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, 2019March 31, 2020
OR
☐ 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 |
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 NovemberMay 1, 2019,2020, the registrant had 19,925,18020,152,054 shares of common stock outstanding.
One Liberty Properties, Inc. and Subsidiaries
Table of Contents
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| Consolidated Balance Sheets — | | 1 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
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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 |
See accompanying notes to consolidated financial statements.
1
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
| | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | | 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.
2
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.
3
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 | | | — | | | — | | | — | | | (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 |
| | — |
| | — |
| | — |
| | (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 |
| | — |
| | — |
| | — |
| | (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.
4
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 | | | — | | | — | | | — | | | (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 | | | — | | | — | | | — | | | (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 | | | — | | | — | | | — | | | (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.
5
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)
65
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 20182019 represent the cash reserve balance received from an owner/operator at one of the Company’s ground leaseleased 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.
76
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2019March 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, andor (iv) approve each lease at a property, the Company does not consolidate as the Company considers these to be substantive participation rights that result in shared, joint power over the activities that most significantly impact the performance of the joint venture or property. Additionally, the Company assesses the accounting treatment for any interests pursuant to which the Company may have a variable interest as a lessor. Leases may contain certain protective rights, such as the right of sale and the receipt of certain escrow deposits.
87
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2019March 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 todoes 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.
9
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 |
8
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, theThe Company wrote off $380,000did not record any write-offs of unbilled rent receivables related to a property in Philadelphia, Pennsylvania asduring 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.
10
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 paymentsrevenues 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, 20202025 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 10.49.9 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.
11
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 theThe lease was amended to, among other things, extend the expiration toexpires 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 17.316.8 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
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2019March 31, 2020 (Continued)
Note 43 – Earnings Per Common ShareLeases (Continued)
Diluted earnings per share reflectsMinimum 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 resultedminimum 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 |
13
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 |
14
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 |
10
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 |
15
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 | |
16
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)
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 certainthe 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 $2,872,000respectively. Included in the rental income for the three and nine months ended September 30, 2018, respectively. Included in these amountsMarch 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 propertiesproperty in Lakemoor and Wheaton, Illinois, which the Company sold in September 2018 and August 2019, respectively (see Note 6).2019.
17
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 detailsMarch 31, 2020, the VIE through the Company’s ground lease and the aggregate carrying amount andVIE’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 |
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.
11
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 |
|
|
| | | | | | |
| | 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 |
18
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.
12
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, theThe Company amended itshas 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'sfacility 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, theThe 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 ninethree 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
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2019March 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 detailsCompany paid an aggregate of $20,000 and $21,000 for the Linethree months ended March 31, 2020 and 2019, respectively, to its consolidated joint venture partners or their affiliates (none of credit, net, balances perwhom 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 balance14
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
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 $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.
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 for the three and nine months ended September 30, 2019 and 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.
20
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, 2019April 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 throughEarnings 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 180,120weighted 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 sharescommon 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
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2019March 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 |
a) | 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 77,776224,576 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 826,750702,125 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.
16
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 77,77676,250 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 20192017 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 ninethree months ended September 30, 2019.March 31, 2020.
2217
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2019March 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 2.42.9 years for the restricted stock and 1.81.2 years for the RSUs.
2318
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2019March 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 moregreater 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 8.07.9 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 lessgreater 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 8.78.1 year weighted average remaining term to maturity of the mortgages.
At September 30, 2019March 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.
2419
One Liberty Properties, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2019March 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 | | $ | 34 |
| As of |
| Fair Value | | Classification | |
Financial assets | | March 31, 2020 | | $ | — | | Other assets | |||||
| | December 31, 2018 | | | 2,399 | | December 31, 2019 | | | 87 | | |
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 designateddoes not own any financial instruments that are classified as cash flow hedges, converted LIBOR based variable rate mortgages to fixed annual rate mortgages (with interest rates ranging from 3.02% to 5.38% and a weighted average interest 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 assetsLevel 1 or other liabilities on the consolidated balance sheets.
