Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2024
OR
☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Commission File Number 001-09279
ONE LIBERTY PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND
13-3147497
(State or other jurisdiction of
(I.R.S. employer
incorporation or organization)
identification number)
60 Cutter Mill Road, Great Neck, New York
11021
(Address of principal executive offices)
(Zip code)
(516) 466-3100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange onwhich registered
Common Stock
OLP
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻
Accelerated filer ◻
Non-accelerated filer ⌧
Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Yes ◻ No ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 1, 2024, the registrant had 21,387,064 shares of common stock outstanding.
One Liberty Properties, Inc. and Subsidiaries
Page No.
Part I — Financial Information
Item 1.
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets — September 30, 2024 and December 31, 2023
1
Consolidated Statements of Income — Three and nine months ended September 30, 2024 and 2023
2
Consolidated Statements of Comprehensive Income — Three and nine months ended September 30, 2024 and 2023
3
Consolidated Statements of Changes in Equity — Three and nine months ended September 30, 2024 and 2023
4
Consolidated Statements of Cash Flows — Nine months ended September 30, 2024 and 2023
6
Notes to Consolidated Financial Statements
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
26
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
41
Item 4.
Controls and Procedures
Part II — Other Information
42
Item 5.
Other Information
Item 6.
Exhibits
Part I — FINANCIAL INFORMATION
Item 1. Financial Statements
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Par Value)
September 30,
December 31,
2024
2023
ASSETS
(Unaudited)
Real estate investments, at cost
Land
$
171,401
172,309
Buildings and improvements
704,688
692,346
Total real estate investments, at cost
876,089
864,655
Less accumulated depreciation
186,709
182,705
Real estate investments, net
689,380
681,950
Investment in unconsolidated joint ventures
2,038
2,051
Cash and cash equivalents
25,684
26,430
Unbilled rent receivable
17,312
16,661
Unamortized intangible lease assets, net
14,763
14,681
Escrow, deposits and other assets and receivables
19,669
19,833
Total assets(1)
768,846
761,606
LIABILITIES AND EQUITY
Liabilities:
Mortgages payable, net (see Note 8)
426,139
418,347
Line of credit
—
Dividends payable
9,949
9,916
Accrued expenses and other liabilities
15,350
15,502
Unamortized intangible lease liabilities, net
12,088
10,096
Total liabilities(1)
463,526
453,861
Commitments and contingencies
Equity:
One Liberty Properties, Inc. stockholders’ equity:
Preferred stock, $1 par value; 12,500 shares authorized; none issued
Common stock, $1 par value; 50,000 shares authorized; 20,653 and 20,323 shares issued and outstanding
20,653
20,323
Paid-in capital
333,083
326,379
Accumulated other comprehensive income
271
844
Distributions in excess of net income
(49,830)
(40,843)
Total One Liberty Properties, Inc. stockholders’ equity
304,177
306,703
Non-controlling interests in consolidated joint ventures(1)
1,143
1,042
Total equity
305,320
307,745
Total liabilities and equity
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Data)
Three Months Ended
Nine Months Ended
Revenues:
Rental income, net
22,211
22,546
66,457
67,905
Lease termination fee
250
Total revenues
66,707
Operating expenses:
Depreciation and amortization
6,133
6,310
18,119
18,569
Real estate expenses (see Note 9 for related party information)
4,231
4,061
12,677
12,139
General and administrative (see Note 9 for related party information)
3,886
3,864
11,585
12,068
Impairment loss
1,086
State taxes
74
76
184
232
Total operating expenses
14,324
14,311
43,651
43,008
Other operating income
Gain on sale of real estate, net
2,115
332
11,347
5,046
Operating income
10,002
8,567
34,403
29,943
Other income and expenses:
Equity in (loss) earnings of unconsolidated joint ventures
(9)
(905)
87
(761)
Other income
353
896
131
Interest:
Expense
(4,932)
(4,768)
(14,399)
(13,978)
Amortization and write-off of deferred financing costs
(225)
(212)
(741)
(619)
Net income
5,189
2,769
20,246
14,716
Net income attributable to non-controlling interests
(12)
(22)
(361)
(64)
Net income attributable to One Liberty Properties, Inc.
5,177
2,747
19,885
14,652
Weighted average number of common shares outstanding:
Basic
20,635
20,567
20,578
20,552
Diluted
20,753
20,596
20,677
20,598
Per common share attributable to common stockholders:
.24
.12
.92
.67
.23
.91
.66
Cash distributions per share of common stock
.45
1.35
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
Other comprehensive income
Net unrealized loss on derivative instruments
(296)
(207)
(573)
(475)
Comprehensive income
4,893
2,562
19,673
14,241
Adjustment for derivative instruments attributable to non-controlling interests
Comprehensive income attributable to One Liberty Properties, Inc.
