One Liberty Properties Inc 10-Q for FY2024 Q2
One Liberty Properties Inc (OLP)
About this 10-Q
One Liberty Properties Inc filed this 10-Q on August 7, 2024, covering the quarter ended June 30, 2024 (FY2024 Q2).
Headline figures
Quarter ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net income
- $9.55M
- up 46.5% from net income of $6.52M a year earlier
- Diluted EPS
- $0.45
- up 50.0% from $0.30 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the quarterly period ended
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One Liberty Properties, Inc. and Subsidiaries
Table of Contents
Part I — FINANCIAL INFORMATION
Item 1. Financial Statements
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Par Value)
| | June 30, | | December 31, | ||
| | 2024 |
| 2023 | ||
ASSETS | | (Unaudited) | | | | |
Real estate investments, at cost | | | | | | |
Land | | $ | | | $ | |
Buildings and improvements | | | | | | |
Total real estate investments, at cost | | | | | | |
Less accumulated depreciation | | | | | | |
Real estate investments, net | | | | | | |
| | | | | | |
Investment in unconsolidated joint ventures | | | | | | |
Cash and cash equivalents | | | | | | |
Unbilled rent receivable | | | | | | |
Unamortized intangible lease assets, net | | | | | | |
Escrow, deposits and other assets and receivables | | | | | | |
Total assets(1) | | $ | | | $ | |
LIABILITIES AND EQUITY | | | | | | |
Liabilities: | | | | | | |
Mortgages payable, net (see Note 8) | | $ | | | $ | |
Line of credit | | | | | ||
Dividends payable | | | | | | |
Accrued expenses and other liabilities | | | | | | |
Unamortized intangible lease liabilities, net | | | | | | |
Total liabilities(1) | | | | | | |
| | | | | | |
Commitments and contingencies | | | | | | |
| | | | | | |
Equity: | | | | | | |
One Liberty Properties, Inc. stockholders’ equity: | | | | | | |
Preferred stock, $ | | | | | ||
Common stock, $ | | | | | | |
Paid-in capital | | | | | | |
Accumulated other comprehensive income | | | | | | |
Distributions in excess of net income | | | ( | | | ( |
Total One Liberty Properties, Inc. stockholders’ equity | | | | | | |
Non-controlling interests in consolidated joint ventures(1) | | | | | | |
Total equity | | | | | | |
Total liabilities and equity | | $ | | | $ | |
| (1) |
See accompanying notes to consolidated financial statements.
1
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Revenues: | | | | | | | | | | | | |
Rental income, net | | $ | | | $ | | | $ | | | $ | |
Lease termination fee | | | — | | | — | | | | | | — |
Total revenues | | | | | | | | | | | | |
| | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | |
Depreciation and amortization | | | | | | | | | | | | |
General and administrative (see Note 9 for related party information) | | | | | | | | | | | | |
Real estate expenses (see Note 9 for related party information) | | | | | | | | | | | | |
Impairment loss | | | | | | — | | | | | | — |
State taxes | | | | | | | | | | | | |
Total operating expenses | | | | | | | | | | | | |
| | | | | | | | | | | | |
Other operating income | | | | | | | | | | | | |
Gain on sale of real estate, net | | | | | | | | | | | | |
Operating income | | | | | | | | | | | | |
| | | | | | | | | | | | |
Other income and expenses: | | | | | | | | | | | | |
Equity in earnings of unconsolidated joint ventures | | | | | | | | | | | | |
Other income | | | | | | | | | | | | |
Interest: | | | | | | | | | | | | |
Expense | | | ( | | | ( | | | ( | | | ( |
Amortization and write-off of deferred financing costs | | | ( | | | ( | | | ( | | | ( |
| | | | | | | | | | | | |
Net income | | | | | | | | | | | | |
Net income attributable to non-controlling interests | | | ( | | | ( | | | ( | | | ( |
Net income attributable to One Liberty Properties, Inc. | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Weighted average number of common shares outstanding: | | | | | | | | | | | | |
Basic | | | | | | | | | | | | |
Diluted | | | | | | | | | | | | |
| | | | | | | | | | | | |
Per common share attributable to common stockholders: | | | | | | | | | | | | |
Basic and Diluted | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Cash distributions per share of common stock | | $ | | | $ | | | $ | | | $ | |
See accompanying notes to consolidated financial statements.
2
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
(Unaudited)
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Net income | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Other comprehensive income | | | | | | | | | | | | |
Net unrealized (loss) gain on derivative instruments | | | ( | | | | | | ( | | | ( |
Comprehensive income | | | | | | | | | | | | |
| | | | | | | | | | | | |
Net income attributable to non-controlling interests | | | ( | | | ( | | | ( | | | ( |
Adjustment for derivative instruments attributable to non-controlling interests | | | — | | | | | | — | | | |
Comprehensive income attributable to One Liberty Properties, Inc. | | $ | | | $ | | | $ | | | $ | |
See accompanying notes to consolidated financial statements.
3
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
| | | | | | | Accumulated | | Accumulated | | Non-Controlling | | | | |||
| | |
| | |
| Other |
| Distributions |
| Interests in |
| | | |||
| Common | | Paid-in | | Comprehensive | | in Excess of | | Consolidated | | | | |||||
| Stock | | Capital | | Income (loss) | | Net Income | | Joint Ventures | | Total | ||||||
Balances, December 31, 2023 | $ | | | $ | | | $ | | | $ | ( | | $ | | | $ | |
Distributions – common stock | | | | | | | | | | | | | | | | | |
Cash – $ | | — | | | — | | | — | | | ( | | | — | | | ( |
Shares issued through dividend reinvestment plan | | |
| | |
| | — |
| | — |
| | — |
| | |
Restricted stock vesting | | | | | ( |
| | — |
| | — |
| | — |
| | — |
Compensation expense — restricted stock and RSUs | | — | | | | | | — |
| | — |
| | — | | | |
Contribution from non-controlling interest | | — |
| | — |
| | — |
| | — |
| | |
| | |
Distributions to non-controlling interests | | — |
| | — |
| | — |
| | — |
| | ( |
| | ( |
Net income | | — |
| | — |
| | — |
| | |
| | |
| | |
Other comprehensive loss | | — |
| | — |
| | ( |
| | — |
| | — |
| | ( |
Balances, March 31, 2024 | | | | | | | | | | | ( | | | | | | |
Distributions – common stock | | | | | | | | | | | | | | | | | |
Cash – $ | | — |
| | — |
| | — |
| | ( |
| | — |
| | ( |
Shares issued through dividend reinvestment plan | | | | | | | | — |
| | — |
| | — | | | |
Compensation expense — restricted stock and RSUs | | — |
| | |
| | — |
| | — |
| | — |
| | |
Distributions to non-controlling interests | | — | | | — | | | — | | | — | | | ( | | | ( |
Net income | | — |
| | — |
| | — |
| | |
| | |
| | |
Other comprehensive loss | | — |
| | — |
| | ( |
| | — |
| | — |
| | ( |
Balances, June 30, 2024 | $ | | | $ | | | $ | | | $ | ( | | $ | | | $ | |
Balances, December 31, 2022 | $ | | | $ | | | $ | | | $ | ( | | $ | | | $ | |
Distributions – common stock | | | | | | | | | | | | | | | | | |
Cash – $ | | — | | | — | | | — | | | ( | | | — | | | ( |
Shares issued through dividend reinvestment plan | | |
| | |
| | — |
| | — |
| | — |
| | |
Restricted stock vesting | | |
| | ( |
| | — |
| | — |
| | — |
| | — |
Compensation expense – restricted stock and RSUs | | — |
| | |
| | — |
| | — |
| | — |
| | |
Distributions to non-controlling interests | | — |
| | — |
| | — |
| | — |
| | ( |
| | ( |
Net income | | — |
| | — |
| | — |
| | |
| | |
| | |
Other comprehensive loss | | — |
| | — |
| | ( |
| | — |
| | — |
| | ( |
Balances, March 31, 2023 | | | | | | | | | | | ( | | | | | | |
Distributions – common stock | | | | | | | | | | | | | | | | | |
Cash – $ | | — |
| | — |
| | — |
| | ( |
| | — |
| | ( |
Shares issued through dividend reinvestment plan | | | | | |
| | — |
| | — |
| | — |
| | |
Repurchases of common stock – net | | ( | | | ( | | | — |
| | — |
| | — | | | ( |
Restricted stock vesting | | |
| | ( |
| | — |
| | — |
| | — |
| | — |
Compensation expense – restricted stock and RSUs | | — |
| | |
| | — |
| | — |
| | — |
| | |
Distributions to non-controlling interests | | — |
| | — |
| | — |
| | — |
| | ( |
| | ( |
Net income | | — |
| | — |
| | — |
| | |
| | |
| | |
Other comprehensive income (loss) | | — |
| | — |
| | |
| | — |
| | ( |
| | |
Balances, June 30, 2023 | $ | | | $ | | | $ | | | $ | ( | | $ | | | $ | |
See accompanying notes to consolidated financial statements.
4
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited) (Continued on Next Page)
| | Six Months Ended | ||||
| | June 30, | ||||
| | 2024 |
| 2023 | ||
Cash flows from operating activities: | | | | | | |
Net income | | $ | | | $ | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Gain on sale of real estate, net | | | ( | | | ( |
Impairment loss | | | | | | — |
Increase in net amortization of unbilled rental income | | | ( | | | ( |
Write-off of unbilled rent receivable | | | — | | | |
Amortization and write-off of intangibles relating to leases, net | | | ( | | | ( |
Amortization of restricted stock and RSU compensation expense | | | | | | |
Equity in earnings of unconsolidated joint ventures | | | ( | | | ( |
Distributions of earnings from unconsolidated joint venture | | | — | | | |
Depreciation and amortization | | | | | | |
Amortization and write-off of deferred financing costs | | | | | | |
Payment of leasing commissions | | | ( | | | ( |
(Increase) decrease in escrow, deposits, other assets and receivables | | | ( | | | |
Decrease in accrued expenses and other liabilities | | | ( | | | ( |
Net cash provided by operating activities | | | | | | |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Net proceeds from sale of real estate | | | | | | |
Purchase of real estate | | | ( | | | — |
Improvements to real estate | | | ( | | | ( |
Investments in ground leased property | | | ( | | | ( |
Net cash provided by investing activities | | | | | | |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Scheduled amortization payments of mortgages payable | | | ( | | | ( |
Repayments of mortgages payable | | | ( | | | ( |
Proceeds from mortgage financings | | | | | | |
Proceeds from bank line of credit | | | — | | | |
Repayments on bank line of credit | | | — | | | ( |
Issuance of shares through dividend reinvestment plan | | | | | | |
Repurchases of common stock, net | | | — | | | ( |
Payment of financing costs | | | ( | | | ( |
Capital contribution from non-controlling interest | | | | | | — |
Distributions to non-controlling interests | | | ( | | | ( |
Cash distributions to common stockholders | | | ( | | | ( |
Net cash used in financing activities | | | ( | | | ( |
| | | | | | |
Net increase in cash, cash equivalents and restricted cash | | | | | | |
Cash, cash equivalents and restricted cash at beginning of year | | | | | | |
Cash, cash equivalents and restricted cash at end of period | | $ | | | $ | |
| | | | | | |
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid during the period for interest expense | | $ | | | $ | |
Supplemental disclosure of non-cash investing activity: | | | | | | |
Purchase accounting allocation - intangible lease assets | | | | | | — |
Purchase accounting allocation - intangible lease liabilities | | | ( | | | — |
5
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited) (Continued)
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
| | | ||||
| | June 30, | ||||
| | 2024 |
| 2023 | ||
Cash and cash equivalents | | $ | | | $ | |
Restricted cash included in escrow, deposits and other assets and receivables | | | | | | |
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | | $ | | | $ | |
Restricted cash included in escrow, deposits and other assets and receivables represents amounts related to real estate tax and other reserve escrows required to be held by lenders in accordance with the Company’s mortgage agreements. The restriction on these escrow reserves will lapse when the related mortgage is repaid or when the related reserve conditions are satisfied.
See accompanying notes to consolidated financial statements.
6
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024
NOTE 1 – ORGANIZATION AND BACKGROUND
One Liberty Properties, Inc. (“OLP”) was incorporated in 1982 in Maryland. OLP is a self-administered and self-managed real estate investment trust (“REIT”). OLP acquires, owns and manages a geographically diversified portfolio consisting primarily of industrial and, to a lesser extent, retail properties, many of which are subject to long-term net leases. As of June 30, 2024, OLP owns
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, 2024 and 2023 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, 2023.
