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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, 2018

 

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)

 

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, 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 o

 

 

 

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, 2018, the registrant had 19,288,127 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, 2018 and December 31, 2017

1

 

Consolidated Statements of Income — Three and six months ended June 30, 2018 and 2017

2

 

Consolidated Statements of Comprehensive Income — Three and six months ended June 30, 2018 and 2017

3

 

Consolidated Statements of Changes in Equity — Six months ended June 30, 2018 and 2017

4

 

Consolidated Statements of Cash Flows — Six months ended June 30, 2018 and 2017

5

 

Notes to Consolidated Financial Statements

7

 

 

 

Item 2.

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

27

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

 

 

 

Item 4.

Controls and Procedures

38

 

 

 

Part II — Other Information

 

 

 

Item 6.

Exhibits

39

 



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)

 

ASSETS

 

 

 

June 30,
2018

 

December 31,
2017

 

 

 

(Unaudited)

 

 

 

Real estate investments, at cost

 

 

 

 

 

Land

 

$

209,101

 

$

209,320

 

Buildings and improvements

 

583,991

 

566,007

 

Total real estate investments, at cost

 

793,092

 

775,327

 

Less accumulated depreciation

 

116,451

 

108,953

 

Real estate investments, net

 

676,641

 

666,374

 

 

 

 

 

 

 

Investment in unconsolidated joint ventures

 

11,214

 

10,723

 

Cash and cash equivalents

 

12,925

 

13,766

 

Restricted cash

 

416

 

443

 

Unbilled rent receivable

 

14,617

 

14,125

 

Unamortized intangible lease assets, net

 

27,931

 

30,525

 

Escrow, deposits and other assets and receivables

 

8,158

 

6,630

 

Total assets(1)

 

$

751,902

 

$

742,586

 

 

LIABILITIES AND EQUITY

 

Liabilities:

 

 

 

 

 

Mortgages payable, net of $3,758 and $3,789 of deferred financing costs, respectively

 

$

391,599

 

$

393,157

 

Line of credit, net of $468 and $624 of deferred financing costs, respectively

 

19,832

 

8,776

 

Dividends payable

 

8,652

 

8,493

 

Accrued expenses and other liabilities

 

13,504

 

16,107

 

Unamortized intangible lease liabilities, net

 

16,617

 

17,551

 

Total liabilities (1)

 

450,204

 

444,084

 

 

 

 

 

 

 

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; 18,575 and 18,261 shares issued and outstanding

 

18,575

 

18,261

 

Paid-in capital

 

281,396

 

275,087

 

Accumulated other comprehensive income

 

3,913

 

155

 

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

 

(3,608

)

3,257

 

Total One Liberty Properties, Inc. stockholders’ equity

 

300,276

 

296,760

 

Non-controlling interests in consolidated joint ventures (1)

 

1,422

 

1,742

 

Total equity

 

301,698

 

298,502

 

Total liabilities and equity

 

$

751,902

 

$

742,586

 

 


(1)         The Company’s consolidated balance sheets include assets and liabilities of consolidated variable interest entities (“VIEs”).  See Note 6.  The consolidated balance sheets include the following amounts related to the Company’s consolidated VIEs: $14,722 and $17,844 of land, $28,145 and $31,789 of building and improvements, net of $3,615 and $3,811 of accumulated depreciation, $3,667 and $4,345 of other assets included in other line items, $27,411 and $32,252 of real estate debt, net, $2,386 and $2,885 of other liabilities included in other line items and $1,422 and $1,742 of non-controlling interests as of June 30, 2018 and December 31, 2017, 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,

 

 

 

2018

 

2017

 

2018

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

Rental income, net

 

$

17,718

 

$

16,720

 

$

35,308

 

$

33,553

 

Tenant reimbursements

 

2,034

 

1,693

 

3,978

 

3,332

 

Total revenues

 

19,752

 

18,413

 

39,286

 

36,885

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

5,250

 

5,190

 

10,432

 

10,743

 

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

 

2,969

 

2,893

 

5,928

 

5,708

 

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

 

2,515

 

2,371

 

5,182

 

5,075

 

Federal excise and state taxes

 

154

 

224

 

227

 

312

 

Leasehold rent

 

77

 

77

 

154

 

154

 

Total operating expenses

 

10,965

 

10,755

 

21,923

 

21,992

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

8,787

 

7,658

 

17,363

 

14,893

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated joint ventures

 

348

 

206

 

543

 

451

 

Equity in earnings from sale of unconsolidated joint venture property

 

71

 

 

71

 

 

Other income

 

6

 

320

 

10

 

342

 

Interest:

 

 

 

 

 

 

 

 

 

Expense

 

(4,445

)

(4,532

)

(8,747

)

(8,921

)

Amortization and write-off of deferred financing costs

 

(221

)

(227

)

(449

)

(454

)

Income before gain on sale of real estate, net

 

4,546

 

3,425

 

8,791

 

6,311

 

Gain on sale of real estate, net

 

 

6,568

 

2,408

 

6,568

 

 

 

 

 

 

 

 

 

 

 

Net income

 

4,546

 

9,993

 

11,199

 

12,879

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to non-controlling interests

 

(29

)

(21

)

(831

)

(42

)

Net income attributable to One Liberty Properties, Inc.

 

$

4,517

 

$

9,972

 

$

10,368

 

$

12,837

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

18,519

 

17,824

 

18,458

 

17,788

 

Diluted

 

18,593

 

17,938

 

18,532

 

17,902

 

 

 

 

 

 

 

 

 

 

 

Per common share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

.23

 

$

.54

 

$

.53

 

$

.69

 

Diluted

 

$

.23

 

$

.54

 

$

.53

 

$

.69

 

 

 

 

 

 

 

 

 

 

 

Cash distributions declared per share of common stock

 

$

.45

 

$

.43

 

$

.90

 

$

.86

 

 

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

 

 

 

2018

 

2017

 

2018

 

2017

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

4,546

 

$

9,993

 

$

11,199

 

$

12,879

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain (loss)

 

 

 

 

 

 

 

 

 

Net unrealized gain (loss) on derivative instruments

 

1,104

 

(510

)

3,800

 

68

 

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 (loss) on derivative instruments

 

22

 

(5

)

76

 

23

 

Other comprehensive gain (loss)

 

1,016

 

(515

)

3,766

 

91

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

5,562

 

9,478

 

14,965

 

12,970

 

Net income attributable to non-controlling interests

 

(29

)

(21

)

(831

)

(42

)

Adjustment for derivative instruments attributable to non- controlling interests

 

(2

)

2

 

(8

)

(1

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to One Liberty Properties, Inc.

