Company Quick10K Filing
Quick10K
One Liberty Properties
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$28.86 20 $568
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-08-09 Enter Agreement, Leave Agreement, Exhibits
8-K 2019-08-07 Earnings, Exhibits
8-K 2019-07-01 Enter Agreement, Off-BS Arrangement
8-K 2019-06-13 Code of Ethics, Shareholder Vote, Exhibits
8-K 2019-05-10 Regulation FD, Exhibits
8-K 2019-05-07 Earnings, Exhibits
8-K 2019-03-18 Earnings, Exhibits
8-K 2018-12-04 Other Events
8-K 2018-11-08 Earnings, Exhibits
8-K 2018-09-28 Regulation FD, Exhibits
8-K 2018-08-06 Earnings, Exhibits
8-K 2018-06-13 Shareholder Vote
8-K 2018-06-01 Regulation FD, Exhibits
8-K 2018-05-03 Earnings, Exhibits
8-K 2018-03-13 Earnings, Exhibits
8-K 2017-11-07 Regulation FD, Exhibits
VIAV Viavi Solutions 3,100
CVLT Commvault Systems 2,280
RVI Retail Value 621
FDEF First Defiance Financial 593
ACRS Aclaris 245
NIHD NII Holdings 200
QHC Quorum Health 65
UGA United States Gasoline Fund 0
AMGP Antero Midstream Gp 0
WORLD Worlds 0
OLP 2019-06-30
Part I - Financial Information
Item 1. Financial Statements
Note 1 - Organization and Background
Note 2 - Summary Accounting Policies
Note 3 - Leases
Note 4 - Earnings per Common Share
Note 5 - Real Estate Acquisitions
Note 6 - Sale of Properties
Note 7 - Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures
Note 8 - Investment in Unconsolidated Joint Ventures
Note 9 - Debt Obligations
Note 10 - Related Party Transactions
Note 11 - Common Stock Cash Dividend
Note 12 - Shares Issued Through Equity Offering Program
Note 13 - Stock Based Compensation
Note 14 - Fair Value Measurements
Note 15 - New Accounting Pronouncements
Note 16 - Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 5. Other Information
Item 6. Exhibits
EX-10.1 a19-10344_1ex10d1.htm
EX-10.2 a19-10344_1ex10d2.htm
EX-31.1 a19-10344_1ex31d1.htm
EX-31.2 a19-10344_1ex31d2.htm
EX-32.1 a19-10344_1ex32d1.htm
EX-32.2 a19-10344_1ex32d2.htm

One Liberty Properties Earnings 2019-06-30

OLP 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a19-10344_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC   20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2019

 

OR

 

o          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 x           No o

 

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 x          No o

 

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

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company x

 

 

 

Emerging growth company o

 

 

 

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

 

Yes o          No o

 

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

 

Yes o          No x

 

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

 

As of August 1, 2019, the registrant had 19,883,529 shares of common stock outstanding.

 

 

 


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Table of Contents

 

 

 

Page No.

Part I - Financial Information

 

 

 

 

 

Item 1.

Unaudited Consolidated Financial Statements

 

 

 

 

 

 

 

Consolidated Balance Sheets —
June 30, 2019 and December 31, 2018

 

1

 

 

 

 

 

Consolidated Statements of Income —
Three and six months ended June 30, 2019 and 2018

 

2

 

 

 

 

 

Consolidated Statements of Comprehensive Income —
Three and six months ended June 30, 2019 and 2018

 

3

 

 

 

 

 

Consolidated Statements of Changes in Equity —
Three and six months ended June 30, 2019 and 2018

 

4

 

 

 

 

 

Consolidated Statements of Cash Flows —
Six months ended June 30, 2019 and 2018

 

6

 

 

 

 

 

Notes to Consolidated Financial Statements

 

8

 

 

 

 

Item 2.

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

 

30

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

43

 

 

 

 

Item 4.

Controls and Procedures

 

43

 

 

 

 

Part II — Other Information

 

 

 

 

 

 

Item 6.

Exhibits

 

44

 


Table of Contents

 

Part I — FINANCIAL INFORMATION

 

Item 1.    Financial Statements

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Par Value)

 

 

 

June 30,
2019

 

December 31,
2018

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Real estate investments, at cost

 

 

 

 

 

Land

 

$

205,660

 

$

204,162

 

Buildings and improvements

 

645,442

 

624,981

 

Total real estate investments, at cost

 

851,102

 

829,143

 

Less accumulated depreciation

 

131,589

 

123,684

 

Real estate investments, net

 

719,513

 

705,459

 

 

 

 

 

 

 

Investment in unconsolidated joint ventures

 

10,724

 

10,857

 

Cash and cash equivalents

 

17,381

 

15,204

 

Restricted cash

 

337

 

1,106

 

Unbilled rent receivable

 

14,394

 

13,722

 

Unamortized intangible lease assets, net

 

26,001

 

26,541

 

Escrow, deposits and other assets and receivables

 

9,312

 

8,023

 

Total assets(1)

 

$

797,662

 

$

780,912

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Liabilities:

 

 

 

 

 

Mortgages payable, net of $4,352 and $4,298 of deferred financing costs, respectively

 

$

434,151

 

$

418,798

 

Line of credit, net of $156 and $312 of deferred financing costs, respectively

 

31,994

 

29,688

 

Dividends payable

 

8,923

 

8,724

 

Accrued expenses and other liabilities

 

15,437

 

11,094

 

Unamortized intangible lease liabilities, net

 

12,546

 

14,013

 

Total liabilities (1)

 

503,051

 

482,317

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

One Liberty Properties, Inc. stockholders’ equity:

 

 

 

 

 

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

 

 

 

Common stock, $1 par value; 25,000 shares authorized; 19,139 and 18,736 shares issued and outstanding

 

19,139

 

18,736

 

Paid-in capital

 

296,840

 

287,250

 

Accumulated other comprehensive (loss) income

 

(2,196

)

1,890

 

Distributions in excess of net income

 

(20,401

)

(10,730

)

Total One Liberty Properties, Inc. stockholders’ equity

 

293,382

 

297,146

 

Non-controlling interests in consolidated joint ventures (1)

 

1,229

 

1,449

 

Total equity

 

294,611

 

298,595

 

Total liabilities and equity

 

$

797,662

 

$

780,912

 

 


(1)         The Company’s consolidated balance sheets include assets and liabilities of consolidated variable interest entities (“VIEs”).  See Note 7.  The consolidated balance sheets include the following amounts related to the Company’s consolidated VIEs: $12,158 and $14,722 of land, $24,602 and $27,642 of building and improvements, net of $3,886 and $4,119 of accumulated depreciation, $3,781 and $3,931 of other assets included in other line items, $24,605 and $26,850 of real estate debt, net, $1,115 and $2,455 of other liabilities included in other line items and $1,229 and $1,449 of non-controlling interests as of June 30, 2019 and December 31, 2018, respectively.

