued |
| — |
| — |
| ||
Common stock, $1 par value; 25,000 shares authorized; 18,114 and 17,600 shares issued and outstanding |
| 18,114 |
| 17,600 |
| ||
Paid-in capital |
| 270,762 |
| 262,511 |
| ||
Accumulated other comprehensive loss |
| (1,275 | ) | (1,479 | ) | ||
Accumulated undistributed net income |
| 7,544 |
| 11,501 |
| ||
Total One Liberty Properties, Inc. stockholders’ equity |
| 295,145 |
| 290,133 |
| ||
Non-controlling interests in consolidated joint ventures |
| 1,713 |
| 1,794 |
| ||
Total equity |
| 296,858 |
| 291,927 |
| ||
Total liabilities and equity |
| $ | 737,582 |
| $ | 733,445 |
|
ASSETS
|
| June 30, |
| December 31, |
| ||
|
| (Unaudited) |
|
|
| ||
Real estate investments, at cost |
|
|
|
|
| ||
Land |
| $ | 209,101 |
| $ | 209,320 |
|
Buildings and improvements |
| 583,991 |
| 566,007 |
| ||
Total real estate investments, at cost |
| 793,092 |
| 775,327 |
| ||
Less accumulated depreciation |
| 116,451 |
| 108,953 |
| ||
Real estate investments, net |
| 676,641 |
| 666,374 |
| ||
|
|
|
|
|
| ||
Investment in unconsolidated joint ventures |
| 11,214 |
| 10,723 |
| ||
Cash and cash equivalents |
| 12,925 |
| 13,766 |
| ||
Restricted cash |
| 416 |
| 443 |
| ||
Unbilled rent receivable |
| 14,617 |
| 14,125 |
| ||
Unamortized intangible lease assets, net |
| 27,931 |
| 30,525 |
| ||
Escrow, deposits and other assets and receivables |
| 8,158 |
| 6,630 |
| ||
Total assets(1) |
| $ | 751,902 |
| $ | 742,586 |
|
Continued on next page
ONE LIBERTY PROPERTIES, INC.LIABILITIES AND SUBSIDIARIESEQUITY
CONSOLIDATED BALANCE SHEETS
(Continued)
Liabilities: |
|
|
|
|
| ||
Mortgages payable, net of $3,758 and $3,789 of deferred financing costs, respectively |
| $ | 391,599 |
| $ | 393,157 |
|
Line of credit, net of $468 and $624 of deferred financing costs, respectively |
| 19,832 |
| 8,776 |
| ||
Dividends payable |
| 8,652 |
| 8,493 |
| ||
Accrued expenses and other liabilities |
| 13,504 |
| 16,107 |
| ||
Unamortized intangible lease liabilities, net |
| 16,617 |
| 17,551 |
| ||
Total liabilities (1) |
| 450,204 |
| 444,084 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
|
|
| ||
|
|
|
|
|
| ||
Equity: |
|
|
|
|
| ||
One Liberty Properties, Inc. stockholders’ equity: |
|
|
|
|
| ||
Preferred stock, $1 par value; 12,500 shares authorized; none issued |
| — |
| — |
| ||
Common stock, $1 par value; 25,000 shares authorized; 18,575 and 18,261 shares issued and outstanding |
| 18,575 |
| 18,261 |
| ||
Paid-in capital |
| 281,396 |
| 275,087 |
| ||
Accumulated other comprehensive income |
| 3,913 |
| 155 |
| ||
Accumulated (distributions in excess of net income) undistributed net income |
| (3,608 | ) | 3,257 |
| ||
Total One Liberty Properties, Inc. stockholders’ equity |
| 300,276 |
| 296,760 |
| ||
Non-controlling interests in consolidated joint ventures (1) |
| 1,422 |
| 1,742 |
| ||
Total equity |
| 301,698 |
| 298,502 |
| ||
Total liabilities and equity |
| $ | 751,902 |
| $ | 742,586 |
|
(1) The Company’s consolidated balance sheets include assets and liabilities of consolidated variable interest entities (“VIEs”). See Note 6. The consolidated balance sheets include the following amounts related to the Company’s consolidated VIEs: $17.8 million$14,722 and $17.8 million$17,844 of land, $32.1 million$28,145 and $32.5 million$31,789 of building and improvements, net of $3.5 million$3,615 and $2.7 million$3,811 of accumulated depreciation, $4.1 million$3,667 and $5.5 million$4,345 of other assets included in other line items, $32.5 million$27,411 and $33.1 million$32,252 of real estate debt, net, $3.1 million$2,386 and $3.1 million$2,885 of other liabilities included in other line items and $1,422 and $1,742 of non-controlling interests as of SeptemberJune 30, 20172018 and December 31, 2016,2017, respectively.
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)
|
| Three Months Ended |
| Nine Months Ended |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Rental income, net |
| $ | 17,217 |
| $ | 16,334 |
| $ | 50,770 |
| $ | 46,985 |
|
| $ | 17,718 |
| $ | 16,720 |
| $ | 35,308 |
| $ | 33,553 |
|
Tenant reimbursements |
| 1,920 |
| 1,687 |
| 5,252 |
| 4,614 |
|
| 2,034 |
| 1,693 |
| 3,978 |
| 3,332 |
| ||||||||
Total revenues |
| 19,137 |
| 18,021 |
| 56,022 |
| 51,599 |
|
| 19,752 |
| 18,413 |
| 39,286 |
| 36,885 |
| ||||||||
|
|
|
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| ||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Depreciation and amortization |
| 5,115 |
| 4,663 |
| 15,858 |
| 13,246 |
|
| 5,250 |
| 5,190 |
| 10,432 |
| 10,743 |
| ||||||||
General and administrative (see Note 10 for related party information) |
| 2,701 |
| 2,681 |
| 8,409 |
| 7,961 |
|
| 2,969 |
| 2,893 |
| 5,928 |
| 5,708 |
| ||||||||
Real estate expenses (see Note 10 for related party information) |
| 2,689 |
| 2,188 |
| 7,765 |
| 6,521 |
|
| 2,515 |
| 2,371 |
| 5,182 |
| 5,075 |
| ||||||||
Real estate acquisition costs |
| — |
| 162 |
| — |
| 610 |
| |||||||||||||||||
Federal excise and state taxes |
| 90 |
| 43 |
| 401 |
| 198 |
|
| 154 |
| 224 |
| 227 |
| 312 |
| ||||||||
Leasehold rent |
| 77 |
| 77 |
| 231 |
| 231 |
|
| 77 |
| 77 |
| 154 |
| 154 |
| ||||||||
Impairment loss |
| 153 |
| — |
| 153 |
| — |
| |||||||||||||||||
Total operating expenses |
| 10,825 |
| 9,814 |
| 32,817 |
| 28,767 |
|
| 10,965 |
| 10,755 |
| 21,923 |
| 21,992 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Operating income |
| 8,312 |
| 8,207 |
| 23,205 |
| 22,832 |
|
| 8,787 |
| 7,658 |
| 17,363 |
| 14,893 |
| ||||||||
|
|
|
|
|
|
|
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| ||||||||
Other income and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Equity in earnings of unconsolidated joint ventures |
| 212 |
| 228 |
| 663 |
| 794 |
|
| 348 |
| 206 |
| 543 |
| 451 |
| ||||||||
Prepayment costs on debt |
| — |
| — |
| — |
| (577 | ) | |||||||||||||||||
Equity in earnings from sale of unconsolidated joint venture property |
| 71 |
| — |
| 71 |
| — |
| |||||||||||||||||
Other income |
| 57 |
| 362 |
| 399 |
| 431 |
|
| 6 |
| 320 |
| 10 |
| 342 |
| ||||||||
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Expense |
| (4,459 | ) | (4,404 | ) | (13,380 | ) | (12,593 | ) |
| (4,445 | ) | (4,532 | ) | (8,747 | ) | (8,921 | ) | ||||||||
Amortization and write-off of deferred financing costs |
| (263 | ) | (189 | ) | (717 | ) | (644 | ) |
| (221 | ) | (227 | ) | (449 | ) | (454 | ) | ||||||||
Income before gain on sale of real estate, net |
| 3,859 |
| 4,204 |
| 10,170 |
| 10,243 |
|
| 4,546 |
| 3,425 |
| 8,791 |
| 6,311 |
| ||||||||
Gain on sale of real estate, net |
| 3,269 |
| 119 |
| 9,837 |
| 9,824 |
|
| — |
| 6,568 |
| 2,408 |
| 6,568 |
| ||||||||
|
|
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|
|
|
|
|
|
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|
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|
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| ||||||||
Net income |
| 7,128 |
| 4,323 |
| 20,007 |
| 20,067 |
|
| 4,546 |
| 9,993 |
| 11,199 |
| 12,879 |
| ||||||||
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| ||||||||
Net income attributable to non-controlling interests |
| (23 | ) | (24 | ) | (65 | ) | (40 | ) |
| (29 | ) | (21 | ) | (831 | ) | (42 | ) | ||||||||
Net income attributable to One Liberty Properties, Inc. |
| $ | 7,105 |
| $ | 4,299 |
| $ | 19,942 |
| $ | 20,027 |
|
| $ | 4,517 |
| $ | 9,972 |
| $ | 10,368 |
| $ | 12,837 |
|
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| ||||||||
Weighted average number of common shares outstanding: |
|
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|
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|
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|
|
|
|
|
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| ||||||||
Basic |
| 18,000 |
| 16,845 |
| 17,859 |
| 16,605 |
|
| 18,519 |
| 17,824 |
| 18,458 |
| 17,788 |
| ||||||||
Diluted |
| 18,079 |
| 16,962 |
| 17,961 |
| 16,722 |
|
| 18,593 |
| 17,938 |
| 18,532 |
| 17,902 |
| ||||||||
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| ||||||||
Per common share attributable to common stockholders: |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
| ||||||||
Basic |
| $ | .38 |
| $ | .24 |
| $ | 1.07 |
| $ | 1.16 |
|
| $ | .23 |
| $ | .54 |
| $ | .53 |
| $ | .69 |
|
Diluted |
| $ | .38 |
| $ | .24 |
| $ | 1.07 |
| $ | 1.15 |
|
| $ | .23 |
| $ | .54 |
| $ | .53 |
| $ | .69 |
|
|
|
|
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| ||||||||
Cash distributions declared per share of common stock |
| $ | .43 |
| $ | .41 |
| $ | 1.29 |
| $ | 1.23 |
|
| $ | .45 |
| $ | .43 |
| $ | .90 |
| $ | .86 |
|
See accompanying notes to consolidated financial statements.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
(Unaudited)
|
| Three Months Ended |
| Six Months Ended |
| |||||||||||||||||||||
|
| Three Months Ended |
| Nine Months Ended |
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
|
|
|
|
|
|
|
|
| ||||||||
Net income |
| $ | 7,128 |
| $ | 4,323 |
| $ | 20,007 |
| $ | 20,067 |
|
| $ | 4,546 |
| $ | 9,993 |
| $ | 11,199 |
| $ | 12,879 |
|
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|
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| |||||||||||||||||
Other comprehensive gain (loss) |
|
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|
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| ||||||||
Reclassification of gain on available-for-sale securities included in net income |
| — |
| — |
| — |
| (27 | ) | |||||||||||||||||
Net unrealized gain (loss) on derivative instruments |
| 104 |
| 1,018 |
| 172 |
| (5,177 | ) |
| 1,104 |
| (510 | ) | 3,800 |
| 68 |
| ||||||||
Reclassification of One Liberty Properties Inc.’s share of joint venture net realized gain on derivative instrument |
| (110 | ) | — |
| (110 | ) | — |
| |||||||||||||||||
One Liberty Properties Inc.’s share of joint venture net unrealized gain (loss) on derivative instruments |
| 11 |
| 44 |
| 34 |
| (92 | ) |
| 22 |
| (5 | ) | 76 |
| 23 |
| ||||||||
Other comprehensive gain (loss) |
| 115 |
| 1,062 |
| 206 |
| (5,296 | ) |
| 1,016 |
| (515 | ) | 3,766 |
| 91 |
| ||||||||
|
|
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|
|
|
|
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|
|
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|
|
|
|
|
|
|
| ||||||||
Comprehensive income |
| 7,243 |
| 5,385 |
| 20,213 |
| 14,771 |
|
| 5,562 |
| 9,478 |
| 14,965 |
| 12,970 |
| ||||||||
Net income attributable to non-controlling interests |
| (23 | ) | (24 | ) | (65 | ) | (40 | ) |
| (29 | ) | (21 | ) | (831 | ) | (42 | ) | ||||||||
Adjustment for derivative instruments attributable to non-controlling interests |
| (1 | ) | (5 | ) | (2 | ) | 15 |
| |||||||||||||||||
Adjustment for derivative instruments attributable to non- controlling interests |
| (2 | ) | 2 |
| (8 | ) | (1 | ) | |||||||||||||||||
|
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| ||||||||
Comprehensive income attributable to One Liberty Properties, Inc. |
| $ | 7,219 |
| $ | 5,356 |
| $ | 20,146 |
| $ | 14,746 |
|
| $ | 5,531 |
| $ | 9,459 |
| $ | 14,126 |
| $ | 12,927 |
|
See accompanying notes to consolidated financial statements.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
|
| Common |
| Paid-in |
| Accumulated |
| Accumulated |
| Non- |
| Total |
| |||||||||||||||||||||||||
Balances, December 31, 2015 |
| $ | 16,292 |
| $ | 232,378 |
| $ | (4,390 | ) | $ | 16,215 |
| $ | 1,931 |
| $ | 262,426 |
| |||||||||||||||||||
Distributions - common stock |
| — |
| — |
| — |
| (21,330 | ) | — |
| (21,330 | ) | |||||||||||||||||||||||||
Shares issued through equity offering program |
| 608 |
| 13,689 |
| — |
| — |
| — |
| 14,297 |
| |||||||||||||||||||||||||
Restricted stock vesting |
| 73 |
| (73 | ) | — |
| — |
| — |
| — |
| |||||||||||||||||||||||||
Shares issued through dividend reinvestment plan |
| 101 |
| 2,087 |
| — |
| — |
| — |
| 2,188 |
| |||||||||||||||||||||||||
Contribution from non-controlling interest |
| — |
| — |
| — |
| — |
| 30 |
| 30 |
| |||||||||||||||||||||||||
Distributions to non-controlling interests |
| — |
| — |
| — |
| — |
| (236 | ) | (236 | ) | |||||||||||||||||||||||||
Compensation expense - restricted stock |
| — |
| 2,176 |
| — |
| — |
| — |
| 2,176 |
| |||||||||||||||||||||||||
Net income |
| — |
| — |
| — |
| 20,027 |
| 40 |
| 20,067 |
| |||||||||||||||||||||||||
Other comprehensive loss |
| — |
| — |
| (5,281 | ) | — |
| (15 | ) | (5,296 | ) | |||||||||||||||||||||||||
Balances, September 30, 2016 |
| $ | 17,074 |
| $ | 250,257 |
| $ | (9,671 | ) | $ | 14,912 |
| $ | 1,750 |
| $ | 274,322 |
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|
|
|
|
|
| Common |
| Paid-in |
| Accumulated |
| Accumulated |
| Non-Controlling |
| Total |
| ||||||
Balances, December 31, 2016 |
| $ | 17,600 |
| $ | 262,511 |
| $ | (1,479 | ) | $ | 11,501 |
| $ | 1,794 |
| $ | 291,927 |
|
| $ | 17,600 |
| $ | 262,511 |
| $ | (1,479 | ) | $ | 11,501 |
| $ | 1,794 |
| $ | 291,927 |
|
Distributions - common stock |
| — |
| — |
| — |
| (23,899 | ) | — |
| (23,899 | ) | |||||||||||||||||||||||||
Shares issued through equity offering program - net |
| 135 |
| 2,932 |
| — |
| — |
| — |
| 3,067 |
| |||||||||||||||||||||||||
Distributions - common stock |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Cash - $.86 per share |
| — |
| — |
| — |
| (15,846 | ) | — |
| (15,846 | ) | |||||||||||||||||||||||||
Shares issued through equity offering program — net |
| 32 |
| 617 |
| — |
| — |
| — |
| 649 |
| |||||||||||||||||||||||||
Restricted stock vesting |
| 232 |
| (232 | ) | — |
| — |
| — |
| — |
|
| 118 |
| (118 | ) | — |
| — |
| — |
| — |
| ||||||||||||
Shares issued through dividend reinvestment plan |
| 147 |
| 3,210 |
| — |
| — |
| — |
| 3,357 |
|
| 93 |
| 2,052 |
| — |
| — |
| — |
| 2,145 |
| ||||||||||||
Distributions to non-controlling interests |
| — |
| — |
| — |
| — |
| (148 | ) | (148 | ) |
| — |
| — |
| — |
| — |
| (127 | ) | (127 | ) | ||||||||||||
Compensation expense - restricted stock |
| — |
| 2,341 |
| — |
| — |
| — |
| 2,341 |
|
| — |
| 1,657 |
| — |
| — |
| — |
| 1,657 |
| ||||||||||||
Net income |
| — |
| — |
| — |
| 19,942 |
| 65 |
| 20,007 |
|
| — |
| — |
| — |
| 12,837 |
| 42 |
| 12,879 |
| ||||||||||||
Other comprehensive income |
| — |
| — |
| 204 |
| — |
| 2 |
| 206 |
|
| — |
| — |
| 90 |
| — |
| 1 |
| 91 |
| ||||||||||||
Balances, September 30, 2017 |
| $ | 18,114 |
| $ | 270,762 |
| $ | (1,275 | ) | $ | 7,544 |
| $ | 1,713 |
| $ | 296,858 |
| |||||||||||||||||||
Balances, June 30, 2017 |
| $ | 17,843 |
| $ | 266,719 |
| $ | (1,389 | ) | $ | 8,492 |
| $ | 1,710 |
| $ | 293,375 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Balances, December 31, 2017 |
| $ | 18,261 |
| $ | 275,087 |
| $ | 155 |
| $ | 3,257 |
| $ | 1,742 |
| $ | 298,502 |
| |||||||||||||||||||
Distributions — common stock |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Cash - $.90 per share |
| — |
| — |
| — |
| (17,233 | ) | — |
| (17,233 | ) | |||||||||||||||||||||||||
Shares issued through equity offering program — net |
| 93 |
| 2,165 |
| — |
| — |
| — |
| 2,258 |
| |||||||||||||||||||||||||
Restricted stock vesting |
| 106 |
| (106 | ) | — |
| — |
| — |
| — |
| |||||||||||||||||||||||||
Shares issued through dividend reinvestment plan |
| 115 |
| 2,568 |
| — |
| — |
| — |
| 2,683 |
| |||||||||||||||||||||||||
Distributions to non-controlling interests |
| — |
| — |
| — |
| — |
| (1,159 | ) | (1,159 | ) | |||||||||||||||||||||||||
Compensation expense — restricted stock |
| — |
| 1,682 |
| — |
| — |
| — |
| 1,682 |
| |||||||||||||||||||||||||
Net income |
| — |
| — |
| — |
| 10,368 |
| 831 |
| 11,199 |
| |||||||||||||||||||||||||
Other comprehensive income |
| — |
| — |
| 3,758 |
| — |
| 8 |
| 3,766 |
| |||||||||||||||||||||||||
Balances, June 30, 2018 |
| $ | 18,575 |
| $ | 281,396 |
| $ | 3,913 |
| $ | (3,608 | ) | $ | 1,422 |
| $ | 301,698 |
|
See accompanying notes to consolidated financial statements.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
|
| Nine Months Ended |
|
| Six Months Ended |
| ||||||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 20,007 |
| $ | 20,067 |
|
| $ | 11,199 |
| $ | 12,879 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
| ||||
Gain on sale of real estate, net |
| (9,837 | ) | (9,824 | ) |
| (2,408 | ) | (6,568 | ) | ||||
Gain on available-for-sale securities |
| — |
| (27 | ) | |||||||||
Prepayment costs on debt |
| — |
| 577 |
| |||||||||
Impairment loss |
| 153 |
| — |
| |||||||||
Loss on derivative instrument reclassified into interest expense |
| — |
| 118 |
| |||||||||
Increase in unbilled rent receivable |