4,881
2,541
19,312
14,179
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited) (Continued on Next Page)
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
Cash Distributions – common stock ($.45 per share)
(9,642)
Shares issued through dividend reinvestment plan
66
1,369
1,435
Restricted stock vesting
137
(137)
Compensation expense — restricted stock and RSUs
1,272
Contribution from non-controlling interest
43
Distributions to non-controlling interests
(94)
5,155
225
5,380
Other comprehensive loss
(89)
Balances, March 31, 2024
20,526
328,883
755
(45,330)
1,216
306,050
(9,534)
67
1,396
1,463
1,167
(202)
9,553
124
9,677
(188)
Balances, June 30, 2024
20,593
331,446
567
(45,311)
1,138
308,433
(9,696)
21
428
449
Restricted stock unit vesting
39
(39)
1,248
Distribution to non-controlling interest
(7)
12
Balances, September 30, 2024
(Unaudited) (Continued)
Balances, December 31, 2022
20,362
325,895
1,810
(32,102)
972
316,937
(9,628)
49
1,025
1,074
135
(135)
Compensation expense – restricted stock and RSUs
1,328
5,386
22
5,408
(409)
Balances, March 31, 2023
20,546
328,113
1,401
(36,344)
985
314,701
(9,626)
Repurchases of common stock – net
(73)
(1,382)
(1,455)
50
1,048
1,098
17
(17)
1,564
6,519
20
6,539
Other comprehensive income (loss)
142
(1)
141
Balances, June 30, 2023
20,540
329,326
1,543
(39,451)
997
312,955
(9,570)
Repurchases of common stock, net
(262)
(4,882)
(5,144)
56
1,055
1,111
75
(75)
1,211
(8)
(206)
Balances, September 30, 2023
20,409
326,635
1,337
(46,274)
1,010
303,117
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
(11,347)
(5,046)
Increase in net amortization of unbilled rental income
(1,066)
(1,574)
Write-off of unbilled rent receivable
133
Amortization and write-off of intangibles relating to leases, net
(940)
(698)
Amortization of restricted stock and RSU compensation expense
3,687
4,103
Equity in (earnings) loss of unconsolidated joint ventures
(87)
761
Distributions of earnings from unconsolidated joint ventures
100
23
741
619
Payment of leasing commissions
(446)
(499)
(Increase) decrease in escrow, deposits, other assets and receivables
(1,061)
4,088
(Decrease) increase in accrued expenses and other liabilities
(1,541)
887
Net cash provided by operating activities
27,491
36,082
Cash flows from investing activities:
Purchase of real estate
(44,877)
(9,229)
Improvements to real estate
(2,239)
(3,887)
Investments in ground leased property
(44)
(668)
Net proceeds from sale of real estate
37,434
13,185
Distributions of capital from unconsolidated joint venture
9
Net cash used in investing activities
(9,726)
(590)
Cash flows from financing activities:
Proceeds from mortgage financings
68,138
23,450
Repayments of mortgages payable
(51,136)
(6,735)
Scheduled amortization payments of mortgages payable
(9,043)
(9,284)
Proceeds from bank line of credit
30,900
Repayments on bank line of credit
(40,200)
Issuance of shares through dividend reinvestment plan
3,347
3,283
(6,599)
Payment of financing costs
(872)
(449)
Capital contribution from non-controlling interest
(303)
(24)
Cash distributions to common stockholders
(28,839)
(28,627)
Net cash used in financing activities
(18,665)
(34,285)
Net (decrease) increase in cash, cash equivalents and restricted cash
(900)
1,207
Cash, cash equivalents and restricted cash at beginning of year
29,592
7,277
Cash, cash equivalents and restricted cash at end of period
28,692
8,484
Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense
13,939
Supplemental disclosure of non-cash investing activity:
Purchase accounting allocation - intangible lease assets
3,726
871
Purchase accounting allocation - intangible lease liabilities
(3,561)
(237)
Purchase accounting allocation - mortgage intangible asset
260
Assumption of mortgage payable upon acquisition of property
4,280
Lease liabilities adjustment from the reassessment of right of use assets
3,366
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:
5,471
Restricted cash included in escrow, deposits and other assets and receivables
3,008
3,013
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.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 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 September 30, 2024, OLP owns 104 properties, including two properties owned by consolidated joint ventures and two properties owned by unconsolidated joint ventures. The 104 properties are located in 31 states.
NOTE 2 – SUMMARY ACCOUNTING POLICIES
Principles of Consolidation/Basis of Preparation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by U.S. Generally Accepted Accounting Principles (“GAAP”) for interim reporting. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statement disclosures. In the opinion of management, all adjustments of a normal recurring nature necessary for fair presentation have been included. The results of operations for the three and nine months ended September 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.
SEPTEMBER 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, none of these joint ventures are VIEs. In addition, the Company shares power with its co-managing members over these entities, and therefore the entities are not consolidated. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for their share of equity in earnings, cash contributions and distributions.
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 nine months ended September 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.
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 extend or terminate the lease. Revenues from such leases are reported as Rental income, net, and are comprised of (i) lease components, which includes fixed and variable lease payments and (ii) non-lease components which includes reimbursements of property level operating expenses. The Company does not separate non-lease components from the related lease components, as the timing and pattern of transfer are the same, and account for the combined component in accordance with ASC 842.
Fixed lease revenues represent the base rent that each tenant is required to pay in accordance with the terms of 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):
Fixed lease revenues
18,638
18,872
55,230
57,159
Variable lease revenues
3,298
3,431
10,287
10,048
Lease revenues (a)
21,936
22,303
65,517
67,207
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 September 30, 2024, the Company has assessed the collectability of all recorded lease revenues as probable.
Minimum Future Rents
As of September 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 October 1 – December 31, 2024
18,330
For the year ending December 31,
2025
72,863
2026
69,621
2027
60,342
2028
48,569
2029
37,475
Thereafter
116,710
423,910
10
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, 2030 and provides for up to three, five-year renewal options and one seven-month renewal option. As of September 30, 2024, the remaining lease term is 5.4 years. The Company recognized lease expense related to this ground lease of $122,000 and $366,000 for the three and nine months ended September 30, 2024, respectively, and $122,000 and $422,000 for the three and nine months ended September 30, 2023, respectively, which is included in Real estate expenses on the consolidated statements of income.
