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, 20172023
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 |
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 |
| Accelerated filer |
| | |
Non-accelerated filer | | Smaller reporting company |
| | |
Emerging growth company | | |
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 November 1, 2017,2023, the registrant had 18,782,25221,065,691 shares of common stock outstanding.
One Liberty Properties, Inc. and Subsidiaries
Part I — FINANCIAL INFORMATION
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
(Amounts in Thousands, Except Par Value)
|
| September 30, |
| December 31, |
| ||
|
| (Unaudited) |
| ||||
Assets |
|
|
|
|
| ||
Real estate investments, at cost |
|
|
|
|
| ||
Land |
| $ | 210,211 |
| $ | 211,432 |
|
Buildings and improvements |
| 554,772 |
| 536,633 |
| ||
Total real estate investments, at cost |
| 764,983 |
| 748,065 |
| ||
Less accumulated depreciation |
| 105,150 |
| 96,852 |
| ||
Real estate investments, net |
| 659,833 |
| 651,213 |
| ||
|
|
|
|
|
| ||
Investment in unconsolidated joint ventures |
| 10,648 |
| 10,833 |
| ||
Cash and cash equivalents |
| 14,926 |
| 17,420 |
| ||
Restricted cash |
| 530 |
| 643 |
| ||
Unbilled rent receivable |
| 13,839 |
| 13,797 |
| ||
Unamortized intangible lease assets, net |
| 31,774 |
| 32,645 |
| ||
Escrow, deposits and other assets and receivables |
| 6,032 |
| 6,894 |
| ||
Total assets(1) |
| $ | 737,582 |
| $ | 733,445 |
|
|
|
|
|
|
| ||
Liabilities and Equity |
|
|
|
|
| ||
Liabilities: |
|
|
|
|
| ||
Mortgages payable, net of $3,960 and $4,294 of deferred financing costs, respectively |
| $ | 397,093 |
| $ | 394,898 |
|
Line of credit, net of $702 and $936 of deferred financing costs, respectively |
| 5,698 |
| 9,064 |
| ||
Dividends payable |
| 8,053 |
| 7,806 |
| ||
Accrued expenses and other liabilities |
| 11,890 |
| 10,470 |
| ||
Unamortized intangible lease liabilities, net |
| 17,990 |
| 19,280 |
| ||
Total liabilities(1) |
| 440,724 |
| 441,518 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies |
|
|
|
|
| ||
|
|
|
|
|
| ||
Equity: |
|
|
|
|
| ||
One Liberty Properties, Inc. stockholders’ equity: |
|
|
|
|
| ||
Preferred stock, $1 par value; 12,500 shares authorized; none issued |
| — |
| — |
| ||
Common stock, $1 par value; 25,000 shares authorized; 18,114 and 17,600 shares issued and outstanding |
| 18,114 |
| 17,600 |
| ||
Paid-in capital |
| 270,762 |
| 262,511 |
| ||
Accumulated other comprehensive loss |
| (1,275 | ) | (1,479 | ) | ||
Accumulated undistributed net income |
| 7,544 |
| 11,501 |
| ||
Total One Liberty Properties, Inc. stockholders’ equity |
| 295,145 |
| 290,133 |
| ||
Non-controlling interests in consolidated joint ventures |
| 1,713 |
| 1,794 |
| ||
Total equity |
| 296,858 |
| 291,927 |
| ||
Total liabilities and equity |
| $ | 737,582 |
| $ | 733,445 |
|
Continued on next page
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
| | | | | |
| September 30, | | December 31, | ||
| 2023 |
| 2022 | ||
ASSETS | (Unaudited) | | | | |
Real estate investments, at cost | | | | | |
Land | $ | 179,342 | | $ | 181,805 |
Buildings and improvements | | 706,027 | | | 697,791 |
Total real estate investments, at cost | | 885,369 | | | 879,596 |
Less accumulated depreciation | | 184,414 | | | 173,143 |
Real estate investments, net | | 700,955 | | | 706,453 |
| | | | | |
Investment in unconsolidated joint ventures | | 9,607 | | | 10,400 |
Cash and cash equivalents | | 5,471 | | | 6,718 |
Unbilled rent receivable | | 17,242 | | | 16,079 |
Unamortized intangible lease assets, net | | 16,848 | | | 19,841 |
Escrow, deposits and other assets and receivables | | 17,651 | | | 23,764 |
Total assets(1) | $ | 767,774 | | $ | 783,255 |
LIABILITIES AND EQUITY | | | | | |
Liabilities: | | | | | |
Mortgages payable, net (see Note 8) | $ | 416,727 | | $ | 405,162 |
Line of credit, net of $594 and $732 of deferred financing costs, respectively | | 11,906 | | | 21,068 |
Dividends payable | | 9,890 | | | 9,693 |
Accrued expenses and other liabilities | | 15,691 | | | 19,270 |
Unamortized intangible lease liabilities, net | | 10,443 | | | 11,125 |
Total liabilities(1) | | 464,657 | | | 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; | | 20,409 | | | 20,362 |
Paid-in capital | | 326,635 | | | 325,895 |
Accumulated other comprehensive income | | 1,337 | | | 1,810 |
Distributions in excess of net income | | (46,274) | | | (32,102) |
Total One Liberty Properties, Inc. stockholders’ equity | | 302,107 | | | 315,965 |
Non-controlling interests in consolidated joint ventures(1) | | 1,010 | | | 972 |
Total equity | | 303,117 | | | 316,937 |
Total liabilities and equity | $ | 767,774 | | $ | 783,255 |
(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: $10,365 and $10,365 of land, $17,929 and $17,870 of building and improvements, net of $6,235 and $5,670 of accumulated depreciation, $3,163 and $3,518 of other assets included in other line items, $17,960 and $18,500 of real estate debt, net, $1,042 and $1,135 of other liabilities included in other line items and $1,010 and $972 of non-controlling interests as of September 30, 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
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| 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 | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Revenues: | | | | | | | | | | | | |
Rental income, net | | $ | 22,546 | | $ | 21,473 | | $ | 67,905 | | $ | 64,476 |
Lease termination fee | | | — | | | — | | | — | | | 25 |
Total revenues | | | 22,546 | | | 21,473 | | | 67,905 | | | 64,501 |
| | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | |
Depreciation and amortization | | | 6,310 | | | 5,970 | | | 18,569 | | | 17,718 |
General and administrative (see Note 9 for related party information) | | | 3,864 | | | 3,769 | | | 12,068 | | | 11,534 |
Real estate expenses (see Note 9 for related party information) | | | 4,061 | | | 3,970 | | | 12,139 | | | 11,206 |
State taxes | | | 76 | | | 60 | | | 232 | | | 211 |
Total operating expenses | | | 14,311 | | | 13,769 | | | 43,008 | | | 40,669 |
| | | | | | | | | | | | |
Other operating income | | | | | | | | | | | | |
Gain on sale of real estate, net | | | 332 | | | 4,063 | | | 5,046 | | | 16,762 |
Operating income | | | 8,567 | | | 11,767 | | | 29,943 | | | 40,594 |
| | | | | | | | | | | | |
Other income and expenses: | | | | | | | | | | | | |
Equity in (loss) earnings of unconsolidated joint ventures | | | (905) | | | 82 | | | (761) | | | 310 |
Income on settlement of litigation (see Note 13) | | | — | | | — | | | — | | | 5,388 |
Other income (see Note 13) | | | 87 | | | 17 | | | 131 | | | 997 |
Interest: | | | | | | | | | | | | |
Expense | | | (4,768) | | | (4,367) | | | (13,978) | | | (13,026) |
Amortization and write-off of deferred financing costs | | | (212) | | | (278) | | | (619) | | | (917) |
| | | | | | | | | | | | |
Net income | | | 2,769 | | | 7,221 | | | 14,716 | | | 33,346 |
Net income attributable to non-controlling interests | | | (22) | | | (17) | | | (64) | | | (52) |
Net income attributable to One Liberty Properties, Inc. | | $ | 2,747 | | $ | 7,204 | | $ | 14,652 | | $ | 33,294 |
| | | | | | | | | | | | |
Weighted average number of common shares outstanding: | | | | | | | | | | | | |
Basic | | | 20,567 | | | 20,340 | | | 20,552 | | | 20,361 |
Diluted | | | 20,596 | | | 20,416 | | | 20,598 | | | 20,472 |
| | | | | | | | | | | | |
Per common share attributable to common stockholders: | | | | | | | | | | | | |
Basic | | $ | .12 | | $ | .34 | | $ | .67 | | $ | 1.58 |
Diluted | | $ | .12 | | $ | .34 | | $ | .66 | | $ | 1.57 |
| | | | | | | | | | | | |
Cash distributions per share of common stock | | $ | .45 | | $ | .45 | | $ | 1.35 | | $ | 1.35 |
See accompanying notes to consolidated financial statements.
2
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
(Unaudited)
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| 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 | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Net income | | $ | 2,769 | | $ | 7,221 | | $ | 14,716 | | $ | 33,346 |
| | | | | | | | | | | | |
Other comprehensive income | | | | | | | | | | | | |
Net unrealized (loss) gain on derivative instruments | | | (207) | | | 931 | | | (475) | | | 3,371 |
Comprehensive income | | | 2,562 | | | 8,152 | | | 14,241 | | | 36,717 |
| | | | | | | | | | | | |
Net income attributable to non-controlling interests | | | (22) | | | (17) | | | (64) | | | (52) |
Adjustment for derivative instruments attributable to non-controlling interests | | | 1 | | | (1) | | | 2 | | | (3) |
Comprehensive income attributable to One Liberty Properties, Inc. | | $ | 2,541 | | $ | 8,134 | | $ | 14,179 | | $ | 36,662 |
See accompanying notes to consolidated financial statements.
3
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in Thousands, Except Per Share Data)
(Unaudited) (Continued on Next Page)
|
| Common |
| Paid-in |
| Accumulated |
| Accumulated |
| Non- |
| Total |
| ||||||
Balances, December 31, 2015 |
| $ | 16,292 |
| $ | 232,378 |
| $ | (4,390 | ) | $ | 16,215 |
| $ | 1,931 |
| $ | 262,426 |
|
Distributions - common stock |
| — |
| — |
| — |
| (21,330 | ) | — |
| (21,330 | ) | ||||||
Shares issued through equity offering program |
| 608 |
| 13,689 |
| — |
| — |
| — |
| 14,297 |
| ||||||
Restricted stock vesting |
| 73 |
| (73 | ) | — |
| — |
| — |
| — |
| ||||||
Shares issued through dividend reinvestment plan |
| 101 |
| 2,087 |
| — |
| — |
| — |
| 2,188 |
| ||||||
Contribution from non-controlling interest |
| — |
| — |
| — |
| — |
| 30 |
| 30 |
| ||||||
Distributions to non-controlling interests |
| — |
| — |
| — |
| — |
| (236 | ) | (236 | ) | ||||||
Compensation expense - restricted stock |
| — |
| 2,176 |
| — |
| — |
| — |
| 2,176 |
| ||||||
Net income |
| — |
| — |
| — |
| 20,027 |
| 40 |
| 20,067 |
| ||||||
Other comprehensive loss |
| — |
| — |
| (5,281 | ) | — |
| (15 | ) | (5,296 | ) | ||||||
Balances, September 30, 2016 |
| $ | 17,074 |
| $ | 250,257 |
| $ | (9,671 | ) | $ | 14,912 |
| $ | 1,750 |
| $ | 274,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2016 |
| $ | 17,600 |
| $ | 262,511 |
| $ | (1,479 | ) | $ | 11,501 |
| $ | 1,794 |
| $ | 291,927 |
|
Distributions - common stock |
| — |
| — |
| — |
| (23,899 | ) | — |
| (23,899 | ) | ||||||
Shares issued through equity offering program - net |
| 135 |
| 2,932 |
| — |
| — |
| — |
| 3,067 |
| ||||||
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 |
Distributions – common stock | | | | | | | | | | | | | | | | | |
Cash – $.45 per share | | — |
| | — |
| | — |
| | (9,626) |
| | — |
| | (9,626) |
Restricted stock vesting | | 17 | | | (17) | | | — |
| | — |
| | — | | | — |
Repurchases of common stock – net | | (73) | | | (1,382) | | | — |
| | — |
| | — | | | (1,455) |
Shares issued through dividend reinvestment plan | | 50 | | | 1,048 |
| | — |
| | — |
| | — |
| | 1,098 |
Distributions to non-controlling interests | | — |
| | — |
| | — |
| | — |
| | (7) |
| | (7) |
Compensation expense – restricted stock and RSUs | | — |
| | 1,564 |
| | — |
| | — |
| | — |
| | 1,564 |
Net income | | — |
| | — |
| | — |
| | 6,519 |
| | 20 |
| | 6,539 |
Other comprehensive income (loss) | | — |
| | — |
| | 142 |
| | — |
| | (1) |
| | 141 |
Balances, June 30, 2023 | | 20,540 | | | 329,326 | | | 1,543 | | | (39,451) | | | 997 | | | 312,955 |
Distributions – common stock | | | | | | | | | | | | | | | | | |
Cash – $.45 per share | | — |
| | — |
| | — |
| | (9,570) |
| | — |
| | (9,570) |
Restricted stock unit vesting | | 75 | | | (75) | | | — |
| | — |
| | — | | | — |
Repurchases of common stock – net | | (262) | | | (4,882) | | | — |
| | — |
| | — | | | (5,144) |
Shares issued through dividend reinvestment plan | | 56 | | | 1,055 |
| | — |
| | — |
| | — |
| | 1,111 |
Distributions to non-controlling interests | | — |
| | — |
| | — |
| | — |
| | (8) |
| | (8) |
Compensation expense – restricted stock and RSUs | | — |
| | 1,211 |
| | — |
| | — |
| | — |
| | 1,211 |
Net income | | — |
| | — |
| | — |
| | 2,747 |
| | 22 |
| | 2,769 |
Other comprehensive (loss) | | — |
| | — |
| | (206) |
| | — |
| | (1) |
| | (207) |
Balances, September 30, 2023 | $ | 20,409 | | $ | 326,635 | | $ | 1,337 | | $ | (46,274) | | $ | 1,010 | | $ | 303,117 |
See accompanying notes to consolidated financial statements.
