Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

FORM 10-Q

xQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2017March 31, 2020

OR

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on
which registered

Common Stock

OLP

New York Stock Exchange

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 NovemberMay 1, 2017,2020, the registrant had 18,782,25220,152,054 shares of common stock outstanding.



Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Table of Contents

Part I — Financial Information

Page No.

Part I -Item 1.

Unaudited Consolidated Financial InformationStatements

 

Consolidated Balance Sheets — March 31, 2020 and December 31, 2019

1

 

Item 1.

Unaudited Consolidated Financial Statements

Consolidated Balance Sheets — September 30, 2017 and December 31, 2016

1

Consolidated Statements of Income — Three and nine months ended September 30, 2017March 31, 2020 and 20162019

3

2

 

Consolidated Statements of Comprehensive Income — Three and nine months ended September 30, 2017March 31, 2020 and 20162019

4

3

 

Consolidated Statements of Changes in Equity — NineThree months ended September 30, 2017March 31, 2020 and 20162019

5

4

 

Consolidated Statements of Cash Flows — NineThree months ended September 30, 2017March 31, 2020 and 20162019

6

5

 

Notes to Consolidated Financial Statements

8

7

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

22

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

42

33

 

Item 4.

Controls and Procedures

43

33

 

Part II — Other Information

 

Item 1A.

Risk Factor

34

Item 6.

Exhibits

43

Item 6.

Exhibits

34



Table of Contents

Part I — FINANCIAL INFORMATION

Item 1.    Financial Statements

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Par Value)

 

 

September 30,
2017

 

December 31,
2016

 

 

 

(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

 

Continued on next page

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Continued)

March 31, 

December 31, 

    

2020

    

2019

(Unaudited)

ASSETS

Real estate investments, at cost

Land

$

196,645

$

195,320

Buildings and improvements

660,623

640,517

Total real estate investments, at cost

857,268

835,837

Less accumulated depreciation

138,607

135,302

Real estate investments, net

718,661

700,535

Investment in unconsolidated joint ventures

11,247

11,061

Cash and cash equivalents

21,360

11,034

Unbilled rent receivable

15,281

15,037

Unamortized intangible lease assets, net

28,722

26,068

Escrow, deposits and other assets and receivables

10,480

10,894

Total assets (1)

$

805,751

$

774,629

LIABILITIES AND EQUITY

Liabilities:

Mortgages payable, net of $4,420 and $4,438 of deferred financing costs, respectively

$

447,337

$

435,840

Line of credit, net of $567 and $619 of deferred financing costs, respectively

30,283

10,831

Dividends payable

9,037

8,966

Accrued expenses and other liabilities

19,363

14,587

Unamortized intangible lease liabilities, net

12,636

12,421

Total liabilities (1)

518,656

482,645

Commitments and contingencies

Equity:

One Liberty Properties, Inc. stockholders' equity:

Preferred stock, $1 par value; 12,500 shares authorized; NaN issued

Common stock, $1 par value; 25,000 shares authorized; 19,380 and 19,251 shares issued and outstanding

19,380

19,251

Paid-in capital

302,530

301,517

Accumulated other comprehensive loss

(6,432)

(1,623)

Distributions in excess of net income

(29,592)

(28,382)

Total One Liberty Properties, Inc. stockholders’ equity

285,886

290,763

Non-controlling interests in consolidated joint ventures (1)

1,209

1,221

Total equity

287,095

291,984

Total liabilities and equity

$

805,751

$

774,629


(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 and $17.8 million of land, $32.1 million and $32.5 million of building and improvements, net of $3.5 million and $2.7 million of accumulated depreciation, $4.1 million and $5.5 million of other assets included in other line items, $32.5 million and $33.1 million of real estate debt, net, $3.1 million and $3.1 million of other liabilities included in other line items as of September 30, 2017 and December 31, 2016, respectively.

(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: $12,158 and $12,158 of land, $23,999 and $24,223 of building and improvements, net of $4,559 and $4,334 of accumulated depreciation, $3,722 and $3,696 of other assets included in other line items, $23,993 and $24,199 of real estate debt, net, $1,323 and $1,153 of other liabilities included in other line items and $1,209 and $1,221 of non-controlling interests as of March 31, 2020 and December 31, 2019, respectively.

See accompanying notes to consolidated financial statements.

1

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands, Except Per Share Data)

(Unaudited)

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

 

Rental income, net

 

$

17,217

 

$

16,334

 

$

50,770

 

$

46,985

 

Tenant reimbursements

 

1,920

 

1,687

 

5,252

 

4,614

 

Total revenues

 

19,137

 

18,021

 

56,022

 

51,599

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

5,115

 

4,663

 

15,858

 

13,246

 

General and administrative (see Note 10 for related party information)

 

2,701

 

2,681

 

8,409

 

7,961

 

Real estate expenses (see Note 10 for related party information)

 

2,689

 

2,188

 

7,765

 

6,521

 

Real estate acquisition costs

 

 

162

 

 

610

 

Federal excise and state taxes

 

90

 

43

 

401

 

198

 

Leasehold rent

 

77

 

77

 

231

 

231

 

Impairment loss

 

153

 

 

153

 

 

Total operating expenses

 

10,825

 

9,814

 

32,817

 

28,767

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

8,312

 

8,207

 

23,205

 

22,832

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated joint ventures

 

212

 

228

 

663

 

794

 

Prepayment costs on debt

 

 

 

 

(577

)

Other income

 

57

 

362

 

399

 

431

 

Interest:

 

 

 

 

 

 

 

 

 

Expense

 

(4,459

)

(4,404

)

(13,380

)

(12,593

)

Amortization and write-off of deferred financing costs

 

(263

)

(189

)

(717

)

(644

)

Income before gain on sale of real estate, net

 

3,859

 

4,204

 

10,170

 

10,243

 

Gain on sale of real estate, net

 

3,269

 

119

 

9,837

 

9,824

 

 

 

 

 

 

 

 

 

 

 

Net income

 

7,128

 

4,323

 

20,007

 

20,067

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to non-controlling interests

 

(23

)

(24

)

(65

)

(40

)

Net income attributable to One Liberty Properties, Inc.

 

$

7,105

 

$

4,299

 

$

19,942

 

$

20,027

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

18,000

 

16,845

 

17,859

 

16,605

 

Diluted

 

18,079

 

16,962

 

17,961

 

16,722

 

 

 

 

 

 

 

 

 

 

 

Per common share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

.38

 

$

.24

 

$

1.07

 

$

1.16

 

Diluted

 

$

.38

 

$

.24

 

$

1.07

 

$

1.15

 

 

 

 

 

 

 

 

 

 

 

Cash distributions declared per share of common stock

 

$

.43

 

$

.41

 

$

1.29

 

$

1.23

 

Three Months Ended

March 31, 

    

2020

    

2019

Revenues:

Rental income, net

$

21,239

$

21,155

Operating expenses:

Depreciation and amortization

5,674

5,347

General and administrative (see Note 9 for related party information)

3,334

3,171

Real estate expenses (see Note 9 for related party information)

3,342

3,341

State taxes

82

79

Total operating expenses

12,432

11,938

Other operating income

Gain on sale of real estate, net

4,252

Operating income

13,059

9,217

Other income and expenses:

Equity in earnings (loss) of unconsolidated joint ventures

64

(116)

Equity in earnings from sale of unconsolidated joint venture property

121

Prepayment costs on debt

(290)

Other income

4

4

Interest:

Expense

(4,884)

(4,862)

Amortization and write-off of deferred financing costs

(243)

(232)

Net income

7,831

4,011

Net income attributable to non-controlling interests

(5)

(40)

Net income attributable to One Liberty Properties, Inc.

$

7,826

$

3,971

Weighted average number of common shares outstanding:

Basic

19,361

18,894

Diluted

19,374

18,993

Per common share attributable to common stockholders:

Basic

$

.39

$

.19

Diluted

$

.39

$

.19

See accompanying notes to consolidated financial statements.

2

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in Thousands)

(Unaudited)

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

Net income

 

$

7,128

 

$

4,323

 

$

20,007

 

$

20,067

 

Other comprehensive gain (loss)

 

 

 

 

 

 

 

 

 

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

)

One Liberty Properties Inc.’s share of joint venture net unrealized gain (loss) on derivative instruments

 

11

 

44

 

34

 

(92

)

Other comprehensive gain (loss)

 

115

 

1,062

 

206

 

(5,296

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

7,243

 

5,385

 

20,213

 

14,771

 

Net income attributable to non-controlling interests

 

(23

)

(24

)

(65

)

(40

)

Adjustment for derivative instruments attributable to non-controlling interests

 

(1

)

(5

)

(2

)

15

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to One Liberty Properties, Inc.

 

$

7,219

 

$

5,356

 

$

20,146

 

$

14,746

 

Three Months Ended

March 31, 

    

2020

    

2019

Net income

$

7,831

$

4,011

Other comprehensive loss

Net unrealized loss on derivative instruments

(4,818)

(1,577)

Comprehensive income

3,013

2,434

Net income attributable to non-controlling interests

(5)

(40)

Adjustment for derivative instruments attributable to non-controlling interests

9

5

Comprehensive income attributable to One Liberty Properties, Inc.

$

3,017

$

2,399

See accompanying notes to consolidated financial statements.

3

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in Thousands, Except Per Share Data)

(Unaudited)

 

 

Common
Stock

 

Paid-in
Capital

 

Accumulated
Other
Comprehensive
Loss

 

Accumulated
Undistributed
Net Income

 

Non-
Controlling
Interests in
Consolidated
Joint
Ventures

 

Total

 

Balances, December 31, 2015

 

$

16,292

 

$

232,378

 

$

(4,390

)

$

16,215

 

$

1,931

 

$

262,426

 

Distributions - common stock
Cash - $1.23 per share

 

 

 

 

(21,330

)

 

(21,330

)

Shares issued through equity offering program
- net

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2016

 

$

17,600

 

$

262,511

 

$

(1,479

)

$

11,501

 

$

1,794

 

$

291,927

 

Distributions - common stock
Cash - $1.29 per share

 

 

 

 

(23,899

)

 

(23,899

)

Shares issued through equity offering program - net

 

135

 

2,932

 

 

 

 

3,067

 

Restricted stock vesting

 

232

 

(232

)

 

 

 

 

Shares issued through dividend reinvestment plan

 

147

 

3,210

 

 

 

 

3,357

 

Distributions to non-controlling interests

 

 

 

 

 

(148

)

(148

)

Compensation expense - restricted stock

 

 

2,341

 

 

 

 

2,341

 

Net income

 

 

 

 

19,942

 

65

 

20,007

 

Other comprehensive income

 

 

 

204

 

 

2

 

206

 

Balances, September 30, 2017

 

$

18,114

 

$

270,762

 

$

(1,275

)

$

7,544

 

$

1,713

 

$

296,858

 

Accumulated

Accumulated

Non-Controlling

    

    

    

 Other

    

 Distributions

    

 Interests in

    

Common

Paid-in

Comprehensive

 in Excess of

 Consolidated

Stock

Capital

Income (Loss)

 Net Income

  Joint Ventures

Total

Balances, December 31, 2018

$

18,736

$

287,250

$

1,890

$

(10,730)

$

1,449

$

298,595

Distributions – common stock

Cash – $.45 per share

(8,832)

(8,832)

Restricted stock vesting

 

112

 

(112)

 

 

 

 

Shares issued through equity offering program – net

 

37

 

1,002

 

 

 

 

1,039

Shares issued through dividend reinvestment plan

 

52

 

1,147

 

 

 

 

1,199

Distributions to non-controlling interests

 

 

 

 

 

(5)

 

(5)

Compensation expense – restricted stock

 

 

954

 

 

 

 

954

Net income

 

 

 

 

3,971

 

40

 

4,011

Other comprehensive loss

 

 

 

(1,572)

 

 

(5)

 

(1,577)

Balances, March 31, 2019

 

$

18,937

 

$

290,241

 

$

318

 

$

(15,591)

 

$

1,479

 

$

295,384

Balances, December 31, 2019

$

19,251

$

301,517

$

(1,623)

$

(28,382)

$

1,221

$

291,984

Distributions – common stock

Cash – $.45 per share

 

 

 

 

(9,036)

 

 

(9,036)

Restricted stock vesting

122

 

(122)

 

 

 

 

Shares issued through dividend reinvestment plan

 

7

159

 

 

 

 

166

Distributions to non-controlling interests

 

 

 

 

 

(8)

 

(8)

Compensation expense – restricted stock

 

 

976

 

 

 

 

976

Net income

 

 

 

 

7,826

 

5

 

7,831

Other comprehensive loss

 

 

 

(4,809)

 

 

(9)

 

(4,818)

Balances, March 31, 2020

$

19,380

$

302,530

$

(6,432)

$

(29,592)

$

1,209

$

287,095

See accompanying notes to consolidated financial statements.

