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, 2023

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  No 

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, 2017,2023, the registrant had 18,782,25221,326,296 shares of common stock outstanding.



Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Table of Contents

Page No.

Part I - Financial Information

Item 1.

Unaudited Consolidated Financial Statements

 

Consolidated Balance Sheets — March 31, 2023 and December 31, 2022…………………………………….

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, 2023 and 20162022………………………

3

2

 

Consolidated Statements of Comprehensive Income — Three and nine months ended September 30, 2017March 31, 2023 and 20162022...……….

4

3

 

Consolidated Statements of Changes in Equity — NineThree months ended September 30, 2017March 31, 2023 and 20162022…………..

5

4

 

Consolidated Statements of Cash Flows — NineThree months ended September 30, 2017March 31, 2023 and 20162022….………………

6

5

 

Notes to Consolidated Financial Statements……………………………………………………………….…...

8

7

 

Item 2.

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

30

23

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk………………………………………….………

42

34

 

Item 4.

Controls and Procedures……………………………………………………………………………….………..

43

35

 

Part II — Other Information………………………………………………………………………………….…………

35

 

Item 6.

Exhibits………………………………………………………………………………………………………….

35

Item 6.

Exhibits

43



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, 

2023

    

2022

ASSETS

(Unaudited)

Real estate investments, at cost

Land

$

180,579

$

181,805

Buildings and improvements

692,025

697,791

Total real estate investments, at cost

872,604

879,596

Less accumulated depreciation

175,153

173,143

Real estate investments, net

697,451

706,453

Property held-for-sale

2,783

Investment in unconsolidated joint ventures

10,484

10,400

Cash and cash equivalents

7,016

6,718

Unbilled rent receivable

16,710

16,079

Unamortized intangible lease assets, net

18,541

19,841

Escrow, deposits and other assets and receivables

18,158

23,764

Total assets(1)

$

771,143

$

783,255

LIABILITIES AND EQUITY

Liabilities:

Mortgages payable, net (see Note 7)

$

406,946

$

405,162

Line of credit, net of $686 and $732 of deferred financing costs, respectively

10,814

21,068

Dividends payable

9,838

9,693

Accrued expenses and other liabilities

18,020

19,270

Unamortized intangible lease liabilities, net

10,824

11,125

Total liabilities(1)

456,442

466,318

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; 50,000 shares authorized;
20,546 and 20,362 shares issued and outstanding

20,546

20,362

Paid-in capital

328,113

325,895

Accumulated other comprehensive income

1,401

1,810

Distributions in excess of net income

(36,344)

(32,102)

Total One Liberty Properties, Inc. stockholders’ equity

313,716

315,965

Non-controlling interests in consolidated joint ventures(1)

985

972

Total equity

314,701

316,937

Total liabilities and equity

$

771,143

$

783,255


(1)The Company’s consolidated balance sheets include assets and liabilities of consolidated variable interest entities (“VIEs”). See Note 5. The consolidated balance sheets include the following amounts related to the Company’s consolidated VIEs: $10,365 and $10,365 of land, $17,716 and $17,870 of building and improvements, net of $5,856 and $5,670 of accumulated depreciation, $3,683 and $3,518 of other assets included in other line items, $18,321 and $18,500 of real estate debt, net, $1,210 and $1,135 of other liabilities included in other line items and $985 and $972 of non-controlling interests as of March 31, 2023 and December 31, 2022, 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: $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.

See accompanying notes to consolidated financial statements.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, 

    

2023

    

2022

Revenues:

Rental income, net

$

22,952

$

21,531

Lease termination fees

25

Total revenues

22,952

21,556

Operating expenses:

Depreciation and amortization

6,145

5,843

General and administrative (see Note 8 for related party information)

4,039

3,792

Real estate expenses (see Note 8 for related party information)

4,124

3,687

State taxes

68

74

Total operating expenses

14,376

13,396

Other operating income

Gain on sale of real estate, net

1,534

4,649

Operating income

10,110

12,809

Other income and expenses:

Equity in earnings of unconsolidated joint ventures

85

116

Other income (see Note 12)

15

926

Interest:

Expense

(4,600)

(4,306)

Amortization of deferred financing costs

(202)

(205)

Net income

5,408

9,340

Net income attributable to non-controlling interests

(22)

(17)

Net income attributable to One Liberty Properties, Inc.

$

5,386

$

9,323

Weighted average number of common shares outstanding:

Basic

20,514

20,379

Diluted

20,579

20,541

Per common share attributable to common stockholders:

Basic and Diluted

$

.25

$

.44

Cash distributions per share of common stock

$

.45

$

.45

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, 

    

2023

    

2022

Net income

$

5,408

$

9,340

Other comprehensive income

Net unrealized (loss) gain on derivative instruments

(409)

1,775

Comprehensive income

4,999

11,115

Net income attributable to non-controlling interests

(22)

(17)

Adjustment for derivative instruments attributable to non-controlling interests

(2)

Comprehensive income attributable to One Liberty Properties, Inc.

$

4,977

$

11,096

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, 2022

$

20,362

$

325,895

$

1,810

$

(32,102)

$

972

$

316,937

Distributions – common stock

Cash – $.45 per share

(9,628)

(9,628)

Restricted stock vesting

135

(135)

 

 

 

 

Shares issued through dividend reinvestment plan

49

1,025

 

 

 

 

1,074

Distributions to non-controlling interests

 

 

 

 

(9)

 

(9)

Compensation expense – restricted stock and RSUs

 

1,328

 

 

 

 

1,328

Net income

 

 

 

5,386

 

22

 

5,408

Other comprehensive (loss)

 

 

(409)

 

 

 

(409)

Balances, March 31, 2023

$

20,546

$

328,113

$

1,401

$

(36,344)

$

985

$

314,701

Balances, December 31, 2021

$

20,239

$

322,793

$

(1,513)

$

(36,187)

$

946

$

306,278

Distributions – common stock

Cash – $.45 per share

(9,559)

(9,559)

Restricted stock vesting

131

 

(131)

 

 

 

 

Shares issued through equity offering program – net

17

546

 

 

 

 

563

Shares issued through dividend reinvestment plan

5

 

156

 

 

 

 

161

Distributions to non-controlling interests

 

 

 

 

(33)

 

(33)

Compensation expense – restricted stock and RSUs

 

1,325

 

 

 

 

1,325

Net income

 

 

 

9,323

 

17

 

9,340

Other comprehensive income

 

 

1,773

 

 

2

 

1,775

Balances, March 31, 2022

$

20,392

$

324,689

$

260

$

(36,423)

$

932

$

309,850

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

 

Continued (Continued on next pageNext Page)

Three Months Ended

March 31, 

2023

    

2022

Cash flows from operating activities:

Net income

$

5,408

$

9,340

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

Gain on sale of real estate, net

(1,534)

(4,649)

Increase in net amortization of unbilled rental income

(669)

(378)

Amortization of intangibles relating to leases, net

(224)

(189)

Amortization of restricted stock and RSU compensation expense

1,328

1,325

Equity in earnings of unconsolidated joint ventures

(85)

(116)

Depreciation and amortization

6,145

5,843

Amortization of deferred financing costs

202

205

Payment of leasing commissions

(179)

(798)

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

5,571

(1,375)

Decrease in accrued expenses and other liabilities

(1,251)

(377)

Net cash provided by operating activities

14,712

8,831

Cash flows from investing activities:

Purchase of real estate

(8,166)

Improvements to real estate

(725)

(1,778)

Investments in ground leased property

(447)

(271)

Net proceeds from sale of real estate

4,076

9,555

Insurance recovery proceeds due to casualty loss

918

Net cash provided by investing activities

2,904

258

Cash flows from financing activities:

Scheduled amortization payments of mortgages payable

(3,078)

(3,380)

Proceeds from mortgage financings

4,800

4,860

Proceeds from bank line of credit

8,400

8,000

Repayments on bank line of credit

(18,700)

(14,560)

Issuance of shares through dividend reinvestment plan

1,074

161

Proceeds from sale of common stock, net

563

Payment of financing costs

(118)

(125)

Distributions to non-controlling interests

(9)

(33)

Cash distributions to common stockholders

(9,483)

(9,422)

Net cash used in financing activities

(17,114)

(13,936)

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

502

(4,847)

Cash, cash equivalents and restricted cash at beginning of year

7,277

16,666

Cash, cash equivalents and restricted cash at end of period

$

7,779

$

11,819

Supplemental disclosure of cash flow information:

Cash paid during the period for interest expense

$

4,630

$

4,332

Supplemental disclosure of non-cash investing activity:

Purchase accounting allocation - intangible lease assets

$

$

568

Purchase accounting allocation - intangible lease liabilities

(269)

5

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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:

Three Months Ended

March 31, 

2023

    

2022

Cash and cash equivalents

$

7,016

$

11,442

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

763

377

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

$

7,779

$

11,819

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

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023

One Liberty Properties, Inc. and SubsidiariesNOTE 1 – ORGANIZATION AND BACKGROUND

Notes to Consolidated Financial Statements (Unaudited)

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 retail, industrial restaurant, health and fitness, and theaterretail properties, many of which are subject to long-term net leases. As of September 30, 2017,March 31, 2023, OLP owns 119 properties, including sixthree properties owned by consolidated joint ventures and fivethree properties owned by unconsolidated joint ventures. The 119 properties are located in 31 states.

NoteNOTE 2 Summary Accounting Policies– 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, 2023 and 20162022 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.

2022.

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.

Purchase Accounting for Acquisition of Real Estate

In acquiring real estate, the Company evaluates 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 accounted for as an asset acquisition and not a business combination. Transaction costs incurred with such asset acquisitions are capitalized to real estate assets and depreciated over the respectful useful lives.