4
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN EQUITY
(Amounts in Thousands)
(Unaudited)
|
| Nine Months Ended |
| ||||
|
| 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 on next page
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)Thousands, Except Per Share Data)
(Unaudited) (Continued)
|
| Nine Months Ended |
| ||||
|
| 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 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | 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, 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 |
Distributions – common stock | | | | | | | | | | | | | | | | | |
Cash – $.45 per share | | — |
| | — |
| | — |
| | (9,494) |
| | — |
| | (9,494) |
Restricted stock vesting | | 16 |
| | (16) |
| | — |
| | — |
| | — |
| | — |
Repurchases of common stock – net | | (133) | | | (3,285) | | | — |
| | — |
| | — | | | (3,418) |
Shares issued through dividend reinvestment plan | | 6 | | | 157 |
| | — |
| | — |
| | — |
| | 163 |
Distributions to non-controlling interests | | — |
| | — |
| | — |
| | — |
| | (8) |
| | (8) |
Compensation expense – restricted stock and RSUs | | — |
| | 1,559 |
| | — |
| | — |
| | — |
| | 1,559 |
Net income | | — |
| | — |
| | — |
| | 16,767 |
| | 18 |
| | 16,785 |
Other comprehensive income | | — |
| | — |
| | 665 |
| | — |
| | — |
| | 665 |
Balances, June 30, 2022 | | 20,281 | | | 323,104 | | | 925 | | | (29,150) | | | 942 | | | 316,102 |
Distributions – common stock | | | | | | | | | | | | | | | | | |
Cash – $.45 per share | | — |
| | — |
| | — |
| | (9,504) |
| | — |
| | (9,504) |
Restricted stock unit vesting | | 65 |
| | (65) |
| | — |
| | — |
| | — |
| | — |
Repurchases of common stock, net | | (75) | | | (1,747) | | | — |
| | — |
| | — | | | (1,822) |
Shares issued through dividend reinvestment plan | | 40 | | | 978 |
| | — |
| | — |
| | — |
| | 1,018 |
Distributions to non-controlling interests | | — |
| | — |
| | — |
| | — |
| | (1) |
| | (1) |
Compensation expense – restricted stock and RSUs | | — |
| | 1,306 |
| | — |
| | — |
| | — |
| | 1,306 |
Net income | | — |
| | — |
| | — |
| | 7,204 |
| | 17 |
| | 7,221 |
Other comprehensive income | | — |
| | — |
| | 930 |
| | — |
| | 1 |
| | 931 |
Balances, September 30, 2022 | $ | 20,311 | | $ | 323,576 | | $ | 1,855 | | $ | (31,450) | | $ | 959 | | $ | 315,251 |
See accompanying notes to consolidated financial statements.
5
One Liberty Properties, Inc.ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited) (Continued on Next Page)
| | | | | | |
| | Nine Months Ended | ||||
| | September 30, | ||||
| | 2023 |
| 2022 | ||
Cash flows from operating activities: | | | | | | |
Net income | | $ | 14,716 | | $ | 33,346 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Gain on sale of real estate, net | | | (5,046) | | | (16,762) |
Increase in net amortization of unbilled rental income | | | (1,574) | | | (1,579) |
Write-off of unbilled rent receivable | | | 133 | | | — |
Amortization and write-off of intangibles relating to leases, net | | | (698) | | | (617) |
Amortization of restricted stock and RSU compensation expense | | | 4,103 | | | 4,190 |
Equity in loss (earnings) of unconsolidated joint ventures | | | 761 | | | (310) |
Distributions of earnings from unconsolidated joint venture | | | 23 | | | 170 |
Depreciation and amortization | | | 18,569 | | | 17,718 |
Amortization and write-off of deferred financing costs | | | 619 | | | 917 |
Payment of leasing commissions | | | (499) | | | (1,101) |
Decrease (increase) in escrow, deposits, other assets and receivables | | | 4,088 | | | (2,049) |
Increase in accrued expenses and other liabilities | | | 887 | | | 897 |
Net cash provided by operating activities | | | 36,082 | | | 34,820 |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Purchase of real estate | | | (9,229) | | | (39,888) |
Improvements to real estate | | | (3,887) | | | (3,529) |
Investments in ground leased property | | | (668) | | | (499) |
Net proceeds from sale of real estate | | | 13,185 | | | 30,253 |
Insurance recovery proceeds due to casualty loss | | | — | | | 918 |
Distributions of capital from unconsolidated joint venture | | | 9 | | | — |
Net cash used in investing activities | | | (590) | | | (12,745) |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Scheduled amortization payments of mortgages payable | | | (9,284) | | | (9,601) |
Repayment of mortgages payable | | | (6,735) | | | (54,585) |
Proceeds from mortgage financings | | | 23,450 | | | 70,690 |
Proceeds from bank line of credit | | | 30,900 | | | 39,500 |
Repayments on bank line of credit | | | (40,200) | | | (40,200) |
Issuance of shares through dividend reinvestment plan | | | 3,283 | | | 1,342 |
Repurchases of common stock, net | | | (6,599) | | | (5,240) |
Proceeds from sale of common stock, net | | | — | | | 563 |
Payment of financing costs | | | (449) | | | (839) |
Distributions to non-controlling interests | | | (24) | | | (42) |
Cash distributions to common stockholders | | | (28,627) | | | (28,387) |
Net cash used in financing activities | | | (34,285) | | | (26,799) |
| | | | | | |
Net increase (decrease) in cash, cash equivalents and restricted cash | | | 1,207 | | | (4,724) |
Cash, cash equivalents and restricted cash at beginning of year | | | 7,277 | | | 16,666 |
Cash, cash equivalents and restricted cash at end of period | | $ | 8,484 | | $ | 11,942 |
| | | | | | |
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid during the period for interest expense | | $ | 13,939 | | $ | 12,988 |
Supplemental disclosure of non-cash investing activity: | | | | | | |
Assumption of mortgage payable upon acquisition of property | | $ | 4,280 | | $ | — |
Lease liabilities adjustment from the reassessment of right of use assets | | | 3,366 | | | — |
Purchase accounting allocation - intangible lease assets | | | 871 | | | 2,816 |
Purchase accounting allocation - mortgage intangible asset | | | 260 | | | — |
Purchase accounting allocation - intangible lease liabilities | | | (237) | | | (1,152) |
6
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited) (Continued)
The following table provides a reconciliation of cash, cash equivalents, and Subsidiariesrestricted 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:
| | | | | | |
| | September 30, | ||||
| | 2023 |
| 2022 | ||
Cash and cash equivalents | | $ | 5,471 | | $ | 11,579 |
Restricted cash included in escrow, deposits and other assets and receivables | | | 3,013 | | | 363 |
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | | $ | 8,484 | | $ | 11,942 |
Notes
Restricted cash included in escrow, deposits and other assets and receivables represents amounts related to Consolidated Financial Statementsreal 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 or when the related reserve conditions are satisfied.
See accompanying notes to consolidated financial statements.
7
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2023
NOTE 1 – ORGANIZATION AND BACKGROUND
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, 2017,2023, OLP owns 119118 properties, including sixthree properties owned by consolidated joint ventures and fivethree properties owned by unconsolidated joint ventures. The 119118 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, 20172023 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 utilizes 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.
8
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 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 on a quarterly basis its investments in unconsolidated joint ventures for other-than-temporary losses in investment value. Any decline that is not expected to be recovered based on the underlying assets of the investment is considered other than temporary and an impairment charge is recorded as a reduction in the carrying value of the investment. During the three and nine months ended September 30, 20172023 and 2016,2022, there waswere no such other-than-temporary impairment chargecharges related to the Company’s investments in unconsolidated joint ventures.
The Company has elected to follow the cumulative earnings approach when assessing, for the consolidated statement of cash flows, whether the distribution from the investee is a return of the investor’s investment as compared to a return on its investment. The source of the cash generated by the investee to fund the distribution is not a factor in the analysis (that is, it does not matter whether the cash was generated through investee refinancing, sale of assets or operating results). Consequently, the investor only considers the relationship between the cash received from the investee to its equity in the undistributed earnings of the investee, on a cumulative basis, in assessing whether the distribution from the investee is a return on or a return of its investment. Cash received from the unconsolidated entity is presumed to be a return on the investment to the extent that, on a cumulative basis, distributions received by the investor are less than its share of the equity in the undistributed earnings of the entity.
9
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 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)pay 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 | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Fixed lease revenues | | $ | 18,872 | | $ | 18,339 | | $ | 57,159 | | $ | 55,085 |
Variable lease revenues | | | 3,431 | | | 2,914 | | | 10,048 | | | 8,774 |
Lease revenues (a) | | $ | 22,303 | | $ | 21,253 | | $ | 67,207 | | $ | 63,859 |
(a) | Excludes $243 and $698 of amortization related to lease intangible assets and liabilities for the three and nine months ended September 30, 2023, respectively, and $220 and $617 for the three and nine months ended September 30, 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. 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 September 30, 2017 (Continued)2023, the Company has assessed the collectability of all recorded lease revenues as probable.
Note 2 — Summary Accounting Policies (Continued)During the nine months ended September 30, 2023, the Company wrote-off, as a reduction to rental income, net, $133,000 of unbilled rent receivable related to its tenant, Bed Bath & Beyond at its Kennesaw, Georgia property, as the tenant filed for Chapter 11 bankruptcy protection and rejected its lease in April 2023.
10
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
ReclassificationsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2023 (CONTINUED)
NOTE 3 – LEASES (CONTINUED)
Certain amounts previously reportedMinimum Future Rents
As of September 30, 2023, the minimum future contractual rents to be received on non-cancellable operating leases are included in the consolidated financial statements have been reclassifiedtable below (amounts in thousands). The minimum future contractual rents do not include (i) straight-line rent or amortization of lease intangibles or incentives and (ii) variable lease payments as described above.
| | | |
From October 1 – December 31, 2023 | | $ | 18,195 |
For the year ending December 31, | | | |
2024 | | | 69,767 |
2025 | | | 65,185 |
2026 | | | 61,088 |
2027 | | | 52,581 |
2028 | | | 41,900 |
Thereafter | | | 133,228 |
Total | | $ | 441,944 |
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 September 30, 2023, the accompanying consolidated financial statementsremaining lease term, including a five-year renewal option deemed exercised, is 6.4 years. The Company recognized lease expense related to conform to the current period’s presentation, primarily to change the presentationthis ground lease of Gain on sale of real estate, net on the consolidated statement of operations$122,000 and $422,000 for the three and nine months ended September 30, 2016. The Company has included a caption for Income before gain on sale of real estate, net, to present gain2023, respectively, and losses on sales of properties in accordance with the Securities$150,000 and Exchange Commission Rule 3-15(a) of Regulation S-X. The change was made$449,000 for the three and nine months ended September 30, 2016 because,2022, respectively, which is included in Real estate expenses on the consolidated statements of income.
Office Lease
The Company is a lessee under a corporate office lease in Great Neck, New York, which is classified as prescribedan operating lease. The lease expires on December 31, 2031 and provides for a five-year renewal option. As of September 30, 2023, the remaining lease term, including the renewal option deemed exercised, is 13.3 years. The Company recognized lease expense related to this office lease of $14,000 and $42,000 for each of the three and nine months ended September 30, 2023 and 2022, respectively, which is included in General and administrative expenses on the consolidated statements of income.
Minimum Future Lease Payments
As of September 30, 2023, the minimum future lease payments related to these operating leases are as follows (amounts in thousands):
| | | |
From October 1 – December 31, 2023 | | $ | 127 |
For the year ending December 31, | | | |
2024 | | | 557 |
2025 | | | 626 |
2026 | |
| 627 |
2027 | |
| 629 |
2028 | |
| 630 |
Thereafter | |
| 1,229 |
Total undiscounted cash flows | | $ | 4,425 |
Present value discount | |
| (1,039) |
Lease liability | | $ | 3,386 |
The lease liability is included in other liabilities on the consolidated balance sheet.