4

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited)

 

 

Nine Months Ended
September 30,

 

 

 

2017

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

20,007

 

$

20,067

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Gain on sale of real estate, net

 

(9,837

)

(9,824

)

Gain on available-for-sale securities

 

 

(27

)

Prepayment costs on debt

 

 

577

 

Impairment loss

 

153

 

 

Increase in unbilled rent receivable

 

(509

)

(1,757

)

Write-off of unbilled rent receivable

 

362

 

7

 

Bad debt expense

 

310

 

190

 

Amortization and write-off of intangibles relating to leases, net

 

(654

)

(465

)

Amortization of restricted stock expense

 

2,341

 

2,176

 

Equity in earnings of unconsolidated joint ventures

 

(663

)

(794

)

Distributions of earnings from unconsolidated joint ventures

 

584

 

755

 

Depreciation and amortization

 

15,858

 

13,246

 

Amortization and write-off of deferred financing costs

 

717

 

644

 

Payment of leasing commissions

 

(67

)

(1,041

)

Decrease (increase) in escrow, deposits, other assets and receivables

 

165

 

(1,153

)

Increase (decrease) in accrued expenses and other liabilities

 

1,377

 

(121

)

Net cash provided by operating activities

 

30,144

 

22,480

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of real estate

 

(35,443

)

(118,589

)

Improvements to real estate

 

(2,321

)

(3,900

)

Net proceeds from sale of real estate

 

24,093

 

40,207

 

Net proceeds from sale of available-for-sale securities

 

 

33

 

Distributions of capital from unconsolidated joint ventures

 

298

 

305

 

Net cash used in investing activities

 

(13,373

)

(81,944

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Scheduled amortization payments of mortgages payable

 

(7,808

)

(6,621

)

Repayment of mortgages payable

 

(11,541

)

(38,115

)

Proceeds from mortgage financings

 

21,210

 

111,102

 

Proceeds from sale of common stock, net

 

3,067

 

14,297

 

Proceeds from bank line of credit

 

34,500

 

86,000

 

Repayment on bank line of credit

 

(38,100

)

(81,450

)

Issuance of shares through dividend reinvestment plan

 

3,357

 

2,188

 

Payment of financing costs

 

(150

)

(1,260

)

Prepayment costs on debt

 

 

(577

)

Capital contributions from non-controlling interests

 

 

30

 

Distributions to non-controlling interests

 

(148

)

(236

)

Cash distributions to common stockholders

 

(23,652

)

(20,985

)

Net cash (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

 

Three Months Ended

March 31, 

    

2020

    

2019

Cash flows from operating activities:

Net income

$

7,831

$

4,011

Adjustments to reconcile net income to net cash provided by operating activities:

Gain on sale of real estate, net

(4,252)

Increase in unbilled rent receivable

(380)

(395)

Amortization and write-off of intangibles relating to leases, net

(190)

(254)

Amortization of restricted stock expense

976

954

Equity in (earnings) loss of unconsolidated joint ventures

(64)

116

Equity in earnings from sale of unconsolidated joint venture property

(121)

Depreciation and amortization

5,674

5,347

Amortization and write-off of deferred financing costs

243

232

Payment of leasing commissions

(38)

(141)

Decrease in escrow, deposits, other assets and receivables

303

495

Increase (decrease) in accrued expenses and other liabilities

69

(2,250)

Net cash provided by operating activities

10,051

8,115

Cash flows from investing activities:

Purchase of real estate

(28,504)

Improvements to real estate

(109)

(687)

Net proceeds from sale of real estate

7,093

Distributions of capital from unconsolidated joint venture

11

Net cash used in investing activities

(21,520)

(676)

Cash flows from financing activities:

Scheduled amortization payments of mortgages payable

(3,389)

(3,135)

Repayment of mortgages payable

(3,332)

Proceeds from mortgage financings

18,200

23,545

Proceeds from sale of common stock, net

1,039

Proceeds from bank line of credit

41,500

4,000

Repayment on bank line of credit

(22,100)

(28,000)

Issuance of shares through dividend reinvestment plan

166

1,199

Payment of financing costs

(165)

(378)

Distributions to non-controlling interests

(8)

(5)

Cash distributions to common stockholders

(8,965)

(8,724)

Net cash provided by (used in) financing activities

21,907

(10,459)

Net increase (decrease) in cash, cash equivalents and restricted cash

10,438

(3,020)

Cash, cash equivalents and restricted cash at beginning of year

11,968

16,733

Cash, cash equivalents and restricted cash at end of period

$

22,406

$

13,713

Supplemental disclosure of cash flow information:

Cash paid during the period for interest expense

$

4,844

$

4,939

Supplemental disclosure of non-cash investing activity:

Purchase accounting allocation - intangible lease assets

$

3,905

$

Purchase accounting allocation - intangible lease liabilities

(568)

(Continued on next pagepage)

5

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited) (Continued)

 

 

Nine Months Ended
September 30,

 

 

 

2017

 

2016

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid during the period for interest expense

 

$

13,350

 

$

12,590

 

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

 

Purchase accounting allocation — intangible lease liabilities

 

(158

)

(6,288

)

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):

March 31, 

    

2020

    

2019

Cash and cash equivalents

$

21,360

$

12,794

Restricted cash

 

 

337

Restricted cash included in escrow, deposits and other assets and receivables

1,046

582

Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows

$

22,406

$

13,713

Amounts included in restricted cash in 2019 represent the cash reserve balance received from an owner/operator at one of the Company’s ground leased properties which was sold in 2019. Restricted cash included in escrow, deposits and other assets and receivables represent amounts related to real estate tax and other reserve escrows required to be held by lenders in accordance with the Company’s mortgage agreements. The restriction on these escrow reserves will lapse when the related mortgage is repaid.

See accompanying notes to consolidated financial statements.

6

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020

September 30, 2017

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, restaurant, health and fitness, and theater properties, many of which are subject to long-term net leases. As of September 30, 2017,March 31, 2020, OLP owns 119126 properties, including six4 properties owned by consolidated joint ventures and five3 properties owned by unconsolidated joint ventures. The 119126 properties are located in 31 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 nine months ended September 30, 2017March 31, 2020 and 20162019 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, 2016.2019.

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)

September 30, 2017 (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, andor (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.

7

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 2 – Summary Accounting Policies (Continued)

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, noneNaN 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. NoneNaN of the joint venture debt is recourse to the Company, subject to standard carve-outs.

The Company periodically reviews on a quarterly basis 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 nine months ended September 30, 2017March 31, 2020 and 2016,2019, there was nowere 0 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 a 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.

Note 3 – Leases

Lessor Accounting

The Company owns rental properties which are leased to tenants under operating leases with current expirations ranging from 2020 to 2055, with options to extend or terminate the lease. Revenues from such leases are reported as Rental income, net and are comprised of (i) lease components, which includes fixed and variable lease payments and (ii) non-lease components which includes reimbursements of property level operating expenses. The Company does not separate non-lease components from the related lease components, as the timing and pattern of transfer are the same, and account for the combined component in accordance with ASC 842.

Fixed lease revenues represent the base rent that each tenant is required to pay in accordance with the terms of their respective leases reported on a straight-line basis over the non-cancelable term of the lease. Variable lease revenues include payments based on (i) tenant reimbursements, (ii) changes in the index or market-based indices after the inception of the lease, (iii) percentage rents or (iv) the operating performance of the property. Variable lease revenues are not recognized until the specific events that trigger the variable payments have occurred.

The components of lease revenues are as follows (amounts in thousands):

Three Months Ended

    

March 31, 

2020

2019

Fixed lease revenues

$

18,067

    

$

17,645

Variable lease revenues

2,982

3,256

Lease revenues (a)

$

21,049

$

20,901

(a)Excludes $190 and $254 of amortization related to lease intangible assets and liabilities for the three months ended March 31, 2020 and 2019, respectively.

8

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017March 31, 2020 (Continued)

Note 3 – Leases (Continued)

Note 2 — Summary Accounting Policies (Continued)On a quarterly basis, the Company assesses the collectability of substantially all lease payments due under its leases, including unbilled rent receivable balances, by reviewing the tenant's payment history and financial condition. Changes to such collectability is recognized as a current period adjustment to rental revenue. The Company did not record any write-offs of unbilled rent receivables during the three months ended March 31, 2020 and 2019. The Company has assessed the collectability of all lease payments as probable as of March 31, 2020.

Due to the impact of the COVID-19 pandemic, rent deferrals are currently being negotiated and executed with certain of the Company’s tenants. In accordance with recent guidance issued by the FASB, the Company will elect to (i) not evaluate whether such COVID-19 pandemic related rent-relief is a lease modification under ASC 842 and (ii) treat each tenant rent deferral as if it were contemplated as part of the existing lease contract.

ReclassificationsIn many of the Company's leases, the tenant is obligated to pay the real estate taxes, insurance, and certain other expenses directly to the vendor. These obligations, which have been assumed by the tenants, are not reflected in our consolidated financial statements. To the extent any such tenant defaults on its lease or if it is deemed probable that the tenant will fail to pay for such obligations, a liability for such obligations would be recorded.

Minimum Future Rents

Certain amounts previously reportedAs of March 31, 2020, the minimum future contractual base rents to be received on non-cancellable operating leases are included in the table below (amounts in thousands). The minimum future contractual base rents do not include (i) straight-line rent or amortization of intangibles and (ii) variable lease revenues as described above.

From April 1 – December 31, 2020

$

54,108

For the year ended December 31,

2021

71,807

2022

63,372

2023

54,623

2024

46,012

2025

40,375

Thereafter

150,852

Total

$

481,149

Lessee Accounting

GroundLease

The Company is a lessee under a ground lease in Greensboro, North Carolina, which is classified as an operating lease. The ground lease expires March 3, 2025 and provides for up to 4, 5-year renewal options and 1 seven-month renewal option. As of March 31, 2020, the remaining lease term is 9.9 years. During each of the three months ended March 31, 2020 and 2019, the Company recognized $131,000 of lease expense related to this ground lease which is included in Real estate expenses on the consolidated financial statements of income.

Office Lease

The Company is a lessee under a corporate office lease in Great Neck, New York, which is classified as an operating lease. The lease expires on December 31, 2031 and provides a 5-year renewal option. As of March 31, 2020, the remaining lease term is 16.8 years. During each of the three months ended March 31, 2020 and 2019, the Company recognized $14,000 of lease expense related to this office lease which is included in General and administrative expenses on the consolidated statements of income.

9

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 3 – Leases (Continued)

Minimum Future Lease Payments

As of March 31, 2020, the minimum future lease payments related to the operating ground and office leases are as follows (amounts in thousands):

From April 1 – December 31, 2020

$

382

For the year ended December 31,

2021

511

2022

506

2023

507

2024

557

2025

626

Thereafter

3,115

Total undiscounted cash flows

$

6,204

Present value discount

(1,473)

Lease liability

$

4,731

Note 4 – Real Estate Acquisitions

The following charts detail the Company’s real estate acquisitions and allocations of the purchase price during the three months ended March 31, 2020 (amounts in thousands). The Company determined that with respect to each of these acquisitions, the gross assets acquired are concentrated in a single identifiable asset. Therefore, these transactions do not meet the definition of a business and are accounted for as asset acquisitions. As such, direct transaction costs associated with these asset acquisitions have been reclassifiedcapitalized to real estate assets and depreciated over their respective useful lives.

Contract

Capitalized

Purchase

Terms of

Transaction

Description of Property

   

Date Acquired

   

Price

   

Payment

   

Costs

Creative Office Environments industrial facility,

Ashland, Virginia

February 20, 2020

$

9,100

 

All cash (a)

$

119

Fed Ex industrial facility,

Lowell, Arkansas

February 24, 2020

19,150

All cash (a)

 

135

Totals

  

$

28,250

 

  

$

254

(a)In March 2020, the Company obtained new mortgage debt aggregating $18,200 which bears interest at rates of 3.54% and 3.63% and mature in 2035 and 2027, respectively.

Building &

Intangible Lease

Description of Property

Land

    

Improvements

Asset

Liability

    

Total

Creative Office Environments industrial facility,

 

  

 

  

 

  

Ashland, Virginia

$

391

$

7,901

$

927

$

$

9,219

Fed Ex industrial facility,

  

 

  

 

  

Lowell, Arkansas

1,687

 

15,188

2,978

(568)

 

19,285

Totals

$

2,078

$

23,089

$

3,905

$

(568)

$

28,504

10

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 5 – Sale of Property

On February 11, 2020, the Company sold a retail property located in the accompanying consolidated financial statements to conform to the current period’s presentation, primarily to change the presentationOnalaska, Wisconsin for approximately $7,093,000, net of closing costs. The sale resulted in a gain of $4,252,000 which was recorded as Gain on sale of real estate, net, in the consolidated statement of income for the three months ended March 31, 2020. In connection with the sale, the Company paid off the $3,332,000 mortgage and incurred a $290,000 debt prepayment cost which was recorded as Prepayment costs on debt in the consolidated statement of income for the three months ended March 31, 2020.

