10-Q 1 olp-20220331x10q.htm 10-Q UNITED STATES
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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, 2022

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, 2022, the registrant had 21,126,314 shares of common stock outstanding.

One Liberty Properties, Inc. and Subsidiaries

Table of Contents

    

Page No.

Part I — Financial Information

Item 1.

Unaudited Consolidated Financial Statements

 

Consolidated Balance Sheets — March 31, 2022 and December 31, 2021…………………………………

1

 

Consolidated Statements of Income — Three months ended March 31, 2022 and 2021………...…………

2

 

Consolidated Statements of Comprehensive Income — Three months ended March 31, 2022 and 2021.…

3

 

Consolidated Statements of Changes in Equity — Three months ended March 31, 2022 and 2021…….....

4

 

Consolidated Statements of Cash Flows — Three months ended March 31, 2022 and 2021………………

5

 

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

7

 

Item 2.

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

24

 

Item 3.

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

35

 

Item 4.

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

36

 

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

36

 

Item 6.

Exhibits………………………………………………………………………………………………………

36

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, 

2022

2021

    

ASSETS

(Unaudited)

Real estate investments, at cost

Land

$

178,681

$

180,183

Buildings and improvements

663,587

657,458

Total real estate investments, at cost

842,268

837,641

Less accumulated depreciation

164,505

160,664

Real estate investments, net

677,763

676,977

Property held-for-sale

1,270

1,270

Investment in unconsolidated joint ventures

10,288

10,172

Cash and cash equivalents

11,442

16,164

Unbilled rent receivable

14,166

14,330

Unamortized intangible lease assets, net

19,912

20,694

Escrow, deposits and other assets and receivables

15,288

13,346

Total assets(1)

$

750,129

$

752,953

LIABILITIES AND EQUITY

Liabilities:

Mortgages payable, net of $3,292 and $3,316 of deferred financing costs, respectively

$

397,848

$

396,344

Line of credit, net of $162 and $216 of deferred financing costs, respectively

4,978

11,484

Dividends payable

9,585

9,448

Accrued expenses and other liabilities

17,533

18,992

Unamortized intangible lease liabilities, net

10,335

10,407

Total liabilities(1)

440,279

446,675

Commitments and contingencies

Equity:

One Liberty Properties, Inc. stockholders’ equity:

Preferred stock, $1 par value; 12,500 shares authorized; none issued

Common stock, $1 par value; 50,000 shares authorized;
20,392 and 20,239 shares issued and outstanding

20,392

20,239

Paid-in capital

324,689

322,793

Accumulated other comprehensive income (loss)

260

(1,513)

Distributions in excess of net income

(36,423)

(36,187)

Total One Liberty Properties, Inc. stockholders’ equity

308,918

305,332

Non-controlling interests in consolidated joint ventures(1)

932

946

Total equity

309,850

306,278

Total liabilities and equity

$

750,129

$

752,953

(1)The Company’s consolidated balance sheets include assets and liabilities of consolidated variable interest entities (“VIEs”). See Note 6. The consolidated balance sheets include the following amounts related to the Company’s consolidated VIEs: $10,365 and $10,365 of land, $18,289 and $18,472 of building and improvements, net of $5,140 and $4,957 of accumulated depreciation, $3,244 and $3,580 of other assets included in other line items, $19,021 and $19,193 of real estate debt, net, $1,216 and $1,350 of other liabilities included in other line items and $932 and $946 of non-controlling interests as of March 31, 2022 and December 31, 2021, 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, 

    

2022

    

2021

Revenues:

Rental income, net

$

21,531

$

20,684

Lease termination fees

25

132

Total revenues

21,556

20,816

Operating expenses:

Depreciation and amortization

5,843

5,757

General and administrative (see Note 9 for related party information)

3,792

3,642

Real estate expenses (see Note 9 for related party information)

3,687

3,686

State taxes

74

75

Total operating expenses

13,396

13,160

Other operating income

Gain on sale of real estate, net

4,649

Operating income

12,809

7,656

Other income and expenses:

Equity in earnings (loss) of unconsolidated joint ventures

116

(22)

Other income (see Note 13)

926

170

Interest:

Expense

(4,306)

(4,634)

Amortization of deferred financing costs

(205)

(213)

Net income

9,340

2,957

Net (income) loss attributable to non-controlling interests

(17)

5

Net income attributable to One Liberty Properties, Inc.