| (509 | ) | (1,757 | ) |
| (537 | ) | (344 | ) | ||||
Write-off of unbilled rent receivable |
| 362 |
| 7 |
|
| — |
| 362 |
| ||||
Bad debt expense |
| 310 |
| 190 |
|
| — |
| 310 |
| ||||
Amortization and write-off of intangibles relating to leases, net |
| (654 | ) | (465 | ) |
| (488 | ) | (422 | ) | ||||
Amortization of restricted stock expense |
| 2,341 |
| 2,176 |
|
| 1,682 |
| 1,657 |
| ||||
Equity in earnings of unconsolidated joint ventures |
| (663 | ) | (794 | ) |
| (543 | ) | (451 | ) | ||||
Equity in earnings from sale of unconsolidated joint venture property |
| (71 | ) | — |
| |||||||||
Distributions of earnings from unconsolidated joint ventures |
| 584 |
| 755 |
|
| 88 |
| 396 |
| ||||
Depreciation and amortization |
| 15,858 |
| 13,246 |
|
| 10,432 |
| 10,743 |
| ||||
Amortization and write-off of deferred financing costs |
| 717 |
| 644 |
|
| 449 |
| 454 |
| ||||
Payment of leasing commissions |
| (67 | ) | (1,041 | ) |
| (95 | ) | (36 | ) | ||||
Decrease (increase) in escrow, deposits, other assets and receivables |
| 165 |
| (1,153 | ) | |||||||||
Increase (decrease) in accrued expenses and other liabilities |
| 1,377 |
| (121 | ) | |||||||||
Decrease in escrow, deposits, other assets and receivables |
| 718 |
| 607 |
| |||||||||
(Decrease) increase in accrued expenses and other liabilities |
| (1,627 | ) | 554 |
| |||||||||
Net cash provided by operating activities |
| 30,144 |
| 22,480 |
|
| 18,799 |
| 20,259 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
| ||||
Purchase of real estate |
| (35,443 | ) | (118,589 | ) |
| (18,452 | ) | (35,432 | ) | ||||
Improvements to real estate |
| (2,321 | ) | (3,900 | ) |
| (5,991 | ) | (643 | ) | ||||
Net proceeds from sale of real estate |
| 24,093 |
| 40,207 |
|
| 8,958 |
| 9,173 |
| ||||
Net proceeds from sale of available-for-sale securities |
| — |
| 33 |
| |||||||||
Distributions of capital from unconsolidated joint ventures |
| 298 |
| 305 |
|
| — |
| 141 |
| ||||
Net cash used in investing activities |
| (13,373 | ) | (81,944 | ) |
| (15,485 | ) | (26,761 | ) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
| ||||
Scheduled amortization payments of mortgages payable |
| (7,808 | ) | (6,621 | ) |
| (5,313 | ) | (5,162 | ) | ||||
Repayment of mortgages payable |
| (11,541 | ) | (38,115 | ) |
| (9,827 | ) | — |
| ||||
Proceeds from mortgage financings |
| 21,210 |
| 111,102 |
|
| 13,550 |
| 5,190 |
| ||||
Proceeds from sale of common stock, net |
| 3,067 |
| 14,297 |
|
| 2,258 |
| 649 |
| ||||
Proceeds from bank line of credit |
| 34,500 |
| 86,000 |
|
| 25,000 |
| 26,500 |
| ||||
Repayment on bank line of credit |
| (38,100 | ) | (81,450 | ) |
| (14,100 | ) | (10,000 | ) | ||||
Issuance of shares through dividend reinvestment plan |
| 3,357 |
| 2,188 |
|
| 2,683 |
| 2,145 |
| ||||
Payment of financing costs |
| (150 | ) | (1,260 | ) | |||||||||
Prepayment costs on debt |
| — |
| (577 | ) | |||||||||
Capital contributions from non-controlling interests |
| — |
| 30 |
| |||||||||
(Payment) refund of financing costs |
| (262 | ) | 27 |
| |||||||||
Distributions to non-controlling interests |
| (148 | ) | (236 | ) |
| (1,159 | ) | (127 | ) | ||||
Cash distributions to common stockholders |
| (23,652 | ) | (20,985 | ) |
| (17,074 | ) | (15,718 | ) | ||||
Net cash (used in) provided by financing activities |
| (19,265 | ) | 64,373 |
|
| (4,244 | ) | 3,504 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Net (decrease) increase in cash and cash equivalents |
| (2,494 | ) | 4,909 |
| |||||||||
Cash and cash equivalents at beginning of year |
| 17,420 |
| 12,736 |
| |||||||||
Cash and cash equivalents at end of period |
| $ | 14,926 |
| $ | 17,645 |
| |||||||
Net decrease in cash, cash equivalents and restricted cash |
| (930 | ) | (2,998 | ) | |||||||||
Cash, cash equivalents and restricted cash at beginning of year |
| 14,668 |
| 18,450 |
| |||||||||
Cash, cash equivalents and restricted cash at end of period |
| $ | 13,738 |
| $ | 15,452 |
|
Continued on next pageSee accompanying notes to consolidated financial statements.
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited) (Continued)
|
| Nine Months Ended |
|
| Six Months Ended |
| ||||||||
|
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| ||||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
| ||||
Cash paid during the period for interest expense |
| $ | 13,350 |
| $ | 12,590 |
|
| $ | 8,721 |
| $ | 8,719 |
|
Cash paid during the period for income taxes |
| 63 |
| 45 |
| |||||||||
Cash paid during the period for Federal excise tax |
| — |
| 190 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Supplemental schedule of non-cash investing activities: |
|
|
|
|
|
|
|
|
|
| ||||
Purchase accounting allocation — intangible lease assets |
| $ | 4,009 |
| $ | 8,194 |
|
| $ | — |
| $ | 4,008 |
|
Purchase accounting allocation — intangible lease liabilities |
| (158 | ) | (6,288 | ) |
| — |
| (158 | ) |
See accompanying notes to consolidated financial statements.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
SeptemberJune 30, 20172018
Note 1 — Organization and Background
One Liberty Properties, Inc. (“OLP”) was incorporated in 1982 in Maryland. OLP is a self-administered and self-managed real estate investment trust (“REIT”). OLP acquires, owns and manages a geographically diversified portfolio consisting primarily of industrial, retail industrial,(including furniture stores and supermarkets), restaurant, health and fitness, and theater properties, many of which are subject to long-term net leases. As of SeptemberJune 30, 2017,2018, OLP owns 119120 properties, including sixfive properties owned by consolidated joint ventures and five properties owned by unconsolidated joint ventures. The 119120 properties are located in 3130 states.
Note 2 — Summary Accounting Policies
Principles of Consolidation/Basis of Preparation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by U.S. Generally Accepted Accounting Principles (“GAAP”) for interim reporting. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statement disclosures. In the opinion of management, all adjustments of a normal recurring nature necessary for fair presentation have been included. The results of operations for the three and ninesix months ended SeptemberJune 30, 20172018 and 20162017 are not necessarily indicative of the results for the full year. These statements should be read in conjunction with the consolidated financial statements and related notes included in OLP’s Annual Report on Form 10-K for the year ended December 31, 2016.2017.
The preparation of the financial statements in conformity with GAAP 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, its wholly-owned subsidiaries, its joint ventures in which the Company, as defined, has a controlling interest, and variable interest entities (“VIEs”) of which the Company is the primary beneficiary. OLP and its consolidated subsidiaries are referred to herein as the “Company”. Material intercompany items and transactions have been eliminated in consolidation.
Investment in Joint Ventures and Variable Interest Entities
The Financial Accounting Standards Board, or FASB, provides guidance for determining whether an entity is a VIE. VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A VIE is required to be consolidated by its primary beneficiary, which is the party that (i) has the power to control the activities that most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses, or the right to receive benefits, of the VIE that could potentially be significant to the VIE.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
SeptemberJune 30, 20172018 (Continued)
Note 2 — Summary Accounting Policies (Continued)
The Company assesses the accounting treatment for each of its investments, including a review of each venture or limited liability company or partnership agreement, to determine the rights of each party and whether those rights are protective or participating. Additionally, the Company assesses the accounting treatment for any interests pursuant to which the Company may have a variable interest as a lessor. The agreements typically contain certain protective rights, such as the requirement of partner approval to sell, finance or refinance the property and to pay capital expenditures and operating expenditures outside of the approved budget or operating plan. Leases may contain certain protective rights, such as the right of sale and the receipt of certain escrow deposits. In situations where, among other things, the Company and its partners jointly (i) approve the annual budget, (ii) approve certain expenditures, (iii) prepare or review and approve the joint venture’s tax return before filing, and (iv) approve each lease at a property, the Company does not consolidate as the Company considers these to be substantive participation rights that result in shared, joint power over the activities that most significantly impact the performance of the joint venture or property. Additionally, the Company assesses the accounting treatment for any interests pursuant to which the Company may have a variable interest as a lessor. Leases may contain certain protective rights, such as the right of sale and the receipt of certain escrow deposits.
The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting. All investments in unconsolidated joint ventures have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support and, as a group, the holders of the equity at risk have power through voting rights to direct the activities of these ventures. As a result, none of these joint ventures are VIEs. In addition, the Company shares power with its co-managing members over these entities, and therefore the entities are not consolidated. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for their share of equity in earnings, cash contributions and distributions. None of the joint venture debt is recourse to the Company, subject to standard carve-outs.
The Company periodically reviews its investments in unconsolidated joint ventures for other-than-temporary losses in investment value. Any decline that is not expected to be recovered based on the underlying assets of the investment is considered other than temporary and an impairment charge is recorded as a reduction in the carrying value of the investment. During the three and ninesix months ended SeptemberJune 30, 2018 and 2017, and 2016, there waswere no impairment chargecharges related to the Company’s investments in unconsolidated joint ventures.
The Company has elected to follow the cumulative earnings approach when assessing, for the consolidated statement of cash flows, whether the distribution from the investee is a return of the investor’s investment as compared to a return on its investment. The source of the cash generated by the investee to fund the distribution is not a factor in the analysis (that is, it does not matter whether the cash was generated through investee refinancing, sale of assets or operating results). Consequently, the investor only considers the relationship between the cash received from the investee to its equity in the undistributed earnings of the investee, on a cumulative basis, in assessing whether the distribution from the investee is a return on or return of its investment. Cash received from the unconsolidated entity is presumed to be a return on the investment to the extent that, on a cumulative basis, distributions received by the investor are less than its share of the equity in the undistributed earnings of the entity.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
SeptemberJune 30, 20172018 (Continued)
Note 2 — Summary Accounting Policies (Continued)
Reclassifications
Certain amounts previously reported in the consolidated financial statements have been reclassified in the accompanying consolidated financial statements to conform to the current period’s presentation, primarily to change the presentation of Gain on sale of real estate, netrestricted cash on the consolidated statement of operationscash flows for the three and ninesix months ended SeptemberJune 30, 2016.2017. The change was made because, as of January 1, 2018, the Company adopted ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires amounts generally described as restricted cash to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption of this ASU has no impact on the Company’s previously reported consolidated balance sheets, consolidated statements of income, net income or accumulated undistributed net income for the periods presented.
As a result of the adoption of this guidance, the following table depicts the adjustments to the Company’s previously reported consolidated statement of cash flows (amounts in thousands):
|
| Six Months Ended |
| ||||
|
| As Reported |
| As Adjusted |
| ||
Decrease in escrow, deposits, and other assets and receivables |
| $ | 572 |
| $ | 607 |
|
Increase in accrued expenses and other liabilities |
| 551 |
| 554 |
| ||
Net decrease in cash, cash equivalents and restricted cash |
| (3,036 | ) | (2,998 | ) | ||
Cash, cash equivalents and restricted cash at beginning of year |
| 17,420 |
| 18,450 |
| ||
Cash, cash equivalents and restricted cash at end of period |
| 14,384 |
| 15,452 |
| ||
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows (amounts in thousands):
|
| June 30, |
| ||||
|
| 2018 |
| 2017 |
| ||
Cash and cash equivalents |
| $ | 12,925 |
| $ | 14,384 |
|
Restricted cash |
| 416 |
| 647 |
| ||
Restricted cash included in escrow, deposits and other assets and receivables |
| 397 |
| 421 |
| ||
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows |
| $ | 13,738 |
| $ | 15,452 |
|
Amounts included a caption for Income before gain on salein restricted cash represent the cash reserve balance received from an owner/operator at one of the Company’s ground leases to cover certain unit renovation work (see Note 6). Restricted cash included in escrow, deposits and other assets and receivables represent amounts related to real estate net,tax and other reserve escrows required to present gain and losses on sales of propertiesbe held by lenders in accordance with the SecuritiesCompany’s mortgage agreements. The restriction on these escrow reserves will lapse when the related mortgage is repaid.
One Liberty Properties, Inc. and Exchange Commission Rule 3-15(a) of Regulation S-X. The change was made for the three and nine months ended SeptemberSubsidiaries
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2016 because, as prescribed by ASC 360-10-45-5, such gains from sale of real estate were not included as a component of Operating income. Such change was determined to be immaterial to the consolidated financial statements.2018 (Continued)
Note 3 — Earnings Per Common Share
Basic earnings per share was determined by dividing net income allocable to common stockholders for each period by the weighted average number of shares of common stock outstanding during the applicable period. Net income is also allocated to the unvested restricted stock outstanding during each period, as the unvested restricted stock is entitled to receive dividends and is therefore considered a participating security. Unvested restricted stock is not allocated net losses; such losses are allocated entirely to the common stockholders, other than the holders of unvested restricted stock. As of SeptemberJune 30, 2017,2018, the shares of common stock underlying the restricted stock units awarded under the 2016 Incentive Plan are excluded from the basic earnings per share calculation, as these units are not participating securities. The restricted stock units issued pursuant to the 2009 and 2016 Incentive Plans are referred to as “RSUs”.
Diluted earnings per share reflects the potential dilution that could occur if securities or other rights exercisable for, or convertible into, common stock were exercised or converted or otherwise resulted in the issuance of common stock that shared in the earnings of the Company.
The following table identifies the impact to the diluted weighted average number of shares of common stock related to the RSUs under the plans identified in the table below:
|
| Number of |
| Three Months Ended |
| Six Months Ended |
| ||||
|
| shares |
| 2018 |
| 2017 |
| 2018 |
| 2017 |
|
2009 Incentive Plan |
| 200,000 |
| — |
| 113,584 | (a) | — |
| 113,584 | (a) |
2016 Incentive Plan |
| 76,250 | (b) | 74,245 | (c) | — |
| 74,245 | (c) | — |
|
(a) RSUs with respect to 113,584 shares vested in June 2017 and such shares were issued in August 2017.
(b) Awarded on September 26, 2017.