11
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2023 (CONTINUED)
NOTE 4 – REAL ESTATE ACQUISITIONS
The following table details the Company’s real estate acquisitions during the nine months ended September 30, 2023 and the year ended December 31, 2022 (amounts in thousands):
| | | | | | | | | | |
| | | | Contract | | | | Capitalized | ||
| | Date | | | Purchase | | Terms of | | | Transaction |
Description of Industrial Property |
| Acquired |
| Price |
| Payment |
| Costs | ||
Multi-tenant | | | | | | | | | | |
Blythewood, South Carolina | | July 13, 2023 | | $ | 13,400 | | Cash and $4,280 mortgage (a) | | $ | 109 |
TOTAL - Nine months ended September 30, 2023 | | | | $ | 13,400 |
|
| | $ | 109 |
| | | | | | | | | | |
Conditioned Air Company of Naples LLC | | | | | | | | | | |
Fort Myers, Florida | | January 5, 2022 | | $ | 8,100 | | All cash (b) | | $ | 66 |
Q.E.P. Co., Inc. | | | | | | | | | | |
Dalton, Georgia | | May 12, 2022 | | | 17,000 | | All cash (b) | | | 330 |
Multi-tenant | | | | | | | | | | |
Hillside, Illinois | | May 16, 2022 | | | 5,770 | | All cash | | | 112 |
Curaleaf, Inc. | | | | | | | | | | |
Lexington, Kentucky | | June 17, 2022 | | | 8,430 | | Cash and $5,480 mortgage (c) | | | 80 |
Multi-tenant | | | | | | | | | | |
Northwood, Ohio | | November 15, 2022 | | | 8,629 | | Cash and $6,034 mortgage (d) | | | 87 |
Multi-tenant | | | | | | | | | | |
Northwood, Ohio | | November 15, 2022 | | | 8,561 | | Cash and $6,034 mortgage (d) | | | 86 |
TOTAL - Year ended December 31, 2022 | | | | $ | 56,490 |
|
| | $ | 761 |
(a) | Simultaneously with the acquisition of this property, the Company assumed a $4,280 mortgage, bearing an interest rate of 4.60% and maturing in 2029. |
(b) | Subsequent to the acquisitions of the Fort Myers, Florida and Dalton, Georgia properties, the Company obtained new mortgage debt of $4,860 and $10,000, bearing interest rates of 3.09% and 3.50% and maturing in 2031 and 2032, respectively. |
(c) | Simultaneously with the acquisition of this property, the Company obtained new mortgage debt of $5,480, bearing an interest rate of 3.85% and maturing in 2047. |
(d) | Simultaneously with the acquisition of these properties, the Company assumed a $6,034 mortgage encumbering both properties, bearing an interest rate of 3.57% and maturing in 2030. |
The following table details the allocation of the purchase price of the real estate acquired during the nine months ended September 30, 2023 (amounts in thousands):
| | | | | | | | | | | | | | | | | | |
| | | | | Building & | | Intangible Lease | | Mortgage | | | | ||||||
Description of Property |
| Land |
| Improvements |
| Asset |
| Liability | | Intangible | | Total | ||||||
Multi-tenant | | | | | | | | | | | | | | | | | | |
Blythewood, South Carolina | | $ | 311 | | $ | 12,304 | | $ | 871 | | $ | (237) | | $ | 260 | | $ | 13,509 |
TOTAL - Nine months ended September 30, 2023 | | $ | 311 | | $ | 12,304 | | $ | 871 | | $ | (237) | | $ | 260 | | $ | 13,509 |
12
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2023 (CONTINUED)
NOTE 5 – SALES OF PROPERTIES
The following table details the Company’s sales of real estate during the nine months ended September 30, 2023 and 2022 (amounts in thousands):
| | | | | | | | | |
| | | | Gross | | Gain on Sale of | | ||
Description of Property | | Date Sold | | Sales Price | | Real Estate, Net | | ||
TGI Fridays restaurant | | | | | | | | | |
Hauppauge, New York | | February 28, 2023 | | $ | 4,200 | | $ | 1,534 | |
Havertys retail property | | | | | | | | | |
Duluth, Georgia | | May 31, 2023 | | | 6,000 | | | 3,180 | |
TGI Fridays restaurant | | | | | | | | | |
Greensboro, North Carolina | | September 20, 2023 | | | 3,250 | | | 332 | |
TOTAL - Nine months ended September 30, 2023 | | $ | 13,450 | | $ | 5,046 | (a) | ||
| | | | | | | | | |
Wendy's restaurants - 4 properties | | | | | | | | | |
Various cities, Pennsylvania | | March 22, 2022 | | $ | 10,000 | | $ | 4,649 | |
Orlando Baking industrial property | | | | | | | | | |
Columbus, Ohio | | May 2, 2022 | | | 8,500 | | | 6,925 | |
Havertys retail property | | | | | | | | | |
Fayetteville, Georgia (b) | | June 17, 2022 | | | 4,800 | | | 1,125 | |
Vacant retail property | | | | | | | | | |
Columbus, Ohio | | August 8, 2022 | | | 8,300 | | | 4,063 | |
TOTAL - Nine months ended September 30, 2022 | | $ | 31,600 | | $ | 16,762 | (c) |
(a) | As a result of these sales, the Company wrote-off, as a reduction to Gain on sale of real estate, net, an aggregate of $190 of other assets and receivables and $123 of unbilled rent receivable. |
(b) | In connection with this sale, the Company paid off the $1,563 mortgage. |
(c) | As a result of these sales, the Company wrote-off, as a reduction to Gain on sale of real estate, net, an aggregate of $519 of unbilled rent receivable and $4 of net unamortized intangible lease liabilities and assets. |
From August 2023 through October 2023, the Company entered into contracts to sell one restaurant and two retail properties for an aggregate sales price of approximately $13,800,000. The buyers’ rights to terminate the contracts without penalty expires by ASC 360-10-45-5, such gains fromearly November 2023. The Company anticipates recognizing an aggregate gain on sale of real estate, werenet, of approximately $6,000,000 to $7,000,000 on the consolidated statement of income during the three months ending December 31, 2023.
13
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2023 (CONTINUED)
NOTE 6 – VARIABLE INTEREST ENTITIES, CONTINGENT LIABILITY AND CONSOLIDATED JOINT VENTURES
Variable Interest Entity – Ground Lease
The Company determined it has a variable interest through its ground lease at its Beachwood, Ohio property (the “Vue Apartments”) and the owner/operator is a VIE because its equity investment at risk is insufficient to finance its activities without additional subordinated financial support. The Company further determined that it is not the primary beneficiary of this VIE because the Company 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 September 30, 2023, the VIE’s maximum exposure to loss was $17,012,000 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 $63,887,000 as of September 30, 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 $668,000 during the nine months ended September 30, 2023. These amounts are included as part of the carrying amount of the land.
The Company’s ground lease tenant was a componentplaintiff/claimant in various legal proceedings (the “Proceedings”) against, among others, the developer of Operating income. Such changesuch 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 $4,642,000 from the settlement. At December 31, 2022, $4,626,000 of such sum was accrued as rental income, net on the consolidated statement of income and as other receivables on the consolidated balance sheet.
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 it has the power to direct the activities that most significantly impact each joint venture’s performance including management, approval of expenditures, and the obligation to absorb the losses or rights to receive benefits. Accordingly, the Company consolidates the operations of these VIEs for financial statement purposes. The VIEs’ creditors do not have recourse to the assets of the Company other than those held by the applicable joint venture.
14
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2023 (CONTINUED)
NOTE 6 – VARIABLE INTEREST ENTITIES, CONTINGENT LIABILITY AND CONSOLIDATED JOINT VENTURES (CONTINUED)
The following is a summary of the consolidated VIEs’ carrying amounts and classification in the Company’s consolidated balance sheets, none of which are restricted (amounts in thousands):
| | | | | | |
| | September 30, | | December 31, | ||
|
| 2023 |
| 2022 | ||
Land | | $ | 10,365 | | $ | 10,365 |
Buildings and improvements, net of accumulated depreciation of $6,235 and $5,670, respectively | | | 17,929 | | | 17,870 |
Cash | | | 829 | | | 1,163 |
Unbilled rent receivable | | | 1,059 | | | 1,111 |
Unamortized intangible lease assets, net | | | 419 | | | 472 |
Escrow, deposits and other assets and receivables | | | 856 | | | 772 |
Mortgages payable, net of unamortized deferred financing costs of $120 and $152, respectively | | | 17,960 | | | 18,500 |
Accrued expenses and other liabilities | | | 650 | | | 711 |
Unamortized intangible lease liabilities, net | | | 392 | | | 424 |
Accumulated other comprehensive income | | | 9 | | | 22 |
Non-controlling interests in consolidated joint ventures | | | 1,010 | | | 972 |
As of September 30, 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 $4,475,000 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 7 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
As of September 30, 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 $9,607,000 and $10,400,000, respectively. The Company recorded equity in loss of $905,000 and $761,000 for the three and nine months ended September 30, 2023, respectively, and equity in earnings of $82,000 and $310,000 for the three and nine months ended September 30, 2022, respectively. Included in equity in loss for the three and nine months ended September 30, 2023 is an impairment charge of $850,000 related to our Manahawkin, New Jersey joint venture property (see discussion below).
As of September 30, 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 $8,042,000 and $8,963,000, respectively.
Impairment and Sale of Manahawkin, New Jersey Property
On September 8, 2023, the Company and its joint venture partner entered into a contract to sell its joint venture property located in Manahawkin, New Jersey for $36,500,000. As a result, the joint venture recorded an impairment charge of $1,699,000, of which the Company’s 50% share was $850,000 and is recorded within Equity in loss from unconsolidated joint ventures on the consolidated statements of income for the three and nine months ended September 30, 2023. The Company anticipates the property will be sold during the three months ending December 31, 2023.
15
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2023 (CONTINUED)
NOTE 8 – DEBT OBLIGATIONS
Mortgages Payable
The following table details the Mortgages payable, net, balances per the consolidated balance sheets (amounts in thousands):
| | | | | | |
| | September 30, | | December 31, | ||
|
| 2023 |
| 2022 | ||
Mortgages payable, gross | | $ | 420,886 | | $ | 409,175 |
Unamortized deferred financing costs | |
| (3,321) | |
| (3,355) |
Unamortized mortgage intangible assets (a) | | | (838) | | | (658) |
Mortgages payable, net | | $ | 416,727 | | $ | 405,162 |
(a) | In connection with the assumption of below-market mortgages upon the acquisition of the Northwood, Ohio and Blythewood, South Carolina properties (see Note 4). |
The following table sets forth, as of September 30, 2023, scheduled principal repayments with respect to the Company’s mortgage debt during the three months ending December 31, 2023 and for each of the subsequent twelve months through maturity (amounts in thousands):
| | | | | | | | | | | | | | | | | | | | | |
|
| 2023 |
| 2024 |
| 2025 |
| 2026 |
| 2027 |
| Thereafter |
| Total | |||||||
Amortization payments | | $ | 3,150 | | $ | 11,732 | | $ | 10,449 | | $ | 10,348 | | $ | 9,241 | | $ | 41,844 | | $ | 86,764 |
Principal due at maturity | |
| 6,238 | |
| 50,695 | |
| 32,063 | |
| 19,179 | |
| 38,524 | |
| 187,423 | |
| 334,122 |
Total | | $ | 9,388 | | $ | 62,427 | | $ | 42,512 | | $ | 29,527 | | $ | 47,765 | | $ | 229,267 | | $ | 420,886 |
Line of Credit
The Company’s credit facility with Manufacturers and Traders Trust Company and VNB New York, LLC, provides that it may borrow up to $100,000,000, subject to borrowing base requirements. The facility is available for the acquisition of commercial real estate, repayment of mortgage debt, and renovation and operating expense purposes; provided, that if used for renovation and operating expense purposes, the amount outstanding for such purposes will not exceed the lesser of $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 September 30, 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 6.60% and 2.74% for the nine months ended September 30, 2023 and 2022, respectively. The Company was in compliance with all covenants at September 30, 2023.
The following table details the Line of credit, net, balances per the consolidated financial statements.balance sheets (amounts in thousands):
| | | | | | |
| | September 30, | | December 31, | ||
|
| 2023 |
| 2022 | ||
Line of credit, gross | | $ | 12,500 | | $ | 21,800 |
Unamortized deferred financing costs | |
| (594) | |
| (732) |
Line of credit, net | | $ | 11,906 | | $ | 21,068 |
At September 30, 2023 and November 1, 2023, $87,500,000 and $77,500,000, respectively, was available to be borrowed under the facility, including an aggregate of up to $36,000,000 and $26,000,000, respectively, available for renovation and operating expense purposes.
16
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2023 (CONTINUED)
NOTE 9 – RELATED PARTY TRANSACTIONS
Compensation and Services Agreement
Pursuant to the compensation and services agreement with Majestic Property Management Corp. (“Majestic”), Majestic provides the Company with 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 $812,000 and $2,501,000 for the three and nine months ended September 30, 2023, respectively, and $763,000 and $2,289,000 for the three and nine months ended September 30, 2022, respectively. Included in these amounts are fees for property management services of $360,000 and $1,146,000 for the three and nine months ended September 30, 2023, respectively, and $333,000 and $999,000 for the three and nine months ended September 30, 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 and $238,000 for the three and nine months ended September 30, 2023 and 2022, respectively, 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 Share11). The related expense charged to the Company’s operations was $594,000 and $1,879,000 for the three and nine months ended September 30, 2023, respectively, and $640,000 and $1,927,000 for the three and nine months ended September 30, 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 and $69,000 for the three and nine months ended September 30, 2023, respectively, and $19,000 and $60,000 for the three and nine months ended September 30, 2022, respectively, 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 $31,000 and $89,000 for the three and nine months ended September 30, 2023, respectively, and $32,000 and $101,000 for the three and nine months ended September 30, 2022, respectively, to the other partner of the ventures, which increased Equity in loss on the consolidated statements of income by $16,000 and $44,000 for the three and nine months ended September 30, 2023, respectively, and reduced Equity in earnings by $16,000 and $51,000 for the three and nine months ended September 30, 2022, respectively.
17
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2023 (CONTINUED)
NOTE 9 – RELATED PARTY TRANSACTIONS (CONTINUED)
Other
During 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. Amounts reimbursed to Gould Investors were $1,093,000 during the three and nine months ended September 30, 2023 and $586,000 during the three and nine months ended September 30, 2022. Included in Real estate expenses on the consolidated statements of income is insurance expense of $363,000 and $613,000 for the three and nine months ended September 30, 2023, respectively, and $187,000 and $793,000 for the three and nine months ended September 30, 2022, respectively, of amounts reimbursed to Gould Investors in prior periods. The balance of amounts reimbursed to Gould Investors represents prepaid insurance and is included in Other Assets on the consolidated balance sheets.
NOTE 10 – 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, 2017,2023, the shares of common stock underlying the restricted stock units awarded under the 2016 Incentive PlanRSUs (see Note 11) are excluded from the basic earnings per share calculation, as these units are not participating securities. The restricted stock units issued pursuant to the 2009securities until they vest and 2016 Incentive Plans are referred to as “RSUs”.issued.
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 |
| Nine Months Ended |
| ||||
|
| underlying shares |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
|
2009 Incentive Plan |
| 200,000 |
|
| (a) | 117,000 |
|
| (a) | 117,000 |
|
2016 Incentive Plan |
| 76,250 |
| 38,125 | (b) | — |
| 38,125 | (b) | — |
|
(a) RSUs with respect to 113,584 shares vested on June 30, 2017 and such shares were issued in August 2017.
(b) Includes 38,125 shares that would be issued pursuant to a return on capital performance metric, assuming the end of the quarterly period was the June 30, 2020 vesting date. None of the remaining 38,125 shares (of a total of 76,250 that were awarded on September 26, 2017) are included as the applicable total stockholder return metric has not been met for these shares.