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
The consolidated financial statements include the accounts and operations of OLP, its wholly-owned subsidiaries, its joint ventures in which the Company, as defined, has a controlling interest, and variable interest entities (“VIEs”) of which the Company is the primary beneficiary. OLP and its consolidated subsidiaries are referred to herein as the “Company”. Material intercompany items and transactions have been eliminated in consolidation.
Purchase Accounting for Acquisition of Real Estate
In acquiring real estate, the Company evaluates whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, and if that requirement is met, the asset group is accounted for as an asset acquisition and not a business combination. Transaction costs incurred with such asset acquisitions are capitalized to real estate assets and depreciated over the respectful useful lives.
The Company allocates the purchase price of real estate, including direct transaction costs applicable to an asset acquisition, among land, building, improvements and intangibles (e.g., the value of above, below and at-market leases, origination costs associated with in-place leases and above or below-market mortgages assumed at the acquisition date). The value, as determined, is allocated to the gross assets acquired based on management’s determination of the relative fair values of these assets and liabilities.
The Company assesses the fair value of the gross assets acquired based on available market information which utilize estimated cash flow projections; such inputs are categorized as Level 3 inputs in the fair value hierarchy. In determining fair value, factors considered by management include an evaluation of current market demand, market capitalization rates and discount rates, estimates of carrying costs (e.g., real estate taxes, insurance, and other operating expenses), and lost rental revenue during the expected lease-up periods. Management also estimates costs to execute similar leases, including leasing commissions and tenant improvements.
7
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 2 – SUMMARY ACCOUNTING POLICIES (CONTINUED)
Investment in Joint Ventures and Variable Interest Entities
The Financial Accounting Standards Board, or FASB, provides guidance for determining whether an entity is a VIE. VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A VIE is required to be consolidated by its primary beneficiary, which is the party that (i) has the power to control the activities that most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses, or the right to receive benefits, of the VIE that could potentially be significant to the VIE.
The Company assesses the accounting treatment for each of its investments, including a review of each venture or limited liability company or partnership agreement, to determine the rights of each party and whether those rights are protective or participating. The agreements typically contain certain protective rights, such as the requirement of partner approval to sell, finance or refinance the property and to pay capital expenditures and operating expenditures outside of the approved budget or operating plan. In situations where, among other things, the Company and its partners jointly (i) approve the annual budget, (ii) approve certain expenditures, (iii) prepare or review and approve the joint venture’s tax return before filing, or (iv) approve each lease at a property, the Company does not consolidate as the Company considers these to be substantive participation rights that result in shared, joint power over the activities that most significantly impact the performance of the joint venture or property. Additionally, the Company assesses the accounting treatment for any interests pursuant to which the Company may have a variable interest as a lessor. Leases may contain certain protective rights, such as the right of sale and the receipt of certain escrow deposits.
The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting. All investments in unconsolidated joint ventures have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support and, as a group, the holders of the equity at risk have power through voting rights to direct the activities of these ventures. As a result,
The Company reviews on a quarterly basis its investments in unconsolidated joint ventures for other-than-temporary losses in investment value. Any decline that is not expected to be recovered based on the underlying assets of the investment is considered other than temporary and an impairment charge is recorded as a reduction in the carrying value of the investment. During the three months and six months ended June 30, 2024 and 2023, there were no such other-than-temporary impairment charges related to the Company’s investments in unconsolidated joint ventures.
The Company has elected to follow the cumulative earnings approach when assessing, for the consolidated statement of cash flows, whether the distribution from the investee is a return of the investor’s investment as compared to a return on its investment. The source of the cash generated by the investee to fund the distribution is not a factor in the analysis (that is, it does not matter whether the cash was generated through investee refinancing, sale of assets or operating results). Consequently, the investor only considers the relationship between the cash received from the investee to its equity in the undistributed earnings of the investee, on a cumulative basis, in assessing whether the distribution from the investee is a return on or a return of its investment. Cash received from the unconsolidated entity is presumed to be a return on the investment to the extent that, on a cumulative basis, distributions received by the investor are less than its share of the equity in the undistributed earnings of the entity.
8
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 3 – LEASES
Lessor Accounting
The Company owns rental properties which are leased to tenants under operating leases with current expirations ranging from 2024 to 2042, with options to or the lease. Revenues from such leases are reported as Rental income, net, and are comprised of (i) lease components, which includes fixed and variable lease payments and (ii) non-lease components which includes reimbursements of property level operating expenses. The Company does separate non-lease components from the related lease components, as the timing and pattern of transfer are the same, and account for the combined component in accordance with ASC 842.
Fixed lease revenues represent the base rent that each tenant is required to pay in accordance with the terms of its respective leases, and any lease incentives paid or payable to the lessee, reported on a straight-line basis over the non-cancelable term of the lease. Variable lease revenues typically include payments based on (i) tenant reimbursements, (ii) changes in the index or market-based indices after the inception of the lease, (iii) percentage rents and (iv) the operating performance of the property. Variable lease revenues are not recognized until the specific events that trigger the variable payments have occurred.
The components of lease revenues are as follows (amounts in thousands):
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Fixed lease revenues | | $ | | $ | | | $ | | | $ | | |
Variable lease revenues | | | | | | | | | | | | |
Lease revenues (a) | | $ | | | $ | | | $ | | | $ | |
| (a) | Excludes amortization related to lease intangible assets and liabilities of $ |
In many of the Company’s leases, the tenant is obligated to pay the real estate taxes, insurance, and certain other expenses directly to the vendor. These obligations, which have been assumed by the tenants, are not reflected in the Company’s consolidated financial statements. To the extent any such tenant defaults on its lease or if it is deemed probable that the tenant will fail to pay for such obligations, a liability for such obligations would be recorded.
On a quarterly basis, the Company assesses the collectability of substantially all lease payments due by reviewing the tenant’s payment history or financial condition. Changes to collectability are recognized as a current period adjustment to rental revenue. As of June 30, 2024, the Company has assessed the collectability of all recorded lease revenues as probable.
Minimum Future Rents
As of June 30, 2024, the minimum future contractual rents to be received on non-cancellable operating leases are included in the table below (amounts in thousands). The minimum future contractual rents do not include (i) straight-line rent or amortization of lease intangibles or incentives and (ii) variable lease payments as described above.
From July 1 – December 31, 2024 | | $ | |
For the year ending December 31, | | | |
2025 | | | |
2026 | | | |
2027 | | | |
2028 | | | |
2029 | | | |
Thereafter | | | |
Total | | $ | |
9
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 3 – LEASES (CONTINUED)
Lessee Accounting
Ground Lease
The Company is a lessee under a ground lease in Greensboro, North Carolina, which is classified as an operating lease. The ground lease expires March 3, 2025 and provides for up to
Office Lease
The Company is a lessee under a corporate office lease in Great Neck, New York, which is classified as an operating lease. The lease expires on December 31, 2031 and provides for a renewal
Minimum Future Lease Payments
As of June 30, 2024, the minimum future lease payments related to these operating leases are as follows (amounts in thousands):
From July 1 – December 31, 2024 | | $ | |
For the year ending December 31, | | | |
2025 | | | |
2026 | | | |
2027 | |
| |
2028 | |
| |
2029 | |
| |
Thereafter | |
| |
Total undiscounted cash flows | | $ | |
Present value discount | |
| ( |
Lease liability | | $ | |
The lease liability is included in Accrued expenses and other liabilities on the consolidated balance sheet.
Lease termination fee
In March 2024, a consolidated joint venture in Lakewood, Colorado, in which the Company holds a
10
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 4 – REAL ESTATE ACQUISITIONS
The following tables detail the Company’s real estate acquisitions and purchase price allocations during the six months ended June 30, 2024 (amounts in thousands). The Company determined that with respect to 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 the respective useful lives.
| | | | | | | | Capitalized | ||
| | | | Contract | | Terms of | | Transaction | ||
Description of Industrial Property |
| Date Acquired |
| Purchase Price |
| Payment |
| Costs | ||
Quality Custom Distribution Services, Inc. | | | | | | | | | | |
Albuquerque, New Mexico | | April 24, 2024 | | $ | | | All cash (a) | | $ | |
Russell Equipment, Inc. | | | | | | | | | | |
Savannah, GA | | May 23, 2024 | | | | | All cash (b) | | | |
Totals for the six months ended June 30, 2024 | | | | $ | |
|
| | $ | |
| | | | | Building & | | Intangible Lease | | | | | Market Cap | | Discount | |||||
Description of Industrial Property |
| Land |
| Improvements |
| Asset |
| Liability | | Total | | Rate (c) | | Rate (c) | |||||
Quality Custom Distribution Services, Inc. | | | | | | | | | | | | | | | | | | | |
Albuquerque, New Mexico | | $ | | | $ | | | $ | | | $ | ( | | $ | | | | ||
Russell Equipment, Inc. | | | | | | | | | | | | | | | | | | | |
Savannah, GA | | | | | | | | | | | | — | | | | | | ||
Totals for the six months ended June 30, 2024 | | $ | | | $ | | | $ | | | $ | ( | | $ | | | | | |
| (a) | Subsequent to the acquisition of the Albuquerque, New Mexico property, the Company obtained new mortgage debt of $ |
| (b) | Subsequent to the acquisition of the Savannah, Georgia property, the Company obtained new mortgage debt of $ |
| (c) | The fair value of the tangible and intangible assets of each property was assessed as of the acquisition date using an income approach and estimated cash flow projections which utilize an appropriate market capitalization rate and discount rate categorized as Level 3 unobservable inputs in the fair value hierarchy (as defined in Note 12). |
11
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 5 – SALES OF PROPERTIES AND IMPAIRMENT LOSS
Sales of Properties
The following table details the Company’s sales of real estate during the six months ended June 30, 2024 and 2023 (amounts in thousands):
| | | | | | Gross | | Gain on Sale of | | ||
Description of Property | | City, State | | Date Sold | | Sales Price | | Real Estate, Net | | ||
Hacienda Colorado restaurant parcel (a) | | Lakewood, Colorado | | March 6, 2024 | | $ | | | $ | | (a) |
Applebee's restaurant property | | Kennesaw, Georgia | | May 6, 2024 | | | | | | | |
FedEx industrial property | | Miamisburg, Ohio | | May 9, 2024 | | | | | | | |
Havertys retail property | | Wichita, Kansas | | June 6, 2024 | | | | | | | |
Urban Outfitters retail property | | Lawrence, Kansas | | June 7, 2024 | | | | | | | |
Walgreens retail property (b) | | Cape Girardeau, Missouri | | June 10, 2024 | | | | | | | (b) |
Vacant retail property (c) | | Kennesaw, Georgia | | June 28, 2024 | | | | | | | |
Totals for the six months ended June 30, 2024 | $ | | | $ | | (d) | |||||
| | | | | | | | | | | |
| | | | | | Gross | | Gain on Sale of | | ||
Description of Property | | City, State | | Date Sold | | Sales Price | | Real Estate, Net | | ||
TGI Fridays restaurant property | | Hauppauge, New York | | February 28, 2023 | | $ | | | $ | | |
Havertys retail property | | Duluth, Georgia | | May 31, 2023 | | | | | | | |
Totals for the six months ended June 30, 2023 | $ | | | $ | | (e) | |||||
| (a) | A consolidated joint venture, in which the Company holds a |
| (b) | This property was owned by a consolidated joint venture in which the Company held a |
| (c) | In connection with this sale, the Company paid off the $ |
| (d) | As a result of these sales, the Company wrote-off, as a reduction to Gain on sale of real estate, net, an aggregate of $ |
| (e) | As a result of these sales, the Company wrote-off, as a reduction to Gain on sale of real estate, net, an aggregate of $ |
Sales Contracts subsequent to June 30, 2024
On July 1, 2024, the Company entered into a contract to sell its vacant industrial property in Wauconda, Illinois for $
Impairment Loss
On July 11, 2024, the Company entered into a contract to sell its health and fitness property in Hamilton, Ohio for $
12
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 6 – VARIABLE INTEREST ENTITIES, CONSOLIDATED JOINT VENTURES AND CONTINGENT LIABILITY
Variable Interest Entities – Consolidated Joint Ventures
The Company has determined the
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, | | December 31, | ||
|
| 2024 (a) |
| 2023 | ||
Land | | $ | | | $ | |
Buildings and improvements, net of accumulated depreciation of $ | | | | | | |
Cash | | | | | | |
Unbilled rent receivable | | | | | | |
Unamortized intangible lease assets, net | | | | | | |
Escrow, deposits and other assets and receivables | | | | | | |
Mortgages payable, net of unamortized deferred financing costs of $ | | | | | | |
Accrued expenses and other liabilities | | | | | | |
Unamortized intangible lease liabilities, net | | | | | | |
Accumulated other comprehensive income | | | — | | | |
Non-controlling interests in consolidated joint ventures | | | | | | |
| (a) | During the six months ended June 30, 2024, the Company and its joint venture partners sold a restaurant parcel at its multi-tenant shopping center in Lakewood, Colorado and a retail property in Cape Girardeau, Missouri. In connection with the sale of the restaurant parcel, the joint venture paid down the mortgage on its property by $ |
As of June 30, 2024, MCB Real Estate, LLC and its affiliates (‘‘MCB’’) are the Company’s joint venture partner in a consolidated joint venture in which the Company has an aggregate equity investment of approximately $
Distributions to each joint venture partner are determined pursuant to the applicable operating agreement and, in the event of a sale of, or refinancing of the mortgage encumbering, the property owned by such venture, the distributions to the Company may be less than that implied by the Company’s equity ownership interest in the venture.
