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EX-32.2 - EX-32.2 - GTJ REIT, Inc.ck1368757-ex322_201503319.htm
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EX-31.2 - EX-31.2 - GTJ REIT, Inc.ck1368757-ex312_201503316.htm
EX-10.15 - EX-10.15 - GTJ REIT, Inc.ck1368757-ex1015_20150331394.htm
EXCEL - IDEA: XBRL DOCUMENT - GTJ REIT, Inc.Financial_Report.xls

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      

Commission file number: 333-136110

 

GTJ REIT, INC.

(Exact name of registrant as specified in its charter)

 

 

MARYLAND

20-5188065

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

60 Hempstead Avenue

West Hempstead, New York

11552

(Address of principal executive offices)

(Zip Code)

(516) 693-5500

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

 

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

 

Large accelerated filer

¨

Accelerated filer

¨

 

 

 

 

Non-accelerated filer

¨  (Do not check if smaller reporting company)

Smaller reporting company

x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date: 13,772,238 shares of common stock as of May 13, 2015.

 

 

 

 

 


GTJ REIT, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2015

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets at March 31, 2015 (Unaudited) and December 31, 2014

2

 

 

 

 

Condensed Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2015 and 2014

3

 

 

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) for the Three Months Ended March 31, 2015 and 2014

4

 

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2015

5

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2015 and 2014

6

 

 

 

 

Notes to the Consolidated Financial Statements (Unaudited)

7

 

 

 

Item 2.

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

18

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

 

 

 

Item 4.

Controls and Procedures

23

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

24

 

 

 

Item 1A.

Risk Factors

24

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

 

 

 

Item 3.

Defaults Upon Senior Securities

24

 

 

 

Item 4.

Mine Safety Disclosures

24

 

 

 

Item 5.

Other Information

24

 

 

 

Item 6.

Exhibits

25

 

 

Signatures

27

 

 

 

1


GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Real estate, at cost:

 

 

 

 

 

 

 

Land

$

187,192

 

 

$

171,958

 

Buildings and improvements

 

257,287

 

 

 

196,290

 

Total real estate, at cost

 

444,479

 

 

 

368,248

 

Less: accumulated depreciation and amortization

 

(30,023

)

 

 

(28,317

)

Net real estate held for investment

 

414,456

 

 

 

339,931

 

Cash and cash equivalents

 

15,708

 

 

 

8,299

 

Rental income in excess of amount billed

 

14,048

 

 

 

13,747

 

Acquired lease intangible assets, net

 

14,748

 

 

 

15,619

 

Assets of discontinued operations

 

87

 

 

 

139

 

Other assets

 

18,217

 

 

 

17,022

 

Total assets

$

477,264

 

 

$

394,757

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Mortgage notes payable

$

343,195

 

 

$

201,280

 

Revolving credit facility

 

 

 

 

43,841

 

Accounts payable and accrued expenses

 

3,501

 

 

 

1,751

 

Dividends payable

 

2,479

 

 

 

1,098

 

Acquired lease intangible liabilities, net

 

7,593

 

 

 

7,846

 

Liabilities of discontinued operations

 

2,036

 

 

 

2,098

 

Other liabilities

 

4,294

 

 

 

4,178

 

Total liabilities

 

363,098

 

 

 

262,092

 

Commitments and contingencies

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

Series A, Preferred stock, $.0001 par value; 10,000,000 shares authorized; none

   issued and outstanding

 

 

 

 

 

Series B, Preferred stock, $.0001 par value; non-voting; 6,500,000 shares authorized;

   none issued and outstanding

 

 

 

 

 

Common stock, $.0001 par value; 100,000,000 shares authorized; 13,772,238 and

   13,729,228 shares  issued and outstanding at March 31, 2015 and December 31, 2014,

   respectively

 

1

 

 

 

1

 

Additional paid-in capital

 

138,994

 

 

 

138,857

 

Distributions in excess of net income

 

(94,493

)

 

 

(82,069

)

Total stockholders’ equity

 

44,502

 

 

 

56,789

 

Noncontrolling interest

 

69,664

 

 

 

75,876

 

Total equity

 

114,166

 

 

 

132,665

 

Total liabilities and equity

$

477,264

 

 

$

394,757

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

2


GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2015

(Unaudited, amounts in thousands, except share and per share data)

 

 

Three Months Ended,

 

 

March 31,

 

 

2015

 

 

2014

 

Revenues:

 

 

 

 

 

 

 

Rental income

$

9,298

 

 

$

7,817

 

Tenant reimbursements

 

2,059

 

 

 

1,457

 

Total revenues

 

11,357

 

 

 

9,274

 

Expenses:

 

 

 

 

 

 

 

Property operating expenses

 

2,659

 

 

 

2,245

 

General and administrative

 

2,317

 

 

 

2,304

 

Acquisition costs

 

611

 

 

 

270

 

Depreciation and amortization

 

2,606

 

 

 

2,262

 

Total expenses

 

8,193

 

 

 

7,081

 

Operating income

 

3,164

 

 

 

2,193

 

Interest expense

 

(3,119

)

 

 

(2,146

)

Loss on extinguishment of debt

 

(14,876

)

 

 

 

Other

 

(36

)

 

 

(8

)

(Loss) income from continuing operations

 

(14,867

)

 

 

39

 

Discontinued Operations:

 

 

 

 

 

 

 

(Loss) income from discontinued operations

 

(53

)

 

 

8

 

Net (loss) income

 

(14,920

)

 

 

47

 

Less: Net (loss) income attributable to noncontrolling interest

 

(4,975

)

 

 

5

 

Net (loss) income attributable to common stockholders

$

(9,945

)

 

$

42

 

(Loss) income per common share attributable to common

   stockholders - basic and diluted:

 

 

 

 

 

 

 

(Loss) income from continuing operations, net of noncontrolling interest

$

(0.72

)

 

$

0.00

 

(Loss) income from discontinued operations

$

(0.00

)

 