The following table provides a reconciliation of the numerator and denominator of earnings per share calculations (amounts in thousands, except per share amounts):
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| 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: |
| 18,000 |
| 16,845 |
| 17,859 |
| 16,605 |
| ||||
Effect of diluted securities: |
|
|
|
|
|
|
|
|
| ||||
RSUs |
| 79 |
| 117 |
| 102 |
| 117 |
| ||||
Denominator for diluted earnings per share: |
| 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 | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Numerator for basic and diluted earnings per share: |
|
|
|
| |
|
|
|
|
| |
|
Net income | | $ | 2,769 | | $ | 7,221 | | $ | 14,716 | | $ | 33,346 |
Deduct net income attributable to non-controlling interests | |
| (22) | |
| (17) | |
| (64) | |
| (52) |
Deduct earnings allocated to unvested restricted stock (a) | |
| (321) | | | (320) | | | (971) | | | (1,134) |
Net income available for common stockholders: basic and diluted | | $ | 2,426 | | $ | 6,884 | | $ | 13,681 | | $ | 32,160 |
Denominator for basic earnings per share: | | | | | | | | | | | | |
Weighted average number of common shares outstanding | |
| 20,567 | | | 20,340 | | | 20,552 | | | 20,361 |
Effect of dilutive securities: RSUs | |
| 29 | | | 76 | | | 46 | | | 111 |
Denominator for diluted earnings per share: | | | | | | | | | | | | |
Weighted average number of shares | |
| 20,596 | |
| 20,416 | |
| 20,598 | |
| 20,472 |
| | | | | | | | | | | | |
Earnings per common share, basic | | $ | .12 | | $ | .34 | | $ | .67 | | $ | 1.58 |
Earnings per common share, diluted | | $ | .12 | | $ | .34 | | $ | .66 | | $ | 1.57 |
(a)
(a) | Represents an allocation of distributed earnings to unvested restricted stock that, as participating securities, are entitled to receive dividends. |
18
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2023 (CONTINUED)
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2017 (Continued)
Note 4 — Real Estate Acquisitions
In January 2017, the Company adopted ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which requires an entity to evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, and if that requirement is met, the asset group is not a business. The Company analyzed the real estate acquisitions made during the nine months ended September 30, 2017 and determined the gross assets acquired are concentrated in a single identifiable asset. Therefore, the transactions do not meet the definition of a business and are accounted for as asset acquisitions. In accordance with this guidance, direct transaction costs associated with these asset acquisitions have been capitalized to real estate assets and depreciated over the respective useful lives.
The following chart details the Company’s acquisitions of real estate during the nine months ended September 30, 2017 (amounts in thousands):
Description of Property |
| Date Acquired |
| Contract |
| Terms of Payment |
| Third Party |
| ||
Forbo industrial facility, |
|
|
|
|
| Cash and $5,190 |
|
|
| ||
Huntersville, North Carolina |
| May 25, 2017 |
| $ | 8,700 |
| mortgage (b) |
| $ | 65 |
|
Saddle Creek Logistics industrial facility, |
| June 9, 2017 |
| 11,750 |
| All cash (c) |
| 199 |
| ||
Corporate Woods industrial facility, |
| June 20, 2017 |
| 14,700 |
| All cash (d) |
| 29 |
| ||
Totals |
|
|
| $ | 35,150 |
|
|
| $ | 293 |
|
(a) Transaction costs incurred with these asset acquisitions were capitalized.
(b) The new mortgage debt was obtained simultaneously with the acquisition of the property.
(c) In August 2017, the Company obtained new mortgage debt of $7,200.
(d) In July 2017, the Company obtained new mortgage debt of $8,820.
The following chart details the allocation of the purchase price for the Company’s acquisitions of real estate during the 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, |
| 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 OctoberNOTE 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 |
| Gain on Sale of |
| ||
Retail property, |
|
|
|
|
|
|
| ||
Greenwood Village, Colorado |
| May 8, 2017 |
| $ | 9,500 |
| $ | 6,568 |
|
Retail property, |
|
|
|
|
|
|
| ||
Kansas City, Missouri (a) |
| July 14, 2017 |
| 10,250 |
| 2,180 |
| ||
Retail property, |
|
|
|
|
|
|
| ||
Niles, Illinois |
| August 31, 2017 |
| 5,000 |
| 1,089 |
| ||
Totals — nine months ended September 30, 2017 |
|
|
| $ | 24,750 |
| $ | 9,837 |
|
|
|
|
|
|
|
|
| ||
Portfolio of eight retail properties, |
|
|
|
|
|
|
| ||
Louisiana and Mississippi |
| February 1, 2016 |
| $ | 13,750 |
| $ | 787 |
|
Retail property, |
|
|
|
|
|
|
| ||
Killeen, Texas |
| May 19, 2016 |
| 3,100 |
| 980 |
| ||
Land, |
|
|
|
|
|
|
| ||
Sandy Springs, Georgia |
| June 15, 2016 |
| 8,808 |
| 2,281 |
| ||
Industrial property, |
|
|
|
|
|
|
| ||
Tomlinson, Pennsylvania |
| June 30, 2016 |
| 14,800 |
| 5,660 |
| ||
Partial condemnation of land, |
|
|
|
|
|
|
| ||
Greenwood Village, Colorado |
| July 5, 2016 |
| 153 |
| 116 |
| ||
Totals — nine months ended September 30, 2016 |
|
|
| $ | 40,611 |
| $ | 9,824 |
|
(a) See Note 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 |
| # Units in |
| Owner/ |
| Type of |
| Carrying |
| |||
The Meadows Apartments, |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Lakemoor, Illinois |
| March 24, 2015 |
| $ | 9,300 |
| 496 |
| $ | 43,824 |
| Land |
| $ | 9,592 |
|
The Briarbrook Village Apartments, |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Wheaton, Illinois |
| August 2, 2016 |
| 10,530 |
| 342 |
| 39,411 |
| Land |
| 10,536 |
| |||
The Vue Apartments, |
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Beachwood, Ohio |
| August 16, 2016 |
| 13,896 |
| 348 |
| 67,444 |
| Land |
| 13,901 |
| |||
Totals |
|
|
| $ | 33,726 |
| 1,186 |
| $ | 150,679 |
|
|
| $ | 34,029 |
|
(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, |
| December 31, |
| ||
Land |
| $ | 17,844 |
| $ | 17,844 |
|
Buildings and improvements, net of accumulated depreciation of $3,536 and $2,732, respectively |
| 32,061 |
| 32,535 |
| ||
Cash |
| 1,053 |
| 1,796 |
| ||
Unbilled rent receivable |
| 870 |
| 775 |
| ||
Unamortized intangible lease assets, net |
| 1,315 |
| 1,595 |
| ||
Escrow, deposits and other assets and receivables |
| 910 |
| 1,355 |
| ||
Mortgages payable, net of unamortized deferred financing costs of $462 and $539, respectively |
| 32,478 |
| 33,121 |
| ||
Accrued expenses and other liabilities |
| 1,004 |
| 893 |
| ||
Unamortized intangible lease liabilities, net |
| 2,061 |
| 2,200 |
| ||
Accumulated other comprehensive loss |
| (49 | ) | (70 | ) | ||
Non-controlling interests in consolidated joint ventures |
| 1,713 |
| 1,794 |
| ||
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2017 (Continued)
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
– EARNINGS PER COMMON SHARE (CONTINUED)
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, |
| December 31, |
| ||
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, |
| December 31, |
| ||
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.such periods:
| | | | | | | | | | |
Three and Nine Months Ended September 30, 2023: | ||||||||||
|
| Total Number |
| Shares Included Based on (a) |
| | ||||
| | of Underlying | | Return on | | Stockholder | | | | Shares |
Date of Award |
| Shares |
| Capital Metric |
| Return Metric |
| Total |
| Excluded (b) |
July 1, 2023 (c) | | 85,250 | | 23,839 | | — | | 23,839 | | 61,411 |
July 1, 2022 (c) |
| 85,350 | | 35,344 | | — | | 35,344 | | 50,006 |
August 3, 2021 (c) |
| 80,700 | | 39,811 | | — | | 39,811 | | 40,889 |
Totals |
| 251,300 |
| 98,994 |
| — |
| 98,994 |
| 152,306 |
| | | | | | | | | | |
Three and Nine Months Ended September 30, 2022: | ||||||||||
|
| Total Number |
| Shares Included Based on (a) |
| | ||||
| | of Underlying | | Return on | | Stockholder | | | | Shares |
Date of Award |
| Shares |
| Capital Metric |
| Return Metric |
| Total |
| Excluded (b) |
July 1, 2022 (c) |
| 85,350 | | 20,210 | | — | | 20,210 | | 65,140 |
August 3, 2021 (c) |
| 80,700 | | 40,350 | | — | | 40,350 | | 40,350 |
August 3, 2020 (d) | | 75,026 | | 37,513 | | 37,513 | | 75,026 | | — |
Totals |
| 241,076 |
| 98,073 |
| 37,513 |
| 135,586 |
| 105,490 |
(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 September 30 of the applicable period. |
(b) | Excluded as the applicable conditions had not been met for these shares at the applicable measurement dates. |
(c) | The RSUs awarded in 2023, 2022 and 2021 vest, subject to satisfaction of the applicable market and/or performance conditions, as of June 30, 2026, 2025 and 2024, respectively (see Note 11). |
(d) | With respect to the RSUs awarded August 3, 2020, 74,988 shares were deemed to have vested and the balance of 38 shares were forfeited in June 2023. The 74,988 vested shares were issued in August 2023 (see Note 11). |
One Liberty Properties, Inc. and SubsidiariesNOTE 11 – STOCKHOLDERS’ EQUITY
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2017 (Continued)Stock Based Compensation
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 20172022, 2019 and 2016 Incentive Plans (collectively, 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”“Plans”), a related party and reimburses Gould Investors annually for the Company’s insurance cost relating to its properties. Amounts reimbursed to Gould were $782,000 during the three and nine months ended September 30, 2017 and $699,000 during the three and nine months ended September 30, 2016. Included in Real estate expenses on the consolidated statements of income is insurance expense of $204,000 and $551,000 for the three and nine months ended September 30, 2017, respectively, and $169,000 and $371,000 for the three and nine months ended September 30, 2016, respectively. The $470,000 balance of the amounts reimbursed to Gould Investors represents prepaid insurance at September 30, 2017 and is included in Other assets on the consolidated balance sheets.
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2017 (Continued)
Note 11 — Common Stock Cash Dividend
On September 13, 2017, the Board of Directors declared a quarterly cash dividend of $.43 per share on the Company’s common stock, totaling $8,053,000. The quarterly dividend was paid on October 4, 2017 to stockholders of record on September 25, 2017.
Note 12 — Shares Issued through Equity Offering Program
During the three months ended September 30, 2017, the Company sold 103,196 shares for proceeds of $2,461,000, net of commissions of $25,000, and incurred offering costs of $43,000 for professional fees. During the nine months ended September 30, 2017, the Company sold 135,196 shares for proceeds of $3,252,000, net of commissions of $33,000, and incurred offering costs of $185,000 for professional fees. Subsequent to September 30, 2017, the Company sold 4,197 shares for proceeds of $102,000, net of commissions of $1,000.
Note 13 — Stock Based Compensation
The Company’s 2016 Incentive Plan (‘‘Plan’’), 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 iswas 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,2023:
| | | | | | |
| | 2022 | | 2019 | | 2016 |
|
| Incentive Plan |
| Incentive Plan (a) |
| Incentive Plan (a) |
Restricted stock | | 149,335 | | 426,675 | | 136,650 |
RSUs | | 170,600 | | 80,700 | | — |
Totals | | 319,935 | | 507,375 | | 136,650 |
(a) | No additional awards may be granted under such plan. |
19
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2023 (CONTINUED)
NOTE 11 – STOCKHOLDERS’ EQUITY (CONTINUED)
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:
| | | | | | | | | |
|
| 2023 (a) | | 2022 | | 2021 | | 2020 | |
RSUs granted (b) | | 85,250 | | 85,350 | | 80,700 | | 75,026 | |
RSUs vested | | — | | — | | — | | 74,988 | (c) |
RSUs forfeited | | — | | — | | — | | 38 | (d) |
RSUs outstanding | | 85,250 | | 85,350 | | 80,700 | | — | |
Vesting Date (e) (f) | | 6/30/2026 | | 6/30/2025 | | 6/30/2024 | | 6/30/2023 | |
(a) | These shares were granted in July 2023. |
(b) | The shares underlying the RSUs are excluded from the shares shown as outstanding on the balance sheet until they have vested and been issued. |
(c) | Such shares were issued in August 2023. |
(d) | Such shares were forfeited due to the retirement of a plan participant prior to the end of the performance period. |
(e) | Generally, the recipient must maintain a relationship with the Company during the applicable three-year performance cycle. |
(f) | 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 - 2023 (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, which is recognized ratably over the three-year service period. For the 2023 TSR awards, the per unit or share fair value was estimated using the following assumptions: an expected life of three years, a dividend rate of 8.72%, a risk-free interest rate of 4.42% - 5.28% and an expected volatility of 28.69% - 30.05%. |
(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 September 30, 2023 and December 31, 2022, the Company accrued an aggregate of $385,000 and $210,000 of dividend equivalents, respectively, for the 2023, 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. |
20
Table of computing the grant date fair valueContents
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2023 (CONTINUED)
NOTE 11 – 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,September 30, 2023, based on performance and market assumptions, the fair value of the RSUs granted in 2023, 2022 and 2021 is $979,000, $1,400,000 and $1,822,000, 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 |
| Nine Months Ended |
| ||||||||
|
| 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 |
| — |
| — |
| $ | 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 |
| $ | 22.89 |
| $ | 18.00 |
| $ | 22.89 |
| $ | 18.00 |
|
Value of stock vested during the period |
| $ | — |
| $ | — |
| $ | 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: |
| $ | 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 | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2023 |
| 2022 |
| 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 | | | 712,920 | | | 712,375 | | | 712,375 | | | 706,450 |
Grants | | | — | | | — | | | 152,955 | | | 153,575 |
Vested during the period | | | — | | | — | | | (152,300) | | | (146,900) |
Forfeitures | | | (260) | | | — | | | (370) | | | (750) |
Non-vested end of the period | | | 712,660 | | | 712,375 | | | 712,660 | | | 712,375 |
| | | | | | | | | | | | |
RSU grants: | | | | | | | | | | | | |
Number of underlying shares | | | 85,250 | | | 85,350 | | | 85,250 | | | 85,350 |
Average per share grant price | | $ | 20.32 | | $ | 26.44 | | $ | 20.32 | | $ | 26.44 |
Deferred compensation to be recognized over vesting period | | $ | 979,000 | | $ | 1,352,000 | | $ | 979,000 | | $ | 1,352,000 |
| | | | | | | | | | | | |
Number of non-vested shares: | | | | | | | | | | | | |
Non-vested beginning of the period | | | 166,050 | | | 155,726 | | | 241,076 | | | 230,752 |
Grants | | | 85,250 | | | 85,350 | | | 85,250 | | | 85,350 |
Vested during the period | | | — | | | — | | | (74,988) | | | (64,488) |
Forfeitures | | | — | | | — | | | (38) | | | (10,538) |
Non-vested end of the period | | | 251,300 | | | 241,076 | | | 251,300 | | | 241,076 |
| | | | | | | | | | | | |
Restricted stock and RSU grants (based on grant price): | | | | | | | | | | | | |
Weighted average per share value of non-vested shares | | $ | 25.91 | | $ | 26.26 | | $ | 25.91 | | $ | 26.26 |
Value of stock vested during the period | | $ | — | | $ | — | | $ | 5,165,000 | | $ | 5,535,000 |
Weighted average per share value of shares forfeited during the period | | $ | 25.85 | | $ | — | | $ | 25.47 | | $ | 29.12 |
| | | | | | | | | | | | |
Total charge to operations: | | | | | | | | | | | | |
Outstanding restricted stock grants | | $ | 923,000 | | $ | 951,000 | | $ | 3,051,000 | | $ | 3,106,000 |
Outstanding RSUs | | | 288,000 | | | 355,000 | | | 1,052,000 | | | 1,084,000 |
Total charge to operations | | $ | 1,211,000 | | $ | 1,306,000 | | $ | 4,103,000 | | $ | 4,190,000 |
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, 2017,2023, total compensation costs of $7,805,000$8,557,000 and $2,184,000 related to non-vested restricted stock awards and RSUs, thatrespectively, have not yet been recognized. These compensation costs will be charged to General and administrative expense over the remaining respective vesting periods. The weighted average remaining vesting period is 2.42.3 years for the restricted stock and 2.81.8 years for the RSUs. The Company recognizes the effect of forfeitures on restricted stock awards and RSUs when they occur, and previously recognized compensation expense is reversed in the period the grant or unit is forfeited.