 

See accompanying notes to consolidated financial statements.

 

1


Table of Contents

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands, Except Per Share Data)

(Unaudited)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

Rental income, net

 

$

20,719

 

$

19,752

 

$

41,874

 

$

39,286

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

5,440

 

5,250

 

10,787

 

10,432

 

General and administrative (see Note 10 for related party information)

 

3,005

 

2,969

 

6,176

 

5,928

 

Real estate expenses (see Note 10 for related party information)

 

3,511

 

2,592

 

6,852

 

5,336

 

State taxes

 

108

 

154

 

187

 

227

 

Total operating expenses

 

12,064

 

10,965

 

24,002

 

21,923

 

 

 

 

 

 

 

 

 

 

 

Other operating income

 

 

 

 

 

 

 

 

 

Gain on sale of real estate, net

 

1,099

 

 

1,099

 

2,408

 

Operating income

 

9,754

 

8,787

 

18,971

 

19,771

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

Equity in earnings (loss) of unconsolidated joint ventures

 

34

 

348

 

(82

)

543

 

Equity in earnings from sale of unconsolidated joint venture property

 

 

71

 

 

71

 

Other income

 

6

 

6

 

10

 

10

 

Interest:

 

 

 

 

 

 

 

 

 

Expense

 

(4,981

)

(4,445

)

(9,843

)

(8,747

)

Amortization and write-off of deferred financing costs

 

(255

)

(221

)

(487

)

(449

)

 

 

 

 

 

 

 

 

 

 

Net income

 

4,558

 

4,546

 

8,569

 

11,199

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to non-controlling interests

 

(446

)

(29

)

(486

)

(831

)

Net income attributable to One Liberty Properties, Inc.

 

$

4,112

 

$

4,517

 

$

8,083

 

$

10,368

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

19,023

 

18,519

 

18,959

 

18,458

 

Diluted

 

19,129

 

18,593

 

19,060

 

18,532

 

 

 

 

 

 

 

 

 

 

 

Per common share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

.20

 

$

.23

 

$

.39

 

$

.53

 

Diluted

 

$

.20

 

$

.23

 

$

.39

 

$

.53

 

 

See accompanying notes to consolidated financial statements.

 

2


Table of Contents

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in Thousands)

(Unaudited)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

Net income

 

$

4,558

 

$

4,546

 

$

8,569

 

$

11,199

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) gain

 

 

 

 

 

 

 

 

 

Net unrealized (loss) gain on derivative instruments

 

(2,518

)

1,104

 

(4,095

)

3,800

 

Reclassification of One Liberty Properties Inc.’s share of joint venture net realized gain on derivative instrument

 

 

(110

)

 

(110

)

One Liberty Properties Inc.’s share of joint venture net unrealized gain on derivative instruments

 

 

22

 

 

76

 

Other comprehensive (loss) gain

 

(2,518

)

1,016

 

(4,095

)

3,766

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

2,040

 

5,562

 

4,474

 

14,965

 

Net income attributable to non-controlling interests

 

(446

)

(29

)

(486

)

(831

)

Adjustment for derivative instruments attributable to non- controlling interests

 

4

 

(2

)

9

 

(8

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to One Liberty Properties, Inc.

 

$

1,598

 

$

5,531

 

$

3,997

 

$

14,126

 

 

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in Thousands, Except Per Share Data)

(Unaudited)

 

 

 

Common
Stock

 

Paid-in
Capital

 

Accumulated
Other
Comprehensive
Income (loss)

 

Accumulated
distributions
in excess of
net income

 

Non-Controlling
Interests in
Consolidated
Joint
Ventures

 

Total

 

Balances, December 31, 2018

 

$

18,736

 

$

287,250

 

$

1,890

 

$

(10,730

)

$

1,449

 

$

298,595

 

Distributions — common stock Cash - $.45 per share

 

 

 

 

(8,832

)

 

(8,832

)

Restricted stock vesting

 

112

 

(112

)

 

 

 

 

Shares issued through equity offering program — net

 

37

 

1,002

 

 

 

 

1,039

 

Shares issued through dividend reinvestment plan

 

52

 

1,147

 

 

 

 

1,199

 

Distributions to non-controlling interests

 

 

 

 

 

(5

)

(5

)

Compensation expense — restricted stock

 

 

954

 

 

 

 

954

 

Net income

 

 

 

 

3,971

 

40

 

4,011

 

Other comprehensive loss

 

 

 

(1,572

)

 

(5

)

(1,577

)

Balances, March 31, 2019

 

18,937

 

290,241

 

318

 

(15,591

)

1,479

 

295,384

 

Distributions — common stock Cash - $.45 per share

 

 

 

 

(8,922

)

 

(8,922

)

Shares issued through equity offering program — net

 

143

 

4,132

 

 

 

 

4,275

 

Shares issued through dividend reinvestment plan

 

59

 

1,529

 

 

 

 

1,588

 

Distributions to non-controlling interests

 

 

 

 

 

(692

)

(692

)

Compensation expense — restricted stock

 

 

938

 

 

 

 

938

 

Net income

 

 

 

 

4,112

 

446

 

4,558

 

Other comprehensive loss

 

 

 

(2,514

)

 

(4

)

(2,518

)

Balances, June 30, 2019

 

$

19,139

 

$

296,840

 

$

(2,196

)

$

(20,401

)

$

1,229

 

$

294,611

 

 

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in Thousands, Except Per Share Data)

(Unaudited) (Continued)

 

 

 

Common
Stock

 

Paid-in
Capital

 

Accumulated
Other
Comprehensive
Income

 

Accumulated
(distributions
in excess of
net income)
undistributed
net income

 

Non-Controlling
Interests in
Consolidated
Joint
Ventures

 

Total

 

Balances, December 31, 2017

 

$

18,261

 

$

275,087

 

$

155

 

$

3,257

 

$

1,742

 

$

298,502

 

Distributions — common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash - $.45 per share

 

 

 

 

(8,581

)

 

(8,581

)

Restricted stock vesting

 

106

 

(106

)

 

 

 

 

Shares issued through dividend reinvestment plan

 

50

 

1,131

 

 

 

 

1,181

 

Distributions to non-controlling interests

 

 

 

 

 

(1,082

)

(1,082

)

Compensation expense — restricted stock

 

 

826

 

 

 

 

826

 

Net income

 

 

 

 

5,851

 

802

 

6,653

 

Other comprehensive income

 

 

 

2,744

 

 

6

 

2,750

 

Balances, March 31, 2018

 

18,417

 

276,938

 

2,899

 

527

 

1,468

 

300,249

 

Distributions — common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash - $.45 per share

 

 

 

 

(8,652

)

 

(8,652

)

Shares issued through equity offering program — net

 

93

 

2,165

 

 

 

 

2,258

 

Shares issued through dividend reinvestment plan

 

65

 

1,437

 

 

 

 

1,502

 

Distributions to non-controlling interests

 

 

 

 

 

(77

)

(77

)

Compensation expense — restricted stock

 

 

856

 

 

 

 

856

 

Net income

 

 

 

 

4,517

 

29

 

4,546

 

Other comprehensive income

 

 

 

1,014

 

 

2

 

1,016

 

Balances, June 30, 2018

 

$

18,575

 

$

281,396

 

$

3,913

 

$

(3,608

)

$

1,422

 

$

301,698

 

 

See accompanying notes to consolidated financial statements.

