UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30, 2019~~March 31, 2020

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

Commission File Number 001-09279

ONE LIBERTY PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

MARYLAND		13-3147497
(State or other jurisdiction of		(I.R.S. employer
incorporation or organization)		identification number)

60 Cutter Mill Road, Great Neck, New York		11021
(Address of principal executive offices)		(Zip code)

(516) 466-3100

(Registrant’s telephone number, including area code)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	OLP	New York Stock Exchange

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

Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

Yes ⌧ No ◻

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 ◻ No ◻

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

Yes ☐ No ⌧☒

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~~May 1, ~~2019,~~2020, the registrant had ~~19,925,180~~20,152,054 shares of common stock outstanding.

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Table of Contents

		~~Page No.~~
Part I -— Financial Information		Page No.

Item 1.	Unaudited Consolidated Financial Statements	1

	Consolidated Balance Sheets — ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019	1

	Consolidated Statements of Income — Three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	2

	Consolidated Statements of Comprehensive Income — Three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	3

	Consolidated Statements of Changes in Equity — Three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	54

	Consolidated Statements of Cash Flows — ~~Nine~~Three months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~	65

	Notes to Consolidated Financial Statements	87

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2822

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3933

Item 4.	Controls and Procedures	4033

Part II — Other Information		41

Item 1A.	Risk Factor	34



Item 6.	Exhibits	4134

Table of Contents

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Par Value)


	September 30,			December 31,		March 31,		December 31,
	2019			2018		2020		2019
	(Unaudited)					(Unaudited)
ASSETS
Real estate investments, at cost
Land	$	195,771		$	204,162	$	196,645	$	195,320
Buildings and improvements		649,011			624,981		660,623		640,517
Total real estate investments, at cost		844,782			829,143		857,268		835,837
Less accumulated depreciation		133,489			123,684		138,607		135,302
Real estate investments, net		711,293			705,459		718,661		700,535

Property held-for-sale		1,227			—
Investment in unconsolidated joint ventures		11,070			10,857		11,247		11,061
Cash and cash equivalents		10,941			15,204		21,360		11,034
Restricted cash		—			1,106
Unbilled rent receivable		14,202			13,722		15,281		15,037
Unamortized intangible lease assets, net		26,375			26,541		28,722		26,068
Escrow, deposits and other assets and receivables		10,033			8,023		10,480		10,894
Total assets ⁽¹⁾	$	785,141		$	780,912	$	805,751	$	774,629

LIABILITIES AND EQUITY

Liabilities:
Mortgages payable, net of $4,302 and $4,298 of deferred financing costs, respectively	$	435,115		$	418,798
Line of credit, net of $670 and $312 of deferred financing costs, respectively		18,780			29,688
Mortgages payable, net of $4,420 and $4,438 of deferred financing costs, respectively						$	447,337	$	435,840
Line of credit, net of $567 and $619 of deferred financing costs, respectively							30,283		10,831
Dividends payable		8,942			8,724		9,037		8,966
Accrued expenses and other liabilities		17,784			11,094		19,363		14,587
Unamortized intangible lease liabilities, net		12,552			14,013		12,636		12,421
Total liabilities ⁽¹⁾		493,173			482,317		518,656		482,645

Commitments and contingencies

Equity:
One Liberty Properties, Inc. stockholders' equity:
Preferred stock, $1 par value; 12,500 shares authorized; NaN issued		—			—		—		—
Common stock, $1 par value; 25,000 shares authorized; 19,197 and 18,736 shares issued and outstanding		19,197			18,736
Common stock, $1 par value; 25,000 shares authorized; 19,380 and 19,251 shares issued and outstanding							19,380		19,251
Paid-in capital		299,198			287,250		302,530		301,517
Accumulated other comprehensive (loss) income		(3,374)			1,890
Accumulated other comprehensive loss							(6,432)		(1,623)
Distributions in excess of net income		(24,225)			(10,730)		(29,592)		(28,382)
Total One Liberty Properties, Inc. stockholders’ equity		290,796			297,146		285,886		290,763
Non-controlling interests in consolidated joint ventures ⁽¹⁾		1,172			1,449		1,209		1,221
Total equity		291,968			298,595		287,095		291,984
Total liabilities and equity	$	785,141	��	$	780,912	$	805,751	$	774,629

(1)

The Company’s consolidated balance sheets include assets and liabilities of consolidated variable interest entities (“VIEs”). See Note 7.6. The consolidated balance sheets include the following amounts related to the Company’s consolidated VIEs: $12,158 and ~~$14,722~~$12,158 of land, ~~$24,426~~$23,999 and ~~$27,642~~$24,223 of building and improvements, net of ~~$4,109~~$4,559 and ~~$4,119~~$4,334 of accumulated depreciation, ~~$3,390~~$3,722 and ~~$3,931~~$3,696 of other assets included in other line items, ~~$24,404~~$23,993 and ~~$26,850~~$24,199 of real estate debt, net, ~~$1,321~~$1,323 and ~~$2,455~~$1,153 of other liabilities included in other line items and ~~$1,172~~$1,209 and ~~$1,449~~$1,221 of non-controlling interests as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

See accompanying notes to consolidated financial statements.

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands, Except Per Share Data)

(Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2019		2018		2019		2018		2020		2019
Revenues:
Rental income, net	$	20,414	$	19,198	$	62,288	$	58,484	$	21,239	$	21,155
Lease termination fee		—		372		—		372
Total revenues	$	20,414	$	19,570	$	62,288	$	58,856

Operating expenses:
Depreciation and amortization		5,566		5,672		16,353		16,104		5,674		5,347
General and administrative (see Note 10 for related party information)		3,143		3,071		9,319		8,999
Real estate expenses (see Note 10 for related party information)		3,692		2,669		10,544		8,005
General and administrative (see Note 9 for related party information)										3,334		3,171
Real estate expenses (see Note 9 for related party information)										3,342		3,341
State taxes		68		59		255		286		82		79
Total operating expenses		12,469		11,471		36,471		33,394		12,432		11,938

Other operating income
Gain on sale of real estate, net		2,544		4,585		3,643		6,993		4,252		—
Operating income		10,489		12,684		29,460		32,455		13,059		9,217

Other income and expenses:
Equity in earnings (loss) of unconsolidated joint ventures		50		173		(32)		716		64		(116)
Equity in earnings from sale of unconsolidated joint venture property		—		1,986		—		2,057		121		—
Prepayment costs on debt										(290)		—
Other income		8		7		18		17		4		4
Interest:
Expense		(5,198)		(4,448)		(15,041)		(13,195)		(4,884)		(4,862)
Amortization and write-off of deferred financing costs		(252)		(220)		(739)		(669)		(243)		(232)

Net income		5,097		10,182		13,666		21,381		7,831		4,011

Net loss (income) attributable to non-controlling interests		21		(35)		(465)		(866)
Net income attributable to non-controlling interests										(5)		(40)
Net income attributable to One Liberty Properties, Inc.	$	5,118	$	10,147	$	13,201	$	20,515	$	7,826	$	3,971

Weighted average number of common shares outstanding:
Basic		19,191		18,646		19,037		18,521		19,361		18,894
Diluted		19,239		18,705		19,076		18,562		19,374		18,993

Per common share attributable to common stockholders:
Basic	$	.25	$	.53	$	.64	$	1.06	$	.39	$	.19
Diluted	$	.25	$	.52	$	.64	$	1.06	$	.39	$	.19

See accompanying notes to consolidated financial statements.

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in Thousands)

(Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2019		2018		2019		2018		2020		2019
Net income	$	5,097	$	10,182	$	13,666	$	21,381	$	7,831	$	4,011

Other comprehensive (loss) gain
Net unrealized (loss) gain on derivative instruments		(1,180)		871		(5,275)		4,671
Reclassification of One Liberty Properties Inc.’s share of joint venture net realized gain on derivative instrument		—		—		—		(110)
One Liberty Properties Inc.’s share of joint venture net unrealized gain on derivative instruments		—		—		—		76
Other comprehensive (loss) gain		(1,180)		871		(5,275)		4,637
Other comprehensive loss
Net unrealized loss on derivative instruments										(4,818)		(1,577)

Comprehensive income		3,917		11,053		8,391		26,018		3,013		2,434
Net loss (income) attributable to non-controlling interests		21		(35)		(465)		(866)

Net income attributable to non-controlling interests										(5)		(40)
Adjustment for derivative instruments attributable to non-controlling interests		2		(3)		11		(11)		9		5

Comprehensive income attributable to One Liberty Properties, Inc.	$	3,940	$	11,015	$	7,937	$	25,141	$	3,017	$	2,399

See accompanying notes to consolidated financial statements.

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in Thousands, Except Per Share Data)

(Unaudited)


					Accumulated		Accumulated		Non-Controlling								Accumulated		Accumulated		Non-Controlling
					Other		Distributions		Interests in								Other		Distributions		Interests in
	Common		Paid-in		Comprehensive		in Excess of		Consolidated				Common		Paid-in		Comprehensive		in Excess of		Consolidated
	Stock		Capital		Income (Loss)		Net Income		Joint Ventures		Total		Stock		Capital		Income (Loss)		Net Income		Joint Ventures		Total
Balances, December 31, 2018	$	18,736	$	287,250	$	1,890	$	(10,730)	$	1,449	$	298,595	$	18,736	$	287,250	$	1,890	$	(10,730)	$	1,449	$	298,595
Distributions – common stock Cash – $.45 per share		—		—		—		(8,832)		—		(8,832)
Distributions – common stock
Cash – $.45 per share														—		—		—		(8,832)		—		(8,832)
Restricted stock vesting		112		(112)		—		—		—		—		112		(112)		—		—		—		—
Shares issued through equity offering program – net		37		1,002		—		—		—		1,039		37		1,002		—		—		—		1,039
Shares issued through dividend reinvestment plan		52		1,147		—		—		—		1,199		52		1,147		—		—		—		1,199
Distributions to non-controlling interests		—		—		—		—		(5)		(5)		—		—		—		—		(5)		(5)
Compensation expense – restricted stock		—		954		—		—		—		954		—		954		—		—		—		954
Net income		—		—		—		3,971		40		4,011		—		—		—		3,971		40		4,011
Other comprehensive loss		—		—		(1,572)		—		(5)		(1,577)		—		—		(1,572)		—		(5)		(1,577)
Balances, March 31, 2019		18,937		290,241		318		(15,591)		1,479		295,384	$	18,937	$	290,241	$	318	$	(15,591)	$	1,479	$	295,384
Distributions – common stock Cash – $.45 per share		—		—		—		(8,922)		—		(8,922)
Shares issued through equity offering program – net		143		4,132		—		—		—		4,275

Balances, December 31, 2019													$	19,251	$	301,517	$	(1,623)	$	(28,382)	$	1,221	$	291,984
Distributions – common stock
Cash – $.45 per share														—		—		—		(9,036)		—		(9,036)
Restricted stock vesting														122		(122)		—		—		—		—
Shares issued through dividend reinvestment plan		59		1,529		—		—		—		1,588		7		159		—		—		—		166
Distributions to non-controlling interests		—		—		—		—		(692)		(692)		—		—		—		—		(8)		(8)
Compensation expense – restricted stock		—		938		—		—		—		938		—		976		—		—		—		976
Net income		—		—		—		4,112		446		4,558		—		—		—		7,826		5		7,831
Other comprehensive loss		—		—		(2,514)		—		(4)		(2,518)		—		—		(4,809)		—		(9)		(4,818)
Balances, June 30, 2019		19,139		296,840		(2,196)		(20,401)		1,229		294,611
Distributions – common stock Cash – $.45 per share		—		—		—		(8,942)		—		(8,942)
Restricted stock vesting		3		(3)		—		—		—		—
Shares issued through equity offering program – net		—		(58)		—		—		—		(58)
Shares issued through dividend reinvestment plan		55		1,477		—		—		—		1,532
Distributions to non-controlling interests		—		—		—		—		(34)		(34)
Compensation expense – restricted stock		—		942		—		—		—		942
Net income (loss)		—		—		—		5,118		(21)		5,097
Other comprehensive loss		—		—		(1,178)		—		(2)		(1,180)
Balances, September 30, 2019	$	19,197	$	299,198	$	(3,374)	$	(24,225)	$	1,172	$	291,968
Balances, March 31, 2020													$	19,380	$	302,530	$	(6,432)	$	(29,592)	$	1,209	$	287,095

See accompanying notes to consolidated financial statements.

Table of Contents

~~ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY~~

~~(Amounts in Thousands, Except Per Share Data)~~

~~(Unaudited) (Continued)~~

Accumulated

(Distributions

Non-Controlling

Accumulated

in Excess of

Interests in

Other

Net Income)

Consolidated

Common

Paid-in

Comprehensive

Undistributed

Joint


Stock

Capital

Income

Net Income

Ventures

Total
Balances, December 31, 2017

$
18,261

$
275,087

$
155

$
3,257

$
1,742

$
298,502
Distributions – common stock
Cash – $.45 per share

—

—

—

(8,581)

—

(8,581)
Restricted stock vesting

106

(106)

—

—

—

—
Shares issued through dividend reinvestment plan

50

1,131

—

—

—

1,181
Distributions to non-controlling interests

—

—

—

—

(1,082)

(1,082)
Compensation expense – restricted stock

—

826

—

—

—

826
Net income

—

—

—

5,851

802

6,653
Other comprehensive income

—

—

2,744

—

6

2,750
Balances, March 31, 2018

18,417

276,938

2,899

527

1,468

300,249
Distributions – common stock
Cash – $.45 per share

—

—

—

(8,652)

—

(8,652)
Shares issued through equity offering program - net

93

2,165

—

—

—

2,258
Shares issued through dividend reinvestment plan

65

1,437

—

—

—

1,502
Distributions to non-controlling interests

—

—

—

—

(77)

(77)
Compensation expense – restricted stock

—

856

—

—

—

856
Net income

—

—

—

4,517

29

4,546
Other comprehensive income

—

—

1,014

—

2

1,016
Balances, June 30, 2018

18,575

281,396

3,913

(3,608)

1,422

301,698
Distributions – common stock
Cash – $.45 per share

—

—

—

(8,694)

—

(8,694)
Shares issued through equity offering program - net

33

879

—

—

—

912
Shares issued through dividend reinvestment plan

61

1,526

—

—

—

1,587
Distributions to non-controlling interests

—

—

—

—

(21)

(21)
Compensation expense – restricted stock

—

971

—

—

—

971
Net income

—

—

—

10,147

35

10,182
Other comprehensive income

—

—

868

—

3

871
Balances, September 30, 2018

$
18,669

$
284,772

$
4,781

$
(2,155)

$
1,439

$
307,506

~~See accompanying notes to consolidated financial statements.~~

~~Table of Contents~~

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited)


	Nine Months Ended				Three Months Ended
	September 30,				March 31,
	2019		2018		2020		2019
Cash flows from operating activities:
Net income	$	13,666	$	21,381	$	7,831	$	4,011
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of real estate, net		(3,643)		(6,993)		(4,252)		—
Increase in unbilled rent receivable		(1,171)		(841)		(380)		(395)
Write-off of unbilled rent receivable		382		74
Provision for unbilled rent receivable		—		1,440
Amortization and write-off of intangibles relating to leases, net		(709)		(1,605)		(190)		(254)
Amortization of restricted stock expense		2,834		2,653		976		954
Equity in loss (earnings) of unconsolidated joint ventures		32		(716)
Equity in (earnings) loss of unconsolidated joint ventures						(64)		116
Equity in earnings from sale of unconsolidated joint venture property		—		(2,057)		(121)		—
Distributions of earnings from unconsolidated joint ventures		41		2,328
Depreciation and amortization		16,353		16,104		5,674		5,347
Amortization and write-off of deferred financing costs		739		669		243		232
Payment of leasing commissions		(266)		(254)		(38)		(141)
Decrease (increase) in escrow, deposits, other assets and receivables		163		(1,154)
Decrease in accrued expenses and other liabilities		(571)		(1,400)
Decrease in escrow, deposits, other assets and receivables						303		495
Increase (decrease) in accrued expenses and other liabilities						69		(2,250)
Net cash provided by operating activities		27,850		29,629		10,051		8,115

Cash flows from investing activities:
Purchase of real estate		(40,306)		(18,452)		(28,504)		—
Improvements to real estate		(2,979)		(6,829)		(109)		(687)
Net proceeds from sale of real estate		23,167		17,417		7,093		—
Contributions of capital to unconsolidated joint venture		(296)		—
Distributions of capital from unconsolidated joint venture		11		852		—		11
Net cash used in investing activities		(20,403)		(7,012)		(21,520)		(676)

Cash flows from financing activities:
Scheduled amortization payments of mortgages payable		(9,687)		(8,072)		(3,389)		(3,135)
Repayment of mortgages payable		(6,812)		(12,731)		(3,332)		—
Proceeds from mortgage financings		32,820		30,863		18,200		23,545
Proceeds from sale of common stock, net		5,256		3,170		—		1,039
Proceeds from bank line of credit		48,150		28,500		41,500		4,000
Repayment on bank line of credit		(58,700)		(37,900)		(22,100)		(28,000)
Issuance of shares through dividend reinvestment plan		4,319		4,270		166		1,199
Payment of financing costs		(1,094)		(675)		(165)		(378)
Distributions to non-controlling interests		(731)		(1,180)		(8)		(5)
Cash distributions to common stockholders		(26,478)		(25,726)		(8,965)		(8,724)
Net cash used in financing activities		(12,957)		(19,481)
Net cash provided by (used in) financing activities						21,907		(10,459)

Net (decrease) increase in cash, cash equivalents and restricted cash		(5,510)		3,136
Net increase (decrease) in cash, cash equivalents and restricted cash						10,438		(3,020)
Cash, cash equivalents and restricted cash at beginning of year		16,733		14,668		11,968		16,733
Cash, cash equivalents and restricted cash at end of period	$	11,223	$	17,804	$	22,406	$	13,713

Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense	$	15,137	$	13,196	$	4,844	$	4,939

Supplemental disclosure of non-cash investing activity:
Right of use assets and related lease liabilities	$	5,027	$	—
Purchase accounting allocation - intangible lease assets		3,324		—	$	3,905	$	—
Purchase accounting allocation - intangible lease liabilities		(677)		—		(568)		—

(Continued on next page)

Table of Contents

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 restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows (amounts in thousands):


	September 30,				March 31,
	2019		2018		2020		2019
Cash and cash equivalents	$	10,941	$	17,173	$	21,360	$	12,794
Restricted cash		—		379		—		337
Restricted cash included in escrow, deposits and other assets and receivables		282		252		1,046		582
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	11,223	$	17,804	$	22,406	$	13,713

Amounts included in restricted cash in ~~2018~~2019 represent the cash reserve balance received from an owner/operator at one of the Company’s ground ~~lease~~leased properties which was sold in ~~August 2019 (as discussed in Note 7).~~2019. Restricted cash included in escrow, deposits and other assets and receivables represent amounts related to real estate tax and other reserve escrows required to be held by lenders in accordance with the Company’s mortgage agreements. The restriction on these escrow reserves will lapse when the related mortgage is repaid.