21
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
Note 14 — Fair Value MeasurementsNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2023 (CONTINUED)
NOTE 11 – STOCKHOLDERS’ EQUITY (CONTINUED)
Common Stock Dividend
On September 20, 2023, the Board of Directors declared a quarterly cash dividend of $0.45 per share on the Company’s common stock, totaling approximately $9,505,000, payable to stockholders of record at the close of business on October 3, 2023. The quarterly dividend was paid on October 11, 2023; $8,072,000 was paid in cash and the balance of such dividend payment was satisfied through the issuance of 78,000 shares under the Company’s dividend reinvestment plan.
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 56,000 and 155,000 shares of common stock during the three and nine months ended September 30, 2023, respectively, and 40,000 and 51,000 shares of common stock during the three and nine months ended September 30, 2022, respectively.
Stock Repurchase Program
Pursuant to a stock repurchase plan entered into in 2022, as amended (the “2022 Repurchase Plan”), the Board of Directors authorized the repurchase of up to $7,720,000 of shares of the Company’s common stock in open-market, through privately negotiated transactions or otherwise. During the three and nine months ended September 30, 2023, the Company repurchased approximately 262,000 and 335,000 shares of common stock, for $5,144,000 and $6,599,000, net of commissions of $16,000 and $20,000, respectively. During the three and nine months ended September 30, 2022, the Company repurchased approximately 75,000 and 208,000 shares of common stock, for $1,822,000 and $5,214,000, net of commissions of $5,000 and $12,000, respectively. In October 2023, the Company repurchased, pursuant to the 2022 Repurchase Plan, approximately 62,000 shares of common stock, for $1,122,000, net of commissions of $4,000. No more shares may be repurchased pursuant to the 2022 Repurchase Plan.
In October 2023, the Board of Directors approved a new share repurchase plan (the “2023 Repurchase Plan”) authorizing the repurchase of up to $10,000,000 of shares of the Company’s common stock in open-market, through privately negotiated transactions or otherwise. In October 2023, pursuant to the 2023 Repurchase Plan, the Company repurchased approximately 71,000 shares of common stock, for $1,345,000, net of commissions of $4,000. After giving effect to such repurchases, the Company is authorized to repurchase approximately $8,655,000 of shares of common stock pursuant to the 2023 Repurchase Plan.
NOTE 12 – 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.
22
At SeptemberONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2017, the $414,746,000 estimated2023 (CONTINUED)
NOTE 12 – FAIR VALUE MEASUREMENTS (CONTINUED)
The 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):
| | | | | | | | |
| | September 30, | | | December 31, | | ||
|
| 2023 |
| | 2022 |
| ||
Fair value of mortgages payable (a) | | $ | 381,284 | | | $ | 378,943 | |
Carrying value of mortgages payable, gross | | $ | 420,886 | | | $ | 409,175 | |
Fair value less than the carrying value | | $ | (39,602) | | | $ | (30,232) | |
Blended market interest rate (a) | | | 6.67 | % | | | 5.87 | % |
Weighted average interest rate | | | 4.18 | % | | | 4.10 | % |
Weighted average remaining term to maturity (years) | | | 6.0 | | | | 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, 20172023 and December 31, 2016,2022, the carrying amount of the Company’s line of credit (before unamortized deferred financing costs) of $6,400,000$12,500,000 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 September 30, 2023, the Company’s derivative financial instruments, using Level 2 inputs, was determinedCompany had in effect 16 interest rate derivatives, all of which were interest rate swaps, related to be the following (amounts in thousands) :
|
| As of |
| Carrying and |
| |
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 basis16 outstanding mortgage loans with an aggregate $41,054,000 notional amount maturing between 2023 and that are classified as Level 1 or 3.
2026 (weighted average remaining term to maturity of 1.1 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 SOFR based variable rate mortgages to fixed annual rate mortgages (with interest rates ranging from 2.97% to 4.60% and a weighted average interest rate of 3.97% at September 30, 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, 2017,2023, 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.
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 interest
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2017 (Continued)
Note 14 — Fair Value Measurements (Continued)
rate of 4.12% at September 30, 2017). The fair value of the Company’s 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 | | September 30, 2023 | | $ | 1,338 | | Other assets |
| | December 31, 2022 | | | 1,811 | | |
As of September 30, 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 Septemberposition.
23
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 2017, the Company discontinued hedge accounting on one of its interest rate swaps (see discussion following the table below).2023 (CONTINUED)
NOTE 12 – FAIR VALUE MEASUREMENTS (CONTINUED)
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.
The following table presents the effect of the Company’s derivative financial instruments on the consolidated statements of income for the periods presented (amounts in thousands):
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2023 | | 2022 |
| 2023 |
| 2022 | ||||
Amount of gain recognized on derivatives in other comprehensive income | | $ | 133 | | $ | 931 | | $ | 500 | | $ | 2,886 |
Amount of reclassification from Accumulated other comprehensive income into Interest expense | | | 340 | | | — | | | 975 | | | (485) |
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| 2017 |
| 2016 |
| 2017 |
| 2016 |
| ||||
One Liberty Properties, Inc. and Consolidated subsidiaries |
|
|
|
|
|
|
|
|
| ||||
Amount of (loss) gain recognized on derivatives in Other comprehensive loss |
| $ | (248 | ) | $ | 385 |
| $ | (1,234 | ) | $ | (7,197 | ) |
Amount of (loss) reclassification from Accumulated other comprehensive loss into Interest expense |
| $ | (352 | ) | (633 | ) | (1,406 | ) | (2,020 | ) | |||
|
|
|
|
|
|
|
|
|
| ||||
Unconsolidated Joint Ventures (Company’s share) |
|
|
|
|
|
|
|
|
| ||||
Amount of (loss) gain recognized on derivatives in Other comprehensive loss |
| $ | (2 | ) | $ | 21 |
| $ | (14 | ) | $ | (164 | ) |
Amount of (loss) reclassification from Accumulated other comprehensive loss into Equity in earnings of unconsolidated joint ventures |
| (13 | ) | (23 | ) | (48 | ) | (72 | ) |
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, 2018,2024, the Company estimates an additional $988,000$1,005,000 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, 20172023 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 13 – OTHER INCOME
Settlement of Litigation
During the nine months ended September 30, 2016,2022, the Company terminated three interest rate swapsreceived $5,388,000 in connection with the early payoffsettlement of the related mortgages. As a resultlawsuit which was recognized as Income on settlement of these hedged forecasted transactions being terminated, the Company accelerated the reclassification of $178,000 in accumulated other comprehensive loss to earnings which are included in Prepayment costs on debtlitigation on the consolidated statement of income.
Insurance Recovery on Hurricane Casualty
As of
During the nine months ended 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. In the event2022, the Company breaches anyrecognized a gain on insurance recovery 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,$918,000, which is included in Accrued expenses and other liabilitiesOther income on the consolidated balance sheet atstatement of income, related to hurricane damage to one of its properties in 2020. No such gain was recognized during the three and nine months ended September 30, 2017.2023.
Note 15 — CommitmentsNOTE 14 – NEW ACCOUNTING PRONOUNCEMENT
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 — Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, Reference Rate Reform(Topic 848), which clarifies the scope and application on the sale or transfer of nonfinancial assets andwas amended in substance nonfinancial assets to noncustomers, including partial sales. The effective date of the standard will be fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, and early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact, if any, it may have on its consolidated financial statements.
In November 2016, the FASB issued2022 by ASU No. 2016-18,2022-06, Statement of Cash FlowsReference Rate Reform (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)848): Deferral of the EffectiveSunset Date of Topic 848,. This Topic contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. As of September 30, 2023, the Company has converted all its LIBOR-indexed debt and derivatives to SOFR-based indexes. For all derivative financial instruments designated as effective hedges, the Company utilized the elective relief in Topic 848 which delaysallows for the effective datecontinuation of ASU 2014-09 by one year. In March 2016,hedge accounting through 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”.transition process.
The New Revenue Recognition Standards are effective for fiscal years, and interim periods within those fiscal years, beginning after DecemberNOTE 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
– 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.
24
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 impacts our tenants’ ability to pay rent and expense reimbursement; |
● | loss or bankruptcy of one or more of our tenants, and bankruptcy laws that limits our remedies if a tenant becomes bankrupt and rejects its lease; |
● | the level and volatility of interest rates, which adversely affects our ability to acquire properties and refinance maturing mortgage debt; |
● | general economic and business conditions and developments, including those currently affecting or that affects 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; |
● | 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 risks, uncertainties and factors described in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”) 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.
25
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 (i) 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”, and (ii) our Quarterly Reports on Form 10-Q for the periods ended March 31, 2023 and June 30, 2023, and in particular, the sections thereof entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (the “Quarterly Reports”; and together with the Annual Report, the “Reports”), 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 “Manahawkin Property”), The Vue Apartments, LA Fitness, and Party City) face various challenges. Our cash flow and profitability will be adversely impacted if the issues with respect to the challenged tenants/properties identified in the Reports (including this Quarterly Report on Form 10-Q) are not resolved in a satisfactory manner. There have been no material changes to the status of such tenants/properties from that described in our Reports except as described below:
Manahawkin Property
On September 8, 2023, the joint venture (the “Venture”) in which we have a 50% interest and that owns a multi-tenant shopping center in Manahawkin, New Jersey entered into a contract to sell this property to an unaffiliated third-party for a sales price of approximately $36.5 million, subject to customary closing adjustments and prorations. We anticipate that the transaction will be completed in the quarter ending December 31, 2023, subject to the satisfaction of customary closing conditions (including the purchaser’s right to terminate the contract without penalty if it is not satisfied with the results of its due diligence investigation with respect to environmental and title matters), and that the net proceeds to us from the sale, ranging from approximately $6.0 million to $8.0 million (after giving effect to the repayment of our $10.4 million share of mortgage debt on this property), will be used to pay down our credit facility indebtedness. We expect to recognize a nominal gain from this sale when it is completed.
In connection with entering into this contract, the Venture recorded an impairment charge of $1.7 million, of which our 50% share was $850,000, which was recorded in Equity in loss from unconsolidated joint ventures for the three and nine months ended September 30, 2023.
During the nine months ended September 30, 2023, 2022 and 2021, we recognized $(889,000), $168,000 and $(77,000) of equity in earnings (loss) from the Venture, and the results for such periods included $51,000, $81,000 and $0, respectively, of repayments from Regal Cinemas of amounts previously deferred due to the COVID-19 pandemic.
No assurance can be provided that this sale will be completed, and if it is not completed, we will be adversely impacted.
LA Fitness
LA Fitness leases from us three properties pursuant to three separate leases, including a 38,000 square foot health and fitness facility in Hamilton, Ohio. Effective as of October 12, 2023, we and LA Fitness amended the lease at the Hamilton, Ohio property (which lease had been scheduled to expire in November 2023), which, effective as of December 1, 2023, provides (i) that the property will be leased on a month-to-month basis with a mutual right to terminate on 90 days’ notice; (ii) that we are responsible for, among other things, real estate taxes and common area maintenance expenses; and (iii) for a $30,000 monthly gross rent (compared to the monthly base rent of $66,000 paid during 2023). This property accounted, during the nine months ended September 30, 2023, for (i) $702,000 of rental income and (ii) $142,000, $144,000 and $157,000 of interest expense, real estate operating expense and depreciation and amortization expense, respectively. As a result of this lease amendment, our rental income from this property will be significantly reduced, our real estate expenses will increase, and there is uncertainty as to whether this property will generate positive cash flow.
At September 30, 2023, the unbilled rent receivable, tenant origination cost and mortgage debt with respect to this property was $7,000, $6,000 and $4.0 million, respectively. The mortgage debt is scheduled to mature in December 2023 and although we are in discussions with the lender for an extension of the maturity date, we can provide no assurance that the
26
lender will agree to same. If the lender does not extend the maturity date and we do not have sufficient available cash, we will be adversely affected if we (i) pay off the mortgage debt with funds from our credit facility, or (ii) surrender the property to the lender.
If LA Fitness vacates this property, it may be difficult, due to the presence of another health and fitness facility located nearby, to re-lease this property to another health and fitness operator, and if we are unable to re-lease this property to such an operator, it may be costly to reconfigure the space for use other than as a fitness facility.