$

9,323

$

2,962

Weighted average number of common shares outstanding:

Basic

20,379

20,003

Diluted

20,541

20,061

Per common share attributable to common stockholders:

Basic and Diluted

$

.44

$

.13

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, 

    

2022

    

2021

Net income

$

9,340

$

2,957

Other comprehensive income

Net unrealized gain on derivative instruments

1,775

1,501

Comprehensive income

11,115

4,458

Net (income) loss attributable to non-controlling interests

(17)

5

Adjustment for derivative instruments attributable to non-controlling interests

(2)

(3)

Comprehensive income attributable to One Liberty Properties, Inc.

$

11,096

$

4,460

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, 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 and RSUs

1,343

1,343

Net income (loss)

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

Balances, December 31, 2021

$

20,239

$

322,793

$

(1,513)

$

(36,187)

$

946

$

306,278

Distributions – common stock

Cash – $.45 per share

(9,559)

(9,559)

Restricted stock vesting

131

(131)

Shares issued through equity offering program - net

17

546

563

Shares issued through dividend reinvestment plan

5

156

161

Distributions to non-controlling interests

(33)

(33)

Compensation expense – restricted stock and RSUs

1,325

1,325

Net income

9,323

17

9,340

Other comprehensive income

1,773

2

1,775

Balances, March 31, 2022

$

20,392

$

324,689

$

260

$

(36,423)

$

932

$

309,850

See accompanying notes to consolidated financial statements.

4

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited) (Continued on Next Page)

Three Months Ended

March 31, 

2022

    

2021

Cash flows from operating activities:

Net income

$

9,340

$

2,957

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

Gain on sale of real estate, net

(4,649)

(Increase) decrease in unbilled rent receivable

(378)

95

Amortization of intangibles relating to leases, net

(189)

(232)

Amortization of restricted stock and RSU compensation expense

1,325

1,343

Equity in (earnings) loss of unconsolidated joint ventures

(116)

22

Distributions of earnings from unconsolidated joint ventures

100

Depreciation and amortization

5,843

5,757

Amortization of deferred financing costs

205

213

Payment of leasing commissions

(798)

(71)

(Increase) decrease in escrow, deposits, other assets and receivables

(1,375)

1,167

(Decrease) increase in accrued expenses and other liabilities

(377)

102

Net cash provided by operating activities

8,831

11,453

Cash flows from investing activities:

Purchase of real estate

(8,166)

Improvements to real estate

(1,778)

(512)

Investments in ground leased property

(271)

(430)

Net proceeds from sale of real estate

9,555

Insurance recovery proceeds due to casualty loss

918

300

Net cash provided by (used in) investing activities

258

(642)

Cash flows from financing activities:

Scheduled amortization payments of mortgages payable

(3,380)

(3,520)

Repayment of mortgage payable

(2,074)

Proceeds from mortgage financing

4,860

Proceeds from sale of common stock, net

563

Proceeds from bank line of credit

8,000

2,500

Repayment on bank line of credit

(14,560)

Issuance of shares through dividend reinvestment plan

161

Payment of financing costs

(125)

(6)

Capital contribution from non-controlling interest

20

Distributions to non-controlling interests

(33)

(13)

Cash distributions to common stockholders

(9,422)

(9,261)

Net cash used in financing activities

(13,936)

(12,354)

Net decrease in cash, cash equivalents and restricted cash

(4,847)

(1,543)

Cash, cash equivalents and restricted cash at beginning of year

16,666

13,564

Cash, cash equivalents and restricted cash at end of period

$

11,819

$

12,021

Supplemental disclosure of cash flow information:

Cash paid during the period for interest expense

$

4,332

$

4,613

Supplemental disclosure of non-cash investing activity:

Purchase accounting allocation - intangible lease assets

$

568

$

Purchase accounting allocation - intangible lease liabilities

(269)

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:

March 31, 

2022

    

2021

Cash and cash equivalents

$

11,442

$

11,245

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

377

776

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

$

11,819

$

12,021

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

See accompanying notes to consolidated financial statements.

6

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2022

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 and retail properties, many of which are subject to long-term net leases. As of March 31, 2022, OLP owns 118 properties, including three properties owned by consolidated joint ventures and three properties owned by unconsolidated joint ventures. The 118 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, 2022 and 2021 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, 2021.