(c) Includes 36,120 shares that would be issued pursuant to a return on capital performance metric and 38,125 shares that would be issued pursuant to a stockholder return metric, assuming the end of the quarterly period was the June 30, 2020 vesting date. Excludes 2,005 shares subject to the capital performance metric as such metric was not met. See Note 13 for information regarding the Company’s equity incentive plans.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
SeptemberJune 30, 20172018 (Continued)
Note 3 — Earnings Per Common Share (Continued)
The diluted weighted average number of shares of common stock includes common stock underlying the RSUs awarded under the plans identified in the table below:
|
| Number of |
| Three Months Ended |
| Nine Months Ended |
| ||||
|
| underlying shares |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
2009 Incentive Plan |
| 200,000 |
|
| (a) | 117,000 |
|
| (a) | 117,000 |
|
2016 Incentive Plan |
| 76,250 |
| 38,125 | (b) | — |
| 38,125 | (b) | — |
|
(a) RSUs with respect to 113,584 shares vested on June 30, 2017 and such shares were issued in August 2017.
(b) Includes 38,125 shares that would be issued pursuant to a return on capital performance metric, assuming the end of the quarterly period was the June 30, 2020 vesting date. None of the remaining 38,125 shares (of a total of 76,250 that were awarded on September 26, 2017) are included as the applicable total stockholder return metric has not been met for these shares.
The following table provides a reconciliation of the numerator and denominator of earnings per share calculations (amounts in thousands, except per share amounts):
|
| Three Months Ended |
| Nine Months Ended |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||||||
Numerator for basic and diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income |
| $ | 7,128 |
| $ | 4,323 |
| $ | 20,007 |
| $ | 20,067 |
|
| $ | 4,546 |
| $ | 9,993 |
| $ | 11,199 |
| $ | 12,879 |
|
Less net income attributable to non-controlling interests |
| (23 | ) | (24 | ) | (65 | ) | (40 | ) |
| (29 | ) | (21 | ) | (831 | ) | (42 | ) | ||||||||
Less earnings allocated to unvested restricted stock (a) |
| (263 | ) | (248 | ) | (796 | ) | (744 | ) |
| (293 | ) | (332 | ) | (586 | ) | (533 | ) | ||||||||
Net income available for common stockholders, basic and diluted |
| $ | 6,842 |
| $ | 4,051 |
| $ | 19,146 |
| $ | 19,283 |
| |||||||||||||
Net income available for common stockholders: basic and diluted |
| $ | 4,224 |
| $ | 9,640 |
| $ | 9,782 |
| $ | 12,304 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Denominator for basic earnings per share: |
| 18,000 |
| 16,845 |
| 17,859 |
| 16,605 |
| |||||||||||||||||
Effect of diluted securities: |
|
|
|
|
|
|
|
|
| |||||||||||||||||
Denominator for basic earnings per share: |
|
|
|
|
|
|
|
|
| |||||||||||||||||
Weighted average number of common shares |
| 18,519 |
| 17,824 |
| 18,458 |
| 17,788 |
| |||||||||||||||||
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
| |||||||||||||||||
RSUs |
| 79 |
| 117 |
| 102 |
| 117 |
|
| 74 |
| 114 |
| 74 |
| 114 |
| ||||||||
Denominator for diluted earnings per share: |
| 18,079 |
| 16,962 |
| 17,961 |
| 16,722 |
| |||||||||||||||||
Denominator for diluted earnings per share: |
|
|
|
|
|
|
|
|
| |||||||||||||||||
Weighted average number of shares |
| 18,593 |
| 17,938 |
| 18,532 |
| 17,902 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Earnings per common share, basic |
| $ | .38 |
| $ | .24 |
| $ | 1.07 |
| $ | 1.16 |
|
| $ | .23 |
| $ | .54 |
| $ | .53 |
| $ | .69 |
|
Earnings per common share, diluted |
| $ | .38 |
| $ | .24 |
| $ | 1.07 |
| $ | 1.15 |
|
| $ | .23 |
| $ | .54 |
| $ | .53 |
| $ | .69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net income attributable to One Liberty Properties, Inc. common stockholders, net of non-controlling interests |
| $ | 7,105 |
| $ | 4,299 |
| $ | 19,942 |
| $ | 20,027 |
|
| $ | 4,517 |
| $ | 9,972 |
| $ | 10,368 |
| $ | 12,837 |
|
(a) Represents an allocation of distributed earnings to unvested restricted stock which, as participating securities, are entitled to receive dividends.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
SeptemberJune 30, 20172018 (Continued)
Note 4 — Real Estate Acquisitions
In January 2017,The following chart details the Company adopted ASU No. 2017-01, Business Combinations (Topic 805): ClarifyingCompany’s acquisitions of real estate during the Definition of a Business, which requires an entity to evaluate whether substantially all of the fair value of the gross assets acquired is concentratedsix months ended June 30, 2018 (amounts in a single identifiable asset or a group of similar identifiable assets, and if that requirement is met, the asset group is not a business. thousands):
Description of Property |
| Date Acquired |
| Contract |
| Terms of |
| Capitalized |
| ||
Campania International/U.S. Tape industrial facility, |
|
|
|
|
|
|
|
|
| ||
Pennsburg, PA |
| March 28, 2018 |
| $ | 12,675 |
| All cash |
| $ | 227 |
|
Plymouth Industries, industrial facility, |
|
|
|
|
|
|
|
|
| ||
Plymouth, MN |
| June 7, 2018 |
| 5,500 |
| All cash |
| 50 |
| ||
Totals |
|
|
| $ | 18,175 |
|
|
| $ | 277 |
|
The Company analyzed the real estatedetermined that with respect to each of these acquisitions, made during the nine months ended September 30, 2017 and determined the gross assets acquired are concentrated in a single identifiable asset. Therefore, thethese transactions do not meet the definition of a business and are accounted for as asset acquisitions. In accordance with this guidance,As such, direct transaction costs associated with these asset acquisitions have been capitalized to real estate assets and depreciated over thetheir respective useful lives.
The following chart details the Company’s acquisitions of real estate during the nine months ended September 30, 2017 (amounts in thousands):
Description of Property |
| Date Acquired |
| Contract |
| Terms of Payment |
| Third Party |
| ||
Forbo industrial facility, |
|
|
|
|
| Cash and $5,190 |
|
|
| ||
Huntersville, North Carolina |
| May 25, 2017 |
| $ | 8,700 |
| mortgage (b) |
| $ | 65 |
|
Saddle Creek Logistics industrial facility, |
| June 9, 2017 |
| 11,750 |
| All cash (c) |
| 199 |
| ||
Corporate Woods industrial facility, |
| June 20, 2017 |
| 14,700 |
| All cash (d) |
| 29 |
| ||
Totals |
|
|
| $ | 35,150 |
|
|
| $ | 293 |
|
(a) Transaction costs incurred with these asset acquisitions were capitalized.
(b) The new mortgage debt was obtained simultaneously with the acquisition of the property.
(c) In August 2017, the Company obtained new mortgage debt of $7,200.
(d) In July 2017, the Company obtained new mortgage debt of $8,820.
The following chart details the allocation of the purchase price for the Company’s acquisitions of real estate during the ninesix months ended SeptemberJune 30, 20172018 (amounts in thousands):
|
|
|
|
|
| Building |
| Intangible Lease |
|
|
| ||||||||
Description of Property |
| Land |
| Building |
| Improvements |
| Asset |
| Liability |
| Total |
| ||||||
Forbo industrial facility, |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Huntersville, North Carolina |
| $ | 1,045 |
| $ | 6,446 |
| $ | 222 |
| $ | 1,052 |
| $ | — |
| $ | 8,765 |
|
Saddle Creek Logistics industrial facility, |
| 999 |
| 9,675 |
| 247 |
| 1,028 |
| — |
| 11,949 |
| ||||||
Corporate Woods industrial facility, Ankeny, Iowa |
| 1,351 |
| 11,420 |
| 187 |
| 1,929 |
| (158 | ) | 14,729 |
| ||||||
Totals |
| $ | 3,395 |
| $ | 27,541 |
| $ | 656 |
| $ | 4,009 |
| $ | (158 | ) | $ | 35,443 |
|
|
|
|
|
|
| Building |
|
|
| ||||
Description of Property |
| Land |
| Building |
| Improvements |
| Total |
| ||||
Campania International/U.S. Tape industrial facility, |
|
|
|
|
|
|
|
|
| ||||
Pennsburg, PA |
| $ | 1,776 |
| $ | 10,399 |
| $ | 727 |
| $ | 12,902 |
|
Plymouth Industries, industrial facility, |
|
|
|
|
|
|
|
|
| ||||
Plymouth, MN |
| 1,121 |
| 4,306 |
| 123 |
| 5,550 |
| ||||
Totals |
| $ | 2,897 |
| $ | 14,705 |
| $ | 850 |
| $ | 18,452 |
|
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
SeptemberJune 30, 20172018 (Continued)
Note 4 — Real Estate Acquisitions (Continued)
As of September 30, 2017, the weighted average amortization for the 2017 acquisitions is 7.0 years and 12.4 years for the intangible lease assets and intangible lease liabilities, respectively. The Company assessed the fair value of the lease intangibles based on estimated cash flow projections that utilize appropriate discount rates and available market information. Such inputs are Level 3 (as defined in Note 14) in the fair value hierarchy.
Property Acquisition Subsequent to September 30, 2017
On October 10, 2017, the Company acquired, in a sale-leaseback transaction, a distribution facility/corporate headquarters, located in Memphis, Tennessee for $8 million. The initial term of the lease is ten years.
Note 5 — Sale of PropertiesProperty
The following chart detailsOn January 1, 2018, the Company adopted ASU No. 2017-05, Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, using the modified retrospective transition method. As leasing is the Company’s primary activity, the Company determined that its sales of real estate, which are nonfinancial assets, are sold to noncustomers and fall within the scope of ASC 610-20. The Company re-assessed and determined there were no open contracts or partial sales and as such, the adoption of this ASU did not (i) result in a cumulative adjustment as of January 1, 2018, and (ii) have any impact on the Company’s consolidated financial statements.
On January 30, 2018, the Company sold a property located in Fort Bend, Texas, owned by a consolidated joint venture in which the Company held an 85% interest, for $8,958,000, net of closing costs, and paid off the $4,410,000 mortgage. This property accounted for 1.1% of the Company’s rental income, net, during each of the ninethree and six months ended SeptemberJune 30, 2017 and 2016 (amounts2017. The sale resulted in thousands):
Description of Property |
| Date Sold |
| Gross |
| Gain on Sale of |
| ||
Retail property, |
|
|
|
|
|
|
| ||
Greenwood Village, Colorado |
| May 8, 2017 |
| $ | 9,500 |
| $ | 6,568 |
|
Retail property, |
|
|
|
|
|
|
| ||
Kansas City, Missouri (a) |
| July 14, 2017 |
| 10,250 |
| 2,180 |
| ||
Retail property, |
|
|
|
|
|
|
| ||
Niles, Illinois |
| August 31, 2017 |
| 5,000 |
| 1,089 |
| ||
Totals — nine months ended September 30, 2017 |
|
|
| $ | 24,750 |
| $ | 9,837 |
|
|
|
|
|
|
|
|
| ||
Portfolio of eight retail properties, |
|
|
|
|
|
|
| ||
Louisiana and Mississippi |
| February 1, 2016 |
| $ | 13,750 |
| $ | 787 |
|
Retail property, |
|
|
|
|
|
|
| ||
Killeen, Texas |
| May 19, 2016 |
| 3,100 |
| 980 |
| ||
Land, |
|
|
|
|
|
|
| ||
Sandy Springs, Georgia |
| June 15, 2016 |
| 8,808 |
| 2,281 |
| ||
Industrial property, |
|
|
|
|
|
|
| ||
Tomlinson, Pennsylvania |
| June 30, 2016 |
| 14,800 |
| 5,660 |
| ||
Partial condemnation of land, |
|
|
|
|
|
|
| ||
Greenwood Village, Colorado |
| July 5, 2016 |
| 153 |
| 116 |
| ||
Totals — nine months ended September 30, 2016 |
|
|
| $ | 40,611 |
| $ | 9,824 |
|
(a) See Note 14a gain of $2,408,000 which was recorded as Gain on sale of real estate, net, in the consolidated statement of income for informationthe six months ended June 30, 2018. The non-controlling interest’s share of the gain was $776,000. The Company determined it would recognize the full gain on the payoffsale of the mortgage on thisFort Bend, Texas property in accordance with ASC 610-20 as the Company has no (i) controlling financial interest in the property and (ii) continuing interest or obligation with respect to the early termination of the interest rate swap derivative.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2017 (Continued)property sold.
Note 6 — Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures
Variable Interest Entities — Ground Leases
The Company determined that with respect to the properties identified in the table below, it has a variable interest through its ground leases and the three owner/operators (which are affiliated with one another) are VIEs because their equity investment at risk is insufficient to finance its activities without additional subordinated financial support. The Company further determined that it is not the primary beneficiary of any of these VIEs because the Company has shared power over certain activities that most significantly impact the owner/operator’s economic performance (i.e., shared rights on the sale of the property) and therefore, does not consolidate these VIEs for financial statement purposes. Accordingly, the Company accounts for these investments as land and the revenues from the ground leases as Rental income, net. Such rental income amounted to $954,000$941,000 and $2,758,000$1,947,000 for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, and $663,000$917,000 and $1,525,000$1,804,000 for the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively. Included in these amounts, for the three
One Liberty Properties, Inc. and nine months ended SeptemberSubsidiaries
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2016, is rental income for a similarly structured transaction for a property located in Sandy Springs, Georgia, amounting to $02018 (Continued)
Note 6 — Variable Interest Entities, Contingent Liabilities and $308,000, respectively, which the Company sold in June 2016 (see Note 5).Consolidated Joint Ventures (Continued)
The following chart details the VIEs through the Company’s ground leases and the aggregate carrying amount and maximum exposure to loss as of SeptemberJune 30, 20172018 (dollars in thousands):
Description of Property(a) |
| Date Acquired |
| Land |
| # Units in |
| Owner/ |
| Type of |
| Carrying |
| |||
The Meadows Apartments, |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Lakemoor, Illinois |
| March 24, 2015 |
| $ | 9,300 |
| 496 |
| $ | 43,824 |
| Land |
| $ | 9,592 |
|
The Briarbrook Village Apartments, |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Wheaton, Illinois |
| August 2, 2016 |
| 10,530 |
| 342 |
| 39,411 |
| Land |
| 10,536 |
| |||
The Vue Apartments, |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Beachwood, Ohio |
| August 16, 2016 |
| 13,896 |
| 348 |
| 67,444 |
| Land |
| 13,901 |
| |||
Totals |
|
|
| $ | 33,726 |
| 1,186 |
| $ | 150,679 |
|
|
| $ | 34,029 |
|
Description of Property(a) |
| Date Acquired |
| Land |
| # Units in |
| Owner/ |
| Type of |
| Carrying |
| |||
The Meadows Apartments, |
| March 24, 2015 |
| $ | 9,300 |
| 496 |
| $ | 51,331 | (c) | Land |
| $ | 9,592 |
|
The Briarbrook Village Apartments, |
| August 2, 2016 |
| 10,530 |
| 342 |
| 39,411 |
| Land |
| 10,536 |
| |||
The Vue Apartments, |
| August 16, 2016 |
| 13,896 |
| 348 |
| 67,444 |
| Land |
| 13,901 |
| |||
Totals |
|
|
| $ | 33,726 |
| 1,186 |
| $ | 158,186 |
|
|
| $ | 34,029 |
|
(a) Simultaneously with each purchase, the Company entered into a triple net ground lease with affiliates of Strategic Properties of North America, the owner/operators of these properties.
(b) Simultaneously with the closing of each acquisition, the owner/operator obtained a mortgage from a third party which, together with the Company’s purchase of the land, provided substantially all of the aggregate funds to acquire the complex. The Company provided its land as collateral for the respective owner/operator’s mortgage loans; accordingly, each land position is subordinated to the applicable mortgage. Other than as described above, noNo other financial support has been provided by the Company to the owner/operator.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2017 (Continued)
Note 6 — Variable Interest Entities, Contingent Liabilities(c) In November 2017, the owner/operator closed on a $7,556 supplemental mortgage (the original mortgage was for $43,824). In connection therewith, the Company agreed to subordinate its fee interest to this second mortgage in exchange for a payment by the owner/operator to the Company of $5,906 as a fixed rent payment which was recorded as deferred income and Consolidated Joint Ventures
(Continued)will be included in rental income over the term of the lease. The fixed rent payment balance was $5,762 and $5,870 at June 30, 2018 and December 31, 2017, respectively, and is included in Accrued expenses and other liabilities on the consolidated balance sheets.
Pursuant to the terms of the ground lease for the Wheaton, Illinois property, the owner/operator is obligated to make certain unit renovations as and when units become vacant. Cash reserves to cover such renovation work, received by the Company in conjunction with the purchase of the property, are disbursed when the unit renovations are completed. The related cash reserve balance for this property was $530,000$416,000 and $643,000$443,000 at SeptemberJune 30, 20172018 and December 31, 2016,2017, respectively, and is included inclassified as Restricted cash on the consolidated balance sheets.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2018 (Continued)
Note 6 — Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures (Continued)
Variable Interest Entity — Consolidated Joint Ventures
With respect to the sixfive consolidated joint ventures in which the Company holds between an 85%a 90% to 95% interest, the Company has determined such ventures are VIEs because the non-controlling interests do not hold substantive kick-out or participating rights.
In each of these sixconsolidated joint ventures, the Company has determined it is the primary beneficiary of the VIE as it has the power to direct the activities that most significantly impact each joint venture’s performance including management, approval of expenditures, and the obligation to absorb the losses or rights to receive benefits. Accordingly, the Company consolidates the operations of these joint ventures for financial statement purposes. The joint ventures’ creditors do not have recourse to the assets of the Company other than those held by these joint ventures.