$

0.00

 

Net (loss) income attributable to common stockholders

$

(0.72

)

 

$

0.00

 

Weighted average common shares outstanding – basic and diluted

 

13,732,095

 

 

 

13,678,704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

3


GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

For the Three Months Ended March 31, 2015

(Unaudited, amounts in thousands)

 

 

Three Months Ended

 

 

March 31,

 

 

2015

 

 

2014

 

Net (loss) income

$

(14,920

)

 

$

47

 

Other comprehensive income:

 

 

 

 

 

 

 

Available-for-sale securities

 

 

 

 

 

 

 

Net change in unrealized gains

 

 

 

 

 

Comprehensive (loss) income

 

(14,920

)

 

 

47

 

Less: Net (loss) income attributable to noncontrolling interest

 

(4,975

)

 

 

5

 

Comprehensive (loss) income attributable to common stockholders

$

(9,945

)

 

$

42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

4


GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Three Months Ended March 31, 2015

(Unaudited, amounts in thousands, except share and per share data)

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

Distributions

 

 

Total

 

 

 

 

 

 

 

 

 

 

Preferred

 

 

Outstanding

 

 

Par

 

 

Additional-

 

 

in Excess of

 

 

Stockholders’

 

 

Noncontrolling

 

 

 

 

 

 

Stock

 

 

Shares

 

 

Value

 

 

Paid-In-Capital

 

 

Net Income

 

 

Equity

 

 

Interest

 

 

Total Equity

 

Balance at December 31, 2014

$

 

 

 

13,729,228

 

 

$

1

 

 

$

138,857

 

 

$

(82,069

)

 

$

56,789

 

 

$

75,876

 

 

$

132,665

 

Common stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,479

)

 

 

(2,479

)

 

 

 

 

 

(2,479

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

137

 

 

 

 

 

 

137

 

 

 

 

 

 

137

 

Net issuance of restricted shares

 

 

 

 

43,010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions to noncontrolling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,237

)

 

 

(1,237

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,945

)

 

 

(9,945

)

 

 

(4,975

)

 

 

(14,920

)

Balance at March 31, 2015

$

 

 

 

13,772,238

 

 

$

1

 

 

$

138,994

 

 

$

(94,493

)

 

$

44,502

 

 

$

69,664

 

 

$

114,166

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

5


GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2015 and 2014

(Unaudited, amounts in thousands)

 

 

Three Months Ended,

 

 

March 31,

 

 

2015

 

 

2014

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net (loss) income

$

(14,920

)

 

$

47

 

Loss (income) from discontinued operations

 

53

 

 

 

(8

)

Net (loss) income from continuing operations

 

(14,867

)

 

 

39

 

Adjustments to reconcile net (loss) income from continuing operations to net cash

   provided by operating activities

 

 

 

 

 

 

 

Depreciation

 

1,730

 

 

 

1,384

 

Amortization of intangible assets and deferred charges

 

857

 

 

 

623

 

Stock-based compensation

 

137

 

 

 

49

 

Loss on extinguishment of debt

 

14,876

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Rental income in excess of amount billed

 

(301

)

 

 

(630

)

Other assets

 

461

 

 

 

(180

)

Accounts payable and accrued expenses

 

1,750

 

 

 

1,385

 

Other liabilities

 

(573

)

 

 

(856

)

Net cash provided by operating activities

 

4,070

 

 

 

1,814

 

Cash flow from investing activities:

 

 

 

 

 

 

 

Cash paid for property acquisitions

 

(76,170

)

 

 

 

 

Cash paid for property improvements

 

(61

)

 

 

(484

)

Contract deposits

 

 

 

 

(250

)

Net cash used in investing activities

 

(76,231

)

 

 

(734

)

Cash flow from financing activities:

 

 

 

 

 

 

 

Proceeds from mortgage notes payable

 

272,200

 

 

 

 

Financing costs on debt

 

(6,386

)

 

 

 

 

Return of good faith deposit for mortgage note payable

 

3,097

 

 

 

 

Repayment due to extinguishment of mortgage debt

 

(143,363

)

 

 

 

Payment of mortgage principal

 

(428

)

 

 

(253

)

Repayment of revolving credit facility

 

(55,941

)

 

 

 

Proceeds from revolving credit facility

 

12,100

 

 

 

 

Cash distributions to noncontrolling interests

 

(548

)

 

 

(546

)

Cash dividends paid

 

(1,098

)

 

 

(1,094

)

Net cash provided by (used in) financing activities

 

79,633

 

 

 

(1,893

)

Cash flow from discontinued operations:

 

 

 

 

 

 

 

Operating activities

 

(63

)

 

 

6

 

Net increase (decrease) in cash and cash equivalents

 

7,409

 

 

 

(807

)

Cash and cash equivalents at the beginning of period

 

8,299

 

 

 

6,323

 

Cash and cash equivalents at the end of period

$

15,708

 

 

$

5,516

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Cash paid for interest

$

 

 

$

2,172

 

Cash paid for income taxes

$

 

 

$

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

6


GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015

(Unaudited)

 

1. ORGANIZATION AND DESCRIPTION OF BUSINESS:

GTJ REIT, Inc. (the “Company” or “GTJ REIT”) was incorporated on June 23, 2006, under Maryland General Corporation Law. The Company is focused on the acquisition, ownership, management, and operation of commercial real estate located in the New York, New Jersey and Connecticut.

The Company elected to be treated as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended. Under the REIT operating structure, the Company is permitted to deduct the dividends paid to its stockholders when determining its taxable income. Assuming dividends equal or exceed the Company’s taxable income, the Company generally will not be required to pay Federal corporate income taxes on such income.