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

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

Purchase Accounting for Acquisition of Real Estate

In acquiring real estate, the Company evaluates whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, and if that requirement is met, the asset group is accounted for as an asset acquisition and not a business combination. Transaction costs incurred with such asset acquisitions are capitalized to real estate assets and depreciated over the respectful useful lives.

The Company allocates the purchase price of real estate, including direct transaction costs applicable to an asset acquisition, among land, building, improvements and intangibles, such as the value of above, below and at-market leases, and origination costs associated with in-place leases at the acquisition date. The Company assesses the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. The value, as determined, is allocated to land, building and improvements based on management’s determination of the relative fair values of these assets.

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

7

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2022 (Continued)

NOTE 2 – SUMMARY ACCOUNTING POLICIES (CONTINUED)

Investment in Joint Ventures and Variable Interest Entities

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

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.

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 has elected to follow the cumulative earnings approach when assessing, for the consolidated statement of cash flows, whether the distribution from the investee is a return of the investor’s investment as compared to a return on its investment. The source of the cash generated by the investee to fund the distribution is not a factor in the analysis (that is, it does not matter whether the cash was generated through investee refinancing, sale of assets or operating results). Consequently, the investor only considers the relationship between the cash received from the investee to its equity in the undistributed earnings of the investee, on a cumulative basis, in assessing whether the distribution from the investee is a return on or a return of its investment. Cash received from the unconsolidated entity is presumed to be a return on the investment to the extent that, on a cumulative basis, distributions received by the investor are less than its share of the equity in the undistributed earnings of the entity.

8

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2022 (Continued)

NOTE 3 – LEASES

Lessor Accounting

The Company owns rental properties which are leased to tenants under operating leases with current expirations ranging from 2022 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.

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

Three Months Ended

March 31, 

    

2022

    

2021

Fixed lease revenues

$

18,341

$

17,465

Variable lease revenues

3,001

2,987

Lease revenues (a)

$

21,342

$

20,452

(a)Excludes amortization related to lease intangible assets and liabilities of $189 and $232 for the three months ended March 31, 2022 and 2021, respectively.

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

On a quarterly basis, the Company assesses the collectability of substantially all lease payments due by reviewing the tenant’s payment history or financial condition. Changes to collectability are recognized as a current period adjustment to rental revenue. The Company has assessed the collectability of all recorded lease revenues as probable as of March 31, 2022.

During 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, excluding amounts related to Regal Cinemas as described below. Through April 30, 2022, the Company collected an aggregate of $3,233,000, or 96.2%, of such deferred rents (i.e., $497,000, $2,679,000, $43,000 and $14,000 during 2020, 2021, the three months ended March 31, 2022 and for April 2022, respectively). The $116,000 balance of deferred rents is deemed collectible of which $104,000 and $12,000 is expected to be collected during the remainder of 2022 and 2023, respectively.

In 2021, the Company executed lease amendments with Regal Cinemas, a tenant at two properties, which was adversely affected by the pandemic. Pursuant to these lease amendments, (i) the Company agreed to defer an aggregate of $1,449,000 of rent which was originally payable from September 2020 through August 2021 and agreed to be repaid beginning in 2022 (such amounts were not accrued as collections were deemed less than probable), (ii) the tenant agreed to pay an aggregate of $441,000 of rent from September 2020 through August 2021 and (iii) the parties extended the lease for one of these properties for two years. Through April 30, 2022, the tenant is current on all lease payments in accordance with these lease amendments; and the Company collected an aggregate of $322,000, or 22.2%, of such deferred rents (i.e., $242,000 and $80,000 during the three months ended March 31, 2022 and for April 2022, respectively). The $1,127,000 balance of deferred rents is to be collected in equal monthly installments during the remainder of 2022 through June 2023.

9

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2022 (Continued)

NOTE 3 – LEASES (CONTINUED)

Minimum Future Rents

As of March 31, 2022, 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, (iii) $1,207,000 of COVID-19 lease deferral repayments due from Regal Cinemas which were not accrued to rental income and (iv) variable lease payments as described above.

From April 1 – December 31, 2022

$

52,019

For the year ending December 31,

2023

66,615

2024

58,382

2025

54,061

2026

49,948

2027

42,269

Thereafter

145,536

Total

$

468,830

Lease Termination Fees

In January 2022, the Company received $25,000 as a lease termination fee from a retail tenant which was recognized during the three months ended March 31, 2022.