Office Lease
The Company is a lessee under a corporate office lease in Great Neck, New York, which is classified as an operating lease. The lease expires on December 31, 2031 and provides for a five-year renewal option. As of September 30, 2024, the remaining lease term, including the renewal option deemed exercised, is 12.3 years. The Company recognized lease expense related to this office lease of $14,000 and $42,000 for each of the three and nine months ended September 30, 2024 and 2023, respectively, which is included in General and administrative expenses on the consolidated statements of income.
Minimum Future Lease Payments
As of September 30, 2024, the minimum future lease payments related to these operating leases are as follows (amounts in thousands):
156
626
627
629
630
692
537
Total undiscounted cash flows
3,897
Present value discount
(790)
Lease liability
3,107
The lease liability is included in Accrued expenses and other liabilities on the consolidated balance sheet.
In March 2024, a consolidated joint venture in Lakewood, Colorado, in which the Company holds a 90% interest, recognized 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 (see Note 5).
11
NOTE 4 – REAL ESTATE ACQUISITIONS
Acquisitions
The following tables detail the Company’s real estate asset acquisitions and purchase price allocations during the nine months ended September 30, 2024 and year ended December 31, 2023 (amounts in thousands):
Contract
Capitalized
Purchase
Terms of
Transaction
Description of Industrial Property
Date Acquired
Price
Payment
Costs
Quality Custom Distribution Services, Inc.
Albuquerque, New Mexico
April 24, 2024
6,450
All cash (a)
55
Russell Equipment, Inc.
Savannah, Georgia
May 23, 2024
5,240
All cash (b)
53
Multi-tenant
Council Bluffs, Iowa
August 19, 2024
33,000
Cash and $18,425 mortgage (c)
79
Totals - Nine months ended September 30, 2024
44,690
187
Blythewood, South Carolina
July 13, 2023
13,400
Cash and $4,280 mortgage (d)
109
Totals - Year ended December 31, 2023
Discount
Market
Rate (e)
Building &
Intangible Lease
Mortgage
Cap
Lease
Improvements
Asset
Liability
Intangible
1,341
6,330
689
(1,855)
6,505
6.75%
7.14%
1,044
3,724
525
5,293
7.00%
7.15%
3,811
28,462
2,512
(1,706)
33,079
6.60%
7.41%
6,196
38,516
44,877
311
12,304
13,509
6.00%
NOTE 5 – SALES OF PROPERTIES AND IMPAIRMENT LOSS
Sales of Properties
The following tables detail the Company’s sales of real estate during the nine months ended September 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
2,900
1,784
(a)
Applebee's restaurant property
Kennesaw, Georgia
May 6, 2024
2,834
964
FedEx industrial property
Miamisburg, Ohio
May 9, 2024
2,793
1,507
Havertys retail property
Wichita, Kansas
June 6, 2024
6,600
1,884
Urban Outfitters retail property
Lawrence, Kansas
June 7, 2024
1,300
Walgreens retail property (b)
Cape Girardeau, Missouri
June 10, 2024
978
(b)
Vacant retail property
June 28, 2024
6,700
2,072
Vacant health and fitness property
Hamilton, Ohio
August 15, 2024
4,350
(c)
Vacant industrial property
Wauconda, Illinois
August 29, 2024
4,425
1,177
Hobby Lobby retail property
Woodbury, Minnesota
September 16, 2024
4,750
921
39,445
(d)
(e)
TGI Fridays restaurant property
Hauppauge, New York
February 28, 2023
4,200
1,534
Duluth, Georgia
May 31, 2023
6,000
3,180
Greensboro, North Carolina
September 20, 2023
3,250
Totals - Nine months ended September 30, 2023
13,450
(f)
Impairment Loss
In June 2024, due to a contract to sell its Hamilton, Ohio property (which was formerly tenanted by LA Fitness whose lease expired in May 2024), the Company re-measured the property’s net book value to its fair value (as discussed in Note 12). As a result, the Company recognized a $1,086,000 impairment loss on the consolidated statement of income for the nine months ended September 30, 2024. This property was sold in August 2024.
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NOTE 6 – VARIABLE INTEREST ENTITIES, CONSOLIDATED JOINT VENTURES AND CONTINGENT LIABILITY
Variable Interest Entities – Consolidated Joint Ventures
The Company has determined the two consolidated joint ventures in which it holds a 90% and 95% interest are VIEs because the non-controlling interests do not hold substantive kick-out or participating rights. The Company has determined it is the primary beneficiary of these VIEs as it has the power to direct the activities that most significantly impact each joint venture’s performance including management, approval of expenditures, and the obligation to absorb the losses or rights to receive benefits. Accordingly, the Company consolidates the operations of these VIEs for financial statement purposes. The VIEs’ creditors do not have recourse to the assets of the Company other than those held by the applicable joint venture.
The following is a summary of the consolidated VIEs’ carrying amounts and classification in the Company’s consolidated balance sheets, none of which are restricted (amounts in thousands):
2024 (a)
9,198
9,917
Buildings and improvements, net of accumulated depreciation of $6,299 and $6,380, respectively
15,655
17,475
Cash
667
1,059
905
938
122
412
819
749
Mortgages payable, net of unamortized deferred financing costs of $80 and $109, respectively
13,438
16,660
452
745
220
385
Non-controlling interests in consolidated joint ventures
As of September 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 $3,476,000.
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. No ground lease rental income has been collected since October 2020 other than a $4,642,000 litigation settlement in 2022.