NYC
The City of New York is a tenant at a 66,000 square foot office building in Brooklyn, New York. Although the lease expired on or about October 15, 2023, we and representatives of the tenant have signed a term sheet to extend the lease through October 2028 with the tenant having the right to terminate the lease beginning October 2027 on six months’ notice. The extension would be at a base annual rent of approximately $1.3 million, slightly higher than the annual rent the tenant is currently paying. The term sheet is non-binding and subject to the execution of more formal documentation which we anticipate will take several months to complete. There is no mortgage debt on the property, and the tenant is generally responsible for the expenses of operating the property. We can provide no assurance that the proposed lease will be signed, and if it is not, we will be adversely affected by the loss of rental income and the expenses associated with maintaining the property.
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, 2017,2023, we own 119118 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, 20172023 is approximately 98.0%97.5%.
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
27
(including the likelihood for, and the extent 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$71.0 million and represents, after giving effect to any abatements, concessions, deferrals or adjustments, the base rent payable to us during the twelve months ending September 30, 20182024 under leases in effect at September 30, 2017. Contractual2023. Included in such contractual rental income excludes:is an aggregate of $1.3 million related to five properties which we expect to sell by December 31, 2023 (see – Contracted and Contemplated Dispositions below). Excluded from such contractual rental income is an aggregate of $4.1 million comprised of: (i) 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, (ii) $1.3 million representing our share of the base rent payable to our joint ventures (which includes $1.1 million from the Manahawkin Property), and (iii) approximately $437,000$678,000 of straight-line rent and $1.0 million$837,000 of amortization of intangibles; and (ii) our share of the rental income payable to our unconsolidated joint ventures, which is approximately $2.8 million.lease-related intangibles.
The following table sets forth scheduled lease expirations of leases for our properties as of September 30, 20172023 for the periods indicated below:
Lease Expiration (1) |
| Number of |
| Approximate Square |
| Contractual |
| Percent of |
| |
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 | % |
(1) Lease expirations assume tenants do not exercise existing renewal or termination options.
(2) Excludes an aggregate of 183,676
| | | | | | | | | | |
Lease Expiration (1) | | Number of | | Approximate Square | | Contractual | | Contractual Base Rent |
| |
12 Months Ending | | Expiring | | Footage Subject to | | Base Rent Under | | Represented by |
| |
September 30, |
| Leases |
| Expiring Leases (2) |
| Expiring Leases |
| Expiring Leases |
| |
2024 |
| 21 | | 725,328 | | $ | 2,452,169 | | 3.5 | % |
2025 |
| 16 | | 869,992 | |
| 6,306,644 | | 8.9 | |
2026 |
| 14 | | 726,371 | |
| 4,648,016 | | 6.5 | |
2027 |
| 32 | | 2,030,123 | |
| 13,341,600 | | 18.8 | |
2028 |
| 23 | | 1,150,238 | |
| 7,577,443 | | 10.7 | |
2029 |
| 13 | | 1,520,909 | |
| 8,412,622 | | 11.8 | |
2030 |
| 11 | | 655,220 | |
| 5,679,316 | | 8.0 | |
2031 |
| 10 | | 1,076,905 | |
| 6,140,851 | | 8.6 | |
2032 |
| 7 | | 264,231 | |
| 2,338,103 | | 3.3 | |
2033 | | 16 | | 944,907 | | | 9,433,200 | | 13.3 | |
2034 and thereafter |
| 10 | | 881,476 | |
| 4,662,020 | | 6.6 | |
|
| 173 |
| 10,845,700 | | $ | 70,991,984 |
| 100.0 | % |
(1) | Lease expirations assume tenants do not exercise existing renewal or termination options. |
(2) | Excludes an aggregate of 132,685 square feet of vacant space. |
(3) Includes approximately $1.8
ATM Program
In September 2023, we entered into a new at-the-market equity distribution agreement with B. Riley Securities, Inc. pursuant to which we may sell up to $50 million of contractual rental income related to the property tenanted by L-3 Communications located in Hauppauge, New York, which lease was extended from 2022 to 2033, subject to an agreed upon building expansion and improvements expected to be completed by 2018.shares of our common stock.
Property Transactions During the Three Months Ended September 30, 20172023
On July 14, 2017,13, 2023, we soldacquired a retailmulti-tenant industrial property tenanted by Kohl’s, located in Kansas City, Missouri,Blythewood, South Carolina for a salespurchase price of $10.1$13.4 million, netincluding the assumption of closing costs. Our gain from this sale was $2.2 million. In connection$4.3 million of mortgage debt with the sale of this property, we repaid the $3.9 million mortgage balance and due to the early termination of thean interest rate swap derivative, incurred interest expense of $118,0004.60% and maturing in June 2029. This property contributed $268,000 and $251,000 to rental income and total operating expenses, respectively, in the nine months ended September 30, 2017.2023.
On August 31, 2017,September 20, 2023, we sold a vacant retailrestaurant property formerly tenanted by hhgregg, Inc., located in Niles, Illinois,Greensboro, North Carolina for $4.8a gross sales price of $3.3 million netand recognized a gain of closing costs. Our gain$332,000 from this sale was $1.1 million.
In September 2017, we leased our Philadelphia, Pennsylvaniasale. This property contributed $180,000 and $188,000 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$29,000 and $29,000 to September 30, 2017
On October 10, 2017, we acquired, in a sale-leaseback transaction, a distribution facility/corporate headquarters, located in Memphis, Tennessee for $8 million. The initial term of the lease is ten years and our annual rental income from this property will be approximately $627,000.
Results of Operations
Revenues
The following table compares revenues for the periods indicated:
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| Increase |
| % |
| 2017 |
| 2016 |
| Increase |
| % |
| ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Rental income, net |
| $ | 17,217 |
| $ | 16,334 |
| $ | 883 |
| 5.4 |
| $ | 50,770 |
| $ | 46,985 |
| $ | 3,785 |
| 8.1 |
|
Tenant reimbursements |
| 1,920 |
| 1,687 |
| 233 |
| 13.8 |
| 5,252 |
| 4,614 |
| 638 |
| 13.8 |
| ||||||
Total revenues |
| $ | 19,137 |
| $ | 18,021 |
| $ | 1,116 |
| 6.2 |
| $ | 56,022 |
| $ | 51,599 |
| $ | 4,423 |
| 8.6 |
|
Rental income, net. The increases in the three and nine months ended September 30, 2017 are due primarily to $1.5 million and $5.9 million, respectively, generated by properties acquired in 2017 and 2016. The increasetotal operating expenses in the nine months ended September 30, 2017 is also2023 and 2022, respectively.
28
Stock Repurchase Program
During the three months ended September 30, 2023, pursuant to a stock repurchase plan adopted in 2022, as amended (the “2022 Repurchase Plan”), we repurchased approximately 262,000 shares of common stock for approximately $5.1 million. In October 2023, we repurchased, pursuant to the 2022 Repurchase Plan, approximately 62,000 shares of common stock for approximately $1.1 million. No more shares may be repurchased pursuant to the 2022 Repurchase Plan.
In October 2023, the Board of Directors approved a new share repurchase plan (the “2023 Repurchase Plan”) authorizing the repurchase of up to $10.0 million of shares of our common stock. Pursuant to the 2023 Repurchase Plan, through October 16, 2023 we repurchased approximately 71,000 shares of common stock for approximately $1.3 million. After giving effect to such repurchases, we are authorized to repurchase approximately $8.7 million of shares of our common stock.
We anticipate that due to (i) $267,000the uncertain acquisition environment, and the current price of rental income from a tenant whose lease commenced April 1, 2016 at our Joppa, Maryland property and (ii) $174,000 of annual percentage rent income received from a tenant.
Offsetting the increases are decreasescommon stock, that, in the near term, we will continue to repurchase our common stock.
Contracted and Contemplated Dispositions
From July 1, 2023 through November 1, 2023, we entered into contracts to sell three restaurant and two retail properties (excluding the TGI Fridays restaurant we sold in Greensboro, North Carolina and the Manahawkin Property) for an aggregate sales price of approximately $18.9 million. The buyers’ rights to terminate the contracts without penalty expire through December 2023. During the nine months ended September 30, 2017 of: (i) $64,000 and $1.1 million, respectively, representing the 20162023, these five properties generated $975,000 in aggregate of rental income fromand $42,000 and $189,000 of real estate expense and depreciation and amortization expense, respectively. Set forth below is information regarding these five properties, sold during 2016; (ii) $169,000as of September 30, 2023, presented on an aggregate basis:
Weighted average remaining lease term: 9.7 years
Estimated gain on sale: $7.0 million to $8.0 million
Estimated sales proceeds, net of transactions costs: $16.0 million to $18.0 million
We anticipate that these transactions will close in the quarter ending December 31, 2023 and $169,000, respectively, representingthat the 2016net proceeds therefrom will be used to pay down our credit facility indebtedness. We can provide no assurance that these transactions will be completed.
We also anticipate that over the next several months we may sell several additional retail properties and that the net proceeds therefrom will be used to pay down our credit facility indebtedness. These contemplated sales, if completed, will reduce our operating cash flow, and over the long term may reduce our ability to pay dividends.
Challenges Presented by Increasing or Prevailing Interest Rates
From October 1, 2023 through December 31, 2024, we have $56.9 million of mortgage debt maturing with a weighted average interest rate of 4.4%. If interest rates increase or continue at current levels, we may be required to refinance (including any cash-out refinancing) such mortgage debt on terms less favorable than those currently in effect (i.e., at higher interest rates) which will adversely affect our cash flow and profitability.
29
Results of Operations
Total revenues
The following table compares total revenues for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | | Nine Months Ended | | | | | | ||||||||
| | September 30, | | Increase | | | | September 30, | | Increase | | | ||||||||||
(Dollars in thousands) |
| 2023 |
| 2022 |
| (Decrease) |
| % Change |
| 2023 |
| 2022 |
| (Decrease) |
| % Change | ||||||
Rental income, net | | $ | 22,546 | | $ | 21,473 | | $ | 1,073 |
| 5.0 | | $ | 67,905 | | $ | 64,476 | | $ | 3,429 |
| 5.3 |
Lease termination fees | | | — | | | — | | | — |
| — | | | — | | | 25 | | | (25) |
| (100.0) |
Total revenues | | $ | 22,546 | | $ | 21,473 | | $ | 1,073 |
| 5.0 | | $ | 67,905 | | $ | 64,501 | | $ | 3,404 |
| 5.3 |
Rental income, net.
The following table details the components of rental income, net, for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | | Nine Months Ended | | | | | | ||||||||
| | September 30, | | Increase | | | | September 30, | | Increase | | | ||||||||||
(Dollars in thousands) |
| 2023 |
| 2022 |
| (Decrease) |
| % Change |
| 2023 |
| 2022 |
| (Decrease) |
| % Change | ||||||
Acquisitions (1) | | $ | 1,471 | | $ | 733 | | $ | 738 | | 100.7 | | $ | 3,836 | | $ | 1,249 | | $ | 2,587 | | 207.1 |
Dispositions (2) | | | 55 | | | 213 | | | (158) | | (74.2) | | | 397 | | | 1,252 | | | (855) | | (68.3) |
Same store (3) | | | 21,020 | | | 20,527 | | | 493 | | 2.4 | | | 63,672 | | | 61,975 | | | 1,697 | | 2.7 |
Rental income, net | | $ | 22,546 | | $ | 21,473 | | $ | 1,073 | | 5.0 | | $ | 67,905 | | $ | 64,476 | | $ | 3,429 | | 5.3 |
(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 108 properties that were owned for the entirety of the periods presented. |
Changes at same store 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
The increases 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 2016same store 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, 20172023 are due primarily to reimbursements of approximately $270,000increases of:
- | $521,000 and $1.4 million, respectively, of rental income from various lease amendments and extensions at our properties, |
- | $123,000 and $754,000, respectively, of rental income due to new tenants at various properties, and |
- | $299,000 and $606,000, respectively, in tenant reimbursements, of which $258,000 and $403,000, respectively, relates to operating expenses generally incurred in the same period, and for the nine months ended September 30, 2023, $203,000 relates to real estate taxes. |
The increases were offset during the three and $811,000, respectively, from properties acquired in 2017 and 2016, offset by decreases of $35,000 and $186,000, respectively, relatednine months ended September 30, 2023 due to two sold properties and two vacant properties. Tenant reimbursements generally relate to real estate expenses incurredthe inclusion, in the same period.corresponding 2022 periods, of:
- | $163,000 and $491,000, respectively, of rental income from leases that expired in 2022 and 2023 at several properties, |
- | $143,000 and $318,000, respectively, from Bed Bath & Beyond - Kennesaw, Georgia which filed for bankruptcy (including the write-off, during the nine months ended September 30, 2023, of the $133,000 unbilled rent receivable balance), and |
- | $145,000 and $257,000, respectively, of rental income from our wholly-owned Regal Cinemas properties due to lease amendments effectuated in connection with its bankruptcy reorganization. |
30
Operating Expenses
The following table compares operating expenses for the periods indicated:
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | Three Months Ended | | | | | | | Nine Months Ended | | | | | | |||||||||||||||||||||||||||||||
| | September 30, | | Increase | | | | September 30, | | Increase | | | |||||||||||||||||||||||||||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| Increase |
| % |
| 2017 |
| 2016 |
| Increase |
| % |
|
| 2023 |
| 2022 |
| (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 |
| | $ | 6,310 | | $ | 5,970 | | $ | 340 |
| 5.7 | | $ | 18,569 | | $ | 17,718 | | $ | 851 |
| 4.8 |
General and administrative |
| 2,701 |
| 2,681 |
| 20 |
| .7 |
| 8,409 |
| 7,961 |
| 448 |
| 5.6 |
| |
| 3,864 | |
| 3,769 | |
| 95 |
| 2.5 | |
| 12,068 | |
| 11,534 | |
| 534 |
| 4.6 | ||||||
Real estate expenses |
| 2,689 |
| 2,188 |
| 501 |
| 22.9 |
| 7,765 |
| 6,521 |
| 1,244 |
| 19.1 |
| |
| 4,061 | |
| 3,970 | |
| 91 |
| 2.3 | |
| 12,139 | |
| 11,206 | |
| 933 |
| 8.3 | ||||||
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 | |
| 76 | |
| 60 | |
| 16 |
| 26.7 | |
| 232 | |
| 211 | |
| 21 |
| 10.0 | |||||||||||||||||||||||
Total operating expenses |
| 10,825 |
| 9,814 |
| 1,011 |
| 10.3 |
| 32,817 |
| 28,767 |
| 4,050 |
| 14.1 |
| | $ | 14,311 | | $ | 13,769 | | $ | 542 |
| 3.9 | | $ | 43,008 | | $ | 40,669 | | $ | 2,339 |
| 5.8 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Operating income |
| $ | 8,312 |
| $ | 8,207 |
| $ | 105 |
| 1.3 |
| $ | 23,205 |
| $ | 22,832 |
| $ | 373 |
| 1.6 |
|
Depreciation and amortization. The increases for the three and nine months ended September 30, 2017 are due primarily to $591,000 and $2.0 million, respectively, of depreciation expense on the properties acquired in 2016 and 2017. The nine months ended September 30, 2017 also includes an aggregate $884,000 of write-offs of tenant origination costs related to the hhgregg and Joe’s Crab Shack properties. The increase in depreciation expense in the three and nine months ended September 30, 2017 was offset by $118,000 and $292,000, respectively, due to the sales of properties in 2016 and 2017.