 

5


Table of Contents

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited)

 

 

 

Six Months Ended
June 30,

 

 

 

2019

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

8,569

 

$

11,199

 

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

 

 

 

 

 

Gain on sale of real estate, net

 

(1,099

)

(2,408

)

Increase in unbilled rent receivable

 

(799

)

(537

)

Amortization and write-off of intangibles relating to leases, net

 

(509

)

(488

)

Amortization of restricted stock expense

 

1,892

 

1,682

 

Equity in loss (earnings) of unconsolidated joint ventures

 

82

 

(543

)

Equity in earnings from sale of unconsolidated joint venture property

 

 

(71

)

Distributions of earnings from unconsolidated joint ventures

 

41

 

88

 

Depreciation and amortization

 

10,787

 

10,432

 

Amortization and write-off of deferred financing costs

 

487

 

449

 

Payment of leasing commissions

 

(186

)

(95

)

Decrease in escrow, deposits, other assets and receivables

 

683

 

718

 

Decrease in accrued expenses and other liabilities

 

(1,637

)

(1,627

)

Net cash provided by operating activities

 

18,311

 

18,799

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of real estate

 

(26,978

)

(18,452

)

Improvements to real estate

 

(2,335

)

(5,991

)

Net proceeds from sale of real estate

 

5,314

 

8,958

 

Distributions of capital from unconsolidated joint venture

 

11

 

 

Net cash used in investing activities

 

(23,988

)

(15,485

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Scheduled amortization payments of mortgages payable

 

(6,433

)

(5,313

)

Repayment of mortgages payable

 

(1,705

)

(9,827

)

Proceeds from mortgage financings

 

23,545

 

13,550

 

Proceeds from sale of common stock, net

 

5,314

 

2,258

 

Proceeds from bank line of credit

 

33,650

 

25,000

 

Repayment on bank line of credit

 

(31,500

)

(14,100

)

Issuance of shares through dividend reinvestment plan

 

2,787

 

2,683

 

Payment of financing costs

 

(382

)

(262

)

Distributions to non-controlling interests

 

(697

)

(1,159

)

Cash distributions to common stockholders

 

(17,555

)

(17,074

)

Net cash provided by (used in) financing activities

 

7,024

 

(4,244

)

 

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

1,347

 

(930

)

Cash, cash equivalents and restricted cash at beginning of year

 

16,733

 

14,668

 

Cash, cash equivalents and restricted cash at end of period

 

$

18,080

 

$

13,738

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

Cash paid during the period for interest expense

 

$

9,912

 

$

8,721

 

Supplemental disclosure of non-cash investing activity:

 

 

 

 

 

Right of use asset and related lease liability

 

4,381

 

 

Purchase accounting allocation — intangible lease assets

 

1,753

 

 

Purchase accounting allocation — intangible lease liabilities

 

(305

)

 

 

See accompanying notes to consolidated financial statements.

 

6


Table of Contents

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited) (Continued)

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows (amounts in thousands):

 

 

 

June 30,

 

 

 

2019

 

2018

 

Cash and cash equivalents

 

$

17,381

 

$

12,925

 

Restricted cash

 

337

 

416

 

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

 

362

 

397

 

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

 

$

18,080

 

$

13,738

 

 

Amounts included in restricted cash represent the cash reserve balance received from an owner/operator at one of the Company’s ground leases (see Note 7).  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.

 

7


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019

 

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 June 30, 2019, OLP owns 126 properties, including four properties owned by consolidated joint ventures and four properties owned by unconsolidated joint ventures. The 126 properties are located in 31 states.

 

Note 2 — Summary Accounting Policies

 

Principles of Consolidation/Basis of Preparation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by U.S. Generally Accepted Accounting Principles (“GAAP”) for interim reporting. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statement disclosures. In the opinion of management, all adjustments of a normal recurring nature necessary for fair presentation have been included. The results of operations for the three and six months ended June 30, 2019 and 2018 are not necessarily indicative of the results for the full year. These statements should be read in conjunction with the consolidated financial statements and related notes included in OLP’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

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.

 

8


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 2 — Summary Accounting Policies (Continued)

 

The Company assesses the accounting treatment for each of its investments, including a review of each venture or limited liability company or partnership agreement, to determine the rights of each party and whether those rights are protective or participating. The agreements typically contain certain protective rights, such as the requirement of partner approval to sell, finance or refinance the property and to pay capital expenditures and operating expenditures outside of the approved budget or operating plan. In situations where, among other things, the Company and its partners jointly (i) approve the annual budget, (ii) approve certain expenditures, (iii) prepare or review and approve the joint venture’s tax return before filing, and (iv) approve each lease at a property, the Company does not consolidate as the Company considers these to be substantive participation rights that result in shared, joint power over the activities that most significantly impact the performance of the joint venture or property. Additionally, the Company assesses the accounting treatment for any interests pursuant to which the Company may have a variable interest as a lessor. Leases may contain certain protective rights, such as the right of sale and the receipt of certain escrow deposits.

 

The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting. All investments in unconsolidated joint ventures have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support and, as a group, the holders of the equity at risk have power through voting rights to direct the activities of these ventures. As a result, none of these joint ventures are VIEs. In addition, the Company shares power with its co-managing members over these entities, and therefore the entities are not consolidated. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for their share of equity in earnings, cash contributions and distributions. None of the joint venture debt is recourse to the Company, subject to standard carve-outs.

 

The Company periodically reviews its investments in unconsolidated joint ventures for other-than-temporary losses in investment value. Any decline that is not expected to be recovered based on the underlying assets of the investment is considered other than temporary and an impairment charge is recorded as a reduction in the carrying value of the investment. During the three and six months ended June 30, 2019 and 2018, there were no 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.