 

$

5,531

 

$

9,459

 

$

14,126

 

$

12,927

 

 

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
(Loss) Income

 

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

 

Non-Controlling
Interests in
Consolidated
Joint
Ventures

 

Total

 

Balances, December 31, 2016

 

$

17,600

 

$

262,511

 

$

(1,479

)

$

11,501

 

$

1,794

 

$

291,927

 

Distributions - common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash - $.86 per share

 

 

 

 

(15,846

)

 

(15,846

)

Shares issued through equity offering program — net

 

32

 

617

 

 

 

 

649

 

Restricted stock vesting

 

118

 

(118

)

 

 

 

 

Shares issued through dividend reinvestment plan

 

93

 

2,052

 

 

 

 

2,145

 

Distributions to non-controlling interests

 

 

 

 

 

(127

)

(127

)

Compensation expense - restricted stock

 

 

1,657

 

 

 

 

1,657

 

Net income

 

 

 

 

12,837

 

42

 

12,879

 

Other comprehensive income

 

 

 

90

 

 

1

 

91

 

Balances, June 30, 2017

 

$

17,843

 

$

266,719

 

$

(1,389

)

$

8,492

 

$

1,710

 

$

293,375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2017

 

$

18,261

 

$

275,087

 

$

155

 

$

3,257

 

$

1,742

 

$

298,502

 

Distributions — common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash - $.90 per share

 

 

 

 

(17,233

)

 

(17,233

)

Shares issued through equity offering program — net

 

93

 

2,165

 

 

 

 

2,258

 

Restricted stock vesting

 

106

 

(106

)

 

 

 

 

Shares issued through dividend reinvestment plan

 

115

 

2,568

 

 

 

 

2,683

 

Distributions to non-controlling interests

 

 

 

 

 

(1,159

)

(1,159

)

Compensation expense — restricted stock

 

 

1,682

 

 

 

 

1,682

 

Net income

 

 

 

 

10,368

 

831

 

11,199

 

Other comprehensive income

 

 

 

3,758

 

 

8

 

3,766

 

Balances, June 30, 2018

 

$

18,575

 

$

281,396

 

$

3,913

 

$

(3,608

)

$

1,422

 

$

301,698

 

 

See accompanying notes to consolidated financial statements.

 

4



Table of Contents

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited)

 

 

 

Six Months Ended
June 30,

 

 

 

2018

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

11,199

 

$

12,879

 

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

 

 

 

 

 

Gain on sale of real estate, net

 

(2,408

)

(6,568

)

Loss on derivative instrument reclassified into interest expense

 

 

118

 

Increase in unbilled rent receivable

 

(537

)

(344

)

Write-off of unbilled rent receivable

 

 

362

 

Bad debt expense

 

 

310

 

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

 

(488

)

(422

)

Amortization of restricted stock expense

 

1,682

 

1,657

 

Equity in earnings of unconsolidated joint ventures

 

(543

)

(451

)

Equity in earnings from sale of unconsolidated joint venture property

 

(71

)

 

Distributions of earnings from unconsolidated joint ventures

 

88

 

396

 

Depreciation and amortization

 

10,432

 

10,743

 

Amortization and write-off of deferred financing costs

 

449

 

454

 

Payment of leasing commissions

 

(95

)

(36

)

Decrease in escrow, deposits, other assets and receivables

 

718

 

607

 

(Decrease) increase in accrued expenses and other liabilities

 

(1,627

)

554

 

Net cash provided by operating activities

 

18,799

 

20,259

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of real estate

 

(18,452

)

(35,432

)

Improvements to real estate

 

(5,991

)

(643

)

Net proceeds from sale of real estate

 

8,958

 

9,173

 

Distributions of capital from unconsolidated joint ventures

 

 

141

 

Net cash used in investing activities

 

(15,485

)

(26,761

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Scheduled amortization payments of mortgages payable

 

(5,313

)

(5,162

)

Repayment of mortgages payable

 

(9,827

)

 

Proceeds from mortgage financings

 

13,550

 

5,190

 

Proceeds from sale of common stock, net

 

2,258

 

649

 

Proceeds from bank line of credit

 

25,000

 

26,500

 

Repayment on bank line of credit

 

(14,100

)

(10,000

)

Issuance of shares through dividend reinvestment plan

 

2,683

 

2,145

 

(Payment) refund of financing costs

 

(262

)

27

 

Distributions to non-controlling interests

 

(1,159

)

(127

)

Cash distributions to common stockholders

 

(17,074

)

(15,718

)

Net cash (used in) provided by financing activities

 

(4,244

)

3,504

 

 

 

 

 

 

 

Net decrease in cash, cash equivalents and restricted cash

 

(930

)

(2,998

)

Cash, cash equivalents and restricted cash at beginning of year

 

14,668

 

18,450

 

Cash, cash equivalents and restricted cash at end of period

 

$

13,738

 

$

15,452

 

 

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) (Continued)

 

 

 

Six Months Ended
June 30,

 

 

 

2018

 

2017

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid during the period for interest expense

 

$

8,721

 

$

8,719

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing activities:

 

 

 

 

 

Purchase accounting allocation — intangible lease assets

 

$

 

$

4,008

 

Purchase accounting allocation — intangible lease liabilities

 

 

(158

)

 

See accompanying notes to consolidated financial statements.

 

6



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018

 

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 (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, 2018, OLP owns 120 properties, including five properties owned by consolidated joint ventures and five properties owned by unconsolidated joint ventures. The 120 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 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, 2018 and 2017 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, 2017.

 

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.

 

7



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (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, 2018 and 2017, 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 return of its investment. Cash received from the unconsolidated entity is presumed to be a return on the investment to the extent that, on a cumulative basis, distributions received by the investor are less than its share of the equity in the undistributed earnings of the entity.