The following is a summary of the consolidated VIEs’ carrying amounts and classification in the Company’s consolidated balance sheets, none of which are restricted (amounts in thousands):
|
| September 30, |
| December 31, |
| ||
Land |
| $ | 17,844 |
| $ | 17,844 |
|
Buildings and improvements, net of accumulated depreciation of $3,536 and $2,732, respectively |
| 32,061 |
| 32,535 |
| ||
Cash |
| 1,053 |
| 1,796 |
| ||
Unbilled rent receivable |
| 870 |
| 775 |
| ||
Unamortized intangible lease assets, net |
| 1,315 |
| 1,595 |
| ||
Escrow, deposits and other assets and receivables |
| 910 |
| 1,355 |
| ||
Mortgages payable, net of unamortized deferred financing costs of $462 and $539, respectively |
| 32,478 |
| 33,121 |
| ||
Accrued expenses and other liabilities |
| 1,004 |
| 893 |
| ||
Unamortized intangible lease liabilities, net |
| 2,061 |
| 2,200 |
| ||
Accumulated other comprehensive loss |
| (49 | ) | (70 | ) | ||
Non-controlling interests in consolidated joint ventures |
| 1,713 |
| 1,794 |
| ||
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2017 (Continued)
|
| June 30, |
| December 31, |
| |
Land |
| 14,722 |
| $ | 17,844 |
|
Buildings and improvements, net of accumulated depreciation of $3,615 and $3,811, respectively |
| 28,145 |
| 31,789 |
| |
Cash |
| 839 |
| 1,145 |
| |
Unbilled rent receivable |
| 1,166 |
| 1,011 |
| |
Unamortized intangible lease assets, net |
| 975 |
| 1,241 |
| |
Escrow, deposits and other assets and receivables |
| 687 |
| 948 |
| |
Mortgages payable, net of unamortized deferred financing costs of $423 and $442, respectively |
| 27,411 |
| 32,252 |
| |
Accrued expenses and other liabilities |
| 538 |
| 870 |
| |
Unamortized intangible lease liabilities, net |
| 1,848 |
| 2,015 |
| |
Accumulated other comprehensive income (loss) |
| 90 |
| (1 | ) | |
Non-controlling interests in consolidated joint ventures |
| 1,422 |
| 1,742 |
| |
(a) Includes a consolidated joint venture, in which the Company held an 85% interest, located in Fort Bend, Texas which was sold in January 2018 (see Note 6 — Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures
(Continued)5).
At SeptemberJune 30, 2018 and December 31, 2017, MCB Real Estate, LLC and its affiliates (‘‘MCB’’) are the Company’s joint venture partner in four consolidated joint ventures in which the Company has an aggregate equity investmentinvestments of approximately $9,469,000. The Company’s equity investment in its two other consolidated joint ventures is approximately $7,378,000.$9,734,000 and $9,705,000, respectively.
Distributions to each joint venture partner are determined pursuant to the applicable operating agreement and may not be pro rata to the equity interest each partner has in the applicable venture.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2018 (Continued)
Note 7 — Investment in Unconsolidated Joint Ventures
On April 5, 2018, an unconsolidated joint venture sold its building and a portion of its land, located in Savannah, Georgia for $2,600,000, net of closing costs. The Company’s 50% share of the gain from this sale was $71,000, which is included in Equity in earnings from sale of unconsolidated joint venture property on the consolidated statements of income for the three and six months ended June 30, 2018. The unconsolidated joint venture retained approximately five acres of land at this property.
At SeptemberJune 30, 20172018 and December 31, 2016,2017, the Company’s five unconsolidated joint ventures each owned and operated one property. The Company’s equity investment in such unconsolidated joint ventures at such dates totaled $10,648,000$11,214,000 and $10,833,000,$10,723,000, respectively. TheIn addition to the equity in earnings from the sale of property of $71,000 in 2018, the Company recorded equity in earnings of $212,000$348,000 and $663,000$543,000 for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, and $228,000$206,000 and $794,000$451,000 for the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively. Included in equity in earnings from unconsolidated joint ventures for the three and six months ended June 30, 2018 is $110,000 related to the discontinuance of hedge accounting on a mortgage swap related to an unconsolidated joint venture property, located in Milwaukee, Wisconsin, that was sold in July 2018 (see below and Note 14).
At SeptemberJune 30, 2017,2018, MCB is the Company’s joint venture partner in one of these unconsolidated joint ventures in which the Company has an equity investment of $8,171,000.$8,408,000.
One Liberty Properties, Inc.
On July 31, 2018, an unconsolidated joint venture sold its property located in Milwaukee, Wisconsin for approximately $12,800,000, net of closing costs and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
paid off the related $6,970,000 mortgage. The Company anticipates its 50% share of the gain from this sale will be approximately $2,000,000, which will be recognized in the three months ending September 30, 2017 (Continued)2018.
Note 8 — Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of a tenant to make required rent and other payments. If the financial condition of a specific tenant were to deteriorate, adversely impacting its ability to make payments, allowances may be required. At SeptemberJune 30, 20172018 and December 31, 2016,2017, there was no balance in allowance for doubtful accounts.
The Company records bad debt expense as a reduction of rental income and/or tenant reimbursements.
The There was no bad debt expense in the three and six months ended June 30, 2018. During the three and six months ended June 30, 2017, the Company recorded bad debt expense of $15,000 and $310,000, during the nine months ended September 30, 2017. Such bad debt expenserespectively, related to rental income and tenant reimbursements due from former tenants at four properties that filed for Chapter 11 bankruptcy protection. The Company sold one ofIn connection with these properties, located in Niles, Illinois, in August 2017 (see Note 5). Each tenant accounted for less than 1.2% of rental income for each of the three and nine months ended September 30, 2017 and 2016. In addition, during the nine months ended September 30, 2017,tenants, the Company wrote-off (i) $362,000 of unbilled straight-line rent receivable and $67,000 of unamortized intangible lease assets as a reduction to rental income and (ii) $884,000 of tenant origination costs as an increase to depreciation expense related to these tenants. Except with respect to its property located in Ann Arbor, Michigan (discussed below), the Company has determined that no impairment charge is required with respect to the two other properties, which at September 30, 2017, had an aggregate net book value of $2,382,000. There was no bad debt expense in the three months ended September 30, 2017.
The Company recorded bad debt expense of $190,000 during the nine months ended September 30, 2016, respectively, related to rental income and tenant reimbursements due from Sports Authority, the former tenant at its Greenwood Village, Colorado property, that filed for Chapter 11 bankruptcy in March 2016. This tenant accounted for less than 1% of the Company’s rental income for the three and nine months ended September 30, 2016. The Company sold this property in May 2017 (see Note 5). There was no bad debt expense in the three months ended September 30, 2016.
Impairment Loss
As of September 30, 2017, the Company determined that it was more likely than not that its property formerly tenanted by Joe’s Crab Shack, located in Ann Arbor, Michigan would be disposed of before the end of its previously estimated useful life. Subsequent to September 30, 2017 the Company entered into a contract to sell the property. As the sales price is less than the book value, the Company determined that the property is impaired and recorded an impairment loss of $153,000 representing the difference between the expected net sales price and the net book value as of September 30, 2017.expense.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
SeptemberJune 30, 20172018 (Continued)
Note 9 — Debt Obligations
Mortgages Payable
The following table details the Mortgages payable, net, balances per the consolidated balance sheets at September 30, 2017 and December 31, 2016 (amounts in thousands):
|
| September 30, |
| December 31, |
|
| June 30, |
| December 31, |
| ||||
Mortgages payable, gross |
| $ | 401,053 |
| $ | 399,192 |
|
| $ | 395,357 |
| $ | 396,946 |
|
Unamortized deferred financing costs |
| (3,960 | ) | (4,294 | ) |
| (3,758 | ) | (3,789 | ) | ||||
Mortgages payable, net |
| $ | 397,093 |
| $ | 394,898 |
|
| $ | 391,599 |
| $ | 393,157 |
|
Line of Credit
The Company has a credit facility with Manufacturers & Traders Trust Company, People’s United Bank, VNB New York, LLC, and Bank Leumi USA, pursuant to which the Company may borrow up to $100,000,000, subject to borrowing base requirements. The facility, which matures December 31, 2019, provides that the Company pay an interest rate equal to the one month LIBOR rate plus an applicable margin ranging from 175 basis points to 300 basis points depending on the ratio of the Company’s total debt to total value, as determined pursuant to the facility. At SeptemberJune 30, 20172018 and 2016,2017, the applicable margin was 175 basis points. An unused facility fee of .25% per annum applies to the facility. The average interest rate on the facility was approximately 2.83%3.54% and 2.20%2.67% for the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, respectively. The Company was in compliance with all covenants at SeptemberJune 30, 2017.2018.
The following table details the Line of credit, net, balances per the consolidated balance sheets at September 30, 2017 and December 31, 2016 (amounts in thousands):
|
| September 30, |
| December 31, |
|
| June 30, |
| December 31, |
| ||||
Line of credit, gross |
| $ | 6,400 |
| $ | 10,000 |
|
| $ | 20,300 |
| $ | 9,400 |
|
Unamortized deferred financing costs |
| (702 | ) | (936 | ) |
| (468 | ) | (624 | ) | ||||
Line of credit, net |
| $ | 5,698 |
| $ | 9,064 |
|
| $ | 19,832 |
| $ | 8,776 |
|
At November 3, 2017,August 2, 2018, there was an outstanding balance of $13,400,000$3,300,000 (before unamortized deferred financing costs) under the facility.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
SeptemberJune 30, 20172018 (Continued)
Note 10 — Related Party Transactions
Compensation and Services Agreement
Pursuant to the compensation and services agreement with Majestic Property Management Corp. (‘‘Majestic’’(“Majestic”), the Company pays fees to Majestic and Majestic provides to the Company the services of all affiliated executive, administrative, legal, accounting, clerical and property management personnel, as well as property acquisition, sale and lease consulting and brokerage services, consulting services with respect to mortgage financings and construction supervisory services. Majestic is wholly-owned by the Company’s vice-chairman and certain of the Company’s executive officers are officers of, and are compensated by, Majestic. The fee the Company pays Majestic is negotiated each year by Majestic and the Compensation andand/or Audit Committees of the Company’s Board of Directors, and is approved by such committees and the independent directors.
In consideration for the services described above, the Company paid Majestic $667,000$689,000 and $1,996,000$1,367,000 for the three and ninesix months ended SeptemberJune 30, 2017,2018 respectively, and $629,000$664,000 and $1,855,000$1,329,000 for the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively. Included in these fees are $287,000$309,000 and $857,000$608,000 of property management costs for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, and $267,000$284,000 and $770,000$570,000 for the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively. The property management fee portion of the compensation and services agreement is paid based on 1.5% and 2.0% of the rental payments (including tenant reimbursements) actually received by the Company from net lease tenants and operating lease tenants, respectively. The Company does not pay Majestic property management fees with respect to properties managed by third parties. Majestic credits against the fees due to it under the compensation and services agreement any management or other fees received by it from any joint venture in which the Company is a joint venture partner. The compensation and services agreement also provides for an additional payment to Majestic of $54,000 and $162,000 for$108,000 in each of the three and ninesix months ended SeptemberJune 30, 2017, respectively,2018 and $49,000 and $147,000 for the three and nine months ended September 30, 2016,2017, respectively, for the Company’s share of all direct office expenses, including rent, telephone, postage, computer services, internet usage and supplies. The Company does not pay any fees or expenses to Majestic for such services except for the fees described in this paragraph.
Executive officers and others providing services to the Company under the compensation and services agreement were awarded shares of restricted stock and RSUs under the Company’s stock incentive plans (described in Note 13). The related expense charged to the Company’s operations was $361,000$432,000 and $1,128,000$849,000 for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, and $399,000$386,000 and $1,125,000$768,000 for the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively.
The fees paid under the compensation and services agreement (except for the property management fees which are included in Real estate expenses) and the costs of the stock incentive plans are included in General and administrative expense on the consolidated statements of income for the three and ninesix months ended SeptemberJune 30, 20172018 and 2016.2017.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
SeptemberJune 30, 20172018 (Continued)
Note 10 — Related Party Transactions (Continued)
Joint Venture Partners and Affiliates
The Company paid an aggregate of $30,000$22,000 and $112,000$65,000 for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, and $35,000$33,000 and $123,000$82,000 for the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively, to its consolidated joint venture partners or their affiliates (none of whom are officers, directors or employees of the Company) of its consolidated joint ventures for property management fees, which are included in Real estate expenses on the consolidated statements of income.
The Company’s unconsolidated joint ventures paid management fees of $45,000 and $132,000$96,000 for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, and $55,000$42,000 and $127,000$87,000 for the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively, to the other partner of the venture, which reduced Equity in earnings of unconsolidated joint ventures on the consolidated statements of income by $22,000$23,000 and $66,000$48,000 for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, and $27,000$21,000 and $63,000$44,000 for the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively.
Other
ForDuring 2018 and 2017, and 2016, the Company paid quarterly fees of (i) $69,000 and $65,625 to the Company’s chairman respectively, and (ii) $27,500 and $26,250 to the Company’s vice-chairman, respectively.vice-chairman. These fees are included in General and administrative expenses on the consolidated statements of income.
The Company obtains its property insurance in conjunction with Gould Investors L.P. (“Gould Investors”), a related party, and reimburses Gould Investors annually for the Company’s insurance cost relating to its properties. Amounts reimbursed to Gould were $782,000 during the three and nine months ended September 30, 2017 and $699,000 during the three and nine months ended September 30, 2016. Included in Real estate expenses on the consolidated statements of income is insurance expense of $204,000$206,000 and $551,000$404,000 for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively, and $169,000$174,000 and $371,000$347,000 for the three and ninesix months ended SeptemberJune 30, 2016, respectively. The $470,000 balance2017, respectively of the amounts reimbursed to Gould Investors represents prepaid insurance at September 30, 2017 and is included in Other assets on the consolidated balance sheets.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2017 (Continued)prior periods.
Note 11 — Common Stock Cash Dividend
On SeptemberJune 13, 2017,2018, the Board of Directors declared a quarterly cash dividend of $.43$.45 per share on the Company’s common stock, totaling $8,053,000.$8,652,000. The quarterly dividend was paid on October 4, 2017July 6, 2018 to stockholders of record on SeptemberJune 25, 2017.2018.
Note 12 — Shares Issued through Equity Offering Program
During the threesix months ended SeptemberJune 30, 2017,2018, the Company sold 103,19693,417 shares for proceeds of $2,461,000,$2,303,000, net of commissions of $25,000,$23,000, and incurred offering costs of $43,000$45,000 for professional fees. During the nine months ended September
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2017, the Company sold 135,196 shares for proceeds of $3,252,000, net of commissions of $33,000, and incurred offering costs of $185,000 for professional fees. Subsequent to September 30, 2017, the Company sold 4,197 shares for proceeds of $102,000, net of commissions of $1,000.2018 (Continued)
Note 13 — Stock Based Compensation
The Company’s 2016 Incentive Plan (‘‘Plan’’), approved by the Company’s stockholders in June 2016, permits the Company to grant, among other things, stock options, restricted stock, RSUs, performance share awards and dividend equivalent rights and any one or more of the foregoing to its employees, officers, directors and consultants. A maximum of 750,000 shares of the Company’s common stock is authorized for issuance pursuant to this Plan. As of SeptemberJune 30, 2017,2018, (i) restricted stock awards with respect to 140,100284,850 shares had been issued, of which 100200 shares were forfeited and 3,000 shares had vested, and (ii) as further described below, RSUs with respect to 76,250 shares had been issued and are outstanding.
Under the Company’s 2012 Incentive Plan, as of SeptemberJune 30, 2017,2018, 500,700 shares had been issued, of which 3,3503,400 shares were forfeited and 21,450127,450 shares had vested. No additional awards may be granted under this plan.
For accounting purposes, the restricted stock is not included in the shares shown as outstanding on the balance sheet until they vest; however, dividends are paid on the unvested shares. The restricted stock grants are charged to General and administrative expense over the respective vesting periods based on the market value of the common stock on the grant date. Unless earlier forfeited because the participant’s relationship with the Company terminated, unvested restricted stock awards vest on the fifth anniversary of the grant date, and under certain circumstances may vest earlier.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2017 (Continued)
Note 13 — Stock Based Compensation (Continued)
During the quarter ended September 30,In each of 2017 and July 2018, the Company granted RSUs exchangeable for up to 76,250 shares of common stock upon satisfaction, through June 30, 2020 and June 30, 2021, respectively, of specified conditions. Specifically, up to 50% of these RSUs vest upon achievement of metrics related to average annual total stockholder return (the “TSR Awards”), which metrics meet the definition of a market condition, and up to 50% vest upon achievement of metrics related to average annual return on capital (the “ROC Awards”), which metrics meet the definition of a performance condition. The holders of the RSUs are not entitled to dividends or to vote the underlying shares until such RSUs vest and shares are issued. Accordingly, the shares underlying these RSUs are not included in the shares shown as outstanding on the balance sheet. For the TSR awards, a third party appraiser prepared a Monte Carlo simulation pricing model to determine the fair value. The Monte Carlo valuation consisted of computing the grant date fair value of the awards using One Liberty’s simulated stock price. The per unit or share fair value was estimated using the following assumptions: an expected life of three years, a dividend rate of 7.16%, a risk-free interest rate of 1.14% - 1.64% and an expected price volatility of 16.57% - 19.15%. The expected price volatility was calculated based on the historical volatility and implied volatility. For the ROC awards, the fair value is based on the market value on the date of grant andAwards, the performance assumptions are re-evaluated quarterly. Expense is not recognized on the RSUs which the Company does not expect to vest as a result of service conditions or the Company’s performance expectations.