The Company allocates the purchase price of real estate, including direct transaction costs applicable to an asset acquisition, among land, building, improvements and intangibles (e.g., the value of above, below and at-market leases, and origination costs associated with in-place leases and above or below-market mortgages assumed at the acquisition date). The value, as determined, is allocated to the gross assets acquired based on management’s determination of the relative fair values of these assets and liabilities.

The Company assesses the fair value of the gross assets acquired based on available market information which utilize estimated cash flow projections; such inputs are categorized as Level 3 inputs in the fair value hierarchy. In determining fair value, factors considered by management include an evaluation of current market demand, market capitalization rates and discount rates, estimates of carrying costs (e.g., real estate taxes, insurance, other operating expenses), and lost rental revenue during the expected lease-up periods. Management also estimates costs to execute similar leases, including leasing commissions and tenant improvements.

7

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023 (CONTINUED)

NOTE 2 – SUMMARY ACCOUNTING POLICIES (CONTINUED)

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.

The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting. All investments in unconsolidated joint ventures have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support and, as a group, the holders of the equity at risk have power through voting rights to direct the activities of these ventures. As a result, none of these joint ventures are VIEs. In addition, the Company shares power with its co-managing members over these entities, and therefore the entities are not consolidated. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for their share of equity in earnings, cash contributions and distributions. None of the joint venture debt is recourse to the Company, subject to standard carve-outs.

The Company periodically reviews its investments in unconsolidated joint ventures for other-than-temporary losses in investment value. Any decline that is not expected to be recovered based on the underlying assets of the investment is considered other than temporary and an impairment charge is recorded as a reduction in the carrying value of the investment. During the three and nine months ended September 30, 2017 and 2016, there was no impairment charge 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.

8

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023 (CONTINUED)

One Liberty Properties, Inc.NOTE 3 – LEASES

Lessor Accounting

The Company owns rental properties which are leased to tenants under operating leases with current expirations ranging from 2023 to 2055, with options to extend or terminate the lease. Revenues from such leases are reported as Rental income, net, and Subsidiariesare 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.

Notes

Fixed lease revenues represent the base rent that each tenant is required to Consolidated Financial Statements (Unaudited)

September 30, 2017 (Continued)

Note 2 — Summary Accounting Policies (Continued)

Reclassifications

Certain amounts previouslypay in accordance with the terms of their respective leases, and any lease incentives paid or payable to the lessee, reported on a straight-line basis over the non-cancelable term of the lease. Variable lease revenues typically 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 and (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, 

    

2023

    

2022

Fixed lease revenues

$

19,358

$

18,341

Variable lease revenues

3,370

3,001

Lease revenues (a)

$

22,728

$

21,342

(a)Excludes $224 and $189 of amortization related to lease intangible assets and liabilities for the three months ended March 31, 2023 and 2022, respectively.

In 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 have been reclassifiedstatements. 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.

On a quarterly basis, the Company assesses the collectability of substantially all lease payments due by reviewing the tenant’s payment history or financial condition. Changes to collectability are recognized as a current period adjustment to rental revenue. As of March 31, 2023, the Company has assessed the collectability of all recorded lease revenues as probable.

Minimum Future Rents

As of March 31, 2023, the minimum future contractual rents to be received on non-cancellable operating leases are included in the accompanyingtable below (amounts in thousands). The minimum future contractual rents include $21,017,000 of rent related to Regal Cinemas (two leases which expire in 2032 and 2035) and does not include (i) straight-line rent or amortization of intangibles and (ii) $301,000 of COVID-19 lease deferral repayments due from Regal Cinemas which were not accrued to rental income and (iii) variable lease payments as described above.

From April 1 – December 31, 2023

$

55,353

For the year ending December 31,

2024

67,832

2025

63,542

2026

59,305

2027

50,346

2028

39,957

Thereafter

137,164

Total

$

473,499

9

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023 (CONTINUED)

NOTE 3 – LEASES (CONTINUED)

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 four, 5-year renewal options and one seven-month renewal option. As of March 31, 2023, the remaining lease term, including renewal options deemed exercised, is 11.9 years. The Company recognized lease expense related to this ground lease of $150,000 in each of the three months ended March 31, 2023 and 2022, 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 for a five-year renewal option. As of March 31, 2023, the remaining lease term, including the renewal option deemed exercised, is 13.8 years. The Company recognized lease expense related to conformthis office lease of $14,000 in each of the three months ended March 31, 2023 and 2022, which is included in General and administrative expenses on the consolidated statements of income.

Minimum Future Lease Payments

As of March 31, 2023, the minimum future lease payments related to these operating leases are as follows (amounts in thousands):

From April 1 – December 31, 2023

$

381

For the year ending December 31,

2024

557

2025

626

2026

 

627

2027

 

629

2028

 

630

Thereafter

 

4,960

Total undiscounted cash flows

$

8,410

Present value discount

 

(1,561)

Lease liability

$

6,849

NOTE 4 SALES OF PROPERTIES AND PROPERTY HELD-FOR-SALE

Sales of Properties

On February 28, 2023, the current period’s presentation, primarily to change the presentationCompany sold a restaurant property located in Hauppauge, New York for $4,076,000, net of closing costs. The sale resulted in a gain of $1,534,000 which was recorded as Gain on sale of real estate, net, onin the consolidated statement of operationsincome for the three and nine months ended September 30, 2016. TheMarch 31, 2023. In connection with the sale, the Company has includedwrote-off a caption for Income before gainnet amount of $128,000 as an adjustment to Gain on sale of real estate, net, related to presentan $85,000 lease incentive and an $86,000 tenant-related receivable, offset by $43,000 of unearned rental income.

In March 2022, the Company sold four restaurant properties located in Pennsylvania for approximately $9,555,000, net of closing costs. The sale resulted in a gain of $4,649,000 which was recorded as Gain on sale of real estate, net, in the consolidated statement of income for the three months ended March 31, 2022. As a result of the sale, the Company also wrote-off, as a reduction to Gain on sale of real estate, net, $512,000 of unbilled rent receivable.

10

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023 (CONTINUED)

NOTE 4 SALES OF PROPERTIES AND PROPERTY HELD-FOR-SALE (CONTINUED)

Property Held-for-Sale

In August 2022, the Company entered into a contract to sell a retail property located in Duluth, Georgia for $6,000,000. The buyer’s right to terminate the contract without penalty expired on March 31, 2023. At March 31, 2023, the Company classified the $2,783,000 net book value of the property’s land, building and lossesimprovements as Property held-for-sale in the accompanying consolidated balance sheet. It is anticipated that (i) this property will be sold during the second quarter of 2023 and (ii) this sale will result in a gain of approximately $3,100,000, which will be recognized as Gain on salessale of propertiesreal estate, net, in accordance with the Securities and Exchange Commission Rule 3-15(a)consolidated statements of Regulation S-X. The change was madeincome for the three and ninesix months ending June 30, 2023.

NOTE 5 – 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 does not have power over the activities that most significantly impact the owner/operator’s economic performance 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. The ground lease provides for rent which can be deferred and paid based on the operating performance of the property; therefore, this rent is recognized as rental income when the operating performance is achieved and the rent is received. No ground lease rental income has been collected since October 2020 other than the proceeds from the settlement of the Proceedings (as defined below).

As of March 31, 2023, the VIE’s maximum exposure to loss was $16,791,000 which represented the carrying amount of the land. In purchasing the property in 2016, 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 multi-family property. The Company provided its land as collateral for the owner/operator’s mortgage loan; accordingly, the land position is subordinated to the mortgage. The mortgage balance was $64,500,000 as of March 31, 2023.

Pursuant to the ground lease, as amended in November 2020, the Company agreed, in its discretion, to fund 78% of (i) any operating expense shortfalls at the property and (ii) any capital expenditures required at the property. The Company funded $697,000 during the year ended December 31, 2022 and $447,000 during the three months ended September 30, 2016March 31, 2023. These amounts are included as part of the carrying amount of the land.

The Company’s ground lease tenant was a plaintiff/claimant in various legal proceedings (the “Proceedings”) against, among others, the developer of such apartment complex alleging, among other things, that the buildings’ construction was flawed. The Proceedings were settled in the quarter ended December 31, 2022 and although the Company was not a party to the Proceedings, pursuant to the lease with the tenant, the Company received, in early January 2023, $4,626,000 from the settlement. At December 31, 2022, this sum was accrued as rental income, net on the consolidated statement of income and as other receivables on the consolidated balance sheet.

11

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023 (CONTINUED)

NOTE 5 – VARIABLE INTEREST ENTITIES, CONTINGENT LIABILITY AND CONSOLIDATED JOINT VENTURES (CONTINUED)

Variable Interest Entities – Consolidated Joint Ventures

The Company has determined the three 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 prescribedit 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 ASC 360-10-45-5, such gains fromthe applicable joint venture.

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, 

    

2023

    

2022

Land

$

10,365

$

10,365

Buildings and improvements, net of accumulated depreciation of $5,856 and $5,670, respectively

17,716

17,870

Cash

1,262

1,163

Unbilled rent receivable

1,096

1,111

Unamortized intangible lease assets, net

453

472

Escrow, deposits and other assets and receivables

872

772

Mortgages payable, net of unamortized deferred financing costs of $141 and $152, respectively

18,321

18,500

Accrued expenses and other liabilities

798

711

Unamortized intangible lease liabilities, net

412

424

Accumulated other comprehensive income

16

22

Non-controlling interests in consolidated joint ventures

985

972

As of March 31, 2023 and December 31, 2022, MCB Real Estate, LLC and its affiliates (‘‘MCB’’) are the Company’s joint venture partner in two consolidated joint ventures in which the Company has aggregate equity investments of approximately $4,532,000 and $4,563,000, respectively.

Distributions to each joint venture partner are determined pursuant to the applicable operating agreement and, in the event of a sale of, or refinancing of the mortgage encumbering, the property owned by such venture, the distributions to the Company may be less than that implied by the Company’s equity ownership interest in the venture.