25
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, 2019March 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) incomeloss as an increase to Interest expense.
The derivative agreements in effect at September 30, 2019March 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.
20
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, 2019March 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 ofbreached the contractual provisions of the derivative contracts, it would be required to settle its obligations thereunder at their termination liability value of $3,622,0006,795,000 and $554,000$1,832,000 as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. This termination liability value, net of adjustments for non-performance risk of $202,000300,000 and $41,000,$90,000, is included in Accrued expenses and other liabilities on the consolidated balance sheet at September 30, 2019March 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 MeasurementReference Rate Reform (Topic 820)848), Disclosure Framework – Changes to the Disclosure Requirementswhich contains practical expedients for Fair Value Measurement, which eliminates, addsreference 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 effectiveoptional 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 permittedfuture LIBOR-indexed cash flows to early adopt eitherassume that the entire standard or onlyindex 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 evaluatingmay apply other elections as applicable as additional changes in the market occur. The Company continues to evaluate the new guidance, to determine if, and to the extent, it will impact the Company’s consolidated financial statements.
26
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 effectiveon 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 interimthe 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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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q, containstogether with other statements and information publicly disseminated by us, contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “could,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions or variations thereof. Forward-looking statementsYou should not be reliedrely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performance or achievements. Investors are encouraged to review the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 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.
22
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 fourthree properties owned by unconsolidated joint ventures) located in 31 states. Based on square footage, our occupancy rate at September 30, 2019March 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 areOver the past several years, we have been addressing our exposure to the retail industry by emphasizing the acquisition ofacquiring industrial properties, including industrial properties that we believe capitalize on e-commerce activities, such as e-commerce distribution and by being especially selective in acquiringwarehousing 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 incomebase 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.
28
Our 20192020 contractual rental incomebase 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 monthsyear ending September 30,December 31, 2020 under leases in effect at September 30, 2019.March 31, 2020. Contractual rental incomebase 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.
23
The following table sets forth scheduled expirations of leases for our properties as of September 30, 2019March 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 |
Property Transactions During the Three Months Ended September 30, 2019March 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 OctoberApril 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, GeorgiaOnalaska, Wisconsin for $5.8approximately $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. Thisgain, 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, weMarch 2, 2020, an unconsolidated joint venture sold a land parcelits property located in Wheaton, Illinois, which was ground leased toSavannah, 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 $859,000recognized in the ninethree 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 soldChallenges and Uncertainties Resulting from the COVID-19 Pandemic
The COVID-19 pandemic and the various governmental responses thereto are having a retailsignificant 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 pricean area that is or has been the subject of $1.4 million, netquarantine orders) and the nature of closing costs. We anticipate our gain from this sale, whichthe 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 inrelaxed 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 considerationaccommodated, 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 ussecond quarter of $400,000, which will be recognized as lease termination fee income in2020 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 remainingnext 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 “- LiquidityCOVID-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-developmenthave 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 threepandemic 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 toresource 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
RevenuesRental income, net
The following table compares RevenuesRental 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 |
3126
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 |
there were no properties acquired during the three months ended March 31, 2019.
(b) | The |
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, 2019March 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 sixtwo properties acquired in 2019.2020. Offsetting these increases were decreaseswas 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 20192020 and 2018.2019.
Changes at same store properties
The changesdecrease in same store revenuesrental income during the three and nine months ended September 30, 2019 areMarch 31, 2020 is primarily due primarily to (i) net increasesthe 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 periodsPhiladelphia, 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 increasesdecreases 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 rentalrent 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.
32
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 amortizationamortization.. The increase in the ninethree months ended September 30, 2019March 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 20182019 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) $266,000March 31, 2020 includes an increase of $148,000 in non-cash compensation primarily relatingexpense 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).