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NOTE 6 – VARIABLE INTEREST ENTITIES, CONSOLIDATED JOINT VENTURES AND CONTINGENT LIABILITY (CONTINUED)
As of September 30, 2024, the VIE’s maximum exposure to loss was $17,320,000 which represented the carrying amount of the land. In purchasing the property in 2016, the owner/operator obtained a $67,444,000 mortgage from a third party which, together with the Company’s purchase of the land, provided substantially all of the funds to acquire the multi-family property. The Company provided its land as collateral for the owner/operator’s mortgage loan; accordingly, the land position is subordinated to the mortgage. The mortgage balance was $62,608,000 as of September 30, 2024. Pursuant to the ground lease, as amended in November 2020, the Company agreed, in its discretion, to fund 78% of (i) any operating expense shortfalls at the property and (ii) any capital expenditures required at the property. The Company funded $44,000 during the nine months ended September 30, 2024 and $932,000 during the year ended December 31, 2023. These amounts are included as part of the carrying amount of the land.
NOTE 7 – INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
As of September 30, 2024 and December 31, 2023, the Company participated in two unconsolidated joint ventures, each of which owns and operates one property; the Company’s equity investment in these ventures totaled $2,038,000 and $2,051,000, respectively. The Company recorded equity in loss and earnings of $9,000 and $87,000 for the three and nine months ended September 30, 2024, respectively, and equity in loss of $905,000 and $761,000 for the three and nine months ended September 30, 2023, respectively. Included in equity in loss for the three and nine months ended September 30, 2023 is the Company’s 50% share of an impairment charge, or $850,000, related to its former Manahawkin, New Jersey joint venture property which was sold in December 2023.
NOTE 8 – DEBT OBLIGATIONS
Mortgages Payable
The following table details the Mortgages payable, net, balances per the consolidated balance sheets (amounts in thousands):
Mortgages payable, gross
430,524
422,565
Unamortized deferred financing costs
(3,683)
(3,414)
Unamortized mortgage intangible assets (a)
(702)
(804)
Mortgages payable, net
The following table sets forth, as of September 30, 2024, scheduled principal repayments with respect to the Company’s mortgage debt during the three months ending December 31, 2024 and for each of the subsequent twelve months through maturity (amounts in thousands):
Amortization payments
2,954
11,031
10,995
9,935
9,288
35,285
79,488
Principal due at maturity
5,149
29,157
19,179
38,525
30,155
228,871
351,036
8,103
40,188
30,174
48,460
39,443
264,156
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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 $100,000,000, subject to borrowing base requirements. The facility is available for the acquisition of commercial real estate, repayment of mortgage debt, and renovation and operating expense purposes; provided, that if used for renovation and operating expense purposes, the amount outstanding for such purposes will not exceed the lesser of $40,000,000 and 40% of the borrowing base. Net proceeds received from the sale, financing or refinancing of properties are generally required to be used to repay amounts outstanding under the credit facility. The facility is guaranteed by subsidiaries of the Company that own unencumbered properties and the Company is required to pledge to the lenders the equity interests in such subsidiaries.
The facility, which matures December 31, 2026, provides for an interest rate equal to 30-day SOFR plus an applicable margin ranging from 175 basis points to 275 basis points depending on the ratio of the Company’s total debt to total value, as determined pursuant to the facility. The applicable margin was 175 basis points at September 30, 2024 and December 31, 2023. An unused facility fee of 0.25% per annum applies to the facility. The Company had no balance outstanding on the facility during the nine months ended September 30, 2024. The weighted average interest rate on the facility was approximately 6.60% for the nine months ended September 30, 2023. The Company was in compliance with all covenants at each of September 30, 2024 and 2023.
At each of September 30, 2024 and November 1, 2024, $100,000,000 was available to be borrowed under the facility, including an aggregate of up to $40,000,000 available for renovation and operating expense purposes. The interest rate on the facility was 6.42% on November 1, 2024.
At September 30, 2024 and December 31, 2023, the Company had unamortized deferred financing costs of $411,000 and $549,000, respectively, which are included in Escrow, deposits and other assets and receivables on the consolidated balance sheets.
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 $826,000 and $2,483,000 for the three and nine months ended September 30, 2024, respectively, and $812,000 and $2,501,000 for the three and nine months ended September 30, 2023, respectively. Included in these amounts are fees for property management services of $356,000 and $1,074,000 for the three and nine months ended September 30, 2024, respectively, and $360,000 and $1,146,000 for the three and nine months ended September 30, 2023, respectively. The amounts paid for property management services are based on 1.5% and 2.0% of the rental payments (including tenant reimbursements) actually received by the Company from net lease tenants and operating lease tenants, respectively. The Company does not pay Majestic with respect to properties managed by third parties. The Company also paid Majestic, pursuant to the compensation and services agreement, $84,000 and $252,000 for the three and nine months ended September 30, 2024, respectively, and $79,000 and $238,000 for the three and nine months ended September 30, 2023, respectively, for the Company’s share of all direct office expenses, including rent, telephone, postage, computer services, internet usage and supplies.
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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 $601,000 and $1,784,000 for the three and nine months ended September 30, 2024, respectively, and $594,000 and $1,879,000 for the three and nine months ended September 30, 2023, respectively.
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 $24,000 and $70,000 for the three and nine months ended September 30, 2024, respectively, and $22,000 and $69,000 for the three and nine months ended September 30, 2023, respectively, to its consolidated joint venture partner or their affiliates (none of whom are officers, directors, or employees of the Company) for property management services, which are included in Real estate expenses on the consolidated statements of income.
The Company’s unconsolidated joint ventures paid management fees of $1,000 and $4,000 for the three and nine months ended September 30, 2024, respectively, and $31,000 and $89,000 for the three and nine months ended September 30, 2023, respectively, to the other partner of the ventures, which increased Equity in loss and reduced Equity in earnings of unconsolidated joint ventures on the consolidated statements of income by $1,000 and $2,000 for the three and nine months ended September 30, 2024, respectively, and increased Equity in loss by $16,000 and $44,000 for the three and nine months ended September 30, 2023, respectively.