Note 6 – Variable Interest Entities, Contingent Liability and Consolidated Joint Ventures

Variable Interest Entity – Ground Lease

The Company determined it has a variable interest through its ground lease at its Beachwood, Ohio property (the Vue Apartments), and the owner/operator is a VIE because its 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 this VIE because the Company has shared power over the 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 this VIE for financial statement purposes.

Accordingly, the Company accounts for this investment as land and the revenues from the ground lease as Rental income, net. Ground lease rental income amounted to $243,000 and $486,000 for the three months ended March 31, 2020 and 2019, respectively. Included in the rental income for the three months ended March 31, 2019 is $306,000 from a previously held VIE property in Wheaton, Illinois, which the Company sold in August 2019.

As of March 31, 2020, the VIE’s maximum exposure to loss was $13,901,000 which represented the carrying amount of the land. Simultaneously with the closing of the acquisition, the owner/operator obtained a mortgage for $67,444,000 from a third party which, together with the Company’s purchase of the land, provided substantially all of the funds to acquire the complex. The Company provided its land as collateral for the owner/operator’s mortgage loan; accordingly, the land position is subordinated to the mortgage. No other financial support has been provided by the Company to the owner/operator.

Variable Interest Entities – Consolidated Joint Ventures

The Company has determined that the 4 consolidated joint ventures in which it holds between a 90% to 95% interest are VIEs because the non-controlling interests do not hold substantive kick-out or participating rights. The Company has determined it is the primary beneficiary of these VIEs 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 VIEs for financial statement purposes. The VIEs’ creditors do not have recourse to the assets of the Company other than those held by these joint ventures.

11

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 6 – Variable Interest Entities, Contingent Liability and Consolidated Joint Ventures (Continued)

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):

March 31, 

December 31, 

    

2020

    

2019

Land

$

12,158

$

12,158

Buildings and improvements, net of accumulated depreciation of $4,559 and $4,334, respectively

23,999

24,223

Cash

873

888

Unbilled rent receivable

866

859

Unamortized intangible lease assets, net

716

745

Escrow, deposits and other assets and receivables

1,267

1,204

Mortgages payable, net of unamortized deferred financing costs of $298 and $313, respectively

23,993

24,199

Accrued expenses and other liabilities

749

562

Unamortized intangible lease liabilities, net

574

591

Accumulated other comprehensive loss

(181)

(65)

Non-controlling interests in consolidated joint ventures

1,209

1,221

At March 31, 2020 and December 31, 2019, MCB Real Estate, LLC and its affiliates (‘‘MCB’’) are the Company’s joint venture partner in 3 consolidated joint ventures in which the Company has aggregate equity investments of approximately $7,797,000 and $7,941,000, 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.

Note 7 – Investment in Unconsolidated Joint Ventures

At March 31, 2020 and December 31, 2019, the Company participates in 3 and 4 unconsolidated joint ventures, respectively, each of which owns and operates 1 property; the Company’s equity investment in these ventures totaled $11,247,000 and $11,061,000, respectively. The Company recorded equity in earnings of $64,000 and equity in loss of $116,000 for the three months ended March 31, 2020 and 2019, respectively.

On March 2, 2020, an unconsolidated joint venture sold its property located in Savannah, Georgia for $819,000, net of closing costs. The Company’s 50% share of the gain from this sale was $121,000, which is included in Equity in earnings from sale of unconsolidated joint venture property on the consolidated statement of operationsincome for the three and nine months ended September 30, 2016. March 31, 2020.

At March 31, 2020 and December 31, 2019, MCB and the Company are partners in an unconsolidated joint venture in which the Company’s equity investment is approximately $8,851,000 and $8,834,000, respectively.

12

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 8 – Debt Obligations

Mortgages Payable

The following table details the Mortgages payable, net, balances per the consolidated balance sheets (amounts in thousands):

    

March 31, 

    

December 31, 

2020

2019

Mortgages payable, gross

$

451,757

$

440,278

Unamortized deferred financing costs

 

(4,420)

 

(4,438)

Mortgages payable, net

$

447,337

$

435,840

Line of Credit

The Company has included a captioncredit facility with Manufacturers & Traders Trust Company, People’s United Bank, VNB New York, LLC, and Bank Leumi USA, pursuant to which it may borrow up to $100,000,000, subject to borrowing base requirements. The facility is available for Income before gain on salethe acquisition of commercial real estate, net,repayment of mortgage debt, and renovation and operating expense purposes; provided, that if used for renovation and operating expense purposes, the amount outstanding for such purposes will not exceed the lesser of $30,000,000 and 30% of the borrowing base subject to present gaina cap of (i) $10,000,000 for operating expense purposes, which has been drawn down and losses(ii) $20,000,000 for renovation expenses. The facility, which matures December 31, 2022, provides for 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 salesthe ratio of properties in accordance with the SecuritiesCompany’s total debt to total value, as determined pursuant to the facility. The applicable margin was 200 basis points at March 31, 2020 and Exchange Commission Rule 3-15(a)2019. An unused facility fee of Regulation S-X..25% per annum applies to the facility. The changeaverage interest rate on the facility was madeapproximately 3.20% and 4.23% for the three and nine months ended September 30, 2016 because, as prescribed by ASC 360-10-45-5, such gains from saleMarch 31, 2020 and 2019, respectively. The Company was in compliance with all covenants at March 31, 2020.

The following table details the Line of real estate were not included as a componentcredit, net, balances per the consolidated balance sheets (amounts in thousands):

March 31, 

December 31, 

    

2020

    

2019

Line of credit, gross

$

30,850

$

11,450

Unamortized deferred financing costs

 

(567)

 

(619)

Line of credit, net

$

30,283

$

10,831

At May 4, 2020, there was an outstanding balance of Operating income.  Such change was determined$30,850,000 (before unamortized deferred financing costs) under the facility.

13

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to be immaterialConsolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 9 – Related Party Transactions

Compensation and Services Agreement

Pursuant to the compensation and services agreement with Majestic Property Management Corp. (“Majestic”), Majestic provides the Company with the services of 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 (collectively, the “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 amount the Company pays Majestic for the Services is approved each year by the Company’s Compensation and/or Audit Committees and the independent directors.

In consideration for the Services, the Company paid Majestic $767,000 and $704,000 for the three months ended March 31, 2020 and 2019, respectively. Included in these fees are $331,000 and $324,000 of property management costs for the three months ended March 31, 2020 and 2019, respectively. The amounts paid for property management services is 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 with respect to properties managed by third parties. The Company also paid Majestic, pursuant to the compensation and services agreement, $69,000 and $54,000 in the three months ended March 31, 2020 and 2019, 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 Majestic for any services except as described in this and the preceding paragraphs.

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 $449,000 and $470,000 for the three months ended March 31, 2020 and 2019, respectively.

The amounts paid under the compensation and services agreement (except for the property management costs 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 financial statements.statements of income.

Joint Venture Partners and Affiliates

The Company paid an aggregate of $20,000 and $21,000 for the three months ended March 31, 2020 and 2019, respectively, to its consolidated joint venture partners or their affiliates (none of whom are officers, directors or employees of the Company) for property management services, which are included in Real estate expenses on the consolidated statements of income.

The Company’s unconsolidated joint ventures paid management fees of $22,000 and $26,000 for the three months ended March 31, 2020 and 2019, respectively, to the other partner of the venture, which reduced Equity in earnings on the consolidated statements of income by $11,000 and $13,000 for the three months ended March 31, 2020 and 2019, respectively.

Other

During the three months ended March 31, 2020 and 2019, the Company paid quarterly fees of $74,500 and $72,400, respectively, to the Company’s chairman, and $29,800 and $28,900, respectively, to the Company’s 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. Included in Real estate expenses on the consolidated statements of income is insurance expense of $246,000 and $225,000 for the three months ended March 31, 2020 and 2019, respectively, of amounts reimbursed to Gould Investors in prior periods.

14

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 3 — 10 – Common Stock Cash Dividend

On March 13, 2020, the Board of Directors declared a quarterly cash dividend of $.45 per share on the Company’s common stock, totaling approximately $9,037,000. The quarterly dividend was paid on April 7, 2020 to stockholders of record on March 24, 2020.

Note 11 – Shares Issued through the At-the-Market Equity Offering Program

During the three months ended March 31, 2019, the Company sold 37,000 shares for proceeds of $1,084,000, net of commissions of $11,000, and incurred offering costs of $45,000 for professional fees. NaN shares were sold by the Company during the three months ended March 31, 2020.

Note 12 – Earnings Per Common Share

Basic earnings per share was determined by dividing net income allocable to common stockholders for each periodyear by the weighted average number of shares of common stock outstanding during the applicable period.year. Net income is also allocated to the unvested restricted stock outstanding during each period,year, as the 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 September 30, 2017,March 31, 2020, the shares of common stock underlying the restricted stock units (the “RSUs”) awarded under the 2019 and 2016 Incentive PlanPlans (see Note 13) 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 number of shares of common stock underlying the RSUs that are included in determining the diluted weighted average number of shares of common stock:

See Note 13 for information regarding the Company’s equity incentive plans.

Three Months Ended March 31, 2020 (a):

Total Number of

Return on

Stockholder

Shares

Date of Award

 

Underlying Shares (b)(c)

Capital Metric

Return Metric

Total

Excluded (d)

September 26, 2017

 

76,250

 

26,036

 

 

26,036

 

50,214

July 1, 2018

 

73,750

 

20,423

 

 

20,423

 

53,327

July 1, 2019

 

75,026

 

12,261

 

 

12,261

 

62,765

Totals

 

225,026

 

58,720

 

 

58,720

 

166,306

Three Months Ended March 31, 2019 (e):

Total Number of

Return on

Stockholder

Shares

Date of Award

 

Underlying Shares (b)

Capital Metric

Return Metric

Total

Excluded (d)

September 26, 2017

 

76,250

 

33,611

 

38,125

 

71,736

 

4,514

July 1, 2018

 

76,250

 

31,344

 

38,125

 

69,469

 

6,781

Totals

 

152,500

 

64,955

 

76,250

 

141,205

 

11,295

(a)

Reflects the number of shares underlying RSUs that would be issued assuming the measurement date used to determine whether the applicable conditions are satisfied is March 31, 2020.

(b)

The RSUs awarded in 2017, 2018 and 2019 vest, subject to satisfaction of the applicable market and/or performance conditions, on June 30, 2020, 2021 and 2022, respectively (see Note 13).

(c)

As of March 31, 2020, 2,500 shares of the 2018 award and 2,750 shares of the 2019 award were forfeited.

15

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017March 31, 2020 (Continued)

Note 3 — 12 – Earnings Per Common Share (Continued)

(d)

Excluded as the applicable conditions had not been met for these shares at the respective measurement dates.

(e)

Reflects the number of shares underlying RSUs that would be issued assuming the measurement date used to determine whether the applicable conditions are satisfied is March 31, 2019.

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
September 30,

 

Nine Months Ended
September 30,

 

 

 

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
September 30,

 

Nine Months Ended
September 30,

 

 

2017

 

2016

 

2017

 

2016

 

Three Months Ended

March 31,

    

2020

    

2019

Numerator for basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

  

 

  

Net income

 

$

7,128

 

$

4,323

 

$

20,007

 

$

20,067

 

$

7,831

$

4,011

Less net income attributable to non-controlling interests

 

(23

)

(24

)

(65

)

(40

)

 

(5)

 

(40)

Less earnings allocated to unvested restricted stock (a)

 

(263

)

(248

)

(796

)

(744

)

 

(316)

 

(311)

Net income available for common stockholders, basic and diluted

 

$

6,842

 

$

4,051

 

$

19,146

 

$

19,283

 

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share:
Weighted average common shares

 

18,000

 

16,845

 

17,859

 

16,605

 

Effect of diluted securities:

 

 

 

 

 

 

 

 

 

Net income available for common stockholders: basic and diluted

$

7,510

$

3,660

Denominator for basic earnings per share:

 

  

 

  

Weighted average number of common shares

 

19,361

 

18,894

Effect of dilutive securities:

 

  

 

  

RSUs

 

79

 

117

 

102

 

117

 

 

13

 

99

Denominator for diluted earnings per share:
Weighted average shares

 

18,079

 

16,962

 

17,961

 

16,722

 

 

 

 

 

 

 

 

 

 

Denominator for diluted earnings per share:

 

  

 

  

Weighted average number of shares

 

19,374

 

18,993

Earnings per common share, basic

 

$

.38

 

$

.24

 

$

1.07

 

$

1.16

 

$

.39

$

.19

Earnings per common share, diluted

 

$

.38

 

$

.24

 

$

1.07

 

$

1.15

 

$

.39

$

.19

 

 

 

 

 

 

 

 

 

Net income attributable to One Liberty Properties, Inc. common stockholders, net of non-controlling interests

 

$

7,105

 

$

4,299

 

$

19,942

 

$

20,027

 


a)Represents an allocation of distributed earnings to unvested restricted stock that, as participating securities, are entitled to receive dividends.