Variable Interest Entity – Ground Lease
The Company determined it has a variable interest through its ground lease at its Beachwood, Ohio property (the Vue Apartments) and the owner/operator is a VIE because its equity investment at risk is insufficient to finance its activities without additional subordinated financial support. The Company further determined that it is not the primary beneficiary of this VIE because the Company does not have power over the activities that most significantly impact the owner/operator’s economic performance and therefore, does not consolidate this VIE for financial statement purposes. Accordingly, the Company accounts for this investment as land and the revenues from the ground lease as Rental income, net. The ground lease provides for rent which can be deferred and paid based on the operating performance of the property; therefore, this rent is recognized as rental income when the operating performance is achieved and the rent is received.
13
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 6 – VARIABLE INTEREST ENTITIES, CONSOLIDATED JOINT VENTURES AND CONTINGENT LIABILITY (CONTINUED)
As of June 30, 2024, the VIE’s maximum exposure to loss was $
NOTE 7 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
As of June 30, 2024 and December 31, 2023, the Company participated in
NOTE 8 – DEBT OBLIGATIONS
Mortgages Payable
The following table details the Mortgages payable, net, balances per the consolidated balance sheets (amounts in thousands):
| | June 30, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Mortgages payable, gross | | $ | | | $ | |
Unamortized deferred financing costs | |
| ( | |
| ( |
Unamortized mortgage intangible assets (a) | | | ( | | | ( |
Mortgages payable, net | | $ | | | $ | |
| (a) | In connection with the assumption of two below-market mortgages. |
The following table sets forth, as of June 30, 2024, scheduled principal repayments with respect to the Company’s mortgage debt during the six months ending December 31, 2024 and for each of the subsequent twelve months through maturity (amounts in thousands):
|
| 2024 |
| 2025 |
| 2026 |
| 2027 |
| 2028 |
| Thereafter |
| Total | |||||||
Amortization payments | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
Principal due at maturity | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Total | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
14
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 8 – DEBT OBLIGATIONS (CONTINUED)
Line of Credit
The Company’s credit facility with Manufacturers and Traders Trust Company and VNB New York, LLC, provides that it may borrow up to $
The facility, which matures December 31, 2026, provides for an interest rate equal to
At each of June 30, 2024 and August 1, 2024, $
At June 30, 2024 and December 31, 2023, the Company had unamortized deferred financing costs of $
NOTE 9 – RELATED PARTY TRANSACTIONS
Compensation and Services Agreement
Pursuant to the compensation and services agreement with Majestic Property Management Corp. (“Majestic”), Majestic provides the Company with certain (i) executive, administrative, legal, accounting, clerical, property management, property acquisition, consulting (i.e., sale, leasing, brokerage, and mortgage financing), and construction supervisory services (collectively, the “Services”) and (ii) facilities and other resources. Majestic is wholly-owned by the Company’s vice- chairman and it provides compensation to several of the Company’s executive officers.
In consideration for the Services, the Company paid Majestic $
15
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 9 – RELATED PARTY TRANSACTIONS (CONTINUED)
Executive officers and others providing services to the Company under the compensation and services agreement were awarded shares of restricted stock and restricted stock units (“RSUs”) under the Company’s stock incentive plans (described in Note 10). The related expense charged to the Company’s operations was $
The amounts paid under the compensation and services agreement (except for the property management services which are included in Real estate expenses) and the costs of the stock incentive plans are included in General and administrative expense on the consolidated statements of income.
Joint Venture Partners and Affiliates
The Company paid an aggregate of $
The Company’s unconsolidated joint ventures paid management fees of $
Other
During 2024 and 2023, the Company paid quarterly fees of (i) $
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 $
16
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 10 – STOCKHOLDERS’ EQUITY
Common Stock Dividend
On June 10, 2024, the Board of Directors declared a quarterly cash dividend of $
Dividend Reinvestment Plan
The Company’s Dividend Reinvestment Plan (the “DRP”), among other things, provides stockholders with the opportunity to reinvest all or a portion of their cash dividends paid on the Company’s common stock in additional shares of its common stock, at a discount, determined in the Company’s sole discretion, of up to
Stock Repurchase Program
During 2022 and 2023, the Board of Directors authorized and/or amended repurchase programs pursuant to which the Company could repurchase shares of its common stock in open-market, through privately negotiated transactions or otherwise.
Stock Based Compensation
The Company’s 2022 and 2019 Incentive Plans (collectively, the “Plans”), permit 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
The following details the shares subject to awards that are outstanding under the Plans as of June 30, 2024:
| | Restricted Stock | | RSUs | |
2022 Incentive Plan | | | | | (a) |
2019 Incentive Plan (b) | | | | — | |
Totals | | | | | |
| (a) | In July 2024, the Company granted RSUs to acquire |
| (b) |
Restricted Stock
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
17
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 10 – STOCKHOLDERS’ EQUITY (CONTINUED)
RSUs
The following table reflects the activities involving RSUs:
|
| 2024 Grant (a) | | | 2023 Grant | | 2022 Grant | | 2021 Grant | | 2020 Grant | |
RSUs granted (b) | | | | | | | | | | | | |
RSUs vested | | — | | | — | | — | | | (c) | | (d) |
RSUs forfeited | | — | | | — | | | (e) | | (f) | | (e) |
RSUs outstanding | | | | | | | | | — | | — | |
Vesting Date (g)(h) | | 6/30/2027 | | | 6/30/2026 | | 6/30/2025 | | 6/30/2024 | | 6/30/2023 | |
| (a) | These shares were granted in July 2024. |
| (b) | The shares underlying the RSUs are excluded from the shares shown as outstanding on the balance sheet until they have vested and been issued. |
| (c) | Such shares will be issued in August 2024. |
| (d) | Such shares were issued in August 2023. |
| (e) | Such shares were forfeited due to the retirement of an executive officer before the completion of the applicable performance cycle. |
| (f) | Of the |
| (g) | Generally, the recipient must maintain a relationship with the Company during the applicable |
| (h) | RSUs vest upon satisfaction of metrics related to average annual total stockholder return (“TSR Metric”) and average annual return on capital (“ROC Metric”; together with the TSR Metric, the “Metrics”) and are issued to the extent the Compensation Committee determines that the Metrics with respect to the vesting of such shares have been satisfied. |
The specific metrics and other material terms and conditions of the RSUs are as follows:
| | | | | | Performance Criteria (a) | ||
Year RSU Granted | | Metric | | Weight | | Minimum | | Maximum |
2021 - 2024 (b)(c) | | ROC Metric (d) | | | Average annual of at least | | Average annual of at least | |
| | TSR Metric (e) | | | Average annual of at least | | Average annual of at least | |
| (a) | If the average annual ROC or TSR falls between the applicable minimum and maximum performance criteria, a pro-rata portion of such units, as applicable, vest. |
| (b) | Such RSUs are not entitled to voting rights. |
| (c) | The holders of such RSUs receive an amount equal to the dividends that would have been paid on the underlying shares had such shares been outstanding during the |
| (d) | The ROC Metrics meet the definition of a performance condition. Fair value is based on the market value on the date of grant. For ROC Awards, the Company recognizes expense only when performance conditions are expected to be met; such performance assumptions are re-evaluated quarterly. |
| (e) | The TSR Metrics meet the definition of a market condition. A third-party appraiser prepares a Monte Carlo simulation pricing model to determine the fair value of such awards, which is recognized ratably over the service period. |
18
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 10 – STOCKHOLDERS’ EQUITY (CONTINUED)
As of June 30, 2024, based on performance and market assumptions, the fair value of the RSUs granted in 2023 and 2022 is $
The following is a summary of the activity of the Plans:
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Restricted stock: | | | | | | | | | | | | |
Number of shares granted | | | — | | | — | | | | | | |
Average per share grant price | | $ | — | | $ | — | | $ | | | $ | |
Deferred compensation to be recognized over vesting period | | $ | — | | $ | — | | $ | | | $ | |
| | | | | | | | | | | | |
Number of non-vested shares: | | | | | | | | | | | | |
Non-vested beginning of the period | | | | | | | | | | | | |
Grants | | | — | | | — | | | | | | |
Vested during the period | | | — | | | ( | | | ( | | | ( |
Forfeitures | | | — | | | ( | | | — | | | ( |
Non-vested end of the period | | | | | | | | | | | | |
| | | | | | | | | | | | |
RSUs: (a) | | | | | | | | | | | | |
Number of non-vested shares: | | | | | | | | | | | | |
Non-vested beginning of the period | | | | | | | | | | | | |
Grants | | | | | | | | | | | | |
Vested during the period | | | ( | | | ( | | | ( | | | ( |
Forfeitures | | | ( | | | ( | | | ( | | | ( |
Non-vested end of the period | | | | | | | | | | | | |
| | | | | | | | | | | | |
Restricted stock and RSU grants (based on grant price): | | | | | | | | | | | | |
Weighted average per share value of non-vested shares | | $ | | | $ | | | $ | | | $ | |
Value of stock vested during the period | | $ | | | $ | | | $ | | | $ | |
Weighted average per share value of shares forfeited during the period | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Total charge to operations: | | | | | | | | | | | | |
Outstanding restricted stock grants | | $ | | | $ | | | $ | | | $ | |
Outstanding RSUs | | | | | | | | | | | | |
Total charge to operations | | $ | | | $ | | | $ | | | $ | |
| (a) | There were |
As of June 30, 2024, total compensation costs of $
19
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 11 – EARNINGS PER COMMON SHARE
Basic earnings per share was determined by dividing net income allocable to common stockholders for each period by the weighted average number of shares of common stock outstanding during the applicable period. Net income is also allocated to the unvested restricted stock outstanding during each period, as the restricted stock is entitled to receive dividends and is therefore considered a participating security. As of June 30, 2024, the shares of common stock underlying the RSUs (see Note 10) are excluded from the basic earnings per share calculation, as these units are not participating securities until they vest and are issued.
Diluted earnings per share reflects the potential dilution that could occur if securities or other rights exercisable for, or convertible into, common stock were exercised or converted or otherwise resulted in the issuance of common stock that shared in the earnings of the Company.