See accompanying notes to consolidated financial statements.

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

~~September 30, 2019~~March 31, 2020

Note 1 – Organization and Background

One Liberty Properties, Inc. (“OLP”) was incorporated in 1982 in Maryland. OLP is a self-administered and self-managed real estate investment trust (“REIT”). OLP acquires, owns and manages a geographically diversified portfolio consisting primarily of industrial, retail, restaurant, health and fitness, and theater properties, many of which are subject to long-term net leases. As of ~~September 30, 2019,~~March 31, 2020, OLP owns 126 properties, including 4 properties owned by consolidated joint ventures and 43 properties owned by unconsolidated joint ventures. The 126 properties are located in 31 states.

Note 2 – Summary Accounting Policies

Principles of Consolidation/Basis of Preparation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by U.S. Generally Accepted Accounting Principles (“GAAP”) for interim reporting. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statement disclosures. In the opinion of management, all adjustments of a normal recurring nature necessary for fair presentation have been included. The results of operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ 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, ~~2018.~~2019.

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The consolidated financial statements include the accounts and operations of OLP, its wholly-owned subsidiaries, its joint ventures in which the Company, as defined, has a controlling interest, and variable interest entities (“VIEs”) of which the Company is the primary beneficiary. OLP and its consolidated subsidiaries are referred to herein as the “Company”. Material intercompany items and transactions have been eliminated in consolidation.

Investment in Joint Ventures and Variable Interest Entities

The Financial Accounting Standards Board, or FASB, provides guidance for determining whether an entity is a VIE. VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A VIE is required to be consolidated by its primary beneficiary, which is the party that (i) has the power to control the activities that most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses, or the right to receive benefits, of the VIE that could potentially be significant to the VIE.

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. 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. In situations where, among other things, the Company and its partners jointly (i) approve the annual budget, (ii) approve certain expenditures, (iii) prepare or review and approve the joint venture’s tax return before filing, ~~and~~or (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.

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

~~September 30, 2019~~March 31, 2020 (Continued)

Note 2 – Summary Accounting Policies (Continued)

The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting. All investments in unconsolidated joint ventures have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support and, as a group, the holders of the equity at risk have power through voting rights to direct the activities of these ventures. As a result, NaN 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. NaN 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,~~March 31, 2020 and 2019, ~~and 2018,~~ there were 0 impairment charges 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.

~~Reclassifications~~

Certain amounts previously reported in the consolidated financial statements have been reclassified in the accompanying consolidated financial statements to conform to the current period's presentation. Such reclassifications primarily relate to the presentation on the consolidated statement of income for the three and nine months ended September 30, 2018 of (i) rental income, net, due to the adoption of a new accounting pronouncement (see Note 3) and (ii) leasehold rent being included as part of Real estate expenses. In addition, the Company changed the presentation of its consolidated statement of changes in equity for the nine month periods ended September 30, 2019 and 2018 as the Securities and Exchange Commission extended the annual disclosure requirement of changes in stockholders’ equity in Rule 3-04 of Regulation S-X to interim periods, which requires both the year-to-date information and subtotals for each interim period, as part of Release Nos. 33-10532, 34-83875 and IC-33203.

Note 3 – Leases

~~As of January 1, 2019, the Company adopted ASU No. 2016-02,~~ ~~Leases~~~~, ASU No. 2018-11,~~ ~~Leases (Topic 842), Targeted Improvements,~~ ~~and ASU No. 2018-10,~~ ~~Codification Improvements to Topic 842, Leases~~, using the modified retrospective approach and elected the package of practical expedients that allows an entity to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases. Upon adoption, there was 0 cumulative-effect adjustment to retained earnings as of January 1, 2019.

As Lessor Accounting

The Company owns rental properties which are leased to tenants under operating leases with current expirations ranging from 2020 to 2055, with options to extend or terminate the lease. Revenues from such leases are reported as Rental income, net and are comprised of (i) lease components, which includes fixed and variable lease payments and (ii) non-lease components which includes reimbursements of property level operating expenses. The Company ~~adopted the practical expedient offered in ASU No. 2018-11 which allows lessors to~~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.

~~Table of Contents~~

~~One Liberty Properties, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2019 (Continued)~~

~~Note 3 –~~ ~~Leases (Continued)~~

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

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


	Three Months		Nine Months		Three Months Ended
	Ended		Ended		March 31,
	September 30, 2019				2020		2019
Fixed lease revenues	$	17,361	$	52,441	$	18,067	$	17,645
Variable lease revenues		2,853		9,138		2,982		3,256
Lease revenues (a)	$	20,214	$	61,579	$	21,049	$	20,901

(a)

Excludes ~~$200~~$190 and ~~$709~~$254 of amortization related to lease intangible assets and liabilities for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, respectively.

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 3 – Leases (Continued)

On a quarterly basis, the Company assesses the collectability of substantially all lease payments due under its leases, including unbilled rent receivable balances, by reviewing the tenant's payment history and financial condition. Changes to such collectability is recognized as a current period adjustment to rental revenue. ~~During the three and nine months ended September 30, 2019, the~~The Company ~~wrote off $380,000~~did not record any write-offs of unbilled rent receivables ~~related to a property in Philadelphia, Pennsylvania as~~during the ~~tenant advised that it intends to cease its operations.~~three months ended March 31, 2020 and 2019. The Company has assessed the collectability of all ~~other~~ lease payments as probable as of ~~September 30, 2019.~~March 31, 2020.

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

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.

As a lessor, the adoption of ASU No. 2016-02, and the related accounting guidance did not have a material impact on the consolidated financial statements. As a result of the adoption, the Company added $2,005,000 and $5,983,000 from its Tenant reimbursements line item to Rental income, net, on its consolidated statements of income for the three and nine months ended September 30, 2018, respectively.

~~Table of Contents~~

~~One Liberty Properties, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2019 (Continued)~~

~~Note 3 –~~ ~~Leases (Continued)~~

Minimum Future Rents

As of ~~September 30, 2019, under ASC 842,~~March 31, 2020, the minimum future contractual base rents to be received on non-cancellable operating leases are included in the table below (amounts in thousands). The minimum future contractual base rents do not include (i) straight-line rent or amortization of intangibles and (ii) variable lease ~~payments~~revenues as described ~~above and (iii) contractual rents of $875,000 related to the Houston, TX property which was sold in October 2019 (see Note 6).~~above.

From October 1 – December 31, 2019

$
17,394
For the year ended December 31,

2020

70,331
2021

69,031
2022

60,457
2023

51,672
2024

43,435
Thereafter

181,158
Total

$
493,478

~~As of December 31, 2018, under ASC 840, the minimum future contractual rents to be received on non-cancellable operating leases were as follows (amounts in thousands):~~


From April 1 – December 31, 2020			$	54,108
For the year ended December 31,
2019	$	66,959
2020		66,691
2021		65,130		71,807
2022		56,444		63,372
2023		47,644		54,623
2024				46,012
2025				40,375
Thereafter		208,923		150,852
Total	$	511,791	$	481,149

As Lessee Accounting

Ground Lease

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, ~~2020~~2025 and provides for up to 5,4, 5-year renewal options and 1 seven-month renewal option. ~~On January 1, 2019, upon adoption of ASC 842, the Company recorded a~~ $4,381,000 liability for the obligation to make payments under the lease and a $4,381,000 asset for the right to use the underlying asset during the lease term which were included in other liabilities and other assets, respectively, on the consolidated balance sheet. Lease payments associated with renewal option periods that the Company determined were reasonably certain to be exercised are included in the measurement of the lease liability and right of use asset. The Company applied a discount rate of 4.75%~~, based on its incremental borrowing rate given the term of the lease, as the rate implicit in the lease is not known.~~ As of ~~September 30, 2019,~~March 31, 2020, the remaining lease term is ~~10.4~~9.9 years. During each of the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, the Company recognized $131,000 ~~and $394,000, respectively,~~ of lease expense related to this ground lease which is included in Real estate expenses on the consolidated statements of income.

~~Table of Contents~~

~~One Liberty Properties, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2019 (Continued)~~

~~Note 3 –~~ ~~Leases (Continued)~~

Office Lease

The Company is a lessee under a corporate office lease in Great Neck, New York, which is classified as an operating lease. ~~During 2019 the~~The lease ~~was amended to, among other things, extend the expiration to~~expires on December 31, 2031 and ~~provide 1,~~provides a 5-year renewal option. As a result, the Company recorded a $646,000 liability for the obligation to make payments under the lease and a $646,000 asset for the right to use the underlying asset during the lease term which were included in other liability and other assets, respectively, on the consolidated balance sheet. Lease payments associated with the renewal option period, which was determined to be reasonably certain to be exercised, are included in the measurement of the lease liability and right of use asset. The Company applied a discount rate of 3.81%, based on its incremental borrowing rate given the term of the lease, as the rate implicit in the lease is not known.. As of ~~September 30, 2019,~~March 31, 2020, the remaining lease term is ~~17.3~~16.8 years. During each of the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, the Company recognized $14,000 ~~and $40,000, respectively,~~ of lease expense related to this office lease which is included in General and administrative expenses on the consolidated statements of income.

~~Minimum Future Lease Payments~~

~~As of September 30, 2019, under ASC 842, the minimum future lease payments related to the operating ground and office leases are as follows (amounts in thousands):~~

From October 1 – December 31, 2019

$
127
For the year ended December 31,

2020

510
2021

511
2022

506
2023

507
2024

557
Thereafter

3,741
Total undiscounted cash flows

$
6,459
Present value discount

(1,595)
Lease liability

$
4,864

~~As of December 31, 2018, under ASC 840, the minimum future lease payments related to the operating ground and office leases were as follows (amounts in thousands):~~

For the year ended December 31,

2019

$
454
2020

127
2021

47
2022

—
2023

—
Thereafter

—
Total

$
628

~~Note 4 –~~ ~~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. As of September 30, 2019, the shares of common stock underlying the restricted stock units (the “RSUs”) awarded under the 2019 and 2016 Incentive Plans (see Note 13) are excluded from the basic earnings per share calculation, as these units are not participating securities.

129

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

~~September 30, 2019~~March 31, 2020 (Continued)

Note 43 – ~~Earnings Per Common Share~~Leases (Continued)

~~Diluted earnings per share reflects~~Minimum Future Lease Payments

As of March 31, 2020, 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~~minimum future lease payments related to the operating ground and office leases are as follows (amounts in ~~the issuance of common stock that shared in the earnings of the Company.~~thousands):


From April 1 – December 31, 2020	$	382
For the year ended December 31,
2021		511
2022		506
2023		507
2024		557
2025		626
Thereafter		3,115
Total undiscounted cash flows	$	6,204
Present value discount		(1,473)
Lease liability	$	4,731

~~The following table identifies the number of shares of common stock underlying the RSUs that are included in determining the diluted weighted average number of shares of common stock:~~

Three and Nine Months Ended

Three and Nine Months Ended

September 30, 2019 (b)

September 30, 2018 (c)

Total Number of

Return on

Stockholder

Return on

Stockholder

Underlying

Capital

Return

Capital

Return

Date of Award

Shares (a)

metric

metric

Total

metric

metric

Total
September 26, 2017

76,250
(d)
26,840

27,224

54,064

33,524

38,125

71,649
July 1, 2018

76,250
(e)
22,321

—

22,321

30,929

—

30,929
July 1, 2019

77,776
(f)
15,168

—

15,168

n/a

n/a

n/a
Totals

230,276

64,329

27,224

91,553

64,453

38,125

102,578

~~(a)~~

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

~~(b)~~

~~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, 2019.~~

~~(c)~~

~~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, 2018.~~

~~(d)~~

None of the remaining 22,186 shares and 4,601 shares are included at September 30, 2019 and 2018, respectively, as the applicable condition had not been met for these shares at the respective measurement dates.

~~(e)~~

None of the remaining 53,929 shares and 45,321 shares are included at September 30, 2019 and 2018, respectively, as the applicable conditions had not been met for these shares at the respective measurement date.

~~(f)~~

~~None of the remaining 62,608 shares are included at September 30, 2019, as the applicable conditions had not been met for these shares at the measurement date.~~

~~Table of Contents~~

~~One Liberty Properties, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2019 (Continued)~~

~~Note 4 –~~ ~~Earnings Per Common Share (Continued)~~

~~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

September 30,

September 30,


2019

2018

2019

2018
Numerator for basic and diluted earnings per share:

Net income

$
5,097

$
10,182

$
13,666

$
21,381
Add/deduct net loss (income) attributable to non-controlling interests

21

(35)

(465)

(866)
Less earnings allocated to unvested restricted stock (a)

(303)

(342)

(924)

(879)
Net income available for common stockholders: basic and diluted

$
4,815

$
9,805

$
12,277

$
19,636

Denominator for basic earnings per share:

Weighted average number of common shares

19,191

18,646

19,037

18,521
Effect of diluted securities:

RSUs

48

59

39

41
Denominator for diluted earnings per share:

Weighted average number of shares

19,239

18,705

19,076

18,562

Earnings per common share, basic

$
.25

$
.53

$
.64

$
1.06
Earnings per common share, diluted

$
.25

$
.52

$
.64

$
1.06

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

~~Table of Contents~~

~~One Liberty Properties, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2019 (Continued)~~

Note 4 – Real Estate Acquisitions

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


		Contract			Capitalized
		Purchase		Terms of	Transaction
Description of Property	Date Acquired	Price		Payment	Costs
Creative Office Environments industrial facility,
Ashland, Virginia	February 20, 2020	$	9,100	All cash (a)	$	119
Fed Ex industrial facility,
Lowell, Arkansas	February 24, 2020		19,150	All cash (a)		135
Totals		$	28,250		$	254

(a)

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


			Building &		Intangible Lease
Description of Property	Land		Improvements		Asset		Liability		Total
Creative Office Environments industrial facility,
Ashland, Virginia	$	391	$	7,901	$	927	$	—	$	9,219
Fed Ex industrial facility,
Lowell, Arkansas		1,687		15,188		2,978		(568)		19,285
Totals	$	2,078	$	23,089	$	3,905	$	(568)	$	28,504

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 5 – Sale of Property

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

~~Note 5 –~~ ~~Real Estate Acquisitions~~

The charts below detail the Company’s acquisitions of real estate and the allocation of the purchase price during the nine months ended September 30, 2019 (amounts in thousands). The Company determined that with respect to each of these acquisitions, the gross assets acquired are concentrated in a single identifiable asset. Therefore, these transactions do not meet the definition of a business and are accounted for as asset acquisitions. As such, direct transaction costs associated with these asset acquisitions have been capitalized to real estate assets and depreciated over their respective useful lives.