 

8



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (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, primarily to change the presentation of restricted cash on the consolidated statement of cash flows for the six months ended June 30, 2017. The change was made because, as of January 1, 2018, the Company adopted ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires amounts generally described as restricted cash to be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The adoption of this ASU has no impact on the Company’s previously reported consolidated balance sheets, consolidated statements of income, net income or accumulated undistributed net income for the periods presented.

 

As a result of the adoption of this guidance, the following table depicts the adjustments to the Company’s previously reported consolidated statement of cash flows (amounts in thousands):

 

 

 

Six Months Ended
June 30, 2017

 

 

 

As Reported

 

As Adjusted

 

Decrease in escrow, deposits, and other assets and receivables

 

$

572

 

$

607

 

Increase in accrued expenses and other liabilities

 

551

 

554

 

Net decrease in cash, cash equivalents and restricted cash

 

(3,036

)

(2,998

)

Cash, cash equivalents and restricted cash at beginning of year

 

17,420

 

18,450

 

Cash, cash equivalents and restricted cash at end of period

 

14,384

 

15,452

 

 

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,

 

 

 

2018

 

2017

 

Cash and cash equivalents

 

$

12,925

 

$

14,384

 

Restricted cash

 

416

 

647

 

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

 

397

 

421

 

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

 

$

13,738

 

$

15,452

 

 

Amounts included in restricted cash represent the cash reserve balance received from an owner/operator at one of the Company’s ground leases to cover certain unit renovation work (see Note 6). 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.

 

9



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

Note 3 — 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 unvested restricted stock is entitled to receive dividends and is therefore considered a participating security. As of June 30, 2018, the shares of common stock underlying the restricted stock units awarded under the 2016 Incentive Plan are excluded from the basic earnings per share calculation, as these units are not participating securities. The restricted stock units issued pursuant to the 2009 and 2016 Incentive Plans are referred to as “RSUs”.

 

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 impact to the diluted weighted average number of shares of common stock related to the RSUs under the plans identified in the table below:

 

 

 

Number of
underlying

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

shares

 

2018

 

2017

 

2018

 

2017

 

2009 Incentive Plan

 

200,000

 

 

113,584

(a)

 

113,584

(a)

2016 Incentive Plan

 

76,250

(b)

74,245

(c)

 

74,245

(c)

 

 


(a)         RSUs with respect to 113,584 shares vested in June 2017 and such shares were issued in August 2017.

(b)         Awarded on September 26, 2017.

(c)          Includes 36,120 shares that would be issued pursuant to a return on capital performance metric and 38,125 shares that would be issued pursuant to a stockholder return metric, assuming the end of the quarterly period was the June 30, 2020 vesting date. Excludes 2,005 shares subject to the capital performance metric as such metric was not met. See Note 13 for information regarding the Company’s equity incentive plans.

 

10



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (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):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Numerator for basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

Net income

 

$

4,546

 

$

9,993

 

$

11,199

 

$

12,879

 

Less net income attributable to non-controlling interests

 

(29

)

(21

)

(831

)

(42

)

Less earnings allocated to unvested restricted stock (a)

 

(293

)

(332

)

(586

)

(533

)

Net income available for common stockholders: basic and diluted

 

$

4,224

 

$

9,640

 

$

9,782

 

$

12,304

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share:

 

 

 

 

 

 

 

 

 

Weighted average number of common shares

 

18,519

 

17,824

 

18,458

 

17,788

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

RSUs

 

74

 

114

 

74

 

114

 

Denominator for diluted earnings per share:

 

 

 

 

 

 

 

 

 

Weighted average number of shares

 

18,593

 

17,938

 

18,532

 

17,902

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share, basic

 

$

.23

 

$

.54

 

$

.53

 

$

.69

 

Earnings per common share, diluted

 

$

.23

 

$

.54

 

$

.53

 

$

.69

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to One Liberty Properties, Inc. common stockholders, net of non-controlling interests

 

$

4,517

 

$

9,972

 

$

10,368

 

$

12,837

 

 


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

 

11



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

Note 4 — Real Estate Acquisitions

 

The following chart details the Company’s acquisitions of real estate during the six months ended June 30, 2018 (amounts in thousands):

 

Description of Property

 

Date Acquired

 

Contract
Purchase
Price

 

Terms of
Payment

 

Capitalized
Third Party
Real Estate
Acquisition
Costs

 

Campania International/U.S. Tape industrial facility,

 

 

 

 

 

 

 

 

 

Pennsburg, PA

 

March 28, 2018

 

$

12,675

 

All cash

 

$

227

 

Plymouth Industries, industrial facility,

 

 

 

 

 

 

 

 

 

Plymouth, MN

 

June 7, 2018

 

5,500

 

All cash

 

50

 

Totals

 

 

 

$

18,175

 

 

 

$

277

 

 

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, 2018 (amounts in thousands):

 

 

 

 

 

 

 

Building

 

 

 

Description of Property

 

Land

 

Building

 

Improvements

 

Total

 

Campania International/U.S. Tape industrial facility,

 

 

 

 

 

 

 

 

 

Pennsburg, PA

 

$

1,776

 

$

10,399

 

$

727

 

$

12,902

 

Plymouth Industries, industrial facility,

 

 

 

 

 

 

 

 

 

Plymouth, MN

 

1,121

 

4,306

 

123

 

5,550

 

Totals

 

$

2,897

 

$

14,705

 

$

850

 

$

18,452

 

 

12



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

Note 5 — Sale of Property

 

On January 1, 2018, the Company adopted ASU No. 2017-05, Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, using the modified retrospective transition method. As leasing is the Company’s primary activity, the Company determined that its sales of real estate, which are nonfinancial assets, are sold to noncustomers and fall within the scope of ASC 610-20.  The Company re-assessed and determined there were no open contracts or partial sales and as such, the adoption of this ASU did not (i) result in a cumulative adjustment as of January 1, 2018, and (ii) have any impact on the Company’s consolidated financial statements.

 

On January 30, 2018, the Company sold a property located in Fort Bend, Texas, owned by a consolidated joint venture in which the Company held an 85% interest, for $8,958,000, net of closing costs, and paid off the $4,410,000 mortgage. This property accounted for 1.1% of the Company’s rental income, net, during each of the three and six months ended June 30, 2017.  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.  The Company determined it would recognize the full gain on the sale of the Fort Bend, Texas property in accordance with ASC 610-20 as the Company has no (i) controlling financial interest in the property and (ii) continuing interest or obligation with respect to the property sold.