On January 17, 2013, the Company closed on a transaction with Wu/Lighthouse Portfolio, LLC, in which a limited partnership (the “Operating Partnership”) owned and controlled by the Company, acquired all outstanding ownership interests of a portfolio consisting of 25 commercial properties (the “Acquired Properties”) located in New York, New Jersey and Connecticut, in exchange for 33.29% of the outstanding limited partnership interests in the Operating Partnership. The acquisition was recorded as a business combination and accordingly the purchase price was allocated to the assets acquired and liabilities assumed at fair value. At March 31, 2015, subject to certain anti-dilutive and other provisions contained in the governing agreements, the limited partnership interests in the UPREIT may be convertible in the aggregate, into approximately 1.8 million shares of the Company’s common stock and approximately 5.0 million shares of Series B preferred stock.

As of March 31, 2015, the Operating Partnership owned 45 properties consisting of approximately 5.3 million square feet of office and industrial properties on 335 acres of land in New York, New Jersey, and Connecticut.

Prior to 2013, the Company operated a group of outdoor maintenance, shelter cleaning, and electrical contracting businesses, as well as a parking garage facility. During 2011, the Board voted to divest these operations which were sold in 2012 and 2013. Accordingly, the operations of these entities, including any impact of insurance claims associated with those entities, are reported as discontinued operations in the condensed consolidated statements of operations.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation:

The accompanying unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the financial statements of the Company, its wholly owned subsidiaries, and the Operating Partnership, as the Company makes all operating and financial decisions for (i.e., exercises control over) the Operating Partnership. All material intercompany transactions have been eliminated. The ownership interests of the other investors in the Operating Partnership are presented as noncontrolling interests.

The accompanying unaudited condensed consolidated interim financial information has been prepared according to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. The Company’s management believes that the disclosures presented in these unaudited condensed consolidated financial statements are adequate to make the information presented not misleading. In Management’s opinion, all adjustments and eliminations, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for the reported periods have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. The accompanying unaudited condensed consolidated interim financial information should be read in conjunction with the Company’s December 31, 2014 audited consolidated financial statements, as previously filed with the SEC on Form 10-K on March 27, 2015, and other public information.

Certain reclassifications of prior period amounts, including the presentation of the Consolidated Statement of Comprehensive (Loss) Income required by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 205 - “Presentation of Financial Statements,” have been made in the financial statements in order to conform to the 2014 presentation.

 

7


Use of Estimates:

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. All of these estimates reflect management’s best judgment about current economic and market conditions and their effects based on information available as of the date of these condensed consolidated financial statements. If such conditions persist longer or deteriorate further than expected, it is reasonably possible that the judgments and estimates could change, which may result in impairments of certain assets. Significant estimates include the useful lives of long lived assets including property, equipment and intangible assets, impairment of assets, collectability of receivables, contingencies, and stock-based compensation.

Real Estate:

Real estate assets are stated at cost, less accumulated depreciation and amortization. All costs related to the improvement or replacement of real estate properties are capitalized. Additions, renovations, and improvements that enhance and/or extend the useful life of a property are also capitalized. Expenditures for ordinary maintenance, repairs, and improvements that do not materially prolong the normal useful life of an asset are charged to operations as incurred.

Upon the acquisition of real estate properties, the fair value of the real estate purchased is allocated to the acquired tangible assets (generally consisting of land, buildings and building improvements, and tenant improvements) and identified intangible assets and liabilities (generally consisting of above-market and below-market leases and the origination value of in-place leases) in accordance with GAAP. We utilize methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities.  The fair value of the tangible assets of an acquired property considers the value of the property “as-if-vacant.” In allocating purchase price to identified intangible assets liabilities of an acquired property, the value of above-market and below-market leases is estimated based on the differences between contractual rentals and estimated market rents over the applicable lease term discounted back to the date of acquisition utilizing a discount rate adjusted for the credit risk associated with the respective tenants. Fixed-rate-renewal options have been included in the calculation of the fair value of acquired leases where applicable.  The aggregate value of in-place leases is measured based on the avoided costs associated with lack of revenue over market oriented lease-up period, the avoided leasing commissions, and other avoided costs common in similar leasing transactions.

Mortgage notes payable assumed in connection with acquisitions are recorded at their fair value using current market interest rates for similar debt at the time of acquisitions. Acquisition related costs are expensed as incurred. The capitalized above-market lease values are amortized as a reduction of rental revenue over the remaining term of the respective leases and the capitalized below-market lease values are amortized as an increase to rental revenue over the remaining term of the respective leases. The value of in-place leases is based on the Company’s evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during expected lease-up periods, current market conditions, and costs to execute similar leases. The values of in place leases are amortized over the remaining term of the respective leases. If a tenant terminates its lease prior to its contractual expiration date, any unamortized balance of the related intangible assets or liabilities is recorded as income or expense in the period. The total net impact to rental revenues due to the amortization of above and below market leases was a net increase of approximately $0.1 million for the three months ended March 31, 2015.

As of March 31, 2015, approximately $2.3 million and $12.4 million (net of accumulated amortization) relating to above- market and in-place leases, respectively, are included in acquired lease intangible assets, net in the accompanying condensed consolidated balance sheets. As of December 31, 2014, approximately $2.5 million and $13.1 million (net of accumulated amortization) relating to above-market and in-place leases, respectively, are included in the acquired lease intangible assets, net in the accompanying condensed consolidated balance sheets. As of March 31, 2015 and December 31, 2014, approximately $7.6 million and $7.8 million, respectively, (net of accumulated amortization) relating to below-market leases are included in acquired lease intangible liabilities, net in the accompanying condensed consolidated balance sheets.

8


The following table presents the projected impact for the remainder of 2015, the next five years and thereafter related to the net increase to rental revenue from the amortization of the acquired above-market and below-market lease intangibles and the increase to amortization expense of the in-place lease intangibles for properties owned at March 31, 2015 (in thousands):

 

 

 

 

 

 

Increase to

 

 

Net increase to

 

 

amortization

 

 

rental revenues

 

 

expense

 

Remainder of 2015

$

289

 

 

$

2,029

 

2016

 

573

 

 

 

1,913

 

2017

 

466

 

 

 

1,355

 

2018

 

488

 

 

 

1,189

 

2019

 

564

 

 

 

955

 

2020

 

564

 

 

 

932

 

Thereafter

 

2,160

 

 

 

3,993

 

 

$

5,104

 

 

$

12,366

 

 

Depreciation and Amortization:

The Company uses the straight-line method for depreciation and amortization. Properties and property improvements are depreciated over their estimated useful lives, which range from 5 to 40 years. Furniture, fixtures, and equipment are depreciated over estimated useful lives that range from 5 to 10 years. Tenant improvements are amortized over the shorter of the remaining non-cancellable term of the related leases or their useful lives.