NOTE 6 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

As of March 31, 2023 and December 31, 2022, the Company participated in three unconsolidated joint ventures, each of which owns and operates one property; the Company’s equity investment in these ventures totaled $10,484,000 and $10,400,000, respectively. The Company recorded equity in earnings of $85,000 and $116,000 for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023 and December 31, 2022, MCB and the Company are partners in an unconsolidated joint venture in which the Company’s equity investment is approximately $9,030,000 and $8,963,000, respectively.

12

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023 (CONTINUED)

NOTE 7 – 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, 

    

2023

    

2022

Mortgages payable, gross

$

410,897

$

409,175

Unamortized deferred financing costs

 

(3,316)

 

(3,355)

Unamortized mortgage intangible asset (a)

(635)

(658)

Mortgages payable, net

$

406,946

$

405,162

(a)In connection with the assumption of a below-market mortgage upon the acquisition of two properties in 2022.

Line of Credit

The Company has a credit facility with Manufacturers and Traders Trust Company and VNB New York, LLC, pursuant to which it may borrow up to $100,000,000, subject to borrowing base requirements. The facility is available for the acquisition of commercial real estate, wererepayment 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 included as a componentexceed the lesser of Operating income.  Such change was determined$40,000,000 and 40% of the borrowing base. Net proceeds received from the sale, financing or refinancing of properties are generally required to be immaterialused to repay amounts outstanding under the credit facility. The facility is guaranteed by subsidiaries of the Company that own unencumbered properties and the Company is required to pledge to the lenders the equity interests in such subsidiaries.

The facility, which matures December 31, 2026, provides for an interest rate equal to 30-day SOFR plus an applicable margin ranging from 175 basis points to 275 basis points depending on the ratio of the Company’s total debt to total value, as determined pursuant to the facility. The applicable margin was 175 basis points at March 31, 2023 and 2022. An unused facility fee of .25% per annum applies to the facility. The weighted average interest rate on the facility was approximately 6.23% and 1.89% for the three months ended March 31, 2023 and 2022, respectively. The Company was in compliance with all covenants at March 31, 2023.

The following table details the Line of credit, net, balances per the consolidated financial statements.balance sheets (amounts in thousands):

March 31, 

December 31, 

    

2023

    

2022

Line of credit, gross

$

11,500

$

21,800

Unamortized deferred financing costs

 

(686)

 

(732)

Line of credit, net

$

10,814

$

21,068

At March 31, 2023 and May 1, 2023, $88,500,000 and $80,000,000, respectively, was available to be borrowed under the facility, including an aggregate of up to $40,000,000 and $31,500,000, respectively, available for renovation and operating expense purposes.

13

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023 (CONTINUED)

NOTE 8 – 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 certain (i) executive, administrative, legal, accounting, clerical, property management, property acquisition, consulting (i.e., sale, leasing, brokerage, and mortgage financing), and construction supervisory services (collectively, the “Services”) and (ii) facilities and other resources. Majestic is wholly-owned by the Company’s vice chairman and it provides compensation to several of the Company’s executive officers.

In consideration for the Services, the Company paid Majestic $879,000 and $766,000 for the three months ended March 31, 2023 and 2022, respectively. Included in these amounts are fees for property management services of $428,000 and $336,000 for the three months ended March 31, 2023 and 2022, respectively. The amounts paid for property management services are 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, $79,000 in each of three months ended March 31, 2023 and 2022, for the Company’s share of all direct office expenses, including rent, telephone, postage, computer services, internet usage and supplies.

Executive officers and others providing services to the Company under the compensation and services agreement were awarded shares of restricted stock and restricted stock units (“RSUs”) under the Company’s stock incentive plans (described in Note 3 — Earnings Per Common Share10). The related expense charged to the Company’s operations was $642,000 and $643,000 for the three months ended March 31, 2023 and 2022, respectively.

The amounts paid under the compensation and services agreement (except for the property management services 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.

Joint Venture Partners and Affiliates

The Company paid an aggregate of $22,000 in each of the three months ended March 31, 2023 and 2022, to its consolidated joint venture partner 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 $27,000 and $36,000 for the three months ended March 31, 2023 and 2022, respectively, to the other partner of the ventures, which reduced Equity in earnings on the consolidated statements of income by $13,000 and $18,000 for the three months ended March 31, 2023 and 2022, respectively.

Other

During each of the three months ended March 31, 2023 and 2022, the Company paid quarterly fees of (i) $78,250 to the Company’s chairman and (ii) $31,300 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 $148,000 and $339,000 for the three months ended March 31, 2023 and 2022, 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, 2023 (CONTINUED)

NOTE 9 – EARNINGS PER COMMON SHARE

Basic earnings per share was determined by dividing net income allocable to common stockholders for each period by the weighted average number of shares of common stock outstanding during the applicable period. Net income is also allocated to the unvested restricted stock outstanding during each period, as the 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, 2023, the shares of common stock underlying the restricted stock units awarded under the 2016 Incentive PlanRSUs (see Note 10) 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.

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

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017  (Continued)

Note 3 — Earnings Per Common Share (Continued)

The diluted weighted average number of shares of common stock includes common stock underlying the RSUs awarded under the plans identified in the table below:

 

 

Number of

 

Three Months Ended
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

 

Numerator for basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

Net income

 

$

7,128

 

$

4,323

 

$

20,007

 

$

20,067

 

Less net income attributable to non-controlling interests

 

(23

)

(24

)

(65

)

(40

)

Less earnings allocated to unvested restricted stock (a)

 

(263

)

(248

)

(796

)

(744

)

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:

 

 

 

 

 

 

 

 

 

RSUs

 

79

 

117

 

102

 

117

 

Denominator for diluted earnings per share:
Weighted average shares

 

18,079

 

16,962

 

17,961

 

16,722

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share, basic

 

$

.38

 

$

.24

 

$

1.07

 

$

1.16

 

Earnings per common share, diluted

 

$

.38

 

$

.24

 

$

1.07

 

$

1.15

 

 

 

 

 

 

 

 

 

 

 

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

 

$

7,105

 

$

4,299

 

$

19,942

 

$

20,027

 

Three Months Ended

March 31, 

    

2023

    

2022

Numerator for basic and diluted earnings per share:

 

 

  

 

  

Net income

$

5,408

$

9,340

Deduct net income attributable to non-controlling interests

 

(22)

 

(17)

Deduct earnings allocated to unvested restricted stock (a)

 

(329)

(328)

Net income available for common stockholders: basic and diluted

$

5,057

$

8,995

Denominator for basic earnings per share:

Weighted average number of common shares outstanding

 

20,514

20,379

Effect of dilutive securities: RSUs

 

65

162

Denominator for diluted earnings per share:

Weighted average number of shares

 

20,579

 

20,541

Earnings per common share, basic and diluted

$

.25

$

.44


(a)

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

15

Table of distributed earnings to unvested restricted stock which, as participating securities, are entitled to receive dividends.Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023 (CONTINUED)

One Liberty Properties, Inc. and SubsidiariesNOTE 9 – EARNINGS PER COMMON SHARE (CONTINUED)

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 detailsidentifies 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

 

Linenumber 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

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 restrictedcommon stock andunderlying the 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 whichthat are included in Real estate expenses) and the costscalculation, on a diluted basis, of the weighted average number of shares of common 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 Subsidiariessuch periods:

Notes to Consolidated Financial Statements (Unaudited)

Three Months Ended March 31, 2023:

    

Total Number

    

Shares Included Based on (a)

    

of Underlying

Return on

Stockholder

Shares

Date of Award (b)

    

Shares

    

Capital Metric

    

Return Metric

    

Total

    

Excluded (c)

July 1, 2022

85,350

42,522

42,522

42,828

August 3, 2021

 

80,700

40,350

40,350

40,350

August 3, 2020

 

75,026

37,513

37,513

75,026

Totals

 

241,076

 

120,385

 

37,513

 

157,898

 

83,178

September 30, 2017 (Continued)

Three Months Ended March 31, 2022:

    

Total Number

    

Shares Included Based on (a)

    

of Underlying

Return on

Stockholder

Shares

Date of Award (b)

    

Shares

    

Capital Metric

    

Return Metric

    

Total

    

Excluded (c)

August 3, 2021

 

80,700

40,350

40,350

80,700

August 3, 2020

 

75,026

37,513

37,513

75,026

July 1, 2019 (d)

75,026

37,513

37,513

75,026

Totals

 

230,752

 

115,376

 

115,376

 

230,752

 

(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 of the applicable period.
(b)The RSUs awarded in 2022, 2021 and 2020 vest, subject to satisfaction of the applicable market and/or performance conditions, as of June 30, 2025, 2024 and 2023, respectively (see Note 10).
(c)Excluded as the applicable conditions had not been met for these shares at the applicable measurement dates.
(d)With respect to the RSUs awarded July 1, 2019, 64,488 shares were deemed to have vested and the balance of 10,538 shares were forfeited in June 2022. The vested shares were issued in August 2022 (see Note 10).

NOTE 10 – STOCKHOLDERS’ EQUITY

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 SeptemberMarch 13, 2017,2023, the Board of Directors declared a quarterly cash dividend of $.43$0.45 per share on the Company’s common stock, totaling $8,053,000.approximately $9,574,000. The quarterly dividend was paid on OctoberApril 4, 20172023 to stockholders of record on September 25, 2017.March 27, 2023.

Note 12 — Shares Issued through the At-the-Market Equity Offering Program

During the three months ended September 30, 2017,March 31, 2022, the Company sold 103,196approximately 17,000 shares for proceeds of $2,461,000,$604,000, net of commissions of $25,000,$12,000, and incurred offering costs of $43,000$41,000 for professional fees. DuringNo shares were sold by the nineCompany during the three 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.March 31, 2023.

