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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 March 31, 2015

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)

(516) 466-3100

(Registrant’s telephone number, including area code)

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 and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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 May 4, 2015, the registrant had 16,412,382 shares of common stock outstanding.

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One Liberty Properties, Inc. and Subsidiaries

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Part I — FINANCIAL INFORMATION

Item 1.    Financial Statements

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Par Value)

See accompanying notes to consolidated financial statements.

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands, Except Per Share Data)

(Unaudited)

See accompanying notes to consolidated financial statements.

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in Thousands)

(Unaudited)

See accompanying notes to consolidated financial statements.

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the three month period ended March 31, 2015 (Unaudited)

and the year ended December 31, 2014

(Amounts in Thousands, Except Per Share Data)

See accompanying notes to consolidated financial statements.

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited)

Continued on next page

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited) (Continued)

See accompanying notes to consolidated financial statements.

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2015

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 of retail, industrial, flex, health and fitness and other properties, a substantial portion of which are subject to long-term net leases.  As of
March 31, 2015, OLP owns 116 properties, including seven properties owned by consolidated joint ventures and four properties owned by unconsolidated joint ventures. The 116 properties are located in 30 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 necessary for fair presentation (including normal recurring accruals) have been included. The results of operations for the three months ended March 31, 2015 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, 2014.

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 hereinafter referred to as the “Company”.  Material intercompany items and transactions have been eliminated in consolidation.

Investment in Joint Ventures

The Company assesses the accounting treatment for each joint venture investment. This assessment includes a review of each joint venture or limited liability company 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 the Company and its partner, among other things, (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 the joint venture as the Company considers these to be substantive participation rights that result in shared power over the activities that most significantly impact the performance of the joint venture.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2015 (Continued)

Note 2 - Summary Accounting Policies (continued)

The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting.  All investments in these 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 VIE’s.  In addition, although the Company is the managing member, it does not exercise substantial operating control 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.

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 from other parties. 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 of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

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.  In situations where the Company does not have the power over tenant activities that most significantly impact the performance of the property, the Company would not consolidate tenant operations.

Properties Held for Sale

In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements.  Under the guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held-for-sale and represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. Additionally, the guidance requires additional disclosures for discontinued operations and new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation.  The Company early adopted the guidance effective January 1, 2014 for disposals (or classifications as held-for-sale) that have not been reported in financial statements previously issued.  It did not apply to the two properties sold in February 2014 because these properties were previously classified as properties held-for-sale as of December 31, 2013 and will continue to be accounted for as discontinued operations for the periods presented. It is expected that most of the Company’s future dispositions will not meet the criteria for being treated as a discontinued operation.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2015 (Continued)

Note 2 - Summary Accounting Policies (continued)

Real estate investments are classified as held-for-sale when management has determined that it has met the applicable criteria.  Real estate investments which are held-for-sale are not depreciated.

Tenant Reimbursements

Tenant reimbursements represent contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses and are recognized when earned.

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; primarily to break out tenant reimbursements of $589,000 that had been included in rental income, net, on the consolidated statements of income for the three months ended March 31, 2014.

Note 3 - Earnings Per Common Share

Basic earnings per share was determined by dividing net income allocable to common stockholders for each year by the weighted average number of shares of common stock outstanding during each year. Net income is also allocated to the unvested restricted stock outstanding during each year, as the restricted stock is entitled to receive dividends and is therefore considered a participating security.  Unvested restricted stock is not allocated net losses and/or any excess of dividends declared over net income; such amounts are allocated entirely to the common stockholders, other than the holders of unvested restricted stock.  The restricted stock units awarded under the Pay-for-Performance program are excluded from the basic earnings per share calculation, as these units are not participating securities (see Note 14).