Asset Impairment:

Management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable. The review of recoverability is based on an estimate of the undiscounted future cash flows that are expected to result from the real estate investment’s use and eventual disposition. Such cash flow analyses consider factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If an impairment event exists due to the projected inability to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value. Management is required to make subjective assessments as to whether there are impairments in the value of its real estate holdings. These assessments could have a direct impact on net income, because an impairment loss is recognized in the period the assessment is made. Management has determined that there were no indicators of impairment relating to its long-lived assets at March 31, 2015.

Deferred Charges:

Deferred charges consist principally of leasing commissions, which are amortized ratably over the life of the related tenant leases, and financing costs, which are amortized over the terms of the respective debt agreements. These deferred charges are included in other assets on the consolidated balance sheets.

Reportable Segments:

The Company operates in one reportable segment, commercial real estate.

Revenue Recognition:

Rental income includes the base rent that each tenant is required to pay in accordance with the terms of their respective leases reported on a straight-line basis over the term of the lease. In order for management to determine, in its judgment, that the unbilled rent receivable applicable to each specific tenant is collectible, management reviews billed and unbilled rent receivables on a quarterly basis and takes into consideration the tenant’s payment history and financial condition. Some of the leases provide for additional contingent rental revenue in the form of percentage rents and increases based on the consumer price index, subject to certain maximums and minimums.

Substantially all of the Company’s properties are subject to long-term net leases under which the tenant is typically responsible to pay for their pro rata share of real estate taxes, insurance, and ordinary maintenance and repairs.

Property operating expense recoveries from tenants of common area maintenance, real estate, and other recoverable costs are recognized as revenues in the period that the related expenses are incurred.

9


Earnings Per Share Information:

The Company presents both basic and diluted earnings (loss) per share. Basic earnings (loss) per share excludes dilution and is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower per share amount. Restricted stock was included in the computation of diluted earnings (loss) per share and stock option awards were excluded from the computation of diluted earnings (loss) per share because the option awards would have been antidilutive for the periods presented.

Cash and Cash Equivalents:

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

Restricted Cash:

Restricted cash represents reserves used to pay real estate taxes, insurance, and tenant improvements. At March 31, 2015 and December 31, 2014, the Company had restricted cash in the amount of $2.2 million and $1.0 million, respectively, which was included in other assets on the condensed consolidated balance sheets.

Fair Value Measurement:

The Company determines fair value in accordance with ASC Topic 820, “Fair Value Measurement,” for financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures.

Fair value is defined as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.

Assets and liabilities disclosed at fair values are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are defined by ASC 820-10-35, are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities. Determining which category an asset or liability falls within the hierarchy requires significant judgment and the Company evaluates its hierarchy disclosures each quarter.

Level 1 — Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2 — Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Valuations based on unobservable inputs reflecting management’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

Income Taxes:

The Company is organized and conducts its operations to qualify as a REIT for Federal income tax purposes. Accordingly, the Company is generally not subject to Federal income taxation on the portion of its distributable income that qualifies as REIT taxable income, to the extent that it distributes at least 90% of its REIT taxable income to its stockholders and complies with certain other requirements as defined.

The Company also participates in certain activities conducted by entities which elected to be treated as taxable subsidiaries under the Code. As such, the Company is subject to federal, state, and local taxes on the income from these activities.

The Company accounts for income taxes under the asset and liability method as required by the provisions of ASC 740-10-30. Under this method, deferred tax assets and liabilities are established based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance for deferred tax assets for which it does not consider realization of such assets to be more likely than not.

10


ASC 740-10-65 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10-65, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10-65 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of March 31, 2015, and December 31, 2014, the Company had determined that no liabilities are required in connection with unrecognized tax positions. As of March 31, 2015, the Company’s tax returns for the prior three years are subject to review by the Internal Revenue Service.

Concentrations of Credit Risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, which from time-to-time exceed the federal depository insurance coverage. Beginning January 1, 2013, all noninterest bearing transaction accounts deposited at an insured depository institution are insured by the Federal Deposit Insurance Corporation up to the standard maximum deposit amount of $250,000. Management believes that the Company is not exposed to any significant credit risk due to the credit worthiness of the financial institutions.

Stock-Based Compensation:

The Company has a stock-based compensation plan, which is described below in Note 7. The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation – Stock Compensation,” which establishes accounting for stock-based awards exchanged for employee services. Under the provisions of ASC 718-10-35, share-based compensation cost is measured at the grant date, based on the fair value of the award, and is expensed at the grant date (for the portion that vests immediately) or ratably over the respective vesting periods.

New Accounting Pronouncements

In April 2015, the FASB issued ASU No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.” ASU 2015-03 is intended to simplify the presentation of debt issuance costs by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03.  ASU 2015-03 is effective for fiscal periods and interim periods within those fiscal periods beginning after December 15, 2015. The adoption of ASU 2015-03 is not expected to have a material impact on the Company’s consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, “Consolidation (Topic 810) – Amendments to the Consolidation Analysis.” ASU 2015-02 amends the consolidation requirements in Accounting Standards Codification (“ASC”) 810 “Consolidation” and changes the required consolidation analysis.  The amendments in ASU No. 2015-02 affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. The amendments impact limited partnerships and legal entities, the evaluation of fees paid to a decision maker or service provider of a variable interest, the effect of fee arrangements on the primary beneficiary determination, the effect of related parties on the primary beneficiary determination, and certain investment funds.  ASU No. 2015-02 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The Company is currently evaluating the impact of its pending adoption of ASU 2015-02 on its consolidated financial statements.  