The following table provides a reconciliation of the numerator and denominator of earnings per share calculations (amounts in thousands, except per share amounts):
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
Numerator for basic and diluted earnings per share: | | | | | | | | | | | | |
Net income | | $ | | | $ | | | $ | | | $ | |
Deduct net income attributable to non-controlling interests | |
| ( | |
| ( | |
| ( | |
| ( |
Deduct earnings allocated to unvested restricted stock (a) | |
| ( | | | ( | | | ( | | | ( |
Net income available for common stockholders: basic and diluted | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | |
Denominator for basic earnings per share: | | | | | | | | | | | | |
Weighted average number of common shares outstanding | |
| | | | | | | | | | |
Effect of dilutive securities: RSUs | |
| | | | | | | | | | |
Denominator for diluted earnings per share: | | | | | | | | | | | | |
Weighted average number of shares | |
| | |
| | |
| | |
| |
| | | | | | | | | | | | |
Earnings per common share: basic and diluted | | $ | | | $ | | | $ | | | $ | |
| (a) | Represents an allocation of distributed earnings to unvested restricted stock that, as participating securities, are entitled to receive dividends. |
20
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 11 – EARNINGS PER COMMON SHARE (CONTINUED)
The following table identifies the number of shares of common stock underlying the RSUs that are included in the calculation, on a diluted basis, of the weighted average number of shares of common stock for such periods:
Three and Six Months Ended June 30, 2024: | ||||||||||
|
| Total Number |
| Shares Included Based on (a) |
| | ||||
| | of Underlying | | Return on | | Stockholder | | | | Shares |
Date of Award |
| Shares |
| Capital Metric |
| Return Metric |
| Total |
| Excluded (b) |
July 1, 2023 (c) | | | | | | | | | | |
July 1, 2022 (c) |
| | | | | — | | | | |
August 3, 2021 (d) |
| | | | | — | | | | |
Totals |
| |
| |
| |
| |
| |
Three and Six Months Ended June 30, 2023: | ||||||||||
|
| Total Number |
| Shares Included Based on (a) |
| | ||||
| | of Underlying | | Return on | | Stockholder | | | | Shares |
Date of Award |
| Shares |
| Capital Metric |
| Return Metric |
| Total |
| Excluded (b) |
July 1, 2022 (c) |
| | | | | — | | | | |
August 3, 2021 (d) |
| | | | | — | | | | |
August 3, 2020 (e) | | | | | | | | | | |
Totals |
| |
| |
| |
| |
| |
| (a) | Reflects the number of shares underlying RSUs that would be issued assuming the measurement date used to determine whether the applicable conditions are satisfied is June 30 of the applicable period. |
| (b) | Excluded as the applicable conditions had not been met for these shares at the applicable measurement dates. |
| (c) | The RSUs awarded in 2023 and 2022 vest, subject to satisfaction of the applicable market and/or performance conditions, as of June 30, 2026 and 2025, respectively (see Note 10). |
| (d) | With respect to the RSUs awarded August 3, 2021, |
| (e) | With respect to the RSUs awarded August 3, 2020, |
21
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 12 – FAIR VALUE MEASUREMENTS
The Company measures the fair value of financial instruments based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions. In accordance with the fair value hierarchy, Level 1 assets/liabilities are valued based on quoted prices for identical instruments in active markets, Level 2 assets/liabilities are valued based on quoted prices in active markets for similar instruments, on quoted prices in less active or inactive markets, or on other “observable” market inputs and Level 3 assets/liabilities are valued based significantly on “unobservable” market inputs.
The carrying amounts of cash and cash equivalents, escrow, deposits and other assets and receivables (excluding interest rate swaps), dividends payable, and accrued expenses and other liabilities, are not measured at fair value on a recurring basis but are considered to be recorded at amounts that approximate fair value.
The fair value and carrying amounts of the Company’s mortgages payable are as follows (dollars in thousands):
| | June 30, | | | December 31, | | ||
|
| 2024 |
| | 2023 |
| ||
Fair value of mortgages payable (a) | | $ | | | | $ | | |
Carrying value of mortgages payable, gross | | $ | | | | $ | | |
Fair value less than the carrying value | | $ | ( | | | $ | ( | |
Blended market interest rate (a) | | | | % | | | | % |
Weighted average interest rate | | | | % | | | | % |
Weighted average remaining term to maturity (years) | | | | | | | | |
| (a) | Estimated using unobservable inputs such as available market information and discounted cash flow analysis based on borrowing rates the Company believes it could obtain with similar terms and maturities. These fair value measurements fall within Level 3 of the fair value hierarchy. |
Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
Fair Value on a Recurring Basis
As of June 30, 2024, the Company had in effect
Fair values are approximated using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This fair value 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 associated credit valuation adjustments 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, 2024, the Company has assessed and determined the impact of the credit valuation adjustments on the overall valuation of its derivative positions is not significant. As a result, the Company determined its derivative valuation is classified in Level 2 of the fair value hierarchy. The Company does not currently own any financial instruments that are measured on a recurring basis and that are classified as Level 1 or 3.
22
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 12 – FAIR VALUE MEASUREMENTS (CONTINUED)
The fair value of the Company’s derivative financial instruments was determined to be the following (amounts in thousands):
| | | | Carrying and | | Balance Sheet | |
|
| As of |
| Fair Value |
| Classification | |
Financial assets: Interest rate swaps | | June 30, 2024 | | $ | | | |
| | December 31, 2023 | | | | | |
As of June 30, 2024 and December 31, 2023, there were
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 | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2024 | | 2023 |
| 2024 |
| 2023 | ||||
Amount of gain recognized on derivatives in other comprehensive income | | $ | | | $ | | | $ | | | $ | |
Amount of reclassification from Accumulated other comprehensive income into Interest expense | | | | | | | | | | | | |
During the twelve months ending June 30, 2025, the Company estimates an additional $
The derivative agreements in effect at June 30, 2024 provide that if the wholly-owned subsidiary of the Company which is a party to such agreement defaults or is capable of being declared in default on any of its indebtedness, then a default can be declared on such subsidiary’s derivative obligation. In addition, the Company is a party to the derivative agreements and if there is a default by the subsidiary on the loan subject to the derivative agreement to which the Company is a party and if there are swap breakage losses on account of the derivative being terminated early, the Company could be held liable for such swap breakage losses.
Fair Value on a Non-Recurring Basis
Non-financial assets measured at fair value on a non-recurring basis in the consolidated financial statements consist of a property located in Hamilton, Ohio for which the Company recorded an impairment loss of $
23
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 2024 (CONTINUED)
NOTE 13 – NEW ACCOUNTING PRONOUNCEMENT
On January 1, 2024, the Company adopted the FASB ASU No. 2023-07, Segment Reporting – Improvements to Reportable Segments Disclosures, which enhances disclosures of significant segment expenses regularly provided to the chief operating decision maker.
Substantially all of the Company’s real estate assets, at acquisition, are comprised of real estate owned that is leased to tenants on a long-term basis. Therefore, the Company aggregates real estate assets for reporting purposes and operates in
The Company’s Chief Operating Decision Makers (“CODMs”) are its Chief Executive Officer and Chief Operating Officer. As the Company operates in
NOTE 14 – SUBSEQUENT EVENTS
Subsequent events have been evaluated and except as disclosed herein, there were no other events relative to the consolidated financial statements that require additional disclosure.
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q, together with other statements and information publicly disseminated by us, contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “could,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions or variations thereof and include, without limitations, statements regarding our future estimated rental income, funds from operations, adjusted funds from operations and our dividend. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our results of operations, financial condition, cash flows, performance or achievements.
The uncertainties, risks and factors which may cause actual results to differ materially from current expectations include, but are not limited to:
| ● | the financial failure of, or other default in payment by, tenants under their leases and the potential resulting vacancies; |
| ● | adverse changes and disruption in the retail, restaurant, theater and health and fitness sectors, which could impact our tenants’ ability to pay rent and expense reimbursement; |
| ● | loss or bankruptcy of one or more of our tenants, and bankruptcy laws that may limit our remedies if a tenant becomes bankrupt and rejects its lease; |
| ● | the level and volatility of interest rates; |
| ● | general economic and business conditions and developments, including those currently affecting or that may affect our economy; |
| ● | general and local real estate conditions, including any changes in the value of our real estate; |
| ● | our ability to renew or re-lease space as leases expire; |
| ● | our ability to pay dividends; |
| ● | changes in governmental laws and regulations relating to real estate and related investments; |
| ● | compliance with credit facility and mortgage debt covenants; |
| ● | the availability of, and costs associated with, sources of capital and liquidity; |
| ● | competition in our industry; |
| ● | technological changes, such as autonomous vehicles, reconfiguration of supply chains, robotics, 3D printing or other technologies; |
| ● | potential natural disasters, epidemics, pandemics or outbreak of infectious disease, such as COVID-19, and other potentially catastrophic events such as acts of war and/or terrorism; and |
| ● | the other risks, uncertainties and factors described in the reports and documents we file with the SEC including the risks, uncertainties and factors described in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”) under the caption “Item 1A. Risk Factors” for a discussion of certain factors which may cause actual results to differ materially from current. |
Actual results may also differ from expectations because, among other things, estimates of rental income exclude any related variable rent, anticipated property purchases, sales and/or financings may not be completed on the terms or during the period indicated or at all, and estimates of gains from property sales and financings are subject to adjustment because actual closing costs may differ from the estimated costs.
25
In light of the factors referred to above, the future events discussed or incorporated by reference in this report and other documents we file with the SEC may not occur, and actual results, performance or achievements could differ materially from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not rely on any forward-looking statements.
Except as may be required under the United States federal securities laws, we undertake no obligation to publicly update our forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make in our reports that are filed with or furnished to the SEC.
Challenges and Uncertainties Facing Certain Tenants and Properties
As more fully described in our Annual Report, and in particular, the sections thereof entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, we face challenges due to the volatile economic environment, and certain of our properties and tenants face various challenges. Our cash flow and profitability will be adversely impacted if the issues with respect to the challenged tenants/properties identified in the Annual Report are not resolved in a satisfactory manner. There have been no material changes to the status of such tenants/ properties other than with respect to our Hamilton, Ohio property formerly tenanted by LA Fitness– see “–Sales Contract and Impairment Loss” below.
Overview
We are a self-administered and self-managed real estate investment trust, or REIT. To qualify as a REIT, under the Internal Revenue Code of 1986, as amended, we must meet a number of organizational and operational requirements, including a requirement that we distribute currently at least 90% of ordinary taxable income to our stockholders. We intend to comply with these requirements and to maintain our REIT status.
We acquire, own and manage a geographically diversified portfolio consisting primarily of industrial and, to a lesser extent, retail properties, many of which are subject to long-term net leases. As of June 30, 2024, we own 106 properties (including two properties owned by consolidated joint ventures and two properties owned by unconsolidated joint ventures) located in 31 states. Based on square footage, our occupancy rate at June 30, 2024 is approximately 98.2%.
We face a variety of risks and challenges in our business, including the possibility we will not be able to: acquire or dispose of properties on acceptable terms, lease our properties on terms favorable to us or at all, collect amounts owed to us by our tenants, renew or re-let, on acceptable terms, leases that are expiring or otherwise terminating.
We seek to manage the risk of our real property portfolio and the related financing arrangements by (i) diversifying among locations, tenants, scheduled lease expirations, mortgage maturities and lenders, and (ii) minimizing our exposure to interest rate fluctuations. Substantially all of our mortgage debt either bears interest at fixed rates or is subject to interest rate swaps, limiting our exposure to fluctuating interest rates on our outstanding mortgage debt.
We monitor the risk of tenant non-payments through a variety of approaches tailored to the applicable situation. Generally, based on our assessment of the credit risk posed by our tenants, we monitor a tenant’s financial condition through one or more of the following actions: reviewing tenant financial statements or other financial information, obtaining other tenant related information, changes in tenant payment patterns, regular contact with tenant’s representatives, tenant credit checks and regular management reviews of our tenants. We have in the past, and we may in the future, sell a property if the tenant’s financial condition is unsatisfactory.
In acquiring and disposing of properties, among other things, we evaluate the terms of the leases, the credit of the existing tenants, the terms and conditions of the related financing arrangement (including any contemplated financing) and engage in a fundamental analysis of the real estate to be bought or sold. This fundamental analysis takes into account, among other things, the estimated value of the property, local competition and demographics, and the ability to re-rent or dispose of the property on favorable terms upon lease expiration or early termination. In addition, in evaluating property sales, we take into account, among other things, the property type (i.e., industrial, retail or other), our perception of the property’s long-term
26
prospects (including the likelihood for, and the extent of, any further appreciation or diminution in value), the term remaining on the related lease and mortgage debt, the price and other terms and conditions for the sale of such property and the returns anticipated to be generated from the reinvestment of the net proceeds to us from such property sale.
Our 2024 contractual base rent is approximately $70.9 million and represents, after giving effect to any abatements, concessions, deferrals or adjustments, the base rent payable to us during the twelve months ending June 30, 2025 under leases in effect at June 30, 2024.
Included in contractual rental income is $162,000 representing the base rent payable by Dick’s Sporting Goods (Champaign, Illinois) in the twelve months ending June 30, 2025, although such lease is subject to termination by the landlord or tenant upon 90 days’ notice.