(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)

September 30, 2017 (Continued)

Note 4 — Real Estate Acquisitions

In January 2017, the Company adopted ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which requires an entity to evaluate whether substantially all of the fair value of the gross assets acquired is concentrated 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.  The Company analyzed the real estate acquisitions made during the nine months ended September 30, 2017 and determined the gross assets acquired are concentrated in a single identifiable asset.  Therefore, the transactions do not meet the definition of a business and are accounted for as asset acquisitions.  In accordance with this guidance, direct transaction costs associated with these asset acquisitions have been capitalized to real estate assets and depreciated over the 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
Purchase
Price

 

Terms of Payment

 

Third Party
Real Estate
Acquisition
Costs (a)

 

Forbo industrial facility,

 

 

 

 

 

Cash and $5,190

 

 

 

Huntersville, North Carolina

 

May 25, 2017

 

$

8,700

 

mortgage (b)

 

$

65

 

Saddle Creek Logistics industrial facility,
Pittston, Pennsylvania

 

June 9, 2017

 

11,750

 

All cash (c)

 

199

 

Corporate Woods industrial facility,
Ankeny, Iowa

 

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 nine months ended September 30, 2017 (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,
Pittston, Pennsylvania

 

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

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017 (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 Properties

The following chart details the Company’s sales of real estate during the nine months ended September  30, 2017 and 2016 (amounts in thousands):

Description of Property

 

Date Sold

 

Gross
Sales Price

 

Gain on Sale of
Real Estate, Net

 

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 14 for information on the payoff of the mortgage on this property and 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)

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 and $2,758,000 for the three and nine months ended September 30, 2017, respectively, and $663,000 and $1,525,000 for the three and nine months ended September 30, 2016, respectively. Included in these amounts, for the three and nine months ended September 30, 2016, is rental income for a similarly structured transaction for a property located in Sandy Springs, Georgia, amounting to $0 and $308,000, respectively, which the Company sold in June 2016 (see Note 5).

The following chart details the VIEs through the Company’s ground leases and the aggregate carrying amount and maximum exposure to loss as of September 30, 2017 (dollars in thousands):

Description of Property(a)

 

Date Acquired

 

Land
Contract
Purchase
Price

 

# Units in
Apartment
Complex

 

Owner/
Operator
Mortgage
from
Third
Party(b)

 

Type of
Exposure

 

Carrying
Amount
and
Maximum
Exposure to
Loss

 

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

 


(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, no 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 and Consolidated Joint Ventures

(Continued)

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 and $643,000 at September 30, 2017 and December 31, 2016, respectively, and is included in Restricted cash on the consolidated balance sheets.

Variable Interest Entity — Consolidated Joint Ventures

With respect to the six consolidated joint ventures in which the Company holds between an 85% 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 six 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,
2017

 

December 31,
2016

 

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)

Note 6 — Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures

(Continued)

At September 30, 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 investment of approximately $9,469,000. The Company’s equity investment in its two other consolidated joint ventures is approximately $7,378,000.

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.

Note 7 — Investment in Unconsolidated Joint Ventures

At September 30, 2017 and December 31, 2016, 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 and $10,833,000, respectively.  The Company recorded equity in earnings of $212,000 and $663,000 for the three and nine months ended September 30, 2017, respectively, and $228,000 and $794,000  for the three and nine months ended September 30, 2016, respectively.

At September 30, 2017, 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.

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017 (Continued)

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 September 30, 2017 and December 31, 2016, 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 Company recorded bad debt expense of  $310,000 during the nine months ended September 30, 2017.  Such bad debt expense related to rental income and tenant reimbursements due from tenants at four properties that filed for Chapter 11 bankruptcy protection.  The Company sold one of 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, 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.

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017 (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,
2017

 

December 31,
2016

 

Mortgages payable, gross

 

$

401,053

 

$

399,192

 

Unamortized deferred financing costs

 

(3,960

)

(4,294

)

Mortgages payable, net

 

$

397,093

 

$

394,898

 

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 September 30, 2017 and 2016, 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% and 2.20% for the nine months ended September 30, 2017 and 2016, respectively.  The Company was in compliance with all covenants at September 30, 2017.

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,
2017

 

December 31,
2016

 

Line of credit, gross

 

$

6,400

 

$

10,000

 

Unamortized deferred financing costs

 

(702

)

(936

)

Line of credit, net

 

$

5,698

 

$

9,064

 

At November 3, 2017, there was an outstanding balance of $13,400,000 (before unamortized deferred financing costs) under the facility.

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017 (Continued)

Note 10 — Related Party Transactions

13 – Stock Based Compensation and Services Agreement

Pursuant to the compensation and services agreement with Majestic Property Management Corp. (‘‘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 and 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  and $1,996,000 for the three and nine months ended September 30, 2017, respectively and $629,000 and $1,855,000 for the three and nine months ended September 30, 2016, respectively.  Included in these fees are $287,000 and $857,000 of property management costs for the three and nine months ended September 30, 2017, respectively, and $267,000 and $770,000 for the three and nine months ended September 30, 2016, 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 the three and nine months ended September 30, 2017, respectively, and $49,000 and $147,000 for the three and nine months ended September 30, 2016, 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 and $1,128,000 for the three and nine months ended September 30, 2017, respectively, and $399,000 and $1,125,000 for the three and nine months ended September 30, 2016, 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 nine months ended September 30, 2017 and 2016.

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017 (Continued)

Note 10 — Related Party Transactions (Continued)

Joint Venture Partners and Affiliates

The Company paid an aggregate of $30,000 and $112,000 for the three and nine months ended September 30, 2017, respectively, and $35,000 and $123,000 for the three and nine months ended September 30, 2016, respectively, to its 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 for the three and nine months ended September 30, 2017, respectively, and $55,000 and $127,000 for the three and nine months ended September 30, 2016, 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 and $66,000 for the three and nine months ended September 30, 2017, respectively, and $27,000 and $63,000 for the three and nine months ended September 30, 2016, respectively.

Other

For 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. 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 and $551,000 for the three and nine months ended September 30, 2017, respectively, and $169,000 and $371,000 for the three and nine months ended September 30, 2016, respectively. The $470,000 balance 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)

Note 11 — Common Stock Cash Dividend

On September 13, 2017, the Board of Directors declared a quarterly cash dividend of $.43 per share on the Company’s common stock, totaling $8,053,000. The quarterly dividend was paid on October 4, 2017 to stockholders of record on September 25, 2017.

Note 12 — Shares Issued through Equity Offering Program

During the three months ended September 30, 2017, the Company sold 103,196 shares for proceeds of $2,461,000, net of commissions of $25,000, and incurred offering costs of $43,000 for professional fees. During the nine months ended September 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.

Note 13 — Stock Based Compensation

The Company’s 20162019 Incentive Plan (‘‘(the ‘‘Plan’’), approved by the Company’s stockholders in June 2016,2019, 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 September 30, 2017, (i)March 31, 2020, an aggregate of 224,576 shares subject to awards in the form of restricted stock awards with respect to 140,100 shares had been issued, of which 100 shares were forfeited(149,550 shares) and 3,000 shares had vested, and (ii) as further described below, RSUs with respect to 76,250 shares had been issued and(75,026 shares) are outstanding.

outstanding under the Plan.

Under the Company’s 2016 and 2012 Incentive Plan,equity incentive plans (collectively, the “Prior Plans”), as of September 30, 2017, 500,700March 31, 2020, an aggregate of 702,125 shares had been issued, of which 3,350 shares were forfeitedrestricted stock (552,125 shares) and 21,450 shares hadRSUs (150,000 shares) are outstanding and have not yet vested. No additional awards may be granted under this plan.

the Prior Plans.

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.

16

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017March 31, 2020 (Continued)

Note 13 Stock Based Compensation (Continued)

During the quarter ended September 30,In 2019, 2018 and 2017, the Company granted RSUs exchangeable for up to 77,776, 76,250 and 76,250 shares, respectively, of common stock upon satisfaction, through June 30, 2022, June 30, 2021 and June 30, 2020, 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 computingvalue, which is recognized ratably over 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.service period. For the ROC awards,Awards, the fair value is based on the market value on the date of grant and the performance assumptions are re-evaluated quarterly. Expense isThe Company does not recognizedrecognize expense on the RSUsROC Awards which the Companyit does not expect to vest as a resultvest. During 2019, RSUs exchangeable in 2021 and 2022 for an aggregate of service conditions or the Company’s performance expectations.5,250 shares were forfeited.

The total amount recorded as deferred compensation is $919,000,As of March 31, 2020, based on performance and market assumptions, the fair value of the RSUs granted in 2019, 2018 and 2017 is $729,000, $690,000 and $807,000, respectively. Recognition of such deferred compensation expense will be charged to General and administrative expense.  Noneexpense over the respective three year performance cycle. NaN of these RSUs were forfeited or vested during the three months ended September 30, 2017.March 31, 2020.

In 2010, RSUs exchangeable for up to 200,000 shares17

Table 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, 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.Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017March 31, 2020 (Continued)

Note 13 Stock Based Compensation (Continued)

The following is a summary of the activity of the equity incentive plans:

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

Restricted stock:

 

 

 

 

 

 

 

 

 

Number of shares

 

 

 

140,100

 

139,225

 

Average per share grant price

 

 

 

$

24.75

 

$

21.74

 

Deferred compensation to be recognized over
vesting period

 

 

 

$

3,467,000

 

$

3,027,000

 

 

 

 

 

 

 

 

 

 

 

Number of non-vested shares:

 

 

 

 

 

 

 

 

 

Non-vested beginning of period

 

612,900

 

605,000

 

591,750

 

538,755

 

Grants

 

 

 

140,100

 

139,225

 

Vested during period

 

 

 

(118,450

)

(72,730

)

Forfeitures

 

 

(250

)

(500

)

(500

)

Non-vested end of period

 

612,900

 

604,750

 

612,900

 

604,750

 

 

 

 

 

 

 

 

 

 

 

RSU grants:

 

 

 

 

 

 

 

 

 

Number of shares

 

76,250

 

 

76,250

 

 

Average per share grant price

 

$

24.03

 

 

$

24.03

 

 

 

 

 

 

 

 

 

 

 

 

Number of non-vested shares:

 

 

 

 

 

 

 

 

 

Non-vested beginning of period

 

 

200,000

 

200,000

 

200,000

 

Grants

 

76,250

 

 

76,250

 

 

Vested during period

 

 

 

(113,584

)

 

Forfeitures

 

 

 

(86,416

)

 

Non-vested end of period

 

76,250

 

200,000

 

76,250

 

200,000

 

 

 

 

 

 

 

 

 

 

 

Restricted stock and RSU grants:

 

 

 

 

 

 

 

 

 

Average per share value of non-vested shares
(based on grant price)

 

$

22.89

 

$

18.00

 

$

22.89

 

$

18.00

 

Value of stock vested during the period
(based on grant price)

 

$

 

$

 

$

3,008,000

 

$

1,177,000

 

Average per share value of shares forfeited during the period (based on grant price)

 

$

 

$

21.05

 

$

8.37

 

$

21.05

 

 

 

 

 

 

 

 

 

 

 

The total charge to operations:
Outstanding restricted stock grants

 

$

684,000

 

$

639,000

 

$

2,255,000

 

$

1,930,000

 

Outstanding RSUs

 

 

131,000

 

86,000

 

246,000

 

Total charge to operations

 

$

684,000

 

$

770,000

 

$

2,341,000

 

$

2,176,000

 

Three Months Ended

March 31, 

    

2020

    

2019

Restricted stock grants:

Number of shares

149,550

150,050

Average per share grant price

$

28.10

$

25.70

Deferred compensation to be recognized over vesting period

$

4,202,000

$

3,856,000

Number of non-vested shares:

Non-vested beginning of period

674,250

651,250

Grants

149,550

150,050

Vested during period

(122,125)

(112,150)

Forfeitures

Non-vested end of period

701,675

689,150

RSU grants:

Number of underlying shares

Average per share grant price

Deferred compensation to be recognized over vesting period

Number of non-vested shares:

Non-vested beginning of period

225,026

152,500

Grants

Vested during period

Forfeitures

Non-vested end of period

225,026

152,500

One Liberty Properties, Inc. and Subsidiaries

Restricted stock and RSU grants:

Weighted average per share value of non-vested shares (based on grant price)

$

25.52

$

24.60

Value of stock vested during the period (based on grant price)

$

3,004,000

$

2,304,000

Weighted average per share value of shares forfeited during the period (based on grant price)

$

$

The total charge to operations:

Outstanding restricted stock grants

$

875,000

$

843,000

Outstanding RSUs

101,000

111,000

Total charge to operations

$

976,000

$

954,000

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017 (Continued)

Note 13 — Stock Based Compensation (Continued)

As of September 30, 2017,March 31, 2020, total compensation costs of $7,805,000$10,468,000 and $907,000 related 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 remaining vesting period is 2.42.9 years for the restricted stock and 2.81.2 years for the RSUs.