In January 2015, the FASB issued ASU No. 2015-01, “Income Statement – Extraordinary and Unusual Items.” ASU 2015-01 eliminates the concept of extraordinary items.  However, the presentation and disclosure requirements for items that are either unusual in nature of infrequent in occurrence remain and will be expanded to include items that are both unusual in nature and infrequent in occurrence. ASU 2015-01 is effective for periods beginning after December 15, 2015.  The adoption of ASU 2015-01 is not expected to have a material impact on the Company’s consolidated financial statements.

11


In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.”  The amendments in ASU 2014-15 are intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under GAAP, financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern basis of accounting is critical to financial reporting because it establishes the fundamentals of measuring and classifying assets and liabilities. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations in financial statement footnotes. This accounting standard is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016.  Early adoption is permitted.  The Company is currently evaluating the impact of its pending adoption of ASU 2014-15 on its consolidated financial statements.

During June 2014, the FASB issued ASU No. 2014-12, “Accounting for Share-Based Payments when the Terms of an Award Profile That a Performance Target Could be Achieved after the Requisite Service Period.” ASU 2014-12 provides explicit guidance on how to account for share-based payments that require a specific performance target to be achieved which may be achieved after an employee completes the requisite service period. ASU 2014-12 is effective for periods beginning after December 15, 2015 and may be applied either prospectively or retrospectively. The adoption of ASU 2014-12 is not expected to have a material impact on the Company’s consolidated financial statements.

During May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transaction methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which the standard will be adopted in 2017.

In April 2014, the FASB issued 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The amendments in ASU 2014-08 change the criteria for reporting a discontinued operation and require new disclosures of both discontinued operations and certain other disposals that do not meet the definition of a discontinued operation. Only disposals representing a strategic shift in operations should be presented as discontinued operations. This accounting standards update is effective for annual filings beginning on or after December 15, 2014. Early adoption is permitted.  The impact of the adoption of ASU 2014-08 on the Company’s results of operations, financial position, cash flows and disclosures will be based on the Company’s future disposal activity.

 

 

3. REAL ESTATE:

 

On January 20, 2015, the Company acquired a 92,500 square foot single story office/flex/warehouse building located on 12 acres of land in Rocky Hill, CT for $12.4 million.  The purchase was financed from the Company’s revolving credit facility with Capital One, N.A. Permanent financing of $8.0 million closed in February 2015 as part of the $233.1 million financing with American General Life Insurance Company and affiliates described in further detail in Note 5. The permanent financing is for a 10-year term loan maturing March 1, 2025 that requires interest only payments at the rate of 4.05% per annum.

On March 13, 2015, the Company completed the acquisition of six properties totaling approximately 681,754 square feet in Piscataway, NJ.  The aggregate net purchase price including closing costs was $64.6 million.  The purchase price was funded from a combination of $25.5 million from the net proceeds of the Company’s February 20, 2015 AIG Loan and the remaining $39.1 million from a cross-collateralized mortgage (the “Allstate Loan”) from Allstate Life Insurance Company, Allstate Life Insurance Company of New York and American Heritage Life Insurance Company. The Allstate Loan Agreement provided a secure facility with a 10-year term loan. During the first three years of the term of the loan, it requires interest only payments at the rate of 4% per annum. Following this interest-only period until the loan matures on April 1, 2025, payments will be based on a 30-year amortization schedule.

12


The acquired assets and liabilities associated with the Rocky Hill and Piscataway properties are based upon management’s best available information at the time of the preparation of the condensed consolidated financial statements. However, the business acquisition accounting for these properties are not complete and accordingly, such estimates of the value of acquired assets and liabilities are provisional until the valuations are finalized. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant. The Company expects to finalize the valuations and complete the purchase price allocations as soon as practical, but no later than one year from the respective acquisition dates.

 

 

4. DISCONTINUED OPERATIONS:

On May 2, 2013, Shelter Express Corp., a wholly owned subsidiary of the Company, completed the sale of all of the issued and outstanding shares of capital stock of Shelter Electric Maintenance Corp. (“SEM”).

The following table sets forth the detail of the Company’s loss from discontinued operations for the three months ended March 31, 2015 and 2014, respectively (in thousands):

 

 

Three Months Ended

 

 

March 31,

 

 

2015

 

 

2014

 

Revenues from discontinued operations

$

 

 

$

 

(Loss) income from discontinued operations

$

(53

)

 

$

8

 

 

The carrying amounts of the major classes of assets and liabilities of the Company’s discontinued operations are as follows (in thousands):

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

Assets:

 

 

 

 

 

 

 

Cash

$

86

 

 

$

138

 

Accounts receivable, net

 

1

 

 

 

1

 

Other assets

 

 

 

 

-

 

 

$

87

 

 

$

139

 

Liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

19

 

 

$

13

 

Insurance reserve

 

688

 

 

 

741

 

Pension withdrawal liability

 

1,304

 

 

 

1,320

 

Other liabilities

 

25

 

 

 

24

 

 

$

2,036

 

 

$

2,098

 

 

 

5. MORTGAGE NOTES PAYABLE:

The following table sets forth a summary of the Company’s mortgage notes payable (in thousands):

 

 

 

 

 

 

 

Principal

 

 

Principal

 

 

 

 

 

 

 

 

 

Outstanding as of

 

 

Outstanding as of

 

 

 

Loan

 

Interest Rate

 

 

March 31, 2015

 

 

December 31, 2014

 

 

Maturity

Hartford Life Insurance Company

 

 

5.05

%

 

$

 

 

$

45,500

 

 

7/1/2017

Athene Annuity & Life Company

 

 

3.00

%

 

 

15,000

 

 

 

15,000

 

 

3/1/2018

John Hancock Life Insurance Company

 