During 2024 and 2023, the Company paid quarterly fees of (i) $81,378 and $78,250, respectively, to the Company’s chairman and (ii) $32,551 and $31,300, respectively, to the Company’s vice-chairman. These fees are included in General and administrative expenses on the consolidated statements of income.
The Company obtains its property insurance in conjunction with Gould Investors L.P. (“Gould Investors”), a related party, and reimburses Gould Investors annually for the Company’s insurance cost relating to its properties. Amounts reimbursed to Gould Investors were $1,150,000 during the three and nine months ended September 30, 2024 and $1,093,000 during the three and nine months ended September 30, 2023. Included in Real estate expenses on the consolidated statements of income is insurance expense of $382,000 and $849,000 for the three and nine months ended September 30, 2024, respectively, and $363,000 and $613,000 for the three and nine months ended September 30, 2023, respectively, of amounts reimbursed to Gould Investors in prior periods. The balance of amounts reimbursed to Gould Investors represents prepaid insurance and is included in Escrow, deposits and other assets and receivables on the consolidated balance sheets.
NOTE 10 – STOCKHOLDERS’ EQUITY
Common Stock Dividend
On September 11, 2024, the Board of Directors declared a quarterly cash dividend of $0.45 per share on the Company’s common stock, totaling approximately $9,621,000, payable to stockholders of record at the close of business on September 24, 2024. The quarterly dividend was paid on October 2, 2024; $9,437,000 was paid in cash and the balance of such dividend payment was satisfied through the issuance of approximately 7,000 shares under the Company’s dividend reinvestment plan.
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 5% from the market price (as such price is calculated pursuant to the DRP). The discount is currently being offered at 3%. Under the DRP, the Company issued approximately 21,000 and 154,000 shares of common stock during the three and nine months ended September 30, 2024, respectively, and approximately 56,000 and 155,000 shares of common stock during the three and nine months ended September 30, 2023, respectively.
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. No such shares were repurchased during the three and nine months ended September 30, 2024. During the three and nine months ended September 30, 2023, the Company repurchased approximately 262,000 shares and 335,000 shares of common stock, for total consideration of $5,144,000 and $6,599,000, net of commissions of $16,000 and $20,000, respectively. As of September 30, 2024, the Company is authorized to repurchase approximately $8,082,000 of shares of common stock.
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 750,000 shares of the Company’s common stock were authorized for issuance pursuant to each plan at such plan’s inception.
The following details the shares subject to awards that are outstanding under the Plans as of September 30, 2024:
Restricted Stock
RSUs
2022 Incentive Plan
300,515
256,740
2019 Incentive Plan (a)
426,625
Totals
727,140
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 five years from the grant date, and under certain circumstances may vest earlier.
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NOTE 10 – STOCKHOLDERS’ EQUITY (CONTINUED)
The following table reflects the activities involving RSUs:
2024 Grant (a)
2023 Grant
2022 Grant
2021 Grant
2020 Grant
RSUs granted (b)
88,250
85,250
85,350
80,700
75,026
RSUs vested
39,811
74,988
RSUs forfeited
2,110
40,889
38
RSUs outstanding
83,240
Vesting date (g)(h)
6/30/2027
6/30/2026
6/30/2025
6/30/2024
6/30/2023
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)(d)
ROC Metric (e)
50%
Average annual of at least 6.0%
Average annual of at least 8.75%
TSR Metric (f)
Average annual of at least 11.0%
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As of September 30, 2024, based on performance and market assumptions, the fair value of the RSUs granted in 2024, 2023 and 2022 is $1,167,000, $906,000 and $1,368,000, respectively. Recognition of such deferred compensation will be charged to General and administrative expense over the respective three-year performance cycles.
The following is a summary of the activity of the Plans:
Restricted stock:
Number of shares granted
151,180
152,955
Average per share grant price
21.60
22.09
Deferred compensation to be recognized over vesting period
3,265,000
3,379,000
Number of non-vested shares:
Non-vested beginning of the period
712,920
712,560
712,375
Grants
Vested during the period
(136,600)
(152,300)
Forfeitures
(260)
(370)
Non-vested end of the period
712,660
RSUs:
Number of underlying shares
25.60
20.32
1,167,000
979,000
168,490
166,050
248,112
241,076
(39,811)
(74,988)
(38)
251,300
Restricted stock and RSU grants (based on grant price):
Weighted average per share value of non-vested shares
24.88
25.91
Value of stock vested during the period
4,723,000
5,165,000
Weighted average per share value of shares forfeited during the period
25.85
30.46
25.47
Total charge to operations:
Outstanding restricted stock grants
921,000
923,000
2,734,000
3,051,000
Outstanding RSUs
327,000
288,000
953,000
1,052,000
Total charge to operations
1,248,000
1,211,000
3,687,000
4,103,000
As of September 30, 2024, total compensation costs of $8,158,000 and $1,957,000 related to non-vested restricted stock awards and RSUs, respectively, have not yet been recognized. These compensation costs will be charged to General and administrative expense over the remaining respective vesting periods. The weighted average remaining vesting period is 2.3 years for the restricted stock and 1.8 years for the RSUs. The Company recognizes the effect of forfeitures on restricted stock awards and RSUs when they occur, and previously recognized compensation expense is reversed in the period the grant or unit is forfeited.