 

Note 6 — 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 three owner/operators (which are affiliated with one another) are VIEs because their equity investment at risk is insufficient to finance its activities without additional subordinated financial support. The Company further determined that it is not the primary beneficiary of any 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 $941,000 and $1,947,000 for the three and six months ended June 30, 2018, respectively, and $917,000 and $1,804,000 for the three and six months ended June 30, 2017, respectively.

 

13



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

Note 6 — 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, 2018 (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 Meadows Apartments,
Lakemoor, Illinois

 

March 24, 2015

 

$

9,300

 

496

 

$

51,331

(c)

Land

 

$

9,592

 

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

 

 

 

$

33,726

 

1,186

 

$

158,186

 

 

 

$

34,029

 

 


(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.

 

(c)          In November 2017, the owner/operator closed on a $7,556 supplemental mortgage (the original mortgage was for $43,824). In connection therewith, the Company agreed to subordinate its fee interest to this second mortgage in exchange for a payment by the owner/operator to the Company of $5,906 as a fixed rent payment which was recorded as deferred income and will be included in rental income over the term of the lease. The fixed rent payment balance was $5,762 and $5,870 at June 30, 2018 and December 31, 2017, respectively, and is included in Accrued expenses and other liabilities on the consolidated balance sheets.

 

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 $416,000 and $443,000 at June 30, 2018 and December 31, 2017, respectively, and is classified as Restricted cash on the consolidated balance sheets.

 

14



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

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

 

Variable Interest Entity — Consolidated Joint Ventures

 

With respect to the five consolidated joint ventures in which the Company holds between a 90% to 95% interest, the Company has determined such ventures are VIEs because the non-controlling interests do not hold substantive kick-out or participating rights.

 

In each of these consolidated joint ventures, the Company has determined it is the primary beneficiary of the VIE 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 joint ventures for financial statement purposes.  The joint ventures’ creditors do not have recourse to the assets of the Company other than those held by these joint ventures.

 

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,
2018

 

December 31,
2017 (a)

 

Land

 

14,722

 

$

17,844

 

Buildings and improvements, net of accumulated depreciation of $3,615 and $3,811, respectively

 

28,145

 

31,789

 

Cash

 

839

 

1,145

 

Unbilled rent receivable

 

1,166

 

1,011

 

Unamortized intangible lease assets, net

 

975

 

1,241

 

Escrow, deposits and other assets and receivables

 

687

 

948

 

Mortgages payable, net of unamortized deferred financing costs of $423 and $442, respectively

 

27,411

 

32,252

 

Accrued expenses and other liabilities

 

538

 

870

 

Unamortized intangible lease liabilities, net

 

1,848

 

2,015

 

Accumulated other comprehensive income (loss)

 

90

 

(1

)

Non-controlling interests in consolidated joint ventures

 

1,422

 

1,742

 

 


(a)         Includes a consolidated joint venture, in which the Company held an 85% interest, located in Fort Bend, Texas which was sold in January 2018 (see Note 5).

 

At June 30, 2018 and December 31, 2017, MCB Real Estate, LLC and its affiliates (‘‘MCB’’) are the Company’s joint venture partner in four consolidated joint ventures in which the Company has aggregate equity investments of approximately $9,734,000 and $9,705,000, 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.

 

15



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

Note 7 — Investment in Unconsolidated Joint Ventures

 

On April 5, 2018, an unconsolidated joint venture sold its building and a portion of its land, located in Savannah, Georgia for $2,600,000, net of closing costs. The Company’s 50% share of the gain from this sale was $71,000, which is included in Equity in earnings from sale of unconsolidated joint venture property on the consolidated statements of income for the three and six months ended June 30, 2018. The unconsolidated joint venture retained approximately five acres of land at this property.

 

At June 30, 2018 and December 31, 2017, the Company’s five unconsolidated joint ventures each owned and operated one property.  The Company’s equity investment in such unconsolidated joint ventures at such dates totaled $11,214,000 and $10,723,000, respectively.  In addition to the equity in earnings from the sale of property of $71,000 in 2018, the Company recorded equity in earnings of $348,000 and $543,000 for the three and six months ended June 30, 2018, respectively, and $206,000 and $451,000 for the three and six months ended June 30, 2017, 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 below and Note 14).

 

At June 30, 2018, MCB is the Company’s joint venture partner in one of these unconsolidated joint ventures in which the Company has an equity investment of $8,408,000.

 

On July 31, 2018, an unconsolidated joint venture sold its property located in Milwaukee, Wisconsin for approximately $12,800,000, net of closing costs and paid off the related $6,970,000 mortgage. The Company anticipates its 50% share of the gain from this sale will be approximately $2,000,000, which will be recognized in the three months ending September 30, 2018.

 

Note 8 — Allowance for Doubtful Accounts

 

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of a tenant to make required rent and other payments.  If the financial condition of a specific tenant were to deteriorate, adversely impacting its ability to make payments, allowances may be required.  At June 30, 2018 and December 31, 2017, there was no balance in allowance for doubtful accounts.

 

The Company records bad debt expense as a reduction of rental income and/or tenant reimbursements. There was no bad debt expense in the three and six months ended June 30, 2018.  During the three and six months ended June 30, 2017, the Company recorded bad debt expense of $15,000 and $310,000, respectively, related to tenant reimbursements due from former tenants that filed for Chapter 11 bankruptcy protection.  In connection with these tenants, the Company wrote-off (i) $362,000 of unbilled straight-line rent receivable and $67,000 of unamortized intangible lease assets as a reduction to rental income and (ii) $884,000 of tenant origination costs as an increase to depreciation expense.