In January 2021, the Company received $350,000 as a lease termination fee from a retail tenant, of which $88,000 was recognized during the three months ended March 31, 2021.

In December 2020, the Company received $88,000 as a lease termination fee from an industrial tenant, of which $44,000 was recognized during the three months ended March 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 four, 5-year renewal options and one seven-month renewal option. As of March 31, 2022, the remaining lease term, including renewal options deemed exercised, is 12.9 years. The Company recognized lease expense related to this ground lease of $150,000 for the three months ended March 31, 2022 and 2021, 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 for a five-year renewal option. As of March 31, 2022, the remaining lease term, including the renewal option deemed exercised, is 14.8 years. The Company recognized lease expense related to this office lease of $14,000 for the three months ended March 31, 2022 and 2021, which is included in General and administrative expenses on the consolidated statements of income.

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2022 (Continued)

NOTE 3 – LEASES (CONTINUED)

Minimum Future Lease Payments

As of March 31, 2022, the minimum future lease payments related to the operating ground and office leases are as follows (amounts in thousands):

From April 1 – December 31, 2022

$

379

For the year ending December 31,

2023

507

2024

 

557

2025

 

626

2026

 

627

2027

 

629

Thereafter

 

5,591

Total undiscounted cash flows

$

8,916

Present value discount

 

(1,776)

Lease liability

$

7,140

NOTE 4 – REAL ESTATE ACQUISITION

On January 5, 2022, the Company acquired an industrial property located in Fort Myers, Florida for $8,100,000. Subsequent to the acquisition, the Company obtained $4,860,000 of nine-year mortgage debt with an interest rate of 3.09% which matures in February 2031. The Company determined that with respect to this acquisition, the gross assets acquired are concentrated in a single identifiable asset. Therefore, this transaction does not meet the definition of a business and is accounted for as an asset acquisition. As such, direct transaction costs associated with this asset acquisition have been capitalized to the real estate assets acquired and will be depreciated over the respective useful lives.

The following table details the allocation of the purchase price for the Company’s acquisition of real estate during the three months ended March 31, 2022 (amounts in thousands):

Building &

Intangible Lease

Description of Property

    

Land

    

Improvements

    

Asset

    

Liability

Total

Conditioned Air Company of Naples LLC industrial facility,

Fort Myers, Florida

$

991

$

6,876

$

568

$

(269)

$

8,166

The Company assessed the fair value of the tangible and intangible assets of the property as of the acquisition date using an income approach and estimated cash flow projections which utilize an appropriate market capitalization rate (i.e., 5.50%) and discount rate (i.e., 5.60%) categorized as Level 3 unobservable inputs in the fair value hierarchy (as defined in Note 12).

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2022 (Continued)

NOTE 5 SALE OF PROPERTIES AND PROPERTY HELD-FOR-SALE

Sale of Properties

On March 22, 2022, the Company sold four restaurant properties located in Pennsylvania for approximately $9,555,000, net of closing costs. The sale resulted in a gain of $4,649,000 which was recorded as Gain on sale of real estate, net, in the consolidated statement of income for the three months ended March 31, 2022. As a result of the sale, the Company also wrote-off, as a reduction to Gain on sale of real estate, net, $512,000 of unbilled rent receivable.

Property Held-for-Sale

In September 2021, the Company entered into a contract to sell an industrial property located in Columbus, Ohio for $8,500,000. The buyer’s right to terminate the contract without penalty expired in December 2021. At March 31, 2022 and December 31, 2021, the Company classified the $1,270,000 net book value of the property’s land, building and improvements as Property held-for-sale in the accompanying consolidated balance sheets. The property was sold on May 2, 2022 and will result in a gain of approximately $6,900,000, which will be recognized as Gain on sale of real estate, net, in the consolidated statements of income for the three and six months ending June 30, 2022.