Note 13 — Stock Based Compensation

Dividend Reinvestment Plan

The Company’s Dividend Reinvestment Plan (the “DRP”), among other things, provides stockholders with the opportunity to reinvest all or a portion of their cash dividends paid on the Company’s common stock in additional shares of its common stock, at a discount, determined in the Company’s sole discretion, of up to 5% from the market price (as such price is calculated pursuant to the DRP). The discount is currently being offered at 3%. Under the DRP, the Company issued approximately 49,000 and 5,000 shares of common stock during the three months ended March 31, 2023 and 2022, respectively.

16

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023 (CONTINUED)

NOTE 10 – STOCKHOLDERS’ EQUITY (CONTINUED)

Stock Based Compensation

The Company’s 2022, 2019 and 2016 Incentive Plan (‘‘Plan’’Plans (collectively, the “Plans”), approved by the Company’s stockholders in June 2016, permitspermit 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 was authorized for issuance pursuant to this Plan.  As of September 30, 2017, (i) restricted stockeach plan at such plan’s inception.

The following details the shares subject to awards with respect to 140,100 shares had been issued, of which 100 shares were forfeited and 3,000 shares had vested, and (ii) as further described below, RSUs with respect to 76,250 shares had been issued andthat are outstanding.

Underoutstanding under the Company’s 2012 Incentive Plan,Plans as of September 30, 2017, 500,700 shares had been issued, of which 3,350 shares were forfeited and 21,450 shares had vested. No additional awards may be granted under this plan.March 31, 2023:

2022

2019

2016

    

Incentive Plan

    

Incentive Plan (a)

    

Incentive Plan (a)

Restricted stock

152,955

437,375

140,200

RSUs

85,350

155,726

Totals

238,305

593,101

140,200

(a)No additional awards may be granted under such plan.

For accounting purposes, the restricted stock is not included in the shares shown as outstanding on the balance sheet until they vest; however, dividends are paid on the unvested shares. The restricted stock grants are charged to General and administrative expense over the respective vesting periods based on the market value of the common stock on the grant date. Unless earlier forfeited because the participant’s relationship with the Company terminated, unvested restricted stock awards vest on the fifth anniversary offive years from the grant date, and under certain circumstances may vest earlier.

One Liberty Properties, Inc.The following table reflects the activities involving RSUs during the indicated years:

    

2022

2021

2020

RSUs granted and outstanding (a) (b)

85,350

80,700

75,026

Vesting Date (c) (d)

6/30/2025

6/30/2024

6/30/2023

(a)The shares underlying the RSUs are excluded from the shares shown as outstanding on the balance sheet until they have vested and been issued.
(b)No shares were granted, vested or forfeited during the three months ended March 31, 2023 and 2022.
(c)Generally, the recipient must maintain a relationship with the Company during the applicable three-year performance cycle.
(d)RSUs vest upon satisfaction of metrics related to average annual total stockholder return ("TSR Metric") and average annual return on capital ("ROC Metric"; together with the TSR Metric, the "Metrics") and are issued to the extent the Compensation Committee determines that the Metrics with respect to the vesting of such shares have been satisfied.

The specific metrics and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017 (Continued)

Note 13 — Stock Based Compensation (Continued)

During the quarter ended September 30, 2017, the Company granted RSUs exchangeable for up to 76,250 shares of common stock upon satisfaction, through June 30, 2020, 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,other material terms 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 holdersconditions 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 consistedfollows:

Performance Criteria (a)

Year RSU Granted

Metric

Weight

Minimum

Maximum

2020 (b)

ROC Metric (c)

50%

Average annual of at least 7.0%

Average annual of at least 9.75%

TSR Metric (d)

50%

Average annual of at least 7.0%

Average annual of at least 12.0%

2021 - 2022 (e) (f)

ROC Metric (c)

50%

Average annual of at least 6.0%

Average annual of at least 8.75%

TSR Metric (d)

50%

Average annual of at least 6.0%

Average annual of at least 11.0%

(a)If the average annual ROC or TSR falls between the applicable minimum and maximum performance criteria, a pro-rata portion of such units, as applicable, vest.
(b)Such RSUs are not entitled to voting or dividend rights.
(c)The ROC Metrics meet the definition of a performance condition. Fair value is based on the market value on the date of grant. For ROC Awards, the Company does not recognize expense when performance conditions are not expected to be met; such performance assumptions are re-evaluated quarterly.
(d)The TSR Metrics meet the definition of a market condition. A third-party appraiser prepares a Monte Carlo simulation pricing model to determine the fair value of such awards.
(e)Such RSUs are (i) not entitled to voting rights and (ii) upon vesting, the holders receive an amount equal to the dividends that would have been paid on the underlying shares had such shares been outstanding during the three-year performance cycle.
(f)As of March 31, 2023 and December 31, 2022, the Company accrued dividend equivalents of $264,000 and $210,000, respectively, for the 2022 and 2021 RSUs based on the number of shares that would have been issued, underlying such RSUs, using performance and market assumptions determined at such dates.

17

Table of computing the grant date fair valueContents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023 (CONTINUED)

NOTE 10 – STOCKHOLDERS’ EQUITY (CONTINUED)

As of the awards using One Liberty’s simulated stock price. The per unit or share fair value was estimated using the following assumptions: an expected life of three years, a dividend rate of 7.16%, a risk-free interest rate of 1.14% - 1.64% and an expected price volatility of 16.57% - 19.15%. The expected price volatility was calculated based on the historical volatility and implied volatility. For the ROC awards, the fair value is based on the market value on the date of grant and the performance assumptions are re-evaluated quarterly. Expense is not recognized on the RSUs which the Company does not expect to vest as a result of service conditions or the Company’s performance expectations.

The total amount recorded as deferred compensation is $919,000,March 31, 2023, based on performance and market assumptions, the fair value of the RSUs granted in 2022, 2021 and 2020 is $1,491,000, $1,846,000 and $962,000, respectively. Recognition of such deferred compensation will be charged to General and administrative expense.  None of these RSUs were forfeited or vested duringexpense over the three months ended September 30, 2017.respective three-year performance cycles.

In 2010, RSUs exchangeable for up to 200,000 shares of common stock were awarded pursuant to the Company’s 2009 Incentive Plan. The holders of RSUs were not entitled to dividends or to vote the underlying shares until the RSUs vested and the underlying shares were issued. Accordingly, for financial statement purposes, the shares underlying these RSUs were not included in the shares shown as outstanding on the balance sheet as of December 31, 2016.  As of June 30, 2017, 113,584 shares of common stock underlying the RSUs were deemed to have vested and in the quarter ended September 30, 2017, such shares were issued.  RSUs with respect to the balance of 86,416 shares were forfeited.

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017 (Continued)

Note 13 — Stock Based Compensation (Continued)

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

    

2023

    

2022

Restricted stock grants:

Number of shares

152,955

153,575

Average per share grant price

$

22.09

$

33.75

Deferred compensation to be recognized over vesting period

$

3,379,000

$

5,183,000

Number of non-vested shares:

Non-vested beginning of the period

712,375

706,450

Grants

152,955

153,575

Vested during the period

(134,800)

(130,750)

Forfeitures

(500)

Non-vested end of the period

730,530

728,775

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 the period

241,076

230,752

Grants

Vested during the period

Forfeitures

Non-vested end of the period

241,076

230,752

Restricted stock and RSU grants (based on grant price):

Weighted average per share value of non-vested shares

$

25.74

$

26.47

Value of stock vested during the period

$

3,412,000

$

3,236,000

Weighted average per share value of shares forfeited during the period

$

$

33.75

Total charge to operations:

Outstanding restricted stock grants

$

950,000

$

957,000

Outstanding RSUs

378,000

368,000

Total charge to operations

$

1,328,000

$

1,325,000

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017 (Continued)

Note 13 — Stock Based Compensation (Continued)

As of September 30, 2017,March 31, 2023, total compensation costs of $7,805,000$10,668,000 and $1,995,000 related to non-vested restricted stock awards and RSUs, thatrespectively, have not yet been recognized. These compensation costs will be charged to General and

18

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023 (CONTINUED)

administrative expense over the remaining respective vesting periods. The weighted average remaining vesting period is 2.42.8 years for the restricted stock and 2.81.3 years for the RSUs.

Note 14 — Fair Value Measurements

19

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023 (CONTINUED)

NOTE 11 – FAIR VALUE MEASUREMENTS

The Company measures the fair value of financial instruments based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions. In accordance with the fair value hierarchy, Level 1 assets/liabilities are valued based on quoted prices for identical instruments in active markets, Level 2 assets/liabilities are valued based on quoted prices in active markets for similar instruments, on quoted prices in less active or inactive markets, or on other “observable” market inputs and Level 3 assets/liabilities are valued based significantly on “unobservable” market inputs.

The carrying amounts of cash and cash equivalents, restricted cash, escrow, deposits and other assets and receivables, (excluding interest rate swaps), dividends payable, and accrued expenses and other liabilities (excluding interest rate swaps), are not measured at fair value on a recurring basis but are considered to be recorded at amounts that approximate fair value.

At September 30, 2017, the $414,746,000 estimatedThe fair value and carrying amounts of the Company’s mortgages payable is greater than their $401,053,000 carrying value (before unamortized deferred financing costs) by approximately $13,693,000 assuming a blended market interest rate of 3.69% based on the 8.9 year weighted average remaining term to maturity of the mortgages.  At December 31, 2016, the $413,916,000 estimated fair value of the Company’s mortgages payable is greater than their $399,192,000 carrying value (before unamortized deferred financing costs) by approximately $14,724,000 assuming a blended market interest rate of 3.74% based on the 9.3 year weighted average remaining term to maturity of the mortgages.are as follows (dollars in thousands):

March 31, 

December 31, 

    

2023

    

2022

    

Fair value of mortgages payable (a)

$

385,723

$

378,943

Carrying value of mortgages payable

$

410,897

$

409,175

Fair value less than the carrying value

$

(25,174)

$

(30,232)

Blended market interest rate (a)

5.64

%

5.87

%

Weighted average remaining term to maturity (years)

6.2

6.5

(a)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.