 

16



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

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,
2018

 

December 31,
2017

 

Mortgages payable, gross

 

$

395,357

 

$

396,946

 

Unamortized deferred financing costs

 

(3,758

)

(3,789

)

Mortgages payable, net

 

$

391,599

 

$

393,157

 

 

Line of Credit

 

The Company has a credit facility with Manufacturers & Traders Trust Company, People’s United Bank, VNB New York, LLC, and Bank Leumi USA, pursuant to which the Company may borrow up to $100,000,000, subject to borrowing base requirements.  The facility, which matures December 31, 2019, provides that the Company pay an interest rate equal to the one month LIBOR rate plus an applicable margin ranging from 175 basis points to 300 basis points depending on the ratio of the Company’s total debt to total value, as determined pursuant to the facility.  At June 30, 2018 and 2017, the applicable margin was 175 basis points.  An unused facility fee of .25% per annum applies to the facility.  The average interest rate on the facility was approximately 3.54% and 2.67% for the six months ended June 30, 2018 and 2017, respectively.  The Company was in compliance with all covenants at June 30, 2018.

 

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

 

 

 

June 30,
2018

 

December 31,
2017

 

Line of credit, gross

 

$

20,300

 

$

9,400

 

Unamortized deferred financing costs

 

(468

)

(624

)

Line of credit, net

 

$

19,832

 

$

8,776

 

 

At August 2, 2018, there was an outstanding balance of $3,300,000 (before unamortized deferred financing costs) under the facility.

 

17



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

Note 10 — Related Party Transactions

 

Compensation and Services Agreement

 

Pursuant to the compensation and services agreement with Majestic Property Management Corp. (“Majestic”), the Company pays fees to Majestic and Majestic provides to the Company the services of all affiliated 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. 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 fee the Company pays Majestic is negotiated each year by Majestic and the Compensation and/or Audit Committees of the Company’s Board of Directors, and is approved by such committees and the independent directors.

 

In consideration for the services described above, the Company paid Majestic $689,000 and $1,367,000 for the three and six months ended June 30, 2018 respectively, and $664,000 and $1,329,000 for the three and six months ended June 30, 2017, respectively.  Included in these fees are $309,000 and $608,000 of property management costs for the three and six months ended June 30, 2018, respectively, and $284,000 and $570,000 for the three and six months ended June 30, 2017, respectively.  The property management fee 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 property management fees with respect to properties managed by third parties. Majestic credits against the fees due to it under the compensation and services agreement any management or other fees received by it from any joint venture in which the Company is a joint venture partner. The compensation and services agreement also provides for an additional payment to Majestic of $54,000 and $108,000 in each of the three and six months ended June 30, 2018 and 2017, 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 any fees or expenses to Majestic for such services except for the fees described in this paragraph.

 

Executive officers and others providing services to the Company under the compensation and services agreement were awarded shares of restricted stock and RSUs under the Company’s stock incentive plans (described in Note 13). The related expense charged to the Company’s operations was $432,000 and $849,000 for the three and six months ended June 30, 2018, respectively, and $386,000 and $768,000 for the three and six months ended June 30, 2017, respectively.

 

The fees paid under the compensation and services agreement (except for the property management fees 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, 2018 and 2017.

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

Note 10 — Related Party Transactions (Continued)

 

Joint Venture Partners and Affiliates

 

The Company paid an aggregate of $22,000 and $65,000 for the three and six months ended June 30, 2018, respectively, and $33,000 and $82,000 for the three and six months ended June 30, 2017, respectively, to its consolidated joint venture partners or their affiliates (none of whom are officers, directors or employees of the Company) for property management fees, which are included in Real estate expenses on the consolidated statements of income.

 

The Company’s unconsolidated joint ventures paid management fees of $45,000 and $96,000 for the three and six months ended June 30, 2018, respectively, and $42,000 and $87,000 for the three and six months ended June 30, 2017, respectively, to the other partner of the venture, which reduced Equity in earnings of $23,000 and $48,000 for the three and six months ended June 30, 2018, respectively, and $21,000 and $44,000 for the three and six months ended June 30, 2017, respectively.

 

Other

 

During 2018 and 2017, the Company paid quarterly fees of $69,000 to the Company’s chairman and $27,500 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 $206,000 and $404,000 for the three and six months ended June 30, 2018, respectively, and $174,000 and $347,000 for the three and six months ended June 30, 2017, respectively of amounts reimbursed to Gould Investors in prior periods.

 

Note 11 — Common Stock Cash Dividend

 

On June 13, 2018, the Board of Directors declared a quarterly cash dividend of $.45 per share on the Company’s common stock, totaling $8,652,000. The quarterly dividend was paid on July 6, 2018 to stockholders of record on June 25, 2018.

 

Note 12 — Shares Issued through Equity Offering Program

 

During the six months ended June 30, 2018, the Company sold 93,417 shares for proceeds of $2,303,000, net of commissions of $23,000, and incurred offering costs of $45,000 for professional fees.

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

Note 13 — Stock Based Compensation

 

The Company’s 2016 Incentive Plan (‘‘Plan’’), approved by the Company’s stockholders in June 2016, permits the Company to grant, among other things, stock options, restricted stock,  RSUs, performance share awards and dividend equivalent rights and any one or more of the foregoing to its employees, officers, directors and consultants. A maximum of 750,000 shares of the Company’s common stock is authorized for issuance pursuant to this Plan.  As of June 30, 2018, (i) restricted stock awards with respect to 284,850 shares had been issued, of which 200 shares were forfeited and 3,000 shares had vested, and (ii) as further described below, RSUs with respect to 76,250 shares had been issued and are outstanding.

 

Under the Company’s 2012 Incentive Plan, as of June 30, 2018, 500,700 shares had been issued, of which 3,400 shares were forfeited and 127,450 shares had vested. No additional awards may be granted under this plan.

 

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

 

In each of 2017 and July 2018, the Company granted RSUs exchangeable for up to 76,250 shares of common stock upon satisfaction, through June 30, 2020 and June 30, 2021, respectively, of specified conditions.  Specifically, up to 50% of these RSUs vest upon achievement of metrics related to average annual total stockholder return (the “TSR Awards”), which metrics meet the definition of a market condition, and up to 50% vest upon achievement of metrics related to average annual return on capital (the “ROC Awards”), which metrics meet the definition of a performance condition.  The holders of the RSUs are not entitled to dividends or to vote the underlying shares until such RSUs vest and shares are issued.  Accordingly, the shares underlying these RSUs are not included in the shares shown as outstanding on the balance sheet. For the ROC Awards, the performance assumptions are re-evaluated quarterly. Expense is not recognized on the RSUs which the Company does not expect to vest as a result of service conditions or the Company’s performance expectations.

