One Liberty Properties (OLP) 10-Q 2021 Q1 Quarterly report

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 March 31, 2021

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 which registered
Common Stock	OLP	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ◻	Accelerated filer ◻
Non-accelerated filer ⌧	Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes ◻ No ◻

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

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of May 3, 2021, the registrant had 20,732,153 shares of common stock outstanding.

One Liberty Properties, Inc. and Subsidiaries

Table of Contents

Part I — Financial Information		Page No.
Item 1.	Unaudited Consolidated Financial Statements
	Consolidated Balance Sheets —March 31, 2021 and December 31, 2020	1
	Consolidated Statements of Income — Three months ended March 31, 2021 and 2020	2
	Consolidated Statements of Comprehensive Income — Three months ended March 31, 2021 and 2020	3
	Consolidated Statements of Changes in Equity — Three months ended March 31, 2021 and 2020	4
	Consolidated Statements of Cash Flows — Three months ended March 31, 2021 and 2020	5
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	32
Part II — Other Information
Item 6.	Exhibits	32

Part I — FINANCIAL INFORMATION

Item 1.    Financial Statements

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Par Value)

	March 31,		December 31,
	2021		2020
ASSETS	(Unaudited)
Real estate investments, at cost
Land	$	191,050	$	190,391
Buildings and improvements		649,198		648,667
Total real estate investments, at cost		840,248		839,058
Less accumulated depreciation		151,557		147,136
Real estate investments, net		688,691		691,922
Investment in unconsolidated joint ventures		10,580		10,702
Cash and cash equivalents		11,245		12,705
Unbilled rent receivable		15,391		15,438
Unamortized intangible lease assets, net		23,306		24,703
Escrow, deposits and other assets and receivables		18,953		20,667
Total assets(1)	$	768,166	$	776,137
LIABILITIES AND EQUITY
Liabilities:
Mortgages payable, net of $3,684 and $3,845 of deferred financing costs, respectively	$	424,271	$	429,704
Line of credit, net of $377 and $425 of deferred financing costs, respectively		15,073		12,525
Dividends payable		9,329		9,261
Accrued expenses and other liabilities		20,260		21,498
Unamortized intangible lease liabilities, net		10,794		11,189
Total liabilities(1)		479,727		484,177
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; 50,000 shares authorized; 20,008 and 19,878 shares issued and outstanding		20,008		19,878
Paid-in capital		314,643		313,430
Accumulated other comprehensive loss		(3,504)		(5,002)
Distributions in excess of net income		(43,906)		(37,539)
Total One Liberty Properties, Inc. stockholders’ equity		287,241		290,767
Non-controlling interests in consolidated joint ventures(1)		1,198		1,193
Total equity		288,439		291,960
Total liabilities and equity	$	768,166	$	776,137

(1) The Company’s consolidated balance sheets include assets and liabilities of consolidated variable interest entities (“VIEs”). See Note 4. The consolidated balance sheets include the following amounts related to the Company’s consolidated VIEs: $12,158 and $12,158 of land, $23,284 and $23,372 of building and improvements, net of $5,454 and $5,232 of accumulated depreciation, $3,707 and $3,679 of other assets included in other line items, $23,313 and $23,530 of real estate debt, net, $1,398 and $1,278 of other liabilities included in other line items and $1,198 and $1,193 of non-controlling interests as of March 31, 2021 and December 31, 2020, respectively.

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
	March 31,
	2021		2020
Revenues:
Rental income, net	$	20,684	$	21,239
Lease termination fees		132		—
Total revenues		20,816		21,239
Operating expenses:
Depreciation and amortization		5,757		5,674
General and administrative (see Note 7 for related party information)		3,642		3,334
Real estate expenses (see Note 7 for related party information)		3,686		3,342
State taxes		75		82
Total operating expenses		13,160		12,432
Other operating income
Gain on sale of real estate, net		—		4,252
Operating income		7,656		13,059
Other income and expenses:
Equity in (loss) earnings of unconsolidated joint ventures		(22)		64
Equity in earnings from sale of unconsolidated joint venture property		—		121
Prepayment costs on debt		—		(290)
Other income (see Note 11)		170		4
Interest:
Expense		(4,634)		(4,884)
Amortization and write-off of deferred financing costs		(213)		(243)
Net income		2,957		7,831
Net loss (income) attributable to non-controlling interests		5		(5)
Net income attributable to One Liberty Properties, Inc.	$	2,962	$	7,826
Weighted average number of common shares outstanding:
Basic		20,003		19,361
Diluted		20,061		19,374
Per common share attributable to common stockholders:
Basic and Diluted	$	.13	$	.39
Cash distributions per share of common stock	$	.45	$	.45

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
	March 31,
	2021		2020
Net income	$	2,957	$	7,831
Other comprehensive income
Net unrealized gain (loss) on derivative instruments		1,501		(4,818)
Comprehensive income		4,458		3,013
Net loss (income) attributable to non-controlling interests		5		(5)
Adjustment for derivative instruments attributable to non-controlling interests		(3)		9
Comprehensive income attributable to One Liberty Properties, Inc.	$	4,460	$	3,017

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)

									Non-Controlling
					Accumulated		Accumulated		Interests in
					Other		Distributions		Consolidated
	Common		Paid-in		Comprehensive		in Excess of		Joint
	Stock		Capital		Income (Loss)		Net Income		Ventures		Total
Balances, December 31, 2019	$	19,251	$	301,517	$	(1,623)	$	(28,382)	$	1,221	$	291,984
Distributions – common stock
Cash – $.45 per share		—		—		—		(9,036)		—		(9,036)
Restricted stock vesting		122		(122)		—		—		—		—
Shares issued through dividend reinvestment plan		7		159		—		—		—		166
Distributions to non-controlling interests		—		—		—		—		(8)		(8)
Compensation expense – restricted stock		—		976		—		—		—		976
Net income		—		—		—		7,826		5		7,831
Other comprehensive loss		—		—		(4,809)		—		(9)		(4,818)
Balances, March 31, 2020	$	19,380	$	302,530	$	(6,432)	$	(29,592)	$	1,209	$	287,095
Balances, December 31, 2020	$	19,878	$	313,430	$	(5,002)	$	(37,539)	$	1,193	$	291,960
Distributions – common stock
Cash – $.45 per share		—		—		—		(9,329)		—		(9,329)
Restricted stock vesting		130		(130)		—		—		—		—
Contribution from non-controlling interest		—		—		—		—		20		20
Distributions to non-controlling interests		—		—		—		—		(13)		(13)
Compensation expense – restricted stock		—		1,343		—		—		—		1,343
Net income		—		—		—		2,962		(5)		2,957
Other comprehensive income		—		—		1,498		—		3		1,501
Balances, March 31, 2021	$	20,008	$	314,643	$	(3,504)	$	(43,906)	$	1,198	$	288,439

See accompanying notes to consolidated financial statements.