Capitalized

Third Party

Contract

Real Estate

Purchase

Terms of

Acquisition
Description of Property

Date Acquired

Price

Payment

Costs
Zwanenberg Food Group/Metro Carpets industrial facility,

Nashville, Tennessee

May 30, 2019

$
8,000

All cash (a)

$
77
Echo, Inc. industrial facility,

Wauconda, Illinois

May 30, 2019

3,800

All cash

26
Tinicum Mechanical Supply/Philly Motors industrial facility,

Bensalem, Pennsylvania

June 18, 2019

6,200

All cash (b)

168
International Flora Technologies industrial facility,

Chandler, Arizona

June 26, 2019

8,650

All cash (c)

57
Nissan North America industrial facility,

LaGrange, Georgia

July 24, 2019

5,200

All cash (d)

73
Continental Hydraulics industrial facility,

Shakopee, Minnesota

September 13, 2019

8,000

All cash

55
Totals



$
39,850



$
456

~~(a)~~

~~In July 2019, the Company obtained new mortgage debt of $5,200 which bears interest at 3.95% and matures August 2029.~~

~~(b)~~

~~In September 2019, the Company obtained new mortgage debt of $4,075 which bears interest at 4.05% and matures October 2029.~~

~~(c)~~

~~In October 2019, the Company obtained new mortgage debt of $5,200 which bears interest at 4.10% and matures November 2030.~~

~~(d)~~

~~In October 2019, the Company obtained new mortgage debt of $3,200 which bears interest at 4.00% and matures December 2028.~~

~~Table of Contents~~

~~One Liberty Properties, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2019 (Continued)~~

~~Note 5 –~~ ~~Real Estate Acquisitions (Continued)~~

Building &

Intangible Lease

Description of Property

Land

Improvements

Asset

Liability

Total
Zwanenberg Food Group/Metro Carpets industrial facility,

Nashville, Tennessee

$
1,058

$
6,350

$
750

$
(81)

$
8,077
Echo, Inc. industrial facility,

Wauconda, Illinois

67

3,424

339

(4)

3,826
Tinicum Mechanical Supply/Philly Motors industrial facility,

Bensalem, Pennsylvania

1,602

4,322

664

(220)

6,368
International Flora Technologies industrial facility,

Chandler, Arizona

1,334

7,373

—

—

8,707
Nissan North America industrial facility,

LaGrange, Georgia

298

4,499

627

(151)

5,273
Continental Hydraulics industrial facility,

Shakopee, Minnesota

1,875

5,457

944

(221)

8,055
Totals

$
6,234

$
31,425

$
3,324

$
(677)

$
40,306

~~Property Acquisitions Subsequent to September 30, 2019~~

~~On October 3, 2019, the Company acquired an industrial property located in Rincon, Georgia for $6,400,000. The initial term of the lease expires in 2029.~~

~~On October 23, 2019, the Company acquired an industrial property located in Chandler, Arizona for $3,000,000. The initial term of the lease expires in 2024.~~

Note 6 – ~~Sale of Properties and Property Held-for-Sale~~

~~Sale of Properties~~

~~The following chart details the Company’s sales of real estate during the nine months ended September 30, 2019 and 2018 (amounts in thousands):~~

Gross

Gain on Sale of

Description of Property

Date Sold

Sales Price

Real Estate, Net

Retail property,







Clemmons, North Carolina (a)

June 20, 2019

$
5,500

$
1,099
(b)
Retail property,







Athens, Georgia

August 23, 2019

6,050

1,045
(c)
Land,







Wheaton, Illinois

August 29, 2019

12,035

1,499

Totals – nine months ended September 30, 2019



$
23,585

$
3,643

Retail property,







Fort Bend, Texas (d)

January 30, 2018

$
9,200

$
2,408

Land,







Lakemoor, Illinois

September 14, 2018

8,459

4,585
(e)
Totals – nine months ended September 30, 2018

$
17,659

$
6,993

~~Table of Contents~~

~~One Liberty Properties, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2019 (Continued)~~

~~Note 6 –~~ ~~Sale of Properties and Property Held-for-Sale (Continued)~~

~~(a)~~

~~This property was owned by a consolidated joint venture in which the Company held a 90% interest. The non-controlling interest’s share of the gain was $422.~~

~~(b)~~

~~Excludes prepayment costs on debt related to a swap termination fee of $40 included in mortgage interest expense.~~

~~(c)~~

~~Excludes prepayment costs on debt related to a swap termination fee of $161 included in mortgage interest expense.~~

~~(d)~~

~~This property was owned by a consolidated joint venture in which the Company held an 85% interest. The non-controlling interest’s share of the gain was $776.~~

~~(e)~~

Includes $5,717, representing the unamortized balance of a $5,906 fixed rent payment which was received and recorded as deferred income in November 2017 and was to be included in rental income over the term of the lease.

~~Property Held-for-Sale~~

~~In July 2019, the Company entered into a contract to sell a retail property located in Houston, Texas for $1,675,000. The buyer’s right to terminate the contract without penalty expired on August 22, 2019. At September 30, 2019, the Company classified the~~ ~~$1,227,000~~ net book value of the property’s land, building and improvements, unbilled rent receivable and prepaid leasing commissions as Property held-for-sale in the accompanying balance sheet. The property was sold on October 21, 2019 and resulted in a gain of approximately ~~$218,000, which will be included in Gain on sale of real estate, net, for the three months and year ending December 31, 2019.~~

~~Note 7~~ – Variable Interest Entities, Contingent Liability and Consolidated Joint Ventures

Variable Interest Entity – Ground Lease

The Company determined it has a variable interest through its ground lease at its Beachwood, Ohio property (the Vue Apartments), and the owner/operator is a VIE because its equity investment at risk is insufficient to finance its activities without additional subordinated financial support. The Company further determined that it is not the primary beneficiary of this VIE because the Company has shared power over ~~certain~~the activities that most significantly impact the owner/operator’s economic performance (i.e., shared rights on the sale of the property) and therefore, does not consolidate this VIE for financial statement purposes.

Accordingly, the Company accounts for this investment as land and the revenues from the ground lease as Rental income, net.

Ground lease rental income amounted to ~~$383,000~~$243,000 and ~~$1,354,000~~$486,000 for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~respectively, and $925,000 and $2,872,000~~respectively. Included in the rental income for the three ~~and nine~~ months ended ~~September 30, 2018, respectively. Included in these amounts~~March 31, 2019 is rental income of $203,000 and $814,000 for the three and nine months ended September 30, 2019, respectively, and $512,000 and $1,659,000 for the three and nine months ended September 30, 2018, respectively,$306,000 from a previously held VIE ~~properties~~property in ~~Lakemoor and~~ Wheaton, Illinois, which the Company sold in ~~September 2018 and~~ August ~~2019, respectively (see Note 6).~~2019.

~~Table~~As of ~~Contents~~

~~One Liberty Properties, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2019 (Continued)~~

~~Note 7 –~~ ~~Variable Interest Entities, Contingent Liability and Consolidated Joint Ventures (Continued)~~

~~The following chart details~~March 31, 2020, the ~~VIE through the Company’s ground lease and the aggregate carrying amount and~~VIE’s maximum exposure to loss aswas $13,901,000 which represented the carrying amount of ~~September 30, 2019 (dollars in thousands):~~

Owner/

Carrying

Land

Operator

Amount and

Contract

# Units in

Mortgage

Maximum

Purchase

Apartment

from

Type of

Exposure to
Description of Property(a)

Date Acquired

Price

Complex

Third Party(b)

Exposure

Loss
The Vue Apartments,

Beachwood, Ohio

August 16, 2016

$
13,896

348

$
67,444

Land

$
13,901

~~(a)~~

~~Simultaneously with the purchase, the Company entered into a triple net ground lease with affiliates of Strategic Properties of North America, the owner/operator of this property.~~

~~(b)~~

the land. Simultaneously with the closing of the acquisition, the owner/operator obtained a mortgage for $67,444,000 from a third party which, together with the Company’s purchase of the land, provided substantially all of the funds to acquire the complex. The Company provided its land as collateral for the owner/operator’s mortgage loan; accordingly, the land position is subordinated to the mortgage. No other financial support has been provided by the Company to the owner/operator.

At December 31, 2018, Restricted cash on the consolidated balance sheet included (i) a cash reserve balance of $356,000 to cover renovation work at the Wheaton, Illinois property which was sold in August 2019 and (ii) an escrow deposit of $750,000 from the owner/operator of the Beachwood, Ohio property which was paid in January 2019. There was 0 restricted cash balance at September 30, 2019.

Variable Interest Entities – Consolidated Joint Ventures

The Company has determined that the 4 consolidated joint ventures in which it holds between a 90% to ~~95%~~95% interest are VIEs because the non-controlling interests do not hold substantive kick-out or participating rights. The Company has determined it is the primary beneficiary of these VIEs as it has the power to direct the activities that most significantly impact each joint venture’s performance including management, approval of expenditures, and the obligation to absorb the losses or rights to receive benefits. Accordingly, the Company consolidates the operations of these VIEs for financial statement purposes. The VIEs’ creditors do not have recourse to the assets of the Company other than those held by these joint ventures.

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

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

The following is a summary of the consolidated VIEs’ carrying amounts and classification in the Company’s consolidated balance sheets, none of which are restricted (amounts in thousands):

September 30,

December 31,

2019

2018 (a)
Land

$
12,158

$
14,722
Buildings and improvements, net of accumulated depreciation of $4,109 and $4,119, respectively

24,426

27,642
Cash

1,029

1,020
Unbilled rent receivable

870

1,211
Unamortized intangible lease assets, net

776

890
Escrow, deposits and other assets and receivables

715

810
Mortgages payable, net of unamortized deferred financing costs of $328 and $391, respectively

24,404

26,850
Accrued expenses and other liabilities

708

761
Unamortized intangible lease liabilities, net

613

1,694
Accumulated other comprehensive (loss) income

(85)

31
Non-controlling interests in consolidated joint ventures

1,172

1,449

~~(a)~~

~~Includes a consolidated joint venture, in which the Company held a 90% interest located in Clemmons, North Carolina which was sold in June 2019 (see Note 6).~~


	March 31,		December 31,
	2020		2019
Land	$	12,158	$	12,158
Buildings and improvements, net of accumulated depreciation of $4,559 and $4,334, respectively		23,999		24,223
Cash		873		888
Unbilled rent receivable		866		859
Unamortized intangible lease assets, net		716		745
Escrow, deposits and other assets and receivables		1,267		1,204
Mortgages payable, net of unamortized deferred financing costs of $298 and $313, respectively		23,993		24,199
Accrued expenses and other liabilities		749		562
Unamortized intangible lease liabilities, net		574		591
Accumulated other comprehensive loss		(181)		(65)
Non-controlling interests in consolidated joint ventures		1,209		1,221

~~Table of Contents~~

~~One Liberty Properties, Inc.~~At March 31, 2020 and ~~Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30,~~December 31, 2019, ~~(Continued)~~

~~Note 7 –~~ ~~Variable Interest Entities, Contingent Liability and Consolidated Joint Ventures (Continued)~~

MCB Real Estate, LLC and its affiliates (‘‘MCB’’) are the Company’s joint venture partner in 3 ~~and 4~~ consolidated joint ventures ~~at September 30, 2019 and December 31, 2018, respectively,~~ in which the Company has aggregate equity investments of approximately ~~$7,503,000~~$7,797,000 and $~~9,891,000,~~7,941,000, respectively.

Distributions to each joint venture partner are determined pursuant to the applicable operating agreement and may not be pro rata to the equity interest each partner has in the applicable venture.

Note 7 – Investment in Unconsolidated Joint Ventures

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

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

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

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 8 – ~~Investment in Unconsolidated Joint Ventures~~

The Company participates in 4 unconsolidated joint ventures, each of which owns and operates 1 property. At September 30, 2019 and December 31, 2018, the Company’s equity investment in these ventures totaled $11,070,000 and $10,857,000, respectively. The Company recorded equity in earnings of $50,000 and equity in loss of $32,000 for the three and nine months ended September 30, 2019, respectively, and, in addition to the equity in earnings from the sale of properties of $2,057,000 in 2018, equity in earnings of $173,000 and $716,000 for the three and nine months ended September 30, 2018, respectively. Included in equity in earnings for the nine months ended September 30, 2018 is $110,000 related to the discontinuance of hedge accounting on a mortgage swap related to an unconsolidated joint venture property, located in Milwaukee, Wisconsin, that was sold in July 2018 (see Note14).

At September 30, 2019 and December 31, 2018, MCB and the Company are partners in an unconsolidated joint venture in which the Company’s equity investment is approximately $8,898,000 and $9,087,000, respectively.

~~Note 9~~ – 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,		March 31,		December 31,
	2019		2018		2020		2019
Mortgages payable, gross	$	439,417	$	423,096	$	451,757	$	440,278
Unamortized deferred financing costs		(4,302)		(4,298)		(4,420)		(4,438)
Mortgages payable, net	$	435,115	$	418,798	$	447,337	$	435,840

Line of Credit

~~On July 1, 2019, the~~The Company ~~amended its~~has a credit facility with Manufacturers & Traders Trust Company, People’s United Bank, VNB New York, LLC, and Bank Leumi USA, pursuant to which among other things, extended the facility’s maturity to December 31, 2022 from December 31, 2019. In connection with the amendment, the Company incurred a $550,000 commitment fee which will be amortized over the remaining term of the facility. The Company canit may borrow up to $100,000,000, subject to borrowing base requirements. The ~~Company's~~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 $30,000,000 and 30% of the borrowing base subject to a cap of (i) $10,000,000 for operating expense purposes, which has been drawn down and (ii) $20,000,000 for renovation expenses. The facility, which matures December 31, 2022, provides for an interest rate isequal 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, 2019 and 2018, the~~The applicable margin was 200 ~~and 175~~ basis points ~~respectively.~~at March 31, 2020 and 2019. An unused facility fee of .25% per annum applies to the facility. The average interest rate on the facility was approximately ~~4.14%~~3.20% and ~~3.62%~~4.23% for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The Company was in compliance with all covenants at ~~September 30, 2019.~~March 31, 2020.

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


	March 31,		December 31,
	2020		2019
Line of credit, gross	$	30,850	$	11,450
Unamortized deferred financing costs		(567)		(619)
Line of credit, net	$	30,283	$	10,831

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

1913

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

~~September 30, 2019~~March 31, 2020 (Continued)

Note 9 – ~~Debt Obligations (Continued)~~Related Party Transactions

Compensation and Services Agreement

Pursuant to the compensation and services agreement with Majestic Property Management Corp. (“Majestic”), Majestic provides the Company with the services of executive, administrative, legal, accounting, clerical and property management personnel, as well as property acquisition, sale and lease consulting and brokerage services, consulting services with respect to mortgage financings and construction supervisory services (collectively, the “Services”). Majestic is wholly-owned by the Company’s vice-chairman and certain of the Company’s executive officers are officers of, and are compensated by, Majestic. The amount the Company pays Majestic for the Services is approved each year by the Company’s Compensation and/or Audit Committees and the independent directors.

In consideration for the Services, the Company paid Majestic $767,000 and $704,000 for the three months ended March 31, 2020 and 2019, respectively. Included in these fees are $331,000 and $324,000 of property management costs for the three months ended March 31, 2020 and 2019, respectively. The amounts paid for property management services is based on 1.5% and 2.0% of the rental payments (including tenant reimbursements) actually received by the Company from net lease tenants and operating lease tenants, respectively. The Company does not pay Majestic with respect to properties managed by third parties. The Company also paid Majestic, pursuant to the compensation and services agreement, $69,000 and $54,000 in the three months ended March 31, 2020 and 2019, respectively, for the Company’s share of all direct office expenses, including rent, telephone, postage, computer services, internet usage and supplies. The Company does not pay Majestic for any services except as described in this and the preceding paragraphs.

Executive officers and others providing services to the Company under the compensation and services agreement were awarded shares of restricted stock and RSUs under the Company’s stock incentive plans (described in Note 13). The related expense charged to the Company’s operations was $449,000 and $470,000 for the three months ended March 31, 2020 and 2019, respectively.

The amounts paid under the compensation and services agreement (except for the property management costs which are included in Real estate expenses) and the costs of the stock incentive plans are included in General and administrative expense on the consolidated statements of income.