 

Based on performance and market assumptions, the total amount recorded as deferred compensation for the 2017 grant of RSUs is $1,005,000, and such sum will be charged to General and administrative expense over the three year performance cycle.  None of these RSUs were forfeited or vested during the six months ended June 30, 2018.

 

In 2010, RSUs exchangeable for up to 200,000 shares of common stock were awarded pursuant to the Company’s 2009 Incentive Plan. The holders of RSUs were not entitled to dividends or to vote the underlying shares until the RSUs vested and the underlying shares were issued. During 2017, 113,584 shares of common stock underlying the RSUs were deemed to have vested and were issued.  RSUs with respect to the balance of 86,416 shares were forfeited.

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

Note 13 — Stock Based Compensation (Continued)

 

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

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2018

 

2017

 

2018

 

2017

 

Restricted stock:

 

 

 

 

 

 

 

 

 

Number of shares

 

 

 

144,750

 

140,100

 

Average per share grant price

 

 

 

$

25.31

 

$

24.75

 

Deferred compensation to be recognized over vesting period

 

 

 

$

3,664,000

 

$

3,467,000

 

 

 

 

 

 

 

 

 

 

 

Number of non-vested shares:

 

 

 

 

 

 

 

 

 

Non-vested beginning of period

 

651,650

 

626,400

 

612,900

 

591,750

 

Grants

 

 

 

144,750

 

140,100

 

Vested during period

 

 

(13,500

)

(106,000

)

(118,450

)

Forfeitures

 

(150

)

 

(150

)

(500

)

Non-vested end of period

 

651,500

 

612,900

 

651,500

 

612,900

 

 

 

 

 

 

 

 

 

 

 

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

 

76,250

 

200,000

 

76,250

 

200,000

 

Grants

 

 

 

 

 

Vested during period

 

 

(113,584

)

 

(113,584

)

Forfeitures

 

 

(86,416

)

 

(86,416

)

Non-vested end of period

 

76,250

 

 

76,250

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock and RSU grants:

 

 

 

 

 

 

 

 

 

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

 

$

23.56

 

$

22.75

 

$

23.56

 

$

22.75

 

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

 

$

 

$

1,248,000

 

$

2,289,000

 

$

3,008,000

 

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

 

$

23.93

 

$

8.29

 

$

23.93

 

$

8.37

 

 

 

 

 

 

 

 

 

 

 

The total charge to operations:

 

 

 

 

 

 

 

 

 

Outstanding restricted stock grants

 

$

765,000

 

$

878,000

 

$

1,500,000

 

$

1,571,000

 

Outstanding RSUs

 

91,000

 

37,000

 

182,000

 

86,000

 

Total charge to operations

 

$

856,000

 

$

915,000

 

$

1,682,000

 

$

1,657,000

 

 

21



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

Note 13 — Stock Based Compensation (Continued)

 

As of June 30, 2018, total compensation costs of $8,349,000 and $728,000 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 vesting period is 2.7 years for the restricted stock and 2.0 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.

 

At June 30, 2018, the $389,903,000 estimated fair value of the Company’s mortgages payable is less than their $395,357,000 carrying value (before unamortized deferred financing costs) by approximately $5,454,000 assuming a blended market interest rate of 4.50% based on the 8.5 year weighted average remaining term to maturity of the mortgages.  At December 31, 2017, the $397,103,000 estimated fair value of the Company’s mortgages payable is greater than their $396,946,000 carrying value (before unamortized deferred financing costs) by approximately $157,000 assuming a blended market interest rate of 4.25% based on the 8.7 year weighted average remaining term to maturity of the mortgages.

 

At June 30, 2018 and December 31, 2017, the carrying amount of the Company’s line of credit (before unamortized deferred financing costs) of $20,300,000 and $9,400,000, 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.

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

Note 14 — Fair Value Measurements (Continued)

 

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, 2018

 

$

4,032

 

 

 

December 31, 2017

 

1,615

 

Financial liabilities:

 

 

 

 

 

 

Interest rate swaps

 

June 30, 2018

 

$

109

 

 

 

December 31, 2017

 

1,492

 

 

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

 

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

 

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

 

Although the Company has determined the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with it use Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparty. As of June 30, 2018, 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, 2018, the Company had entered into 28 interest rate derivatives, all of which were interest rate swaps, related to 28 outstanding mortgage loans with an aggregate $131,103,000 notional amount and mature between 2019 and 2028 (weighted average remaining term to maturity of 6.6 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 4.13% at June 30, 2018).  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.

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

Note 14 — Fair Value Measurements (Continued)

 

One of the Company’s unconsolidated joint ventures, in which a wholly-owned subsidiary of the Company is a 50% partner, had an interest rate derivative outstanding at June 30, 2018 which was designated as a cash flow hedge.  This interest rate swap with a $6,983,000 notional amount has an interest rate of 3.49% and matures in 2022See discussion below for the discontinuation of hedge accounting on this interest rate swap during the three months ended June 30, 2018.

 

In connection with the sale of an unconsolidated joint venture property in Savannah, Georgia, the Company terminated an interest rate swap with a $3,402,000 notional amount and a 5.81% interest rate when the related mortgage was paid off at its maturity in April 2018 (see Note 7).

 

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,

 

 

 

2018

 

2017

 

2018

 

2017

 

One Liberty Properties, Inc. and Consolidated subsidiaries

 

 

 

 

 

 

 

 

 

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

 

$

1,009

 

$

(1,055

)

$

3,509

 

$

(986

)

Amount of reclassification from Accumulated other comprehensive income into Interest expense

 

(95

)

(545

)

(291

)

(1,054

)

 

 

 

 

 

 

 

 

 

 

Unconsolidated Joint Ventures (Company’s share)

 

 

 

 

 

 

 

 

 

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

 

$

22

 

$

(21

)

$

69

 

$

(12

)

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

 

110

 

(16

)

103

 

(35

)

 

During the three months ended June 30, 2018 and 2017, 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 months ended June 30, 2018 and 2017, the Company reclassified $110,000 and $118,000 of realized gain and loss, respectively, from Accumulated other comprehensive 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, 2018 and 2017.