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.  For the three months ended March 31, 2015 and 2014, the diluted weighted average number of shares of common stock includes 100,000 shares (of an aggregate of 200,000 shares) of common stock underlying the restricted stock units awarded pursuant to the Pay-For-Performance program.  These 100,000 shares may vest upon satisfaction of the total stockholder return metric. The number of shares that would be issued pursuant to this metric is based on the market price and dividends paid as of the end of each quarterly period assuming the end of that quarterly period was the end of the vesting period.  The remaining 100,000 shares of common stock underlying the restricted stock units awarded under the Pay-For-Performance program are not included during the three months ended March 31, 2015 and 2014, as they did not meet the return on capital performance metric during such periods.

There were no options outstanding to purchase shares of common stock or other rights exercisable for, or convertible into, common stock during the three months ended March 31, 2015 and 2014.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2015 (Continued)

Note 3 - 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):

(a)         Represents an allocation to unvested restricted stock, which as participating securities are entitled to receive dividends.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2015 (Continued)

Note 4 - Real Estate Acquisitions

The following chart details the Company’s acquisitions of real estate and an interest in a joint venture during the three months ended March 31, 2015 (amounts in thousands):

(a)         Included as an expense in the accompanying consolidated statements of income.

(b)         Owned by a joint venture in which the Company has a 90% interest.  The non-controlling interest contributed $663 for its 10% interest, which was equal to the fair value of such interest at the date of purchase.

(c)          The mortgage debt obtained in connection with the purchase bears interest at 4.12% per annum and matures February 2025.

(d)         The mortgage debt obtained in connection with the purchase bears interest at 3.88% per annum and matures February 2021.

(e)          Transaction costs aggregating $228 incurred with this asset acquisition were capitalized.

(f)           The Company purchased its unconsolidated joint venture partner’s 50% interest for $6,300. The payment was comprised of (i) $2,636 paid directly to the partner and (ii) $3,664, substantially all of which was used to pay off the partner’s 50% share of the underlying joint venture mortgage.

(g)          Costs incurred for transactions that were not consummated.

The following chart provides the preliminary allocation of the purchase price for the Company’s acquisitions of real estate and an interest in a joint venture during the three months ended March 31, 2015 (amounts in thousands):

(a)         Includes capitalized transaction costs of $228 incurred with this asset acquisition.

(b)         Fair value of the assets previously owned by an unconsolidated joint venture of the Company.  The Company owns 100% of this property as a result of its purchase of its partner’s 50% interest on March 31, 2015.

(c)          Adjustments to finalize the purchase price allocation relating to a property purchased in October 2014.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2015 (Continued)

Note 4 - Real Estate Acquisitions (continued)

With the exception of the Lakewood, Colorado property, the properties purchased by the Company in 2015 are each net leased and occupied by a single tenant pursuant to leases that expire between 2021 through 2045.  The Lakewood, Colorado property has 29 tenant spaces and is 94.5% occupied with leases expiring between 2015 and 2032.

As a result of the Company’s purchase on March 31, 2015 of its partner’s 50% interest in an unconsolidated joint venture that owns a property in Lincoln, Nebraska, it obtained a controlling financial interest. In accordance with GAAP, the Company had presented the investee in accordance with the equity method for the periods prior to gaining control and ceased equity method of accounting and consolidated the investment at March 31, 2015; the date which 100% control was obtained.  In consolidating the investment, the Company recorded a purchase price fair value adjustment of $960,000 on the consolidated statements of income, representing the difference between the book value of its preexisting equity investment on the March 31, 2015 purchase date and the fair value of the investment.

As a result of the 2015 acquisitions, the Company recorded intangible lease assets of $2,518,000 and intangible lease liabilities of $4,782,000, representing the value of the origination costs and acquired leases.  As of March 31, 2015, the weighted average amortization period for these acquisitions is 7.0 years for the intangible lease assets and 6.7 years for the intangible lease liabilities. The Company assessed the fair value of the lease intangibles based on estimated cash flow projections that utilize appropriate discount rates and available market information. Such inputs are Level 3 (as defined in Note 15) in the fair value hierarchy. The Company is currently in the process of finalizing the purchase price allocations for the properties acquired during the three months ended March 31, 2015; therefore the allocations are preliminary and subject to change.