 

6.17

%

 

 

 

 

 

61,834

 

 

3/1/2018

Genworth Life Insurance Company

 

 

3.20

%

 

 

28,849

 

 

 

29,046

 

 

4/30/2018

People’s United Bank

 

 

5.23

%

 

 

2,442

 

 

 

2,459

 

 

10/1/2020

United States Life Insurance Company

 

 

5.76

%

 

 

 

 

 

22,710

 

 

4/1/2018

Hartford Accident & Indemnity Company

 

 

6.07

%

 

 

9,204

 

 

 

9,231

 

 

3/1/2020

People’s United Bank

 

 

4.18

%

 

 

15,500

 

 

 

15,500

 

 

10/15/2024

American International Group

 

 

4.05

%

 

 

233,100

 

 

 

 

 

3/1/2025

Allstate Corporation

 

 

4.00

%

 

 

39,100

 

 

 

 

 

4/1/2025

 

 

 

 

 

 

$

343,195

 

 

$

201,280

 

 

 

 

13


Mortgage notes payable includes $0.2 million of premium on the debt assumed in connection with the acquisition of the Windsor Locks, CT property in April 2014. The premium is being amortized as a reduction to interest expense over the life of the underlying debt.

 

AIG Loan Agreement

 

On February 20, 2015 (the “Closing Date”), the Company refinanced the current outstanding debt on certain properties and placed new financing on others by entering into a Loan Agreement (the “Loan Agreement”) with American General Life Insurance Company, the Variable Life Insurance Company, the United States Life Insurance Company in the City of New York, American Home Assurance Company and Commerce and Industry Insurance Company.  

 

The Loan Agreement provides a secured loan in the principal amount of $233.1 million (the “AIG Loan”). The AIG Loan is a 10-year term loan that requires interest only payments at the rate of 4.05% per annum. During the period from April 1, 2015, to February 1, 2025, payments of interest only will be payable in arrears with the entire principal balance plus any accrued and unpaid interest due and payable on March 1, 2025. The Company’s obligation to pay the interest, principal and other amounts under the Loan Agreement are evidenced by the secured promissory notes executed on the Closing Date (the “Notes”). The Notes are secured by certain mortgages encumbering 28 properties in New York, New Jersey and Connecticut. Using the proceeds available under the AIG Loan, the Company repaid approximately $199.9 million of its outstanding indebtedness and fees including (i) $68.6 million to John Hancock Life Insurance Company, (ii) $56.0 million to Capital One, N.A., (iii) $50.2 million to Hartford Accident and Indemnity Company, and (iv) $25.1 million to United States Life Insurance Company thereby paying off and terminating those obligations. The loss on the extinguishment of debt of $14.9 million includes approximately $15.7 million in prepayment premiums and other fees.  

 

Allstate Loan Agreement

 

On March 13, 2015, in connection with the acquisition of six properties in Piscataway, NJ, the Company closed on a $39.1 million cross-collateralized mortgage (the “Allstate Loan”) from Allstate Life Insurance Company, Allstate Life Insurance Company of New York and American Heritage Life Insurance Company. The Allstate Loan Agreement provided a secured facility with a 10-year term loan. During the first three years of the term of the loan, it requires interest only payments at the rate of 4% per annum. Following this period until the loan matures on April 1, 2025, payments will be based on a 30-year amortization schedule.

    

The mortgage notes payable are collateralized by certain of the properties and require monthly interest payments until maturity and are generally non-recourse. Some of the loans also require amortization of principal. Scheduled principal repayments for the remainder of 2015, the next five years and thereafter are as follows (in thousands):

 

Remainder of 2015

$

650

 

2016

 

893

 

2017

 

4,129

 

2018

 

42,108

 

2019

 

789

 

2020

 

8,825

 

Thereafter

 

285,801

 

Total

$

343,195

 

 

 

 

6. SECURED REVOLVING CREDIT FACILITY:

On April 8, 2014, the Company obtained a $45 million Line of Credit with Capital One, N.A. The capacity was increased to $60 million on November 20, 2014.  The revolving credit facility was secured by negative pledges on four properties and was available for the acquisition of real estate, property improvements and general working capital purposes. On February 20, 2015, the Company secured the AIG Loan in the principal amount of $233.1 million. Using proceeds available under the loan facility, the Company repaid the outstanding balance on the revolving credit facility of approximately $56.0 million, thereby paying off and terminating the revolving credit facility.  

 

7. STOCKHOLDERS’ EQUITY:

Common Stock:

The Company is authorized to issue 100,000,000 shares of common stock, $.0001 par value per share. As of March 31, 2015, the Company has a total of 13,772,238 shares issued and outstanding.

14


Preferred Stock:

The Company is authorized to issue 10,000,000 shares of Series A preferred stock, $.0001 par value per share. Voting and other rights and preferences as may be determined from time to time by the Board of Directors. In addition, the Company is authorized to issue 6,500,000 shares of Series B preferred stock, $.0001 par value per share. There are no voting rights associated with the Series B preferred stock. There was no preferred stock outstanding as of March 31, 2015, or December 31, 2014.

Dividend Distributions:

The following table presents dividends declared by the Company on its common stock during the three months ended March 31, 2015:

 

 

 

Record

 

Payment

 

Dividend

 

 

Declaration Date

 

Date

 

Date

 

Per Share

 

 

March 26, 2015

 

March 31, 2015

 

April 15, 2015

 

$

0.09

 

(1)

March 26, 2015

 

March 31, 2015

 

April 15, 2015

 

$

0.09

 

 

 

(1)

This represents a supplemental 2014 dividend.

 

The total distributions paid in 2015 were the result of cash flow from operations with any shortfalls made up from cash flow from other sources or cash on hand.