Excluded from contractual rental income is an aggregate of $1.5 million comprised of:
| ● | $1.3 million, subject to the property generating specified levels of positive operating cash flow, of estimated variable lease payments from The Vue, a multi-family complex which ground leases the underlying land from us and as to which there is uncertainty as to when and whether the tenant will resume paying rent, and |
| ● | $221,000 representing our share of the base rent payable to our joint ventures. |
The following table sets forth scheduled expirations of leases at our properties as of June 30, 2024 for the years indicated below:
| | | | | | | | | Percentage of |
| | | | Approximate | | | | Contractual | |
| | Number of | | Square Footage | | Contractual | | Rental Income | |
Lease Expiration (a) | | Expiring | | Subject to | | Rental Income Under | | Represented by | |
12 Months Ending June 30, |
| Leases |
| Expiring Leases (b) |
| Expiring Leases |
| Expiring Leases | |
2025 |
| 13 | | 515,309 | | $ | 3,223,845 | | 4.6 |
2026 |
| 12 | | 670,745 | |
| 4,156,636 | | 5.9 |
2027 |
| 30 | | 1,162,861 | |
| 8,384,629 | | 11.8 |
2028 |
| 25 | | 2,151,955 | |
| 12,976,997 | | 18.3 |
2029 |
| 22 | | 1,805,370 | |
| 11,936,539 | | 16.9 |
2030 |
| 10 | | 713,188 | |
| 4,481,164 | | 6.3 |
2031 |
| 12 | | 1,046,676 | |
| 6,893,731 | | 9.7 |
2032 |
| 5 | | 401,899 | |
| 2,288,825 | | 3.2 |
2033 |
| 13 | | 857,298 | |
| 6,456,361 | | 9.1 |
2034 | | 8 | | 466,724 | | | 5,467,346 | | 7.7 |
2035 and thereafter |
| 8 | | 772,695 | |
| 4,591,937 | | 6.5 |
|
| 158 |
| 10,564,720 | | $ | 70,858,010 |
| 100.0 |
| (a) | Lease expirations assume tenants do not exercise existing renewal or termination options. |
| (b) | Excludes an aggregate of 195,988 square feet of vacant space. |
27
Property Transactions
Completed Acquisitions during the three months ended June 30, 2024
We acquired industrial properties in Albuquerque, New Mexico and Savannah, Georgia for an aggregate purchase price of $11.7 million, incurred $108,000 of transaction costs that were capitalized and subsequently obtained new mortgage debt in the aggregate of $6.2 million bearing an interest rate of 6.00% and maturing between 2032 and 2035 (see Note 4 to our consolidated financial statements). These properties contributed $160,000 of rental income, net, $76,000 of operating expenses (including depreciation and amortization expense of $71,000) and $25,000 of mortgage interest expense. We estimate that commencing July 1, 2024, the aggregate quarterly rental income (excluding variable lease revenues), depreciation and amortization expense and mortgage interest expense from these properties will be $252,000, $103,000 and $93,000, respectively.
Acquisition Contracts
On June 13, 2024, we entered into a contract to acquire a 302,347 square foot, multi-tenant industrial property located in Council Bluffs, Iowa for $33.0 million (“Council Bluffs I”). In connection with the acquisition, we anticipate obtaining new mortgage debt of approximately $18.4 million bearing an interest rate of 6.08% (interest only until 2029) and maturing in 2034. We anticipate paying the balance of the purchase price from our available cash. We estimate the annual base rent will be approximately $2.1 million (with annual base rent increases ranging from 1.90% to 3.25%) and anticipate the closing will occur during the three months ending September 30, 2024.
On August 1, 2024, we entered into a contract, subject to our right to terminate, to acquire a 236,324 square foot, multi-tenant industrial property located in Council Bluffs, Iowa for $28.3 million (“Council Bluffs II”; and together with Council Bluffs I, the “Council Bluffs Acquisitions”). In connection with this acquisition, we anticipate obtaining new mortgage debt of approximately $17.0 million bearing an interest rate of 5.89% (interest only until 2029) and maturing in 2034. We anticipate paying the balance of the purchase price from our available cash. We estimate the annual base rent will be approximately $1.9 million (with annual base rent increases ranging from 3.00% to 3.25%) and anticipate the closing will occur during September or October 2024.
Completed Sales during the three months ended June 30, 2024
We sold the following properties (amounts in thousands):
| | | | | | | | | | | 2023 | ||||||||
| | | | | | Gross | | Gain on | | | | Depreciation & | | Real Estate | |||||
| | | | | | Sales | | Sale of Real | | Rental | | Amortization | | Operating | |||||
Description of Property | | City, State | | Date Sold | | Price | | Estate, net | | Income | | Expense | | Expenses | |||||
Applebee's restaurant property | | Kennesaw, Georgia | | May 6, 2024 | | $ | 2,834 | | $ | 964 | | $ | 187 | | $ | 38 | | $ | — |
FedEx industrial property | | Miamisburg, Ohio | | May 9, 2024 | | | 2,793 | | | 1,507 | | | 238 | | | 59 | | | 35 |
Havertys retail property | | Wichita, Kansas | | June 6, 2024 | | | 6,600 | | | 1,884 | | | 544 | | | 140 | | | — |
Urban Outfitters retail property | | Lawrence, Kansas | | June 7, 2024 | | | 1,300 | | | 43 | | | 155 | | | 36 | | | 40 |
Walgreens retail property (a) | | Cape Girardeau, Missouri | | June 10, 2024 | | | 2,793 | | | 978 | | | 203 | | | 46 | | | 5 |
Vacant retail property (b) | | Kennesaw, Georgia | | June 28, 2024 | | | 6,700 | | | 2,072 | | | 111 | | | 240 | | | 80 |
| | | | | | $ | 23,020 | | $ | 7,448 | | $ | 1,438 | | $ | 559 | | $ | 160 |
| (a) | This property was owned by a consolidated joint venture in which we held a 95% interest. The non-controlling interest’s share of the gain was $105. During 2023, this property incurred mortgage interest expense of $41. The mortgage debt was paid off in January 2024. |
| (b) | This property was formerly tenanted by Bed Bath & Beyond and became vacant in April 2023. During 2023, this property incurred mortgage interest expense of $173. In connection with this sale, we paid off the $4,412 mortgage on this property. |
Generally, we sold these properties due to our belief that such property had achieved its maximum potential value; our concern with respect to the long-term prospects for the tenant or the geographic sub-market; or due to concern in our ability, on acceptable terms, to refinance the property’s mortgage debt or re-lease the property. A significant portion of the net proceeds of these sales have been invested in short-term U.S. treasury bills. We may during the balance of 2024, sell several more properties, including some retail properties.
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Sales Contracts and Impairment Loss
On July 1, 2024, we entered into a contract to sell our vacant industrial property in Wauconda, Illinois for $4.5 million. This property was formerly tenanted by Echo, Inc. whose lease expired in January 2024. This property contributed $430,000 of rental income, net, and $298,000 of operating expenses (including depreciation and amortization expense of $168,000), during the year ended December 31, 2023. We anticipate that, subject to the buyer’s right to terminate this contract, this transaction will be completed by September 30, 2024 and estimate that we will recognize a gain on sale of real estate, net, of approximately $1.2 million on the consolidated statement of income during the three months ending September 30, 2024.
On July 11, 2024, we entered into a contract to sell our health and fitness property in Hamilton, Ohio for $4.4 million. This property was formerly tenanted by LA Fitness whose lease expired in May 2024. In connection with the proposed sale, we recorded an impairment charge of $1.1 million during the three and six months ended June 30, 2024. This property contributed $893,000 of rental income, net, $394,000 of operating expenses (including depreciation and amortization expense of $206,000) and $198,000 of mortgage interest expense during the year ended December 31, 2023. We anticipate that, subject to the buyer’s right to terminate this contract, this property will be sold at a nominal gain during the three months ending September 30, 2024.
Equity Incentive Program Activity
On July 16, 2024, we awarded an aggregate of 88,250 shares subject to restricted stock units (“RSUs”), and related dividend equivalent rights. Generally, the awards vest in 2027 subject to satisfaction of, among other things, market and performance conditions similar to the conditions applicable to the RSUs granted in 2023 and 2022.
On August 6, 2024, we determined that the performance and market conditions with respect to the vesting of 39,811 of the 80,700 RSUs granted in 2021 had been met as of June 30, 2024, and authorized the issuance of 39,811 shares of common stock. We anticipate paying the holders of the RSUs an aggregate of approximately $215,000 with respect to the dividend equivalent rights with respect to the vested shares.
29
Results of Operations
Total revenues
The following table compares total revenues for the periods indicated:
| | Three Months Ended | | | | | | | Six Months Ended | | | | | | ||||||||
| | June 30, | | Increase | | | | June 30, | | Increase | | | ||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| (Decrease) |
| % Change |
| 2024 |
| 2023 |
| (Decrease) |
| % Change | ||||||
Rental income, net | | $ | 21,800 | | $ | 22,407 | | $ | (607) |
| (2.7) | | $ | 44,246 | | $ | 45,359 | | $ | (1,113) |
| (2.5) |
Lease termination fee | | | — | | | — | | | — |
| — | | | 250 | | | — | | | 250 |
| n/a |
Total revenues | | $ | 21,800 | | $ | 22,407 | | $ | (607) |
| (2.7) | | $ | 44,496 | | $ | 45,359 | | $ | (863) |
| (1.9) |
Rental income, net
The following table details the components of rental income, net, for the periods indicated:
| | Three Months Ended | | | | | | | Six Months Ended | | | | | | ||||||||
| | June 30, | | Increase | | | | June 30, | | Increase | | | ||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| (Decrease) |
| % Change |
| 2024 |
| 2023 |
| (Decrease) |
| % Change | ||||||
Acquisitions (a) | | $ | 529 | | $ | — | | $ | 529 | | n/a | | $ | 883 | | $ | — | | $ | 883 | | n/a |
Dispositions (b) | | | 213 | | | 1,041 | | | (828) | | (79.5) | | | 543 | | | 2,321 | | | (1,778) | | (76.6) |
Same store (c) | | | 21,058 | | | 21,366 | | | (308) | | (1.4) | | | 42,820 | | | 43,038 | | | (218) | | (0.5) |
Rental income, net | | $ | 21,800 | | $ | 22,407 | | $ | (607) | | (2.7) | | $ | 44,246 | | $ | 45,359 | | $ | (1,113) | | (2.5) |
| (a) | Represents rental income from three properties acquired since January 1, 2023. |
| (b) | Represents rental income from properties sold since January 1, 2023. |
| (c) | Represents rental income from 101 properties that were owned for the entirety of the periods presented. |
Changes at same store properties
The changes in same store rental income during the three and six months ended June 30, 2024 are due primarily to decreases of:
| - | $335,000 and $552,000, respectively, from lease expirations at various properties (including $155,000 and $251,000, respectively, from LA Fitness – Hamilton, Ohio), |
| - | $283,000 and $781,000, respectively, from our two Regal Cinemas properties due to lease amendments effectuated in connection with its 2023 bankruptcy reorganization, and |
| - | for the three months ended June 30, 2024, $140,000 in tenant reimbursements, primarily related to real estate tax expenses. |
The decreases were offset during the three and six months ended June 30, 2024 by increases in rental income of:
| - | $324,000 and $658,000, respectively, from various lease amendments and extensions at our properties, |
| - | $156,000 and $294,000, respectively, due to new tenants at various properties, and |
| - | for the six months ended June 30, 2024, $175,000 in tenant reimbursements, of which $137,000 relates to operating expenses generally incurred during such period. |
30
Lease Termination Fee
In March 2024, a consolidated joint venture in Lakewood, Colorado, in which we hold a 90% interest, received a lease termination fee of $250,000 from a tenant due to the early termination of its lease in connection with the sale of the related restaurant parcel.
Operating Expenses
The following table compares operating expenses for the periods indicated:
| | Three Months Ended | | | | | | | Six Months Ended | | | | | | ||||||||
| | June 30, | | Increase | | | | June 30, | | Increase | | | ||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| (Decrease) |
| % Change |
| 2024 |
| 2023 |
| (Decrease) |
| % Change | ||||||
Operating expenses: |
| |
|
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
|
|
Depreciation and amortization | | $ | 5,965 | | $ | 6,114 | | $ | (149) |
| (2.4) | | $ | 11,986 | | $ | 12,259 | | $ | (273) |
| (2.2) |
General and administrative | |
| 3,776 | |
| 4,165 | |
| (389) |
| (9.3) | |
| 7,699 | |
| 8,204 | |
| (505) |
| (6.2) |
Real estate expenses | |
| 3,976 | |
| 3,954 | |
| 22 |
| .6 | |
| 8,446 | |
| 8,078 | |
| 368 |
| 4.6 |
Impairment Loss | | | 1,086 | | | — | | | 1,086 | | n/a | | | 1,086 | | | — | | | 1,086 | | n/a |
State taxes | |
| 47 | |
| 88 | |
| (41) |
| (46.6) | |
| 110 | |
| 156 | |
| (46) |
| (29.5) |
Total operating expenses | | $ | 14,850 | | $ | 14,321 | | $ | 529 |
| 3.7 | | $ | 29,327 | | $ | 28,697 | | $ | 630 |
| 2.2 |
Depreciation and amortization. The decreases in the three and six months ended June 30, 2024 are due primarily to (i) decreases of $367,000 and $723,000, respectively, related to tenant origination costs at several properties that prior to June 30, 2024 were fully amortized, and (ii) the inclusion in the corresponding 2023 periods of $253,000 and $412,000, respectively, of such expense from the properties sold since January 1, 2023.