NOTE 6 – VARIABLE INTEREST ENTITIES, CONTINGENT LIABILITY AND CONSOLIDATED JOINT VENTURES

Variable Interest Entity – Ground Lease

The Company determined it has a variable interest through its ground lease at its Beachwood, Ohio property (The Vue Apartments) and the owner/operator is a VIE because its equity investment at risk is insufficient to finance its activities without additional subordinated financial support. The Company further determined that it is not the primary beneficiary of this VIE because the Company does not have power over the activities that most significantly impact the owner/operator’s economic performance and therefore, does not consolidate this VIE for financial statement purposes. Accordingly, the Company accounts for this investment as land and the revenues from the ground lease as Rental income, net. The ground lease provides for rent which can be deferred and paid based on the operating performance of the property; therefore, this rent is recognized as rental income when the operating performance is achieved and the rent is received. No ground lease rental income has been collected since October 2020.

As of March 31, 2022, the VIE’s maximum exposure to loss was $15,986,000 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 $65,710,000 as of March 31, 2022.

Pursuant to the ground lease, as amended in November 2020, the Company agreed, in its discretion, to fund 78% of (i) any operating expense shortfalls at the property and (ii) any capital expenditures required at the property. The Company funded $1,746,000 during the year ended December 31, 2021 and an additional $271,000 and $69,000 during the three months ended March 31, 2022 and from April 1 through May 3, 2022, respectively. These amounts are included as part of the carrying amount of the land.

12

Table of Contents

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2022 (Continued)

NOTE 6 – VARIABLE INTEREST ENTITIES, CONTINGENT LIABILITY AND CONSOLIDATED JOINT VENTURES (CONTINUED)

Variable Interest Entities – Consolidated Joint Ventures

The Company has determined the three consolidated joint ventures in which it holds between a 90% to 95% interest are VIEs because the non-controlling interests do not hold substantive kick-out or participating rights. The Company has determined it is the primary beneficiary of these VIEs as 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, 

    

2022

    

2021

Land

$

10,365

$

10,365

Buildings and improvements, net of accumulated depreciation of $5,140 and $4,957, respectively

18,289

18,472

Cash

1,125

1,134

Unbilled rent receivable

1,035

1,020

Unamortized intangible lease assets, net

529

548

Escrow, deposits and other assets and receivables

555

878

Mortgages payable, net of unamortized deferred financing costs of $185 and $195, respectively

19,021

19,193

Accrued expenses and other liabilities

754

875

Unamortized intangible lease liabilities, net

462

475

Accumulated other comprehensive loss

(5)

(33)

Non-controlling interests in consolidated joint ventures

932

946

As of March 31, 2022 and December 31, 2021, MCB Real Estate, LLC and its affiliates (‘‘MCB’’) are the Company’s joint venture partner in two consolidated joint ventures in which the Company has aggregate equity investments of approximately $4,524,000 and $4,691,000, respectively.

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

NOTE 7 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

As of March 31, 2022 and December 31, 2021, the Company participated in three unconsolidated joint ventures, each of which owns and operates one property; the Company’s equity investment in these ventures totaled $10,288,000 and $10,172,000, respectively. The Company recorded equity in earnings of $116,000 and equity in loss of $22,000 for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022 and December 31, 2021, MCB and the Company are partners in an unconsolidated joint venture in which the Company’s equity investment is approximately $8,846,000 and $8,773,000, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

MARCH 31, 2022 (Continued)

NOTE 8 – 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, 

    

2022

    

2021

Mortgages payable, gross

$

401,140

$

399,660

Unamortized deferred financing costs

 

(3,292)

 

(3,316)

Mortgages payable, net

$

397,848

$

396,344

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) $10,000,000 for renovation purposes and (ii) $20,000,000 for operating expense purposes. These renovation and operating expense limits will apply through June 30, 2022. On July 1, 2022, the maximum amounts the Company can borrow for renovation expenses and operating expenses will change to $20,000,000 and $10,000,000, respectively, and, to the extent that either of these maximums is exceeded as of June 30, 2022, 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 is required to pledge to the lenders the equity interests in such 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 175 and 200 basis points at March 31, 2022 and 2021, respectively. An unused facility fee of .25% per annum applies to the facility. The weighted average interest rate on the facility was approximately 1.89% and 1.88% for the three months ended March 31, 2022 and 2021, respectively. The Company was in compliance with all covenants at March 31, 2022.

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

March 31, 

December 31, 

    

2022

    

2021

Line of credit, gross

$

5,140

$

11,700

Unamortized deferred financing costs

 

(162)

 

(216)

Line of credit, net

$

4,978

$

11,484

At May 3, 2022, there was no balance outstanding under the credit facility and there is $20,000,000 available for operating expense purposes.

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