At September 30, 2017March 31, 2023 and December 31, 2016,2022, the carrying amount of the Company’s line of credit (before unamortized deferred financing costs) of $6,400,000$11,500,000 and $10,000,000,$21,800,000, 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, 2023, the Company’s derivative financial instruments, using Level 2 inputs, was determinedCompany had in effect 17 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 basis17 outstanding mortgage loans with an aggregate $48,720,000 notional amount maturing between 2023 and that are classified as Level 1 or 3.

2026 (weighted average remaining term to maturity of 1.4 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 or SOFR based variable rate mortgages to fixed annual rate mortgages (with interest rates ranging from 3.02% to 4.62% and a weighted average interest rate of 4.07% at March 31, 2023). The Company does not use derivatives for trading or speculative purposes.

Fair values are approximated using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This fair value 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 associated 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, 2023, 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. The Company does not currently own any financial instruments that are measured on a recurring basis and that are classified as Level 1 or 3.

20

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

As of September 30, 2017, 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 designated as cash flow hedges, converted LIBOR based variable rate mortgages to fixed annual rate mortgages (with interest rates ranging from 3.02% to 5.38% and a weighted average interestNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023 (CONTINUED)

One Liberty Properties, Inc. and SubsidiariesNOTE 11 – FAIR VALUE MEASUREMENTS (CONTINUED)

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 derivative financial instruments was determined to be the following (amounts in thousands):

Carrying and

Balance Sheet

    

As of

    

Fair Value

    

Classification

Financial assets: Interest rate swaps

March 31, 2023

$

1,401

Other assets

December 31, 2022

1,811

As of March 31, 2023 and December 31, 2022, there were no derivatives in asset anda liability positions are reflected as other assets 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.

position.

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

March 31, 

    

2023

2022

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

$

(121)

$

1,489

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

288

(286)

 

 

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

)

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 $118,000 from accumulated other comprehensive loss to interest expense for the nine months ended September 30, 2017.  No gain or loss was recognized with respect to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company’s cash flow hedges for the three months ended September 30, 2017 and the three and nine months ended September 30, 2016.

During the twelve months ending September 30, 2018,March 31, 2024, the Company estimates an additional $988,000$1,035,000 will be reclassified from other accumulatedAccumulated other comprehensive loss as an increase to interest expense and $26,000 will be reclassified from accumulated other comprehensive lossincome as a decrease to equity in earnings of unconsolidated joint ventures.

One Liberty Properties, Inc. and SubsidiariesInterest expense.

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017 (Continued)

Note 14 — Fair Value Measurements (Continued)

The derivative agreements in effect at September 30, 2017March 31, 2023 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, then the Company could be held liable for such swap breakage losses, if any.  losses.

NOTE 12 – OTHER INCOME

Insurance Recovery on Hurricane Casualty

During the ninethree months ended September 30, 2016,March 31, 2022, the Company terminated three interest rate swaps in connection with the early payoffrecognized a gain on insurance recovery of the related mortgages. As a result of these hedged forecasted transactions being terminated, the Company accelerated the reclassification of $178,000 in accumulated other comprehensive loss to earnings$918,000, which areis included in Prepayment costs on debtOther income on the consolidated statement of income.income, related to hurricane damage to one of its properties in 2020. No such gain was recognized during the three months ended March 31, 2023.

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

As of September 30, 2017, the fair value of the derivatives in a liability position, including accrued interest of $71,000, but excluding any adjustments for nonperformance risk, was approximately $2,516,000.  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2023 (CONTINUED)

NOTE 13 – NEW ACCOUNTING PRONOUNCEMENTS

In the event the Company breaches any of the contractual provisions of the derivative contracts, it would be required to settle its obligations thereunder at their termination liability value of $2,516,000.  This termination liability value, net of $135,000 adjustments for nonperformance risk, or $2,381,000, is included in Accrued expenses and other liabilities on the consolidated balance sheet at September 30, 2017.

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. In 2020, the DerecognitionCompany 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 transfer of nonfinancial assetscorresponding derivatives. In 2022, the Company transitioned two loans and the related derivatives away from LIBOR to a new reference rate, SOFR. The Company elected to apply several practical expedients related to these changes in substance nonfinancial assets to noncustomers, including partial sales. The effective datethe terms of the standard will be fiscal years,hedged forecasted transactions and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted.changes in the terms of the hedging instruments. Application of these expedients preserves the presentation of 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 the impact, if any,extent to which it may have on itsimpact the 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’t measured at fair value through net income. The guidance replaces the current ‘incurred loss’ model with an ‘expected loss’ approach. The 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 evaluating 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, 2019 and will apply the modified retrospective approach.

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017 (Continued)

Note 16 — New Accounting Pronouncements (Continued)

In May 2014, the FASB issued ASU 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. Early adoption is permitted but 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 material impact on the consolidated financial statements.

Note 17 — Subsequent Events

NOTE 14 – 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.

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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-lookingthereof and include, without limitations, statements regarding our future estimated rental income, funds from operations, adjusted funds from operations and our dividend. You 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 actualour results of operations, financial condition, cash flows, 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

The uncertainties, risks and factors which may cause actual results to differ materially from current expectations include, but are not limited to:

the financial failure of, or other default in payment by, tenants under their leases and the potential resulting vacancies;
adverse changes and disruption in the retail, restaurant, theater and health and fitness sectors, which could impact our tenants’ ability to pay rent and expense reimbursement;
loss or bankruptcy of one or more of our tenants, and bankruptcy laws that may limit our remedies if a tenant becomes bankrupt and rejects its lease;
the level and volatility of interest rates;
general economic and business conditions and developments, including those currently affecting or that may affect our economy;
general and local real estate conditions, including any changes in the value of our real estate;
our ability to renew or re-lease space as leases expire;
our ability to pay dividends;
changes in governmental laws and regulations relating to real estate and related investments;
compliance with credit facility and mortgage debt covenants;
the availability of, and costs associated with, sources of capital and liquidity;
competition in our industry;
technological changes, such as autonomous vehicles, reconfiguration of supply chains, robotics, 3D printing or other technologies;
potential natural disasters, epidemics, pandemics or outbreak of infectious disease, such as COVID-19, and other potentially catastrophic events such as acts of war and/or terrorism; and
the other risks, uncertainties and factors described in the reports and documents we file with the SEC including the

23

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risks, uncertainties and factors described in our Annual Report on Form 10-K for the year ended December 31, 2022 under the caption “Item 1A. Risk Factors” for a discussion of certain factors which may cause actual results to differ materially from current.

In light of the factors referred to above, the future events discussed or incorporated by reference in this report and are cautionedother documents we file with the SEC may not to place undue relianceoccur, and actual results, performance or achievements could differ materially from those anticipated or implied in the forward-looking statements.  Given these uncertainties, you should not rely on any forward-looking statements.

Except as may be required under the United States federal securities laws, 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.

OverviewChallenges and Uncertainties Facing Certain Tenants and Properties

As more fully described in our Annual Report, and in particular, the sections thereof entitled “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations”, we face challenges due to the volatile economic environment and certain of our properties and tenants (including Regal Cinemas, our Manahawkin, New Jersey property, The Vue Apartments, LA Fitness, Bed Bath and Beyond and Party City) face various challenges. There have been no material changes to the status of such tenants/properties from that described in our Annual Report except as described below:

Regal Cinemas

Regal Cinemas, or Regal, is a tenant at three properties, including a property owned by an unconsolidated joint venture in which we have a 50% equity interest. Regal’s parent, Cineworld Group plc, filed for Chapter 11 bankruptcy protection in September 2022. At March 31, 2023, Regal is obligated to pay us (and with respect to the unconsolidated joint venture, our 50% share of), (i) during the nine months ending December 31, 2023, $1.6 million, including $341,000 of COVID-19 rent deferral repayments, and (ii) from January 1, 2024 through 2035, an aggregate of $21.7 million of base rent (collectively, the “Obligated Amount”). Through March 31, 2023, we collected an aggregate of (i) $808,000 representing 100% of the base rent and deferred rent due through March 2023 and (ii) $67,000 representing 24.9% of the base rent and deferred rents due in September 2022. (Because the collection of amounts owed by Regal is deemed to be less than probable, we have not accrued Regal’s base rent or deferred rent and since October 2020, have been reporting same on a cash basis). We and Regal are discussing significant modifications to the terms of these leases, including the cancellation of deferred rent, the reduction of base rent, the application of payments made subsequent to the bankruptcy filing toward future rent obligations, and shortened lease terms. We anticipate that the amounts we collect will be significantly reduced from the Obligated Amount and there is uncertainty as to whether we will be required to take an impairment with respect to these properties. We can provide no assurance that we will reach an agreement with Regal and that even if an agreement is reached, that it will be approved by any third parties, such as the bankruptcy court, whose approvals are required. If an agreement is not reached or third party approvals not obtained, it will be difficult and costly (due, among other things, to the unique configuration of theater properties) to find a replacement tenant.

Bed Bath and Beyond

On April 23, 2023, Bed Bath & Beyond (“BBBY”) filed for Chapter 11 bankruptcy protection and announcement that it began its efforts to close its retail locations. BBBY leases, through January 2027, a 32,138 square foot property located in Kennesaw, Georgia. As of April 1, 2023, and through the stated expiration of this lease, BBBY is obligated to pay us an aggregate of $2.3 million of base rent.  In 2022, this property accounted for (i) $629,000 of rental income, net and (ii) $218,000, $168,000 and $56,000 of depreciation and amortization expense, interest expense and real estate operating expense, respectively. At March 31, 2023, the mortgage debt and unbilled rent receivable with respect to this property was $4.6 million and $133,000, respectively.