 

9


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 2 — Summary Accounting Policies (Continued)

 

Reclassifications

 

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

 

10


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 3 - Leases

 

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

 

As Lessor

 

The Company owns rental properties which are leased to tenants under operating leases with current expirations ranging from 2019 to 2055, with options to extend or terminate the lease or purchase the property exercisable at the option of our tenants. Revenues from such leases are reported as Rental income, net and are comprised of (i) lease components, which includes fixed and variable lease payments and (ii) non-lease components which includes reimbursements of property level operating expenses. The Company adopted the practical expedient offered in ASU No. 2018-11 which allows lessors to 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

 

Six Months
Ended

 

 

 

June 30, 2019

 

Fixed lease revenues

 

$

17,435

 

$

35,080

 

Variable lease revenues

 

3,029

 

6,285

 

Lease revenues (a)

 

$

20,464

 

$

41,365

 

 


(a)         Excludes $255 and $509 of amortization related to lease intangible assets and liabilities for the three and six months ended June 30, 2019, respectively.

 

On a quarterly basis, the Company assesses the collectability of substantially all lease payments due under its leases, including unbilled rent receivable balances, by reviewing the tenant’s payment history and financial condition. Changes to such collectability is recognized as a current period adjustment to rental revenue. The Company has assessed the collectability of all lease payments as probable as of June 30, 2019.

 

11


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 3 — Leases (Continued)

 

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

 

As a lessor, the adoption of ASU No. 2016-02, and the related accounting guidance, did not have a material impact on the consolidated financial statements. As a result of the adoption, the Company combined $2,034,000 and $3,978,000 from its Tenant reimbursements line item into Rental income, net, on its consolidated statements of income for the three and six months ended June 30, 2018, respectively.

 

Minimum Future Rents

 

As of June 30, 2019, under ASC 842, 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 and (ii) variable lease payments as described above.

 

From July 1 — December 31, 2019

 

$

34,397

 

For the year ended December 31,

 

 

 

2020

 

69,303

 

2021

 

67,852

 

2022

 

59,260

 

2023

 

50,456

 

2024

 

41,992

 

Thereafter

 

172,261

 

Total

 

$

495,521

 

 

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

 

For the year ended December 31,

 

 

 

2019

 

$

66,959

 

2020

 

66,691

 

2021

 

65,130

 

2022

 

56,444

 

2023

 

47,644

 

Thereafter

 

208,923

 

Total

 

$

511,791

 

 

12


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 3 — Leases (Continued)

 

As Lessee

 

The Company is a lessee under a ground lease in Greensboro, North Carolina, which is classified as an operating lease. The lease expires March 3, 2020 and provides for up to five, 5-year renewal options and one seven-month renewal option. On January 1, 2019, upon adoption of ASC 842, the Company recorded a $4,381,000 liability for the obligation to make payments under the lease and a $4,381,000 asset for the right to use the underlying asset during the lease term which were included in other liabilities and other assets, respectively, on the consolidated balance sheet. Lease payments associated with renewal option periods that the Company determined were reasonably certain to be exercised are included in the measurement of the lease liability and right of use asset. The Company applied a discount rate of 4.75%, based on its incremental borrowing rate given the term of the lease, as the rate implicit in the lease is not known.  As of June 30, 2019, the remaining lease term is 10.7 years. During the three and six months ended June 30, 2019, the Company recognized $131,000 and $262,000, respectively, of lease expense related to this ground lease which is included in Real estate expenses on the consolidated statements of income.

 

Minimum Future Lease Payments

 

As of June 30, 2019, under ASC 842, the minimum future lease payments related to this operating ground lease are as follows (amounts in thousands):

 

From July 1 — December 31, 2019

 

$

224

 

For the year ended December 31,

 

 

 

2020

 

464

 

2021

 

464

 

2022

 

464

 

2023

 

464

 

2024

 

512

 

Thereafter

 

3,086

 

Total undiscounted cash flows

 

$

5,678

 

Present value discount

 

(1,398

)

Lease liability

 

$

4,280

 

 

As of December 31, 2018, under ASC 840, the minimum future lease payments related to this operating ground lease were $371,000 through July 2019 and $464,000 through March 3, 2020.

 

13


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 4 — Earnings Per Common Share

 

Basic earnings per share was determined by dividing net income allocable to common stockholders for each period by the weighted average number of shares of common stock outstanding during the applicable period. Net income is also allocated to the unvested restricted stock outstanding during each period, as the restricted stock is entitled to receive dividends and is therefore considered a participating security. As of June 30, 2019, the shares of common stock underlying the restricted stock units (the “RSUs”) awarded under the 2016 Incentive Plan are excluded from the basic earnings per share calculation, as these units are not participating securities.

 

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

 

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

 

 

 

Three and Six Months Ended
June 30, 2019 (b)

 

Three and Six Months Ended
June 30, 2018 (c)

 

Date of Award and
Total Number of
Underlying Shares (a)

 

Return on
Capital
metric

 

Stockholder
Return
metric

 

Total

 

Return on
Capital
metric

 

Stockholder
Return
metric

 

Total

 

September 26, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

76,250 shares

(d)

32,824

 

38,125

 

70,949

 

36,120

 

38,125

 

74,245

 

July 1, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

76,250 shares

(e)

29,771

 

38,125

 

67,896

 

n/a

 

n/a

 

n/a

 

 

 

62,595

 

76,250

 

138,845

 

36,120

 

38,125

 

74,245

 

 


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

 

(b)         Reflects the number of shares underlying RSUs that would be issued assuming the measurement date used to determine whether the applicable conditions are satisfied is June 30, 2019.

 

(c)          Reflects the number of shares underlying RSUs that would be issued assuming the measurement date used to determine whether the applicable conditions are satisfied is June 30, 2018.

 

(d)         None of the remaining 5,301 shares and 2,005 shares are included at June 30, 2019 and 2018, respectively, as the applicable condition had not been met for these shares at the respective measurement dates.

 

(e)          None of the remaining 8,354 shares are included at June 30, 2019, as the applicable conditions had not been met for these shares at the measurement date.

 

See Note 13 for information regarding the Company’s equity incentive plans.

 

14


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 4 — Earnings Per Common Share (Continued)

 

The following table provides a reconciliation of the numerator and denominator of earnings per share calculations (amounts in thousands, except per share amounts):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

Numerator for basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

Net income

 

$

4,558

 

$

4,546

 

$

8,569

 

$

11,199

 

Less net income attributable to non-controlling interests

 

(446

)

(29

)

(486

)

(831

)

Less earnings allocated to unvested restricted stock (a)

 

(310

)

(293

)

(620

)

(586

)

Net income available for common stockholders: basic and diluted

 

$

3,802

 

$

4,224

 

$

7,463

 

$

9,782

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share:

 

 

 

 

 

 

 

 

 

Weighted average number of common shares

 

19,023

 

18,519

 

18,959

 

18,458

 

Effect of diluted securities:

 

 

 

 

 

 

 

 

 

RSUs

 

106

 

74

 

101

 

74

 

Denominator for diluted earnings per share:

 

 

 

 

 

 

 

 

 

Weighted average number of shares

 

19,129

 

18,593

 

19,060

 

18,532

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share, basic

 

$

.20

 

$

.23

 

$

.39

 

$

.53

 

Earnings per common share, diluted

 