TheBased on performance and market assumptions, the total amount recorded as deferred compensation for the 2017 grant of RSUs is $919,000, based on performance$1,005,000, and market assumptions andsuch sum will be charged to General and administrative expense.expense over the three year performance cycle. None of these RSUs were forfeited or vested during the threesix months ended SeptemberJune 30, 2017.2018.
In 2010, RSUs exchangeable for up to 200,000 shares of common stock were awarded pursuant to the Company’s 2009 Incentive Plan. The holders of RSUs were not entitled to dividends or to vote the underlying shares until the RSUs vested and the underlying shares were issued. Accordingly, for financial statement purposes, the shares underlying these RSUs were not included in the shares shown as outstanding on the balance sheet as of December 31, 2016. As of June 30,During 2017, 113,584 shares of common stock underlying the RSUs were deemed to have vested and in the quarter ended September 30, 2017, such shares were issued. RSUs with respect to the balance of 86,416 shares were forfeited.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
SeptemberJune 30, 20172018 (Continued)
Note 13 — Stock Based Compensation (Continued)
The following is a summary of the activity of the equity incentive plans:
|
| Three Months Ended |
| Nine Months Ended |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||||||
Restricted stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Number of shares |
| — |
| — |
| 140,100 |
| 139,225 |
|
| — |
| — |
| 144,750 |
| 140,100 |
| ||||||||
Average per share grant price |
| — |
| — |
| $ | 24.75 |
| $ | 21.74 |
|
| — |
| — |
| $ | 25.31 |
| $ | 24.75 |
| ||||
Deferred compensation to be recognized over |
| — |
| — |
| $ | 3,467,000 |
| $ | 3,027,000 |
|
| — |
| — |
| $ | 3,664,000 |
| $ | 3,467,000 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Number of non-vested shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Non-vested beginning of period |
| 612,900 |
| 605,000 |
| 591,750 |
| 538,755 |
|
| 651,650 |
| 626,400 |
| 612,900 |
| 591,750 |
| ||||||||
Grants |
| — |
| — |
| 140,100 |
| 139,225 |
|
| — |
| — |
| 144,750 |
| 140,100 |
| ||||||||
Vested during period |
| — |
| — |
| (118,450 | ) | (72,730 | ) |
| — |
| (13,500 | ) | (106,000 | ) | (118,450 | ) | ||||||||
Forfeitures |
| — |
| (250 | ) | (500 | ) | (500 | ) |
| (150 | ) | — |
| (150 | ) | (500 | ) | ||||||||
Non-vested end of period |
| 612,900 |
| 604,750 |
| 612,900 |
| 604,750 |
|
| 651,500 |
| 612,900 |
| 651,500 |
| 612,900 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
RSU grants: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Number of shares |
| 76,250 |
| — |
| 76,250 |
| — |
| |||||||||||||||||
Number of underlying shares |
| — |
| — |
| — |
| — |
| |||||||||||||||||
Average per share grant price |
| $ | 24.03 |
| — |
| $ | 24.03 |
| — |
|
| — |
| — |
| — |
| — |
| ||||||
Deferred compensation to be recognized over vesting period |
| — |
| — |
| — |
| — |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Number of non-vested shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Non-vested beginning of period |
| — |
| 200,000 |
| 200,000 |
| 200,000 |
|
| 76,250 |
| 200,000 |
| 76,250 |
| 200,000 |
| ||||||||
Grants |
| 76,250 |
| — |
| 76,250 |
| — |
|
| — |
| — |
| — |
| — |
| ||||||||
Vested during period |
| — |
| — |
| (113,584 | ) | — |
|
| — |
| (113,584 | ) | — |
| (113,584 | ) | ||||||||
Forfeitures |
| — |
| — |
| (86,416 | ) | — |
|
| — |
| (86,416 | ) | — |
| (86,416 | ) | ||||||||
Non-vested end of period |
| 76,250 |
| 200,000 |
| 76,250 |
| 200,000 |
|
| 76,250 |
| — |
| 76,250 |
| — |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Restricted stock and RSU grants: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Average per share value of non-vested shares |
| $ | 22.89 |
| $ | 18.00 |
| $ | 22.89 |
| $ | 18.00 |
| |||||||||||||
Weighted average per share value of non-vested shares (based on grant price) |
| $ | 23.56 |
| $ | 22.75 |
| $ | 23.56 |
| $ | 22.75 |
| |||||||||||||
Value of stock vested during the period |
| $ | — |
| $ | — |
| $ | 3,008,000 |
| $ | 1,177,000 |
|
| $ | — |
| $ | 1,248,000 |
| $ | 2,289,000 |
| $ | 3,008,000 |
|
Average per share value of shares forfeited during the period (based on grant price) |
| $ | — |
| $ | 21.05 |
| $ | 8.37 |
| $ | 21.05 |
| |||||||||||||
Weighted average per share value of shares forfeited during the period (based on grant price) |
| $ | 23.93 |
| $ | 8.29 |
| $ | 23.93 |
| $ | 8.37 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
The total charge to operations: |
| $ | 684,000 |
| $ | 639,000 |
| $ | 2,255,000 |
| $ | 1,930,000 |
| |||||||||||||
The total charge to operations: |
|
|
|
|
|
|
|
|
| |||||||||||||||||
Outstanding restricted stock grants |
| $ | 765,000 |
| $ | 878,000 |
| $ | 1,500,000 |
| $ | 1,571,000 |
| |||||||||||||
Outstanding RSUs |
| — |
| 131,000 |
| 86,000 |
| 246,000 |
|
| 91,000 |
| 37,000 |
| 182,000 |
| 86,000 |
| ||||||||
Total charge to operations |
| $ | 684,000 |
| $ | 770,000 |
| $ | 2,341,000 |
| $ | 2,176,000 |
|
| $ | 856,000 |
| $ | 915,000 |
| $ | 1,682,000 |
| $ | 1,657,000 |
|
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
SeptemberJune 30, 20172018 (Continued)
Note 13 — Stock Based Compensation (Continued)
As of SeptemberJune 30, 2017,2018, total compensation costs of $7,805,000 related$8,349,000 and $728,000 to non-vested restricted stock awards and RSUs, thatrespectively, have not yet been recognized. These compensation costs will be charged to General and administrative expense over the remaining respective vesting periods. The weighted average vesting period is 2.42.7 years for the restricted stock and 2.82.0 years for the RSUs.
Note 14 — Fair Value Measurements
The Company measures the fair value of financial instruments based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions. In accordance with the fair value hierarchy, Level 1 assets/liabilities are valued based on quoted prices for identical instruments in active markets, Level 2 assets/liabilities are valued based on quoted prices in active markets for similar instruments, on quoted prices in less active or inactive markets, or on other “observable” market inputs and Level 3 assets/liabilities are valued based significantly on “unobservable” market inputs.
The carrying amounts of cash and cash equivalents, restricted cash, escrow, deposits and other assets and receivables (excluding interest rate swaps), dividends payable, and accrued expenses and other liabilities (excluding interest rate swaps), are not measured at fair value on a recurring basis, but are considered to be recorded at amounts that approximate fair value.
At SeptemberJune 30, 2017,2018, the $414,746,000$389,903,000 estimated fair value of the Company’s mortgages payable is greaterless than their $401,053,000$395,357,000 carrying value (before unamortized deferred financing costs) by approximately $13,693,000$5,454,000 assuming a blended market interest rate of 3.69%4.50% based on the 8.98.5 year weighted average remaining term to maturity of the mortgages. At December 31, 2016,2017, the $413,916,000$397,103,000 estimated fair value of the Company’s mortgages payable is greater than their $399,192,000$396,946,000 carrying value (before unamortized deferred financing costs) by approximately $14,724,000$157,000 assuming a blended market interest rate of 3.74%4.25% based on the 9.38.7 year weighted average remaining term to maturity of the mortgages.
At SeptemberJune 30, 20172018 and December 31, 2016,2017, the carrying amount of the Company’s line of credit (before unamortized deferred financing costs) of $6,400,000$20,300,000 and $10,000,000,$9,400,000, respectively, approximates its fair value.
The fair value of the Company’s mortgages payable and line of credit are estimated using unobservable inputs such as available market information and discounted cash flow analysis based on borrowing rates the Company believes it could obtain with similar terms and maturities. These fair value measurements fall within Level 3 of the fair value hierarchy.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
SeptemberJune 30, 20172018 (Continued)
Note 14 — Fair Value Measurements (Continued)
Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
Fair Value on a Recurring Basis
The fair value of the Company’s derivative financial instruments, using Level 2 inputs, was determined to be the following (amounts in thousands):
|
| As of |
| Carrying and |
|
| As of |
| Carrying and Fair Value |
| ||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
| |
Interest rate swaps |
| September 30, 2017 |
| $ | 1,040 |
|
| June 30, 2018 |
| $ | 4,032 |
|
|
| December 31, 2016 |
| 1,257 |
|
| December 31, 2017 |
| 1,615 |
| ||
|
|
|
|
|
| |||||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
| |
Interest rate swaps |
| September 30, 2017 |
| $ | 2,310 |
|
| June 30, 2018 |
| $ | 109 |
|
|
| December 31, 2016 |
| 2,695 |
|
| December 31, 2017 |
| 1,492 |
|
The Company does not own any financial instruments that are measured on a recurring basis and that are classified as Level 1 or 3.
The Company’s objective in using interest rate swaps is to add stability to interest expense. The Company does not use derivatives for trading or speculative purposes.
Fair values are approximated using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities.
Although the Company has determined the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with it use Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparty. As of SeptemberJune 30, 2017,2018, the Company has assessed and determined the impact of the credit valuation adjustments on the overall valuation of its derivative positions is not significant. As a result, the Company determined its derivative valuation is classified in Level 2 of the fair value hierarchy.
As of SeptemberJune 30, 2017,2018, the Company had entered into 2928 interest rate derivatives, all of which were interest rate swaps, related to 2928 outstanding mortgage loans with an aggregate $135,251,000$131,103,000 notional amount and mature between 20182019 and 2028 (weighted average remaining term to maturity of 7.36.6 years). Such interest rate swaps, all of which were designated as cash flow hedges, converted LIBOR based variable rate mortgages to fixed annual rate mortgages (with interest rates ranging from 3.02% to 5.38% and a weighted average interest
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 4.13% at June 30, 2017 (Continued)
Note 14 — Fair Value Measurements (Continued)
rate of 4.12% at September 30, 2017)2018). The fair valuevalues of the Company’s derivatives in asset and liability positions are reflected as other assets or other liabilities on the consolidated balance sheets. During the nine months ended September
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2017, the Company discontinued hedge accounting on one of its interest rate swaps (see discussion following the table below).2018 (Continued)
ThreeNote 14 — Fair Value Measurements (Continued)
One of the Company’s unconsolidated joint ventures, in which a wholly-owned subsidiariessubsidiary of the Company areis a 50% partners,partner, had twoan interest rate derivativesderivative outstanding at SeptemberJune 30, 2017 with an aggregate $10,556,000 notional amount. These2018 which was designated as a cash flow hedge. This interest rate swaps, which were designated as cash flow hedges, haveswap with a $6,983,000 notional amount has an interest ratesrate of 3.49% and 5.81% and maturematures in 2022. See discussion below for the discontinuation of hedge accounting on this interest rate swap during the three months ended June 30, 2018.
In connection with the sale of an unconsolidated joint venture property in Savannah, Georgia, the Company terminated an interest rate swap with a $3,402,000 notional amount and a 5.81% interest rate when the related mortgage was paid off at its maturity in April 2018 respectively.(see Note 7).
The following table presents the effect of the Company’s derivative financial instruments on the consolidated statements of income for the periods presented (amounts in thousands):
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
One Liberty Properties, Inc. and Consolidated subsidiaries |
|
|
|
|
|
|
|
|
| ||||
Amount of (loss) gain recognized on derivatives in Other comprehensive loss |
| $ | (248 | ) | $ | 385 |
| $ | (1,234 | ) | $ | (7,197 | ) |
Amount of (loss) reclassification from Accumulated other comprehensive loss into Interest expense |
| $ | (352 | ) | (633 | ) | (1,406 | ) | (2,020 | ) | |||
|
|
|
|
|
|
|
|
|
| ||||
Unconsolidated Joint Ventures (Company’s share) |
|
|
|
|
|
|
|
|
| ||||
Amount of (loss) gain recognized on derivatives in Other comprehensive loss |
| $ | (2 | ) | $ | 21 |
| $ | (14 | ) | $ | (164 | ) |
Amount of (loss) reclassification from Accumulated other comprehensive loss into Equity in earnings of unconsolidated joint ventures |
| (13 | ) | (23 | ) | (48 | ) | (72 | ) |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
One Liberty Properties, Inc. and Consolidated subsidiaries |
|
|
|
|
|
|
|
|
| ||||
Amount of gain (loss) recognized on derivatives in Other comprehensive income |
| $ | 1,009 |
| $ | (1,055 | ) | $ | 3,509 |
| $ | (986 | ) |
Amount of reclassification from Accumulated other comprehensive income into Interest expense |
| (95 | ) | (545 | ) | (291 | ) | (1,054 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Unconsolidated Joint Ventures (Company’s share) |
|
|
|
|
|
|
|
|
| ||||
Amount of gain (loss) recognized on derivatives in Other comprehensive income |
| $ | 22 |
| $ | (21 | ) | $ | 69 |
| $ | (12 | ) |
Amount of reclassification from Accumulated other comprehensive income into Equity in earnings of unconsolidated joint ventures |
| 110 |
| (16 | ) | 103 |
| (35 | ) |
On July 14, 2017, in connection withDuring the sale of a property tenanted by Kohl’sthree months ended June 30, 2018 and located in Kansas City, Missouri, the Company paid off the mortgage and terminated the related interest rate swap. In June 2017, the Company (including one of its unconsolidated joint ventures) discontinued hedge accounting on thistwo interest rate swapswaps as the forecasted hedged forecasted transaction becametransactions were no longer probable not to occur.of occurring. As a result, during the three months ended June 30, 2018 and 2017, the Company accelerated the reclassificationreclassified $110,000 and $118,000 of $118,000realized gain and loss, respectively, from accumulatedAccumulated other comprehensive lossincome to interest expense for the nine months ended September 30, 2017.earnings. No gain or loss was recognized with respect to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company’s cash flow hedges for the three and six months ended SeptemberJune 30, 20172018 and the three and nine months ended September 30, 2016.2017.
During the twelve months ending SeptemberJune 30, 2018,2019, the Company estimates an additional $988,000$222,000 will be reclassified from other accumulatedAccumulated other comprehensive loss as an increase to interest expense and $26,000 will be reclassified from accumulated other comprehensive lossincome as a decrease to equity in earnings of unconsolidated joint ventures.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2017 (Continued)
Note 14 — Fair Value Measurements (Continued)Interest expense.
The derivative agreements in effect at SeptemberJune 30, 20172018 provide that if the wholly-owned subsidiary of the Company which is a party to the agreement defaults or is capable of being declared in default on any of its indebtedness, then a default can be declared on such subsidiary’s derivative obligation. In addition, the Company is a party to the derivative agreements and if there is a default by the subsidiary on the loan subject to the derivative
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2018 (Continued)
Note 14 — Fair Value Measurements (Continued)
agreement to which the Company is a party and if there are swap breakage losses on account of the derivative being terminated early, then the Company could be held liable for such swap breakage losses, if any. During the nine months ended September 30, 2016, the Company terminated three interest rate swaps in connection with the early payoff of the related mortgages. As a result of these hedged forecasted transactions being terminated, the Company accelerated the reclassification of $178,000 in accumulated other comprehensive loss to earnings which are included in Prepayment costs on debt on the consolidated statement of income.
As of SeptemberJune 30, 2018 and December 31, 2017, the fair value of the derivatives in a liability position, including accrued interest of $71,000,$9,000 and $53,000, respectively, but excluding any adjustments for nonperformance risk, was approximately $2,516,000.$126,000 and $1,638,000, respectively. In the event the Company breaches any of the contractual provisions of the derivative contracts, it would be required to settle its obligations thereunder at their termination liability value of $2,516,000.$126,000 and $1,638,000 as of June 30, 2018 and December 31, 2017, respectively. This termination liability value, net of $135,000 adjustments for nonperformance risk or $2,381,000,of $8,000 and $93,000, is included in Accrued expenses and other liabilities on the consolidated balance sheet at SeptemberJune 30, 2017.2018 and December 31, 2017, respectively.
Note 15 — Commitments
The Company is contractually required (i) to expend approximately $7,800,000 through 2018 for building expansion and improvements at its property tenanted by L-3 Communications, located in Hauppauge, New York, of which $1,858,000$6,261,000 has been spent through SeptemberJune 30, 2017, (ii) to reimburse Regal Cinemas, a tenant in Greensboro, North Carolina, $3,000,000 if and when the tenant completes specified improvements to the property and (iii) to reimburse Huttig Building Products, a tenant in Saco, Maine, for up to a maximum of $2,050,000 for building expansion costs by July 31, 2018.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2017 (Continued)
Note 16 — New Accounting Pronouncements
In February 2017,June 2018, the FASB issued ASU No. 2017-05,2018-07, Other Income — Gains and LossesCompensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting, which provides additional guidance related to share-based payment transactions for acquiring goods or services from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accountingnonemployees. The guidance is effective for Partial Sales of Nonfinancial Assets, which clarifies the scope and application on the sale or transfer of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial sales. The effective date of the standard will be fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted.2018. The Company is currently evaluating thethis new guidance but does not expect it to determinehave a material impact on the impact, if any, it may have on itsCompany’s consolidated financial statements.