4

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited)

	Three Months Ended
	March 31,
	2021		2020
Cash flows from operating activities:
Net income	$	2,957	$	7,831
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of real estate, net		—		(4,252)
Decrease (increase) in unbilled rent receivable		95		(380)
Amortization and write-off of intangibles relating to leases, net		(232)		(190)
Amortization of restricted stock expense		1,343		976
Equity in loss (earnings) of unconsolidated joint ventures		22		(64)
Equity in earnings from sale of unconsolidated joint venture property		—		(121)
Distributions of earnings from unconsolidated joint ventures		100		—
Depreciation and amortization		5,757		5,674
Amortization and write-off of deferred financing costs		213		243
Payment of leasing commissions		(71)		(38)
Decrease in escrow, deposits, other assets and receivables		1,167		303
Increase in accrued expenses and other liabilities		102		69
Net cash provided by operating activities		11,453		10,051
Cash flows from investing activities:
Purchase of real estate		—		(28,504)
Improvements to real estate		(512)		(109)
Investments in ground leased property		(430)		—
Net proceeds from sale of real estate		—		7,093
Insurance recovery proceeds due to casualty loss		300		—
Net cash used in investing activities		(642)		(21,520)
Cash flows from financing activities:
Scheduled amortization payments of mortgages payable		(3,520)		(3,389)
Repayment of mortgages payable		(2,074)		(3,332)
Proceeds from mortgage financings		—		18,200
Proceeds from bank line of credit		2,500		41,500
Repayment on bank line of credit		—		(22,100)
Issuance of shares through dividend reinvestment plan		—		166
Payment of financing costs		(6)		(165)
Capital contribution from non-controlling interest		20		—
Distributions to non-controlling interests		(13)		(8)
Cash distributions to common stockholders		(9,261)		(8,965)
Net cash (used in) provided by financing activities		(12,354)		21,907
Net (decrease) increase in cash, cash equivalents and restricted cash		(1,543)		10,438
Cash, cash equivalents and restricted cash at beginning of year		13,564		11,968
Cash, cash equivalents and restricted cash at end of period	$	12,021	$	22,406
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense	$	4,613	$	4,844
Supplemental disclosure of non-cash investing activity:
Purchase accounting allocation - intangible lease assets	$	—	$	3,905
Purchase accounting allocation - intangible lease liabilities		—		(568)

(Continued on next page)

5

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):

	March 31,
	2021		2020
Cash and cash equivalents	$	11,245	$	21,360
Restricted cash included in escrow, deposits and other assets and receivables		776		1,046
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	12,021	$	22,406

Restricted cash included in escrow, deposits and other assets and receivables represent amounts related to real estate tax and other reserve escrows required to be held by lenders in accordance with the Company’s mortgage agreements. The restriction on these escrow reserves will lapse when the related mortgage is repaid.

See accompanying notes to consolidated financial statements.

6

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2021

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 March 31, 2021, OLP owns 123 properties, including 4 properties owned by consolidated joint ventures and 3 properties owned by unconsolidated joint ventures. The 123 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 months ended March 31, 2021 and 2020 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, 2020.

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, or (iv) approve each lease at a property, the Company does not consolidate as the Company considers these to be substantive participation rights that result in shared, joint power over the activities that most significantly impact the performance of the joint venture or property. Additionally, the Company assesses the accounting treatment for any interests pursuant to which the Company may have a variable interest as a lessor. Leases may contain certain protective rights, such as the right of sale and the receipt of certain escrow deposits.

7

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2021 (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, none of these joint ventures are VIEs. In addition, the Company shares power with its co-managing members over these entities, and therefore the entities are not consolidated. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for their share of equity in earnings, cash contributions and distributions. None of the joint venture debt is recourse to the Company, subject to standard carve-outs.

The Company 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 months ended March 31, 2021 and 2020, 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.

NOTE 3 – LEASES

Lessor Accounting

The Company owns rental properties which are leased to tenants under operating leases with current expirations ranging from 2021 to 2055, with options to extend or terminate the lease. Revenues from such leases are reported as Rental income, net, and are comprised of (i) lease components, which includes fixed and variable lease payments and (ii) non-lease components which includes reimbursements of property level operating expenses. The Company does not separate non-lease components from the related lease components, as the timing and pattern of transfer are the same, and account for the combined component in accordance with ASC 842.

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

8

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2021 (Continued)

NOTE 3 – LEASES (CONTINUED)

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

	Three Months Ended
	March 31,
	2021		2020
Fixed lease revenues	$	17,465	$	18,067
Variable lease revenues		2,987		2,982
Lease revenues (a)	$	20,452	$	21,049

(a) Excludes $232 and $190 of amortization related to lease intangible assets and liabilities for the three months ended March 31, 2021 and 2020, respectively.

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

During the year ended December 31, 2020, in response to requests for rent relief from tenants impacted by the COVID-19 pandemic and the governmental and non-governmental responses thereto, the Company deferred and accrued $3,360,000 of rent payments. For 2020, the three months ended March 31, 2021 and for April 2021, the Company collected $497,000, $843,000 and $359,000, respectively, of such deferred rents. The $1,661,000 balance of deferred rents is deemed collectible and is expected to be collected from 2021 through 2023.

On a quarterly basis, the Company assesses the collectability of substantially all lease payments due by reviewing the tenant’s payment history or financial condition. Changes to collectability are recognized as a current period adjustment to rental revenue. In February 2021, the Company executed lease amendments with Regal Cinemas, a tenant at 2 properties, which was adversely affected by the pandemic. In connection with the lease amendments, the Company agreed to defer an aggregate of $1,449,000 of rent otherwise payable from September 2020 through August 2021, the tenant agreed to pay an aggregate of $441,000 of rent during that same period and the parties extended the lease for 1 of these properties for two years. Through April 30, 2021, the tenant is current on all lease obligations in accordance with these lease amendments. The Company did not accrue the deferred rents due from September 2020 through March 2021 as collections were deemed less than probable. The Company has assessed the collectability of all recorded lease payments as probable as of March 31, 2021.

Minimum Future Rents

As of March 31, 2021, the minimum future contractual rents to be received on non-cancellable operating leases are included in the table below (amounts in thousands). The minimum future contractual rents do not include (i) straight-line rent or amortization of intangibles, (ii) COVID-19 lease deferral repayments accrued to rental income in 2020 and (iii) variable lease payments as described above.

From April 1 – December 31, 2021	$	52,571
For the year ended December 31,
2022		62,646
2023		53,279
2024		44,609
2025		40,391
2026		34,860
Thereafter		129,439
Total	$	417,795

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2021 (Continued)

NOTE 3 – LEASES (CONTINUED)

Lease Termination Fees

In January 2021, the Company received $350,000 as a lease termination fee from a retail tenant in connection with the exercise of an early lease termination option. The Company is amortizing this to revenues over the revised lease term expiring January 15, 2022.

In December 2020, the Company received $88,000 as a lease termination fee from an industrial tenant in connection with the exercise of an early lease termination option. The Company is amortizing this to revenues over the revised lease term expiring May 31, 2021.

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, 2025 and provides for up to 4, 5-year renewal options and 1 seven-month renewal option. As of March 31, 2021, the remaining lease term, including renewal options deemed exercised, is 13.9 years. The Company recognized lease expense related to this ground lease of $150,000 and $131,000 for the three months ended March 31, 2021 and 2020, respectively, which is included in Real estate expenses on the consolidated statements of income.