$

.20

 

$

.23

 

$

.39

 

$

.53

 

 


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

 

15


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 5 — Real Estate Acquisitions

 

The following chart details the Company’s acquisitions of real estate during the six months ended June 30, 2019 (amounts in thousands):

 

Description of Property

 

Date Acquired

 

Contract
Purchase
Price

 

Terms of
Payment

 

Capitalized
Third Party
Real Estate
Acquisition
Costs

 

Zwanenberg Food Group/Metro Carpets industrial facility,

 

 

 

 

 

 

 

 

 

Nashville, Tennessee

 

May 30, 2019

 

$

8,000

 

All cash (a)

 

$

77

 

Echo, Inc. industrial facility,

 

 

 

 

 

 

 

 

 

Wauconda, Illinois

 

May 30, 2019

 

3,800

 

All cash

 

26

 

Tinicum Mechanical Supply/Philly Motors industrial facility,

 

 

 

 

 

 

 

 

 

Bensalem, Pennsylvania

 

June 18, 2019

 

6,200

 

All cash

 

168

 

International Flora Technologies industrial facility,

 

 

 

 

 

 

 

 

 

Chandler, Arizona

 

June 26, 2019

 

8,650

 

All cash

 

57

 

Totals

 

 

 

$

26,650

 

 

 

$

328

 

 


(a)         In July 2019, the Company obtained new mortgage debt of $5,200.

 

The Company determined that with respect to each of these acquisitions, the gross assets acquired are concentrated in a single identifiable asset. Therefore, these transactions do not meet the definition of a business and are accounted for as asset acquisitions. As such, direct transaction costs associated with these asset acquisitions have been capitalized to real estate assets and depreciated over their respective useful lives.

 

The following chart details the allocation of the purchase price for the Company’s acquisitions of real estate during the six months ended June 30, 2019 (amounts in thousands):

 

 

 

 

 

 

 

Building

 

Intangible Lease

 

 

 

Description of Property

 

Land

 

Building

 

Improvements

 

Asset

 

Liability

 

Total

 

Zwanenberg Food Group/Metro Carpets industrial facility,

 

 

 

 

 

 

 

 

 

 

 

 

 

Nashville, Tennessee

 

$

1,058

 

$

6,280

 

$

70

 

$

750

 

$

(81

)

$

8,077

 

Echo, Inc. industrial facility,

 

 

 

 

 

 

 

 

 

 

 

 

 

Wauconda, Illinois

 

67

 

3,283

 

141

 

339

 

(4

)

3,826

 

Tinicum Mechanical Supply/Philly Motors industrial facility,

 

 

 

 

 

 

 

 

 

 

 

 

 

Bensalem, Pennsylvania

 

1,602

 

4,285

 

37

 

664

 

(220

)

6,368

 

International Flora Technologies industrial facility,

 

 

 

 

 

 

 

 

 

 

 

 

 

Chandler, Arizona

 

1,334

 

7,152

 

221

 

 

 

8,707

 

Totals

 

$

4,061

 

$

21,000

 

$

469

 

$

1,753

 

$

(305

)

$

26,978

 

 

On July 24, 2019, the Company purchased an industrial property in LaGrange, Georgia for $5,200,000.

 

16


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 6 — Sale of Properties

 

On June 20, 2019, the Company sold a property located in Clemmons, North Carolina and owned by a consolidated joint venture in which the Company held a 90% interest, for $5,314,000, net of closing costs, and paid off the $1,705,000 mortgage. This property accounted for less than 1% of the Company’s rental income, net, during each of the three and six months ended June 30, 2019 and 2018. The sale resulted in a gain of $1,099,000 which was recorded as Gain on sale of real estate, net, in the consolidated statements of income for the three and six months ended June 30, 2019. The non-controlling interest’s share of the gain was $422,000.

 

On January 30, 2018, the Company sold a property located in Fort Bend, Texas and owned by a consolidated joint venture in which the Company held an 85% interest, for $8,958,000, net of closing costs. The sale resulted in a gain of $2,408,000 which was recorded as Gain on sale of real estate, net, in the consolidated statement of income for the six months ended June 30, 2018. The non-controlling interest’s share of the gain was $776,000.

 

Note 7 — Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures

 

Variable Interest Entities — Ground Leases

 

The Company determined that with respect to the properties identified in the table below, it has a variable interest through its ground leases and the two owner/operators (which are affiliated with one another) are VIEs because their equity investment at risk is insufficient to finance their activities without additional subordinated financial support. The Company further determined that it is not the primary beneficiary of these VIEs because the Company has shared power over certain activities that most significantly impact the owner/operator’s economic performance (i.e., shared rights on the sale of the property) and therefore, does not consolidate these VIEs for financial statement purposes. Accordingly, the Company accounts for these investments as land and the revenues from the ground leases as Rental income, net. Such rental income amounted to $486,000 and $971,000 for the three and six months ended June 30, 2019, respectively, and $941,000 and $1,947,000 for the three and six months ended June 30, 2018, respectively.  Included in the amounts for the three and six months ended June 30, 2018 is rental income of $260,000 and $585,000, respectively, from a previously held VIE property in Lakemoor, Illinois, which the Company sold in September 2018.

 

17


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 7 — Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures (Continued)

 

The following chart details the VIEs through the Company’s ground leases and the aggregate carrying amount and maximum exposure to loss as of June 30, 2019 (dollars in thousands):

 

Description of Property(a)

 

Date Acquired

 

Land
Contract
Purchase
Price

 

# Units in
Apartment
Complex

 

Owner/
Operator
Mortgage
from
Third Party(b)

 

Type of
Exposure

 

Carrying
Amount and
Maximum
Exposure to
Loss

 

The Briarbrook Village Apartments,

 

 

 

 

 

 

 

 

 

 

 

 

 

Wheaton, Illinois

 

August 2, 2016

 

$

10,530

 

342

 

$

39,411

 

Land

 

$

10,536

 

The Vue Apartments,

 

 

 

 

 

 

 

 

 

 

 

 

 

Beachwood, Ohio

 

August 16, 2016

 

13,896

 

348

 

67,444

 

Land

 

13,901

 

Totals

 

 

 

$

24,426

 

690

 

$

106,855

 

 

 

$

24,437

 

 


(a)         Simultaneously with each purchase, the Company entered into a triple net ground lease with affiliates of Strategic Properties of North America, the owner/operators of these properties.

 

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

 

Pursuant to the terms of the ground lease for the Wheaton, Illinois property, the owner/operator is obligated to make certain unit renovations as and when units become vacant. Cash reserves to cover such renovation work, received by the Company in conjunction with the purchase of the property, are disbursed when the unit renovations are completed. The related cash reserve balance for this property was $337,000 and $356,000 at June 30, 2019 and December 31, 2018, respectively, and is classified as Restricted cash on the consolidated balance sheets. The Restricted cash balance at December 31, 2018 also included, pursuant to a lease amendment, an escrow deposit of $750,000 from the owner/operator of the Beachwood, Ohio property and was paid in January 2019.