18

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 14 Fair Value Measurements

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The Company adopted this guidance on January 1, 2020 and its adoption did not have any impact on the Company’s previously reported consolidated financial statements.

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 September 30, 2017,March 31, 2020, the $414,746,000$460,895,000 estimated fair value of the Company’s mortgages payable is greater than their $401,053,000$451,757,000 carrying value (before unamortized deferred financing costs) by approximately $13,693,000$9,138,000 assuming a blended market interest rate of 3.69%3.88% based on the 8.97.9 year weighted average remaining term to maturity of the mortgages.

At December 31, 2016,2019, the $413,916,000$454,039,000 estimated fair value of the Company’s mortgages payable is greater than their $399,192,000$440,278,000 carrying value (before unamortized deferred financing costs) by approximately $14,724,000$13,761,000 assuming a blended market interest rate of 3.74%3.72% based on the 9.38.1 year weighted average remaining term to maturity of the mortgages.

At September 30, 2017March 31, 2020 and December 31, 2016,2019, the carrying amount of the Company’s line of credit (before unamortized deferred financing costs) of $6,400,000$30,850,000 and $10,000,000,$11,450,000, 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)

September 30, 2017 (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 valueAs of March 31, 2020, the Company’s derivative financial instruments, using Level 2 inputs, was determinedCompany had in effect 24 interest rate derivatives, all of which were interest rate swaps, related to be the following (amounts in thousands) :

 

 

As of

 

Carrying and
Fair Value

 

Financial assets:

 

 

 

 

 

Interest rate swaps

 

September 30, 2017

 

$

1,040

 

 

 

December 31, 2016

 

1,257

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

Interest rate swaps

 

September 30, 2017

 

$

2,310

 

 

 

December 31, 2016

 

2,695

 

The Company does not own any financial instruments that are measured on a recurring basis24 outstanding mortgage loans with an aggregate $95,422,000 notional amount maturing between 2021 and that are classified as Level 1 or 3.

2028 (weighted average remaining term to maturity of 5.0 years). The Company’s objective in using interest rate swaps is to add stability to interest expense. These 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 5.16% and a weighted average interest rate of 3.93% at March 31, 2020). The Company does not use derivatives for trading or speculative purposes.

19

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 14 – Fair Value Measurements (Continued)

The fair value of the Company’s derivative financial instruments, was determined to be the following (amounts in thousands):

Carrying and

Balance Sheet

Interest rate swaps

    

As of

    

Fair Value

Classification

Financial assets

March 31, 2020

$

Other assets

December 31, 2019

87

Financial liabilities

March 31, 2020

$

6,447

Other liabilities

December 31, 2019

1,715

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 September 30, 2017,March 31, 2020, 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 September 30, 2017, the The Company had entered into 29 interest rate derivatives, all of which were interest rate swaps, related to 29 outstanding mortgage loans with an aggregate $135,251,000 notional amount and mature between 2018 and 2028 (weighted average remaining term to maturity of 7.3 years).  Such interest rate swaps, all of which were designateddoes not own any financial instruments that are classified 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 30, 2017 (Continued)

Note 14 — Fair Value Measurements (Continued)

rate of 4.12% at September 30, 2017).  The fair value of the Company’s derivatives in asset and liability positions are reflected as other assetsLevel 1 or other liabilities on the consolidated balance sheets.  During the nine months ended September 30, 2017, the Company discontinued hedge accounting on one of its interest rate swaps (see discussion following the table below).

Three of the Company’s unconsolidated joint ventures, in which wholly-owned subsidiaries of the Company are 50% partners, had two interest rate derivatives outstanding at September 30, 2017 with an aggregate $10,556,000 notional amount.  These interest rate swaps, which were designated as cash flow hedges, have interest rates of 3.49% and 5.81% and mature in 2022 and 2018, respectively.

3.

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
September 30,

 

Nine Months Ended
September 30,

 

 

 

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

March 31, 

    

2020

    

2019

Amount of loss recognized on derivatives in other comprehensive (loss) income

$

(4,928)

$

(1,485)

Amount of reclassification from Accumulated other comprehensive (loss) income into Interest expense

(110)

92

On July 14, 2017, in connection with the sale of a property tenanted by Kohl’s and located  in Kansas City, Missouri, the Company paid off the mortgage and terminated the related interest rate swap.  In June 2017, the Company discontinued hedge accounting on this interest rate swap as the hedged forecasted transaction became probable not to occur.  As a result, the Company accelerated the reclassification of $118,000NaN amounts were reclassified from accumulatedAccumulated other comprehensive loss to interest expenseinto Interest Expense as a result of forecasted transactions being no longer probable of occurring for the ninethree months ended September 30, 2017.  NoMarch 31, 2020 and 2019. NaN 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 months ended September 30, 2017March 31, 2020 and the three and nine months ended September 30, 2016.

2019.

During the twelve months ending September 30, 2018,March 31, 2021, the Company estimates an additional $988,000$1,607,000 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 loss 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 September 30, 2017March 31, 2020 provide that if the wholly-owned subsidiary of the Company which is a party to thesuch 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 agreement to which the Company is a party and if there are swap breakage losses on account of the derivative being terminated early, thendefaults, 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 withany, resulting from the early payofftermination of the related mortgages. As a resultderivative.

20

Table of these hedged forecasted transactions being terminated, the Company accelerated the reclassification of $178,000 in accumulated other comprehensive lossContents

One Liberty Properties, Inc. and Subsidiaries

Notes to earnings which are included in Prepayment costs on debt on the consolidated statement of income.Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 14 – Fair Value Measurements (Continued)

As of September 30, 2017,March 31, 2020 and December 31, 2019, the fair value of the derivatives in a liability position, including accrued interest of $71,000,$48,000 and $27,000, respectively, but excluding any adjustments for nonperformancenon-performance risk, was approximately $2,516,000.$6,795,000 and $1,832,000, respectively. In the event the Company breaches any ofhad breached 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.$6,795,000 and $1,832,000 as of March 31, 2020 and December 31, 2019, respectively. This termination liability value, net of $135,000 adjustments for nonperformancenon-performance risk or $2,381,000,of $300,000 and $90,000, is included in Accrued expenses and other liabilities on the consolidated balance sheet at September 30, 2017.March 31, 2020 and December 31, 2019, 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 has been spent through September 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,March 2020, the FASB issued ASU No. 2017-05,2020-04, Other Income — GainsReference Rate Reform (Topic 848), which contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and Losses fromother contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the Derecognitionthree months ended March 31, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of Nonfinancial Assets (Subtopic 610-20): Clarifyingeffectiveness for future LIBOR-indexed cash flows to assume that the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, index upon which clarifiesfuture hedged transactions will be based matches the scope and applicationindex on the sale or transfercorresponding derivatives. Application of nonfinancial assets and in substance nonfinancial assets to noncustomers, including partial sales. The effective datethese expedients preserves the presentation of the standard will be fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted.derivatives consistent with past presentation. The Company is currently evaluatingmay apply other elections as applicable as additional changes in the market occur. The Company continues to evaluate the new guidance, to determine if, and to the extent, it will impact if any, it may have on itsthe Company’s consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the Emerging Issues Task Force), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, 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 shown on the statement of cash flows. 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. The Company is currently evaluating the new guidance to determine the impact, if any, it may have on its consolidated financial statements.

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 Company adopted this guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted after December 2018. The Company is currently evaluatingon January 1, 2020 using the new guidance to determine the impact it may have on its 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. The effective date of the standard 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 this new standard. The Company anticipates adopting this guidance January 1, 2019method 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 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. The new model will require 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 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 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 2014-09, ASU 2015-14 and ASU 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. Earlyits adoption is permitted butdid not before annual periods beginning after December 15, 2016. The Company anticipates adopting the New Revenue Recognition Standards on January 1, 2018, and applying the cumulative-effect adoption method. Since the Company’s revenue is primarily related to leasing activities, management does not anticipate that the adoption of the New Revenue Recognition Standards will have a materialany impact on the consolidated financial statements.Company’s previously reported income from operations, net income or accumulated undistributed net income for the periods presented.

Note 17 — 16 – 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.

COVID-19 Pandemic

Subsequent to March 31, 2020, the United States continues to be severely impacted by the COVID‐19 pandemic and by the economic effects of government responses, such as “stay‐at‐home” orders and various restrictions on certain business activities, which have materially disrupted the economy. The Company has received numerous rent relief requests from tenants at its properties, as a result of the COVID‐19 pandemic and the governmental response thereto, and is evaluating each tenant rent relief request on an individual basis. During the three months ended March 31, 2020, the Company did not sustain any material adverse economic effect due to the COVID‐19 pandemic; however, it is unable to predict the impact that the pandemic will have on its financial condition, results of operations and cash flows due to numerous uncertainties.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q, containstogether with other statements and information publicly disseminated by us, contain 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 statementsYou should not be reliedrely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performance or achievements. Investors are encouraged to review the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2016 under the caption “Item 1A. Risk Factors” for a discussion of certain factorsFactors which may cause actual results to differ materially from current expectations include, but are not limited to:

the financial condition of our tenants and their performance of lease obligations;
general economic and business conditions, including those currently affecting our nation’s economy and real estate markets;
the availability of and costs associated with sources of liquidity;
general and local real estate conditions, including any changes in the value of our real estate;
compliance with credit facility covenants;
increased competition for leasing of vacant space due to current economic conditions;
changes in governmental laws and regulations relating to real estate and related investments;
the level and volatility of interest rates;
competition in our industry;
limitations on our ability to exercise legal remedies due to court closures and/or moratoriums on the exercise of certain type of remedies or activities;
the challenges presented by the COVID-19 pandemic; and
the other risks described under Item 1A. Risk Factors in this report and in our Annual Report on Form 10-K.

Any or all of our forward-looking statements in this report and in any other public statements we make may turn out to be incorrect. Actual results may differ from our forward-looking statements because of inaccurate assumptions we might make or because of the occurrence of known or unknown risks and uncertainties. Many factors mentioned in the discussion below will be important in determining future results. Consequently, no forward-looking statement can be guaranteed and you are cautioned not to place undue reliance on any forward-lookingthese forward- looking statements.

Except as may be required under applicable law, we undertake no obligation to publicly update our forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make in our reports that are filed with or furnished to the SEC.

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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 September 30, 2017,March 31, 2020, we own 119126 properties (including sixfour properties owned by consolidated joint ventures and fivethree properties owned by unconsolidated joint ventures) located in 31 states.  Based on square footage, our occupancy rate at September 30, 2017March 31, 2020 is approximately 98.0%97.0%.

WeIn addition to the challenges presented by the COVID-19 pandemic, 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 ableunable to pay their rentrental and comply with other obligations under their leases and (iv) we may not be ableunable to renew or relet, on acceptable terms, leases that are expiring.

expiring or otherwise terminating. See “- Challenges and Uncertainties Resulting from the COVID-19 Pandemic” and “Item 1A. Risk Factors”.

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)Over the past several years, we 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 arebeen addressing our exposure to the retail industry by seeking to acquireacquiring industrial properties, including industrial properties that we believe capitalize on e-commerce activities, such as e-commerce distribution and warehousewarehousing facilities, and by being especially selective in acquiringdisposing of retail properties.properties which we did not think advantageous to hold for the long-term. Approximately 41.0%51.5% of our contractual rental incomebase rent (as described below) is derived from retail tenants (including 9.1%industrial properties and 32.7%, 3.7%4.7%, 4.4%, 3.2%, and 3.6%3.5% from tenants engaged in retail, furniture, supermarkets and office supply activities, respectively) and 35.4%, 5.0%, 4.6%, 3.4% and 10.6% from industrial (e.g., distribution and warehouse facilities), restaurant, health and fitness, theaters and other properties, respectively.

Our 2020 contractual rental incomebase rent is approximately $67.3$73.0 million and represents, after giving effect to any abatements, concessions or adjustments, the base rent payable to us during the twelve monthsyear ending September 30, 2018December 31, 2020 under leases in effect at September 30, 2017.March 31, 2020. Contractual rental incomebase rent excludes: (i) approximately $437,000$728,000 of straight-line rent and $1.0 million$739,000 of amortization of intangibles;intangibles and (ii) our share of the rental income payable to our unconsolidated joint ventures, which is approximately $2.8$1.7 million. Contractual base rent does not give effect to any rent deferrals that have been, and others that may be, implemented in respect to the COVID-19 pandemic.