In November 2016,August 2017, the FASB issued ASU No. 2016-18,2017-12, Statement of Cash FlowsDerivatives and Hedging (Topic 230)815): Restricted Cash (a consensus of the Emerging Issues Task Force)Targeted Improvements to Accounting for Hedging Activities, which requires that a statementamends the presentation and disclosure requirements for hedge accounting and changes how companies assess hedge effectiveness. This ASU is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of cash flows explainhedge accounting, and increase transparency as to the change duringscope and results of hedging programs. The Company early adopted this guidance on January 1, 2018 using the period in the total of cash, cash equivalents,modified retrospective transition method and amount generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shownits adoption did not have any impact on the statement of cash flows. The effective date ofCompany’s previously reported income from operations, net income or accumulated undistributed net income for the standard will be fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact, if any, it may have on its consolidated financial statements.presented.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes how entities will measure credit losses for most financial assets and certain other instruments that aren’tare not measured at fair value through net income. The guidance replaces the current ‘incurred loss’“incurred loss” model with an ‘expected loss’“expected loss” approach. The guidance is effective for fiscal years, beginning after December 15, 2019, including and
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2018 (Continued)
Note 16 — New Accounting Pronouncements (Continued)
interim periods within those fiscal years.years, beginning after December 15, 2019. Early adoption is permitted after December 2018. The Company is currently evaluating the new guidance to determine if, and to the extent, it will impact it may have on itsthe consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which seeks to clarify aspects of ASU No. 2016-02 and correct unintended application of such guidance. The effective date of the standardthese standards will be fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating thisthese new standard.standards but does not expect them to have a significant effect on its consolidated financial statements. The Company anticipates adopting this guidancethese standards effective as of January 1, 2019 and will apply the modified retrospective approach.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2017 (Continued)
Note 16 — New Accounting Pronouncements (Continued)
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance.customers. The new model will requirerequires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. The standard can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU No. 2014-09 by one year. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. ASU No. 2014-09, ASU No. 2015-14 and ASU No. 2016-08 are herein collectively referred to as the “New Revenue Recognition Standards”.
The New Revenue Recognition Standards are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted but not before annual periods beginning after December 15, 2016. The Company anticipates adoptingadopted the New Revenue Recognition Standards on January 1, 2018 using the modified retrospective transition method. The Company’s main revenue streams are rental revenues and applying the cumulative-effect adoption method. Since the Company’s revenue is primarilytenant reimbursements. Such revenues are related to leasing activities, management does not anticipate thatlease contracts with tenants which currently fall within the scope of ASC Topic 840, and will fall within the scope of ASC Topic 842 upon the adoption of ASU No. 2016-02 on January 1, 2019 (the Company’s sales of real estate are within the scope of ASU No. 2017-05, see Note 5). Accordingly, the adoption of the New Revenue Recognition Standards willdid not (i) result in a cumulative adjustment as of January 1, 2018, and (ii) have a materialany impact on the Company’s consolidated financial statements.
Note 17 — Subsequent Events
Subsequent events have been evaluated and except as previously disclosed herein, there were no other events relative to the Company’s consolidated financial statements that require additional disclosure.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
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 and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “could,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions or variations thereof. 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 encouraged to review the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 20162017 under the caption “Item 1A. Risk Factors” for a discussion of certain factors which may cause actual results to differ materially from current expectations and are cautioned not to place undue reliance on any forward-looking statements.
Overview
We are a self-administered and self-managed real estate investment trust, or REIT, incorporated in Maryland in 1982. To qualify as a REIT, under the Internal Revenue Code of 1986, as amended, 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.
We acquire, own and manage a geographically diversified portfolio consisting primarily of industrial, retail (including furniture stores supermarkets and office supply stores)supermarkets), industrial, restaurant, health and fitness and theater properties, many of which are leased undersubject to long-term net leases. As of SeptemberJune 30, 2017,2018, we own 119120 properties (including sixfive properties owned by consolidated joint ventures and five properties owned by unconsolidated joint ventures) located in 3130 states. Based on square footage, our occupancy rate at SeptemberJune 30, 20172018 is approximately 98.0%99.1%.
We face a variety of risks and challenges in our business. We, amongAmong other things, we face the possibility that (i) we will not be able to acquire accretive properties on acceptable terms, (ii) we will not be able to lease our properties on terms favorable termsto us or at all, (iii) our tenants may not be able to pay their rentrental and comply with other obligations under their leases and (iv) we may not be able to renew or relet, on acceptable terms, leases that are expiring.expiring or otherwise terminating.
We seek to manage the risk of our real property portfolio and the related financing arrangements by diversifying among types of properties, industries, locations, tenants, scheduled lease expirations, mortgage maturities and lenders. We uselenders, and by seeking to minimize our exposure to interest rate swaps to limit interest rate risk on variable rate mortgages.fluctuations. Substantially all of our mortgage debt either bears interest at fixed rates or is subject to interest rate swaps, limiting our exposure to fluctuating interest rates on our outstanding mortgage debt.
We monitor the risk of tenant non-payments through a variety of approaches tailored to the applicable situation. Generally, based on our assessment of the credit risk posed by our tenants, we monitor a tenant’s financial condition through one or more of the following actions: reviewing tenant financial statements or other financial information, obtaining other tenant related financial information, regular contact with tenant’s representatives, tenant credit checks and regular management reviews of our tenants. We may sell a property if the tenant’s financial condition is unsatisfactory.
In acquiring properties, we balance an evaluation of the terms of the leases and the credit of the existing tenants with a fundamental analysis of the real estate to be acquired, which analysis takes into account, among other things, the estimated value of the property, local demographics and the ability to re-rent or dispose of the property on favorable terms upon lease expiration or early termination.
We are sensitive to the risks facing the retail industry as a result of the growth of e-commerce. Several of our current and former tenants (including Payless ShoeSource, Kmart, hhgregg, Joe’s Crab Shack and Pathmark) have experienced or are experiencing financial difficulty and have either sought bankruptcy protection and stopped paying rent or closed stores and may cease paying rent. Several properties leased by former tenants have remained vacant for periods ranging from several months to more than a year and though we do not generate rental income from these properties during such periods, we are responsible for paying the debt service and operating expenses (e.g., real estate taxes, maintenance and insurance) related to these properties. See our Annual Report on Form 10-K for the year ended December 31, 2016 for further information about the challenges facing the retail industry and several of our tenants.
We are addressing our exposure to the retail industry by seeking to acquire industrial properties that we believe capitalize on e-commerce activities, such as e-commerce distribution and warehousewarehousing facilities, and by being especially selective in acquiring retail properties. Approximately 41.0%39.0% of our contractual rental income (as described below) is derived from retail tenants (including 9.1%8.8%, 3.7%4.2% and 3.6%3.3% from tenants engaged in retail furniture, supermarkets and office supply activities, respectively) and 35.4%38.4%, 5.0%5.3%, 4.6%4.9%, 3.4%4.5%, 3.2% and 10.6%4.7% from industrial (e.g., distribution and warehouse facilities), residential ground leases, restaurant, health and fitness, theaters and other properties, respectively.
Our contractual rental income is approximately $67.3$69.0 million and represents, after giving effect to any abatements, concessions or adjustments, the base rent payable to us during the twelve months ending SeptemberJune 30, 20182019 under leases in effect at SeptemberJune 30, 2017.2018. Contractual rental income excludes: (i) approximately $437,000$589,000 of straight-line rent and $1.0$1.1 million of amortization of intangibles; and (ii) our share of the rental income payable to our unconsolidated joint ventures, which is approximately $2.8 million.$1.7 million (excluding $658,000 of rental income from a property sold in July 2018).
The following table sets forth scheduled lease expirations of leases for our properties as of SeptemberJune 30, 20172018 for the periods indicated below:
Lease Expiration (1) |
| Number of |
| Approximate Square |
| Contractual |
| Percent of |
| |||||||||||
2018 |
| 12 |
| 202,406 |
| $ | 1,320,816 |
| 2.0 | % | ||||||||||
Lease Expiration (1) |
| Number of |
| Approximate Square |
| Contractual |
| Percentage of |
| |||||||||||
2019 |
| 17 |
| 429,557 |
| 3,716,777 |
| 5.5 |
|
| 13 |
| 257,917 |
| $ | 1,256,206 |
| 1.8 |
| |
2020 |
| 10 |
| 114,334 |
| 1,671,354 |
| 2.5 |
|
| 8 |
| 181,386 |
| 1,906,403 |
| 2.8 |
| ||
2021 |
| 23 |
| 464,285 |
| 3,733,784 |
| 5.6 |
|
| 17 |
| 473,150 |
| 3,928,474 |
| 5.7 |
| ||
2022 |
| 24 |
| 2,084,708 |
| 13,731,680 |
| 20.4 |
|
| 21 |
| 1,351,812 |
| 8,032,439 |
| 11.6 |
| ||
2023 |
| 12 |
| 554,501 |
| 3,418,453 |
| 5.1 |
|
| 19 |
| 1,491,689 |
| 10,444,761 |
| 15.1 |
| ||
2024 |
| 9 |
| 505,339 |
| 4,399,246 |
| 6.5 |
|
| 11 |
| 568,272 |
| 5,140,610 |
| 7.4 |
| ||
2025 |
| 8 |
| 438,032 |
| 4,624,095 |
| 6.9 |
|
| 10 |
| 484,815 |
| 5,085,781 |
| 7.4 |
| ||
2026 |
| 9 |
| 288,989 |
| 4,504,141 |
| 6.7 |
|
| 8 |
| 230,189 |
| 3,523,673 |
| 5.1 |
| ||
2027 |
| 11 |
| 885,096 |
| 7,409,097 |
| 11.0 |
|
| 8 |
| 415,981 |
| 2,765,415 |
| 4.0 |
| ||
2028 and thereafter |
| 26 |
| 3,057,014 |
| 18,740,257 | (3) | 27.8 |
| |||||||||||
2028 |
| 10 |
| 1,079,941 |
| 7,541,607 |
| 10.9 |
| |||||||||||
2029 and thereafter |
| 26 |
| 3,198,997 |
| 19,405,228 |
| 28.2 |
| |||||||||||
|
| 161 |
| 9,024,261 |
| $ | 67,269,700 |
| 100.0 | % |
| 151 |
| 9,734,149 |
| $ | 69,030,597 |
| 100.0 |
|
(1) Lease expirations assume tenants do not exercise existing renewal or termination options.
(2) Excludes an aggregate of 183,67667,891 square feet of vacant space.
(3) Includes approximately $1.8 million of contractual rental income related to the property tenanted by L-3 Communications located in Hauppauge, New York, which lease was extended from 2022 to 2033, subject to an agreed upon building expansion and improvements expected to be completed by 2018.
Property Transactions During the Three Months Ended SeptemberJune 30, 20172018
On July 14, 2017, weApril 5, 2018, an unconsolidated joint venture sold its building and a retail property tenanted by Kohl’s,portion of its land, located in Kansas City, Missouri,Savannah, Georgia for a sales price of $10.1$2.6 million, net of closing costs. Our 50% share of the gain from this sale, which was $2.2recognized in the three and six months ended June 30, 2018, is $71,000. In connection with the sale of this property, the joint venture and its affiliates repaid the $3.4 million mortgage balance which encumbered their contiguous properties.
On June 7, 2018, we acquired an industrial facility in Plymouth, Minnesota for $5.6 million, including $50,000 of transaction costs that were capitalized. The facility is net leased to Plymouth Industries through 2033. We estimate that commencing July 1, 2018, the quarterly rental income and depreciation expense from this property will be $117,000 and $29,000, respectively.
Property Transaction Subsequent to June 30, 2018
On July 31, 2018, an unconsolidated joint venture sold its only property, located in Milwaukee, Wisconsin, for $12.8 million, net of closing costs. We anticipate that our 50% share of the gain from this sale, which will be recognized in the three months ending September 30, 2019, will be approximately $2.0 million. In connection with the sale of this property, wethe joint venture repaid its $7.0 million mortgage. Equity in earnings from unconsolidated joint ventures for the $3.9 million mortgage balancethree and due tosix months ended June 30, 2018 includes the early terminationrecognition of $110,000, representing our 50% share of the realized gain that was reclassified from accumulated other comprehensive income as a result of the discontinuance of hedge accounting on its mortgage interest rate swap derivative, incurred interest expenseswap. This joint venture accounted for $172,000 of $118,000our Equity in earnings of unconsolidated joint ventures during the ninesix months ended SeptemberJune 30, 2017.
On August 31, 2017, we sold a vacant retail property formerly tenanted by hhgregg, Inc., located in Niles, Illinois, for $4.8 million, net of closing costs. Our gain from this sale was $1.1 million.
In September 2017, we leased our Philadelphia, Pennsylvania property to a supermarket operator pursuant to a 20 year net lease. Beginning October 1, 2017, the annual rental income from this property will be approximately $473,000. The property was formerly tenanted by Pathmark and had been vacant since September 2015.
Property Acquisition Subsequent to September 30, 2017
On October 10, 2017, we acquired, in a sale-leaseback transaction, a distribution facility/corporate headquarters, located in Memphis, Tennessee for $8 million. The initial term of the lease is ten years and our annual rental income from this property will be approximately $627,000.
Results of Operations
Revenues
The following table compares revenues for the periods indicated:
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
| Three Months Ended |
| Increase |
| % |
| Six Months Ended |
| Increase |
| % |
| ||||||||||||||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| Increase |
| % |
| 2017 |
| 2016 |
| Increase |
| % |
|
| 2018 |
| 2017 |
| (Decrease) |
| Change |
| 2018 |
| 2017 |
| (Decrease) |
| Change |
| ||||||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Rental income, net |
| $ | 17,217 |
| $ | 16,334 |
| $ | 883 |
| 5.4 |
| $ | 50,770 |
| $ | 46,985 |
| $ | 3,785 |
| 8.1 |
|
| $ | 17,718 |
| $ | 16,720 |
| $ | 998 |
| 6.0 |
| $ | 35,308 |
| $ | 33,553 |
| $ | 1,755 |
| 5.2 |
|
Tenant reimbursements |
| 1,920 |
| 1,687 |
| 233 |
| 13.8 |
| 5,252 |
| 4,614 |
| 638 |
| 13.8 |
|
| 2,034 |
| 1,693 |
| 341 |
| 20.1 |
| 3,978 |
| 3,332 |
| 646 |
| 19.4 |
| ||||||||||||
Total revenues |
| $ | 19,137 |
| $ | 18,021 |
| $ | 1,116 |
| 6.2 |
| $ | 56,022 |
| $ | 51,599 |
| $ | 4,423 |
| 8.6 |
|
| $ | 19,752 |
| $ | 18,413 |
| $ | 1,339 |
| 7.3 |
| $ | 39,286 |
| $ | 36,885 |
| $ | 2,401 |
| 6.5 |
|
Rental income, net. The increases induring the three and ninesix months ended SeptemberJune 30, 20172018 are due primarily to $1.5 million$270,000 and $5.9$281,000, respectively, generated by two properties acquired in 2018 and $660,000 and $1.5 million, respectively, generated by four properties acquired in 20172017. Same store properties (as defined below) contributed $349,000 and 2016. The increase$578,000, respectively, during the three and six months ended June 30, 2018, primarily due to the re-tenanting of two properties that were vacant in the nine months ended September 30, 2017 is also due to (i) $267,000 of rental income from a tenant whose lease commenced April 1, 2016 at our Joppa, Maryland property and (ii) $174,000 of annual percentage rent income received from a tenant.
corresponding prior year periods. Offsetting the increases are decreases in rental income during the three and ninesix months ended SeptemberJune 30, 2017 of: (i) $64,0002018 are decreases of $281,000 and $1.1 million,$576,000, respectively, representing the 20162017 rental income from properties sold during 2016; (ii) $169,0002018 and $169,000, respectively, representing2017. Same store properties refer to properties that were owned for the 2016 rental income from properties sold during 2017; (iii) $175,000 and $595,000, respectively (including the $263,000 write-offentirety of the entire balance of straight-line rent in the current nine months), relating to two properties formerly tenanted by hhgregg, which filed for bankruptcy protection in March 2017; (iv) $164,000 and $669,000, respectively, representing the 2016 rental income from two properties formerly leased to Quality Bakery, which lease expired November 2016, and Sports Authority, which was sold May 2017; and (v) $32,000 and $198,000, respectively (including the write-off of the entire balance of straight-line rent and lease intangibles in the current nine months), relating to our properties tenanted by Payless ShoeSource and Joe’s Crab Shack. Payless ShoeSource and Joe’s Crab Shack filed for bankruptcy protection in April and June 2017, respectively.periods being presented.
Tenant reimbursements. Real estate tax and operating expense reimbursements increased during the three and ninesix months ended SeptemberJune 30, 20172018 due primarily to reimbursements of approximately $270,000(i) $219,000 and $811,000,$394,000, respectively, from several same store properties and (ii) $218,000 and $395,000, respectively, from properties acquired in 20172018 and 2016, offset by2017. Offsetting the increases during the three and six months ended June 30, 2018 are decreases of $35,000$96,000 and $186,000,$143,000, respectively, related to tworepresenting tenant reimbursements in 2017 from the Fort Bend, Texas property sold properties and two vacant properties.in January 2018. Tenant reimbursements generally relate to real estate expenses incurred in the same period.