 

Variable Interest Entity — Consolidated Joint Ventures

 

The Company has determined that the four 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 these joint ventures.

 

18


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 7 — Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures (Continued)

 

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

 

 

 

June 30,
2019

 

December 31,
2018 (a)

 

Land

 

$

12,158

 

$

14,722

 

Buildings and improvements, net of accumulated depreciation of $3,886 and $4,119, respectively

 

24,602

 

27,642

 

Cash

 

1,177

 

1,020

 

Unbilled rent receivable

 

1,248

 

1,211

 

Unamortized intangible lease assets, net

 

810

 

890

 

Escrow, deposits and other assets and receivables

 

546

 

810

 

Mortgages payable, net of unamortized deferred financing costs of $344 and $391, respectively

 

24,605

 

26,850

 

Accrued expenses and other liabilities

 

485

 

761

 

Unamortized intangible lease liabilities, net

 

630

 

1,694

 

Accumulated other comprehensive (loss) income

 

(66

)

31

 

Non-controlling interests in consolidated joint ventures

 

1,229

 

1,449

 

 


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

 

MCB Real Estate, LLC and its affiliates (‘‘MCB’’) are the Company’s joint venture partner in three and four consolidated joint ventures at June 30, 2019 and December 31, 2018, respectively, in which the Company has aggregate equity investments of approximately $7,833,000 and $9,891,000, 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.

 

19


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 8 — Investment in Unconsolidated Joint Ventures

 

The Company participates in four unconsolidated joint ventures, each of which owns and operates one property.  At June 30, 2019 and December 31, 2018, the Company’s equity investment in these ventures totaled $10,724,000 and $10,857,000, respectively.  The Company recorded equity in earnings of $34,000 and equity in loss of $82,000 for the three and six months ended June 30, 2019, respectively, and, in addition to the equity in earnings from the sale of property of $71,000 in 2018, equity in earnings of $348,000 and $543,000 for the three and six months ended June 30, 2018, respectively.  Included in equity in earnings from unconsolidated joint ventures for the three and six months ended June 30, 2018 is $110,000 related to the discontinuance of hedge accounting on a mortgage swap related to an unconsolidated joint venture property, located in Milwaukee, Wisconsin, that was sold in July 2018 (see Note 14).

 

At June 30, 2019 and December 31, 2018, MCB and the Company are partners in an unconsolidated joint venture in which the Company’s equity investment is approximately $8,893,000 and $9,087,000, respectively.

 

Note 9 — Debt Obligations

 

Mortgages Payable

 

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

 

 

 

June 30,
2019

 

December 31,
2018

 

Mortgages payable, gross

 

$

438,503

 

$

423,096

 

Unamortized deferred financing costs

 

(4,352

)

(4,298

)

Mortgages payable, net

 

$

434,151

 

$

418,798

 

 

Line of Credit

 

On July 1, 2019, the Company amended its credit facility with Manufacturers & Traders Trust Company, People’s United Bank, VNB New York, LLC, and Bank Leumi USA, which among other things, extended the facility’s maturity to December 31, 2022 from December 31, 2019. In connection with the amendment, the Company incurred a $550,000 commitment fee which will be amortized over the remaining term of the facility. The Company can borrow up to $100,000,000, subject to borrowing base requirements.  The Company’s interest rate is the one month LIBOR rate plus an applicable margin ranging from 175 basis points to 300 basis points depending on the ratio of the Company’s total debt to total value, as determined pursuant to the facility.  At June 30, 2019 and 2018, the applicable margin was 200 and 175 basis points, respectively.  An unused facility fee of .25% per annum applies to the facility.  The average interest rate on the facility was approximately 4.22% and 3.54% for the six months ended June 30, 2019 and 2018, respectively.  The Company was in compliance with all covenants at June 30, 2019.

 

20


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 9 — Debt Obligations (Continued)

 

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

 

 

 

June 30,
2019

 

December 31,
2018

 

Line of credit, gross

 

$

32,150

 

$

30,000

 

Unamortized deferred financing costs

 

(156

)

(312

)

Line of credit, net

 

$

31,994

 

$

29,688

 

 

At August 2, 2019, there was an outstanding balance of $30,350,000 (before unamortized deferred financing costs) under the facility.

 

Note 10 — Related Party Transactions

 

Compensation and Services Agreement

 

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

 

In consideration for the Services, the Company paid Majestic $702,000 and $1,405,000 for the three and six months ended June 30, 2019, respectively, and $689,000 and $1,367,000 for the three and six months ended June 30, 2018, respectively.  Included in these fees are $322,000 and $646,000 of property management costs for the three and six months ended June 30, 2019, respectively, and $309,000 and $608,000 for the three and six months ended June 30, 2018, respectively.  The amounts paid pursuant to the property management portion of the compensation and services agreement is paid based on 1.5% and 2.0% of the rental payments (including tenant reimbursements) actually received by the Company from net lease tenants and operating lease tenants, respectively. The Company does not pay Majestic with respect to properties managed by third parties. Majestic credits against the amounts due to it under the compensation and services agreement any management or other net payments received by it from any joint venture in which the Company is a joint venture partner. The Company also paid Majestic, pursuant to the compensation and services agreement, $54,000 and $108,000 in the three and six months ended June 30, 2019 and 2018, respectively, for the Company’s share of all direct office expenses, including rent, telephone, postage, computer services, internet usage and supplies. The Company does not pay Majestic for any services except as described in this paragraph.

 

21


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 10 — Related Party Transactions (Continued)

 

Executive officers and others providing services to the Company under the compensation and services agreement were awarded shares of restricted stock and RSUs under the Company’s stock incentive plans (described in Note 13). The related expense charged to the Company’s operations was $462,000 and $932,000 for the three and six months ended June 30, 2019, respectively, and $432,000 and $849,000 for the three and six months ended June 30, 2018, respectively.

 

The amounts paid under the compensation and services agreement (except for the property management costs which are included in Real estate expenses) and the costs of the stock incentive plans are included in General and administrative expense on the consolidated statements of income for the three and six months ended June 30, 2019 and 2018, respectively.

 

Joint Venture Partners and Affiliates

 

The Company paid an aggregate of $20,000 and $41,000 for the three and six months ended June 30, 2019, respectively, and $22,000 and $65,000 for the three and six months ended June 30, 2018, respectively, to its consolidated joint venture partners or their affiliates (none of whom are officers, directors or employees of the Company) for property management services, which are included in Real estate expenses on the consolidated statements of income.