Stock Based Compensation:

The Company has a 2007 Incentive Award Plan (the “Plan”) that has intended purposes to further the growth, development, and financial success of the Company and to obtain and retain the services of those individuals considered essential to the long-term success of the Company. The Plan may provide for awards in the form of restricted shares, incentive stock options, non-qualified stock options and stock appreciation rights. The aggregate number of shares of common stock which may be awarded under the Plan is 1,000,000 shares. As of March 31, 2015, the Company had 403,286 shares available for future issuance of awards under the Plan.

On March 21, 2013, the Company issued an aggregate of 50,002 restricted shares of common stock, with a value of approximately $320,000, under the Plan. A total of 3,126 of these shares, with a value of approximately $20,000 ($6.40 per share), were granted to non-management members of the Board of Directors, and vested immediately. The remaining 46,876 shares, with a value of approximately $300,000 ($6.40 per share), were granted to certain executives of the Company, and vest ratably over a four year period. One fourth of the shares vested on the grant date and the remaining shares vest in equal installments on the next three anniversary dates of the grant.

On June 6, 2013, the Company issued an aggregate of 9,378 restricted shares of common stock, with a value of approximately $60,000 ($6.40 per share), under the Plan. These shares were granted to non-management members of the Board of Directors and vested immediately.

On June 4, 2014, 44,704 restricted shares of common stock, with a value of approximately $304,000 (based upon an estimated value of $6.80) were granted to certain executives of the Company. One sixth of the shares vest immediately upon issuance and the remaining shares vest in equal installments on the next five anniversary dates of the grant.

On June 19, 2014, the Company issued an aggregate of 8,820 restricted shares of common stock with a value of approximately $60,000 (based upon an estimated value of $6.80 per share) under the Plan to non-managing members of the Board of Directors. The shares vested immediately upon issuance.

On March 26, 2015, the Company issued 43,010 restricted shares of common stock, with a value of approximately $400,000 (based upon an estimated value of $9.30) were granted to certain executives of the Company.  One sixth of the shares vest immediately upon issuance and the remaining shares vest in equal installments on the next five anniversary dates of the grant.

Management has determined the value of a share of common stock to be $9.30 based on a valuation completed July 29, 2014 with the assistance of an independent third-party for the purpose of valuing shares of the Company’s common stock pursuant to The Plan.  This value is not necessarily indicative of the fair market value of a share of the Company’s common stock.

For the three months ended March 31, 2015 and 2014, the Company’s total stock compensation expense was approximately $137,000 and $49,000, respectively. As of March 31, 2015, there was approximately $535,000 of unamortized stock compensation related to restricted stock.

15


The following is a summary of restricted stock activity:

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

 

Grant Date Fair

 

 

Shares

 

 

Value

 

Non-vested shares outstanding as of December 31, 2014

 

34,089

 

 

$

8.74

 

New shares issued through March 31, 2015

 

43,010

 

 

$

9.30

 

Vested

 

(15,658

)

 

$

8.92

 

Non-vested shares outstanding as of March 31, 2015

 

61,441

 

 

$

9.12

 

 

The following is a vesting schedule of the total non-vested shares of restricted stock outstanding as of March 31, 2015:

 

Non-vested Shares Vesting Schedule

 

Number of Shares

 

2015 (9 months)

 

 

23,925

 

2016

 

 

18,434

 

2017

 

 

10,600

 

2018

 

 

5,890

 

2019

 

 

2,353

 

2020

 

 

239

 

Total Non-vested Shares

 

 

61,441

 

 

 

8. EARNINGS (LOSS) PER SHARE:

In accordance with ASC Topic 260 “Earnings Per Share,” basic earnings per common share (“Basic EPS”) is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per common share (“Diluted EPS”) is computed by dividing net income (loss) attributable to common stockholders by the weighted-average number of common shares and dilutive common share equivalents and convertible securities then outstanding. There were no common share equivalents for any of the periods presented in dilutive earnings per share.

The following table sets forth the computation of basic and diluted earnings per share information for the three months ended March 31, 2015 and 2014 (in thousands, except share and per share data):

 

 

Three Months Ended

 

 

March 31,

 

 

2015

 

 

2014

 

Numerator:

 

 

 

 

 

 

 

(Loss) income from continuing operations, net of noncontrolling interest

$

(9,892

)

 

$

34

 

(Loss) income from discontinued operations

 

(53

)

 

 

8

 

Net (loss) income attributable to common stockholders

$

(9,945

)

 

$

42

 

Denominator:

 

 

 

 

 

 

 

Weighted average common shares outstanding – basic and diluted

 

13,732,095

 

 

 

13,678,704

 

Basic and Diluted Per Share Information:

 

 

 

 

 

 

 

Net (loss) income per share – basic and diluted

$

(0.72

)

 

$

0.00

 

 

 

9. RELATED PARTY TRANSACTIONS:

Douglas Cooper, a director of the Company, is a partner of Ruskin, Moscou, Faltischek, P.C. (“RMF”), and RMF has acted as counsel to the Company. Fees paid to RMF for the three months ended March 31, 2015 and 2014, were immaterial.  

Paul Cooper is the Chief Executive Officer and Chairman of the Company. Louis Sheinker is President, Chief Operating Officer, Secretary and a director of the Company. The Company formerly was subject to a lease agreement with Lighthouse 444 Limited Partnership (“Lighthouse”), the owner of the building at 444 Merrick Road, Lynbrook, NY in which Paul Cooper and Louis Sheinker were managing members of the general partner. The lease was terminated on January 16, 2014 in exchange for a $150,000 termination fee paid by the Company. Additionally, Lighthouse Sixty, LP, owner of the building at 60 Hempstead Avenue, West Hempstead, NY, and of which Paul Cooper and Louis Sheinker are managing members of the general partner, have a lease agreement with the Company expiring in 2020 for office and storage space at a current annual base rent of approximately $246,000 with aggregate lease payments totaling $1.8 million.

16


On December 11, 2013, the Company and Jerome Cooper, Chairman Emeritus, entered into a separation agreement. The agreement provides for the payment to Mr. Cooper of an aggregate of $360,000; payable in three equal annual installments of $120,000, commencing January 1, 2014.