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 September 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):
Numerator for basic and diluted earnings per share:
Deduct net income attributable to non-controlling interests
Deduct earnings allocated to unvested restricted stock (a)
(327)
(321)
(981)
(971)
Net income available for common stockholders: basic and diluted
4,850
2,426
18,904
13,681
Denominator for basic earnings per share:
Weighted average number of common shares outstanding
Effect of dilutive securities: RSUs
118
29
99
46
Denominator for diluted earnings per share:
Weighted average number of shares
Earnings per common share: basic
Earnings per common share: diluted
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 Nine Months Ended September 30, 2024:
Total Number
Shares Included Based on (a)
of Underlying
Return on
Stockholder
Shares
Date of Award
Capital Metric
Return Metric
Excluded (b)
July 16, 2024 (c)
2,067
44,125
46,192
42,058
July 1, 2023 (c)
14,373
42,625
56,998
28,252
July 1, 2022 (c)
25,160
38,225
63,385
19,855
41,600
124,975
166,575
90,165
Three and Nine Months Ended September 30, 2023:
23,839
61,411
35,344
50,006
August 3, 2021 (d)
98,994
152,306
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):
Fair value of mortgages payable (a)
417,099
397,031
Carrying value of mortgages payable, gross
Fair value less than the carrying value
(13,425)
(25,534)
Blended market interest rate (a)
5.52
%
5.93
Weighted average interest rate
4.53
4.31
Weighted average remaining term to maturity (years)
6.2
5.9
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 September 30, 2024, the Company had in effect ten interest rate derivatives, all of which were interest rate swaps, related to ten outstanding mortgage loans with an aggregate $16,486,000 notional amount maturing between 2024 and 2026 (weighted average remaining term to maturity of approximately one year). These interest rate swaps, all of which were designated as cash flow hedges, converted SOFR based variable rate mortgages to fixed annual rate mortgages. The interest rates range from 3.22% to 4.34% and a weighted average interest rate of 3.92% at September 30, 2024. The Company’s objective in using interest rate swaps is to add stability to interest expense. The Company does not use derivatives for trading or speculative purposes.
Fair values are approximated using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This 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 September 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.
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):
As of
Carrying and Fair Value
Financial assets: Interest rate swaps
September 30, 2024
December 31, 2023
824
The fair value of the Company’s derivatives is reflected in Escrow, deposits and other assets and receivables on the consolidated balance sheets. As of September 30, 2024 and December 31, 2023, there were no derivatives in a liability position.
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):
Amount of (loss) gain recognized on derivatives in other comprehensive income
(106)
500
Amount of reclassification from Accumulated other comprehensive income into Interest expense
190
340
708
975
During the twelve months ending September 30, 2025, the Company estimates an additional $236,000 will be reclassified from Accumulated other comprehensive income as a decrease to Interest expense.
The derivative agreements in effect at September 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 former property located in Hamilton, Ohio for which the Company had recorded an impairment loss of $1,086,000 during the nine months ended September 30, 2024 (as discussed in Note 5). The Company determined fair value based on an executed contract of sale for the property which was determined to be a Level 3 input in the fair value hierarchy.
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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, as amended, 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 one reportable segment.
The Company’s Chief Operating Decision Makers (“CODMs”) are its Chief Executive Officer and Chief Operating Officer. As the Company operates in one reportable segment, the CODMs are provided financial reports which include (i) a consolidated income statement (detailing total revenues, total operating expenses, operating income and net income) and (ii) Funds from Operations (“FFO”) and Adjusted Funds from Operations (“AFFO”). These financial reports assist the CODMs in assessing the Company’s financial performance and in allocating resources appropriately.
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.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q, 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:
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.
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 the sale of our Hamilton, Ohio property (see “–Property Transactions – Sales during the three months ended September 30, 2024”).
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 September 30, 2024, we own 104 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 September 30, 2024 is approximately 99.1%.
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 prospects (including the likelihood for, and the extent of, any further appreciation or diminution in value), the term remaining
27
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 $73.1 million and represents, after giving effect to any abatements, concessions, deferrals or adjustments, the base rent payable to us during the twelve months ending September 30, 2025 under leases in effect at September 30, 2024.
Excluded from contractual rental income is an aggregate of $1.4 million comprised of (i) $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 (ii) $148,000 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 September 30, 2024 for the years indicated below:
Percentage of
Approximate
Contractual
Number of
Square Footage
Rental Income
Lease Expiration (a)
Expiring
Subject to
Rental Income Under
Represented by
12 Months Ending September 30,
Leases
Expiring Leases (b)
Expiring Leases
340,049
1,647,000
2.3
792,295
5,051,000
6.9
31
2,149,752
13,784,000
18.9
1,352,279
8,981,000
12.3
1,648,931
10,487,000
14.3
2030
1,026,735
7,558,000
10.3
2031
1,212,894
7,523,000
2032
457,228
2,595,000
3.6
2033
925,972
8,940,000
12.2
2034
220,107
2,369,000
3.2
2035 and thereafter
711,460
4,151,000
5.7
160
10,837,702
73,086,000
100.0
Property Transactions
Acquisition during the three months ended September 30, 2024
On August 19, 2024, we acquired an industrial property in Council Bluffs, Iowa for $33.0 million, incurred $79,000 of transaction costs that were capitalized and simultaneously obtained new mortgage debt of $18.4 million bearing an interest rate of 6.08% (interest only until 2029) and maturing in 2034 (see Note 4 to our consolidated financial statements). This property contributed $322,000 of rental income, net, $188,000 of operating expenses (including depreciation and amortization expense of $161,000) and $134,000 of mortgage interest expense. We estimate that commencing October 1, 2024, the quarterly rental income (excluding variable lease revenues), depreciation and amortization expense and mortgage interest expense from this property will be $623,000, $332,000 and $280,000, respectively.