Office Lease

The Company is a lessee under a corporate office lease in Great Neck, New York, which is classified as an operating lease. The lease expires on December 31, 2031 and provides a 5-year renewal option. As of March 31, 2021, the remaining lease term, including the renewal option deemed exercised, is 15.8 years. The Company recognized lease expense related to this office lease of $14,000 for both the three months ended March 31, 2021 and 2020, which is included in General and administrative expenses on the consolidated statements of income.

Minimum Future Lease Payments

As of March 31, 2021, the minimum future lease payments related to the operating ground and office leases are as follows (amounts in thousands):

From April 1 – December 31, 2021	$	383
For the year ended December 31,
2022		506
2023		507
2024		557
2025		626
2026		627
Thereafter		6,220
Total undiscounted cash flows	$	9,426
Present value discount		(2,000)
Lease liability	$	7,426

10

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2021 (Continued)

NOTE 4 – VARIABLE INTEREST ENTITIES, CONTINGENT LIABILITY AND CONSOLIDATED JOINT VENTURES

Variable Interest Entity – Ground Lease

The Company determined it has a variable interest through its ground lease at its Beachwood, Ohio property (The Vue Apartments) and the owner/operator is a VIE because its equity investment at risk is insufficient to finance its activities without additional subordinated financial support. The Company further determined that it is not the primary beneficiary of this VIE because the Company does not have power over the activities that most significantly impact the owner/operator’s economic performance and therefore, does not consolidate this VIE for financial statement purposes. Accordingly, the Company accounts for this investment as land and the revenues from the ground lease as Rental income, net. Ground lease rental income amounted to $243,000 for the three months ended March 31, 2020. NaN ground lease rental income was collected during the three months ended March 31, 2021.

As of March 31, 2021, the VIE’s maximum exposure to loss was $14,560,000 which represented the carrying amount of the land. In purchasing the property in 2016, the owner/operator obtained a mortgage for $67,444,000 from a third party which, together with the Company’s purchase of the land, provided substantially all of the funds to acquire the multi-family property. The Company provided its land as collateral for the owner/operator’s mortgage loan; accordingly, the land position is subordinated to the mortgage. The mortgage balance was $66,870,000 as of March 31, 2021.

Pursuant to the ground lease, as amended, the Company agreed, in its discretion, to fund 78% of (i) any operating expense shortfalls at the property and (ii) any capital expenditures required at the property. The Company funded $430,000 during the three months ended March 31, 2021 and an additional $611,000 from April 1 through May 3, 2021. These amounts are included as part of the carrying amount of the land.

Variable Interest Entities – Consolidated Joint Ventures

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

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

	March 31,		December 31,
	2021		2020
Land	$	12,158	$	12,158
Buildings and improvements, net of accumulated depreciation of $5,454 and $5,232, respectively		23,284		23,372
Cash		1,195		1,102
Unbilled rent receivable		856		861
Unamortized intangible lease assets, net		605		627
Escrow, deposits and other assets and receivables		1,051		1,089
Mortgages payable, net of unamortized deferred financing costs of $238 and $253, respectively		23,313		23,530
Accrued expenses and other liabilities		885		752
Unamortized intangible lease liabilities, net		513		526
Accumulated other comprehensive loss		(99)		(127)
Non-controlling interests in consolidated joint ventures		1,198		1,193

As of March 31, 2021 and December 31, 2020, MCB Real Estate, LLC and its affiliates (‘‘MCB’’) are the Company’s joint venture partner in 3 consolidated joint ventures in which the Company has aggregate equity investments of approximately $7,489,000 and $7,495,000, 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.

11

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2021 (Continued)

NOTE 5 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

As of March 31, 2021 and December 31, 2020, the Company participated in 3 unconsolidated joint ventures, each of which owns and operates 1 property; the Company’s equity investment in these ventures totaled $10,580,000 and $10,702,000, respectively. The Company recorded equity in loss of $22,000 and equity in earnings of $64,000 for the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021 and December 31, 2020, MCB and the Company are partners in an unconsolidated joint venture in which the Company’s equity investment is approximately $8,688,000 and $8,761,000, respectively.

NOTE 6 – DEBT OBLIGATIONS

Mortgages Payable

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

	March 31,		December 31,
	2021		2020
Mortgages payable, gross	$	427,955	$	433,549
Unamortized deferred financing costs		(3,684)		(3,845)
Mortgages payable, net	$	424,271	$	429,704

Line of Credit

The Company has a credit facility with Manufacturers & Traders Trust Company, People’s United Bank, VNB New York, LLC, and Bank Leumi USA, pursuant to which it may borrow up to $100,000,000, subject to borrowing base requirements. The facility is available for the acquisition of commercial real estate, repayment of mortgage debt, and renovation and operating expense purposes; provided, that if used for renovation and operating expense purposes, the amount outstanding for such purposes will not exceed the lesser of $30,000,000 and 30% of the borrowing base subject to a cap of (i) $20,000,000 for operating expense purposes and (ii) $10,000,000 for renovation expenses. On July 1, 2022, the amounts the Company can borrow for renovation expenses and operating expenses will change to $20,000,000 and $10,000,000, respectively.  To the extent that as of June 30, 2022 more than $10,000,000 is outstanding for operating expense purposes, such excess must be repaid immediately.  Net proceeds received from the sale, financing or refinancing of properties are generally required to be used to repay amounts outstanding under the credit facility. The facility is guaranteed by subsidiaries of the Company that own unencumbered properties and the Company pledged to the lenders the equity interests in the Company’s subsidiaries.

The facility, which matures December 31, 2022, provides for an interest rate equal to the one month LIBOR rate plus an applicable margin ranging from 175 basis points to 300 basis points depending on the ratio of the Company’s total debt to total value, as determined pursuant to the facility. The applicable margin was 200 basis points at March 31, 2021 and 2020. An unused facility fee of .25% per annum applies to the facility. The average interest rate on the facility was approximately 1.88% and 3.20% for the three months ended March 31, 2021 and 2020, respectively. The Company was in compliance with all covenants under this facility at March 31, 2021.

12

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2021 (Continued)

NOTE 6 – DEBT OBLIGATIONS (CONTINUED)

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

	March 31,		December 31,
	2021		2020
Line of credit, gross	$	15,450	$	12,950
Unamortized deferred financing costs		(377)		(425)
Line of credit, net	$	15,073	$	12,525

At May 3, 2021, there was an outstanding balance of $15,350,000 (before unamortized deferred financing costs) under the facility. There is $19,000,000 available for operating expense purposes.

NOTE 7 – 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.

In consideration for the Services, the Company paid Majestic $785,000 and $767,000 for the three months ended March 31, 2021 and 2020, respectively. Included in these fees are $348,000 and $331,000 of property management costs for the three months ended March 31, 2021 and 2020, 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, $74,000 and $69,000 in the three months ended March 31, 2021 and 2020, 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 such 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 restricted stock units (“RSUs”) under the Company’s stock incentive plans (described in Note 9). The related expense charged to the Company’s operations was $652,000 and $449,000 for the three months ended March 31, 2021 and 2020, 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 Company paid an aggregate of $19,000 and $20,000 for the three months ended March 31, 2021 and 2020, respectively, to its consolidated joint venture partners or their affiliates (none of whom are officers, directors, or employees of the Company) for property management services, which are included in Real estate expenses on the consolidated statements of income.