Our cash flow and profitability will be adversely impacted by the anticipated modifications to Regal’s leases or if the issues with respect to the other challenged tenants/properties identified in this Quarterly Report or the Annual Report are not resolved in a satisfactory manner.

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Overview

We are a self-administered and self-managed real estate investment trust, or REIT, incorporated in Maryland in 1982.REIT. 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 and retail (including furniture stores, supermarketsproperties, and office supply stores), industrial, restaurant,to a lesser extent, health and fitness, restaurant, theater, and theaterother properties, many of which are leased undersubject to long-term net leases. As of September 30, 2017,March 31, 2023, we own 119 properties (including sixthree 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, 2023 is approximately 98.0%97.8%.

We face a variety of risks and challenges in our business. We, among other things, facebusiness, including the possibility that (i) we will not be able toto: acquire accretiveor dispose of properties on acceptable terms, (ii) we will not be able to lease our properties on terms favorable termsto us or at all, (iii)collect amounts owed to us by our tenants, may not be able to pay their rent and comply with other obligations under their leases and (iv) we may not be able to renew or relet,re-let, on acceptable terms, leases that are expiring.

expiring or otherwise terminating.

We seek to manage the risk of our real property portfolio and the related financing arrangements by (i) diversifying among types of properties, industries, locations, tenants, scheduled lease expirations, mortgage maturities and lenders.  We uselenders, and (ii) minimizing 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.tenants and their payment practices. We may sell a property if thea tenant’s financial condition is unsatisfactory.

In acquiring and disposing of properties, among other things, we balance an evaluation ofevaluate the terms of the leases, and the credit of the existing tenants, withthe terms and conditions of the related financing arrangement (including any contemplated financing) and engage in a fundamental analysis of the real estate to be acquired, whichbought or sold. This fundamental 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 In addition, in evaluating property sales, we take into account, among other things, the risks facing theproperty type (i.e., industrial, retail industry as a resultor other), our perception of the growthproperty’s long-term prospects (including the likelihood for, and the extent of, e-commerce.  Several of our currentany further appreciation or diminution in value), the term remaining on the related lease and former tenants (including Payless ShoeSource, Kmart, hhgregg, Joe’s Crab Shackmortgage debt, the price and Pathmark) have experienced or are experiencing financial difficultyother terms 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-Kconditions for the year ended December 31, 2016 for further information aboutsale of such property and the challenges facingreturns anticipated to be generated from the retail industry and severalreinvestment of our tenants.the net proceeds to us from such property sale.

We are addressing our exposure to the retail industry by seeking to acquire properties that we believe capitalize on e-commerce activities, such as distribution and warehouse facilities, and by being especially selective in acquiring retail properties. Approximately 41.0% of our contractual rental income (as described below) is derived from retail tenants (including 9.1%, 3.7% and 3.6% 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 2023 contractual rental incomebase rent is approximately $67.3$70.7 million and represents, after giving effect to any abatements, concessions, deferrals or adjustments in effect as of March 31, 2023, the base rent payable to us during the twelve monthsyear ending September 30, 2018December 31, 2023 under leases in effect at September 30, 2017. ContractualMarch 31, 2023. Excluded from such contractual rental income excludes:is an aggregate of $8.4 million comprised of: (i) $2.1 million of base rent and $341,000 of COVID-19 rent deferral repayments due from Regal Cinemas (including our $237,000 share of base rent payable and $40,000 share of COVID-19 rent deferral repayments due from Regal Cinemas at our joint venture property), (ii) $1.4 million representing our share of the base rent payable to our joint ventures (excluding amounts from Regal Cinemas noted above), (iii) subject to the property generating specified levels of positive operating cash flow, $1.3 million of estimated variable lease payments from The Vue, a multi-family complex which ground leases the underlying land from us and as to which there is uncertainty as to when and whether the tenant will resume paying rent, (iv) approximately $437,000$1.5 million of straight-line rent and $1.0 million$755,000 of amortization of intangibles;intangibles, (v) $607,000 of base rent from BBBY which filed for bankruptcy protection and (ii)(vi) $366,000 of base rent from Havertys Furniture at our shareDuluth, Georgia property that we anticipate selling during the second quarter of the rental income payable to our unconsolidated joint ventures, which is approximately $2.8 million.2023.

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Table of Contents

The following table sets forth scheduled lease expirations of leases for our properties as of September 30, 2017March 31, 2023 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

%

    

    

Approximate

    

    

Square

Percentage of

Footage

2023 Contractual

2023 Contractual

Number of

Subject to

Rental Income

Rental Income

Expiring

Expiring

Under Expiring

Represented by

Year of Lease Expiration(1)

    

Leases

    

Leases(2)

    

Leases

    

Expiring Leases

2023

 

11

479,748

$

3,934,738

5.60

2024

 

25

871,902

 

6,216,088

8.80

2025

 

14

521,249

 

5,113,146

7.20

2026

 

17

978,624

 

5,790,894

8.20

2027

 

33

2,027,091

 

12,786,989

18.10

2028

 

19

1,345,592

 

7,937,388

11.20

2029

 

6

1,140,000

 

5,440,420

7.70

2030

 

11

480,945

 

5,054,598

7.10

2031

 

10

819,287

 

4,707,672

6.70

2032 and thereafter

 

29

2,094,280

 

13,757,171

19.40

 

175

 

10,758,718

$

70,739,105

 

100.0


(1)

(1)Lease expirations assume tenants do not exercise existing renewal or termination options.
(2)Excludes an aggregate of 99,542 square feet of vacant space.

(2)         Excludes an aggregate of 183,676 square feet of vacant space.

(3)         Includes approximately $1.8 million of contractual rental income related toProperty Transaction During the Three Months Ended March 31, 2023

On February 28, 2023, we sold a restaurant 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, 2017

On July 14, 2017, we soldfor a retail property tenanted by Kohl’s, located in Kansas City, Missouri, for agross sales price of $10.1$4.2 million and recognized a gain of $1.5 million from this sale.  This property contributed (i) $36,000 and $55,000 of rental income, net and (ii) $6,000 and $19,000 of closing costs.  Ourdepreciation expense in the three months ended March 31, 2023 and 2022, respectively. We used the $4.1 million of net cash proceeds to pay down our credit facility.

Property Transaction Subsequent to March 31, 2023

During the second quarter of 2023, we anticipate (i) completing the sale of the Havertys Furniture retail property located in Duluth, Georgia for a gross sales price of $6.0 million and (ii) recognizing a gain of $3.1 million from this sale was $2.2 million.  In connection withduring the salethree and six months ending June 30, 2023. This property contributed (i) $91,000 and $95,000 of this property, we repaid the $3.9 millionrental income, net, (ii) $23,000 and $23,000 of depreciation and amortization expense and (iii) $0 and $16,000 of mortgage balance and due to the early termination of the interest rate swap derivative, incurred interest expense of $118,000 in the ninethree months ended September 30, 2017.

On AugustMarch 31, 2017, we sold a vacant retail property formerly tenanted by hhgregg, Inc.,  located in Niles, Illinois, for $4.82023 and 2022, respectively. We intend to use the net cash proceeds of approximately $5.9 million netto pay down our credit facility.

26

Table of closing costs. Our gain from this sale was $1.1 million.Contents

In September 2017, we leased our Philadelphia, Pennsylvania property to a supermarket operator pursuant to a 20 year net lease. Beginning October 1, 2017, the annual rental income from this property will be approximately $473,000.  The property was formerly tenanted by Pathmark and had been vacant since September 2015.

Property Acquisition Subsequent to September 30, 2017

On October 10, 2017, we acquired, in a sale-leaseback transaction, a distribution facility/corporate headquarters, located in Memphis, Tennessee for $8 million.  The initial term of the lease is ten years and our annual rental income from this property will be approximately $627,000.

Results of Operations

RevenuesTotal revenues

The following table compares total revenues 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

 

    

2023

    

2022

    

(Decrease)

    

% Change

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income, net

 

$

17,217

 

$

16,334

 

$

883

 

5.4

 

$

50,770

 

$

46,985

 

$

3,785

 

8.1

 

$

22,952

$

21,531

$

1,421

 

6.6

Tenant reimbursements

 

1,920

 

1,687

 

233

 

13.8

 

5,252

 

4,614

 

638

 

13.8

 

Lease termination fees

25

(25)

 

(100.0)

Total revenues

 

$

19,137

 

$

18,021

 

$

1,116

 

6.2

 

$

56,022

 

$

51,599

 

$

4,423

 

8.6

 

$

22,952

$

21,556

$

1,396

 

6.5

Rental income, net.

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

Three Months Ended

March 31, 

Increase

(Dollars in thousands)

    

2023

    

2022

    

(Decrease)

    

% Change

Acquisitions (1)

$

1,198

$

128

$

1,070

835.9

Dispositions (2)

35

516

(481)

(93.2)

Same store (3)

21,719

20,887

832

4.0

Rental income, net

$

22,952

$

21,531

$

1,421

6.6

(1)Represents rental income from properties acquired since January 1, 2022.
(2)Represents rental income from properties sold since January 1, 2022.
(3)Represents rental income from 110 properties that were owned for the entirety of the periods presented.

Changes due to acquisitions and dispositions

The three months ended March 31, 2023 reflects an increase of $1.1 million generated by six properties acquired in 2022. Offsetting the increase is a decrease due to the inclusion, in the threecorresponding 2022 period, of rental income of $481,000 from properties sold during 2022 and nine months ended September 30, 2017 are2023 (i.e., $461,000 from seven properties sold in 2022).

Changes at same store properties

The increase is due primarily to $1.5 million and $5.9 million, respectively, generated by properties acquired in 2017 and 2016.  The increase in the nine months ended September 30, 2017 is alsoan aggregate of (i) $439,000 of rental income due to (i) $267,000lease amendments and extensions at several properties, including $264,000 at our Fort Mill, South Carolina property, (ii) $244,000 of rental income from a tenant whose lease commenced April 1, 2016new tenants, including $146,000 from Lion Brewery at our Joppa, MarylandPittston, Pennsylvania property, and (ii) $174,000(iii) $114,000 in tenant reimbursements.