 

The Company’s unconsolidated joint ventures paid management fees of $30,000 and $55,000 for the three and six months ended June 30, 2019, respectively, and $45,000 and $96,000 for the three and six months ended June 30, 2018, respectively, to the other partner of the venture, which reduced Equity in earnings by $15,000 and $28,000 for the three and six months ended June 30, 2019, respectively, and $23,000 and $48,000 for the three and six months ended June 30, 2018, respectively.

 

Other

 

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

 

The Company obtains its property insurance in conjunction with Gould Investors L.P. (“Gould Investors”), a related party, and reimburses Gould Investors annually for the Company’s insurance cost relating to its properties.  Included in Real estate expenses on the consolidated statements of income is insurance expense of $222,000 and $447,000 for the three and six months ended June 30, 2019, respectively, and $206,000 and $404,000 for the three and six months ended June 30, 2018, respectively, of amounts reimbursed to Gould Investors in prior periods.

 

22


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 11 — Common Stock Cash Dividend

 

On June 13, 2019, the Board of Directors declared a quarterly cash dividend of $.45 per share on the Company’s common stock, totaling approximately $8,923,000. The quarterly dividend was paid on July 9, 2019 to stockholders of record on June 25, 2019.

 

Note 12 — Shares Issued through Equity Offering Program

 

During the three months ended June 30, 2019, the Company sold 143,120 shares for proceeds of $4,308,000, net of commissions of $44,000, and incurred offering costs of $33,000 for professional fees. During the six months ended June 30, 2019, the Company sold 180,120 shares for proceeds of $5,392,000, net of commissions of $54,000, and incurred offering costs of $78,000 for professional fees.

 

Note 13 — 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.  An aggregate of 841,650 shares of restricted stock and restricted stock units are outstanding under the Company’s 2016 and 2012 equity incentive plans (collectively, the “Prior Plans”) and have not yet vested.  No additional awards may be granted under the Prior Plans.

 

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

 

In 2017, 2018 and in July 2019, the Company granted RSUs exchangeable for up to 76,250, 76,250 and 77,776 shares, respectively, of common stock upon satisfaction, through June 30, 2020, June 30, 2021 and June 30, 2022, 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.

 

23


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 13 — Stock Based Compensation (Continued)

 

Expense is not recognized on the RSUs which the Company does not expect to vest as a result of the Company’s performance expectations.

 

As of June 30, 2019, based on performance and market assumptions, the fair value of the RSUs granted in 2017 and 2018 is $781,000 and $853,000, respectively. Recognition of such deferred compensation expense will be charged to General and administrative expense over the respective three year performance cycle.  None of these RSUs were forfeited or vested during the six months ended June 30, 2019.

 

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

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

Restricted stock grants:

 

 

 

 

 

 

 

 

 

Number of shares

 

 

 

150,050

 

144,750

 

Average per share grant price

 

 

 

$

25.70

 

$

25.31

 

Deferred compensation to be recognized over vesting period

 

 

 

$

3,856,000

 

$

3,664,000

 

 

 

 

 

 

 

 

 

 

 

Number of non-vested shares:

 

 

 

 

 

 

 

 

 

Non-vested beginning of period

 

689,150

 

651,650

 

651,250

 

612,900

 

Grants

 

 

 

150,050

 

144,750

 

Vested during period

 

 

 

(112,150

)

(106,000

)

Forfeitures

 

 

(150

)

 

(150

)

Non-vested end of period

 

689,150

 

651,500

 

689,150

 

651,500

 

 

 

 

 

 

 

 

 

 

 

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 period

 

152,500

 

76,250

 

152,500

 

76,250

 

Grants

 

 

 

 

 

Vested during period

 

 

 

 

 

 

Forfeitures

 

 

 

 

 

Non-vested end of period

 

152,500

 

76,250

 

152,500

 

76,250

 

 

24


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 13 — Stock Based Compensation (Continued)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

Restricted stock and RSU grants:

 

 

 

 

 

 

 

 

 

Weighted average per share value of non- vested shares (based on grant price)

 

$

24.60

 

$

23.56

 

$

24.60

 

$

23.56

 

Value of stock vested during the period (based on grant price)

 

$

 

$

 

$

2,304,000

 

$

2,289,000

 

Weighted average per share value of shares forfeited during the period based on grant price)

 

$

 

$

23.93

 

$

 

$

23.93

 

 

 

 

 

 

 

 

 

 

 

The total charge to operations:

 

 

 

 

 

 

 

 

 

Outstanding restricted stock grants

 

$

843,000

 

$

765,000

 

$

1,686,000

 

$

1,500,000

 

Outstanding RSUs

 

95,000

 

91,000

 

206,000

 

182,000

 

Total charge to operations

 

$

938,000

 

$

856,000

 

$

1,892,000

 

$

1,682,000

 

 

As of June 30, 2019, total compensation costs of $8,985,000 and $851,000 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 2.6 years for the restricted stock and 1.5 years for the RSUs.

 

Note 14 — Fair Value Measurements

 

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

 

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

 

25


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 14 — Fair Value Measurements (Continued)

 

At June 30, 2019, the $446,700,000 estimated fair value of the Company’s mortgages payable is more than their $438,503,000 carrying value (before unamortized deferred financing costs) by approximately $8,197,000 assuming a blended market interest rate of 4.0% based on the 8.2 year weighted average remaining term to maturity of the mortgages.  At December 31, 2018, the $420,396,000 estimated fair value of the Company’s mortgages payable is less than their $423,096,000 carrying value (before unamortized deferred financing costs) by approximately $2,700,000 assuming a blended market interest rate of 4.41% based on the 8.7 year weighted average remaining term to maturity of the mortgages.

 

At June 30, 2019 and December 31, 2018, the carrying amount of the Company’s line of credit (before unamortized deferred financing costs) of $32,150,000 and $30,000,000, 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

 

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

 

 

 

As of

 

Carrying and Fair Value

 

Financial assets:

 

 

 

 

 

Interest rate swaps

 

June 30, 2019

 

$

126

 

 

 

December 31, 2018

 

2,399

 

Financial liabilities:

 

 

 

 

 

Interest rate swaps

 

June 30, 2019

 

$

2,327

 

 

 

December 31, 2018

 

505

 

 

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

 

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

 

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

 

26


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 14 — Fair Value Measurements (Continued)

 

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 June 30, 2019, the Company has assessed and determined the impact of the credit valuation adjustments on the overall valuation of its derivative positions is not significant. As a result, the Company determined its derivative valuation is classified in Level 2 of the fair value hierarchy.

 

As of June 30, 2019, the Company had entered into 26 interest rate derivatives, all of which were interest rate swaps, related to 26 outstanding mortgage loans with an aggregate $113,733,000 notional amount and mature between 2019 and 2028 (weighted average remaining term to maturity of 5.4 years).  Such interest rate swaps, all of which were designated as cash flow hedges, converted LIBOR based variable rate mortgages to fixed annual rate mortgages (with interest rates ranging from 3.02% to 5.38% and a weighted average interest rate of 4.12% at June 30, 2019).  The fair values of the Company’s derivatives in asset and liability positions are reflected as other assets or other liabilities on the consolidated balance sheets.