The decreases were offset by (i) $291,000 and $511,000, respectively, of such expense from three properties acquired since January 1, 2023, and (ii) $118,000 and $247,000, respectively, of depreciation from improvements at several properties.
General and administrative. The decreases in the three and six months ended June 30, 2024 are due primarily to decreases in non-cash compensation expense due to (i) the inclusion of $233,000 in the corresponding 2023 periods from the retirement, and related accelerated vesting, of an executive officer’s restricted stock awards, and (ii) decreases of $140,000 and $138,000, respectively, from the re-assessment of the achievability of performance metrics related to the RSUs.
Real estate expenses. The increase in the six months ended June 30, 2024 is due primarily to $229,000 from a property acquired in 2023.
A substantial portion of real estate expenses is rebilled to tenants and is included in Rental income, net, on the consolidated statements of income.
Impairment loss. During the three and six months ended June 30, 2024, we recorded a $1.1 million impairment loss at our Hamilton, Ohio property formerly tenanted by LA Fitness. (See Note 5 to our consolidated financial statements).
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Gain on sale of real estate, net.
The following table compares gain on sale of real estate, net for the periods indicated:
| | Three Months Ended | | | | | | | Six Months Ended | | | | | | ||||||||
| | June 30, | | Increase | | | | June 30, | | Increase | | | ||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| (Decrease) |
| % Change |
| 2024 |
| 2023 |
| (Decrease) |
| % Change | ||||||
Gain on sale of real estate, net | | $ | 7,448 | | $ | 3,180 | | $ | 4,268 |
| 134.2 | | $ | 9,232 | | $ | 4,714 | | $ | 4,518 |
| 95.8 |
The following table lists the sold properties and the related gains, net, for the periods indicated:
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
(Dollars in thousands) |
| 2024 |
| 2023 | | 2024 |
| 2023 | ||||
Restaurant parcel - Lakewood, Colorado (a) | | $ | — | | $ | — | | $ | 1,784 | | $ | — |
Restaurant property - Kennesaw, Georgia | | | 964 | | | — | | | 964 | | | — |
Industrial property - Miamisburg, Ohio | | | 1,507 | | | — | | | 1,507 | | | — |
Retail property - Wichita, Kansas | | | 1,884 | | | — | | | 1,884 | | | — |
Retail property - Lawrence, Kansas | | | 43 | | | — | | | 43 | | | — |
Retail property - Cape Girardeau, Missouri (b) | | | 978 | | | — | | | 978 | | | — |
Vacant retail property - Kennesaw, Georgia | | | 2,072 | | | — | | | 2,072 | | | — |
Restaurant property - Hauppauge, New York | | | — | | | — | | | — | | | 1,534 |
Retail property - Duluth, Georgia | | | — | | | 3,180 | | | — | | | 3,180 |
Total Gain on sale of real estate, net | | $ | 7,448 | | $ | 3,180 | | $ | 9,232 | | $ | 4,714 |
| (a) | This restaurant parcel, at our Lakewood, Colorado multi-tenant shopping center, is owned through a consolidated joint venture in which we have a 90% interest. The non-controlling interest’s share of this gain was $178. |
| (b) | This property was owned through a consolidated joint venture in which we had a 95% interest. The non-controlling interest’s share of this gain was $105. |
Other Income and Expenses
The following table compares other income and expenses for the periods indicated:
| | Three Months Ended | | | | | | | Six Months Ended | | | | | | ||||||||
| | June 30, | | Increase | | % | | June 30, | | Increase | | % | ||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| (Decrease) |
| Change |
| 2024 |
| 2023 |
| (Decrease) |
| Change | ||||||
Other income and expenses: | | | | | | | | | | | | | | | | | | | | | | |
Equity in earnings of unconsolidated joint ventures | | $ | 43 | | $ | 60 | | $ | (17) | | (28.3) | | $ | 96 | | $ | 145 | | $ | (49) | | (33.8) |
Other income | | | 276 | | | 28 | | | 248 | | 885.7 | | | 543 | | | 43 | | | 500 | | 1,162.8 |
Interest: | | | | | | | | | | | | | | | | | | | | | | |
Expense | | | (4,750) | | | (4,610) | | | 140 | | 3.0 | | | (9,467) | | | (9,210) | | | 257 | | 2.8 |
Amortization and write-off of deferred financing costs | | | (290) | | | (205) | | | 85 | | 41.5 | | | (516) | | | (407) | | | 109 | | 26.8 |
Other Income. The increases in the three and six months ended June 30, 2024 are due to increases of $113,000 and $305,000, respectively, in interest income from investments in short-term U.S. treasury bills. The balance of the increase is due to various factors, none of which was individually significant.
32
Interest expense. The following table compares interest expense for the periods indicated:
| | Three Months Ended | | | | | | | Six Months Ended | | | | | | ||||||||
| | June 30, | | Increase | | % | | June 30, | | Increase | | % | ||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| (Decrease) |
| Change | | 2024 |
| 2023 |
| (Decrease) |
| Change | ||||||
Interest expense: | | |
|
| |
|
| |
|
|
| | |
|
| |
|
| |
|
|
|
Mortgage interest | | $ | 4,687 | | $ | 4,282 | | $ | 405 |
| 9.5 | | $ | 9,341 | | $ | 8,522 | | $ | 819 |
| 9.6 |
Credit line interest | | | 63 | | | 328 | | | (265) |
| (80.8) | | | 126 | | | 688 | | | (562) |
| (81.7) |
Total | | $ | 4,750 | | $ | 4,610 | | $ | 140 |
| 3.0 | | $ | 9,467 | | $ | 9,210 | | $ | 257 |
| 2.8 |
Mortgage interest
The following table reflects the average interest rate on the average principal amount of outstanding mortgage debt for the periods indicated:
| | Three Months Ended | | | | | | | Six Months Ended | | | | | | ||||||||
| | June 30, | | Increase | | % | | June 30, | | Increase | | % | ||||||||||
(Dollars in thousands) |
| 2024 |
| 2023 |
| (Decrease) |
| Change | | 2024 |
| 2023 |
| (Decrease) |
| Change | ||||||
Weighted average principal amount | | $ | 420,732 | | $ | 411,537 | | $ | 9,195 |
| 2.2 | | $ | 422,077 | | $ | 410,783 | | $ | 11,294 |
| 2.7 |
Weighted average interest rate | | | 4.42 | % | | 4.14 | % | | 0.28 | % | 6.8 | | | 4.39 | % | | 4.13 | % | | 0.26 | % | 6.3 |
The increases in mortgage interest in the three and six months ended June 30, 2024 are due primarily to increases in the average principal amount of mortgage debt outstanding as a result of financings and refinancings, offset by mortgage payoffs (generally in connection with scheduled maturities) and scheduled amortization payments.
Credit line interest
The decreases in credit line interest in the three and six months ended June 30, 2024 are due to the payoff of the principal balance outstanding on the credit facility. The interest expense of $63,000 and $126,000 for the three and six months ended June 30, 2024, respectively, constitutes the unused facility fee.
The weighted average interest rate was 6.69% and 6.44% for the three and six months ended June 30, 2023, respectively, and the weighted average principal amount outstanding was $16.6 million and $18.4 million for the three and six months ended June 30, 2023, respectively.
33
Liquidity and Capital Resources
Our sources of liquidity and capital include cash flow from operations, cash and cash equivalents, borrowings under our credit facility, refinancing existing mortgage loans, obtaining mortgage loans secured by our unencumbered properties, issuance of our equity securities and property sales. Our available liquidity at August 1, 2024, was $134.1 million, including $34.1 million of cash and cash equivalents (including the credit facility’s required minimum $3.0 million average deposit maintenance balance) and up to $100.0 million available under our credit facility. At August 1, 2024, the facility is available for the acquisition of commercial real estate, repayment of mortgage debt, and up to $40.0 million for renovation and operating expense purposes.
Liquidity and Financing
We expect to meet our short-term (i.e., one year or less) and long-term:
| ● | operating cash requirements (including debt service, anticipated dividend payments and, if any, repurchases of our common stock), principally from cash flow from operations, our available cash and cash equivalents, proceeds from and, to the extent permitted and needed, our credit facility, |
| ● | investing cash requirements (including an estimated $26 million (net of anticipated financing) for the Council Bluffs’ Acquisitions and $3 million of capital expenditures on existing properties), from the foregoing, as well as property sales, sales of our common stock and property financings and refinancings, and |
| ● | financing cash requirements as described below. |
At June 30, 2024, we had 68 outstanding mortgages payable secured by 69 properties in the aggregate principal amount of $419.8 million (before netting unamortized deferred financing costs of $3.6 million and mortgage intangibles of $736,000). These mortgages represent first liens on individual real estate investments with an aggregate carrying value of $672.6 million, before accumulated depreciation of $131.3 million. After giving effect to interest rate swap agreements, the mortgage payments bear interest at fixed rates ranging from 3.05% to 8.33% (a 4.41% weighted average interest rate) and mature between 2024 and 2047 (a 6.0 year weighted average remaining term to maturity).
The following table sets forth, as of June 30, 2024, information with respect to our mortgage debt that is payable during the six months ending December 31, 2024 and for each of the subsequent twelve months through December 31, 2027:
(Dollars in thousands) |
| 2024 |
| 2025 | | 2026 |
| 2027 |
| Total |
| |||||
Amortization payments | | $ | 5,884 | | $ | 10,842 | | $ | 10,794 | | $ | 9,721 | | $ | 37,241 | |
Principal due at maturity | |
| 25,309 | |
| 29,157 | |
| 19,179 | |
| 38,525 | |
| 112,170 | |
Total | | $ | 31,193 | | $ | 39,999 | | $ | 29,973 | | $ | 48,246 | | $ | 149,411 | |
| | | | | | | | | | | | | | | | |
Weighted average interest rate on principal due at maturity | | | 4.74 | % | | 4.34 | % | | 3.88 | % | | 3.64 | % | | 4.11 | % |
(1)
We intend to make debt amortization payments from operating cash flow and, although no assurance can be given that we will be successful in this regard, generally intend to refinance, extend or pay off the mortgage loans which mature from 2024 through 2027. In particular, during the quarter ending September 30, 2024, we anticipate paying off approximately $9 million to $11 million of mortgages maturing in 2024 (of which we anticipate approximately $6 million will be paid from the proceeds on the sale of the related properties). We anticipate that during the quarter ending September 30, 2024, we will obtain gross proceeds of between $21 million and $26 million from property financings (net of refinanced amounts ranging from $9 million to $12 million, respectively). On such debt, we expect the weighted average interest rate to range from 6.11% to 6.13% and the weighted average remaining term to maturity to range from five years to six years.
We anticipate refinancing a substantial portion of the remaining debt maturing in 2024 and 2025, although given the significant increase in interest rates over the past year, we can provide no assurance that we will be able to do so on terms as favorable as those currently in effect or at all. We generally intend to repay the amounts not refinanced or extended from our existing funds and sources of funds, including our available cash, proceeds from property sales and, if any, the sale of our common stock, and our credit facility (to the extent available).
34
We continually seek to refinance existing mortgage loans on terms we deem acceptable to generate additional liquidity. Additionally, in the normal course of our business, we sell properties when we determine that it is in our best interests, which also generates additional liquidity. Further, although we have done so infrequently and primarily in the context of a tenant default at a property for which we have not found a replacement tenant, if we believe we have negative equity in a property subject to a non-recourse mortgage loan, we may convey such property to the mortgagee to terminate our mortgage obligations, including payment of interest, principal and real estate taxes, with respect to such property.
Typically, we use funds from our credit facility to acquire a property and, thereafter secure long-term, fixed rate mortgage debt on such property. We apply the proceeds from the mortgage loan to repay borrowings under the credit facility, thus providing us with the ability to re-borrow under the credit facility for the acquisition of additional properties.