27

Table of annual percentage rent income received from a tenant.Contents

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) $169,000 and $169,000, respectively, representing the 2016 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, 2017 due primarily to 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 reimbursements generally relate to real estate expenses incurred in the same period.

Operating Expenses

The following table compares operating expenses for the periods indicated:

 

Three Months Ended
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

 

    

2023

    

2022

    

(Decrease)

    

% Change

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

  

 

  

 

  

Depreciation and amortization

 

$

5,115

 

$

4,663

 

$

452

 

9.7

 

$

15,858

 

$

13,246

 

$

2,612

 

19.7

 

$

6,145

$

5,843

$

302

 

5.2

General and administrative

 

2,701

 

2,681

 

20

 

.7

 

8,409

 

7,961

 

448

 

5.6

 

 

4,039

 

3,792

 

247

 

6.5

Real estate expenses

 

2,689

 

2,188

 

501

 

22.9

 

7,765

 

6,521

 

1,244

 

19.1

 

 

4,124

 

3,687

 

437

 

11.9

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

 

68

 

74

 

(6)

 

(8.1)

Total operating expenses

 

10,825

 

9,814

 

1,011

 

10.3

 

32,817

 

28,767

 

4,050

 

14.1

 

$

14,376

$

13,396

$

980

 

7.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 areincrease is 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,$460,000 from properties acquired in 20162022 and 2017; substantially all(ii) $105,000 from improvements at several properties. The increase was offset by a decrease of (i) $233,000 related to improvements and tenant origination costs at several properties that prior to March 31, 2023 were fully amortized and (ii) $88,000 of such expense from the properties sold since January 1, 2022.

General and administrative. The increase is primarily due to increases of (i) $114,000 of compensation expense due to higher levels of compensation, and to a lesser extent, additional employees and (ii) $89,000 in professional fees related to various matters.

Real estate expenses. The increase is primarily due to (i) $280,000 in these expenses from properties acquired in 2022 and (ii) $279,000 in these expenses for several properties, none of which were individually significant (including a $138,000 increase in real estate tax expense, an $80,000 increase in real estate operating expenses and a $61,000 increase in insurance expense). The increase was offset by $122,000 related to properties sold in 2022.

A substantial portion of real estate expenses are rebilled to tenants and are included in Tenant reimbursements. Also contributing toRental income, net, on the increasesconsolidated statements of income.

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

March 31, 

Increase

(Dollars in thousands)

    

2023

    

2022

    

(Decrease)

    

% Change

Gain on sale of real estate, net

$

1,534

$

4,649

$

(3,115)

 

(67.0)

The $1.5 million gain in the three and nine months ended September 30, 2017 were $165,000 and $647,000, respectively,2023 period was realized from the sale of expenses related to the vacant properties formerly tenanted by Quality Bakery and hhgregg. These increases were offset by decreasesour Hauppauge, NY restaurant property. The $4.6 million gain 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, which2022 period 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, 2017 primarily relates to state franchise tax resultingrealized from the 2016 purchasesale of a property locatedfour Wendy’s restaurant properties 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.Pennsylvania.

Other Income and Expenses

The following table compares 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

 

    

2023

    

2022

    

(Decrease)

    

Change

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated joint ventures

 

$

212

 

$

228

 

$

(16

)

(7.0

)

$

663

 

$

794

 

$

(131

)

(16.5

)

$

85

$

116

$

(31)

26.7

Prepayment costs on debt

 

 

 

 

 

 

(577

)

577

 

(100.0

)

Other income

 

57

 

362

 

(305

)

(84.3

)

399

 

431

 

(32

)

(7.4

)

15

926

(911)

(98.4)

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expense

 

(4,459

)

(4,404

)

(55

)

1.2

 

(13,380

)

(12,593

)

(787

)

(6.2

)

(4,600)

(4,306)

294

6.8

Amortization and write-off of deferred financing costs

 

(263

)

(189

)

(74

)

39.2

 

(717

)

(644

)

(73

)

(11.3

)

Amortization of deferred financing costs

(202)

(205)

(3)

(1.5)

28

Table of Contents

Equity in earnings of unconsolidated joint ventures. Other income. The income in the ninethree months ended September 30, 2016March 31, 2022 includes $918,000 representing the final property insurance recovery related to our 50% share, or $146,000, of income obtained for permanent utility easements granted at two properties. There was no such income during 2017.Lake Charles, Louisiana property damaged in an August 2020 hurricane.

Prepayment costs on debt.  These costs were incurred in connection with the property sales and the payoff, prior to the stated maturity, of the related mortgage debt in 2016, primarily relating to the sales of several properties.

Other income. The nine 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.

Interest expense. The following table details the components ofcompares 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)

    

2023

    

2022

    

(Decrease)

    

Change

Interest expense:

  

 

  

 

  

 

  

Mortgage interest

$

4,240

$

4,184

$

56

 

1.3

Credit line interest

360

122

238

 

195.1

Total

$

4,600

$

4,306

$

294

 

6.8

Credit line interest

The decrease in the nine months ended September 30, 2017 is due to a decrease of $11.1 million in the weighted average balance outstanding under our line of credit, offset by a  63 basis point increase in the average interest rate, as well as an increase of $67,000 in the unused facility fee resulting from the $25 million increase in our borrowing capacity under the facility.

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)

    

2023

    

2022

    

(Decrease)

    

Change

Weighted average interest rate

4.11

%  

4.17

%  

(0.06)

%  

(1.4)

Weighted average principal amount

$

410,021

$

401,633

$

8,388

 

2.1

 

 

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 increase in mortgage interest in the three and nine months ended September 30, 2017 in mortgage interest expense areMarch 31, 2023 is due primarily to the increasesincrease in the average principal amount of mortgage debt outstanding offset by decreases in the average interest rate thereon. The increase in the average balance outstanding is substantially due to the incurrence of mortgage debt in 2016 and 2017 of $72.9 million in connection with properties acquired in 2016 and 2017 and the financing or refinancing of $51.5 million of mortgage debt, net of refinanced amounts, in connection with properties acquired prior to 2016. The decrease in the average interest rate is due to the financing (includingwhich resulted from financings effectuated in connection with acquisitions) or refinancing in 2016refinancings and 2017 of $158.8 million of gross 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, 2017acquisitions. The increase was offset by $118,000 due to the payoff of a mortgage and early termination of an interest rate swapmortgages payoffs (generally in connection with the sale of the property tenanted by Kohl’s in July 2017.current maturity dates) and scheduled amortization payments.

Gain on sale of real estate, net.Credit line interest

The following table compares gainreflects the weighted average interest rate on salethe weighted average principal amount of real estate, net,outstanding credit line debt for the periods indicated:

Three Months Ended

March 31, 

Increase

%

(Dollars in thousands)

    

2023

    

2022

    

(Decrease)

    

Change

Weighted average interest rate

6.23

%  

1.89

%  

4.34

%  

229.6

Weighted average principal amount

$

20,184

$

14,408

$

5,776

 

40.1

 

 

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 gainincrease in credit line interest in the three and nine months ended September 30, 2017 was realized fromMarch 31, 2023 is due to the sales of the Kohl’s property in Kansas City, Missouri and the former hhgregg property in Niles, Illinois. The gainincrease in the nine months ended September 30, 2017 was also realized from the saleweighted average interest rate, and to a lesser extent, an increase of the Greenwood Village, Colorado property in May 2017.  The gain$5.8 million in the nine months ended September 30, 2016 was realized from the sales of several properties.weighted average balance outstanding.

Liquidity and Capital Resources

Our sources of liquidity and capital areinclude cash flow from operations, cash and cash equivalents, borrowings under our revolving credit facility, refinancing existing mortgage loans, obtaining mortgage loans secured by our unencumbered properties, issuance of our equity securities and property sales.sales. Our available liquidity at November 3, 2017,May 1, 2023, was $99.3$87.9 million, including $12.7$7.9 million of cash and cash equivalents (net of(including the credit facility’s required minimum $3.0 million average deposit maintenance balance) and subject to borrowing base requirements, up to $86.6$80.0 million available under our revolving credit facility. At May 1, 2023, the facility is available for the acquisition of commercial real estate, repayment of mortgage debt, and up to $31.5 million for renovation and operating expense purposes.

29

Table of Contents

Liquidity and Financing

We expect to meet our short term (i.e., one year or less) and long term (i) operating cash requirements, (includingincluding debt service, anticipated dividend payments and dividends) principally from cash flow from operations and (ii) capital requirements, including an estimated $11.0repurchases, if any, of our common stock (we are authorized to repurchase up to $7.5 million of building expansion and improvements at several properties,common stock) principally from cash flow from operations, our available cash and cash equivalents, proceeds from and, to the extent permitted and needed, our credit facility.

facility and (ii) investing and financing cash requirements (including an estimated aggregate of $2.7 million of capital and other expenditures) from the foregoing, as well as property financings and refinancings, property sales and sales of our common stock.

At September 30, 2017,March 31, 2023, excluding the mortgage indebtednessdebt of our unconsolidated joint ventures,venture, we had 7267 outstanding mortgages payable secured by 8968 properties in the aggregate principal amount of $401.1$410.9 million (before netting unamortized deferred financing costs)costs of $3.3 million and mortgage intangible of $635,000). These mortgages represent first liens on individual real estate investments with an aggregate carrying value of $629.8$654.9 million, before accumulated depreciation of $81.4$116.2 million. After giving effect to interest rate swap agreements, the mortgage payments bear interest at fixed rates ranging from 3.02% to 7.81%5.50% (a 4.22%4.12% weighted average interest rate) and mature between 20172023 and 2042 (an 8.92047 (a 6.2 year weighted average remaining term to maturity).