The Company’s unconsolidated joint ventures paid management fees of $29,000 and $22,000 for the three months ended March 31, 2021 and 2020, respectively, to the other partner of the venture, which reduced Equity in earnings on the consolidated statements of income by $15,000 and $11,000 for the three months ended March 31, 2021 and 2020, respectively.

13

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2021 (Continued)

NOTE 7 – RELATED PARTY TRANSACTIONS (CONTINUED)

Other

During each of the three months ended March 31, 2021 and 2020, the Company paid quarterly fees of $74,500 to the Company’s chairman and $29,800 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 $281,000 and $246,000 for the three months ended March 31, 2021 and 2020, respectively, of amounts reimbursed to Gould Investors in prior periods.

NOTE 8 – 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 March 31, 2021, the shares of common stock underlying the RSUs awarded between 2018 and 2020 under the 2019 and 2016 Incentive Plans (See Note 9) 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 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,
	2021		2020
Numerator for basic and diluted earnings per share:
Net income	$	2,957	$	7,831
Add (deduct) net loss (income) attributable to non-controlling interests		5		(5)
Deduct earnings allocated to unvested restricted stock (a)		(325)		(316)
Net income available for common stockholders: basic and diluted	$	2,637	$	7,510
Denominator for basic earnings per share:
Weighted average number of common shares outstanding		20,003		19,361
Effect of dilutive securities:
RSUs		58		13
Denominator for diluted earnings per share:
Weighted average number of shares		20,061		19,374
Earnings per common share, basic and diluted	$	.13	$	.39

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

14

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2021 (Continued)

NOTE 8 – EARNINGS PER COMMON SHARE (CONTINUED)

The following table identifies the number of shares of common stock underlying the RSUs that are included in the calculation, on a diluted basis, of the weighted average number of shares of common stock:

Three Months Ended March 31, 2021 (a):
	Total Number	Shares Included Based on
	of Underlying	Return on	Stockholder		Shares
Date of Award	Shares (b)(c)	Capital Metric	Return Metric	Total	Excluded (d)
July 1, 2018	73,750	25,306	—	25,306	48,444
July 1, 2019	75,026	23,970	—	23,970	51,056
August 3, 2020	75,026	37,513	37,513	75,026	—
Totals	223,802	86,789	37,513	124,302	99,500

Three Months Ended March 31, 2020 (e):
	Total Number	Shares Included Based on
	of Underlying	Return on	Stockholder		Shares
Date of Award	Shares (b)(c)	Capital Metric	Return Metric	Total	Excluded (d)
September 26, 2017 (f)	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

(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, 2021.

(b) The RSUs awarded in 2018, 2019 and 2020 vest, subject to satisfaction of the applicable market and/or performance conditions, on June 30, 2021, 2022 and 2023, respectively (see Note 9).

(c) During 2019, 2,500 shares of the 2018 award and 2,750 shares of the 2019 award were forfeited (see Note 9).

(d) Excluded as the applicable conditions had not been met for these shares at the applicable 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, 2020.

(f) With respect to the RSUs awarded September 26, 2017, 24,343 shares vested and 51,907 shares were forfeited in 2020 (see Note 9).

NOTE 9 – STOCKHOLDERS’ EQUITY

Common Stock Dividend

On March 12, 2021, the Board of Directors declared a quarterly cash dividend of $0.45 per share on the Company’s common stock, totaling approximately $9,329,000. The quarterly dividend is payable on April 7, 2021 to stockholders of record on March 24, 2021.

Dividend Reinvestment Plan

On June 10, 2020, the Company temporarily suspended the dividend reinvestment feature of its Dividend Reinvestment Plan (the “DRP”). The DRP, among other things, provided stockholders with the opportunity to reinvest all, or a portion of, their cash dividends paid on the Company’s common stock in additional shares of its common stock, at a discount of up to 5% from the market price (as such price is calculated pursuant to the DRP). The discount was determined in the Company’s sole discretion and had been offered at a 5% discount from market. Under the DRP, the Company issued 7,000 shares of common stock during the three months ended March 31, 2020.

15

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2021 (Continued)

NOTE 9 – STOCKHOLDERS’ EQUITY (CONTINUED)

Stock Based Compensation

The Company’s 2019 Incentive Plan (“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 March 31, 2021, an aggregate of 450,952 shares subject to awards in the form of restricted stock (300,900 shares) and RSUs (150,052 shares) are outstanding under the Plan.

Under the Company’s 2016 equity incentive plan (the “Prior Plan”), as of March 31, 2021, (i) an aggregate of 495,900 shares in the form of restricted stock (422,150 shares) and RSUs (73,750 shares) are outstanding and have not yet vested, and (ii) with respect to 76,250 shares of common stock underlying RSUs that had been granted in 2017, 24,343 shares were deemed to have vested in 2020 and such shares were issued after the Compensation Committee determined that the metrics with respect to such shares had been satisfied. RSUs with respect to the 51,907 share balance were forfeited. NaN additional awards may be granted under the Prior Plan.

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

In 2020, 2019 and 2018, the Company granted RSUs exchangeable for up to 75,026, 77,776, and 76,250 shares, respectively, of common stock upon satisfaction, through June 30, 2023, June 30, 2022 and June 30, 2021, 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. 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 March 31, 2021, based on performance and market assumptions, the fair value of the RSUs granted in 2020, 2019 and 2018 is $962,000, $1,446,000 and $1,006,000, respectively. Recognition of such deferred compensation 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 three months ended March 31, 2021.

16

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2021 (Continued)

NOTE 9 – STOCKHOLDERS’ EQUITY (CONTINUED)

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

	Three Months Ended
	March 31,
	2021		2020
Restricted stock grants:
Number of shares		151,500		149,550
Average per share grant price	$	20.34	$	28.10
Deferred compensation to be recognized over vesting period	$	3,082,000	$	4,202,000
Number of non-vested shares:
Non-vested beginning of year		701,675		674,250
Grants		151,500		149,550
Vested during period		(129,925)		(122,125)
Forfeitures		(200)		—
Non-vested end of period		723,050		701,675
RSU grants:
Number of underlying shares		—		—
Average per share grant price	$	—	$	—
Deferred compensation to be recognized over vesting period	$	—	$	—
Number of non-vested shares:
Non-vested beginning of year		223,802		225,026
Grants		—		—
Vested during period		—		—
Forfeitures		—		—
Non-vested end of period		223,802		225,026
Restricted stock and RSU grants (based on grant price):
Weighted average per share value of non-vested shares	$	24.68	$	25.52
Value of stock vested during the period	$	2,825,000	$	3,004,000
Weighted average per share value of shares forfeited during the period	$	23.62	$	—
Total charge to operations:
Outstanding restricted stock grants	$	897,000	$	875,000
Outstanding RSUs		446,000		101,000
Total charge to operations	$	1,343,000	$	976,000

As of March 31, 2021, total compensation costs of $9,994,000 and $1,432,000 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 2.8 years for the restricted stock and 1.3 years for the RSUs.

17

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2021 (Continued)

NOTE 10 – FAIR VALUE MEASUREMENTS

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

The carrying amounts of cash and cash equivalents, 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 March 31, 2021, the $444,282,000 estimated fair value of the Company’s mortgages payable is greater than their $427,955,000 carrying value (before unamortized deferred financing costs) by approximately $16,327,000 assuming a blended market interest rate of 3.5% based on 6.9 year weighted average remaining term to maturity of the mortgages.