Operating Expenses
The following table compares operating expenses for the periods indicated:
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| Increase |
| % |
| 2017 |
| 2016 |
| Increase |
| % |
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
| $ | 5,115 |
| $ | 4,663 |
| $ | 452 |
| 9.7 |
| $ | 15,858 |
| $ | 13,246 |
| $ | 2,612 |
| 19.7 |
|
General and administrative |
| 2,701 |
| 2,681 |
| 20 |
| .7 |
| 8,409 |
| 7,961 |
| 448 |
| 5.6 |
| ||||||
Real estate expenses |
| 2,689 |
| 2,188 |
| 501 |
| 22.9 |
| 7,765 |
| 6,521 |
| 1,244 |
| 19.1 |
| ||||||
Real estate acquisition costs |
| — |
| 162 |
| (162 | ) | (100.0 | ) | — |
| 610 |
| (610 | ) | (100.0 | ) | ||||||
Federal excise and state taxes |
| 90 |
| 43 |
| 47 |
| 109.3 |
| 401 |
| 198 |
| 203 |
| 102.5 |
| ||||||
Leasehold rent |
| 77 |
| 77 |
| — |
| — |
| 231 |
| 231 |
| — |
| — |
| ||||||
Impairment loss |
| 153 |
| — |
| 153 |
| n/a |
| 153 |
| — |
| 153 |
| n/a |
| ||||||
Total operating expenses |
| 10,825 |
| 9,814 |
| 1,011 |
| 10.3 |
| 32,817 |
| 28,767 |
| 4,050 |
| 14.1 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income |
| $ | 8,312 |
| $ | 8,207 |
| $ | 105 |
| 1.3 |
| $ | 23,205 |
| $ | 22,832 |
| $ | 373 |
| 1.6 |
|
|
| Three Months Ended |
| Increase |
| % |
| Six Months Ended |
| Increase |
| % |
| ||||||||||
(Dollars in thousands) |
| 2018 |
| 2017 |
| (Decrease) |
| Change |
| 2018 |
| 2017 |
| (Decrease) |
| Change |
| ||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
| $ | 5,250 |
| $ | 5,190 |
| $ | 60 |
| 1.2 |
| $ | 10,432 |
| $ | 10,743 |
| $ | (311 | ) | (2.9 | ) |
General and administrative |
| 2,969 |
| 2,893 |
| 76 |
| 2.6 |
| 5,928 |
| 5,708 |
| 220 |
| 3.9 |
| ||||||
Real estate expenses |
| 2,515 |
| 2,371 |
| 144 |
| 6.1 |
| 5,182 |
| 5,075 |
| 107 |
| 2.1 |
| ||||||
Federal excise and state taxes |
| 154 |
| 224 |
| (70 | ) | (31.3 | ) | 227 |
| 312 |
| (85 | ) | (27.2 | ) | ||||||
Leasehold rent |
| 77 |
| 77 |
| — |
| — |
| 154 |
| 154 |
| — |
| — |
| ||||||
Total operating expenses |
| 10,965 |
| 10,755 |
| 210 |
| 2.0 |
| $ | 21,923 |
| 21,992 |
| (69 | ) | (.3 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Operating income |
| $ | 8,787 |
| $ | 7,658 |
| $ | 1,129 |
| 14.7 |
| $ | 17,363 |
| $ | 14,893 |
| $ | 2,470 |
| 16.6 |
|
Depreciation and amortization. The increases fordecrease in the three and ninesix months ended SeptemberJune 30, 2017 are2018 is due primarily to $591,000(i) $947,000 from the sales of properties in 2017 and $2.0 million, respectively,2018 and (ii) the inclusion, during the six months ended June 30, 2017, of $219,000 for the write-off of tenant origination costs related to a vacant property. Offsetting the decrease is an increase of $763,000 in depreciation and amortization expense on the properties acquired in 2016 and 2017. The nine months ended September 30, 2017 also includes an aggregate $884,000 of write-offs of tenant origination costs related to the hhgregg and Joe’s Crab Shack properties. The increase in depreciation expense in the three and nine months ended September 30, 2017 was offset by $118,000 and $292,000, respectively, due to the sales of properties in 20162018 and 2017.
General and administrative. The increase in the ninesix months ended SeptemberJune 30, 20172018 was due primarily to increases of: (i) $166,000an increase in non-cash compensation expense related to the accelerated vesting of restricted stock;professional fees, including a one-time $110,000 fee and (ii) $144,000 in compensation expense primarily due to higher compensation levels;levels and (iii) $138,000 for other miscellaneous expenses, none of which was individually significant.an additional employee.
Real estate expensesexpenses.. The increases induring the three and ninesix months ended SeptemberJune 30, 20172018 are primarily due primarily to increases of $252,000$215,000 and $843,000,$406,000, respectively, from properties acquired in 20162017 and 2017;2018; substantially all these expenses are rebilled to tenants and are included in Tenant reimbursements. Also contributing to theSame store properties contributed net increases inof $113,000 and $149,000, respectively, during the three and ninesix months ended SeptemberJune 30, 2017 were $165,000 and $647,000, respectively, of expenses related to the vacant properties formerly tenanted by Quality Bakery and hhgregg.2018. These increases were offset by decreases in the threeof $184,000 and nine months ended September 30, 2017, of, among other things, $50,000 and $200,000, respectively, of expenses$448,000 related to the vacant property formerly tenanted by Sports Authority, which wasproperties sold in May 2017.
Real estate acquisition costs. The expense in the threeduring 2018 and nine months ended September 30, 2016 primarily relate to the purchase of properties during those periods. As a result of the adoption of ASU 2017-01 in January 2017, the real estate acquisitions during the current year were considered asset acquisitions and, as such, acquisition costs of $293,000 were capitalized to the related real estate assets and not expensed.
Federal excise and state taxes. The increase in the three and nine months ended September 30, 2017 primarily relates to state franchise tax resulting from the 2016 purchase of a property located in Tennessee.
Impairment loss. Subsequent to September 30, 2017, we entered into a contract to sell our property formerly tenanted by Joe’s Crab Shack in Ann Arbor, Michigan. In connection therewith, we recorded an impairment loss of $153,000 representing the difference between the expected net sales price and the net book value of this property at September 30, 2017.
Other Income and Expenses
The following table compares our other income and expenses for the periods indicated:
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
| Three Months Ended |
|
|
|
|
| Six Months Ended |
|
|
|
|
| ||||||||||||||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| Increase |
| % |
| 2017 |
| 2016 |
| Increase |
| % |
|
| 2018 |
| 2017 |
| Increase |
| % |
| 2018 |
| 2017 |
| Increase |
| % |
| ||||||||||||
Other income and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Equity in earnings of unconsolidated joint ventures |
| $ | 212 |
| $ | 228 |
| $ | (16 | ) | (7.0 | ) | $ | 663 |
| $ | 794 |
| $ | (131 | ) | (16.5 | ) |
| $ | 348 |
| $ | 206 |
| $ | 142 |
| 68.9 |
| $ | 543 |
| $ | 451 |
| $ | 92 |
| 20.4 |
|
Prepayment costs on debt |
| — |
| — |
| — |
| — |
| — |
| (577 | ) | 577 |
| (100.0 | ) | |||||||||||||||||||||||||||||
Equity in earnings from sale of unconsolidated joint venture property |
| 71 |
| — |
| 71 |
| 100.0 |
| 71 |
| — |
| 71 |
| 100.0 |
| |||||||||||||||||||||||||||||
Other income |
| 57 |
| 362 |
| (305 | ) | (84.3 | ) | 399 |
| 431 |
| (32 | ) | (7.4 | ) |
| 6 |
| 320 |
| (314 | ) | (98.1 | ) | 10 |
| 342 |
| (332 | ) | (97.1 | ) | ||||||||||||
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Expense |
| (4,459 | ) | (4,404 | ) | (55 | ) | 1.2 |
| (13,380 | ) | (12,593 | ) | (787 | ) | (6.2 | ) |
| (4,445 | ) | (4,532 | ) | (87 | ) | (1.9 | ) | (8,747 | ) | (8,921 | ) | (174 | ) | (2.0 | ) | ||||||||||||
Amortization and write-off of deferred financing costs |
| (263 | ) | (189 | ) | (74 | ) | 39.2 |
| (717 | ) | (644 | ) | (73 | ) | (11.3 | ) |
| (221 | ) | (227 | ) | (6 | ) | (2.6 | ) | (449 | ) | (454 | ) | (5 | ) | (1.1 | ) |
Equity in earnings of unconsolidated joint ventures. The incomeincreases in the ninethree and six months ended SeptemberJune 30, 2016 includes2018 were due primarily to the recognition of $110,000, which represents our 50% share or $146,000, of the realized gain reclassified from accumulated other comprehensive income obtained for permanent utility easements granted at two properties. There was no such income during 2017.
Prepayment costsas a result of the discontinuance of hedge accounting on debt. These costs were incurreda mortgage interest rate swap in connection with the property sales and the payoff, prior to the stated maturity,July 31, 2018 sale of the related mortgage debt in 2016, primarily relating to the sales of several properties.Milwaukee, Wisconsin property.
Other income. The ninethree and six months ended SeptemberJune 30, 2017 includes $243,000 paid to us by a former tenant in connection with the resolution of a dispute, and $74,000 that we received for easements on a sold property. The three and nine months ended September 30, 2016 includes $356,000 that we received for such easements.dispute.
Interest expense. The following table details the components of interest expense for the periods indicated:
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| Increase |
| % |
| 2017 |
| 2016 |
| Increase |
| % |
| ||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Credit line interest |
| $ | 139 |
| $ | 121 |
| $ | 18 |
| 14.9 |
| $ | 360 |
| $ | 439 |
| $ | (79 | ) | (18.0 | ) |
Mortgage interest |
| 4,320 |
| 4,283 |
| 37 |
| .9 |
| 13,020 |
| 12,154 |
| 866 |
| 7.1 |
| ||||||
Total |
| $ | 4,459 |
| $ | 4,404 |
| $ | 55 |
| 1.2 |
| $ | 13,380 |
| $ | 12,593 |
| $ | 787 |
| 6.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Three Months Ended |
|
|
|
|
| Six Months Ended |
|
|
|
|
| ||||||||||
|
| June 30, |
| Increase |
| % |
| June 30, |
| Increase |
| % |
| ||||||||||
(Dollars in thousands) |
| 2018 |
| 2017 |
| (Decrease) |
| Change |
| 2018 |
| 2017 |
| (Decrease) |
| Change |
| ||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Credit line interest |
| $ | 219 |
| $ | 115 |
| $ | 104 |
| 90.4 |
| $ | 346 |
| $ | 221 |
| $ | 125 |
| 56.6 |
|
Mortgage interest |
| 4,226 |
| 4,417 |
| (191 | ) | (4.3 | ) | 8,401 |
| 8,700 |
| (299 | ) | (3.4 | ) | ||||||
Total |
| $ | 4,445 |
| $ | 4,532 |
| $ | (87 | ) | (1.9 | ) | $ | 8,747 |
| $ | 8,921 |
| $ | (174 | ) | (2.0 | ) |
Credit line interest
The decreaseincrease in the ninethree and six months ended SeptemberJune 30, 2017 is2018 were due primarily to a decreaseincreases of $11.1$10.5 million and $5.6 million, respectively, in the weighted average balance outstanding under our line of credit offset by a 63and increases of 85 (from 2.81% to 3.66%) and 87 basis point increasepoints (from 2.67% to 3.54%), respectively, in the average interest rate as well as andue to the increase of $67,000 in the unused facility fee resulting from the $25 million increase in our borrowing capacity under the facility.one month LIBOR rate.
Mortgage interest
The following table reflects the average interest rate on the average principal amount of outstanding mortgage debt for the periods indicated:
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
|
| Three Months Ended |
| Increase |
| % |
| Six Months Ended |
| Increase |
| % |
| ||||||||||||||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| Increase |
| % |
| 2017 |
| 2016 |
| Increase |
| % |
|
| 2018 |
| 2017 |
| (Decrease) |
| Change |
| 2018 |
| 2017 |
| (Decrease) |
| Change |
| ||||||||||||
Average interest rate on mortgage debt |
| 4.31 | % | 4.56 | % | (.25 | )% | (5.5 | )% | 4.31 | % | 4.65 | % | (.34 | )% | (7.3 | )% |
| 4.27 | % | 4.32 | % | (.05 | ) | (1.2 | ) | 4.25 | % | 4.31 | % | (.06 | ) | (1.4 | ) | ||||||||||||
Average principal amount of mortgage debt |
| $ | 401,384 |
| $ | 375,770 |
| $ | 25,614 |
| 6.8 | % | $ | 399,316 |
| $ | 350,287 |
| $ | 49,029 |
| 14.0 | % |
| $ | 395,643 |
| $ | 397,935 |
| $ | (2,292 | ) | (.6 | ) | $ | 395,277 |
| $ | 398,121 |
| $ | (2,844 | ) | (.7 | ) |
The increasesdecreases are due primarily to decreases in the threeaverage interest rates on outstanding mortgage debt and nine months ended September 30, 2017 in mortgage interest expense are due to the increases in the average principal amount of mortgage debt outstanding, offset byoutstanding. The decreases in the average interest rate thereon. The increase in the average balance outstanding is substantially due to the incurrence of mortgage debt in 2016 and 2017 of $72.9 million in connection with properties acquired in 2016 and 2017 and the financing or refinancing of $51.5 million of mortgage debt, net of refinanced amounts, in connection with properties acquired prior to 2016. The decrease in the average interest rate isrates are due to the financing (including financings effectuated in connection with acquisitions) or refinancing in 20162018 and 2017 of $158.8$34.8 million of gross mortgage debt (including $34.4$2.9 million of refinanced amounts) with an average interest rate of approximately 3.7%4.0%. Mortgage interest expense also increasedThe net decreases in the nine months ended September 30, 2017 by $118,000average balance outstanding are due principally to scheduled amortization payments and the payoff of a mortgage and early termination of an interest rate swapseveral mortgages in connection with the sale of the property tenanted by Kohl’s in July 2017.sales.
Gain on sale of real estate, net.
The following table compares gain onin the six months ended June 30, 2018 was realized from the sale of real estate, net, for the periods indicated:
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| Increase |
| % |
| 2017 |
| 2016 |
| Increase |
| % |
| ||||||
Gain on sale of real estate, net |
| $ | 3,269 |
| $ | 119 |
| $ | 3,150 |
| 2,647 |
| $ | 9,837 |
| $ | 9,824 |
| $ | 13 |
| .1 |
|
Fort Bend, Texas property. The non-controlling interest’s share of the gain was $776,000. The gain in the three and ninesix months ended SeptemberJune 30, 2017 was realized from the sales of the Kohl’s property in Kansas City, Missouri and the former hhgregg property in Niles, Illinois. The gain in the nine months ended September 30, 2017 was also realized from the sale of the Greenwood Village, Colorado property in May 2017. The gain in the nine months ended September 30, 2016 was realized from the sales of several properties.
Liquidity and Capital Resources
Our sources of liquidity and capital areinclude cash flow from operations, cash and cash equivalents, borrowings under our revolving credit facility, refinancing existing mortgage loans, obtaining mortgage loans secured by our unencumbered properties, issuance of our equity securities and property sales. Our available liquidity at November 3, 2017,August 2, 2018, was $99.3$99.2 million, including $12.7$2.5 million of cash and cash equivalents (net of the credit facility’s required $3.0 million deposit maintenance balance) and, subject to borrowing base requirements, up to $86.6$96.7 million available under our revolving credit facility.
Liquidity and Financing
We expect to meet our (i) operating cash requirements (including debt service and dividends) principally from cash flow from operations and (ii) capital requirements including an estimated $11.0of $1.5 million of building expansion and improvements at several properties,our property tenanted by L-3 located in Hauppauge, New York, from cash flow from operations, our available cash and cash equivalents, proceeds from the sale of our common stock and, to the extent permitted, our credit facility. We and our joint venture partner are also contemplating a significant redevelopment of our multi-tenant shopping center in Manahawkin, New Jersey—we anticipate that the capital expenditures that may be incurred if such property is redeveloped will be funded by the foregoing sources as well as equity contributions from us and our joint venture partner.
At SeptemberJune 30, 2017,2018, excluding mortgage indebtedness of our unconsolidated joint ventures, we had 7268 outstanding mortgages payable secured by 8985 properties, in the aggregate principal amount of $401.1$395.4 million (before netting unamortized deferred financing costs). These mortgages represent first liens on individual real estate investments with an aggregate carrying value of $629.8$626.6 million, before accumulated depreciation of $81.4$88.4 million. After giving effect to interest rate swap agreements, the mortgage payments bear interest at fixed rates ranging from 3.02% to 7.81%6.45% (a 4.22%4.25% weighted average interest rate) and mature between 20172018 and 2042 (an 8.98.5 year weighted average remaining term to maturity).
The following table sets forth, as of SeptemberJune 30, 2017,2018, information with respect to our mortgage debt that is payable from OctoberJuly 1, 20172018 through December 31, 20202021 (excluding our unconsolidated joint ventures):
(Dollars in thousands) |
| 2017 |
| 2018 |
| 2019 |
| 2020 |
| Total |
|
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| Total |
| ||||||||||
Amortization payments |
| $ | 2,344 |
| $ | 10,583 |
| $ | 11,079 |
| $ | 11,858 |
| $ | 35,864 |
|
| $ | 5,179 |
| $ | 11,824 |
| $ | 12,633 |
| $ | 13,046 |
| $ | 42,682 |
|
Principal due at maturity |
| 4,435 |
| 10,260 |
| 3,485 |
| — |
| 18,180 |
|
| 2,890 |
| 3,485 |
| — |
| 8,463 |
| 14,838 |
| ||||||||||
Total |
| $ | 6,779 |
| $ | 20,843 |
| $ | 14,564 |
| $ | 11,858 |
| $ | 54,044 |
|
| $ | 8,069 |
| $ | 15,309 |
| $ | 12,633 |
| $ | 21,509 |
| $ | 57,520 |
|
At SeptemberJune 30, 2017,2018, our unconsolidated joint ventures had first mortgages on fourtwo properties with outstanding balances aggregating $35.3$31.2 million, bearing interest at rates ranging fromof 3.49% to 5.81% (i.e.and 4.0% (i.e., a 4.07%3.89% weighted average interest rate) and maturing betweenin 2022 and 2025. The mortgage in principal amount of $7.0 million, an interest rate of 3.49% and maturing in 2022, was paid off in connection with the July 2018 and 2025.sale of the joint venture property in Milwaukee, Wisconsin.