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The following table sets forth scheduled lease expirations of leases for our properties as of September 30, 2017March 31, 2020 for the periods indicated below:

Lease Expiration (1)
12 Months Ending 
September 30,

 

Number of
Expiring 
Leases

 

Approximate Square
Footage Subject to
Expiring Leases (2)

 

Contractual
Rental Income Under
Expiring Leases

 

Percent of 
Contractual Rental 
Income
Represented by
Expiring Leases

 

2018

 

12

 

202,406

 

$

1,320,816

 

2.0

%

2019

 

17

 

429,557

 

3,716,777

 

5.5

 

2020

 

10

 

114,334

 

1,671,354

 

2.5

 

2021

 

23

 

464,285

 

3,733,784

 

5.6

 

2022

 

24

 

2,084,708

 

13,731,680

 

20.4

 

2023

 

12

 

554,501

 

3,418,453

 

5.1

 

2024

 

9

 

505,339

 

4,399,246

 

6.5

 

2025

 

8

 

438,032

 

4,624,095

 

6.9

 

2026

 

9

 

288,989

 

4,504,141

 

6.7

 

2027

 

11

 

885,096

 

7,409,097

 

11.0

 

2028 and thereafter

 

26

 

3,057,014

 

18,740,257

(3)

27.8

 

 

 

161

 

9,024,261

 

$

67,269,700

 

100.0

%

    

    

    

    

Percentage of

Number

Approximate

Contractual

Lease Expiration (1)

of

Square

Contractual

Base Rent

Year Ending

Expiring

Footage Subject to

Base Rent Under

Represented by

December 31,

Leases

Expiring Leases (2)

Expiring Leases

Expiring Leases

2020

 

4

 

8,792

���

106,245

 

.1

2021

 

14

 

337,200

 

2,485,281

 

3.4

2022

 

24

 

2,103,373

 

14,251,247

 

19.5

2023

 

21

 

1,190,358

 

8,217,645

 

11.3

2024

 

20

 

948,891

 

5,612,934

 

7.7

2025

 

13

 

437,606

 

5,783,689

 

7.9

2026

 

12

 

621,429

 

5,698,764

 

7.8

2027

 

10

 

1,163,729

 

6,948,811

 

9.5

2028

 

10

 

592,983

 

3,905,224

 

5.3

2029

 

6

 

908,121

 

4,538,925

 

6.2

2030 and thereafter

 

25

 

1,885,062

 

15,494,433

 

21.3

 

159

 

10,197,544

$

73,043,198

 

100.0


(1)Lease expirations assume tenants do not exercise existing renewal or termination options.
(2)Excludes an aggregate of 186,949 square feet of vacant space.

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

(2)         Excludes an aggregate of 183,676 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 September 30, 2017March 31, 2020

During the three months ended March 31, 2020, we acquired two industrial properties for an aggregate purchase price of $28.3 million, including $254,000 of transaction costs that were capitalized. These acquisitions contributed $204,000 of rental income, net, $128,000 of depreciation and amortization expense and $30,000 of mortgage interest expense during the three months ended March 31, 2020. We estimate that commencing April 1, 2020, the aggregate quarterly rental income (excluding variable lease revenues), depreciation and amortization expense, and mortgage interest expense from these properties will be $487,000, $272,000 and $163,000, respectively.

On July 14, 2017,February 11, 2020, we sold a retail property tenanted by Kohl’s, located in Kansas City, Missouri,Onalaska, Wisconsin for approximately $7.1 million, net of closing costs, paid off the $3.3 million mortgage and recognized a sales price$4.3 million gain, before giving effect to a $290,000 mortgage prepayment expense. In the three months ended March 31, 2020 and 2019, this property contributed $55,000 and $161,000 of $10.1 million,rental income, net, $10,000 and $19,000 of depreciation and amortization expense and $17,000 and $38,000 of mortgage interest expense, respectively.

On March 2, 2020, an unconsolidated joint venture sold its property located in Savannah, Georgia, for $819,000, net of closing costs. Our 50% share of the gain from this sale, which was $2.2 million.  In connectionrecognized in the three months ended March 31, 2020, was $121,000.

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Table of Contents

Challenges and Uncertainties Resulting from the COVID-19 Pandemic

The COVID-19 pandemic and the various governmental responses thereto are having a significant impact on the global economy, the U.S. economy, the economies of the local markets in which our properties are located, and the broader financial markets. Most industries have been negatively impacted, directly or indirectly, among other things, by preventative measures taken by governmental authorities to address the public health crisis such as mandatory business closures, quarantines, restrictions on travel and "shelter-in-place" or "stay-at-home" orders. These containment measures are affecting our tenants to varying degrees depending on, among other things, the location of the subject property (i.e., whether it is located in an area that is or has been the subject of quarantine orders) and the nature of the tenant and use of the property (i.e., industrial or non-industrial), with retail (both general and specialized), health and fitness, entertainment and restaurant properties being significantly adversely affected. When and where these governmental restrictions will be relaxed or lifted, when and whether businesses of tenants that have closed, either voluntarily or by governmental mandate, will reopen, the sale of this property,extent to which clients and customers will re-engage with such tenants, and whether such re-engagement will be at levels that will allow such tenants to return to profitability, are unknown. While we repaiddid not sustain any material adverse economic effect from the $3.9 million mortgage balancepandemic during the three months ended March 31, 2020, we have received numerous rent relief requests, and dueare evaluating each request on an individual basis. Not all requests will be accommodated, and generally, any accommodation will be subject to the early terminationapproval of the interest rate swap derivative, incurred interest expense of $118,000 inmortgagee, if any, on the nine months ended September 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 propertyat which such tenant is located. The following is intended to a supermarket operator pursuant to a 20 year net lease. Beginning October 1, 2017,provide certain information regarding 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 termimpact of the lease is ten yearspandemic and governmental responses on our annual rental income frombusiness and management's efforts to respond to those impacts. Unless otherwise specified, the statistical and other information regarding our portfolio and tenants are estimates based on information available to us as of May 4, 2020. As a result of the rapid development, fluidity and uncertainty surrounding this propertysituation, we expect that such statistical and other information will change, perhaps significantly, going forward and may not be approximately $627,000.indicative of the actual impact of the pandemic on our business, operations, cash flows and financial condition for the second quarter of 2020 and the future.

As of May 4, 2020,

we have received $4.4 million, or 71.9% of the cash base rents payable for April (the “April Base Rent”);
we have received 86.8% of the April Base Rent payable by industrial tenants and 55.9% of the April Base Rent payable by all other tenants;
excluding tenants with whom we have or are actively negotiating rent deferral agreements as described below, the tenants (the “Non-Paying Tenants”) that have not paid all or a portion, or advised that they cannot pay all or a portion, of April Base Rent account for $9.1 million or 12.4% of 2020 contractual base rent. At March 31, 2020, the mortgage debt on such properties, excluding multi-tenant properties at which the Non-Paying Tenants represent less than 25% of the 2020 contractual base rent payable at such property, was approximately $18.1 million;
we have agreed to defer (or are negotiating agreements to defer) the payment of an aggregate of approximately $3.0 million, or 16.5%, of the cash base rent otherwise payable during the quarter ending June 30, 2020. Such deferrals generally (i) are designed to ensure that, at a minimum, rent payments are sufficient to cover our debt service obligations on such properties and (ii) provide that the payment of all or a portion of the base rent (but not tenant reimbursement obligations, which are not deferred) otherwise payable during the quarter ending June 30, 2020 will be deferred for varying periods and at the conclusion of the deferral period will be payable over several months. Such deferrals generally are not expected to affect our net income, FFO or AFFO, but in the short-term they will result in a reduction of cash available for operations and dividends.

Accordingly, we anticipate that over the next several months, the pandemic and the responses thereto will have a negative impact on our financial condition and cash flows. In the longer term, the COVID-19 pandemic, or any future pandemic, and such responses could present further challenges, due, among other things, to:

reduced economic activity that may severely impact our tenants' businesses, financial condition and liquidity and may cause certain of our tenants to be unable to meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations and/or terminate their leases early or not renew, any of which would result in a reduction of our revenues and cash flow without a commensurate reduction in our related expenses, and potentially result in an impairment in the value of our tangible and intangible assets;

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Table of Contents

difficulty in accessing the capital and lending markets (or a significant increase in the costs of doing so), which may affect our access to capital necessary to fund our operations;
a slowdown in our efforts to acquire or dispose of properties;
an acceleration of the transformation of the retail industry towards a greater emphasis on e-commerce and a reduced emphasis on traditional “bricks and mortar” retail, which could adversely affect our long-term prospects.

We have taken various measures to maintain the strength of our business and manage the impact of the pandemic on our operations and liquidity and capital resource position, including the following:

To enhance our liquidity position and maintain financial flexibility, in March 2020, we borrowed $10 million under our credit facility, which funds may be used for working capital purposes, and as of May 4, 2020 we had $13.8 million of cash and cash equivalents (including our credit facility’s required $3 million average deposit maintenance balance). See “ –Liquidity and Capital Resources.”
We are carefully monitoring and managing our mortgage maturities. We do not have any mortgage debt maturing in 2020, and $8.5 million of mortgage debt is scheduled to mature in 2021. We and our mortgage lenders are generally working to modify our debt service obligations at properties at which tenants have not paid all or a portion of April Base Rent or at which we have, or anticipate having, an agreement to deferrals of base rent. Through May 5, 2020, mortgage lenders have agreed to defer payment of an estimated $1.5 million of debt service, of which approximately 32% will be payable in 2021 and more than 65% is deferred until the maturity of such debt.
We are carefully monitoring compliance with the terms and conditions of our credit facility and are in continual contact with our lenders. While we currently believe we will continue to be in compliance with the facility’s financial covenants, if, among other things, tenants contributing certain levels of base rent terminate their leases, seek bankruptcy protection or obtain rent concessions, we may not continue to comply with the terms thereof. See “ – Liquidity and Capital Resources – Credit Facility.”
We are carefully monitoring our discretionary spending, particularly in light of the reduction in the base cash rent received from tenants due to the economic challenges resulting from the pandemic. Our largest recurring discretionary expenditure has been our quarterly dividend (which was $.45 per share of common stock, or in the approximate amount of $9 million, last quarter). Each quarter, our board of directors evaluates the timing and amount of our dividend based on its assessment of, among other things, our short and long- term cash and liquidity requirements, prospects, debt maturities, projections of our REIT taxable income, net income, funds from operations, adjusted funds from operations and the dividend policies of our peers. Based on the current economic environment and our cash position, there is uncertainty as to the amount and form of the dividend that we may declare with respect to the quarter ending June 30, 2020.
Our board of directors, in evaluating the factors described above in declaring a dividend, will also take into account recent guidance issued by the Internal Revenue Service allowing REITs, under specified conditions, to include in calculations determining compliance with REIT distribution requirements, the payment of up to 90% of a quarterly dividend in the form of shares of capital stock.

Results of Operations

RevenuesRental income, net

The following table compares revenuesRental income, net, for the periods indicated:

Three Months Ended

March 31,

Increase

%

(Dollars in thousands)

    

2020

    

2019

    

(Decrease)

    

Change

Rental income, net

$

21,239

$

21,155

$

84

 

0.4

 

 

Three Months Ended
September 30,

 

 

 

 

 

Nine Months Ended
September 30,

 

 

 

 

 

(Dollars in thousands)

 

2017

 

2016

 

Increase 
(Decrease)

 

%
Change

 

2017

 

2016

 

Increase 
(Decrease)

 

%
Change

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income, net

 

$

17,217

 

$

16,334

 

$

883

 

5.4

 

$

50,770

 

$

46,985

 

$

3,785

 

8.1

 

Tenant reimbursements

 

1,920

 

1,687

 

233

 

13.8

 

5,252

 

4,614

 

638

 

13.8

 

Total revenues

 

$

19,137

 

$

18,021

 

$

1,116

 

6.2

 

$

56,022

 

$

51,599

 

$

4,423

 

8.6

 

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The following table details the components of rental income, net, for the periods indicated:

Rental income, net.  The increases in

Three Months Ended

March 31,

Increase

%

(Dollars in thousands)

    

2020

    

2019

    

(Decrease)

    

Change

Acquisitions (a)

$

1,356

$

$

1,356

 

n/a

Dispositions (b)

55

1,165

(1,110)

(95.3)

Same store (c)

19,828

19,990

(162)

(0.8)

Rental income, net

$

21,239

$

21,155

$

84

0.4

(a)The 2020 column represents rental income from properties acquired since April 1, 2019;

there were no properties acquired during the three and nine months ended September 30, 2017 areMarch 31, 2019.

(b)The 2020 column represents rental income from a property sold during the three months ended March 31, 2020;

the 2019 column represents rental income from properties sold since January 1, 2019.

(c)Represents rental income from properties that were owned for the entirety of the periods presented.