At December 31, 2020, the $461,965,000 estimated fair value of the Company’s mortgages payable is greater than their $433,549,000 carrying value (before unamortized deferred financing costs) by approximately $28,416,000, assuming a blended market interest rate of 3.0% based on the 7.1 year weighted average remaining term to maturity of the mortgages.

At March 31, 2021 and December 31, 2020, the carrying amount of the Company’s line of credit (before unamortized deferred financing costs) of $15,450,000 and $12,950,000, 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, 2021, the Company had in effect 22 interest rate derivatives, all of which were interest rate swaps, related to 22 outstanding mortgage loans with an aggregate $81,862,000 notional amount maturing between 2021 and 2028 (weighted average remaining term to maturity of 3.7 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 3.95% at March 31, 2021). The Company does not use derivatives for trading or speculative purposes.

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

		Carrying and		Balance Sheet
Financial liabilities:	As of	Fair Value		Classification
Interest rate swaps	March 31, 2021	$	3,511	Other liabilities
	December 31, 2020		5,012

18

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2021 (Continued)

NOTE 10 – FAIR VALUE MEASUREMENTS (CONTINUED)

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 March 31, 2021, the Company has assessed and determined the impact of the credit valuation adjustments on the overall valuation of its derivative positions is not significant. As a result, the Company determined its derivative valuation is classified in Level 2 of the fair value hierarchy. The Company does not currently own any financial instruments that are measured on a recurring basis and that are classified as Level 1 or 3.

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

	Three Months Ended
	March 31,
	2021		2020
Amount of gain (loss) recognized on derivatives in other comprehensive loss	$	1,093	$	(4,928)
Amount of reclassification from Accumulated other comprehensive loss into Interest expense		(408)		(110)

NaN amounts were reclassified from Accumulated other comprehensive loss into interest expense as a result of forecasted transactions being no longer probable of occurring for the three months ended March 31, 2021 and 2020. No gain or loss was recognized with respect to amounts excluded from effectiveness testing on the Company’s cash flow hedges for the three months ended March 31, 2021 and 2020.

During the twelve months ending March 31, 2022, the Company estimates an additional $1,547,000 will be reclassified from Accumulated other comprehensive loss as an increase to Interest expense.

The derivative agreements in effect at March 31, 2021 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, the Company could be held liable for such swap breakage losses.

As of March 31, 2021 and December 31, 2020, the fair value of the derivatives in a liability position, including accrued interest of $123,000 and $120,000, respectively, but excluding any adjustments for non-performance risk, was approximately $3,727,000 and $5,314,000, respectively. In the event the Company had breached the contractual provisions of the derivative contracts, it would be required to settle its obligations thereunder at their termination liability value of $3,727,000 and $5,314,000 as of March 31, 2021 and December 31, 2020, respectively. This termination liability value, net of adjustments for non-performance risk of $93,000 and $182,000, is included in Accrued expenses and other liabilities on the consolidated balance sheet at March 31, 2021 and December 31, 2020, respectively.

19

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2021 (Continued)

NOTE 11 – OTHER INCOME

Lease Assignment Fee Income

In March 2021, the Company received a one-time $100,000 fee from a tenant in connection with consenting to a lease assignment related to 6 of its properties; such amount is included in Other income on the consolidated statement of income for the three months ended March 31, 2021.

Insurance Recoveries on Hurricane Casualty

In 2020, a portion of a multi-tenanted building at the Company’s Lake Charles, Louisiana property was damaged due to Hurricane Laura and the Company recognized an impairment loss of $430,000 for the damaged portion of the building. The Company submitted a claim to its insurance carrier to cover, subject to a $250,000 deductible, the (i) estimated $2,100,000 cost to rebuild the damaged portion of the building and (ii) $129,000 of losses in rental income. In 2020, the Company recorded a receivable of $430,000 related to this claim as income on insurance recoveries, of which $150,000 was collected by December 31, 2020. Through March 31, 2021, the Company received an additional $300,000 advance from the insurance carrier, of which a $20,000 gain is included in Other income on the consolidated statement of income for the three months ended March 31, 2021.

Interest Income on Loan Receivable

In December 2020, in connection with a sale of 2 properties in Houston, Texas, the Company provided a $4,612,500 one-year loan representing 50% of the purchase price as seller-financing to the buyer which is included in other receivables on the consolidated balance sheets at March 31, 2021 and December 31, 2020. The Company received $46,000 of interest income on this loan during the three months ended March 31, 2021, which is recorded in Other income on the consolidated statement of income. The Company has evaluated the credit loss using the loss-rate method and determined the expected credit loss on this loan is immaterial for the three months ended March 31, 2021. On April 26, 2021, the loan was repaid.

NOTE 12 – SALE OF PROPERTY

In 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 13 – NEW ACCOUNTING PRONOUNCEMENTS

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. Through the three months ended March 31, 2021, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company may apply other elections, as applicable, as additional changes in the market occur. The Company continues to evaluate the new guidance to determine the extent to which it may impact the Company’s consolidated financial statements.

NOTE 14 – 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.

20

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q, together with other statements and information publicly disseminated by us, contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “could,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions or variations thereof and include, without limitations, statements regarding our future estimated rental income, funds from operations, adjusted funds from operations and our dividend. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our results of operations, financial condition, cash flows, performance or achievements.

Currently, the most significant risk and uncertainty we face is the adverse effect of the COVID-19 pandemic, the various governmental and non-governmental responses thereto, and the related economic consequences of the foregoing on (i) our and our tenants’ financial condition, results of operations, cash flows and performance, and (ii) the real estate market, global economy and financial markets.  The extent to which COVID-19 impacts us, our tenants and the economy generally will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the 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.  Moreover, you should interpret many of the risks, uncertainties and challenges identified in this report, as well as the risks, uncertainties and challenges set forth in the other reports we file with the Securities and Exchange Commission (the “SEC”), as being heightened as a result of the numerous adverse impacts of the COVID-19 pandemic, which risks, uncertainties and challenges are magnified due to the ongoing nature of the pandemic.  Additional uncertainties, risks and factors which may cause actual results to differ materially from current expectations include, but are not limited to:

● the financial failure of, or other default in payment by, tenants under their leases and the potential resulting vacancies;

● the ability or willingness of mortgage lenders to make accommodations with respect to our debt service obligations at properties for which we provide rent relief to our tenants or which are otherwise challenged;

● adverse changes and disruption in the retail sector, which could impact our tenants’ ability to pay rent and expense reimbursement;

● loss or bankruptcy of one or more of our tenants, and bankruptcy laws that may limit our remedies if a tenant becomes bankrupt and rejects its lease;

● our ability to renew or re-lease space as leases expire;

● our ability to pay dividends;

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

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

● the level and volatility of interest rates;

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

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

● compliance with credit facility and mortgage debt covenants;

● the availability of, and costs associated with, sources of capital and liquidity;

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● competition in our industry; and

● the other risks, uncertainties and factors described in the reports and documents we file with the SEC including the risks, uncertainties and factors described under “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2020, and in the Quarterly Reports on Form 10-Q and the other reports we file thereafter with the SEC.