Joint Venture Partners and Affiliates

The ~~following table details~~Company paid an aggregate of $20,000 and $21,000 for the ~~Line~~three months ended March 31, 2020 and 2019, respectively, to its consolidated joint venture partners or their affiliates (none of ~~credit, net, balances per~~whom are officers, directors or employees of the Company) for property management services, which are included in Real estate expenses on the consolidated ~~balance sheets (amounts in thousands):~~statements of income.

September 30,

December 31,

2019

2018
Line of credit, gross

$
19,450

$
30,000
Unamortized deferred financing costs

(670)

(312)
Line of credit, net

$
18,780

$
29,688

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

Other

During the three months ended March 31, 2020 and 2019, the Company paid quarterly fees of $74,500 and $72,400, respectively, to the Company’s chairman, and $29,800 and $28,900, respectively, to the Company’s vice-chairman. These fees are included in General and administrative expenses on the consolidated statements of income.

The Company obtains its property insurance in conjunction with Gould Investors L.P. (“Gould Investors”), a related party, and reimburses Gould Investors annually for the Company’s insurance cost relating to its properties. Included in Real estate expenses on the consolidated statements of income is insurance expense of $246,000 and $225,000 for the three months ended March 31, 2020 and 2019, respectively, of amounts reimbursed to Gould Investors in prior periods.

~~At November 4, 2019, there was an outstanding balance~~14

Table of ~~$22,650,000 (before unamortized deferred financing costs) under the facility.~~Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 10 – ~~Related Party Transactions~~

~~Compensation and Services Agreement~~

~~In consideration for the Services, the Company paid Majestic $705,000 and $2,110,000 for the three and nine months ended September 30, 2019, respectively, and $687,000 and $2,054,000~~ ~~for the three and nine months ended September 30, 2018, respectively. Included in these fees are~~ ~~$325,000 and $971,000 of property management costs for the three and nine months ended September 30, 2019, respectively, and~~ ~~$307,000 and $915,000 for the three and nine months ended September 30, 2018, respectively~~. The amounts paid for property management services is based on 1.5% and 2.0% of the rental payments (including tenant reimbursements) actually received by the Company from net lease tenants and operating lease tenants, respectively. The Company does not pay Majestic with respect to properties managed by third parties. Majestic credits against the amounts due to it under the compensation and services agreement any management or other net payments received by it from any joint venture in which the Company is a joint venture partner. The Company also paid Majestic, pursuant to the compensation and services agreement, $54,000 and ~~$162,000~~ in the three and nine months ended September 30, 2019 and 2018, respectively, for the Company’s share of all direct office expenses, including rent, telephone, postage, computer services, internet usage and supplies. The Company does not pay Majestic for any services except as described in this paragraph.

Executive officers and others providing services to the Company under the compensation and services agreement were awarded shares of restricted stock and RSUs under the Company’s stock incentive plans (described in Note 13). The related expense charged to the Company’s operations was $521,000 and $1,453,000 for the three and nine months ended September 30, 2019, respectively, and ~~$483,000 and $1,332,000 for the three and nine months ended September 30,~~ ~~2018, respectively.~~

~~Joint Venture Partners and Affiliates~~

~~The Company paid an aggregate of $21,000 and $62,000 for the three and nine months ended September 30, 2019, respectively, and $21,000 and $86,000~~ for the three and nine months ended September 30, 2018, respectively, to its consolidated joint venture partners or their affiliates (none of whom are officers, directors or employees of the Company) for property management services, which are included in Real estate expenses on the consolidated statements of income.

~~Table of Contents~~

~~One Liberty Properties, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2019 (Continued)~~

~~Note 10 –~~ ~~Related Party Transactions (Continued)~~

The Company’s unconsolidated joint ventures paid management fees of $29,000 and $85,000 for the three and nine months ended September 30, 2019, respectively, and $39,000 and $135,000 for the three and nine months ended September 30, 2018, respectively, to the other partner of the venture, which reduced Equity in earnings by $15,000 and $42,000 for the three and nine months ended September 30, 2019, respectively, and ~~$19,000 and $67,000 for the three and nine months ended September 30,~~ ~~2018, respectively.~~

~~Other~~

During 2019 and 2018, the Company paid quarterly fees of $72,400 and $69,000, respectively, to the Company’s chairman, and $28,900 and $27,500, respectively, to the Company’s vice-chairman. These fees are included in General and administrative expenses on the consolidated statements of income.

The Company obtains its property insurance in conjunction with Gould Investors L.P. (“Gould Investors”), a related party, and reimburses Gould Investors annually for the Company’s insurance cost relating to its properties. Included in Real estate expenses on the consolidated statements of income is insurance expense of $249,000 and $696,000 for the three and nine months ended September 30, 2019, respectively, and $241,000 and $646,000 for the three and nine months ended September 30, 2018, respectively, of amounts reimbursed to Gould Investors in prior periods.

~~Note 11~~ – Common Stock Cash Dividend

On ~~September 11, 2019,~~March 13, 2020, the Board of Directors declared a quarterly cash dividend of $.45 per share on the Company’s common stock, totaling approximately ~~$8,942,000.~~$9,037,000. The quarterly dividend was paid on ~~October 10, 2019~~April 7, 2020 to stockholders of record on ~~September 25, 2019.~~March 24, 2020.

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

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

Note 12 – ~~Shares Issued through~~Earnings Per Common Share

Basic earnings per share was determined by dividing net income allocable to common stockholders for each year by the ~~At-the-Market Equity Offering Program~~

~~During the nine months ended September 30, 2019, the Company sold 180,120~~weighted average number of shares ~~for proceeds~~ of ~~$5,392,000, net of commissions of $54,000, and incurred offering costs of $136,000 for professional fees. The Company did not sell any shares~~common stock outstanding during the ~~three months ended September 30, 2019.~~applicable year. Net income is also allocated to the unvested restricted stock outstanding during each year, as the restricted stock is entitled to receive dividends and is therefore considered a participating security. As of March 31, 2020, the shares of common stock underlying the restricted stock units (the “RSUs”) awarded under the 2019 and 2016 Incentive Plans (see Note 13) are excluded from the basic earnings per share calculation, as these units are not participating securities.

Diluted earnings per share reflects the potential dilution that could occur if securities or other rights exercisable for, or convertible into, common stock were exercised or converted or otherwise resulted in the issuance of common stock that shared in the earnings of the Company.

The following table identifies the number of shares of common stock underlying the RSUs that are included in determining the diluted weighted average number of shares of common stock:


Three Months Ended March 31, 2020 (a):
	Total Number of	Return on	Stockholder		Shares
Date of Award	Underlying Shares (b)(c)	Capital Metric	Return Metric	Total	Excluded (d)
September 26, 2017	76,250	26,036	—	26,036	50,214
July 1, 2018	73,750	20,423	—	20,423	53,327
July 1, 2019	75,026	12,261	—	12,261	62,765
Totals	225,026	58,720	—	58,720	166,306


Three Months Ended March 31, 2019 (e):
	Total Number of	Return on	Stockholder		Shares
Date of Award	Underlying Shares (b)	Capital Metric	Return Metric	Total	Excluded (d)
September 26, 2017	76,250	33,611	38,125	71,736	4,514
July 1, 2018	76,250	31,344	38,125	69,469	6,781
Totals	152,500	64,955	76,250	141,205	11,295

(a)

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

(b)

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

(c)

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

2115

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

~~September 30, 2019~~March 31, 2020 (Continued)

Note 12 – Earnings Per Common Share (Continued)

(d)

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

(e)

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

The 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
		March 31,
		2020		2019
Numerator for basic and diluted earnings per share:
Net income	$	7,831	$	4,011
Less net income attributable to non-controlling interests		(5)		(40)
Less earnings allocated to unvested restricted stock (a)		(316)		(311)
Net income available for common stockholders: basic and diluted	$	7,510	$	3,660

Denominator for basic earnings per share:
Weighted average number of common shares		19,361		18,894
Effect of dilutive securities:
RSUs		13		99
Denominator for diluted earnings per share:
Weighted average number of shares		19,374		18,993

Earnings per common share, basic	$	.39	$	.19
Earnings per common share, diluted	$	.39	$	.19

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

Note 13 – Stock Based Compensation

The Company’s 2019 Incentive Plan ~~(‘‘~~(the ‘‘Plan’’), approved by the Company’s stockholders in June 2019, permits the Company to grant, among other things, stock options, restricted stock, RSUs, performance share awards and dividend equivalent rights and any one or more of the foregoing to its employees, officers, directors and consultants. A maximum of 750,000 shares of the Company’s common stock is authorized for issuance pursuant to this Plan. As of ~~September 30, 2019,~~March 31, 2020, an aggregate of ~~77,776~~224,576 shares subject to awards in the form of restricted stock (149,550 shares) and RSUs ~~have been granted~~(75,026 shares) are outstanding under the Plan.

Under the Company’s 2016 and 2012 equity incentive plans (collectively, the “Prior ~~Plans ")~~Plans”), as of ~~September 30, 2019,~~March 31, 2020, an aggregate of ~~826,750~~702,125 shares of restricted stock (552,125 shares) and RSUs (150,000 shares) are outstanding and have not yet vested. No additional awards may be granted under the Prior Plans.

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

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 13 – Stock Based Compensation (Continued)

In ~~the third quarter of each of 2017,~~2019, 2018 and ~~2019,~~2017, the Company granted RSUs exchangeable for up to ~~76,250,~~77,776, 76,250 and ~~77,776~~76,250 shares, respectively, of common stock upon satisfaction, through June 30, ~~2020,~~2022, June 30, 2021 and June 30, ~~2022,~~2020, respectively, of specified conditions. Specifically, up to 50% of these RSUs vest upon achievement of metrics related to average annual total stockholder return (the “TSR Awards”), which metrics meet the definition of a market condition, and up to 50% vest upon achievement of metrics related to average annual return on capital (the “ROC Awards”), which metrics meet the definition of a performance condition. The holders of the RSUs are not entitled to dividends or to vote the underlying shares until such RSUs vest and shares are issued. Accordingly, the shares underlying these RSUs are not included in the shares shown as outstanding on the balance sheet. For the TSR awards, a third party appraiser prepared a Monte Carlo simulation pricing model to determine the fair value, which is recognized ratably over the service period. The Monte Carlo valuation consisted of computing the grant date fair value of the awards using the Company's simulated stock price. For the 2019 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 6.22%, a risk-free interest rate of 1.79% - 2.07% and an expected price volatility of 21.37% - 23.04%~~. The expected price volatility was calculated based on historical 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. The Company does not recognize expense on ROC Awards which it does not expect to vest. During 2019, RSUs exchangeable in 2021 and 2022 for an aggregate of 5,250 shares were forfeited.

As of ~~September 30, 2019,~~March 31, 2020, based on performance and market assumptions, the fair value of the RSUs granted in ~~2017,~~2019, 2018 and ~~2019~~2017 is ~~$787,000, $856,000~~$729,000, $690,000 and ~~$923,000,~~$807,000, respectively. Recognition of such deferred compensation expense will be charged to General and administrative expense over the respective three year performance cycle. NaN of these RSUs were forfeited or vested during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020.

2217

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

~~September 30, 2019~~March 31, 2020 (Continued)

Note 13 – Stock Based Compensation (Continued)

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


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2019		2018		2019		2018		2020		2019
Restricted stock grants:
Number of shares		—		—		150,050		144,750		149,550		150,050
Average per share grant price		—		—	$	25.70	$	25.31	$	28.10	$	25.70
Deferred compensation to be recognized over vesting period		—		—	$	3,856,000	$	3,664,000	$	4,202,000	$	3,856,000

Number of non-vested shares:
Non-vested beginning of period		689,150		651,500		651,250		612,900		674,250		651,250
Grants		—		—		150,050		144,750		149,550		150,050
Vested during period		(2,500)		—		(114,650)		(106,000)		(122,125)		(112,150)
Forfeitures		(12,400)		(250)		(12,400)		(400)		—		—
Non-vested end of period		674,250		651,250		674,250		651,250		701,675		689,150

RSU grants:
Number of underlying shares		77,776		76,250		77,776		76,250		—		—
Average per share grant price	$	28.96	$	26.41	$	28.96	$	26.41		—		—
Deferred compensation to be recognized over vesting period	$	923,000	$	1,136,000	$	923,000	$	1,136,000		—		—

Number of non-vested shares:
Non-vested beginning of period		152,500		76,250		152,500		76,250		225,026		152,500
Grants		77,776		76,250		77,776		76,250		—		—
Vested during period		—		—		—		—		—		—
Forfeitures		—		—		—		—		—		—
Non-vested end of period		230,276		152,500		230,276		152,500		225,026		152,500


Restricted stock and RSU grants:
Weighted average per share value of non-vested shares (based on grant price)	$	24.98	$	23.83	$	24.98	$	23.83	$	25.52	$	24.60
Value of stock vested during the period (based on grant price)	$	61,500	$	—	$	2,365,000	$	2,289,000	$	3,004,000	$	2,304,000
Weighted average per share value of shares forfeited during the period (based on grant price)	$	24.41	$	23.39	$	24.41	$	23.59	$	—	$	—

The total charge to operations:
Outstanding restricted stock grants	$	717,000	$	763,000	$	2,403,000	$	2,263,000	$	875,000	$	843,000
Outstanding RSUs		225,000		208,000		431,000		390,000		101,000		111,000
Total charge to operations	$	942,000	$	971,000	$	2,834,000	$	2,653,000	$	976,000	$	954,000

As of ~~September 30, 2019,~~March 31, 2020, total compensation costs of ~~$7,965,000~~$10,468,000 and ~~$1,559,000~~$907,000 related to non-vested restricted stock awards and RSUs, respectively, 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 ~~2.4~~2.9 years for the restricted stock and ~~1.8~~1.2 years for the RSUs.

2318

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

~~September 30, 2019~~March 31, 2020 (Continued)

Note 14 – Fair Value Measurements

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

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

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

At ~~September 30, 2019,~~March 31, 2020, the ~~$453,349,000~~$460,895,000 estimated fair value of the Company’s mortgages payable is ~~more~~greater than their ~~$439,417,000~~$451,757,000 carrying value (before unamortized deferred financing costs) by approximately ~~$13,932,000~~$9,138,000 assuming a blended market interest rate of ~~3.75%~~3.88% based on the ~~8.0~~7.9 year weighted average remaining term to maturity of the mortgages.

At December 31, ~~2018,~~2019, the ~~$420,396,000~~$454,039,000 estimated fair value of the Company’s mortgages payable is ~~less~~greater than their ~~$423,096,000~~$440,278,000 carrying value (before unamortized deferred financing costs) by approximately ~~$2,700,000~~$13,761,000 assuming a blended market interest rate of ~~4.41%~~3.72% based on the ~~8.7~~8.1 year weighted average remaining term to maturity of the mortgages.

At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the carrying amount of the Company’s line of credit (before unamortized deferred financing costs) of ~~$19,450,000~~$30,850,000 and ~~$30,000,000,~~$11,450,000, respectively, approximates its fair value.

The fair value of the Company’s mortgages payable and line of credit are estimated using unobservable inputs such as available market information and discounted cash flow analysis based on borrowing rates the Company believes it could obtain with similar terms and maturities. These fair value measurements fall within Level 3 of the fair value hierarchy.

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

As of March 31, 2020, the Company had in effect 24 interest rate derivatives, all of which were interest rate swaps, related to 24 outstanding mortgage loans with an aggregate $95,422,000 notional amount maturing between 2021 and 2028 (weighted average remaining term to maturity of 5.0 years). The Company’s objective in using interest rate swaps is to add stability to interest expense. These interest rate swaps, all of which were designated as cash flow hedges, converted LIBOR based variable rate mortgages to fixed annual rate mortgages (with interest rates ranging from 3.02% to 5.16% and a weighted average interest rate of 3.93% at March 31, 2020). The Company does not use derivatives for trading or speculative purposes.

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Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

~~September 30, 2019~~March 31, 2020 (Continued)

Note 14 – Fair Value Measurements (Continued)

~~Fair Value on a Recurring Basis~~

The fair value of the Company’s derivative financial instruments, ~~using Level 2 inputs,~~ was determined to be the following (amounts in thousands):

As of

Carrying and Fair Value

Carrying and

Balance Sheet

Financial assets:

Interest rate swaps

September 30, 2019

As of

Fair Value

Classification

Financial assets

March 31, 2020

—

Other assets

December 31, 2018

2,399

December 31, 2019

Financial liabilities:

Interest rate swaps

September 30, 2019

3,414

Financial liabilities

December 31, 2018

505

March 31, 2020

6,447

Other liabilities

December 31, 2019

1,715

~~The Company does not own any financial instruments that are measured on a recurring basis and that are classified as Level 1 or 3.~~

~~The Company’s objective in using interest rate swaps is to add stability to interest expense. The Company does not use derivatives for trading or speculative purposes.~~

Fair values are approximated using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities.