 

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
June 30,

 

Six Months Ended
June 30,

 

 

 

2019

 

2018

 

2019

 

2018

 

One Liberty Properties, Inc. and Consolidated subsidiaries

 

 

 

 

 

 

 

 

 

Amount of (loss) gain recognized on derivatives in other comprehensive (loss) income

 

$

(2,477

)

$

1,009

 

$

(3,962

)

$

3,509

 

Amount of reclassification from Accumulated other comprehensive (loss) income into Interest expense

 

41

 

(95

)

133

 

(291

)

 

 

 

 

 

 

 

 

 

 

Unconsolidated Joint Ventures (Company’s share)

 

 

 

 

 

 

 

 

 

Amount of gain recognized on derivatives in other comprehensive (loss) income

 

n/a

 

$

22

 

n/a

 

$

69

 

Amount of reclassification from Accumulated other comprehensive (loss) income into Equity in earnings (loss) of unconsolidated joint ventures

 

n/a

 

110

 

n/a

 

103

 

 

During the three and six months ended June 30, 2019 and 2018, the Company (including one of its unconsolidated joint ventures) discontinued hedge accounting on two interest rate swaps as the forecasted hedged transactions were no longer probable of occurring. As a result, during the three and six months ended June 30, 2019 and 2018, the Company reclassified $41,000 and $110,000 of realized loss and gain, respectively, from Accumulated other comprehensive (loss) income to earnings.  No gain or loss was recognized with respect to amounts excluded from effectiveness testing on the Company’s cash flow hedges for the three and six months ended June 30, 2019 and 2018.

 

27


Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 14 — Fair Value Measurements (Continued)

 

During the twelve months ending June 30, 2020, the Company estimates an additional $355,000 will be reclassified from Accumulated other comprehensive (loss) income as an increase to Interest expense.

 

The derivative agreements in effect at June 30, 2019 provide that if the wholly-owned subsidiary of the Company which is a party to the 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 June 30, 2019 and December 31, 2018, the fair value of the derivatives in a liability position, including a net accrued interest receivable of $16,000 and an accrued interest payable of $8,000, respectively, but excluding any adjustments for non-performance risk, was approximately $2,457,000 and $554,000, respectively.  In the event the Company had breaches of any of the contractual provisions of the derivative contracts, it would be required to settle its obligations thereunder at their termination liability value of $2,457,000 and $554,000 as of June 30, 2019 and December 31, 2018, respectively.  This termination liability value, net of adjustments for non-performance risk of $146,000 and $41,000, is included in Accrued expenses and other liabilities on the consolidated balance sheet at June 30, 2019 and December 31, 2018, respectively.

 

Note 15 — New Accounting Pronouncements

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. An entity is permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements.  The Company is evaluating the new guidance to determine if, and to the extent, it will impact the Company’s consolidated financial statements.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current “incurred loss” model with an “expected loss” approach. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted after December 2018. The Company is evaluating the new guidance to determine if, and to the extent, it will impact the consolidated financial statements.

 

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

 

Note 16 — Subsequent Events

 

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

 

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

 

Forward-Looking Statements

 

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

 

Overview

 

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

 

We acquire, own and manage a geographically diversified portfolio consisting primarily of industrial, retail (including furniture stores and supermarkets), restaurant, health and fitness and theater properties, many of which are subject to long-term net leases.  As of June 30, 2019, we own 126 properties (including four properties owned by consolidated joint ventures and four properties owned by unconsolidated joint ventures) located in 31 states.  Based on square footage, our occupancy rate at June 30, 2019 is approximately 96.6%.

 

We face a variety of risks and challenges in our business. Among other things, we face the possibility that we will not be able to acquire accretive properties on acceptable terms, lease our properties on terms favorable to us or at all, our tenants may be unable to pay their rental and other obligations and we may be unable to renew or relet, on acceptable terms, leases that are expiring or otherwise terminating.

 

We seek to manage the risk of our real property portfolio and the related financing arrangements by diversifying among types of properties, industries, locations, tenants, scheduled lease expirations, mortgage maturities and lenders, and by seeking to minimize our exposure to interest rate fluctuations.  Substantially all of our mortgage debt either bears interest at fixed rates or is subject to interest rate swaps, limiting our exposure to fluctuating interest rates on our outstanding mortgage debt.

 

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We monitor the risk of tenant non-payments through a variety of approaches tailored to the applicable situation. Generally, based on our assessment of the credit risk posed by our tenants, we monitor a tenant’s financial condition through one or more of the following actions: reviewing tenant financial statements or other financial information, obtaining other tenant related information, regular contact with tenant’s representatives, tenant credit checks and regular management reviews of our tenants. We may sell a property if the tenant’s financial condition is unsatisfactory.

 

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

 

We are sensitive to the risks facing the retail industry as a result of the growth of e-commerce. We are addressing our exposure to the retail industry by emphasizing the acquisition of industrial properties and by being especially selective in acquiring retail properties.  Approximately 47.6% of our contractual rental income (as described below) is derived from industrial properties and 35.3%, 4.8%, 4.4%, 3.2%, 3.0% and 1.7% from retail, restaurant, health and fitness, theaters, residential ground leases and other properties, respectively.

 

Our 2019 contractual rental income is approximately $72.0 million and represents, after giving effect to any abatements, concessions or adjustments, the base rent payable to us during the twelve months ending June 30, 2020 under leases in effect at June 30, 2019. Contractual rental income excludes: (i) approximately $884,000 of straight-line rent and $738,000 of amortization of intangibles; and (ii) our share of the rental income payable to our unconsolidated joint ventures, which is approximately $1.6 million.

 

The following table sets forth scheduled expirations of leases for our properties as of June 30, 2019 for the periods indicated below:

 

Lease Expiration (1)
12 Months Ending
June 30,

 

Number
of
Expiring
Leases

 

Approximate
Square
Footage Subject to
Expiring Leases (2)

 

Contractual
Rental Income Under
Expiring Leases

 

Percentage of
Contractual Rental
Income
Represented by
Expiring Leases

 

2020

 

2

 

26,007

 

$

261,050

 

.4

 

2021

 

16

 

360,890

 

2,761,138

 

3.8

 

2022

 

20

 

1,342,813

 

8,182,915

 

11.4

 

2023

 

22

 

1,444,265

 

10,137,742

 

14.1

 

2024

 

21

 

1,199,466

 

8,421,653

 

11.7

 

2025

 

19

 

724,537

 

7,240,895

 

10.1

 

2026

 

8

 

230,189

 

3,523,673

 

4.9

 

2027

 

9

 

428,481

 

2,887,541

 

4.0

 

2028

 

11

 

1,247,262