General and administrative. The increase in the nine months ended September 30, 2017 was due primarily to increases of: (i) $166,000 in non-cash compensation expense related to the accelerated vesting of restricted stock; (ii) $144,000 in compensation expense primarily due to higher compensation levels; and (iii) $138,000 for other miscellaneous expenses, none of which was individually significant.
Real estate expenses. The increases in the three and nine months ended September 30, 20172023 are due primarily to increases(i) $391,000 and $1.2 million, respectively, of $252,000 and $843,000, respectively,such expense from properties acquired in 20162022 and 2017; substantially all these expenses are rebilled2023, and (ii) $141,000 and $362,000, respectively, of depreciation from improvements at several properties. In addition, the nine months ended September 30, 2023 includes $170,000 of amortization of leasing commissions at several properties.
The increases were offset by:
- | decreases of $194,000 and $653,000, respectively, related to improvements and tenant origination costs at several properties that prior to September 30, 2023 were fully amortized, and |
- | the inclusion of $214,000 of such expense, in the nine months ended September 30, 2022, from the properties sold since January 1, 2022. |
General and administrative. The increase in the nine months ended September 30, 2023 is due primarily to tenantsan increase of $422,000 of compensation expense related to additional employees, and are included in Tenant reimbursements. Also contributing to thea lesser extent, higher levels of compensation.
Real estate expenses. The increases in the three and nine months ended September 30, 2017 were $165,0002023 are primarily due to:
-$169,000 and $647,000,$633,000, respectively, of expenses related to the vacantfrom properties formerly tenanted by Quality Bakeryacquired in 2022 and hhgregg. 2023,
- | $93,000 and $368,000, respectively, relating to real estate tax expense (primarily related to our El Paso, Texas and Ankeny, Iowa properties), and |
- | $113,000 and $382,000, respectively, of other real estate expenses, and in the nine months ended September 30, 2023, $218,000 of insurance expense for several properties. |
These increases were offset by decreasesdue to the inclusion, in the three and nine months ended September 30, 2017,corresponding 2022 periods of:
- | $229,000 and $229,000, respectively, relating to the prior year period accrual for the potential real estate tax liability related to our wholly-owned Regal Cinemas properties due to uncertainty as to whether the tenant would satisfy its obligations to make such payments, and |
- | $247,000 of such expense, in the nine months ended September 30, 2022, from the properties sold since January 1, 2022. |
A substantial portion of among other things, $50,000 and $200,000, respectively, of expenses related to the vacant property formerly tenanted by Sports Authority, which was sold in May 2017.
Real estate acquisition costs. The expense in the three and nine months ended September 30, 2016 primarily relate to the purchase of properties during those periods. As a result of the adoption of ASU 2017-01 in January 2017, the real estate acquisitions duringexpenses is rebilled to tenants and is included in Rental income, net, on the current year were considered asset acquisitionsconsolidated statements of income.
31
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 | | | | | | | Nine Months Ended | | | | | | ||||||||
| | September 30, | | Increase | | | | September 30, | | Increase | | | ||||||||||
(Dollars in thousands) |
| 2023 |
| 2022 |
| (Decrease) |
| % Change |
| 2023 |
| 2022 |
| (Decrease) |
| % Change | ||||||
Gain on sale of real estate, net | | $ | 332 | | $ | 4,063 | | $ | (3,731) |
| (91.8) | | $ | 5,046 | | $ | 16,762 | | $ | (11,716) |
| (69.9) |
The following table lists the properties sold and as such, acquisition costs of $293,000 were capitalized to the related real estate assets and not expensed.gains, net, for the periods indicated:
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
(Dollars in thousands) |
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
TGI Fridays restaurant property - Greensboro, North Carolina | | $ | 332 | | $ | — | | $ | 332 | | $ | — |
Havertys retail property - Duluth, Georgia | | | — | | | — | | | 3,180 | | | — |
TGI Fridays restaurant property - Hauppauge, New York | | | — | | | — | | | 1,534 | | | — |
| | | | | | | | | | | | |
Wendy's restaurants (4 properties) - Various cities, Pennsylvania | | | — | | | — | | | — | | | 4,649 |
Orlando Baking industrial property - Columbus, Ohio | | | — | | | — | | | — | | | 6,925 |
Havertys retail property - Fayetteville, Georgia | | | — | | | — | | | — | | | 1,125 |
Vacant retail property - Columbus, Ohio | | | — | | | 4,063 | | | — | | | 4,063 |
Total gain on sale of real estate, net | | $ | 332 | | $ | 4,063 | | $ | 5,046 | | $ | 16,762 |
Federal excise and state taxes. The increase in the three and nine months ended September 30, 2017 primarily relates to state franchise tax resulting from the 2016 purchase of a property located in Tennessee.
Impairment loss. Subsequent to September 30, 2017, we entered into a contract to sell our property formerly tenanted by Joe’s Crab Shack in Ann Arbor, Michigan. In connection therewith, we recorded an impairment loss of $153,000 representing the difference between the expected net sales price and the net book value of this property at September 30, 2017.
Other Income and Expenses
The following table compares other income and expenses for the periods indicated:
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |||||||||||||||||||||||
| | Three Months Ended | | | | | | | Nine Months Ended | | | | | | |||||||||||||||||||||||||||||||
| | September 30, | | Increase | | % | | September 30, | | Increase | | % | |||||||||||||||||||||||||||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| Increase |
| % |
| 2017 |
| 2016 |
| Increase |
| % |
|
| 2023 |
| 2022 |
| (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 | ) | ||||||||||||||||||||||
Prepayment costs on debt |
| — |
| — |
| — |
| — |
| — |
| (577 | ) | 577 |
| (100.0 | ) | ||||||||||||||||||||||||||||
Equity in (loss) earnings of unconsolidated joint ventures | | $ | (905) | | $ | 82 | | $ | (987) | | (1,203.7) | | $ | (761) | | $ | 310 | | $ | (1,071) | | (345.5) | |||||||||||||||||||||||
Income on settlement of litigation | | | — | | | — | | | — | | n/a | | | — | | | 5,388 | | | (5,388) | | (100.0) | |||||||||||||||||||||||
Other income |
| 57 |
| 362 |
| (305 | ) | (84.3 | ) | 399 |
| 431 |
| (32 | ) | (7.4 | ) | | | 87 | | | 17 | | | 70 | | 411.8 | | | 131 | | | 997 | | | (866) | | (86.9) | ||||||
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | | | | | | | | ||||||
Expense |
| (4,459 | ) | (4,404 | ) | (55 | ) | 1.2 |
| (13,380 | ) | (12,593 | ) | (787 | ) | (6.2 | ) | | | (4,768) | | | (4,367) | | | 401 | | 9.2 | | | (13,978) | | | (13,026) | | | 952 | | 7.3 | ||||||
Amortization and write-off of deferred financing costs |
| (263 | ) | (189 | ) | (74 | ) | 39.2 |
| (717 | ) | (644 | ) | (73 | ) | (11.3 | ) | | | (212) | | | (278) | | | (66) | | (23.7) | | | (619) | | | (917) | | | (298) | | (32.5) |
Equity in (loss) earnings of unconsolidated joint ventures. The incomedecrease in the nine months ended September 30, 2016 includes our 50% share, or $146,000, of income obtained for permanent utility easements granted at two properties. There was no such income during 2017.
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, 20162023 includes $356,000our 50% share, or $850,000, of a $1.7 million impairment charge our joint venture recorded with respect to the Manahawkin Property. (See Note 7 to our consolidated financial statements.) The nine months ended September 30, 2023 also includes a $112,000 decrease in base rent collected from Regal Cinemas due to the lease amendment effectuated in connection with its bankruptcy reorganization. We anticipate that for the next several months, if not longer, we will not collect any rent from Regal Cinemas at the Manahawkin Property.
Income on settlement of litigation. In April 2022, we received for such easements.$5.4 million in connection with the settlement of a lawsuit at our former Round Rock, Texas property (the “Round Rock Settlement”). (See Note 13 to our consolidated financial statements.)
Other income. The nine months ended September 30, 2022 includes $918,000 representing the final property insurance recovery related to our Lake Charles, Louisiana property damaged in a 2020 hurricane. (See Note 13 to our consolidated financial statements.)
32
Interest expense. The following table details the components ofcompares interest expense for the periods indicated:
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| Increase |
| % |
| 2017 |
| 2016 |
| Increase |
| % |
| ||||||
Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Credit line interest |
| $ | 139 |
| $ | 121 |
| $ | 18 |
| 14.9 |
| $ | 360 |
| $ | 439 |
| $ | (79 | ) | (18.0 | ) |
Mortgage interest |
| 4,320 |
| 4,283 |
| 37 |
| .9 |
| 13,020 |
| 12,154 |
| 866 |
| 7.1 |
| ||||||
Total |
| $ | 4,459 |
| $ | 4,404 |
| $ | 55 |
| 1.2 |
| $ | 13,380 |
| $ | 12,593 |
| $ | 787 |
| 6.2 |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | | | | | | Nine Months Ended | | | | | | ||||||||
| | September 30, | | Increase | | % | | September 30, | | Increase | | % | ||||||||||
(Dollars in thousands) |
| 2023 |
| 2022 |
| (Decrease) |
| Change | | 2023 |
| 2022 |
| (Decrease) |
| Change | ||||||
Interest expense: | | |
|
| |
|
| |
|
|
| | |
|
| |
|
| |
|
|
|
Mortgage interest | | $ | 4,454 | | $ | 4,150 | | $ | 304 |
| 7.3 | | $ | 12,976 | | $ | 12,535 | | $ | 441 |
| 3.5 |
Credit line interest | | | 314 | | | 217 | | | 97 |
| 44.7 | | | 1,002 | | | 491 | | | 511 |
| 104.1 |
Total | | $ | 4,768 | | $ | 4,367 | | $ | 401 |
| 9.2 | | $ | 13,978 | | $ | 13,026 | | $ | 952 |
| 7.3 |
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 | | | | | | | Nine Months Ended | | | | | | ||||||||
| | September 30, | | Increase | | % | | September 30, | | Increase | | % | ||||||||||
(Dollars in thousands) |
| 2023 |
| 2022 |
| (Decrease) |
| Change | | 2023 |
| 2022 |
| (Decrease) |
| Change | ||||||
Weighted average interest rate | | | 4.19 | % | | 4.11 | % | | 0.08 | % | 1.9 | | | 4.15 | % | | 4.15 | % | | — | % | — |
Weighted average principal amount | | $ | 421,762 | | $ | 404,178 | | $ | 17,584 |
| 4.4 | | $ | 414,483 | | $ | 403,072 | | $ | 11,411 |
| 2.8 |
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| Increase |
| % |
| 2017 |
| 2016 |
| Increase |
| % |
| ||||||
Average interest rate on mortgage debt |
| 4.31 | % | 4.56 | % | (.25 | )% | (5.5 | )% | 4.31 | % | 4.65 | % | (.34 | )% | (7.3 | )% | ||||||
Average principal amount of mortgage debt |
| $ | 401,384 |
| $ | 375,770 |
| $ | 25,614 |
| 6.8 | % | $ | 399,316 |
| $ | 350,287 |
| $ | 49,029 |
| 14.0 | % |
The increases in mortgage interest in the three and nine months ended September 30, 2017 in mortgage interest expense2023 are due primarily to the increases in the average principal amount of mortgage debt outstanding as a result of refinancings and acquisitions. The increase was 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 millionpayoffs (generally in connection with properties acquired in 2016scheduled maturities) 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 averagescheduled amortization payments.
Credit line interest rate is due to the financing (including financings effectuated in connection with acquisitions) or refinancing in 2016 and 2017 of $158.8 million of 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, 2017 by $118,000 due to the payoff of a mortgage and early termination of an interest rate swap in connection with the sale of the property tenanted by Kohl’s in July 2017.
Gain on sale of real estate, net.
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 | | | | | | | Nine Months Ended | | | | | | ||||||||
| | September 30, | | Increase | | % | | September 30, | | Increase | | % | ||||||||||
(Dollars in thousands) |
| 2023 |
| 2022 |
| (Decrease) |
| Change | | 2023 |
| 2022 |
| (Decrease) |
| Change | ||||||
Weighted average interest rate | | | 7.01 | % | | 3.59 | % | | 3.42 | % | 95.3 | | | 6.60 | % | | 2.74 | % | | 3.86 | % | 140.9 |
Weighted average principal amount | | $ | 14,696 | | $ | 16,870 | | $ | (2,174) |
| (12.9) | | $ | 17,132 | | $ | 15,480 | | $ | 1,652 |
| 10.7 |
|
| Three Months Ended |
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||||||||
(Dollars in thousands) |
| 2017 |
| 2016 |
| Increase |
| % |
| 2017 |
| 2016 |
| Increase |
| % |
| ||||||
Gain on sale of real estate, net |
| $ | 3,269 |
| $ | 119 |
| $ | 3,150 |
| 2,647 |
| $ | 9,837 |
| $ | 9,824 |
| $ | 13 |
| .1 |
|
The gainincreases in credit line interest in the three and nine months ended September 30, 20172023 are due primarily to increases in the weighted average interest rates.