Note 5 — Sale and Disposal of Properties and Discontinued Operations

On January 13, 2015, a consolidated joint venture of the Company sold a property located in Cherry Hill, New Jersey for approximately $16,025,000, net of closing costs.  The sale resulted in a gain of $5,392,000, recorded as Gain on sale of real estate, net, for the three months ended March 31, 2015. In connection with the sale, the Company paid off the $7,376,000 mortgage balance on this property and incurred a $472,000 swap termination fee (included in Prepayment costs on debt) and a $249,000 write-off of deferred financing costs (included in Amortization and write-off of deferred financing costs). The non-controlling interest’s share of income from the transaction is $1,320,000.

On January 6, 2015, the Company’s property located in Morrow, Georgia was acquired by the mortgagee through a foreclosure proceeding.

On February 3, 2014, the Company sold two properties located in Michigan for a total sales price of $5,177,000, net of closing costs.  At December 31, 2013, the Company recorded a $61,700 impairment charge representing the loss on the sale of these properties. Income from discontinued operations applicable to these properties for the three months ended March 31, 2014 totaled $13,000 which was comprised of rental income of $141,000 less real estate expenses of $17,000 and mortgage interest of $111,000.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2015 (Continued)

Note 6 — Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures

Unconsolidated Variable Interest Entities

In June 2014, the Company purchased land for $6,510,000 in Sandy Springs, Georgia improved with a 196 unit apartment complex and in March 2015, the Company purchased land for $9,300,000 in Lakemoor, Illinois improved with a 496 unit apartment complex.  With each purchase, the Company simultaneously entered into a long-term triple net ground lease with the owner/operator of each complex.

The Company determined that it has a variable interest through its ground leases and the owner/operators are VIEs because their equity investment at risk is not sufficient to finance its activities without additional subordinated financial support.  Simultaneously with the closing of each acquisition, the owner/operator obtained a mortgage from a third party ($16,230,000 for Sandy Springs and $43,824,000 for Lakemoor) which, together with the Company’s purchase of the land, provided substantially all of the aggregate 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.

The Company further determined that for each acquisition it is not the primary beneficiary because the Company does not have the power to direct the activities that most significantly impact the owner/operator’s economic performance such as management, operational budgets and other rights, including leasing of the units and therefore, does not consolidate the VIEs for financial statement purposes.  Accordingly, the Company accounts for its investments as land and the revenues from the ground leases as Rental income, net.

The following is a summary of the Company’s variable interests in identified VIEs, in which it is not the primary beneficiary, and the aggregate carrying amount and maximum exposure to loss as of March 31, 2015 (amounts in thousands):

The Company accounts for its investments as land and the revenues from the ground leases as Rental income, net, which amounted to $252,000 for the three months ended March 31, 2015. There was no such revenue in the three months ended March 31, 2014.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2015 (Continued)

Note 6 – Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures (continued)

Pursuant to the terms of the ground lease for the property in Sandy Springs, Georgia, the owner/operator is obligated to make certain unit renovations as and when units become vacant.  A cash reserve with a balance of $1,335,000 at March 31, 2015 is held on behalf of the owner/operator to cover renovation work and other reserve requirements and is classified as Restricted cash on the consolidated balance sheet.

Consolidated Variable Interest Entity

In June 2014, the Company entered into a joint venture, in which the Company has a 95% equity interest, and acquired a property located in Joppa, Maryland.  The Company also made a senior preferred equity investment in the joint venture.  The Company determined that this joint venture is a VIE as the Company’s voting rights are not proportional to its economic interests and substantially all of the joint venture’s activities are conducted by the Company.  The Company further determined that it is the primary beneficiary of the VIE as it has the power to direct the activities that most significantly impact the joint venture’s performance including management, approval of expenditures, and the obligation to absorb the losses or rights to receive benefits from the VIE.  Accordingly, the Company consolidates the operations of this joint venture for financial statement purposes.  At March 31, 2015, the carrying amounts and classification in the Company’s consolidated balance sheets were assets (none of which are restricted) consisting of land of $3,815,000, building and improvements (net of depreciation) of $8,016,000, cash of $451,000, prepaid expenses and receivables of $43,000, accrued expenses and other liabilities of $181,000 and non-controlling interest in joint venture of $323,000.  The joint venture’s creditors do not have recourse to the assets of the Company other than those held by the joint venture.