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

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 and elsewhere in this report 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. Actual future results may vary materially.

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

Challenges and Uncertainties Facing Our Properties

As more fully described in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”), and in particular the sections thereof entitled “Risk Factors”, “Management's Discussion and Analysis of Financial Condition and Results of Operations - Challenges and Uncertainties Resulting from the COVID-19 Pandemic” and “Management's Discussion and Analysis of Financial Condition and Results of Operations - Challenges and Uncertainties Facing our Beachwood, Ohio Property”, several of our properties face challenges due to the pandemic or other factors. There have been no material changes to the status of the properties as described in our Annual Report other than:

● Regal Cinemas has announced that the three theaters we own (including a theater owned by an unconsolidated joint venture) will reopen by mid-May 2021; Regal has paid all payments required to be made by it pursuant to the lease amendments entered into in February 2021 (see Note 3 to our consolidated financial statements); and

● The owner/operator of The Vue, a multi-family residential complex in Beachwood, Ohio, has not made rental payments for the past several months and we do not anticipate it will make any rent payments for several more months, if not longer. During the quarter ended March 31, 2021, and from April 1 through May 3, 2021, we provided The Vue with funding, all of which has been or will be capitalized, of $378,000 and $552,000, respectively, for operating expense shortfalls, and $52,000 and $59,000 for capital expenditures, respectively.

Overview

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

We acquire, own and manage a geographically diversified portfolio consisting primarily of industrial, 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 March 31, 2021, we own 123 properties (including four properties owned by consolidated joint ventures and three properties owned by unconsolidated joint ventures) located in 31 states. Based on square footage, our occupancy rate at March 31, 2021 is approximately 97.5%.

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In addition to the challenges and uncertainties presented by the pandemic, we, among other things, face additional challenges and uncertainties, which are heightened by the pandemic, including the possibility we will not be able to: acquire or dispose of properties on acceptable terms, lease our properties on terms favorable to us or at all, collect amounts owed to us by our tenants, renew or re-let, on acceptable terms, leases that are expiring or otherwise terminating.

We seek to manage the risk of our real property portfolio and the related financing arrangements by (i) diversifying among industries, locations, tenants, scheduled lease expirations, mortgage maturities and lenders, and (ii) minimizing 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 or disposing of properties, we evaluate the terms of the leases and the credit of the existing tenants with a fundamental analysis of the real estate to be bought or sold, 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. In addition, in evaluating property sales, we take into account, among other things, the property type (i.e., industrial, retail or other), our perception of the property’s long-term prospects (including the likelihood for, and the extent of, any further appreciation or depreciation in value), the term remaining on any related mortgage debt, the price and other terms and conditions for the sale of such property and the returns anticipated to be generated from the reinvestment of the net proceeds to us from such property sale.

Over the past several years, we have been addressing the challenges presented by the growth of e-commerce and our exposure to the retail industry by focusing on acquiring industrial properties (including warehouse and distribution facilities) and properties that we believe capitalize on e-commerce activities, and disposing of retail properties which we did not believe to be advantageous to hold for the long-term. Approximately 54.8% of our contractual base rent (as described below) is derived from industrial properties and 31.8%, 4.9%, 4.6%, 2.4%, and 1.5% from retail, restaurant, health and fitness, other and theater properties, respectively. We face significant competition in seeking to acquire industrial properties. The returns and cash flow we generate from industrial properties, and in particular, the returns and cash flow generated by the reinvestment in industrial properties of the net proceeds from the sale of retail properties may not be as favorable to us as the returns and cash flow currently generated by our retail properties. Decreases in cash flows or returns on investments resulting from the ownership of industrial properties as compared to retail properties may make it difficult for us to sustain our current level of dividend payments.

Our 2021 contractual base rent is approximately $69.9 million and represents, after giving effect to any abatements, concessions, deferrals or adjustments in effect as of March 31, 2021, the base rent payable to us during the year ending December 31, 2021 under leases in effect at March 31, 2021, excluding an aggregate of $5.8 million comprised of: (i) $2.7 million of COVID-19 rent deferral repayments due in 2021 which were accrued to rental income in 2020, of which $1.2 million was paid by April 30, 2021, (ii) $1.6 million representing our share of the base rent payable in 2021 to our unconsolidated joint ventures, (iii) $1.2 million of estimated variable lease payments from The Vue, a multi-family complex which ground leases the underlying land from us and which we do not anticipate will be paying rent for several months, if not longer, (iv) approximately $755,000 of amortization of intangibles and (v) the reversal of approximately $443,000 of straight-line rent.

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The following table sets forth scheduled expirations of leases for our properties as of March 31, 2021 for the periods indicated below:

	Number	Approximate			Contractual
Lease Expiration (1)	of	Square	Contractual		Base Rent
Year Ending	Expiring	Footage Subject to	Base Rent Under		Represented by
December 31,	Leases	Expiring Leases (2)	Expiring Leases		Expiring Leases
2021	7	244,951	$	1,038,780	1.5	%
2022	26	2,204,757		15,178,783	21.7
2023	24	1,257,165		8,638,546	12.4
2024	20	743,326		4,963,327	7.1
2025	13	439,652		4,582,869	6.6
2026	13	738,276		6,034,807	8.6
2027	9	1,106,041		6,464,456	9.2
2028	9	557,653		2,791,102	4.0
2029	6	908,121		4,594,092	6.6
2030	6	191,843		3,695,577	5.3
2031 and thereafter	23	1,800,207		11,871,724	17.0
	156	10,191,992	$	69,854,063	100.0	%

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

(2) Excludes an aggregate of 112,080 square feet of vacant space.

Results of Operations

Total revenues

The following table compares Total revenues for the periods indicated:

	Three Months Ended
	March 31,				Increase
(Dollars in thousands)	2021		2020		(Decrease)		% Change
Rental income, net	$	20,684	$	21,239	$	(555)	(2.6)
Lease termination fees		132		—		132	n/a
Total revenues	$	20,816	$	21,239	$	(423)	(2.0)

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

	Three Months Ended
	March 31,				Increase
(Dollars in thousands)	2021		2020		(Decrease)		% Change
Acquisitions (1)	$	530	$	204	$	326	159.8
Dispositions (2)		—		578		(578)	(100.0)
Same store (3)		20,154		20,457		(303)	(1.5)
Rental income, net	$	20,684	$	21,239	$	(555)	(2.6)

(1) Represents rental income from two properties acquired since January 1, 2020; no properties were acquired during the three months ended March 31, 2021.

(2) Represents rental income from four properties sold since January 1, 2020.

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

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Changes due to acquisitions and dispositions

The three months ended March 31, 2021 reflect a decrease of $578,000 from the three months ended March 31, 2020, due primarily to the inclusion, in the 2020 period, of rental income from four properties sold during 2020. Offsetting this decrease is an increase of $204,000 generated by two properties acquired in 2020.

Changes at same store properties

The decrease in same store rental income during the three months ended March 31, 2021 is due primarily to a decrease of (i) $243,000 in variable rent at The Vue and (ii) $198,000 from our two Regal Cinemas’ properties, for which we are recording income on a cash basis and for which 90% of the rent for the quarter ended March 31, 2021 is being deferred until January 2022. Rental income from several other properties resulted in additional decreases and increases, none of which were individually significant.