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Sales during the three months ended September 30, 2024
We sold the following properties (amounts in thousands):
Gain on
Gross Sales
Sale of Real
Estate, net
13,525
These properties contributed the following during the periods indicated (amounts in thousands):
Description
467
451
1,364
Real estate operating expenses (a)
(180)
(247)
(582)
(727)
Mortgage interest expense
(65)
(74)
(287)
(224)
146
(418)
Transactions subsequent to September 30, 2024
In October and November 2024, we signed contracts to sell the following properties (amounts in thousands):
Net
Estimated
Sales
Contract Date
Proceeds
Real Estate, net
LA Fitness health and fitness property
Secaucus, New Jersey
October 15, 2024
21,428
13,000
6,400
Advance Auto retail property
Hilliard, Ohio
October 24, 2024
1,615
700
300
Multi-tenant retail property
St. Louis Park, Minnesota
November 4, 2024
14,200
14,000
37,243
27,700
7,000
929
954
2,853
2,924
(376)
(1,126)
(1,195)
(90)
(95)
(273)
463
483
1,454
1,442
In November 2024, we exercised our right to terminate the contract to acquire, for $28.3 million, a 236,324 square foot property in Council Bluffs, Iowa, and our $500,000 deposit was returned. Although we continue to evaluate such acquisition, we can provide no assurance that such transaction will be completed.
Results of Operations
The following table compares total revenues for the periods indicated:
Increase
(Dollars in thousands)
(Decrease)
% Change
(335)
(1.5)
(1,448)
(2.1)
n/a
(1,198)
(1.8)
The following table details the components of rental income, net, for the periods indicated:
Acquisitions (a)
955
268
687
256.3
1,837
1,569
585.4
Dispositions (b)
1,471
(1,450)
(98.6)
995
4,689
(3,694)
(78.8)
Same store (c)
21,235
20,807
2.1
63,625
62,948
677
1.1
Changes at same store properties
The changes in same store rental income during the three and nine months ended September 30, 2024 are due primarily to increases of:
The increases were offset during the three and nine months ended September 30, 2024 by decreases in rental income of:
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.
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Operating Expenses
The following table compares operating expenses for the periods indicated:
(177)
(2.8)
(450)
(2.4)
Real estate expenses
170
4.2
538
4.4
General and administrative
.6
(483)
(4.0)
(2)
(2.6)
(48)
(20.7)
.1
643
1.5
Depreciation and amortization. The decreases in the three and nine months ended September 30, 2024 are due primarily to (i) the inclusion in the corresponding 2023 periods of $362,000 and $858,000, respectively, of such expense from the properties sold since January 1, 2023, and (ii) decreases of $293,000 and $942,000, respectively, related to tenant origination costs at several properties that prior to September 30, 2024 were fully amortized.
The decreases were offset by (i) $293,000 and $804,000, respectively, of such expense from four properties acquired since January 1, 2023, and (ii) $151,000 and $396,000, respectively, of depreciation from improvements at several properties. In addition, the nine months ended September 30, 2024 includes $112,000 of amortization of leasing commissions at several properties.
Real estate expenses. The increases in the three and nine months ended September 30, 2024 are due primarily to (i) $104,000 and $176,000, respectively, of real estate expenses primarily related to insurance expense for several properties, none of which were individually significant, and (ii) in the nine months ended September 30, 2024, $318,000 from four properties acquired since January 1, 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.
General and administrative. The decrease in the nine months ended September 30, 2024 is due primarily to decreases (i) in non-cash compensation expense due primarily to the inclusion of $233,000 in the corresponding 2023 period from the retirement, and related accelerated vesting, of an executive officer’s restricted stock awards, and (ii) of $165,000 in litigation related professional fees.
Impairment loss. During the nine months ended September 30, 2024, we recorded a $1.1 million impairment loss at our former Hamilton, Ohio property tenanted by LA Fitness. (See Note 5 to our consolidated financial statements).
The following table compares gain on sale of real estate, net for the periods indicated:
1,783
537.0
6,301
124.9
The following table lists the sold properties and the related gains, net, for the periods indicated:
Restaurant parcel - Lakewood, Colorado (a)
Restaurant property - Kennesaw, Georgia
Industrial property - Miamisburg, Ohio
Retail property - Wichita, Kansas
Retail property - Lawrence, Kansas
Retail property - Cape Girardeau, Missouri (b)
Vacant retail property - Kennesaw, Georgia
Vacant health and fitness property - Hamilton, Ohio
Vacant industrial property - Wauconda, Illinois
Retail property - Woodbury, Minnesota
Restaurant property - Hauppauge, New York
Retail property - Duluth, Georgia
Restaurant property - Greensboro, North Carolina
Total Gain on sale of real estate, net
Other Income and Expenses
The following table compares other income and expenses for the periods indicated:
Change
(99.0)
848
(111.4)
266
305.7
765
584.0
164
3.4
421
3.0
6.1
19.7
Equity in (loss) earnings of unconsolidated joint ventures. The three and nine months ended September 30, 2023 include our 50% share of an impairment charge, or $850,000, related to our former Manahawkin, New Jersey joint venture property which was sold in December 2023.
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Other Income. The increases in the three and nine months ended September 30, 2024 are due to increases of $325,000 and $722,000, respectively, in interest income primarily from investments in short-term U.S. treasury bills.
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Interest expense. The following table compares interest expense for the periods indicated:
Interest expense:
Mortgage interest
4,868
4,454
414
9.3
14,210
12,976
1,234
9.5
Credit line interest
64
314
(250)
(79.6)
189
1,002
(813)
(81.1)
4,932
4,768
14,399
13,978
The following table reflects the average interest rate on the average principal amount of outstanding mortgage debt for the periods indicated:
Weighted average principal amount
428,583
421,762
6,821
1.6
424,261
414,483
9,778
2.4
4.51
4.19
0.32
7.6
4.43
4.15
0.28
6.7
The increases in mortgage interest in the three and nine months ended September 30, 2024 are due primarily to increases in the weighted average interest rate on the 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.