The following table sets forth, as of September 30, 2017,March 31, 2023, information with respect to our mortgage debt that is payable from October 1, 2017during the nine months ending December 31, 2023 and for each of the subsequent twelve months through December 31, 2020 (excluding2026 (excludes our unconsolidated joint ventures):

(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, our unconsolidated joint ventures had first mortgages on four properties with outstanding balances aggregating $35.3venture’s $21.2 million mortgage debt bearing an interest at rates ranging from 3.49% to 5.81% (i.e., a 4.07% weighted average interest rate)rate of 4.0% and maturing between 2018 and 2025.in 2025):

(Dollars in thousands)

    

2023

    

2024

    

2025

    

2026

    

Total

Amortization payments

$

9,211

$

11,388

$

10,085

$

9,965

$

40,649

Principal due at maturity

 

12,973

 

50,695

(1)

 

32,063

 

19,179

 

114,910

Total

$

22,184

$

62,083

$

42,148

$

29,144

$

155,559

(1)

(1)

Approximately $23.7 million (bearing a weighted average interest rate of 4.7%) of such debt matures in the quarter ending March 31, 2024. We anticipate refinancing a substantial portion of such debt although we can provide no assurance that we will be able to do so on terms as favorable as those currently in effect or at all.

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 20172023 through 2020.2026. 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 eachalthough we have done so infrequently and primarily in the context of our encumbered properties isa tenant default at a property for which we have not found a replacement tenant, if we believe we have negative equity in a property 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.

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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$40.0 million and 15%40% of the borrowing base and if used for working capital purposes, will not exceed $10 million.base. The facility matures December 31, 20192026 and bears interest equal to the one month LIBOR rate30-day SOFR 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 300275 basis points if such ratio is greater than 65%60%. The applicable margin was 175 basis points at September 30, 2017for the three months ended March 31, 2023 and 2016 and at September 30, 2017, the interest rate was 2.985%.2022. 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.balances. The interest rate on the facility was 6.47% and 6.58% at March 31, 2023 and April 30, 2023, respectively.

The terms of our revolving credit facility include certain restrictions and covenants which may 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, 2023, we were in compliance with the covenants under this facility.

Statement of Cash FlowsOther Financing Sources and Arrangements

We own a land parcel located in Beachwood, Ohio which is improved by a multi-family complex (i.e.,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 flowVue Apartments) 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 comparedwe ground lease to the nine months ended September 30, 2016 is due primarily to the decrease in purchasesowner/operator of real estate in 2017, offset in part by the decrease in net proceeds from sales of real estate in 2017.

The increase in cash flow used in financing activities during the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 is due primarily to the net decrease of $63.3 million in financings/repayments of mortgages payable and to a lesser extent, the net increase of $8.2 million in repayments (net of proceeds from drawdowns) on the credit facility in the nine months ended September 30, 2017. The increase in cash flow used in financing activities also resulted from a $11.2 million decrease in net proceeds from the sale of common stock in the current nine month period.

Off-Balance Sheet Arrangements

We aresuch complex. This ground lease did not a party togenerate any off-balance sheet arrangements other than with respect to our properties located in Lakemoor and Wheaton, Illinois and Beachwood, Ohio. These properties are ground leases improved by multi-family properties and generated $2.8 million of rental income during the ninethree months ended September 30, 2017.March 31, 2023 and 2022. At September 30, 2017, our maximum exposure to loss with respect to these properties is $34.0 million, representingMarch 31, 2023, the carrying value of the land; suchland on our balance sheet was approximately $16.8 million; our leasehold positions areposition is subordinate to an aggregate of $150.7$64.5 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. In addition, we have agreed, in our discretion, to fund certain capital expenditures and operating cash flow shortfalls at this property. We do not believe that this type of off-balance sheet arrangement has been or will be material to our liquidity and capital resource positions.positions, except to the extent we determine to continue to fund the capital expenditures required by, and the operating cash flow shortfalls at, this property. See Note 65 to our consolidated financial statements for additional information regarding these arrangements.this arrangement.

Application of Critical Accounting Estimates

A complete discussion of our critical accounting estimates is included in our Form 10-K for the year ended December 31, 2022. There have been no significant changes in such estimates since December 31, 2022.

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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 from income additional rent from ground lease tenant, income on settlement of litigation, income on insurance recoveries from casualties, lease termination fees and gain on extinguishment of debtassignment fees, 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.costs and amortization of lease incentives and mortgage intangible assets. Since the NAREIT White Paper does not provide guidelines for computing AFFO, the computation of AFFO may varyvaries 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 tabletables 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, 

    

2023

2022

GAAP net income attributable to One Liberty Properties, Inc.

$

5,386

$

9,323

Add: depreciation and amortization of properties

 

5,969

5,725

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

 

130

130

Add: amortization of deferred leasing costs

 

176

118

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

 

4

5

Deduct: gain on sale of real estate, net

 

(1,534)

 

(4,649)

Adjustments for non-controlling interests

 

(18)

(17)

NAREIT funds from operations applicable to common stock

 

10,113

 

10,635

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

 

(893)

(567)

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

 

(5)

(8)

Deduct: income on insurance recovery from casualty loss

(918)

Deduct: lease termination fee income

(25)

Add: amortization of restricted stock and RSU compensation

 

1,328

 

1,325

Add: amortization of deferred financing costs

 

202

 

205

Add: amortization of lease incentives

31

Add: amortization of mortgage intangible asset

23

Add: our share of amortization of deferred financing costs of unconsolidated joint venture

 

4

4

Adjustments for non-controlling interests

 

3

Adjusted funds from operations applicable to common stock

$

10,803

$

10,654

Three Months Ended

March 31, 

    

2023

    

2022

GAAP net income attributable to One Liberty Properties, Inc.

$

.25

$

.44

Add: depreciation and amortization of properties

 

.27

.26

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

 

.01

.01

Add: amortization of deferred leasing costs

 

.01

.01

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

 

Deduct: gain on sale of real estate, net

 

(.07)

(.22)

Adjustments for non-controlling interests

 

NAREIT funds from operations per share of common stock (a)

 

.47

 

.50

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

 

(.04)

(.03)

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

 

Deduct: income on insurance recovery from casualty loss

(.04)

Deduct: lease termination fee income

Add: amortization of restricted stock and RSU compensation

 

.06

.06

Add: amortization of deferred financing costs

.01

.01

Add: amortization of lease incentives

Add: amortization of mortgage intangible asset

Add: our share of amortization of deferred financing costs of unconsolidated joint venture

 

Adjustments for non-controlling interests

 

Adjusted funds from operations per share of common stock (a)

$

.50

$

.50

(a)The weighted average number of diluted common shares used to compute FFO and AFFO applicable to common stock includes unvested restricted shares that are excluded from the computation of diluted EPS.

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Table of Contents

Three Months Ended March 31, 2023 and 2022

The $522,000, or 4.9%, decrease in FFO for the three months ended March 31, 2023 from the corresponding 2022 period is due primarily to:

 

 

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

 

Add: depreciation and amortization of properties

 

.27

 

.26

 

.84

 

.76

 

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

 

.01

 

.01

 

.04

 

.04

 

Add: impairment loss

 

.01

 

 

.01

 

 

Add: amortization of deferred leasing costs

 

 

 

.02

 

.01

 

Deduct: gain on sale of real estate

 

(.17

)

 

(.53

)

(.57

)

Adjustments for non-controlling interests

 

 

 

(.01

)

 

NAREIT funds from operations per share of common stock

 

.50

 

.51

 

1.44

 

1.39

 

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

 

(.02

)

(.03

)

(.05

)

(.13

)

Add: amortization of restricted stock compensation

 

.04

 

.04

 

.13

 

.13

 

Add: prepayment costs on debt

 

 

 

 

.03

 

Add: amortization and write-off of deferred financing costs

 

.01

 

.01

 

.04

 

.04

 

Adjustments for non-controlling interests

 

 

 

 

 

Adjusted funds from operations per share of common stock

 

$

.53

 

$

.53

 

$

1.56

 

$

1.46

 

a $918,000 decrease in other income from an insurance recovery,
a $437,000 increase in real estate operating expenses,
a $294,000 increase in interest expense, and
a $247,000 increase in general and administrative expense.

Offsetting the decrease is a $1.4 million net increase in rental income, including $292,000 from straight-line rent accruals.

See “—Results of Operations” for further information regarding these changes.

The $149,000, or 1.4%, increase in AFFO is due to the factors impacting FFO as described above other than the $918,000 in other income from an insurance recovery and a $292,000 increase in rental income related to straight-line rent accruals.

See “—Results of Operations” for further information regarding these changes.

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, our aggregateMarch 31, 2023, we had no liability in the event of the early termination of our swaps was $2.5 million.swaps.

At September 30, 2017,March 31, 2023, we had 3117 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, 2023, 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 million and the net unrealized lossgain on derivative instruments would have decreasedincreased by $8.0 million.$606,000. 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 million and the net unrealized lossgain on derivative instruments would have increaseddecreased by $8.6 million.$621,000. These changes would not have any impact on our net income or cash.

Our variable mortgage debt, after giving effect to the 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 $11.5 million outstanding balance under this facility at March 31, 2023, 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$115,000 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.

$115,000.

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 termlong-term debt of similar risk and duration.

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Table of Contents

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, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II -

PART II. OTHER INFORMATION

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, 2023 filed on May 5, 2023, 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: November 8, 2017May 5, 2023

/s/ Patrick J. Callan, Jr.

Patrick J. Callan, Jr.

President and Chief Executive Officer

(principal executive officer)

Date: November 8, 2017May 5, 2023

/s/ David W. Kalish

David W. Kalish

Senior Vice President and

Chief Financial Officer

(principal financial officer)

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