Although the Company has determined the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with it use Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparty. As of ~~September 30, 2019,~~March 31, 2020, the Company has assessed and determined the impact of the credit valuation adjustments on the overall valuation of its derivative positions is not significant. As a result, the Company determined its derivative valuation is classified in Level 2 of the fair value hierarchy.

~~As of September 30, 2019, the~~ The Company had entered into 24 interest rate derivatives, all of which were interest rate swaps, related to 24 outstanding mortgage loans with an aggregate $107,608,000 notional amount and mature between 2021 and 2028 (weighted average remaining term to maturity of 5.3 ~~years). Such interest rate swaps, all of which were designated~~does not own any financial instruments that are classified as ~~cash flow hedges, converted LIBOR based variable rate mortgages to fixed annual rate mortgages (with interest rates ranging from~~ ~~3.02% to 5.38% and a weighted average interest rate of 4.12% at September 30, 2019). The fair values of the Company’s derivatives in asset and liability positions are reflected as other assets~~Level 1 or ~~other liabilities on the consolidated balance sheets.~~

~~Table of Contents~~

~~One Liberty Properties, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2019 (Continued)~~

~~Note 14 –~~ ~~Fair Value Measurements (Continued)~~3.

The following table presents the effect of the Company’s derivative financial instruments on the consolidated statements of income for the periods presented (amounts in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2019		2018		2019		2018		2020		2019
One Liberty Properties, Inc. and Consolidated subsidiaries
Amount of (loss) gain recognized on derivatives in other comprehensive (loss) income	$	(1,319)	$	827	$	(5,281)	$	4,336
Amount of loss recognized on derivatives in other comprehensive (loss) income									$	(4,928)	$	(1,485)
Amount of reclassification from Accumulated other comprehensive (loss) income into Interest expense		(139)		(44)		(6)		(335)		(110)		92

Unconsolidated Joint Ventures (Company’s share)
Amount of gain recognized on derivatives in other comprehensive (loss) income		n/a		n/a		n/a	$	69
Amount of reclassification from Accumulated other comprehensive (loss) income into Equity in earnings (loss) of unconsolidated joint ventures		n/a		n/a		n/a		103

During the nine months ended September 30, 2019 and 2018, the Company (including one of its unconsolidated joint ventures) discontinued hedge accounting on three interest rate swaps as the forecasted hedged transactionsNaN amounts were ~~no longer probable of occurring. As a result, during the three and nine months ended September 30, 2019, the Company~~ reclassified $161,000 and $201,000, respectively, of realized loss from Accumulated other comprehensive (loss) income to earnings. During the nine months ended September 30, 2018, the Company reclassified $110,000 of realized gain from Accumulated other comprehensive loss ~~(income) to earnings.~~into Interest Expense as a result of forecasted transactions being no longer probable of occurring for the three months ended March 31, 2020 and 2019. NaN gain or loss was recognized with respect to amounts excluded from effectiveness testing on the Company’s cash flow hedges for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019.

During the twelve months ending ~~September 30, 2020,~~March 31, 2021, the Company estimates an additional ~~$555,000~~$1,607,000 will be reclassified from Accumulated other comprehensive ~~(loss) income~~loss as an increase to Interest expense.

The derivative agreements in effect at ~~September 30, 2019~~March 31, 2020 provide that if the wholly-owned subsidiary of the Company which is a party to such 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,~~defaults, the Company could be held liable for ~~such~~ swap breakage ~~losses.~~losses, if any, resulting from the early termination of the derivative.

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2020 (Continued)

Note 14 – Fair Value Measurements (Continued)

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the fair value of the derivatives in a liability position, including accrued interest of ~~$6,000~~$48,000 and ~~$8,000,~~$27,000, respectively, but excluding any adjustments for non-performance risk, was approximately ~~$3,622,000~~$6,795,000 and ~~$554,000~~$1,832,000, respectively. In the event the Company had ~~breaches of any of~~breached the contractual provisions of the derivative contracts, it would be required to settle its obligations thereunder at their termination liability value of $~~3,622,000~~6,795,000 and ~~$554,000~~$1,832,000 as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. This termination liability value, net of adjustments for non-performance risk of $~~202,000~~300,000 and ~~$41,000,~~$90,000, is included in Accrued expenses and other liabilities on the consolidated balance sheet at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Note 15 – New Accounting Pronouncements

In ~~August 2018,~~March 2020, the FASB issued ASU ~~No. 2018-13,~~2020-04, ~~Fair Value Measurement~~Reference Rate Reform (Topic ~~820)~~848), ~~Disclosure Framework – Changes to the Disclosure Requirements~~which contains practical expedients for ~~Fair Value Measurement,~~ ~~which eliminates, adds~~reference rate reform related activities that impact debt, leases, derivatives and ~~modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project.~~other contracts. The guidance in ASU 2020-04 is ~~effective~~optional and may be elected over time as reference rate reform activities occur. During the three months ended March 31, 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for ~~fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. An entity is permitted~~future LIBOR-indexed cash flows to ~~early adopt either~~assume that the ~~entire standard or only~~index upon which future hedged transactions will be based matches the ~~provisions that eliminate or modify requirements.~~index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company ~~is evaluating~~may apply other elections as applicable as additional changes in the market occur. The Company continues to evaluate the new guidance, to determine if, and to the extent, it will impact the Company’s consolidated financial statements.

~~Table of Contents~~

~~One Liberty Properties, Inc. and Subsidiaries~~

~~Notes to Consolidated Financial Statements (Unaudited)~~

~~September 30, 2019 (Continued)~~

~~Note 15 –~~ ~~New Accounting Pronouncements (Continued)~~

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 are not measured at fair value through net income. The guidance replaces the current ~~“incurred loss”~~"incurred loss" model with an ~~“expected loss”~~"expected loss" approach. The Company adopted this guidance ~~is effective~~on January 1, 2020 using the modified retrospective transition method and its adoption did not have any impact on the Company’s previously reported income from operations, net income or accumulated undistributed net income for ~~fiscal years, and interim~~the periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted after December 2018. The Company is evaluating the new guidance to determine if, and to the extent, it will impact the consolidated financial statements.presented.

Note 16 – Subsequent Events

Subsequent events have been evaluated and except as disclosed herein, there were no other events relative to the consolidated financial statements that require additional disclosure.

COVID-19 Pandemic

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

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Table of Contents

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q, ~~contains~~together with other statements and information publicly disseminated by us, contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “could,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions or variations thereof. ~~Forward-looking statements~~You should not ~~be relied~~rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performance or achievements. Investors are encouraged to review the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2018 under the caption “Item 1A. Risk Factors” for a discussion of certain factorsFactors which may cause actual results to differ materially from current expectations include, but are not limited to:

●

the financial condition of our tenants and their performance of lease obligations;

●

general economic and business conditions, including those currently affecting our nation’s economy and real estate markets;

●

the availability of and costs associated with sources of liquidity;

●

general and local real estate conditions, including any changes in the value of our real estate;

●

compliance with credit facility covenants;

●

increased competition for leasing of vacant space due to current economic conditions;

●

changes in governmental laws and regulations relating to real estate and related investments;

●

the level and volatility of interest rates;

●

competition in our industry;

●

limitations on our ability to exercise legal remedies due to court closures and/or moratoriums on the exercise of certain type of remedies or activities;

●

the challenges presented by the COVID-19 pandemic; and

●

the other risks described under Item 1A. Risk Factors in this report and in our Annual Report on Form 10-K.

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

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

Table of Contents

Overview

We are a self-administered and self-managed real estate investment trust, or REIT, incorporated in Maryland in 1982. To qualify as a REIT, under the Internal Revenue Code of 1986, as amended, we must meet a number of organizational and operational requirements, including a requirement that we distribute currently at least 90% of ordinary taxable income to our stockholders. We intend to comply with these requirements and to maintain our REIT status.

We acquire, own and manage a geographically diversified portfolio consisting primarily of industrial, retail (including furniture stores and supermarkets), restaurant, health and fitness and theater properties, many of which are subject to long-term net leases. As of ~~September 30, 2019,~~March 31, 2020, we own 126 properties (including four properties owned by consolidated joint ventures and ~~four~~three properties owned by unconsolidated joint ventures) located in 31 states. Based on square footage, our occupancy rate at ~~September 30, 2019~~March 31, 2020 is approximately ~~96.5%~~97.0%.

WeIn addition to the challenges presented by the COVID-19 pandemic, we face a variety of risks and challenges in our business. Among other things, we face the possibility that we will not be able to acquire accretive properties on acceptable terms, lease our properties on terms favorable to us or at all, our tenants may be unable to pay their rental and other obligations and we may be unable to renew or relet, on acceptable terms, leases that are expiring or otherwise terminating. See “- Challenges and Uncertainties Resulting from the COVID-19 Pandemic” and “Item 1A. Risk Factors”.

We seek to manage the risk of our real property portfolio and the related financing arrangements by diversifying among types of properties, industries, locations, tenants, scheduled lease expirations, mortgage maturities and lenders, and by seeking to minimize our exposure to interest rate 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 information, regular contact with tenant’s representatives, tenant credit checks and regular management reviews of our tenants. We may sell a property if the tenant’s financial condition is unsatisfactory.

In acquiring properties, we balance an evaluation of the terms of the leases and the credit of the existing tenants with a fundamental analysis of the real estate to be acquired, which analysis takes into account, among other things, the estimated value of the property, local demographics and the ability to re-rent or dispose of the property on favorable terms upon lease expiration or early termination.

We are sensitive to the risks facing the retail industry as a result of the growth of e-commerce. ~~We are~~Over the past several years, we have been addressing our exposure to the retail industry by ~~emphasizing the acquisition of~~acquiring industrial properties, including industrial properties that we believe capitalize on e-commerce activities, such as e-commerce distribution and ~~by being especially selective in acquiring~~warehousing facilities, and disposing of retail ~~properties.~~properties which we did not think advantageous to hold for the long-term. Approximately ~~49.6%~~51.5% of our contractual ~~rental income~~base rent (as described below) is derived from industrial properties and ~~34.7%~~32.7%, ~~4.8%~~4.7%, ~~4.5%~~4.4%, ~~3.3%~~3.2%, and ~~3.1%~~3.5% from retail, restaurant, health and fitness, theaters and other properties, respectively.

~~Table of Contents~~

Our ~~2019~~2020 contractual ~~rental income~~base rent is approximately ~~$71.1~~$73.0 million and represents, after giving effect to any abatements, concessions or adjustments, the base rent payable to us during the ~~twelve months~~year ending ~~September 30,~~December 31, 2020 under leases in effect at ~~September 30, 2019.~~March 31, 2020. Contractual ~~rental income~~base rent excludes: (i) approximately ~~$667,000~~$728,000 of straight-line rent and ~~$741,000~~$739,000 of amortization of ~~intangibles;~~intangibles and (ii) our share of the rental income payable to our unconsolidated joint ventures, which is approximately ~~$1.6 million; (iii) $420,000~~$1.7 million. Contractual base rent does not give effect to any rent deferrals that have been, and others that may be, implemented in respect to the COVID-19 pandemic.

Table of contractual rental income from our Philadelphia, Pennsylvania property as the tenant advised that it intends to cease its operations; and (iv) $125,000 of contractual rental income from our Houston, Texas property which was sold in October 2019.Contents

The following table sets forth scheduled expirations of leases for our properties as of ~~September 30, 2019~~March 31, 2020 for the periods indicated below:


					Percentage of						Percentage of
	Number	Approximate			Contractual Rental	Number	Approximate				Contractual
Lease Expiration (1)	of	Square	Contractual		Income	of	Square		Contractual		Base Rent
12 Months Ending	Expiring	Footage Subject to	Rental Income Under		Represented by
September 30,	Leases	Expiring Leases (2)	Expiring Leases		Expiring Leases
Year Ending						Expiring	Footage Subject to		Base Rent Under		Represented by
December 31,						Leases	Expiring Leases (2)		Expiring Leases		Expiring Leases
2020	3	29,509	$	421,571	.6	4	8,792	��		106,245	.1
2021	15	333,263		2,309,257	3.2	14	337,200			2,485,281	3.4
2022	23	2,143,394		14,130,275	19.9	24	2,103,373			14,251,247	19.5
2023	21	813,767		5,253,509	7.4	21	1,190,358			8,217,645	11.3
2024	22	1,159,388		8,497,915	11.9	20	948,891			5,612,934	7.7
2025	14	573,652		6,048,258	8.5	13	437,606			5,783,689	7.9
2026	8	230,189		3,523,673	5.0	12	621,429			5,698,764	7.8
2027	11	988,417		6,324,356	8.9	10	1,163,729			6,948,811	9.5
2028	10	741,871		4,870,256	6.8	10	592,983			3,905,224	5.3
2029	7	948,545		4,688,328	6.6	6	908,121			4,538,925	6.2
2030 and thereafter	23	1,847,466		15,032,432	21.2	25	1,885,062			15,494,433	21.3
	157	9,809,461	$	71,099,830	100.0	159	10,197,544		$	73,043,198	100.0

(1)

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

(2)

Excludes an aggregate of ~~282,603~~186,949 square feet of ~~(i)~~ vacant ~~space, (ii) space at our Houston, Texas property sold in October 2019 and (iii) space at our Philadelphia, Pennsylvania property whose tenant has advised that it intends to cease operations.~~space.

Property Transactions During the Three Months Ended ~~September 30, 2019~~March 31, 2020

During the three months ended ~~September 30, 2019,~~March 31, 2020, we acquired two industrial properties for an aggregate purchase price of ~~$13.3~~$28.3 million, including ~~$128,000~~$254,000 of transaction costs that were capitalized. These acquisitions contributed ~~$122,000~~$204,000 of rental income, net, ~~and $47,000~~$128,000 of depreciation and amortization expense and $30,000 of mortgage interest expense during the three months ended ~~September 30, 2019.~~March 31, 2020. We estimate that commencing ~~October~~April 1, ~~2019,~~2020, the aggregate quarterly rental income (excluding variable lease revenues) ~~and~~, depreciation and amortization expense, and mortgage interest expense from these properties will be ~~$238,000~~$487,000, $272,000 and ~~$99,000,~~$163,000, respectively.

On ~~August 23, 2019,~~February 11, 2020, we sold a retail property located in ~~Athens, Georgia~~Onalaska, Wisconsin for ~~$5.8~~approximately $7.1 million, net of closing costs, paid off the ~~$2.6~~$3.3 million mortgage and recognized a ~~$1.0~~$4.3 million ~~gain. This~~gain, before giving effect to a $290,000 mortgage prepayment expense. In the three months ended March 31, 2020 and 2019, this property contributed ~~$349,000~~$55,000 and ~~$439,000~~$161,000 of rental income, net, ~~$69,000~~$10,000 and ~~$81,000~~$19,000 of depreciation and amortization expense and ~~$242,000 (including a $161,000 mortgage swap termination expense)~~$17,000 and ~~$97,000~~$38,000 of mortgage interest expense, ~~in the nine months ended September 30, 2019 and 2018,~~ respectively.

On ~~August 29, 2019, we~~March 2, 2020, an unconsolidated joint venture sold ~~a land parcel~~its property located in ~~Wheaton, Illinois, which was ground leased to~~Savannah, Georgia, for $819,000, net of closing costs. Our 50% share of the ~~owner/operators of a multi-family complex. Our~~ gain from this sale, which was ~~$1.5 million. Rental income from this property was $814,000 and $859,000~~recognized in the ~~nine~~three months ended ~~September 30, 2019 and 2018, respectively. There were no expenses related to this property.~~

~~Property Transactions Subsequent to September 30, 2019~~

On October 3, 2019, we purchased an industrial property in Rincon, Georgia for $6.4 million. We estimate that commencing November 1, 2019, the quarterly rental income (excluding variable lease revenues) from this property will be $115,000.March 31, 2020, was $121,000.