This decrease was offset during the three months ended March 31, 2021 by a net increase of $225,000 of tenant reimbursements which relate to real estate taxes (i.e. $160,000) and operating expenses (i.e. $65,000) generally incurred in the same period.

Lease termination fees.

In connection with the exercise of early lease termination options of two tenants, we received aggregate fees of $438,000 fee (i.e., $88,000 in 2020 and $350,000 in 2021), of which $132,000 was recognized in the three months ended March 31, 2021, and the balance will be recognized from April through December 2021.

Operating Expenses

The following table compares operating expenses for the periods indicated:

	Three Months Ended
	March 31,				Increase
(Dollars in thousands)	2021		2020		(Decrease)		% Change
Operating expenses:
Depreciation and amortization	$	5,757	$	5,674	$	83	1.5
General and administrative		3,642		3,334		308	9.2
Real estate expenses		3,686		3,342		344	10.3
State taxes		75		82		(7)	(8.5)
Total operating expenses	$	13,160	$	12,432	$	728	5.9

Depreciation and amortization. The increase is due primarily to (i) the inclusion of $144,000 of such expense from the properties acquired in 2020 and (ii) accelerated amortization of tenant origination costs of $94,000 in connection with the tenant’s exercise of an early lease termination option. This increase was offset by the inclusion, in the corresponding period in 2020, of $95,000 of such expense from the properties sold since January 1, 2020.

General and administrative. The increase is due primarily to a $345,000 increase in non-cash compensation expense related to RSUs (due to updated and more favorable projections of the achievability of performance metrics), offset by a $86,000 decrease in professional fees.

Real estate expenses. The increase is due primarily to increases of (i) $185,000 of snow removal expense and (ii) $135,000 of real estate tax expense.

Gain on sale of real estate, net.

The $4.3 million gain in the 2020 period was realized from the sale of our Onalaska, Wisconsin property. There were no sales during the three months ended March 31, 2021.

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Other Income and Expenses

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

	Three Months Ended
	March 31,				Increase		%
(Dollars in thousands)	2021		2020		(Decrease)		Change
Other income and expenses:
Equity in (loss) earnings of unconsolidated joint ventures	$	(22)	$	64	$	(86)	(134.4)
Equity in earnings from sale of unconsolidated joint venture property		—		121		(121)	(100.0)
Prepayment costs on debt		—		(290)		(290)	(100.0)
Other income		170		4		166	4,150.0
Interest:
Expense		(4,634)		(4,884)		(250)	(5.1)
Amortization and write‑off of deferred financing costs		(213)		(243)		(30)	(12.3)

Equity in (loss) earnings of unconsolidated joint ventures. The 2021 period reflects a $91,000 decrease due primarily to the impact of the pandemic on a multi-tenant retail property in Manahawkin, New Jersey (the “Manahawkin Property”).

Equity in earnings from sale of unconsolidated joint venture property. The 2020 period includes a $121,000 gain from the sale of the Savannah, Georgia property. There was no corresponding gain during the 2021 period.

Prepayment costs on debt. The 2020 period includes costs incurred in connection with the sale of the Onalaska, Wisconsin property.

Other income. The 2021 period includes a $100,000 fee obtained in connection with an assignment of a lease.

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

	Three Months Ended
	March 31,				Increase		%
(Dollars in thousands)	2021		2020		(Decrease)		Change
Interest expense:
Credit line interest	$	121	$	240	$	(119)	(49.6)
Mortgage interest		4,513		4,644		(131)	(2.8)
Total	$	4,634	$	4,884	$	(250)	(5.1)

Credit line interest

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

	Three Months Ended
	March 31,						Increase			%
(Dollars in thousands)	2021			2020			(Decrease)			Change
Average interest rate on credit line debt		1.88	%		3.20	%		(1.32)	%	(41.3)
Average principal amount of credit line debt	$	15,339		$	24,137		$	(8,798)		(36.5)

The decrease in credit line interest is due to a (i) 132 basis point decrease (i.e., from 3.20% to 1.88%) in the weighted average interest rate due to a decrease in the one month LIBOR rate and (ii) decrease of $8.8 million (i.e., from $24.1 million to $15.3 million) in the weighted average balance outstanding under our line of credit.

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Mortgage interest

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

	Three Months Ended
	March 31,						Increase			%
(Dollars in thousands)	2021			2020			(Decrease)			Change
Average interest rate on mortgage debt		4.19	%		4.19	%		—	%	—
Average principal amount of mortgage debt	$	430,768		$	443,055		$	(12,287)		(2.8)

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 May 3, 2021, was $81.5 million, including $6.8 million of cash and cash equivalents (including the credit facility’s required $3.0 million average deposit maintenance balance) and $74.7 million available under our credit facility. At May 3, 2021, the facility is available for the acquisition of commercial real estate, repayment of mortgage debt, and $10.0 million for renovation expenses and $19.0 million for operating expenses.

Liquidity and Financing

We expect to meet our (i) operating cash requirements (including debt service and current level dividend payments) principally from cash flow from operations, our available cash and cash equivalents, proceeds from and, to the extent permitted and needed, our credit facility and (ii) investing and financing cash requirements (including an estimated $3.3 million of capital expenditures and transaction fees that may be required over the next two years in connection with anticipated lease extensions) from the foregoing, as well as property financings, property sales and sale of our common stock. We and our joint venture partner are also re-developing the Manahawkin Property and are targeting a 2022 completion - we estimate that our share of the capital expenditures required in connection with such re-development will range from $12.0 million to $15.0 million. We are evaluating various sources of funding for such expenditures including borrowings from our credit facility.

At March 31, 2021, excluding the mortgage debt of our unconsolidated joint venture, we had 73 outstanding mortgages payable secured by 90 properties in the aggregate principal amount of $428.0 million (before netting unamortized deferred financing costs of $3.7 million). These mortgages represent first liens on individual real estate investments with an aggregate carrying value of $705.1 million, before accumulated depreciation of $119.8 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 4.19% weighted average interest rate) and mature between 2021 and 2042 (a 6.9 year weighted average remaining term to maturity).

The following table sets forth, as of March 31, 2021, information with respect to our mortgage debt that is payable during the nine months ending December 31, 2021 and for each of the subsequent twelve months through December 31, 2024 (excluding the mortgage debt of our unconsolidated joint venture):

(Dollars in thousands)	2021		2022		2023		2024		Total
Amortization payments	$	10,512	$	14,542	$	13,569	$	12,380	$	51,003
Principal due at maturity		6,469		31,584		16,709		50,636		105,398
Total	$	16,981	$	46,126	$	30,278	$	63,016	$	156,401

At March 31, 2021, an unconsolidated joint venture had a first mortgage on its property with an outstanding balance of $22.7 million, bearing an interest rate of 4.0% and maturing in 2025.

We intend to make debt amortization payments from operating cash flow and, though no assurance can be given that we will be successful in this regard, generally intend to refinance, extend or payoff the mortgage loans which mature in 2021

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through 2024. 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

Our credit facility provides that subject to borrowing base requirements, we can borrow up to $100.0 million 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) $10.0 million for renovation expenses and (ii) $20.0 million for operating expense purposes. On July 1, 2022, the amounts we can borrow for renovation expenses and operating expenses will change to $20.0 million and $10.0 million, respectively. To the extent that as of June 30, 2022 more than $10.0 million is outstanding for operating expense purposes, such excess must be repaid immediately. 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%. The applicable margin was 200 basis points for the three months ended March 31, 2021 and 2020. 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. The interest rate on the facility was 1.86% at March 31, 2021 and May 2, 2021, respectively.