At November 1, 2023, $22.5 million was realized fromoutstanding under our credit facility. Accordingly, we anticipate that over the salesshort-term, until such outstanding amount is reduced, our interest expense will be higher than the interest expense incurred during the corresponding 2022 periods.
Amortization and write-off of the Kohl’s property in Kansas City, Missouri and the former hhgregg property in Niles, Illinois.deferred financing costs. The gaindecrease in the nine months ended September 30, 20172023 was also realized fromprimarily due to the sale$221,000 write-off of deferred costs related to the Greenwood Village, Colorado propertymortgages on the eleven Havertys properties that were paid off in May 2017. The gain in the nine months ended September 30, 2016 was realized from the salesJune 2022.
33
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 pursuant to our recently renewed at-the-market equity offering program and property sales.sales. Our available liquidity at November 3, 2017,1, 2023, was $99.3$83.6 million, including $12.7$6.1 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$77.5 million available under our revolving credit facility.
At November 1, 2023, the facility is available for the acquisition of commercial real estate, repayment of mortgage debt, and up to $26.0 million for renovation and operating expense purposes.
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)repurchases of our common stock, principally from cash flow from operations and (ii) capital requirements, including an estimated $11.0 million of building expansion and improvements at several properties, from cash flow from operations, our available cash and cash equivalents, proceeds from and, to the extent permitted and needed, our credit facility.
facility and (ii) investing and financing cash requirements (including an estimated aggregate of $3.6 million of capital and other expenditures) from the foregoing, as well as property financings and refinancings and property sales.
At September 30, 2017,2023, excluding the mortgage indebtednessdebt of our unconsolidated joint ventures,venture, we had 7268 outstanding mortgages payable secured by 8969 properties in the aggregate principal amount of $401.1$420.9 million (before netting unamortized deferred financing costs)costs of $3.3 million and mortgage intangibles of $838,000). These mortgages represent first liens on individual real estate investments with an aggregate carrying value of $629.8$670.4 million, before accumulated depreciation of $81.4$123.6 million. After giving effect to interest rate swap agreements, the mortgage payments bear interest at fixed rates ranging from 3.02%2.97% to 7.81%5.56% (a 4.22%4.18% weighted average interest rate) and mature between 20172023 and 2042 (an 8.92047 (a 6.0 year weighted average remaining term to maturity).
The following table sets forth, as of September 30, 2017,2023, information with respect to our mortgage debt that is payable from October 1, 2017during the three 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 $20.8 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 | | $ | 3,150 | | $ | 11,732 | | $ | 10,449 | | $ | 10,348 | | $ | 35,679 |
Principal due at maturity | |
| 6,238 | |
| 50,695 | |
| 32,063 | |
| 19,179 | |
| 108,175 |
Total | | $ | 9,388 | | $ | 62,427 | | $ | 42,512 | | $ | 29,527 | | $ | 143,854 |
| | | | | | | | | | | | | | | |
Weighted average interest rate % on principal due at maturity | | | 4.00 | % | | 4.41 | % | | 4.32 | % | | 3.88 | % | | |
(1)
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 payoffpay off the mortgage loans which mature in 20172023 through 2020.2026. In particular, we anticipate refinancing a substantial portion of the debt maturing in 2023 and 2024 although given the significant increase in interest rates over the past year, 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 generally 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.
34
Typically, we utilize funds from our credit facility to acquire a property and, thereafter secure long-term, fixed rate mortgage debt on such property. We apply the proceeds from the mortgage loan to repay borrowings under the credit facility, thus providing us with the ability to re-borrow under the credit facility for the acquisition of additional properties.
Credit Facility
SubjectOur credit facility provides that subject to borrowing base requirements, we can borrow up to $100$100.0 million pursuant to our revolving credit facility which is available to us for the acquisition of commercial real estate, repayment of mortgage debt, property improvements and general working capitalrenovation and operating expense purposes; provided, that if used for property improvementsrenovation and working capitaloperating expense purposes, the amount outstanding for such purposes will not exceed the lesser of $15$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 atfor each of the nine months ended September 30, 20172023 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 7.08% and 7.06% at September 30, 2023 and October 31, 2023, respectively. On October 31, 2023, $22.5 million was outstanding on the credit facility.
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, 2017,2023, 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 |
| ||||
(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 nine months ended September 30, 2017.2023 and 2022. At September 30, 2017, our maximum exposure to loss with respect to these properties is $34.0 million, representing 2023, the carrying value of the land; suchland on our balance sheet was approximately $17.0 million; our leasehold positions areposition is subordinate to an aggregate of $150.7$63.9 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 6 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 Annual Report. There have been no changes in such estimates.
35
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.
36
The tabletables below providesprovide a reconciliation of net income in accordance with GAAP to FFO and AFFO for the periods indicated (dollars in thousands):
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| 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 | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2023 | | 2022 |
| 2023 |
| 2022 | ||||
GAAP net income attributable to One Liberty Properties, Inc. | | $ | 2,747 | | $ | 7,204 | | $ | 14,652 | | $ | 33,294 |
Add: depreciation and amortization of properties | |
| 6,134 | | | 5,800 | | | 18,028 | | | 17,297 |
Add: our share of depreciation and amortization of unconsolidated joint ventures | |
| 130 | | | 130 | | | 389 | | | 389 |
Add: amortization of deferred leasing costs | |
| 176 | | | 170 | | | 541 | | | 421 |
Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures | |
| 5 | | | 5 | | | 14 | | | 16 |
Add: our share of impairment loss of unconsolidated joint venture property | | | 850 | | | — | | | 850 | | | — |
Deduct: gain on sale of real estate, net | |
| (332) | |
| (4,063) | |
| (5,046) | |
| (16,762) |
Adjustments for non-controlling interests | |
| (19) | | | (17) | | | (53) | | | (49) |
NAREIT funds from operations applicable to common stock | |
| 9,691 | |
| 9,229 | |
| 29,375 | |
| 34,606 |
Deduct: straight-line rent accruals and amortization of lease intangibles | |
| (619) | | | (712) | | | (2,139) | | | (2,196) |
Deduct: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures | |
| (5) | | | (6) | | | (15) | | | (22) |
Deduct: other income and income on settlement of litigation | | | (75) | | | — | | | (75) | | | (5,388) |
Deduct: additional rent from ground lease tenant | | | — | | | — | | | (16) | | | — |
Deduct: income on insurance recovery from casualty loss | | | — | | | — | | | — | | | (918) |
Deduct: lease termination fee income | | | — | | | — | | | — | | | (25) |
Deduct: our share of unconsolidated joint venture lease termination fee income | | | (21) | | | — | | | (21) | | | (25) |
Add: amortization of restricted stock and RSU compensation | |
| 1,211 | |
| 1,306 | |
| 4,103 | |
| 4,190 |
Add: amortization and write-off of deferred financing costs | |
| 212 | |
| 278 | |
| 619 | |
| 917 |
Add: amortization of lease incentives | | | 30 | | | — | | | 91 | | | — |
Add: amortization of mortgage intangible assets | | | 33 | | | — | | | 79 | | | — |
Add: our share of amortization of deferred financing costs of unconsolidated joint venture | |
| 4 | | | 4 | | | 13 | | | 12 |
Adjustments for non-controlling interests | |
| (1) | | | 2 | | | (1) | | | 8 |
Adjusted funds from operations applicable to common stock | | $ | 10,460 | | $ | 10,101 | | $ | 32,013 | | $ | 31,159 |
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | September 30, | | September 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
GAAP net income attributable to One Liberty Properties, Inc. | | $ | .12 | | $ | .34 | | $ | .66 | | $ | 1.57 |
Add: depreciation and amortization of properties | |
| .29 | | | .27 | | | .86 | | | .81 |
Add: our share of depreciation and amortization of unconsolidated joint ventures | |
| .01 | | | .01 | | | .02 | | | .02 |
Add: amortization of deferred leasing costs | |
| .01 | | | .01 | | | .03 | | | .02 |
Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures | |
| — | | | — | | | — | | | — |
Add: our share of impairment loss of unconsolidated joint venture property | | | .04 | | | — | | | .04 | | | — |
Deduct: gain on sale of real estate, net | |
| (.02) | | | (.19) | | | (.24) | | | (.79) |
Adjustments for non-controlling interests | |
| — | | | — | | | — | | | — |
NAREIT funds from operations per share of common stock (a) | |
| .45 | |
| .44 | |
| 1.37 | |
| 1.63 |
Deduct: straight-line rent accruals and amortization of lease intangibles | |
| (.03) | | | (.03) | | | (.10) | | | (.11) |
Deduct: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures | |
| — | | | — | | | — | | | — |
Deduct: other income and income on settlement of litigation | | | — | | | — | | | — | | | (.25) |
Deduct: additional rent from ground lease tenant | | | — | | | — | | | — | | | — |
Deduct: income on insurance recovery from casualty loss | | | — | | | — | | | — | | | (.04) |
Deduct: lease termination fee income | | | — | | | — | | | — | | | — |
Deduct: our share of unconsolidated joint venture lease termination fee income | | | — | | | — | | | — | | | — |
Add: amortization of restricted stock and RSU compensation | |
| .06 | | | .06 | | | .19 | | | .20 |
Add: amortization and write-off of deferred financing costs | | | .01 | | | .01 | | | .03 | | | .04 |
Add: amortization of lease incentives | | | — | | | — | | | — | | | — |
Add: amortization of mortgage intangible assets | | | — | | | — | | | — | | | — |
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) | | $ | .49 | | $ | .48 | | $ | 1.49 | | $ | 1.47 |
(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. |
37
Three Months Ended September 30, 2023 and 2022
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||
|
| 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 |
|
The $462,000, or 5.0%, increase in FFO for the three months ended September 30, 2023 from the corresponding 2022 period is due primarily to a $1.1 million net increase in rental income.
Offsetting the increase is:
● | a $401,000 increase in interest expense, |
● | an aggregate $186,000 increase in general and administrative expenses and real estate expenses, and |
● | a $137,000 decrease in equity in earnings of unconsolidated joint ventures. |
The $359,000, or 3.6%, increase in AFFO is primarily due to the factors impacting FFO as described immediately above.
See “—Results of Operations” for further information regarding these changes.
Nine Months Ended September 30, 2023 and 2022
The $5.2 million, or 15.1%, decrease in FFO for the nine months ended September 30, 2023 from the corresponding 2022 period is due primarily to:
● | the inclusion, in the corresponding 2022 period, of $5.4 million from the Round Rock Settlement, |
● | a $952,000 increase in interest expense, |
● | a $933,000 increase in real estate expenses, |
● | the inclusion, in the corresponding 2022 period, of $918,000 of income on insurance recovery from casualty loss, |
● | a $534,000 increase in general and administrative expenses, |
● | the inclusion, in the corresponding 2022 period, of an additional $298,000 in amortization of deferred financing costs, and |
● | a $221,000 decrease in equity in earnings of unconsolidated joint ventures. |
Offsetting the decrease is a $3.4 million net increase in rental income.
The $854,000 or 2.7%, increase in AFFO is due to the factors impacting FFO as described immediately above, excluding the (i) $5.4 million Round Rock Settlement and (ii) $918,000 income on insurance recovery from casualty loss.
See “—Results of Operations” for further information regarding these changes.
38
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 aggregate2023, we had no liability in the event of the early termination of our swaps was $2.5 million.swaps.
At September 30, 2017,2023, we had 3116 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, 2017,2023, 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.$395,000. 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.$404,000. 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. AtBased on the $12.5 million outstanding balance under this facility at September 30, 2017,2023, 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$125,000 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.
$125,000.
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.
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, 20172023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II -
39
PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Set forth below is a table describing the shares of our common stock we repurchased during the quarter ended September 30, 2023 pursuant to the 2022 Repurchase Plan:
| | | | | | | | | | | |
Issuer Purchases of Equity Securities | | ||||||||||
| | | | | | | | | | | |
| | | | | | | Total Number of | | Approximate Dollar Value | | |
| | Total Number | | Average | | Shares Purchased | | of Shares that May Yet Be | | ||
| | of Shares | | Price Paid | | as Part of Publicly | | Purchased Under | | ||
Period |
| Purchased |
| per Share | | Announced Programs | | the Programs | | ||
July 1, 2023 - July 31, 2023 | | — | | $ | — | | — | | $ | 6,045,045 | |
August 1, 2023 - August 31, 2023 | | 149,134 | | | 19.86 | | 149,134 | |
| 3,074,853 | |
September 1, 2023 - September 30, 2023 | | 113,180 | | | 19.14 | | 113,180 | | | 901,891 | (1) |
Total | | 262,314 | | | 19.55 | | 262,314 | | | | |
(1) | In October 2023, the Board amended the 2022 Repurchase Plan to increase the shares that were authorized to be repurchased pursuant thereto from $7.5 million of shares to approximately $7.7 million of shares. |
In October 2023, pursuant to the 2022 Repurchase Plan, we repurchased approximately 62,000 shares of common stock for approximately $1.1 million. No more shares may be repurchased pursuant to the 2022 Repurchase Plan.
In October 2023, the Board of Directors approved the 2023 Repurchase Plan authorizing the repurchase of up to $10.0 million of shares of our common stock. There is no stated expiration date for this plan. Pursuant to the 2023 Repurchase Plan, in October 2023 we repurchased approximately 71,000 shares of common stock for approximately $1.3 million. After giving effect to such repurchases, we are authorized to repurchase approximately $8.7 million of shares of our common stock.
Item 5. Other Information
None of our officers or directors had any contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement" in effect at any time during the three months ended September 30, 2023.
Exhibit No. | |
| Title of Exhibit |
| |||
31.1 | | ||
31.2 | | ||
32.1 | | ||
32.2 | | ||
| |
| |
| |
| |
| Cover Page Interactive Data File (the cover page XBRL | ||
| tags are embedded in the Inline XBRL | ||
|
| ||
|
|
40
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 | | /s/ Patrick J. Callan, Jr. |
| | Patrick J. Callan, Jr. |
| | President and Chief Executive Officer |
| | (principal executive officer) |
| | |
| | |
Date: November | | /s/ |
|
| Isaac Kalish |
| | Senior Vice President and |
| | Chief Financial Officer |
| | (principal financial officer) |
44
41