Non-VIE Consolidated Joint Ventures

With respect to six consolidated joint ventures in which the Company has between an 85% to 95% interest, the Company has determined that (i) such ventures are not VIE’s and (ii) the Company exercises substantial operating control and accordingly, such ventures are consolidated for financial statement purposes.

MCB Real Estate, LLC and its affiliates are the Company’s joint venture partner in five consolidated joint ventures (including the Joppa, Maryland joint venture described above).  At March 31, 2015, the Company has aggregate equity investments of approximately $19,000,000 in such ventures.

Distributions by Consolidated Joint Ventures

The 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.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2015 (Continued)

Note 7 - Investment in Unconsolidated Joint Ventures

The Company has investments in four and five unconsolidated joint ventures at March 31, 2015 and December 31, 2014, respectively, each of which owned and operated one property. The Company’s equity investment in such unconsolidated joint ventures at such dates totaled $2,486,000 and $4,907,000, respectively.  The Company recorded equity in earnings of $147,000 and $133,000 for the three months ended March 30, 2015 and 2014, respectively.

On March 31, 2015, the Company purchased its partner’s 50% interest in one of these unconsolidated joint ventures for $6,300,000 (see note 4).

Note 8 — Lease Termination Fee Income

In March 2015, the Company received a $650,000 lease termination fee from an industrial tenant in a lease buy-out transaction.  In connection with the receipt of this fee, the Company wrote-off $226,000 as an offset to rental income, representing the entire balance of the unbilled rent receivable related to the sole tenant at this property.  The Company re-leased this property simultaneously with the termination of the lease.

Note 9 - Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its tenants to make required rent payments.  If the financial condition of a specific tenant were to deteriorate resulting in an impairment of its ability to make payments, additional allowances may be required.  At March 31, 2015 and December 31, 2014, there was no balance in allowance for doubtful accounts.

The Company records bad debt expense as a reduction of rental income. For the three months ended March 31, 2015 and 2014, the Company did not incur any bad debt expense.

Note 10 - Line of Credit

On December 31, 2014, the Company entered into an amendment to its $75,000,000 credit facility with Manufacturers & Traders Trust Company, VNB New York, LLC, Bank Leumi USA and Israel Discount Bank of New York, which, among other things, extended the facility’s maturity to December 31, 2018 from March 31, 2015, decreased the minimum required average bank deposit balances to $3 million and eliminated the 4.75% interest rate floor. Under the amendment, the interest rate equals the one month LIBOR rate plus an applicable margin which ranges 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.  An unused facility fee of .25% per annum applies to the facility.  The interest rate on the facility in the first quarter of 2015 was approximately 1.92%.  Prior to the amendment, the interest rate was 4.75% per annum.  In connection with the amendment, the Company incurred a $562,500 commitment fee which will be amortized over the remaining term of the facility.  At March 31, 2015 and May 4, 2015, there were outstanding balances of $28,250,000 and $24,250,000, respectively, under the facility. The Company was in compliance with all covenants at March 31, 2015.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2015 (Continued)

Note 11 — Related Party Transactions

The Company agreed to pay quarterly fees of $633,750 in 2015 (including overhead expenses of $48,900 and property management fees of $223,100) pursuant to the compensation and services agreement, as amended, with Majestic Property Management Corp., a company wholly-owned by the Company’s vice-chairman.  For the three months ended March 31, 2014, such fees were $825,000 (including overhead expenses of $46,600 and property management fees of $212,500). The 2015 amount reflects an adjustment to the compensation and services agreement that was effective July 1, 2014.