27
Real estate expenses. The increasesincrease in the three and nine months ended September 30, 2019 areMarch 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 portion2019, 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) |
33
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, 2018March 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 ninethree 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 primarilyincluded, with respect to increased vacancies (anda multi-tenant retail property in Manahawkin, New Jersey (the “Manahawkin Property”), write-offs of receivables) atreceivables of $116,000. There were no such write-offs in the Manahawkin Property, which is in redevelopment. The ninethree 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, 2018March 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 werewas no similar sales duringcorresponding 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 increasesSubstantially all of the decrease in the three and nine months ended September 30, 2019 are substantiallyMarch 31, 2020 is due to increasesa decrease of $15.8 million103 basis points (i.e., from $8.6 million4.23% 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 increasesresulting from a decrease in the one month LIBOR rate.
3428
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 increasesincrease in mortgage interest expense for the three and nine months ended September 30, 2019 areMarch 31, 2020 is due primarily to the increasesincrease in the average principal amount of mortgage debt outstanding. The increasesaverage 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 balanceinterest 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 NovemberMay 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 thesuch 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 useincluding 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 20192021 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 threenine months ending December 31, 20192020 and for each of the subsequent twelve months through December 31, 20222023 (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 |
35
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.
29
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 fromin 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
SubjectOur 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, theThe applicable margin was 200 and 175 basis points respectively. At September 30, 2019at 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 ninethree 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 beare calculated to reflect funds from operationsFFO on the same basis. In computing FFO, we do not add back to net income the amortization of costs in connection with our financing activities or depreciation of non-real estate assets.
We compute adjusted funds from operations, or AFFO, by adjusting from FFO for our straight-line rent accruals and amortization of lease intangibles, deducting lease termination fees and gain on extinguishment of debt and adding back amortization of restricted stock and restricted stock unit compensation expense, amortization of costs in connection with our financing activities (including our share of our unconsolidated joint ventures) and debt prepayment costs. Since the NAREIT White Paper does not provide guidelines for computing AFFO, the computation of AFFO may vary from one REIT to another.
We believe that FFO and AFFO are useful and standard supplemental measures of the operating performance for equity REITs and are used frequently by securities analysts, investors and other interested parties in evaluating equity REITs, many of which present FFO and AFFO when reporting their operating results. FFO and AFFO are intended to exclude GAAP historical cost depreciation and amortization of real estate assets, which assumes that the value of real estate assets diminish predictability over time. In fact, real estate values have historically risen and fallen with market conditions. As a result, we believe that FFO and AFFO provide a performance measure that when compared year over year, should reflect the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not be necessarily apparent from net income. We also consider FFO and AFFO to be useful to us in evaluating potential property acquisitions.
FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. FFO and AFFO and should not be considered to be an alternative to net income as a reliable measure of our operating performance; nor should FFO and AFFO be considered an alternative to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity. FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders.
Management recognizes that there are limitations in the use of FFO and AFFO. In evaluating our performance, management is careful to examine GAAP measures such as net income and cash flows from operating, investing and financing activities.
3731
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 |
38
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 |
32
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 gainloss on derivative instruments would have increaseddecreased 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 gainloss on derivative instruments would have decreasedincreased by $5.1$4.5 million. These changes would not have any impact on our net income or cash.
39
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, 2019March 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
4033
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 | ||
31.2 | ||
32.1 | ||
32.2 | ||
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
104 | | Cover Page Interactive Data File |
4134
ONE LIBERTY PROPERTIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| ONE LIBERTY PROPERTIES, INC. |
| | (Registrant) |
| | |
| | |
Date: | | /s/ Patrick J. Callan, Jr. |
| | Patrick J. Callan, Jr. |
| | President and Chief Executive Officer |
| | (principal executive officer) |
| | |
| | |
Date: | | /s/ David W. Kalish |
| | David W. Kalish |
| | Senior Vice President and |
| | Chief Financial Officer |
| | (principal financial officer) |
4235