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~~On October 21, 2019, we sold~~Challenges and Uncertainties Resulting from the COVID-19 Pandemic

The COVID-19 pandemic and the various governmental responses thereto are having a ~~retail~~significant impact on the global economy, the U.S. economy, the economies of the local markets in which our properties are located, and the broader financial markets. Most industries have been negatively impacted, directly or indirectly, among other things, by preventative measures taken by governmental authorities to address the public health crisis such as mandatory business closures, quarantines, restrictions on travel and "shelter-in-place" or "stay-at-home" orders. These containment measures are affecting our tenants to varying degrees depending on, among other things, the location of the subject property ~~tenanted by Aaron’s Inc.~~(i.e., whether it is located in ~~Houston, Texas, for a sales price~~an area that is or has been the subject of ~~$1.4 million, net~~quarantine orders) and the nature of ~~closing costs. We anticipate our gain from this sale, which~~the tenant and use of the property (i.e., industrial or non-industrial), with retail (both general and specialized), health and fitness, entertainment and restaurant properties being significantly adversely affected. When and where these governmental restrictions will be ~~recognized in~~relaxed or lifted, when and whether businesses of tenants that have closed, either voluntarily or by governmental mandate, will reopen, the extent to which clients and customers will re-engage with such tenants, and whether such re-engagement will be at levels that will allow such tenants to return to profitability, are unknown. While we did not sustain any material adverse economic effect from the pandemic during the three months ended March 31, 2020, we have received numerous rent relief requests, and ~~year ending December 31, 2019,~~are evaluating each request on an individual basis. Not all requests will be ~~approximately $218,000.~~

~~On October 22, 2019, in consideration~~accommodated, and generally, any accommodation will be subject to the approval of the mortgagee, if any, on the property at which such tenant is located. The following is intended to provide certain information regarding the impact of the pandemic and governmental responses on our business and management's efforts to respond to those impacts. Unless otherwise specified, the statistical and other information regarding our portfolio and tenants are estimates based on information available to us as of May 4, 2020. As a result of the rapid development, fluidity and uncertainty surrounding this situation, we expect that such statistical and other information will change, perhaps significantly, going forward and may not be indicative of the actual impact of the pandemic on our business, operations, cash flows and financial condition for the ~~payment to us~~second quarter of ~~$400,000, which will be recognized as lease termination fee income in~~2020 and the ~~quarter and year ending December 31, 2019,~~future.

As of May 4, 2020,

●

we have received $4.4 million, or 71.9% of the cash base rents payable for April (the “April Base Rent”);

●

we have received 86.8% of the April Base Rent payable by industrial tenants and 55.9% of the April Base Rent payable by all other tenants;

●

excluding tenants with whom we have or are actively negotiating rent deferral agreements as described below, the tenants (the “Non-Paying Tenants”) that have not paid all or a portion, or advised that they cannot pay all or a portion, of April Base Rent account for $9.1 million or 12.4% of 2020 contractual base rent. At March 31, 2020, the mortgage debt on such properties, excluding multi-tenant properties at which the Non-Paying Tenants represent less than 25% of the 2020 contractual base rent payable at such property, was approximately $18.1 million;

●

we have agreed to defer (or are negotiating agreements to defer) the payment of an aggregate of approximately $3.0 million, or 16.5%, of the cash base rent otherwise payable during the quarter ending June 30, 2020. Such deferrals generally (i) are designed to ensure that, at a minimum, rent payments are sufficient to cover our debt service obligations on such properties and (ii) provide that the payment of all or a portion of the base rent (but not tenant reimbursement obligations, which are not deferred) otherwise payable during the quarter ending June 30, 2020 will be deferred for varying periods and at the conclusion of the deferral period will be payable over several months. Such deferrals generally are not expected to affect our net income, FFO or AFFO, but in the short-term they will result in a reduction of cash available for operations and dividends.

Accordingly, we ~~agreed to terminate the lease at a property in Newark, Delaware. We entered into a lease with a new tenant and~~ anticipate that ~~we will record approximately $107,000 of rental income (excluding variable lease payments, if any) per quarter from this new lease.~~

On October 23, 2019, we purchased an industrial property in Chandler, Arizona for $3.0 million. We estimate that commencing November 1, 2019, the quarterly rental income (excluding variable lease revenues) from this property will be $55,000.

~~Amendment of Credit Facility~~

On July 1, 2019, we and our lenders amended our credit facility to extend its expiration date to December 31, 2022 and increase the aggregate amount that may be used thereunder for renovation and operating expense purposes. In connection with the amendment, we incurred a $550,000 commitment fee which will be amortized over the ~~remaining~~next several months, the pandemic and the responses thereto will have a negative impact on our financial condition and cash flows. In the longer term, of the ~~facility. See~~ ~~“- Liquidity~~COVID-19 pandemic, or any future pandemic, and ~~Capital Resources-Credit Facility.”~~

~~Challenges and Uncertainties Facing Certain Tenants and Properties~~

~~We describe below certain risks and uncertainties associated with tenants and properties that are experiencing financial or other challenges.~~

Our tenant at an assisted living facility in Round Rock, Texas, which we refer to as the Round Rock Property, filed for bankruptcy protection in December 2018 and though they subsequently rejected the lease, the tenant-debtor continues to occupy the property. At September 30, 2019, the net book value and mortgage debt associated with this property was $15.8 million and $13.2 million, respectively. During the nine months ended September 30, 2019, we paid principal mortgage payments of $294,000 and incurred costs of $1.5 million (i.e., mortgage interest of $545,000, legal fees of approximately $775,000 and real estate taxes of $222,000) for this property and may continue to incur significant costs for an extended period. We estimate that the carrying costs (including mortgage amortization of $101,000) with respect to this property for the three months ending December 31, 2019 will be approximately $375,000, excluding legal fees. In October 2019, we settled our bankruptcy court claim against the tenant-debtor (but not, as described below, against the lease guarantor) for,such responses could present further challenges, due, among other things, $584,000, which we will recognize as rental income in the quarter ending December 31, 2019. We entered into a contract to sell this property for $16.6 million. There are various conditions that must be satisfied before the purchaser is obligated to complete this transaction and we cannot provide any assurance that the sale will be completed on a timely basis or at all. In addition, we commenced litigation (~~OLP Wyoming Springs, LLC, v. Harden Healthcare, LLC~~, United States District Court, Western District of Texas, Austin, Case No. 1:19-cv-00777-RP (Removed from the District Court of Williamson County, Texas)), against the guarantors of the lease, who we refer to collectively as the “Guarantor”, seeking, among other things, recovery for the damages we have and continue to incur. We cannot provide any assurance that we will be successful in any litigation seeking compensation from the Guarantor for such damages.to:

A multi-family complex, which we refer to as The Vue, ground leases from us the underlying land located in Beachwood, Ohio. In the fourth quarter of 2018, we, at the request of the owner/operator of The Vue, reduced the annual base rent payable to us in 2019 to $783,000 from the base rent of $1.6 million in 2018. At September 30, 2019, (i) there are no unbilled rent receivables, intangibles or tenant origination costs associated with this property and (ii) the net book value of our land subject to this ground lease is $13.9 million and is subordinate to $67.4 million of mortgage debt incurred by the owner/operator. Unlike most of our tenancies, the owner/operator is responsible for the property’s current monthly mortgage interest payments of $228,000 – the interest only period with respect to such mortgage expires August 2020. See ~~“ - Off Balance Sheet Arrangement”~~ ~~and Note 7 to our consolidated financial statements.~~

●

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

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●

difficulty in accessing the capital and lending markets (or a significant increase in the costs of doing so), which may affect our access to capital necessary to fund our operations;

●

a slowdown in our efforts to acquire or dispose of properties;

●

an acceleration of the transformation of the retail industry towards a greater emphasis on e-commerce and a reduced emphasis on traditional “bricks and mortar” retail, which could adversely affect our long-term prospects.

We ~~are pursuing a re-development~~have taken various measures to maintain the strength of a community shopping center located in Manahawkin, New Jersey (the “Manahawkin Property”), which is owned by an unconsolidated joint venture in which we have a 50% equity interest. At December 31, 2018our business and ~~September 30, 2019,~~manage the occupancy rate (based on square footage) was approximately 52.4%. As a result of, among other things, vacancies at the property (including vacancies resulting from the re-development process), we estimate that for the three months ending December 31, 2019, our shareimpact of the ~~base rent payable to be generated at this property will be approximately $348,000. Our share of the base rent in the three~~pandemic on our operations and nine months ended September 30, 2019 was $344,000 and $1.1 million, respectively, compared to $476,000 and $1.4 million, respectively, for the corresponding period of 2018. We believe that during the re-development period, cash flow from the operations at this property will cover a significant portion of the property’s carrying costs and debt service obligations and that any shortfall will be covered by the cash available to the joint ventureliquidity and capital ~~contributions to~~resource position, including the ~~venture by us and our joint venture partner. We estimate that the redevelopment will be substantially complete and the property stabilized after 2022. See~~ ~~“ - Liquidity and Capital Resources.”~~following:

A retail property located in Crystal Lake, Illinois has been vacant for the past two years. At September 30, 2019, the net book value of the property was $2.0 million. The mortgage on this property was paid off in July 2019. We estimate that the carrying costs with respect to this property for the three months ending December 31, 2019 will be approximately $38,000.

A tenant operating a supermarket at a property located in Philadelphia, Pennsylvania advised us in late July 2019 that it intends to cease operations. Although this tenant has paid the rent due through November 30, 2019 (other than $44,000 of real estate taxes for 2019), during the three and nine months ended September 30, 2019, we wrote off $380,000 against rental income, representing the balance of this tenant’s unbilled rent receivable. At September 30, 2019, the net book value and mortgage debt associated with this property was $6.7 million and $4.0 million, respectively. For the nine months ended September 30, 2019 and 2018, rental income, net, for this property was $33,000 (net of the $380,000 write off) and $388,000, respectively, and total operating expenses were $89,000 and $71,000, respectively. We estimate that the real estate taxes and interest expense associated with this property for the three months ending December 31, 2019 will be approximately $57,000.

We may be adversely affected if, among other things, (i) the sale of the Round Rock Property is not completed on a timely basis or at all, (ii) any of these tenants reduce, defer, or do not pay the rent payments due us or do not pay the operating expenses of the property for which they are responsible, (iii) the owner/operator of The Vue fails to pay required mortgage payments when due, (iv) we sell our interest in any of these properties when they are in distress, (v) our interests in these properties are foreclosed upon, (vi) we are required to take write-offs (other than those already taken with respect to the Round Rock Property and Philadelphia, Pennsylvania property) or impairment charges with respect to these properties, or (vii) we continue to incur significant legal fees in connection with these matters.

●

To enhance our liquidity position and maintain financial flexibility, in March 2020, we borrowed $10 million under our credit facility, which funds may be used for working capital purposes, and as of May 4, 2020 we had $13.8 million of cash and cash equivalents (including our credit facility’s required $3 million average deposit maintenance balance). See “ –Liquidity and Capital Resources.”

●

We are carefully monitoring and managing our mortgage maturities. We do not have any mortgage debt maturing in 2020, and $8.5 million of mortgage debt is scheduled to mature in 2021. We and our mortgage lenders are generally working to modify our debt service obligations at properties at which tenants have not paid all or a portion of April Base Rent or at which we have, or anticipate having, an agreement to deferrals of base rent. Through May 5, 2020, mortgage lenders have agreed to defer payment of an estimated $1.5 million of debt service, of which approximately 32% will be payable in 2021 and more than 65% is deferred until the maturity of such debt.

●

We are carefully monitoring compliance with the terms and conditions of our credit facility and are in continual contact with our lenders. While we currently believe we will continue to be in compliance with the facility’s financial covenants, if, among other things, tenants contributing certain levels of base rent terminate their leases, seek bankruptcy protection or obtain rent concessions, we may not continue to comply with the terms thereof. See “ – Liquidity and Capital Resources – Credit Facility.”

●

We are carefully monitoring our discretionary spending, particularly in light of the reduction in the base cash rent received from tenants due to the economic challenges resulting from the pandemic. Our largest recurring discretionary expenditure has been our quarterly dividend (which was $.45 per share of common stock, or in the approximate amount of $9 million, last quarter). Each quarter, our board of directors evaluates the timing and amount of our dividend based on its assessment of, among other things, our short and long- term cash and liquidity requirements, prospects, debt maturities, projections of our REIT taxable income, net income, funds from operations, adjusted funds from operations and the dividend policies of our peers. Based on the current economic environment and our cash position, there is uncertainty as to the amount and form of the dividend that we may declare with respect to the quarter ending June 30, 2020.

●

Our board of directors, in evaluating the factors described above in declaring a dividend, will also take into account recent guidance issued by the Internal Revenue Service allowing REITs, under specified conditions, to include in calculations determining compliance with REIT distribution requirements, the payment of up to 90% of a quarterly dividend in the form of shares of capital stock.

Results of Operations

~~Revenues~~Rental income, net

The following table compares ~~Revenues~~Rental income, net, for the periods indicated:


	Three Months Ended							Nine Months Ended							Three Months Ended
	September 30,				Increase		%	September 30,				Increase		%	March 31,				Increase		%
(Dollars in thousands)	2019		2018		(Decrease)		Change	2019		2018		(Decrease)		Change	2020		2019		(Decrease)		Change
Rental income, net	$	20,414	$	19,198	$	1,216	6.3	$	62,288	$	58,484	$	3,804	6.5	$	21,239	$	21,155	$	84	0.4
Lease termination fee		—		372		(372)	(100.0)		—		372		(372)	(100.0)
Total revenues	$	20,414	$	19,570	$	844	4.3	$	62,288	$	58,856	$	3,432	5.8

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~~Rental income, net.~~

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


	Three Months Ended							Nine Months Ended							Three Months Ended
	September 30,				Increase		%	September 30,				Increase		%	March 31,				Increase		%
(Dollars in thousands)	2019		2018		(Decrease)		Change	2019		2018		(Decrease)		Change	2020		2019		(Decrease)		Change
Acquisitions (a)	$	2,604	$	401	$	2,203	549.4	$	6,527	$	728	$	5,799	796.6	$	1,356	$	—	$	1,356	n/a
Dispositions (b)		269		1,207		(938)	(77.7)		1,554		3,765		(2,211)	(58.7)		55		1,165		(1,110)	(95.3)
Same store (c)		17,541		17,590		(49)	(0.3)		54,207		53,991		216	0.4		19,828		19,990		(162)	(0.8)
Rental income, net	$	20,414	$	19,198	$	1,216	6.3	$	62,288	$	58,484	$	3,804	6.5	$	21,239	$	21,155	$	84	0.4

(a)

The ~~2019 columns represent~~2020 column represents rental income from properties acquired since ~~January~~April 1, ~~2018; the 2018 columns represent rental income from properties acquired during the nine months ended September 30, 2018.~~2019;

there were no properties acquired during the three months ended March 31, 2019.

(b)

The ~~2019 columns represent~~2020 column represents rental income from ~~properties~~a property sold during the ~~nine~~three months ended ~~September 30, 2019; the 2018 columns represent rental income from properties sold since January 1, 2018.~~March 31, 2020;

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

(c)

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

Changes due to acquisitions and dispositions

The three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 reflect increases of (i) ~~$1.5~~$1.2 million ~~and $5.0 million, respectively,~~ generated by eight properties acquired in ~~2018,~~2019, and (ii) ~~$712,000 and $849,000, respectively,~~$204,000 generated by ~~six~~two properties acquired in ~~2019.~~2020. Offsetting these increases ~~were decreases~~was a decrease of ~~$938,000 and $2.2~~$1.1 million ~~respectively,~~ for the three ~~and nine~~ months ended ~~September 30, 2019,~~March 31, 2020, primarily due to the inclusion, in the ~~2018 periods,~~2019 period, of rental income from properties sold during ~~2019~~2020 and ~~2018.~~2019.

Changes at same store properties

The ~~changes~~decrease in same store ~~revenues~~rental income during the three ~~and nine~~ months ended ~~September 30, 2019 are~~March 31, 2020 is primarily due ~~primarily~~ to (i) ~~net increases~~the inclusion in the three months ended March 31, 2019 of ~~$894,000 and $153,000, respectively,~~$142,000 of rent income from our ~~Round Rock Property (~~~~i.e.~~~~, the inclusion during the corresponding 2018 periods~~Philadelphia, Pennsylvania property which is now vacant, and (ii) a net decrease of ~~a $1.4 million non-cash allowance against rental income~~$157,000 of the entire unbilled rent receivable balance related to this property, offset by decreases of $545,000 and $1.3 million, respectively, of rent received from this property for the three and nine months ended September 30, 2018 compared to the corresponding 2019 periods), (ii) increases of $304,000 and $947,000, respectively, due to the additional rent resulting from the expansion of our Hauppauge, New York property, and (iii) increases of $155,000 and $934,000, respectively, due to tenant reimbursements which generally relate to real estate taxes and operating expenses incurred in the same period.

These ~~increases~~decreases were offset by ~~the inclusion,~~a net increase in ~~the three and nine months ended September 30, 2018, of (i) a non-cash write-off as an addition to rental~~rent income of ~~an $804,000 lease intangible liability related to the Savers Buyout described below and (ii) higher rent of $233,000 and $673,000, respectively,~~$137,000 from The Vue. The changes in the three and nine months ended September 30, 2019 were also offset by a $380,000 non-cash allowance against rental income of the entire unbilled rent receivable balance related to our Philadelphia, Pennsylvania property.