 

During the twelve months ending June 30, 2019, the Company estimates an additional $222,000 will be reclassified from other Accumulated other comprehensive income as a decrease to Interest expense.

 

The derivative agreements in effect at June 30, 2018 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

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

Note 14 — Fair Value Measurements (Continued)

 

agreement to which the Company is a party and if there are swap breakage losses on account of the derivative being terminated early, then the Company could be held liable for such swap breakage losses, if any.

 

As of June 30, 2018 and December 31, 2017, the fair value of the derivatives in a liability position, including accrued interest of $9,000 and $53,000, respectively, but excluding any adjustments for nonperformance risk, was approximately $126,000 and $1,638,000, respectively.  In the event the Company breaches any of the contractual provisions of the derivative contracts, it would be required to settle its obligations thereunder at their termination liability value of $126,000 and $1,638,000 as of June 30, 2018 and December 31, 2017, respectively.  This termination liability value, net of adjustments for nonperformance risk of $8,000 and $93,000, is included in Accrued expenses and other liabilities on the consolidated balance sheet at June 30, 2018 and December 31, 2017, respectively.

 

Note 15 — Commitments

 

The Company is contractually required to expend approximately $7,800,000 through 2018 for building expansion and improvements at its property tenanted by L-3 Communications, located in Hauppauge, New York, of which $6,261,000 has been spent through June 30, 2018.

 

Note 16 — New Accounting Pronouncements

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting, which provides additional guidance related to share-based payment transactions for acquiring goods or services from nonemployees.  The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is evaluating this new guidance but does not expect it to have a material impact on the Company’s consolidated financial statements.

 

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends the presentation and disclosure requirements for hedge accounting and changes how companies assess hedge effectiveness. This ASU is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs.  The Company early adopted this guidance on January 1, 2018 using the modified retrospective transition method and its adoption did not have any impact on the Company’s previously reported income from operations, net income or accumulated undistributed net income for the periods presented.

 

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

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2018 (Continued)

 

Note 16 — New Accounting Pronouncements (Continued)

 

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.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases, which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which seeks to clarify aspects of ASU No. 2016-02 and correct unintended application of such guidance. The effective date of these standards will be fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and early adoption is permitted. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. The Company is currently evaluating these new standards but does not expect them to have a significant effect on its consolidated financial statements. The Company anticipates adopting these standards effective as of January 1, 2019 and will apply the modified retrospective approach.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The new model requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services. In July 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU No. 2014-09 by one year. In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations.  ASU No. 2014-09, ASU No. 2015-14 and ASU No. 2016-08 are herein collectively referred to as the “New Revenue Recognition Standards”. The Company adopted the New Revenue Recognition Standards on January 1, 2018 using the modified retrospective transition method.  The Company’s main revenue streams are rental revenues and tenant reimbursements.  Such revenues are related to lease contracts with tenants which currently fall within the scope of ASC Topic 840, and will fall within the scope of ASC Topic 842 upon the adoption of ASU No. 2016-02 on January 1, 2019 (the Company’s sales of real estate are within the scope of ASU No. 2017-05, see Note 5).  Accordingly, the adoption of the New Revenue Recognition Standards did not (i) result in a cumulative adjustment as of January 1, 2018, and (ii) have any impact on the Company’s consolidated financial statements.

 

Note 17 — 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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Table of Contents

 

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, 2017 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, 2018, we own 120 properties (including five properties owned by consolidated joint ventures and five properties owned by unconsolidated joint ventures) located in 30 states.  Based on square footage, our occupancy rate at June 30, 2018 is approximately 99.1%.

 

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 not be able to pay their rental and other obligations and we may not be able 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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Table of Contents

 

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 seeking to acquire industrial properties that we believe capitalize on e-commerce activities, such as e-commerce distribution and warehousing facilities, and by being especially selective in acquiring retail properties.  Approximately 39.0% of our contractual rental income (as described below) is derived from retail tenants (including 8.8%, 4.2% and 3.3% from tenants engaged in retail furniture, supermarkets and office supply activities, respectively) and 38.4%, 5.3%, 4.9%, 4.5%, 3.2% and 4.7% from industrial (e.g., distribution and warehouse facilities), residential ground leases, restaurant, health and fitness, theaters and other properties, respectively.

 

Our contractual rental income is approximately $69.0 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, 2019 under leases in effect at June 30, 2018. Contractual rental income excludes: (i) approximately $589,000 of straight-line rent and $1.1 million of amortization of intangibles; and (ii) our share of the rental income payable to our unconsolidated joint ventures, which is approximately $1.7 million (excluding $658,000 of rental income from a property sold in July 2018).

 

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The following table sets forth scheduled expirations of leases for our properties as of June 30, 2018 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

 

2019

 

13

 

257,917

 

$

1,256,206

 

1.8

 

2020

 

8

 

181,386

 

1,906,403

 

2.8

 

2021

 

17

 

473,150

 

3,928,474

 

5.7

 

2022

 

21

 

1,351,812

 

8,032,439

 

11.6

 

2023

 

19

 

1,491,689

 

10,444,761

 

15.1

 

2024

 

11

 

568,272

 

5,140,610

 

7.4

 

2025

 

10

 

484,815

 

5,085,781

 

7.4

 

2026

 

8

 

230,189

 

3,523,673

 

5.1

 

2027

 

8

 

415,981

 

2,765,415

 

4.0

 

2028

 

10

 

1,079,941

 

7,541,607

 

10.9

 

2029 and thereafter

 

26

 

3,198,997

 

19,405,228

 

28.2

 

 

 

151

 

9,734,149

 

$

69,030,597

 

100.0

 

 


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

(2)         Excludes an aggregate of 67,891 square feet of vacant space.

 

Property Transactions During the Three Months Ended June 30, 2018

 

On April 5, 2018, an unconsolidated joint venture sold its building and a portion of its land, located in Savannah, Georgia for $2.6 million, net of closing costs.  Our 50% share of the gain from this sale, which was recognized in the three and six months ended June 30, 2018, is $71,000.  In connection with the sale of this property, the joint venture and its affiliates repaid the $3.4 million mortgage balance which encumbered their contiguous properties.