Credit Facility
Our credit facility provides that subject to borrowing base requirements, we can borrow up to $100.0 million for the acquisition of commercial real estate, repayment of mortgage debt, and renovation and operating expense purposes; provided, that if used for renovation and operating expense purposes, the amount outstanding for such purposes will not exceed the lesser of $40.0 million and 40% of the borrowing base. The facility matures December 31, 2026 and bears interest equal to 30-day SOFR plus the applicable margin. The applicable margin ranges from 175 basis points if our ratio of total debt to total value (as calculated pursuant to the facility) is equal to or less than 50%, increasing to a maximum of 275 basis points if such ratio is greater than 60%. The applicable margin was 175 basis points for each of the six months ended June 30, 2024 and 2023. There is an unused facility fee of 0.25% per annum on the difference between the outstanding loan balance and $100.0 million. The credit facility requires the maintenance of $3.0 million in average deposit balances. The interest rate on the facility was 7.09% at each of June 30, 2024 and August 1, 2024.
The terms of our credit facility include certain restrictions and covenants which may limit, among other things, the incurrence of liens, and which require compliance with financial ratios relating to, among other things, the minimum amount of tangible net worth, the minimum amount of debt service coverage, the minimum amount of fixed charge coverage, the maximum amount of debt to value, the minimum level of net income, certain investment limitations and the minimum value of unencumbered properties and the number of such properties. Net proceeds received from the sale, financing or refinancing of properties are generally required to be used to repay amounts outstanding under our credit facility. At June 30, 2024, we were in compliance with the covenants under this facility.
Other Financing Sources and Arrangements
We own a land parcel located in Beachwood, Ohio which is improved by a multi-family complex (i.e., The Vue Apartments) that we ground lease to the owner/operator of such complex. This ground lease did not generate any rental income during the six months ended June 30, 2024 and 2023. At June 30, 2024, the carrying value of the land on our balance sheet was approximately $17.3 million; our leasehold position is subordinate to $62.9 million of mortgage debt incurred by our tenant, the owner/operator of the multi-family complex. In addition, we have agreed, in our discretion, to fund certain capital expenditures and operating cash flow shortfalls at this property. We do not believe that this type of off-balance sheet arrangement has been or will be material to our liquidity and capital resource positions, except to the extent we determine to continue to fund the capital expenditures required by, and the operating cash flow shortfalls at, this property. See Note 6 to our consolidated financial statements for additional information regarding this arrangement.
Application of Critical Accounting Estimates
A complete discussion of our critical accounting estimates is included in our Annual Report. There have been no changes in such estimates.
35
Funds from Operations and Adjusted Funds from Operations
We compute funds from operations, or FFO, in accordance with the “White Paper on Funds From Operations” issued by the National Association of Real Estate Investment Trusts (“NAREIT”) and NAREIT’s related guidance. FFO is defined in the White Paper as net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, impairment write-downs of certain real estate assets and investments in entities where the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. In computing FFO, we do not add back to net income the amortization of costs in connection with our financing activities or depreciation of non-real estate assets.
We compute adjusted funds from operations, or AFFO, by adjusting from FFO for straight-line rent accruals and amortization of lease intangibles, deducting from income additional rent from ground lease tenant, income on settlement of litigation, income on insurance recoveries from casualties, lease termination and assignment fees, and adding back amortization of restricted stock and restricted stock unit compensation expense, amortization of costs in connection with our financing activities (including our share of our unconsolidated joint ventures), debt prepayment costs and amortization of lease incentives and mortgage intangible assets. Since the NAREIT White Paper does not provide guidelines for computing AFFO, the computation of AFFO varies from one REIT to another.
We believe that FFO and AFFO are useful and standard supplemental measures of the operating performance for equity REITs and are used frequently by securities analysts, investors and other interested parties in evaluating equity REITs, many of which present FFO and AFFO when reporting their operating results. FFO and AFFO are intended to exclude GAAP historical cost depreciation and amortization of real estate assets, which assumes that the value of real estate assets diminish predictability over time. In fact, real estate values have historically risen and fallen with market conditions. As a result, we believe that FFO and AFFO provide a performance measure that when compared year over year, should reflect the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not be necessarily apparent from net income. We also consider FFO and AFFO to be useful to us in evaluating potential property acquisitions.
FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. FFO and AFFO and should not be considered to be an alternative to net income as a reliable measure of our operating performance; nor should FFO and AFFO be considered an alternative to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity. FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders.
Management recognizes that there are limitations in the use of FFO and AFFO. In evaluating our performance, management is careful to examine GAAP measures such as net income and cash flows from operating, investing and financing activities.
36
The tables below provide a reconciliation of net income and net income per common share (on a diluted basis) in accordance with GAAP to FFO and AFFO for the periods indicated (dollars in thousands, except per share amounts):
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2024 | | 2023 |
| 2024 |
| 2023 | ||||
GAAP net income attributable to One Liberty Properties, Inc. | | $ | 9,553 | | $ | 6,519 | | $ | 14,708 | | $ | 11,905 |
Add: depreciation and amortization of properties | |
| 5,770 | | | 5,925 | | | 11,602 | | | 11,894 |
Add: our share of depreciation and amortization of unconsolidated joint ventures | |
| 5 | | | 130 | | | 11 | | | 259 |
Add: impairment loss | | | 1,086 | | | — | | | 1,086 | | | — |
Add: amortization of deferred leasing costs | |
| 195 | | | 189 | | | 384 | | | 365 |
Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures | |
| — | | | 5 | | | 1 | | | 10 |
Deduct: gain on sale of real estate, net | |
| (7,448) | |
| (3,180) | |
| (9,232) | |
| (4,714) |
Adjustments for non-controlling interests | |
| 85 | | | (18) | | | 245 | | | (35) |
NAREIT funds from operations applicable to common stock | |
| 9,246 | |
| 9,570 | |
| 18,805 | |
| 19,684 |
Deduct: straight-line rent accruals and amortization of lease intangibles | |
| (509) | | | (626) | | | (1,169) | | | (1,520) |
Deduct: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures | |
| (2) | | | (4) | | | (3) | | | (9) |
Deduct: lease termination fee income | | | — | | | — | | | (250) | | | — |
Deduct: other income | | | (27) | | | — | | | (55) | | | — |
Deduct: additional rent from ground lease tenant | | | — | | | (16) | | | — | | | (16) |
Add: amortization of restricted stock and RSU compensation | |
| 1,167 | |
| 1,564 | |
| 2,439 | | | 2,892 |
Add: amortization and write-off of deferred financing costs | |
| 290 | |
| 205 | |
| 516 | | | 407 |
Add: amortization of lease incentives | | | 30 | | | 30 | | | 60 | | | 61 |
Add: amortization of mortgage intangible assets | | | 34 | | | 23 | | | 69 | | | 46 |
Add: our share of amortization of deferred financing costs of unconsolidated joint venture | |
| — | | | 4 | | | — | | | 8 |
Adjustments for non-controlling interests | |
| — | | | — | | | 27 | | | — |
Adjusted funds from operations applicable to common stock | | $ | 10,229 | | $ | 10,750 | | $ | 20,439 | | $ | 21,553 |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||
GAAP net income attributable to One Liberty Properties, Inc. | | $ | .45 | | $ | .30 | | $ | .68 | | $ | .55 |
Add: depreciation and amortization of properties | |
| .27 | | | .28 | | | .55 | | | .56 |
Add: our share of depreciation and amortization of unconsolidated joint ventures | |
| — | | | .01 | | | — | | | .01 |
Add: impairment loss | | | .05 | | | — | | | .05 | | | — |
Add: amortization of deferred leasing costs | |
| .01 | | | .01 | | | .02 | | | .02 |
Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures | |
| — | | | — | | | — | | | — |
Deduct: gain on sale of real estate, net | |
| (.35) | | | (.15) | | | (.43) | | | (.22) |
Adjustments for non-controlling interests | |
| — | | | — | | | .01 | | | — |
NAREIT funds from operations per share of common stock (a) | |
| .43 | |
| .45 | |
| .88 | |
| .92 |
Deduct: straight-line rent accruals and amortization of lease intangibles | |
| (.01) | | | (.03) | | | (.05) | | | (.06) |
Deduct: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures | |
| — | | | — | | | — | | | — |
Deduct: lease termination fee income | | | — | | | — | | | (.01) | | | — |
Deduct: other income | | | — | | | — | | | — | | | — |
Deduct: additional rent from ground lease tenant | | | — | | | — | | | — | | | — |
Add: amortization of restricted stock and RSU compensation | | | .05 | | | .07 | | | .11 | | | .13 |
Add: amortization and write-off of deferred financing costs | | | .01 | | | .01 | | | .02 | | | .02 |
Add: amortization of lease incentives | | | — | | | — | | | — | | | — |
Add: amortization of mortgage intangible assets | | | — | | | — | | | — | | | — |
Add: our share of amortization of deferred financing costs of unconsolidated joint venture | |
| — | | | — | | | — | | | — |
Adjustments for non-controlling interests | |
| — | | | — | | | — | | | — |
Adjusted funds from operations per share of common stock (a) | | $ | .48 | | $ | .50 | | $ | .95 | | $ | 1.01 |
| (a) | The weighted average number of diluted common shares used to compute FFO and AFFO applicable to common stock includes unvested restricted shares that are excluded from the computation of diluted EPS. |
37
Three months ended June 30, 2024 and 2023
The $324,000, or 3.4%, decrease in FFO for the three months ended June 30, 2024 from the corresponding 2023 period is due primarily to:
| ● | a $607,000 decrease in rental income, net, |
| ● | a $147,000 decrease in equity in earnings from our unconsolidated joint ventures due to the inclusion and exclusion, in the 2023 period, of rent income and depreciation expense, respectively, from our former Manahawkin, New Jersey shopping center (the “Manahawkin Property), which was sold in December 2023, and |
| ● | a $140,000 increase in interest expense. |
Offsetting the decrease is:
| ● | a $389,000 decrease in general and administrative expenses, and |
| ● | a $248,000 increase in other income. |
The $521,000, or 4.8%, decrease in AFFO for the three months ended June 30, 2024 from the corresponding 2023 period is due to the factors impacting FFO as described immediately above, excluding the (i) $397,000 decrease in general and administrative expenses related to the amortization of restricted stock and RSU compensation and (ii) a $117,000 increase in rental income, net, due to the exclusion of the amortization of straight line rent and lease-related intangibles.
See “—Results of Operations” for further information regarding these changes.
Six months ended June 30, 2024 and 2023
The $879,000, or 4.5%, decrease in FFO for the six months ended June 30, 2024 from the corresponding 2023 period is due primarily to:
| ● | a $1.1 million decrease in rental income, net, |
| ● | a $368,000 increase in real estate operating expenses, |
| ● | a $306,000 decrease in equity in earnings from our unconsolidated joint ventures, as described above with respect to the Manahawkin Property, and |
| ● | a $257,000 increase in interest expense. |
Offsetting the decrease is:
| ● | a $505,000 decrease in general and administrative expenses |
| ● | a $500,000 increase in other income, and |
| ● | $250,000 of lease termination fee income. |
The $1.1 million, or 5.2%, decrease in AFFO for the six months ended June 30, 2024 from the corresponding 2023 period is due to the factors impacting FFO as described immediately above, excluding the (i) $453,000 decrease in general and administrative expenses related to the amortization of restricted stock and RSU compensation, (ii) a $351,000 increase in rental income, net, due to the exclusion of the amortization of straight line rent and lease-related intangibles, and (iii) $250,000 lease termination fee income.
See “—Results of Operations” for further information regarding these changes.
38
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk exposure is the effect of changes in interest rates on the interest cost of draws on our revolving variable rate credit facility and the effect of changes in the fair value of our interest rate swap agreements. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.
We use interest rate swaps to limit interest rate risk on substantially all variable rate mortgages. These swaps are used for hedging purposes - not for speculation. We do not enter into interest rate swaps for trading purposes. At June 30, 2024, we had no liability in the event of the early termination of our swaps.
At June 30, 2024, we had 12 interest rate swap agreements outstanding. The fair market value of the interest rate swaps is dependent upon existing market interest rates and swap spreads, which change over time. As of June 30, 2024, if there had been an increase of 100 basis points in forward interest rates, the fair market value of the interest rate swaps and the net unrealized gain on derivative instruments would have increased by $177,000. If there were a decrease of 100 basis points in forward interest rates, the fair market value of the interest rate swaps and the net unrealized gain on derivative instruments would have decreased by $180,000. These changes would not have any impact on our net income or cash.
Our variable mortgage debt, after giving effect to the interest rate swap agreements, primarily bears interest at fixed rates and accordingly, the effect of changes in interest rates would not impact the interest expense we incur under these mortgages.