~~Lease termination fee.~~

In the three and nine months ended September 30, 2018, we received a lease termination fee of $372,000 in connection with the buyout of the lease with Savers for a retail property located in Colorado, which we refer to as the “Savers Buyout”. There was no such fee in 2019.several properties.

~~Table of Contents~~

Operating Expenses

The following table compares operating expenses for the periods indicated:

Three Months Ended

Nine Months Ended

September 30,

Increase

%

September 30,

Increase

%
(Dollars in thousands)

2019

2018

(Decrease)

Change

2019

2018

(Decrease)

Change
Operating expenses:
















Depreciation and amortization

$
5,566

$
5,672

$
(106)

(1.9)

$
16,353

$
16,104

$
249

1.5
General and administrative

3,143

3,071

72

2.3

9,319

8,999

320

3.6
Real estate expenses

3,692

2,669

1,023

38.3

10,544

8,005

2,539

31.7
State taxes

68

59

9

15.3

255

286

(31)

(10.8)
Total operating expenses

$
12,469

$
11,471

$
998

8.7

$
36,471

$
33,394

$
3,077

9.2


	Three Months Ended
	March 31,				Increase		%
(Dollars in thousands)	2020		2019		(Decrease)		Change
Operating expenses:
Depreciation and amortization	$	5,674	$	5,347	$	327	6.1
General and administrative		3,334		3,171		163	5.1
Real estate expenses		3,342		3,341		1	—
State taxes		82		79		3	3.8
Total operating expenses	$	12,432	$	11,938	$	494	4.1

Depreciation and ~~amortization~~amortization.. The increase in the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 is due primarily to the inclusion of ~~$2.0 million~~$547,000 of such expense from the properties acquired in 2020 and 2019, ~~and 2018,~~ including ~~$359,000~~$128,000 from properties acquired in ~~2019.~~2020. This increase was offset by the inclusion, in the corresponding period in ~~2018~~2019 of (i) $181,000 from the properties sold since January 1, 2019, and (ii) amortization of ~~$572,000~~$84,000 of tenant origination costs at several properties that prior to ~~2019,~~March 31, 2020, were fully amortized in connection with lease expirations, (ii) $440,000 from the properties sold since January 1, 2018, and (iii) a $430,000 write-off of tenant origination costs in connection with the Savers Buyout. The increase was also offset by a $312,000 decrease due to a change in the depreciable life with respect to our Greensboro, North Carolina property.

The decrease in the three months ended September 30, 2019 is due primarily to the inclusion, in the corresponding period of 2018, of (i) a $430,000 write-off of tenant origination costs in connection with the Savers Buyout, (ii) amortization of $196,000 of tenant origination costs at several properties that, prior to 2019, were fully amortized in connection with lease expirations, and (iii) $163,000 from the properties sold since January 1, 2018. Additionally, there was a decrease of $107,000 due to a change in the depreciable life with respect to our Greensboro, North Carolina property. The decrease in the three months ended September 30, 2019 was offset by the inclusion of $781,000 of such expense from the properties acquired in 2019 and 2018 (including $279,000 from properties acquired in 2019).expirations.

General and administrative.~~Contributing to the increase in the nine~~ The three months ended ~~September 30, 2019 is (i) $266,000~~March 31, 2020 includes an increase of $148,000 in ~~non-cash~~ compensation ~~primarily relating~~expense payable to ~~the increase in the number,~~our full and higher fair value, of the shares of restricted stock granted in 2019 in comparison to the awards granted in 2014, offset by $126,000 for the cancellation of restricted stock related to the resignation of a director and (ii) approximately $120,000part time personnel, primarily due to higher levels of compensation ~~levels. Included in the nine months ended September 30, 2018 is a one-time professional fee~~(including increased payments pursuant to our compensation and services agreement).

Table of ~~$110,000.~~Contents

Real estate expenses. The ~~increases~~increase in the three ~~and nine~~ months ended ~~September 30, 2019 are~~March 31, 2020 is due to increases of (i) $635,000 and $1.7 million, respectively, from several same store properties, including approximately $552,000 and $1.0 million, respectively, related to legal and real estate tax expense for our Round Rock Property, and for the nine months ended September 30, 2019, $162,000 and $135,000 for rent expense on our operating lease property and elevator maintenance at a ~~property, respectively, and (ii) $420,000 and $991,000, respectively,~~$218,000 increase from properties acquired since January ~~2018. A substantial portion~~2019, offset by a decrease of ~~real estate expenses are rebilled~~$141,000 related to ~~tenants and included in Rental income, net, on the consolidated statements of income, other than the Round Rock Property expenses.~~properties sold since January 1, 2019.

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)

2019


2018

(Decrease)

Change

2019

2018

(Decrease)

Change
Gain on sale of real estate, net

$
2,544

$
4,585

$
(2,041)

(44.5)

$
3,643

$
6,993

$
(3,350)

(47.9)

~~Table of Contents~~

~~The~~ gain in the three ~~and nine~~ months ended September 30, 2019 was realized from the sales of our Athens, Georgia property (a $1.0 million gain) and Wheaton, Illinois property (a $1.5 million gain); the nine months ended September 30, 2019 also includes a $1.1 million gain realized from the sale of our Clemmons, North Carolina property, before giving effect to the non-controlling interest’s $422,000 share of the gain.

~~The gain in the three and nine months ended September 30, 2018~~March 31, 2020 was realized from the sale of our ~~Lakemoor, Illinois property (a $4.6 million gain);~~Onalaska, Wisconsin property. There were no sales during the ~~nine~~three months ended ~~September 30, 2018 also includes a $2.4 million gain realized from the sale of our Fort Bend, Texas property, before giving effect to the non-controlling interest’s $776,000 share of the gain.~~March 31, 2019.

Other Income and Expenses

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

Three Months Ended

Nine Months Ended

September 30,

Increase

%

September 30,

Increase

%
(Dollars in thousands)

2019

2018

(Decrease)

Change

2019

2018

(Decrease)

Change
Other income and expenses:

Equity in earnings (loss) of unconsolidated joint ventures

$
50

$
173

$
(123)

(71.1)

$
(32)

$
716

$
(748)

(104.5)
Equity in earnings from sale of unconsolidated joint venture properties

—

1,986

(1,986)

(100.0)

—

2,057

(2,057)

(100.0)
Other income

8

7

1

14.3

18

17

1

5.9
Interest:

Expense

(5,198)

(4,448)

750

16.9

(15,041)

(13,195)

1,846

14.0
Amortization and write-off of deferred financing costs

(252)

(220)

32

14.5

(739)

(669)

70

10.5


	Three Months Ended
	March 31,				Increase		%
(Dollars in thousands)	2020		2019		(Decrease)		Change
Other income and expenses:
Equity in earnings (loss) of unconsolidated joint ventures	$	64	$	(116)	$	180	155.2
Equity in earnings from sale of unconsolidated joint venture property		121		—		121	n/a
Prepayment costs on debt		(290)		—		290	n/a
Other income		4		4		—	—
Interest:
Expense		(4,884)		(4,862)		22	0.5
Amortization and write-off of deferred financing costs		(243)		(232)		11	4.7

Equity in earnings (loss) of unconsolidated joint ventures.The three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 ~~include decreases of $145,000 and $490,000, respectively, due primarily~~included, with respect to ~~increased vacancies (and~~a multi-tenant retail property in Manahawkin, New Jersey (the “Manahawkin Property”), write-offs of ~~receivables) at~~receivables of $116,000. There were no such write-offs in the ~~Manahawkin Property, which is in redevelopment. The nine~~three months ended September 30, 2018 included earnings of $287,000 from a property in Milwaukee, Wisconsin that was sold in July 2018; such earnings include our $110,000 share of the gain realized from the discontinuance of hedge accounting on an interest rate swap.March 31, 2020.

Equity in earnings from sale of unconsolidated joint venture ~~properties.~~ property.The three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2020 include a ~~$2.0 million~~$121,000 gain from the sale of the ~~Milwaukee,~~Savannah, Georgia property. There was no corresponding gain during the three months ended March 31, 2019.

Prepayment costs on debt. This cost was incurred in connection with the sale of the Onalaska, Wisconsin property. There ~~were~~was no ~~similar sales during~~corresponding expense in the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019.

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

Three Months Ended

Nine Months Ended

September 30,

Increase

%

September 30,

Increase

%
(Dollars in thousands)

2019

2018

(Decrease)

Change

2019

2018

(Decrease)

Change
Interest expense:
















Credit line interest

$
298

$
140

$
158

112.9

$
777

$
486

$
291

59.9
Mortgage interest

4,900

4,308

592

13.7

14,264

12,709

1,555

12.2
Total

$
5,198

$
4,448

$
750

16.9

$
15,041

$
13,195

$
1,846

14.0


	Three Months Ended
	March 31,				Increase		%
(Dollars in thousands)	2020		2019		(Decrease)		Change
Interest expense:
Credit line interest	$	240	$	289	$	(49)	(17.0)
Mortgage interest		4,644		4,573		71	1.6
Total	$	4,884	$	4,862	$	22	0.5

Credit line interest

~~The increases~~Substantially all of the decrease in the three ~~and nine~~ months ended ~~September 30, 2019 are substantially~~March 31, 2020 is due to ~~increases~~a decrease of ~~$15.8 million~~103 basis points (i.e., from ~~$8.6 million~~4.23% to ~~$24.4 million) and $8.4 million (~~~~i.e.~~, from $11.6 million to $20.0 million), respectively, in the weighted average balance outstanding under our line of credit due to acquisitions completed during such periods. The increases were also due, to a lesser extent, to increases of 22 and 52 basis points (~~i.e.~~~~, from 3.82% to 4.04% and 3.62% to 4.14%~~3.20%), ~~respectively,~~ in the weighted average interest rate ~~due to increases~~resulting from a decrease in the one month LIBOR rate.

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Mortgage interest

The following table reflects the average interest rate on the average principal amount of outstanding mortgage debt for the periods indicated:


	Three Months Ended										Nine Months Ended										Three Months Ended
	September 30,						Increase			%	September 30,						Increase			%	March 31,						Increase			%
(Dollars in thousands)	2019			2018			(Decrease)			Change	2019			2018			(Decrease)			Change	2020			2019			(Decrease)			Change
Average interest rate on mortgage debt		4.32	%		4.27	%		.05	%	1.2		4.30	%		4.26	%		.04	%	0.9		4.19	%		4.26	%		(.07)	%	(1.6)
Average principal amount of mortgage debt	$	438,626		$	403,127		$	35,499		8.8	$	435,672		$	398,409		$	37,263		9.4	$	443,055		$	429,632		$	13,423		3.1

The ~~increases~~increase in mortgage interest expense for the three ~~and nine~~ months ended ~~September 30, 2019 are~~March 31, 2020 is due primarily to the ~~increases~~increase in the average principal amount of mortgage debt outstanding. The ~~increases~~average balance outstanding increased due to $68.5 million of mortgage debt obtained in financing properties acquired in late 2018 through 2020, offset by the pay-off of mortgages in connection with property sales. The increase in mortgage interest expense was mitigated by the decrease in the average ~~balance~~interest rate on outstanding are due primarily to the financing (including financings effectuated in connection with acquisitions) or refinancing in 2019 and 2018 of $94.6 million of gross mortgage debt (including $14.7 million of refinanced amounts). The three and nine months ended September 30, 2019 also include $160,000 and $201,000, respectively, of prepayment costs incurred in connection with the 2019 sales of our Clemmons, North Carolina and Athens, Georgia properties and the payoff, prior to the stated maturity, of the related mortgage debt.

Liquidity and Capital Resources

Our sources of liquidity and capital include cash flow from operations, cash and cash equivalents, borrowings under our credit facility, refinancing existing mortgage loans, obtaining mortgage loans secured by our unencumbered properties, issuances of our equity securities and property sales. Our available liquidity at ~~November~~May 4, ~~2019,~~2020, was ~~$84.0~~$70.0 million, including ~~$6.6~~$13.8 million of cash and cash equivalents ~~(net of~~(including the credit facility’s required $3.0 million average deposit maintenance balance) and ~~subject to borrowing base requirements, up to $77.4~~$56.2 million available under our credit facility. The facility is currently available for the acquisition of commercial real estate, repayment of mortgage debt, and up to $16.1 million for renovation expenses. In March 2020, we borrowed the entire $10 million available to us under the facility for operating expenses.

Liquidity and Financing

We expect to meet our operating cash requirements (including debt ~~service and anticipated dividend payments (a portion of which, for 2019, will represent a return of capital))~~service) principally from cash flow from operations, our available cash and cash equivalents, proceeds from the sale of our common stock and, to the extent permitted, our credit facility. We and our joint venture partner are also re-developing the Manahawkin Property - we estimate that our share of the capital expenditures required in connection with ~~the~~such re-development ~~of the Manahawkin Property~~ will range from ~~$12.0~~$12 million to ~~$13.0 million and anticipate that~~$15 million. We are evaluating various sources of funding for such expenditures ~~will be funded by the joint venture’s cash, capital contributions to the venture by us and our joint venture partner, and additional debt, if any, that the venture may obtain. We may use~~including borrowings under our credit ~~facility to fund all or a portion of our share of any such capital contributions.~~facility.

At ~~September 30, 2019,~~March 31, 2020, excluding the mortgage debt of our unconsolidated joint venture, we had 7175 outstanding mortgages payable secured by 8892 properties in the aggregate principal amount of ~~$439.4~~$451.8 million (before netting unamortized deferred financing costs of ~~$4.3~~$4.4 million). These mortgages represent first liens on individual real estate investments with an aggregate carrying value of ~~$689.4~~$719.8 million, before accumulated depreciation of ~~$105.1~~$109.0 million. After giving effect to interest rate swap agreements, the mortgage payments bear interest at fixed rates ranging from 3.02% to 5.87% (a ~~4.26%~~4.19% weighted average interest rate) and mature between ~~2019~~2021 and 2042 ~~(an 8.0~~(a 7.9 year weighted average remaining term to maturity).

The following table sets forth, as of ~~September 30, 2019,~~March 31, 2020, information with respect to our mortgage debt that is payable during the ~~three~~nine months ending December 31, ~~2019~~2020 and for each of the subsequent twelve months through December 31, ~~2022~~2023 (excluding an unconsolidated joint venture):


(Dollars in thousands)	2019			2020		2021		2022		Total		2020		2021		2022		2023		Total
Amortization payments	$	2,968		$	13,935	$	14,405	$	14,454	$	45,762	$	10,393	$	14,860	$	14,916	$	13,893	$	54,062
Principal due at maturity		2,593	(a)		—		8,463		31,539		42,595		—		8,463		31,539		16,673		56,675
Total	$	5,561		$	13,935	$	22,868	$	45,993	$	88,357	$	10,393	$	23,323	$	46,455	$	30,566	$	110,737

~~(a)~~

~~Represents a mortgage which was extended in October 2019 with a new maturity of September 2024.~~

~~Table of Contents~~

At ~~September 30, 2019,~~March 31, 2020, an unconsolidated joint venture had a first mortgage on its property with an outstanding balance of ~~$23.3~~$23.0 million, bearing an interest rate at 4.0% and maturing in 2025.

Table of Contents

We intend to make debt amortization payments from operating cash flow and, though no assurance can be given that we will be successful in this regard, generally intend to refinance, extend or payoff the mortgage loans which mature ~~from~~in 2021 through ~~2022.~~2023. We intend to repay the amounts not refinanced or extended from our existing funds and sources of funds, including our available cash, proceeds from the sale of our common stock and our credit facility (to the extent available).

We continually seek to refinance existing mortgage loans on terms we deem acceptable to generate additional liquidity. Additionally, in the normal course of our business, we sell properties when we determine that it is in our best interests, which also generates additional liquidity. Further, since each of our encumbered properties is subject to a non-recourse mortgage (with standard carve-outs), if our in-house evaluation of the market value of such property is less than the principal balance outstanding on the mortgage loan, we may determine to convey, in certain circumstances, such property to the mortgagee in order to terminate our mortgage obligations, including payment of interest, principal and real estate taxes, with respect to such property.

Typically, we utilize funds from our credit facility to acquire a property and, thereafter secure long-term, fixed rate mortgage debt on such property. We apply the proceeds from the mortgage loan to repay borrowings under the credit facility, thus providing us with the ability to re-borrow under the credit facility for the acquisition of additional properties.