The decreases in credit line interest in the three and nine months ended September 30, 2024 are due to the payoff of the principal balance outstanding on the credit facility. The interest expense of $64,000 and $189,000 for the three and nine months ended September 30, 2024, respectively, constitutes the unused facility fee.
The weighted average interest rate was 7.01% and 6.60% for the three and nine months ended September 30, 2023, respectively, and the weighted average principal amount outstanding was $14.7 million and $17.1 million for the three and nine months ended September 30, 2023, respectively.
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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 November 1, 2024, was $129.8 million, including $29.8 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 November 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:
At September 30, 2024, we had 64 outstanding mortgages payable secured by 65 properties in the aggregate principal amount of $430.5 million (before netting unamortized deferred financing costs of $3.7 million and mortgage intangibles of $702,000). These mortgages represent first liens on individual real estate investments with an aggregate carrying value of $685.0 million, before accumulated depreciation of $129.4 million. After giving effect to interest rate swap agreements, the mortgage payments bear interest at fixed rates ranging from 3.05% to 6.25% (a 4.53% weighted average interest rate) and mature between 2024 and 2047 (a 6.2 year weighted average remaining term to maturity).
The following table sets forth, as of September 30, 2024, information with respect to our mortgage debt that is payable during the three months ending December 31, 2024 and for each of the subsequent twelve months through December 31, 2027:
34,915
92,010
126,925
Weighted average interest rate on principal due at maturity
4.44
4.34
3.88
3.64
3.96
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, 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).
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
35
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 nine months ended September 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 6.59% and 6.42% at September 30, 2024 and November 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 September 30, 2024, we were in compliance with the covenants under this facility.
Off-Balance Sheet Financing Arrangement
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 nine months ended September 30, 2024 and 2023. At September 30, 2024, the carrying value of the land on our balance sheet was approximately $17.3 million; our leasehold position is subordinate to $62.6 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.
36
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.
37
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):
GAAP net income attributable to One Liberty Properties, Inc.
Add: depreciation and amortization of properties
5,921
6,134
17,524
18,028
Add: our share of depreciation and amortization of unconsolidated joint ventures
130
389
Add: impairment loss
Add: amortization of deferred leasing costs
212
176
595
541
Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures
Add: our share of impairment loss of unconsolidated joint venture property
850
Deduct: gain on sale of real estate, net
(2,115)
(332)
Adjustments for non-controlling interests
(19)
227
(53)
NAREIT funds from operations applicable to common stock
9,193
9,691
27,998
29,375
Deduct: straight-line rent accruals and amortization of lease intangibles
(836)
(2,006)
(2,139)
Adjust: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures
(5)
(15)
Deduct: lease termination fee income
Deduct: other income and income on settlement of litigation
(27)
(82)
Deduct: our share of unconsolidated joint venture lease termination fee income
(21)
Deduct: additional rent from ground lease tenant
(16)
Add: amortization of restricted stock and RSU compensation
Add: amortization and write-off of deferred financing costs
Add: amortization of lease incentives
90
91
Add: amortization of mortgage intangible assets
103
Add: our share of amortization of deferred financing costs of unconsolidated joint venture
Adjusted funds from operations applicable to common stock
9,899
10,460
30,338
32,013
.29
.83
.86
.01
.02
.05
.03
.04
(.10)
(.02)
(.53)
(.24)
NAREIT funds from operations per share of common stock (a)
.43
1.30
1.37
(.04)
(.03)
(.08)
(.01)
.06
.17
.19
Adjusted funds from operations per share of common stock (a)
.46
.49
1.41
1.49
Three months ended September 30, 2024 and 2023
The $498,000, or 5.1%, decrease in FFO for the three months ended September 30, 2024 from the corresponding 2023 period is due primarily to:
Offsetting the decrease is:
The $561,000, or 5.4%, decrease in AFFO for the three months ended September 30, 2024 from the corresponding 2023 period is due to the factors impacting FFO as described immediately above, including a $217,000 decrease 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.
Nine months ended September 30, 2024 and 2023
The $1.4 million, or 4.7%, decrease in FFO for the nine months ended September 30, 2024 from the corresponding 2023 period is due primarily to:
The $1.7 million, or 5.2%, decrease in AFFO for the nine months ended September 30, 2024 from the corresponding 2023 period is due to the factors impacting FFO as described immediately above, excluding the (i) $416,000 decrease in general and administrative expenses related to the amortization of restricted stock and RSU compensation, (ii) $250,000 lease termination fee income, and (iii) a $133,000 increase in rental income, net, due to the exclusion of the amortization of straight line rent and lease-related intangibles.
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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 September 30, 2024, we had no liability in the event of the early termination of our swaps.
At September 30, 2024, we had 10 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 September 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 $132,000. 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 $134,000. 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 September 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
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 September 30, 2024.
Item 6. Exhibits
Exhibit No.
Title of Exhibit
31.1
Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Senior Vice President and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101
The following financial statements and notes from the One Liberty Properties, Inc. Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024 filed on November 6, 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.
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.
(Registrant)
Date: November 6, 2024
/s/ Patrick J. Callan, Jr.
Patrick J. Callan, Jr.
President and Chief Executive Officer
(principal executive officer)
/s/ Isaac Kalish
Isaac Kalish
Senior Vice President and
Chief Financial Officer
(principal financial officer)