We intend to make debt amortization payments from operating cash flow and, though no assurance can be given that we will be successful in this regard, generally intend to refinance, extend or payoff the mortgage loans which mature in 20172018 through 2020.2021. We intend to repay the amounts not refinanced or extended from our existing funds and sources of funds, including our available cash, proceeds from the sale of our common stock and our credit facility (to the extent available).
We continually seek to refinance existing mortgage loans on terms we deem acceptable to generate additional liquidity. Additionally, in the normal course of our business, we sell properties when we determine that it is in our best interests, which also generates additional
liquidity. Further, since each of our encumbered properties is subject to a non-recourse mortgage (with standard carve-outs), if our in-house evaluation of the market value of such property is less than the principal balance outstanding on the mortgage loan, we may determine to convey, in certain circumstances, such property to the mortgagee in order to terminate our mortgage obligations, including payment of interest, principal and real estate taxes, with respect to such property.
Typically, we utilize funds from our credit facility to acquire a property and, thereafter secure long-term, fixed rate mortgage debt on such property. We apply the proceeds from the mortgage loan to repay borrowings under the credit facility, thus providing us with the ability to re-borrow under the credit facility for the acquisition of additional properties.
Credit Facility
Subject to borrowing base requirements, we can borrow up to $100$100.0 million pursuant to our revolving credit facility which is available to us for the acquisition of commercial real estate, repayment of mortgage debt, property improvements and general working capital purposes; provided, that if used for property improvements and working capital purposes, the amount outstanding for such purposes will not exceed the lesser of $15$15.0 million and 15% of the borrowing base and if used for working capital purposes, will not exceed $10$10.0 million. The facility matures December 31, 2019 and bears interest equal to the one month LIBOR rate plus the applicable margin. The applicable margin ranges from 175 basis points if our ratio of total debt to total value (as calculated pursuant to the facility) is equal to or less than 50%, increasing to a maximum of 300 basis points if such ratio is greater than 65%. The applicable margin was 175 basis points at SeptemberJune 30, 20172018 and 20162017. At June 30, 2018 and at September 30, 2017, the interest rate was 2.985%.3.80% and 2.87%, respectively. There is an unused facility fee of 0.25% per annum on the difference between the outstanding loan balance and $100 million. The credit facility requires the maintenance of $3$3.0 million in average deposit balances.
The terms of our revolving credit facility include certain restrictions and covenants which limit, among other things, the incurrence of liens, and which require compliance with financial ratios relating to, among other things, the minimum amount of tangible net worth, the minimum amount of debt service coverage, the minimum amount of fixed charge coverage, the maximum amount of debt to value, the minimum level of net income, certain investment limitations and the minimum value of unencumbered properties and the number of such properties. Net proceeds received from the sale, financing or refinancing of properties are generally required to be used to repay amounts outstanding under our credit facility. At SeptemberJune 30, 2017,2018, we were in compliance with the covenants under this facility.
Statement of Cash Flows
The following discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be a comprehensive discussion of the changes in our cash flows for the periods presented.
|
| Nine Months Ended |
| ||||
(Amounts in thousands) |
| 2017 |
| 2016 |
| ||
Cash flow provided by operating activities |
| $ | 30,144 |
| $ | 22,480 |
|
Cash flow used in investing activities |
| (13,373 | ) | (81,944 | ) | ||
Cash flow (used in) provided by financing activities |
| (19,265 | ) | 64,373 |
| ||
Net (decrease) increase in cash and cash equivalents |
| (2,494 | ) | 4,909 |
| ||
Cash and cash equivalents at beginning of year |
| 17,420 |
| 12,736 |
| ||
Cash and cash equivalents at end of period |
| $ | 14,926 |
| $ | 17,645 |
|
Our principal source of operating cash flow is the net funds generated from the operation of our properties. Our properties provide a relatively consistent stream of cash flow that provides us with resources to pay operating expenses, debt service and fund quarterly dividend requirements.
The decrease in cash used in investing activities during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 is due primarily to the decrease in purchases of real estate in 2017, offset in part by the decrease in net proceeds from sales of real estate in 2017.
The increase in cash flow used in financing activities during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 is due primarily to the net decrease of $63.3 million in financings/repayments of mortgages payable and to a lesser extent, the net increase of $8.2 million in repayments (net of proceeds from drawdowns) on the credit facility in the nine months ended September 30, 2017. The increase in cash flow used in financing activities also resulted from a $11.2 million decrease in net proceeds from the sale of common stock in the current nine month period.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements other than with respect to our properties located in Lakemoor and Wheaton, Illinois and Beachwood, Ohio. These properties are ground leases improved by multi-family properties and generated $2.8$1.9 million of rental income during the ninesix months ended SeptemberJune 30, 2017.2018. At SeptemberJune 30, 2017,2018, our maximum exposure to loss with respect to these properties is $34.0 million, representing the carrying value of the land; such leasehold positions are subordinate to an aggregate of $150.7$158.2 million of mortgage debt incurred by our tenants, the owner/operators of the multi-family properties. These owner/operators are affiliated with one another. We do not believe this type of off-balance sheet arrangement has been or will be material to our liquidity and capital resource positions. See Note 6 to our consolidated financial statements for additional information regarding these arrangements.
Funds from Operations and Adjusted Funds from Operations
We compute funds from operations, or FFO, in accordance with the ‘‘White Paper on Funds From Operations’’ issued by the National Association of Real Estate Investment Trusts (‘‘NAREIT’’) and NAREIT’s related guidance. FFO is defined in the White Paper as net income (computed in accordance with generally accepting accounting principles), excluding gains (or losses) from sales of property, plus real estate depreciation and amortization (including amortization of deferred leasing costs), plus impairment write-downs of depreciable real estate and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis. In computing FFO, we do not add back to net income the amortization of costs in connection with our financing activities or depreciation of non-real estate assets. We compute adjusted funds from operations, or AFFO, by adjusting from FFO for our straight-line rent accruals and amortization of lease intangibles, deducting lease termination fees and gain on extinguishment of debt and adding back amortization of restricted stock compensation, amortization of costs in connection with our financing activities (including our share of our unconsolidated joint ventures) and debt prepayment costs. Since the NAREIT White Paper does not provide guidelines for computing AFFO, the computation of AFFO may vary from one REIT to another.
We believe that FFO and AFFO are useful and standard supplemental measures of the operating performance for equity REITs and are used frequently by securities analysts, investors and other interested parties in evaluating equity REITs, many of which present FFO and AFFO when reporting their operating results. FFO and AFFO are intended to exclude GAAP historical cost depreciation and amortization of real estate assets, which assumes that the value of real estate assets diminish predictability over time. In fact, real estate values have historically risen and fallen with market conditions. As a result, we believe that FFO and AFFO provide a performance measure that when compared year over year, should reflect the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not be necessarily apparent from net income. We also consider FFO and AFFO to be useful to us in evaluating potential property acquisitions.
FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. FFO and AFFO and should not be considered to be an alternative to net income as a reliable measure of our operating performance; nor should FFO and AFFO be considered an alternative to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity. FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders.
Management recognizes that there are limitations in the use of FFO and AFFO. In evaluating our performance, management is careful to examine GAAP measures such as net income and cash flows from operating, investing and financing activities.
The table below provides a reconciliation of net income in accordance with GAAP to FFO and AFFO for the periods indicated (dollars in thousands):
|
| Three Months Ended |
| Nine Months Ended |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||||||
GAAP net income attributable to One Liberty Properties, Inc. |
| $ | 7,105 |
| $ | 4,299 |
| $ | 19,942 |
| $ | 20,027 |
|
| $ | 4,517 |
| $ | 9,972 |
| $ | 10,368 |
| $ | 12,837 |
|
Add: depreciation and amortization of properties |
| 5,036 |
| 4,583 |
| 15,621 |
| 13,026 |
|
| 5,165 |
| 5,111 |
| 10,263 |
| 10,585 |
| ||||||||
Add: our share of depreciation and amortization of unconsolidated joint ventures |
| 215 |
| 223 |
| 656 |
| 670 |
|
| 191 |
| 219 |
| 407 |
| 441 |
| ||||||||
Add: impairment loss |
| 153 |
| — |
| 153 |
| — |
| |||||||||||||||||
Add: amortization of deferred leasing costs |
| 79 |
| 80 |
| 237 |
| 220 |
|
| 85 |
| 79 |
| 169 |
| 158 |
| ||||||||
Add: Federal excise tax relating to gain on sale |
| — |
| — |
| — |
| 6 |
| |||||||||||||||||
Deduct: gain on sale of real estate |
| (3,269 | ) | (119 | ) | (9,837 | ) | (9,824 | ) |
| — |
| (6,568 | ) | (2,408 | ) | (6,568 | ) | ||||||||
Deduct: equity in earnings from sale of unconsolidated joint venture property |
| (71 | ) | — |
| (71 | ) | — |
| |||||||||||||||||
Adjustments for non-controlling interests |
| (34 | ) | (36 | ) | (103 | ) | (108 | ) |
| (27 | ) | (35 | ) | 722 |
| (69 | ) | ||||||||
NAREIT funds from operations applicable to common stock |
| 9,285 |
| 9,030 |
| 26,669 |
| 24,017 |
|
| 9,860 |
| 8,778 |
| 19,450 |
| 17,384 |
| ||||||||
Deduct: straight-line rent accruals and amortization of lease intangibles |
| (397 | ) | (788 | ) | (802 | ) | (2,215 | ) |
| (499 | ) | (218 | ) | (1,025 | ) | (404 | ) | ||||||||
Add: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures |
| 10 |
| 13 |
| 27 |
| 36 |
|
| 10 |
| 8 |
| 20 |
| 16 |
| ||||||||
Add: amortization of restricted stock compensation |
| 684 |
| 770 |
| 2,341 |
| 2,176 |
|
| 856 |
| 915 |
| 1,682 |
| 1,657 |
| ||||||||
Add: prepayment costs on debt |
| — |
| — |
| — |
| 577 |
| |||||||||||||||||
Add: amortization and write-off of deferred financing costs |
| 263 |
| 189 |
| 717 |
| 644 |
|
| 222 |
| 227 |
| 449 |
| 454 |
| ||||||||
Add: our share of amortization and write-off of deferred financing costs of unconsolidated joint ventures |
| 6 |
| 7 |
| 19 |
| 19 |
|
| 6 |
| 6 |
| 12 |
| 13 |
| ||||||||
Adjustments for non-controlling interests |
| 5 |
| 17 |
| 13 |
| 37 |
|
| 12 |
| 3 |
| 26 |
| 8 |
| ||||||||
Adjusted funds from operations applicable to common stock |
| $ | 9,856 |
| $ | 9,238 |
| $ | 28,984 |
| $ | 25,291 |
|
| $ | 10,467 |
| $ | 9,719 |
| $ | 20,614 |
| $ | 19,128 |
|
The table below provides a reconciliation of net income per common share (on a diluted basis) in accordance with GAAP to FFO and AFFO:
|
| Three Months Ended |
| Nine Months Ended |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||||||
GAAP net income attributable to One Liberty Properties, Inc. |
| $ | .38 |
| $ | .24 |
| $ | 1.07 |
| $ | 1.15 |
| |||||||||||||
GAAP net income per common share attributable to One Liberty Properties, Inc. |
| $ | .23 |
| $ | .54 |
| $ | .53 |
| $ | .69 |
| |||||||||||||
Add: depreciation and amortization of properties |
| .27 |
| .26 |
| .84 |
| .76 |
|
| .27 |
| .27 |
| .54 |
| .57 |
| ||||||||
Add: our share of depreciation and amortization of unconsolidated joint ventures |
| .01 |
| .01 |
| .04 |
| .04 |
|
| .01 |
| .01 |
| .02 |
| .02 |
| ||||||||
Add: impairment loss |
| .01 |
| — |
| .01 |
| — |
| |||||||||||||||||
Add: amortization of deferred leasing costs |
| — |
| — |
| .02 |
| .01 |
|
| — |
| — |
| .01 |
| .01 |
| ||||||||
Deduct: gain on sale of real estate |
| (.17 | ) | — |
| (.53 | ) | (.57 | ) |
| — |
| (.35 | ) | (.13 | ) | (.35 | ) | ||||||||
Deduct: equity in earnings from sale of unconsolidated joint venture property |
| — |
| — |
| — |
| — |
| |||||||||||||||||
Adjustments for non-controlling interests |
| — |
| — |
| (.01 | ) | — |
|
| — |
| — |
| .04 |
| — |
| ||||||||
NAREIT funds from operations per share of common stock |
| .50 |
| .51 |
| 1.44 |
| 1.39 |
|
| .51 |
| .47 |
| 1.01 |
| .94 |
| ||||||||
Deduct: straight-line rent accruals and amortization of lease intangibles |
| (.02 | ) | (.03 | ) | (.05 | ) | (.13 | ) |
| (.03 | ) | (.01 | ) | (.05 | ) | (.02 | ) | ||||||||
Add: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures |
| — |
| — |
| — |
| — |
| |||||||||||||||||
Add: amortization of restricted stock compensation |
| .04 |
| .04 |
| .13 |
| .13 |
|
| .05 |
| .05 |
| .09 |
| .09 |
| ||||||||
Add: prepayment costs on debt |
| — |
| — |
| — |
| .03 |
| |||||||||||||||||
Add: amortization and write-off of deferred financing costs |
| .01 |
| .01 |
| .04 |
| .04 |
|
| .01 |
| .01 |
| .02 |
| .02 |
| ||||||||
Add: our share of amortization and write-off of deferred financing costs of unconsolidated joint ventures |
| — |
| — |
| — |
| — |
| |||||||||||||||||
Adjustments for non-controlling interests |
| — |
| — |
| — |
| — |
|
| — |
| — |
| — |
| — |
| ||||||||
Adjusted funds from operations per share of common stock |
| $ | .53 |
| $ | .53 |
| $ | 1.56 |
| $ | 1.46 |
|
| $ | .54 |
| $ | .52 |
| $ | 1.07 |
| $ | 1.03 |
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk exposure is the effect of changes in interest rates on the interest cost of draws on our revolving variable rate credit facility and the effect of changes in the fair value of our interest rate swap agreements. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.
We use interest rate swaps to limit interest rate risk on variable rate mortgages. These swaps are used for hedging purposes-not for speculation. We do not enter into interest rate swaps for trading purposes. At SeptemberJune 30, 2017,2018, our aggregate liability in the event of the early termination of our swaps was $2.5 million.$126,000.
At SeptemberJune 30, 2017,2018, we had 3129 interest rate swap agreements outstanding (including twoone held by three of ouran unconsolidated joint ventures)venture). The fair market value of the interest rate swaps is dependent upon existing market interest rates and swap spreads, which change over time. As of SeptemberJune 30, 2017,2018, if there had been an increase of 100 basis points in forward interest rates, the fair market value of the interest rate swaps would have increased by approximately $8.0$6.7 million and the net unrealized lossgain on derivative instruments would have decreasedincreased by $8.0$6.7 million. If there were a decrease of 100 basis points in forward interest rates, the fair market value of the interest rate swaps would have decreased by approximately $8.6$7.2 million and the net unrealized loss
gain on derivative instruments would have increaseddecreased by $8.6$7.2 million. These changes would not have any impact on our net income or cash.
Our mortgage debt, after giving effect to interest rate swap agreements, 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 variable rate credit facility is sensitive to interest rate changes. At SeptemberJune 30, 2017,2018, a 100 basis point increase of the interest rate on this facility would increase our related interest costs over the next twelve months by approximately $64,000$203,000 and a 100 basis point decrease of the interest rate would decrease our related interest costs over the next twelve months by approximately $64,000.$203,000.
The fair market value of our long-term debt is estimated based on discounting future cash flows at interest rates that our management believes reflect the risks associated with long term debt of similar risk and duration.
Item 4. Controls and Procedures
Based on their evaluation as of the end of the period covered by this report, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are effective.
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act) during the three months ended SeptemberJune 30, 20172018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Exhibit No. |
| Title of Exhibit |
10.1 |
| |
31.1 |
| |
31.2 |
| |
32.1 |
| |
32.2 |
| |
101.INS |
| XBRL Instance Document |
101.SCH |
| XBRL Taxonomy Extension Schema Document |
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
| XBRL Taxonomy Extension Definition Label Linkbase Document |
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
ONE LIBERTY PROPERTIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ONE LIBERTY PROPERTIES, INC. | |
| (Registrant) | |
|
| |
Date: | /s/ Patrick J. Callan, Jr. | |
| Patrick J. Callan, Jr. | |
| President and Chief Executive Officer | |
| (principal executive officer) | |
|
| |
Date: | /s/ David W. Kalish | |
| David W. Kalish | |
| Senior Vice President and | |
Chief Financial Officer | ||
| (principal financial officer) |