For 2015 and 2014, the Company agreed to pay quarterly fees of $65,625 and $62,500, respectively, to the Company’s chairman and $26,250 and $25,000, respectively, to the Company’s vice-chairman.

The chairman and vice-chairman fees and the fees paid under the compensation and services agreement are included in general and administrative expense on the consolidated statements of income, except for the property management fees which are included in real estate expenses on the consolidated statements of income.

During the three months ended March 31, 2015 and 2014, a portion of the Company’s property insurance ($57,000 and $50,000, respectively) was obtained in conjunction with Gould Investors L.P., a related party. This expense, which represents the Company’s proportionate share of property insurance premiums paid by Gould Investors, is included in real estate expenses on the consolidated statements of income.

During the three months ended March 31, 2015 and 2014, the Company paid an aggregate of $105,000 and $12,000, respectively, to its joint venture partners or their affiliates for property management and acquisition fees, which were included on the consolidated statements of income.

Note 12 - Common Stock Cash Dividend

On March 10, 2015, the Board of Directors declared a quarterly cash dividend of $.39 per share on the Company’s common stock, totaling $6,381,000. The quarterly dividend was paid on April 7, 2015 to stockholders of record on March 27, 2015.

Note 13 - Shares Issued through Equity Offering Program

On March 20, 2014, the Company entered into an amended and restated equity offering sales agreement to sell shares of the Company’s common stock from time to time with an aggregate sales price of up to approximately $38,360,000, through an “at the market” equity offering program.  The Company has not sold any shares in 2015.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2015 (Continued)

Note 14 - Stock Based Compensation

A maximum of 600,000 shares of the Company’s common stock is authorized for issuance pursuant to the Company’s 2012 Incentive Plan, of which 359,000 shares of restricted stock are outstanding as of March 31, 2015.  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.  An aggregate of 381,000 shares of restricted stock and restricted stock units outstanding under the Company’s 2009 equity incentive plan have not yet vested and no additional awards may be granted under this plan.

Pursuant to the Pay-for-Performance Program, there are 200,000 performance share awards in the form of restricted stock units (the “Units”) outstanding under the Company’s 2009 Incentive Plan. The holders of Units are not entitled to dividends or to vote the underlying shares until the Units vest and shares are issued. Accordingly, for accounting purposes, the shares underlying the Units are not included in the shares shown as outstanding on the balance sheet.  No Units were forfeited or vested in the three months ended March 31, 2015.

As of March 31, 2015 and December 31, 2014, there were no options outstanding under the Company’s equity incentive plans.

The following is a summary of the activity of the equity incentive plans (excluding, except as otherwise noted, the 200,000 Units):

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2015 (Continued)

Note 14 - Stock Based Compensation  (continued)

As of March 31, 2015, there were approximately $7,476,000 of total compensation costs related to non-vested awards that have not yet been recognized, including $267,000 related to the Units (net of forfeiture and performance assumptions which are re-evaluated quarterly). These compensation costs will be charged to general and administrative expense over the remaining respective vesting periods. The weighted average vesting period is approximately 2.8 years.

Note 15 - 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, and accrued expenses and other liabilities are not measured at fair value on a recurring basis, but are considered to be recorded at amounts that approximate fair value.

At March 31, 2015, the $316,839,000 estimated fair value of the Company’s mortgages payable is more than their carrying value by approximately $12,031,000 assuming a blended market interest rate of 4.16% based on the 9.1 year weighted average remaining term of the mortgages.  At December 31, 2014, the $300,541,000 estimated fair value of the Company’s mortgages payable is more than their carrying value by approximately $8,492,000 assuming a blended market interest rate of 4.5% based on the 9.1 year weighted average remaining term of the mortgages.

At March 31, 2015 and December 31, 2014, the $28,250,000 and $13,250,000, respectively, carrying amount of the Company’s line of credit 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.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2015 (Continued)

Note 15 - Fair Value Measurements (continued)

Fair Value on a Recurring Basis

The fair value of the Company’s available-for-sale securities and derivative financial instruments was determined using the following inputs (amounts in thousands):