 

On June 7, 2018, we acquired an industrial facility in Plymouth, Minnesota for $5.6 million, including $50,000 of transaction costs that were capitalized. The facility is net leased to Plymouth Industries through 2033. We estimate that commencing July 1, 2018, the quarterly rental income and depreciation expense from this property will be $117,000 and $29,000, respectively.

 

Property Transaction Subsequent to June 30, 2018

 

On July 31, 2018, an unconsolidated joint venture sold its only property, located in Milwaukee, Wisconsin, for $12.8 million, net of closing costs.  We anticipate that our 50% share of the gain from this sale, which will be recognized in the three months ending September 30, 2019, will be approximately $2.0 million.  In connection with the sale of this property, the joint venture repaid its $7.0 million mortgage.  Equity in earnings from unconsolidated joint ventures for the three and six months ended June 30, 2018 includes the recognition of $110,000, representing our 50% share of the realized gain that was reclassified from accumulated other comprehensive income as a result of the discontinuance of hedge accounting on its mortgage interest rate swap. This joint venture accounted for $172,000 of our Equity in earnings of unconsolidated joint ventures during the six months ended June 30, 2017.

 

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Results of Operations

 

Revenues

 

The following table compares revenues for the periods indicated:

 

 

 

Three Months Ended
June 30,

 

Increase

 

%

 

Six Months Ended
June 30,

 

Increase

 

%

 

(Dollars in thousands)

 

2018

 

2017

 

(Decrease)

 

Change

 

2018

 

2017

 

(Decrease)

 

Change

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income, net

 

$

17,718

 

$

16,720

 

$

998

 

6.0

 

$

35,308

 

$

33,553

 

$

1,755

 

5.2

 

Tenant reimbursements

 

2,034

 

1,693

 

341

 

20.1

 

3,978

 

3,332

 

646

 

19.4

 

Total revenues

 

$

19,752

 

$

18,413

 

$

1,339

 

7.3

 

$

39,286

 

$

36,885

 

$

2,401

 

6.5

 

 

Rental income, net.  The increases during the three and six months ended June 30, 2018 are due primarily to $270,000 and $281,000, respectively, generated by two properties acquired in 2018 and $660,000 and $1.5 million, respectively, generated by four properties acquired in 2017.  Same store properties (as defined below) contributed $349,000 and $578,000, respectively, during the three and six months ended June 30, 2018, primarily due to the re-tenanting of two properties that were vacant in the corresponding prior year periods. Offsetting the increases in rental income during the three and six months ended June 30, 2018 are decreases of $281,000 and $576,000, respectively, representing the 2017 rental income from properties sold during 2018 and 2017.  Same store properties refer to properties that were owned for the entirety of the periods being presented.

 

Tenant reimbursements.  Real estate tax and operating expense reimbursements increased during the three and six months ended June 30, 2018 due primarily to reimbursements of (i) $219,000 and $394,000, respectively, from several same store properties and (ii) $218,000 and $395,000, respectively, from properties acquired in 2018 and 2017. Offsetting the increases during the three and six months ended June 30, 2018 are decreases of $96,000 and $143,000, respectively, representing tenant reimbursements in 2017 from the Fort Bend, Texas property sold in January 2018.  Tenant reimbursements generally relate to real estate expenses incurred in the same period.

 

Operating Expenses

 

The following table compares operating expenses for the periods indicated:

 

 

 

Three Months Ended
June 30,

 

Increase

 

%

 

Six Months Ended
June 30,

 

Increase

 

%

 

(Dollars in thousands)

 

2018

 

2017

 

(Decrease)

 

Change

 

2018

 

2017

 

(Decrease)

 

Change

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

5,250

 

$

5,190

 

$

60

 

1.2

 

$

10,432

 

$

10,743

 

$

(311

)

(2.9

)

General and administrative

 

2,969

 

2,893

 

76

 

2.6

 

5,928

 

5,708

 

220

 

3.9

 

Real estate expenses

 

2,515

 

2,371

 

144

 

6.1

 

5,182

 

5,075

 

107

 

2.1

 

Federal excise and state taxes

 

154

 

224

 

(70

)

(31.3

)

227

 

312

 

(85

)

(27.2

)

Leasehold rent

 

77

 

77

 

 

 

154

 

154

 

 

 

Total operating expenses

 

10,965

 

10,755

 

210

 

2.0

 

$

21,923

 

21,992

 

(69

)

(.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

8,787

 

$

7,658

 

$

1,129

 

14.7

 

$

17,363

 

$

14,893

 

$

2,470

 

16.6

 

 

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Depreciation and amortization.  The decrease in the six months ended June 30, 2018 is due primarily to (i) $947,000 from the sales of properties in 2017 and 2018 and (ii) the inclusion, during the six months ended June 30, 2017, of $219,000 for the write-off of tenant origination costs related to a vacant property. Offsetting the decrease is an increase of $763,000 in depreciation and amortization expense on the properties acquired in 2018 and 2017.

 

General and administrative.  The increase in the six months ended June 30, 2018 was due primarily to (i) an increase in professional fees, including a one-time $110,000 fee and (ii) higher compensation levels and an additional employee.

 

Real estate expenses. The increases during the three and six months ended June 30, 2018 are primarily due to $215,000 and $406,000, respectively, from properties acquired in 2017 and 2018; substantially all these expenses are rebilled to tenants and are included in Tenant reimbursements.  Same store properties contributed net increases of $113,000 and $149,000, respectively, during the three and six months ended June 30, 2018.  These increases were offset by decreases of $184,000 and $448,000 related to properties sold during 2018 and 2017.

 

Other Income and Expenses

 

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

 

 

 

Three Months Ended
June 30,

 

 

 

 

 

Six Months Ended
June 30,

 

 

 

 

 

(Dollars in thousands)

 

2018

 

2017

 

Increase
(Decrease)

 

%
Change

 

2018

 

2017

 

Increase
(Decrease)

 

%
Change

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated joint ventures

 

$

348

 

$

206

 

$

142

 

68.9

 

$

543

 

$

451

 

$

92

 

20.4

 

Equity in earnings from sale of unconsolidated joint venture property

 

71

 

 

71

 

100.0

 

71

 

 

71

 

100.0