Credit Facility

~~Subject~~Our credit facility provides that subject to borrowing base requirements, we can borrow up to $100.0 million ~~pursuant to our credit facility which is available to us~~ 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 $30.0 million and 30% of the borrowing base subject to a cap of (i) $20.0 million for renovation expenses and (ii) $10.0 million for operating expense purposes. See “- Liquidity and Capital Resources.” The facility matures December 31, 2022 and bears interest equal to the one month LIBOR rate plus the applicable margin. The applicable margin ranges from 175 basis points if our ratio of total debt to total value (as calculated pursuant to the facility) is equal to or less than 50%, increasing to a maximum of 300 basis points if such ratio is greater than 65%. ~~At September 30, 2019 and 2018, the~~The applicable margin was 200 ~~and 175~~ basis points ~~respectively. At September 30, 2019~~at March 31, 2020 and ~~2018, the interest rate was 3.80% and 3.88%, respectively.~~2019. There is an unused facility fee of 0.25% per annum on the difference between the outstanding loan balance and $100.0 million. The credit facility requires the maintenance of $3.0 million in average deposit balances. At March 31, 2020, the interest rate on the facility was 2.61% and as of May 1, 2020, the rate on the facility was 2.01%.

The terms of our credit facility include certain restrictions and covenants which limit, among other things, the incurrence of liens, and which require compliance with financial ratios relating to, among other things, the minimum amount of tangible net worth, the minimum amount of debt service coverage, the minimum amount of fixed charge coverage, the maximum amount of debt to value, the minimum level of net income, certain investment limitations and the minimum value of unencumbered properties and the number of such properties. Net proceeds received from the sale, financing or refinancing of properties are generally required to be used to repay amounts outstanding under our credit facility. At ~~September 30, 2019,~~March 31, 2020, we were in compliance with the covenants under this facility.

Off-Balance Sheet Arrangement

We are not a party to any off-balance sheet arrangements other than with respect to a land parcel owned by us and located in Beachwood, Ohio. This parcel is improved by a multi-family complex and we ground leased the parcel to the owner/operator of such complex. This ground lease generated ~~$540,000~~$243,000 of rental income during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. At ~~September 30, 2019,~~March 31, 2020, our maximum exposure to loss with respect to this property is $13.9 million, representing the carrying value of the land; such leasehold position is subordinate to $67.4 million of mortgage debt incurred by our tenant, the owner/operator of the multi-family complex. We do not believe this type of off-balance sheet arrangement has been or will be material to our liquidity and capital resource positions. See Note 76 to our consolidated financial statements for additional information regarding this arrangement.

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Funds from Operations and Adjusted Funds from Operations

We compute funds from operations, or FFO, in accordance with the “White Paper on Funds From Operations” issued by the National Association of Real Estate Investment Trusts ~~(‘‘NAREIT’’~~(“NAREIT”) and NAREIT’s related guidance. FFO is defined in the White Paper as net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain 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 held by the entity. Adjustments for unconsolidated partnerships and joint ventures ~~will be~~are calculated to reflect ~~funds from operations~~FFO on the same basis. In computing FFO, we do not add back to net income the amortization of costs in connection with our financing activities or depreciation of non-real estate assets.

We compute adjusted funds from operations, or AFFO, by adjusting from FFO for our straight-line rent accruals and amortization of lease intangibles, deducting lease termination fees and ~~gain on extinguishment of debt and~~ adding back amortization of restricted stock and restricted stock unit compensation expense, amortization of costs in connection with our financing activities (including our share of our unconsolidated joint ventures) and debt prepayment costs. Since the NAREIT White Paper does not provide guidelines for computing AFFO, the computation of AFFO may vary from one REIT to another.

We believe that FFO and AFFO are useful and standard supplemental measures of the operating performance for equity REITs and are used frequently by securities analysts, investors and other interested parties in evaluating equity REITs, many of which present FFO and AFFO when reporting their operating results. FFO and AFFO are intended to exclude GAAP historical cost depreciation and amortization of real estate assets, which assumes that the value of real estate assets diminish predictability over time. In fact, real estate values have historically risen and fallen with market conditions. As a result, we believe that FFO and AFFO provide a performance measure that when compared year over year, should reflect the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not be necessarily apparent from net income. We also consider FFO and AFFO to be useful to us in evaluating potential property acquisitions.

FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. FFO and AFFO and should not be considered to be an alternative to net income as a reliable measure of our operating performance; nor should FFO and AFFO be considered an alternative to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity. FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders.

Management recognizes that there are limitations in the use of FFO and AFFO. In evaluating our performance, management is careful to examine GAAP measures such as net income and cash flows from operating, investing and financing activities.

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The table below provides a reconciliation of net income ~~in accordance with GAAP to FFO~~ and ~~AFFO for the periods indicated (dollars in thousands):~~

Three Months Ended

Nine Months Ended

September 30,

September 30,


2019

2018

2019

2018
GAAP net income attributable to One Liberty Properties, Inc.

$
5,118

$
10,147

$
13,201

$
20,515
Add: depreciation and amortization of properties

5,457

5,584

16,033

15,846
Add: our share of depreciation and amortization of unconsolidated joint ventures

130

156

396

563
Add: amortization of deferred leasing costs

109

88

320

258
Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures

3

—

14

—
Deduct: gain on sale of real estate

(2,544)

(4,585)

(3,643)

(6,993)
Deduct: equity in earnings from sale of unconsolidated joint venture property

—

(1,986)

—

(2,057)
Adjustments for non-controlling interests

(23)

(26)

348

696
NAREIT funds from operations applicable to common stock

8,250

9,378

26,669

28,828
(Deduct) add: straight-line rent accruals and amortization of lease intangibles

(192)

93

(1,498)

(932)
Deduct: lease termination fee income

—

(372)

—

(372)
(Deduct) add: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures

(19)

(7)

(56)

13
Add: amortization of restricted stock compensation

942

971

2,834

2,653
Add: amortization and write-off of deferred financing costs

252

220

739

669
Add: prepayment costs on debt

161

—

201

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

4

28

13

40
Adjustments for non-controlling interests

(37)

9

(24)

35
Adjusted funds from operations applicable to common stock

$
9,361

$
10,320

$
28,878

$
30,934

~~Table of Contents~~

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


	Three Months Ended
	March 31,
	2020		2019
GAAP net income attributable to One Liberty Properties, Inc.	$	7,826	$	3,971
Add: depreciation and amortization of properties		5,573		5,245
Add: our share of depreciation and amortization of unconsolidated joint ventures		139		143
Add: amortization of deferred leasing costs		101		102
Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures		4		—
Deduct: gain on sale of real estate		(4,252)		—
Deduct: equity in earnings from sale of unconsolidated joint venture property		(121)		—
Adjustments for non-controlling interests		(21)		(26)
NAREIT funds from operations applicable to common stock		9,249		9,435
Deduct: straight-line rent accruals and amortization of lease intangibles		(570)		(612)
Deduct: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures		(13)		(10)
Add: amortization of restricted stock compensation		976		954
Add: prepayment costs on debt		290		—
Add: amortization and write-off of deferred financing costs		243		232
Add: our share of amortization and write-off of deferred financing costs of unconsolidated joint ventures		4		4
Adjustments for non-controlling interests		1		8
Adjusted funds from operations applicable to common stock	$	10,180	$	10,011


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2019		2018		2019		2018		2020		2019
GAAP net income per common share attributable to One Liberty Properties, Inc.	$	.25	$	.52	$	.64	$	1.06	$	.39	$	.19
Add: depreciation and amortization of properties		.27		.29		.83		.83		.27		.27
Add: our share of depreciation and amortization of unconsolidated joint ventures		.01		.01		.02		.03		.01		.01
Add: amortization of deferred leasing costs		.01		—		.02		.01		.01		.01
Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures		—		—		—		—		—		—
Deduct: gain on sale of real estate		(.13)		(.24)		(.18)		(.36)		(.21)		—
Deduct: equity in earnings from sale of unconsolidated joint venture property		—		(.10)		—		(.11)		(.01)		—
Adjustments for non-controlling interests		—		—		.02		.04		—		—
NAREIT funds from operations per share of common stock		.41		.48		1.35		1.50		.46		.48
(Deduct) add: straight-line rent accruals and amortization of lease intangibles		(.01)		—		(.08)		(.04)
Deduct: lease termination fee income		—		(.02)		—		(.02)
(Deduct) add: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures		—		—		—		—
Deduct: straight-line rent accruals and amortization of lease intangibles										(.02)		(.03)
Deduct: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures										—		—
Add: amortization of restricted stock compensation		.05		.06		.14		.14		.05		.05
Add: prepayment costs on debt										.01		—
Add: amortization and write-off of deferred financing costs		.01		.01		.04		.03		.01		.01
Add: prepayment costs on debt		.01		—		.01		—
Add: our share of amortization and write-off of deferred financing costs of unconsolidated joint ventures		—		—		—		—		—		—
Adjustments for non-controlling interests		—		—		—		—		—		—
Adjusted funds from operations per share of common stock	$	.47	$	.53	$	1.46	$	1.61	$	.51	$	.51

Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposure is the effect of changes in interest rates on the interest cost of draws on our 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, 2019,~~March 31, 2020, our aggregate liability in the event of the early termination of our swaps was ~~$3.6~~$6.8 million.

At ~~September 30, 2019,~~March 31, 2020, we had 24 interest rate swap agreements 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, 2019,~~March 31, 2020, if there had been an increase of 100 basis points in forward interest rates, the fair market value of the interest rate swaps would have increased by approximately ~~$4.8~~$4.2 million and the net unrealized ~~gain~~loss on derivative instruments would have ~~increased~~decreased by ~~$4.8~~$4.2 million. If there were a decrease of 100 basis points in forward interest rates, the fair market value of the interest rate swaps would have decreased by approximately ~~$5.1~~$4.5 million and the net unrealized ~~gain~~loss on derivative instruments would have ~~decreased~~increased by ~~$5.1~~$4.5 million. These changes would not have any impact on our net income or cash.

~~Table of Contents~~

Our mortgage debt, after giving effect to interest rate swap agreements, bears interest at fixed rates and accordingly, the effect of changes in interest rates would not impact the amount of interest expense that we incur under these mortgages.

Our variable rate credit facility is sensitive to interest rate changes. Based on the outstanding balance under this facility of ~~$19.5~~$30.9 million at ~~September 30, 2019,~~March 31, 2020, a 100 basis point increase of the interest rate would increase our related interest costs over the next twelve months by approximately ~~$195,000~~$309,000 and a 100 basis point decrease of the interest rate would decrease our related interest costs over the next twelve months by approximately ~~$195,000.~~$189,000.

The fair market value of our long-term debt is estimated based on discounting future cash flows at interest rates that our management believes reflect the risks associated with long term debt of similar risk and duration.

Item 4. Controls and Procedures

Based on their evaluation as of the end of the period covered by this report, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are effective.

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act) during the three months ended ~~September 30, 2019~~March 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II - OTHER INFORMATION

Item 1A. Risk Factors

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

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

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

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

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

Item 6. Exhibits

Exhibit No.		Title of Exhibit
31.1		Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Senior Vice President and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~101.INS~~101		~~XBRL Instance Document~~
~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document~~
~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document~~
~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~
~~101.LAB~~		~~XBRL Taxonomy Extension Definition Label Linkbase Document~~
~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document~~The following financial statements and notes from the One Liberty Properties, Inc. Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 filed on May 8, 2020, formatted in Inline XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Changes in Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to the Consolidated Financial Statements.
104		Cover Page Interactive Data File ~~formatted~~(the cover page XBRL tags are embedded in the Inline XBRL ~~(contained~~document and included in Exhibit 101).

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Table of Contents

ONE LIBERTY PROPERTIES, INC.

SIGNATURES

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

		ONE LIBERTY PROPERTIES, INC.
		(Registrant)


Date: ~~November~~May 8, ~~2019~~2020		/s/ Patrick J. Callan, Jr.
		Patrick J. Callan, Jr.
		President and Chief Executive Officer
		(principal executive officer)


Date: ~~November~~May 8, ~~2019~~2020		/s/ David W. Kalish
		David W. Kalish
		Senior Vice President and
		Chief Financial Officer
		(principal financial officer)

4235


							Accumulated
							(Distributions		Non-Controlling
					Accumulated		in Excess of		Interests in
					Other		Net Income)		Consolidated
	Common		Paid-in		Comprehensive		Undistributed		Joint
	Stock		Capital		Income		Net Income		Ventures		Total
Balances, December 31, 2017	$	18,261	$	275,087	$	155	$	3,257	$	1,742	$	298,502
Distributions – common stock Cash – $.45 per share		—		—		—		(8,581)		—		(8,581)
Restricted stock vesting		106		(106)		—		—		—		—
Shares issued through dividend reinvestment plan		50		1,131		—		—		—		1,181
Distributions to non-controlling interests		—		—		—		—		(1,082)		(1,082)
Compensation expense – restricted stock		—		826		—		—		—		826
Net income		—		—		—		5,851		802		6,653
Other comprehensive income		—		—		2,744		—		6		2,750
Balances, March 31, 2018		18,417		276,938		2,899		527		1,468		300,249
Distributions – common stock Cash – $.45 per share		—		—		—		(8,652)		—		(8,652)
Shares issued through equity offering program - net		93		2,165		—		—		—		2,258
Shares issued through dividend reinvestment plan		65		1,437		—		—		—		1,502
Distributions to non-controlling interests		—		—		—		—		(77)		(77)
Compensation expense – restricted stock		—		856		—		—		—		856
Net income		—		—		—		4,517		29		4,546
Other comprehensive income		—		—		1,014		—		2		1,016
Balances, June 30, 2018		18,575		281,396		3,913		(3,608)		1,422		301,698
Distributions – common stock Cash – $.45 per share		—		—		—		(8,694)		—		(8,694)
Shares issued through equity offering program - net		33		879		—		—		—		912
Shares issued through dividend reinvestment plan		61		1,526		—		—		—		1,587
Distributions to non-controlling interests		—		—		—		—		(21)		(21)
Compensation expense – restricted stock		—		971		—		—		—		971
Net income		—		—		—		10,147		35		10,182
Other comprehensive income		—		—		868		—		3		871
Balances, September 30, 2018	$	18,669	$	284,772	$	4,781	$	(2,155)	$	1,439	$	307,506


From October 1 – December 31, 2019	$	17,394
For the year ended December 31,
2020		70,331
2021		69,031
2022		60,457
2023		51,672
2024		43,435
Thereafter		181,158
Total	$	493,478


			Three and Nine Months Ended			Three and Nine Months Ended
			September 30, 2019 (b)			September 30, 2018 (c)
	Total Number of		Return on	Stockholder		Return on	Stockholder
	Underlying		Capital	Return		Capital	Return
Date of Award	Shares (a)		metric	metric	Total	metric	metric	Total
September 26, 2017	76,250	(d)	26,840	27,224	54,064	33,524	38,125	71,649
July 1, 2018	76,250	(e)	22,321	—	22,321	30,929	—	30,929
July 1, 2019	77,776	(f)	15,168	—	15,168	n/a	n/a	n/a
Totals	230,276		64,329	27,224	91,553	64,453	38,125	102,578


					Capitalized
					Third Party
		Contract			Real Estate
		Purchase		Terms of	Acquisition
Description of Property	Date Acquired	Price		Payment	Costs
Zwanenberg Food Group/Metro Carpets industrial facility,
Nashville, Tennessee	May 30, 2019	$	8,000	All cash (a)	$	77
Echo, Inc. industrial facility,
Wauconda, Illinois	May 30, 2019		3,800	All cash		26
Tinicum Mechanical Supply/Philly Motors industrial facility,
Bensalem, Pennsylvania	June 18, 2019		6,200	All cash (b)		168
International Flora Technologies industrial facility,
Chandler, Arizona	June 26, 2019		8,650	All cash (c)		57
Nissan North America industrial facility,
LaGrange, Georgia	July 24, 2019		5,200	All cash (d)		73
Continental Hydraulics industrial facility,
Shakopee, Minnesota	September 13, 2019		8,000	All cash		55
Totals		$	39,850		$	456


		Gross		Gain on Sale of
Description of Property	Date Sold	Sales Price		Real Estate, Net
Retail property,
Clemmons, North Carolina (a)	June 20, 2019	$	5,500	$	1,099	(b)
Retail property,
Athens, Georgia	August 23, 2019		6,050		1,045	(c)
Land,
Wheaton, Illinois	August 29, 2019		12,035		1,499
Totals – nine months ended September 30, 2019		$	23,585	$	3,643

Retail property,
Fort Bend, Texas (d)	January 30, 2018	$	9,200	$	2,408
Land,
Lakemoor, Illinois	September 14, 2018		8,459		4,585	(e)
Totals – nine months ended September 30, 2018		$	17,659	$	6,993