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 total 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 March 31, 2021, 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 did not generate any rental income during the three months ended March 31, 2021. At March 31, 2021, the carrying value of the land on our balance sheet was $14.6 million; our leasehold position is subordinate to $66.9 million of mortgage debt incurred by our tenant, the owner/operator of the multi-family complex. In addition, we have agreed to fund certain capital expenditures and operating cash flow shortfalls at this property. We do not believe that this type of off-balance sheet arrangement has been or will be material to our liquidity and capital resource positions, except to the extent we determine to continue to fund the capital expenditures required by, and the operating cash flow shortfalls at this property. See Note 4 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”) 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 are calculated to reflect FFO on the same basis. In computing FFO, we do not add back to net income the amortization of costs in connection with our financing activities or depreciation of non-real estate assets.

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

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

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

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

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

	Three Months Ended
	March 31,
	2021		2020
GAAP net income attributable to One Liberty Properties, Inc.	$	2,962	$	7,826
Add: depreciation and amortization of properties		5,655		5,573
Add: our share of depreciation and amortization of unconsolidated joint ventures		134		139
Add: amortization of deferred leasing costs		102		101
Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures		7		4
Deduct: gain on sale of real estate, net		—		(4,252)
Deduct: equity in earnings from sale of unconsolidated joint venture property		—		(121)
Adjustments for non-controlling interests		(21)		(21)
NAREIT funds from operations applicable to common stock		8,839		9,249
Deduct: straight-line rent accruals and amortization of lease intangibles		(137)		(570)
Deduct: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures		(1)		(13)
Deduct: lease termination fee income		(132)		—
Deduct: lease assignment fee income		(100)		—
Add: amortization of restricted stock compensation		1,343		976
Add: prepayment costs on debt		—		290
Deduct: income on insurance recoveries from casualty loss		(20)		—
Add: amortization and write-off of deferred financing costs		213		243
Add: our share of amortization and write-off of deferred financing costs of unconsolidated joint ventures		4		4
Adjustments for non-controlling interests		—		1
Adjusted funds from operations applicable to common stock	$	10,009	$	10,180

	Three Months Ended
	March 31,
	2021		2020
GAAP net income per common share attributable to One Liberty Properties, Inc.	$	.13	$	.39
Add: depreciation and amortization of properties		.28		.27
Add: our share of depreciation and amortization of unconsolidated joint ventures		.01		.01
Add: amortization of deferred leasing costs		—		.01
Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures		—		—
Deduct: gain on sale of real estate, net		—		(.21)
Deduct: equity in earnings from sale of unconsolidated joint venture property		—		(.01)
Adjustments for non-controlling interests		—		—
NAREIT funds from operations per share of common stock		.42		.46
Deduct: straight-line rent accruals and amortization of lease intangibles		(.01)		(.02)
Deduct: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures		—		—
Deduct: lease termination fee income		(.01)		—
Deduct: lease assignment fee income		—		—
Add: amortization of restricted stock compensation		.07		.05
Add: prepayment costs on debt		—		.01
Deduct: income on insurance recoveries from casualty loss		—		—
Add: amortization and write-off of deferred financing costs		.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	$	.48	$	.51

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The $410,000, or 4.4%, decrease in FFO is due primarily to:

●a $555,000 decrease in rental income,

●a $337,000 increase in real estate operating expense, and

●a $308,000 net increase in general and administrative expense.

Offsetting the decrease is:

●a $290,000 decrease in prepayment costs on debt,

●a $250,000 decrease in interest expense,

●a $166,000 increase in other income, and

●a $132,000 increase in lease termination fee income.

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

The $171,000, or 1.7%, decrease in AFFO is due primarily to:

●a $433,000 decrease in rental income related to straight-line rent accruals and amortization of lease intangibles,

●a $367,000 increase in general and administrative expense related to amortization of restricted stock compensation,

●the $290,000 decrease in prepayment costs on debt,

●the $120,000 increase in other income primarily from a lease assignment fee, and

●the $132,000 increase in lease termination fee income.

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposure is the effect of changes in interest rates on the interest cost of draws on our revolving variable rate credit facility and the effect of changes in the fair value of our interest rate swap agreements. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

We use interest rate swaps to limit interest rate risk on variable rate mortgages. These swaps are used for hedging purposes-not for speculation. We do not enter into interest rate swaps for trading purposes. At March 31, 2021, our aggregate liability in the event of the early termination of our swaps was $3.7 million.

At March 31, 2021, we had 22 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 March 31, 2021, 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 $2.7 million and the net unrealized loss on derivative instruments would have decreased by $2.7 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 $2.8 million and the net unrealized loss on derivative instruments would have increased by $2.8 million. These changes would not have any impact on our net income or cash.

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

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Our variable rate credit facility is sensitive to interest rate changes. Based on the outstanding balance under this facility of $15.5 million at March 31, 2021, a 100 basis point increase of the interest rate would increase our related interest costs over the next twelve months by approximately $155,000 and a 100 basis point decrease of the interest rate would decrease our related interest costs over the next twelve months by approximately $16,000.

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 March 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II – Other Information

Item 6.  Exhibits

Exhibit No.	Title of Exhibit
3.2	Amended and Restated By-Laws of One Liberty Properties, Inc.
10.1*	First Amendment to Compensation and Services Agreement effective as of April 1, 2012 between One Liberty Properties, Inc. and Majestic Property Management Corp. (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012).
10.2*	Form of Restricted Stock Award Agreement for the 2012 Incentive Plan (incorporated by reference to Exhibit 10.9 to our Annual Report on Form 10-K for the year ended December 31, 2013).
10.3*	Form of Restricted Stock Award Agreement for awards granted in 2017 pursuant to the 2016 Incentive Plan (incorporated by reference to Exhibit 10.12 to our Annual Report on Form 10-K for the year ended December 31, 2016).
10.4*	Form of Performance Award Agreement for grants in 2017 pursuant to the 2016 Incentive Plan (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2017).
10.5*	Form of Restricted Stock Award Agreement for awards granted in 2018 and 2019 pursuant to the 2016 Incentive Plan (incorporated by reference to Exhibit 10.7 of our Annual Report on Form 10-K for the year ended December 31, 2017).
31.1	Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Senior Vice President and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial statements and notes from the One Liberty Properties, Inc. Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 filed on May 6, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Changes in Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to the Consolidated Financial Statements.
104	Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document and included in Exhibit 101).
_______________________
* Indicates a management contract or compensatory plan or arrangement. The file number for all the exhibits incorporated by reference is 001-09279.

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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: May 6, 2021	/s/ Patrick J. Callan, Jr.
	Patrick J. Callan, Jr.
	President and Chief Executive Officer
	(principal executive officer)
Date: May 6, 2021	/s/ David W. Kalish
	David W. Kalish
	Senior Vice President and
	Chief Financial Officer
	(principal financial officer)

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