Changes due primarily to $1.5acquisitions and dispositions

The three months ended March 31, 2020 reflect increases of (i) $1.2 million and $5.9 million, respectively, generated by eight properties acquired in 20172019, and 2016.  The increase(ii) $204,000 generated by two properties acquired in 2020. Offsetting these increases was a decrease of $1.1 million for the three months ended March 31, 2020, primarily due to the inclusion, in the nine months ended September 30, 2017 is also due to (i) $267,0002019 period, 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.

Offsetting the increases are decreases in the three and nine months ended September 30, 2017 of: (i) $64,000 and $1.1 million, respectively, representing the 2016 rental income from properties sold during 2016; (ii) $169,0002020 and $169,000, respectively, representing the 20162019.

Changes at same store properties

The decrease in same store rental income from properties sold during 2017; (iii) $175,000 and $595,000, respectively (including the $263,000 write-off 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.

Tenant reimbursements.  Real estate tax and operating expense reimbursements increased during the three and nine months ended September 30, 2017March 31, 2020 is primarily due primarily to (i) the inclusion in the three months ended March 31, 2019 of $142,000 of rent income from our Philadelphia, Pennsylvania property which is now vacant, and (ii) a net decrease of $157,000 of tenant reimbursements of approximately $270,000 and $811,000, respectively, from properties acquired in 2017 and 2016, offset by decreases of $35,000 and $186,000, respectively, related to two sold properties and two vacant properties. Tenant reimbursementswhich generally relate to real estate taxes and operating expenses incurred in the same period. These decreases were offset by a net increase in rent income of $137,000 from several properties.

Operating Expenses

The following table compares operating expenses for the periods indicated:

 

Three Months Ended
September 30,

 

 

 

 

 

Nine Months Ended
September 30,

 

 

 

 

 

Three Months Ended

March 31,

Increase

%

(Dollars in thousands)

 

2017

 

2016

 

Increase 
(Decrease)

 

%
Change

 

2017

 

2016

 

Increase 
(Decrease)

 

%
Change

 

    

2020

    

2019

    

(Decrease)

    

Change

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

  

 

  

 

  

Depreciation and amortization

 

$

5,115

 

$

4,663

 

$

452

 

9.7

 

$

15,858

 

$

13,246

 

$

2,612

 

19.7

 

$

5,674

$

5,347

$

327

 

6.1

General and administrative

 

2,701

 

2,681

 

20

 

.7

 

8,409

 

7,961

 

448

 

5.6

 

 

3,334

 

3,171

 

163

 

5.1

Real estate expenses

 

2,689

 

2,188

 

501

 

22.9

 

7,765

 

6,521

 

1,244

 

19.1

 

 

3,342

 

3,341

 

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

 

State taxes

 

82

 

79

 

3

 

3.8

Total operating expenses

 

10,825

 

9,814

 

1,011

 

10.3

 

32,817

 

28,767

 

4,050

 

14.1

 

$

12,432

$

11,938

$

494

 

4.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

8,312

 

$

8,207

 

$

105

 

1.3

 

$

23,205

 

$

22,832

 

$

373

 

1.6

 

Depreciation and amortization.  The increases for the three and nine months ended September 30, 2017 are due primarily to $591,000 and $2.0 million, respectively, of depreciation 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 2016 and 2017.

General and administrative.  The increase in the nine months ended September 30, 2017 was due primarily to increases of: (i) $166,000 in non-cash compensation expense related to the accelerated vesting of restricted stock; (ii) $144,000 in compensation expense primarily due to higher compensation levels; and (iii) $138,000 for other miscellaneous expenses, none of which was individually significant.

Real estate expenses.  The increases in the three and nine months ended September  30, 2017 are due primarily to increases of $252,000 and $843,000, respectively, from properties acquired in 2016 and 2017; substantially all these expenses are rebilled to tenants and are included in Tenant reimbursements. Also contributing to the increases in the three and nine months ended September 30, 2017 were $165,000 and $647,000, respectively, of expenses related to the vacant properties formerly tenanted by Quality Bakery and hhgregg. These increases were offset by decreases in the three and nine months ended September 30, 2017, of, among other things, $50,000 and $200,000, respectively, of expenses related to the vacant property formerly tenanted by Sports Authority, which was sold in May 2017.

Real estate acquisition costs.  The expense in the three 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, 2017March 31, 2020 is due primarily relates to state franchise tax resultingthe inclusion of $547,000 of such expense from the 2016 purchaseproperties acquired in 2020 and 2019, including $128,000 from properties acquired in 2020. This increase was offset by the inclusion, in the corresponding period in 2019 of a property located(i) $181,000 from the properties sold since January 1, 2019, and (ii) amortization of $84,000 of tenant origination costs at several properties that prior to March 31, 2020, were fully amortized 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.

with lease expirations.

General and administrative. The three months ended March 31, 2020 includes an increase of $148,000 in compensation expense payable to our full and part time personnel, primarily due to higher levels of compensation (including increased payments pursuant to our compensation and services agreement).

27

Table of Contents

Real estate expenses. The increase in the three months ended March 31, 2020 is due to a $218,000 increase from properties acquired since January 2019, offset by a decrease of $141,000 related to properties sold since January 1, 2019.

Gain on sale of real estate, net.

The gain in the three months ended March 31, 2020 was realized from the sale of our Onalaska, Wisconsin property. There were no sales during the three months ended March 31, 2019.

Other Income and Expenses

The following table compares our other income and expenses for the periods indicated:

 

Three Months Ended
September 30,

 

 

 

 

 

Nine Months Ended
September 30,

 

 

 

 

 

Three Months Ended

March 31,

Increase

%

(Dollars in thousands)

 

2017

 

2016

 

Increase 
(Decrease)

 

%
Change

 

2017

 

2016

 

Increase 
(Decrease)

 

%
Change

 

    

2020

    

2019

    

(Decrease)

    

Change

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated joint ventures

 

$

212

 

$

228

 

$

(16

)

(7.0

)

$

663

 

$

794

 

$

(131

)

(16.5

)

Equity in earnings (loss) of unconsolidated joint ventures

$

64

$

(116)

$

180

155.2

Equity in earnings from sale of unconsolidated joint venture property

121

121

n/a

Prepayment costs on debt

 

 

 

 

 

 

(577

)

577

 

(100.0

)

(290)

290

n/a

Other income

 

57

 

362

 

(305

)

(84.3

)

399

 

431

 

(32

)

(7.4

)

4

4

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expense

 

(4,459

)

(4,404

)

(55

)

1.2

 

(13,380

)

(12,593

)

(787

)

(6.2

)

(4,884)

(4,862)

22

0.5

Amortization and write-off of deferred financing costs

 

(263

)

(189

)

(74

)

39.2

 

(717

)

(644

)

(73

)

(11.3

)

(243)

(232)

11

4.7

Equity in earnings (loss) of unconsolidated joint ventures. The incomethree months ended March 31, 2019 included, with respect to a multi-tenant retail property in Manahawkin, New Jersey (the “Manahawkin Property”), write-offs of receivables of $116,000. There were no such write-offs in the ninethree months ended September 30, 2016 includes our 50% share, or $146,000,March 31, 2020.

Equity in earnings from sale of income obtained for permanent utility easements granted at two properties.unconsolidated joint venture property. The three months ended March 31, 2020 include a $121,000 gain from the sale of the Savannah, Georgia property. There was no such incomecorresponding gain during 2017.

the three months ended March 31, 2019.

Prepayment costs on debt.  These costs were This cost was incurred in connection with the property sales and the payoff, prior to the stated maturity,sale of the related mortgage debtOnalaska, Wisconsin property. There was no corresponding expense in 2016, primarily relating to the sales of several properties.

Other income. The ninethree months ended September 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.

March 31, 2019.

Interest expense.expense. The following table details the components of interest expense for the periods indicated:

 

 

Three Months Ended
September 30,

 

 

 

 

 

Nine Months Ended
September 30,

 

 

 

 

 

(Dollars in thousands)

 

2017

 

2016

 

Increase 
(Decrease)

 

%
Change

 

2017

 

2016

 

Increase 
(Decrease)

 

%
Change

 

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

March 31,

Increase

%

(Dollars in thousands)

    

2020

    

2019

    

(Decrease)

    

Change

Interest expense:

 

  

 

  

 

  

 

  

Credit line interest

$

240

$

289

$

(49)

 

(17.0)

Mortgage interest

 

4,644

 

4,573

 

71

 

1.6

Total

$

4,884

$

4,862

$

22

 

0.5

Credit line interest

TheSubstantially all of the decrease in the ninethree months ended September 30, 2017March 31, 2020 is due to a decrease of $11.1 million103 basis points (i.e., from 4.23% to 3.20%), in the weighted average balance outstanding under our line of credit, offset byinterest rate resulting from a 63 basis point increasedecrease in the average interest rate, as well as an increaseone month LIBOR rate.

28

Table of $67,000 in the unused facility fee resulting from the $25 million increase in our borrowing capacity under the facility.Contents

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

March 31,

Increase

%

(Dollars in thousands)

    

2020

    

2019

    

(Decrease)

    

Change

Average interest rate on mortgage debt

 

4.19

%  

4.26

%  

(.07)

%  

(1.6)

Average principal amount of mortgage debt

$

443,055

$

429,632

$

13,423

 

3.1

 

 

Three Months Ended
September 30,

 

 

 

 

 

Nine Months Ended
September 30,

 

 

 

 

 

(Dollars in thousands)

 

2017

 

2016

 

Increase 
(Decrease)

 

%
Change

 

2017

 

2016

 

Increase 
(Decrease)

 

%
Change

 

Average interest rate on mortgage debt

 

4.31

%

4.56

%

(.25

)%

(5.5

)%

4.31

%

4.65

%

(.34

)%

(7.3

)%

Average principal amount of mortgage debt

 

$

401,384

 

$

375,770

 

$

25,614

 

6.8

%

$

399,316

 

$

350,287

 

$

49,029

 

14.0

%

The increases in the three and nine months ended September 30, 2017increase in mortgage interest expense arefor the three months ended March 31, 2020 is due primarily to the increasesincrease in the average principal amount of mortgage debt outstanding, offset by decreases in the average interest rate thereon.outstanding. The increase in the average balance outstanding is substantiallyincreased 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$68.5 million of mortgage debt netobtained in financing properties acquired in late 2018 through 2020, offset by the pay-off of refinanced amounts,mortgages in connection with properties acquired prior to 2016.property sales. The increase in mortgage interest expense was mitigated by the decrease in the average interest rate is due to the financing (including financings effectuated in connection with acquisitions) or refinancing in 2016 and 2017 of $158.8 million of grosson outstanding mortgage debt (including $34.4 million of refinanced amounts) with an average interest rate of approximately 3.7%.  Mortgage interest expense also increased in the nine months ended September 30, 2017 by $118,000 due to the payoff of a mortgage and early termination of an interest rate swap in connection with the sale of the property tenanted by Kohl’s in July 2017.debt.

Gain on sale of real estate, net.

The following table compares gain on sale of real estate, net, for the periods indicated:

 

 

Three Months Ended
September 30,

 

 

 

 

 

Nine Months Ended
September 30,

 

 

 

 

 

(Dollars in thousands)

 

2017

 

2016

 

Increase 
(Decrease)

 

%
Change

 

2017

 

2016

 

Increase 
(Decrease)

 

%
Change

 

Gain on sale of real estate, net

 

$

3,269

 

$

119

 

$

3,150

 

2,647

 

$

9,837

 

$

9,824

 

$

13

 

.1

 

The gain in the three and nine months ended September 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, issuanceissuances of our equity securities and property sales. Our available liquidity at November 3, 2017,May 4, 2020, was $99.3$70.0 million, including $12.7$13.8 million of cash and cash equivalents (net of(including the credit facility’s required $3.0 million average deposit maintenance balance) and subject to borrowing base requirements, up to $86.6$56.2 million available under our revolving credit facility.

The facility is currently available for the acquisition of commercial real estate, repayment of mortgage debt, and up to $16.1 million for renovation expenses. In March 2020, we borrowed the entire $10 million available to us under the facility for operating expenses.

Liquidity and Financing

We expect to meet our (i) operating cash requirements (including debt service and dividends)service) principally from cash flow from operations and (ii) capital requirements, including an estimated $11.0 million of building expansion and improvements at several properties, 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 re-developing the Manahawkin Property - we estimate that our share of the capital expenditures required in connection with such re-development will range from $12 million to $15 million. We are evaluating various sources of funding for such expenditures including borrowings under our credit facility.