The fair market value of our long-term debt is estimated based on discounting future cash flows at interest rates that our management believes reflect the risks associated with long-term debt of similar risk and duration.
Item 4. Controls and Procedures
Based on their evaluation as of the end of the period covered by this report, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are effective.
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act) during the three months ended June 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
39
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
A subsidiary of ours is a defendant in a lawsuit entitled Eastgate LLC, et al. v. OLP Beachwood OH LLC, in the United States District Court for the Northern District of Ohio, Eastern Division, with respect to our land parcel in Beachwood, Ohio. The plaintiffs own the office building adjacent to our parcel and, among other things, seek to declare as void and unenforceable, deed restrictions prohibiting the use of a portion of their property for multi-family residential purposes. The lawsuit is in the preliminary pleading stage and we believe we have meritorious defenses.
Item 5. Other Information
None of our officers or directors had any contract, instruction, or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any "non-Rule 10b5-1 trading arrangement" in effect at any time during the three months ended June 30, 2024.
Item 6. Exhibits
Exhibit No. | |
| Title of Exhibit |
10.1* | | | Form of Performance Agreement for RSU grants in 2024 pursuant to the 2022 Incentive Plan. |
31.1 | | ||
31.2 | | ||
32.1 | | ||
32.2 | | ||
101 | | The following financial statements and notes from the One Liberty Properties, Inc. Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 filed on August 7, 2024, formatted in Inline XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Changes in Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to the Consolidated Financial Statements. | |
104 | | | Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document and included in Exhibit 101). |
__________
* Indicates a management contract or compensatory plan or arrangement.
40
ONE LIBERTY PROPERTIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| ONE LIBERTY PROPERTIES, INC. |
| | (Registrant) |
| | |
| | |
Date: August 7, 2024 | | /s/ Patrick J. Callan, Jr. |
| | Patrick J. Callan, Jr. |
| | President and Chief Executive Officer |
| | (principal executive officer) |
| | |
| | |
Date: August 7, 2024 | | /s/ Isaac Kalish |
| | Isaac Kalish |
| | Senior Vice President and |
| | Chief Financial Officer |
| | (principal financial officer) |
41
EXHIBIT 10.1
PERFORMANCE AWARDS AGREEMENT
ONE LIBERTY PROPERTIES, INC.
Name of Participant:
Number of ROC Units:
Number of TSR Units:
Grant Date: July 16, 2024
THIS PERFORMANCE AWARD AGREEMENT is entered into as of the grant date (the “Grant Date”) set forth above, between One Liberty Properties, Inc., a Maryland corporation (“Company”), and the participant identified above (the “Participant”).
WHEREAS, the stockholders of the Company have adopted the One Liberty Properties, Inc. 2022 Incentive Plan (“Plan”); and
WHEREAS, the Compensation Committee of the Board of Directors (“Committee”) has granted, pursuant to the Plan, (i) Performance Awards in the form of restricted stock units (“Units”) to the Participant pursuant to which shares of the Company’s common stock underlying the Units are issuable upon the attainment by the Company during the Performance Cycle of the Performance Criteria established by the Committee as set forth in Exhibit A hereto and (ii) cash settled dividend equivalent rights which are granted in tandem with the Units, all as further set forth herein;
NOW THEREFORE, the parties hereby agree as follows:
| (a) | a pro rata number of Units upon termination of the Participant’s relationship with the Company due to death, Disability or Retirement (collectively a “DDR Event”) during the Performance Cycle, but only with respect to Units that would otherwise have vested at the end of the Performance Cycle. For the purposes of this Section 5(a), the pro rata number of Units that vest equals the product obtained by multiplying the total number of Units awarded pursuant to this Agreement that would have vested based on performance by a fraction, the numerator of which is the number of days commencing July 1, 2024 and ending on the date of the DDR Event, and the denominator of which is the total number of days in the Performance Cycle. |
| (b) | all of the Units vest upon a Change in Control if the effective date thereof is after December 31, 2025. If the effective date of the Change in Control occurs prior to or on December 31, 2025, a pro rata number of Units vest upon such Change in Control (unless the Committee, in its discretion, determines to vest all Units upon Change in Control without proration). For the purposes of this Section 5(b), the pro rata number of Units that vest equals the product obtained by multiplying the total number of Units awarded pursuant to this Agreement by a fraction, the numerator of which is the number of days commencing on July 1, 2024 and ending on the effective date of the Change in Control, and the denominator of which is the total number of days in the period commencing July 1, 2024 and ending December 31, 2025. |
| (c) | if a Participant’s relationship with the Company terminates due to a DDR Event and subsequent thereto (but prior to June 30, 2025) there is a Change in Control, then notwithstanding anything to the contrary herein, the number of Units which vest and the number of Shares issuable to the Participant, the Participant’s guardian, personal representative or estate, as the case may be, equals the product obtained by multiplying the total number of Units subject to this Agreement by a fraction, the numerator of which is the number of days commencing July 1, 2024 and ending on the date of the DDR Event, and the denominator of which is the total number of days in the period commencing July 1, 2024 and ending on the effective date of the Change in Control. |
| 6. | Restrictions on Transfer. The Units awarded pursuant to this Agreement may not be sold, pledged or otherwise transferred and may not be subject to lien, garnishment, attachment or other legal process. |
| 7. | Rights as a Stockholder; Dividend Equivalents. |
| (a) | The Participant does not have any rights of a stockholder with respect to the Shares underlying the Units unless and until the Units vest and are settled in Shares. |
| (b) | The Participant shall not be entitled to receive any dividend equivalent payments with respect to the Shares underlying the Units unless and until such Units vest. Within 60 days following the date on which the Units vest, the Company will pay the Participant in respect of each Unit that has vested, an amount equal to the |
| aggregate amount of cash dividends that would have been paid in respect of the Shares underlying such earned Units had such Shares been issued and outstanding on the first day of the Performance Cycle through the date immediately preceding the settlement of the underlying shares on or after the vesting of such RSUs. |
| 8. | Taxes. Participant is liable for any and all taxes, including withholding taxes, arising out of this grant, the vesting of Units, the payments contemplated by Section 7(b) of this Agreement and the issuance of Shares hereunder. |
| 9. | Claw-back. Participant acknowledges and agrees that the grant of the Units and the issuance of Shares is subject to the applicable provisions of any claw-back or similar policy implemented by the Company, whether implemented prior to or after the grant of this Award, including without limitation the Company’s Clawback Policy effective as of October 2, 2023, as amended from time-to-time (the “Clawback Policy”). |
| 10. | Miscellaneous |
| (a) | Neither this Agreement nor the granting or vesting of Units confers upon the Participant any right to continue as a Participant, nor does it interfere in any way with the right of the Company or an affiliate to terminate Participant’s status as a Participant at any time. |
| (b) | The parties agree to execute such further documents and instruments and to take such action as may reasonably be necessary to carry out the intent of this Agreement. |
| (c) | This Award is governed by the laws of the State of Maryland (without regard to its choice of law principles) and applicable Federal law. |
| (d) | Subject to the terms of the Plan, the Committee has the right to amend this Agreement, prospectively or retroactively; provided that no such amendment or alteration shall adversely affect Participant's material rights under this Agreement without Participant's consent and pursuant to a writing executed by the parties hereto which specifically states that it is amending this Agreement. |
| (e) | Subject to Section 9 of this Agreement, this Agreement and the Plan constitute the entire contract between the parties hereto with regard to the subject matter hereof and supersede any other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the subject matter hereof. |
This Agreement has been executed and delivered by the parties as of the date hereof.
ONE LIBERTY PROPERTIES, INC.
By: ____________________________
Isaac Kalish, Chief Financial Officer
____________________________
Signature of Participant
____________________________
Name of Participant
EXHIBIT A
PERFORMANCE CRITERIA
The number of Restricted Stock Units (“Units”) that vest, will be determined by the Compensation Committee as soon as practicable after the completion of the three-year Performance Cycle (which commences July 1, 2024 and ends June 30, 2027), using the following Performance Criteria:
Return on Capital: The issuance of Shares underlying the ROC Units identified on the cover page of this Agreement are subject to the satisfaction of an average annual return on capital metric during the Performance Cycle. If the average of the annual return on capital during the Performance Cycle is:
| ● | at least 8.75%, all the ROC Units vest; |
| ● | less than 6.0%, none of the ROC Units vest; and |
| ● | equals or exceeds 6.0% but less than 8.75%, then a proportional number of ROC Units vest. |
Return on capital means adjusted funds from operations, as determined below, divided by average capital, as determined below. Adjusted funds from operations means funds from operations, determined in accordance with the National Association of Real Estate Investment Trusts definition, adjusted for straight-line rent accruals and amortization of lease intangibles, and adding and deducting gains and losses, respectively, on sales of properties. Gains and/or losses on property sales shall equal the sales price for a property less the purchase price, costs of capital improvements and costs of sale. Such return shall be calculated for each twelve-month period beginning July 1, 2024. Average capital is defined as stockholders’ equity, plus depreciation and amortization, adjusted for intangibles, and for each twelve month period during the Performance Cycle, shall be measured by reference to the quotient obtained by dividing (a) the sum of the capital as of July 1 and the following June 30 by (b) two. The average annual return on capital shall be determined for each twelve-month period beginning July 1, 2024, 2025 and 2026, and whether and to the extent an award vests, will be based on the average of such averages.
Total Stockholder Return: The issuance of Shares underlying the TSR Units identified on the cover page of this Agreement is subject to the satisfaction of an average annual total stockholder return metric during the Performance Cycle, calculated as described below.
If the average annual total stockholder return during the Performance Cycle is:
| ● | at least 11.0%, all of the TSR Units vest; |
| ● | less than 6.0%, none of the TSR Units vest; and |
| ● | equals or exceeds 6.0% but less than 11.0%, a proportional number of TSR Units vest. |
Total stockholder return (expressed as a percentage), for each twelve month period beginning July 1, shall equal the quotient obtained by dividing (a) the sum of (i): the volume weighted average price (the “VWAP”) of the Company’s common stock for the twenty (20) trading days ending on the last trading day of the measurement period (the applicable June 30th), (ii) plus all dividends paid during the measurement period and (iii) minus the VWAP of the Company’s common stock for the twenty (20) trading days ending at the start of the measurement period (the applicable July 1st) and (b) by the VWAP of the Company’s common stock at the commencement of the measurement period (the applicable July 1st). Once total stockholder return has been calculated for each of the three years in the Performance Cycle, the average of the total stockholder return for each twelve month period during the Performance
Cycle shall be determined, and such average shall be the average annual total stockholder return of the Performance Cycle. For the avoidance of doubt (i) the stock prices to be used shall be those reported on the NYSE Consolidated Tape, (ii) dividends shall not be deemed to be reinvested, (iii) in the event that a measurement period begins or ends on a day which is not a trading day, then the measurement period shall be deemed to begin or end, as the case may be, on the immediately preceding trading date, (iv) the VWAP to be used for the beginning of the measurement period shall be the VWAP for the 20 trading days ending on June 30th immediately preceding July 1st, or if such June 30th is not a trading day, then the immediately preceding day which is a trading day, and (v) the VWAP for the 20 trading days ended June 28, 2024 is $23.65.
EXHIBIT 31.1
CERTIFICATION
I, Patrick J. Callan, Jr., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 of One Liberty Properties, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 7, 2024 | /s/ Patrick J. Callan, Jr. |
| Patrick J. Callan, Jr. |
| President and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Isaac Kalish, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 of One Liberty Properties, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 7, 2024 | /s/ Isaac Kalish |
| Isaac Kalish |
| Senior Vice President and Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
I, Patrick J. Callan, Jr., do hereby certify, pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based upon a review of the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 of One Liberty Properties, Inc. (“the Registrant”), as filed with the Securities and Exchange Commission on the date hereof (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
/s/ Patrick J. Callan, Jr. | |
| Patrick J. Callan, Jr. |
| President and |
| Chief Executive Officer |
The foregoing certification is being furnished pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, regardless of any general incorporation language in such filing.
EXHIBIT 32.2
CERTIFICATION OF SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. 1350
(SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)
I, Isaac Kalish, do hereby certify, pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based upon a review of the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024 of One Liberty Properties, Inc. (“the Registrant”), as filed with the Securities and Exchange Commission on the date hereof (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
Date: August 7, 2024 | /s/ Isaac Kalish |
| Isaac Kalish |
| Senior Vice President and |
| Chief Financial Officer |
The foregoing certification is being furnished pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, regardless of any general incorporation language in such filing.