At September 30, 2017,March 31, 2020, excluding the mortgage indebtednessdebt of our unconsolidated joint ventures,venture, we had 7275 outstanding mortgages payable secured by 8992 properties in the aggregate principal amount of $401.1$451.8 million (before netting unamortized deferred financing costs)costs of $4.4 million). These mortgages represent first liens on individual real estate investments with an aggregate carrying value of $629.8$719.8 million, before accumulated depreciation of $81.4$109.0 million. After giving effect to interest rate swap agreements, the mortgage payments bear interest at fixed rates ranging from 3.02% to 7.81%5.87% (a 4.22%4.19% weighted average interest rate) and mature between 20172021 and 2042 (an 8.9(a 7.9 year weighted average remaining term to maturity).

The following table sets forth, as of September 30, 2017,March 31, 2020, information with respect to our mortgage debt that is payable from October 1, 2017during the nine months ending December 31, 2020 and for each of the subsequent twelve months through December 31, 20202023 (excluding ouran unconsolidated joint ventures)venture):

(Dollars in thousands)

    

2020

    

2021

    

2022

    

2023

    

Total

Amortization payments

$

10,393

$

14,860

$

14,916

$

13,893

$

54,062

Principal due at maturity

 

 

8,463

 

31,539

 

16,673

 

56,675

Total

$

10,393

$

23,323

$

46,455

$

30,566

$

110,737

(Dollars in thousands)

 

2017

 

2018

 

2019

 

2020

 

Total

 

Amortization payments

 

$

2,344

 

$

10,583

 

$

11,079

 

$

11,858

 

$

35,864

 

Principal due at maturity

 

4,435

 

10,260

 

3,485

 

 

18,180

 

Total

 

$

6,779

 

$

20,843

 

$

14,564

 

$

11,858

 

$

54,044

 

At September 30, 2017, ourMarch 31, 2020, an unconsolidated joint venturesventure had a first mortgagesmortgage on four propertiesits property with an outstanding balances aggregating $35.3balance of $23.0 million, bearing an interest rate at rates ranging from 3.49% to 5.81% (i.e., a 4.07% weighted average interest rate)4.0% and maturing between 2018 andin 2025.

29

Table of Contents

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 20172021 through 2020.2023. 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

SubjectOur credit facility provides that 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 capitalrenovation and operating expense purposes; provided, that if used for property improvementsrenovation and working capitaloperating expense purposes, the amount outstanding for such purposes will not exceed the lesser of $15$30.0 million and 15%30% of the borrowing base subject to a cap of (i) $20.0 million for renovation expenses and if used(ii) $10.0 million for working capital purposes, will not exceed $10 million.operating expense purposes. See “- Liquidity and Capital Resources. The facility matures December 31, 20192022 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 175200 basis points at September 30, 2017March 31, 2020 and 2016 and at September 30, 2017, the interest rate was 2.985%.2019. There is an unused facility fee of 0.25% per annum on the difference between the outstanding loan balance and $100$100.0 million. The credit facility requires the maintenance of $3$3.0 million in average deposit balances.

At March 31, 2020, the interest rate on the facility was 2.61% and as of May 1, 2020, the rate on the facility was 2.01%.

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 September 30, 2017,March 31, 2020, 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
September 30,

 

(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 ArrangementsArrangement

We are not a party to any off-balance sheet arrangements other than with respect to our propertiesa land parcel owned by us and located in Lakemoor and Wheaton, Illinois and Beachwood, Ohio. These properties are ground leasesThis parcel is improved by a multi-family propertiescomplex and we ground leased the parcel to the owner/operator of such complex. This ground lease generated $2.8 million$243,000 of rental income during the ninethree months ended September 30, 2017.March 31, 2020. At September 30, 2017,March 31, 2020, our maximum exposure to loss with respect to these propertiesthis property is $34.0$13.9 million, representing the carrying value of the land; such leasehold positions areposition is subordinate to an aggregate of $150.7$67.4 million of mortgage debt incurred by our tenants,tenant, the owner/operatorsoperator of the multi-family properties. These owner/operators are affiliated with one another.complex. 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.this arrangement.

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Table of Contents

Funds from Operations and Adjusted Funds from Operations

We compute funds from operations, or FFO, in accordance with the ‘‘White“White Paper on Funds From Operations’’Operations” issued by the National Association of Real Estate Investment Trusts (‘‘NAREIT’’(“NAREIT”) and NAREIT’s related guidance. FFO is defined in the White Paper as net income (computed(calculated in accordance with generally accepting accounting principles)GAAP), excluding gains (or losses) from sales of property, plus real estate depreciation and amortization (including amortizationrelated to real estate, gains and losses from the sale of deferred leasing costs), pluscertain real estate assets, gains and losses from change in control, impairment write-downs of certain real estate assets and investments in entities where the impairment is directly attributable to decreases in the value of depreciable real estate and after adjustments for unconsolidated partnerships and joint ventures.held by the entity. Adjustments for unconsolidated partnerships and joint ventures will beare calculated to reflect funds from operationsFFO 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 and restricted stock unit compensation expense, 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.

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Table of Contents

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
September 30,

 

Nine Months Ended
September 30,

 

 

 

2017

 

2016

 

2017

 

2016

 

GAAP net income attributable to One Liberty Properties, Inc.

 

$

7,105

 

$

4,299

 

$

19,942

 

$

20,027

 

Add: depreciation and amortization of properties

 

5,036

 

4,583

 

15,621

 

13,026

 

Add: our share of depreciation and amortization of unconsolidated joint ventures

 

215

 

223

 

656

 

670

 

Add: impairment loss

 

153

 

 

153

 

 

Add: amortization of deferred leasing costs

 

79

 

80

 

237

 

220

 

Add: Federal excise tax relating to gain on sale

 

 

 

 

6

 

Deduct: gain on sale of real estate

 

(3,269

)

(119

)

(9,837

)

(9,824

)

Adjustments for non-controlling interests

 

(34

)

(36

)

(103

)

(108

)

NAREIT funds from operations applicable to common stock

 

9,285

 

9,030

 

26,669

 

24,017

 

Deduct: straight-line rent accruals and amortization of lease intangibles

 

(397

)

(788

)

(802

)

(2,215

)

Add: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures

 

10

 

13

 

27

 

36

 

Add: amortization of restricted stock compensation

 

684

 

770

 

2,341

 

2,176

 

Add: prepayment costs on debt

 

 

 

 

577

 

Add: amortization and write-off of deferred financing costs

 

263

 

189

 

717

 

644

 

Add: our share of amortization and write-off of deferred financing costs of unconsolidated joint ventures

 

6

 

7

 

19

 

19

 

Adjustments for non-controlling interests

 

5

 

17

 

13

 

37

 

Adjusted funds from operations applicable to common stock

 

$

9,856

 

$

9,238

 

$

28,984

 

$

25,291

 

The table below provides a reconciliation of net income per common share (on a diluted basis) in accordance with GAAP to FFO and AFFO:AFFO for the periods indicated (dollars in thousands, except per share amounts):

Three Months Ended

March 31,

    

2020

    

2019

GAAP net income attributable to One Liberty Properties, Inc.

$

7,826

$

3,971

Add: depreciation and amortization of properties

 

5,573

 

5,245

Add: our share of depreciation and amortization of unconsolidated joint ventures

 

139

 

143

Add: amortization of deferred leasing costs

 

101

 

102

Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures

 

4

 

Deduct: gain on sale of real estate

 

(4,252)

 

Deduct: equity in earnings from sale of unconsolidated joint venture property

 

(121)

 

Adjustments for non-controlling interests

 

(21)

 

(26)

NAREIT funds from operations applicable to common stock

 

9,249

 

9,435

Deduct: straight-line rent accruals and amortization of lease intangibles

 

(570)

 

(612)

Deduct: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures

 

(13)

 

(10)

Add: amortization of restricted stock compensation

 

976

 

954

Add: prepayment costs on debt

290

Add: amortization and write-off of deferred financing costs

 

243

 

232

Add: our share of amortization and write-off of deferred financing costs of unconsolidated joint ventures

 

4

 

4

Adjustments for non-controlling interests

 

1

 

8

Adjusted funds from operations applicable to common stock

$

10,180

$

10,011

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

2017

 

2016

 

2017

 

2016

 

GAAP net income attributable to One Liberty Properties, Inc.

 

$

.38

 

$

.24

 

$

1.07

 

$

1.15

 

Three Months Ended

March 31,

    

2020

    

2019

GAAP net income per common share attributable to One Liberty Properties, Inc.

$

.39

$

.19

Add: depreciation and amortization of properties

 

.27

 

.26

 

.84

 

.76

 

 

.27

 

.27

Add: our share of depreciation and amortization of unconsolidated joint ventures

 

.01

 

.01

 

.04

 

.04

 

 

.01

 

.01

Add: impairment loss

 

.01

 

 

.01

 

 

Add: amortization of deferred leasing costs

 

 

 

.02

 

.01

 

 

.01

 

.01

Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures

 

 

Deduct: gain on sale of real estate

 

(.17

)

 

(.53

)

(.57

)

 

(.21)

 

Deduct: equity in earnings from sale of unconsolidated joint venture property

 

(.01)

 

Adjustments for non-controlling interests

 

 

 

(.01

)

 

 

 

NAREIT funds from operations per share of common stock

 

.50

 

.51

 

1.44

 

1.39

 

 

.46

 

.48

Deduct: straight-line rent accruals and amortization of lease intangibles

 

(.02

)

(.03

)

(.05

)

(.13

)

 

(.02)

 

(.03)

Deduct: 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

Add: prepayment costs on debt

 

 

 

 

.03

 

.01

Add: amortization and write-off of deferred financing costs

 

.01

 

.01

 

.04

 

.04

 

.01

.01

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

 

$

.51

$

.51

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Table of Contents

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 September 30, 2017,March 31, 2020, our aggregate liability in the event of the early termination of our swaps was $2.5$6.8 million.

At September 30, 2017,March 31, 2020, we had 3124 interest rate swap agreements outstanding (including two held by three of our unconsolidated joint ventures).outstanding. 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 September 30, 2017,March 31, 2020, 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$4.2 million and the net unrealized loss on derivative instruments would have decreased by $8.0$4.2 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$4.5 million and the net unrealized loss on derivative instruments would have increased by $8.6$4.5 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 September 30, 2017,Based on the outstanding balance under this facility of $30.9 million at March 31, 2020, 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$309,000 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.

$189,000.

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 September 30, 2017March 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Table of Contents

Part II - OTHER INFORMATION

Item 1A. Risk Factors

The following amends and supplements the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019.

The ongoing COVID-19 pandemic and the governmental responses thereto could materially and adversely impact and disrupt our business, income, cash flow, results of operations, financial condition, liquidity, prospects, ability to service our debt obligations, and our ability to pay dividends and other distributions to our stockholders.

The COVID-19 pandemic and the governmental responses thereto have triggered a period of global economic slowdown or recession. A sustained downturn in the U.S. economy (including, without limitation reduced consumer spending as well as consumer activity at brick-and-mortar retail establishments) has resulted in significant unemployment and other economic dislocations in the United States. A recession could impact our tenants’ ability to meet their lease obligations due to poor operating results, lack of liquidity or other reasons. Because substantially all of our income is derived from rentals of real property, our business, income, cash flow, results of operations, financial condition, liquidity, prospects, ability to service our debt obligations and pay dividends and other distributions to our stockholders would be adversely affected if tenants representing a significant portion of our rental income are unable to meet their obligations.

Further, our management team is focused on mitigating the impacts of the responses to the pandemic, which has required and will continue to require, a large investment of time and resources across our business. Many of our employees and others performing services on our behalf are currently working remotely. An extended period of remote work arrangements could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business.

The extent to which the COVID-19 pandemic, and the measures taken in response thereto (including limitations on our ability to exercise legal remedies previously available to us), impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of such pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. The situation is rapidly changing and additional impacts to the business may arise that we are not aware of currently. The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic, but a prolonged outbreak as well as related mitigation efforts would have a material impact on our financial condition, results of operation and cash flows and materially and adversely affect our business, results of operations and financial condition. Moreover, many risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019 should be interpreted as heightened risks as a result of the pandemic. See “Part 1. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Challenges and Uncertainties Resulting from the COVID-19 Pandemic.”

Item 6.  Exhibits

Exhibit No.

    

Title of Exhibit

10.1

Form of 2017 Performance Award Agreement

31.1

Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of Senior Vice President and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS101

XBRL Instance DocumentThe following financial statements and notes from the One Liberty Properties, Inc. Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 filed on May 8, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Changes in Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to the Consolidated Financial Statements.

101.SCH104

Cover Page Interactive Data File (the cover page XBRL Taxonomy Extension Schema Document

101.CAL

tags are embedded in the Inline 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 Documentdocument and included in Exhibit 101).

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Table of Contents

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: NovemberMay 8, 20172020

/s/ Patrick J. Callan, Jr.

Patrick J. Callan, Jr.

President and Chief Executive Officer

(principal executive officer)

Date: NovemberMay 8, 20172020

/s/ David W. Kalish

David W. Kalish

Senior Vice President and

Chief Financial Officer

(principal financial officer)

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