On November 4, 2014, the Company invested $1.8 million for a limited partnership interest in Garden 1101 Stewart, L.P. (“Garden 1101”). Garden 1101 was formed for the purpose of acquiring a 90,000 square foot office building in Garden City, NY that will be converted to a medical office building. The general partners of Garden 1101 include the members of Green Holland Ventures; Paul Cooper, the Chief Executive Officer and Chairman of the Company and Louis Sheinker, the President and Chief Operating Officer of the Company.

Effective as of January 15, 2015 following his resignation from the offices of the Company’s Secretary and Treasurer, Douglas Cooper entered into Separation Agreement and General Release (the “Agreement”). The Agreement provides for a severance payment to Mr. Cooper in the aggregate amount of approximately $77,800.  The Severance Agreement contains other provisions that are customary in agreements of this nature.

 

 

10. COMMITMENTS AND CONTINGENCIES:

Legal Matters:

The Company is involved in lawsuits and other disputes which arise in the ordinary course of business; however, management believes that these matters will not have a material adverse effect, individually or in the aggregate, on the Company’s financial position or results of operations.

Divestiture:

The Company has a pension withdrawal liability relating to a previous divestiture. As of March 31, 2015 and December 31, 2014, the remaining liability was approximately $1.3 million, respectively, and is included in liabilities of discontinued operations on the accompanying condensed consolidated balance sheets. The liability is payable in monthly installments of approximately $8,100, including interest, over a twenty-year term ending in 2032.

 

11. FAIR VALUE:

Fair Value of Financial Instruments:

The fair value of the Company’s financial instruments are determined based upon applicable accounting guidance. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance requires disclosure of the level within the fair value hierarchy in which the fair value measurements fall, including measurements using quoted prices in active markets for identical assets or liabilities (Level 1), quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active (Level 2), and significant valuation assumptions that are not readily observable in the market (Level 3).

The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, available-for-sale securities and secured revolving credit facility approximated their carrying value because of the short-term nature based on Level 1 inputs. The fair values of mortgage notes payable and pension withdrawal liability are based on borrowing rates available to the Company, which are Level 2 inputs. The following table summarizes the carrying values and the estimated fair values of the financial instruments (in thousands):

 

 

March 31, 2015

 

 

December 31, 2014

 

 

Carrying

 

 

Estimated

 

 

Carrying

 

 

Estimated

 

 

Value

 

 

Value

 

 

Value

 

 

Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

15,708

 

 

$

15,708

 

 

$

8,299

 

 

$

8,299

 

Accounts receivable

 

1,214

 

 

 

1,214

 

 

432

 

 

432

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

3,501

 

 

$

3,501

 

 

$

1,751

 

 

$

1,751

 

Revolving credit facility

 

 

 

 

 

 

 

43,841

 

 

 

43,841

 

Mortgage notes payable

 

343,195

 

 

 

346,570

 

 

 

201,280

 

 

 

202,121

 

Pension withdrawal liability

 

1,304

 

 

 

1,336

 

 

 

1,320

 

 

 

1,330

 

 

 

 

17


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

This report contains statements that we believe to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue,” or similar words or the negative thereof. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results. They can be affected by assumptions we might make or by known or unknown risks or uncertainties. Consequently, we cannot provide any assurance with respect to these or any other forward-looking statements. Investors are cautioned not to place undue reliance on any forward-looking statements. Investors should also understand that it is not possible to predict or identify all such factors and should not consider the potential risks and uncertainties set forth herein and in our Annual Report on Form 10-K for the year ended December 31, 2014 (or our subsequently filed reports) as being exhaustive, and new factors may emerge that could affect our business. We assume no obligation, and disclaim any duty, to update the forward-looking statements in this report. You should read the following discussion in conjunction with the condensed consolidated financial statements and notes appearing elsewhere in this filing and our previously filed annual audited financial statements.

Executive Summary:

GTJ REIT, Inc. is a self-administered and self-managed real estate investment trust (“REIT”) which, as of March 31, 2015, owns and operates a total of 45 properties consisting of approximately 5.3 million square feet of primarily industrial properties on approximately 335 acres of land in New York, New Jersey and Connecticut. As of March 31, 2015, our properties were 93% leased to 54 tenants.

We focus primarily on the acquisition, ownership, management and operation of commercial real estate. To the extent it is in the interests of our stockholders, we will seek to invest in a diversified portfolio of properties that will satisfy our primary investment objectives of providing our stockholders with stable cash flow, preservation of capital, income growth, and enhancing shareholder value without taking undue risk. We anticipate that the majority of properties we acquire will have both the potential for growth in value and the ability to provide cash distributions to stockholders.

Critical Accounting Policies:

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts in our condensed consolidated financial statements. Actual results could differ from these estimates. Please refer to the section of our Annual Report on Form 10-K for the year ended December 31, 2014, entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” for a discussion of our critical accounting policies. During the three months ended March 31, 2015, there were no material changes to these policies.

 

Recent Acquisitions:

Rocky Hill, CT

On January 20, 2015, the Company acquired a 92,500 square foot single story office/flex/warehouse building located on 12 acres of land in Rocky Hill, CT for $12.4 million.  The purchase was financed from the Company’s revolving credit facility with Capital One, N.A. Permanent financing of $8 million closed in February 2015 as part of the AIG Loan described in further detail in Note 5. The AIG Loan is a 10-year term loan maturing March 1, 2025 that requires interest only payments at the rate of 4.05% per annum.

Piscataway, NJ

On March 13, 2015, the Company completed the acquisition of six properties totaling approximately 681,754 square feet in Piscataway, NJ.  The aggregate net purchase price including closing costs was $64.6 million.  The purchase price was funded from a combination of $25.5 million from the net proceeds of the Company’s February 20, 2015 AIG Loan and the remaining $39.1 million from a cross-collateralized mortgage from Allstate Life Insurance Company, Allstate Life Insurance Company of New York and American Heritage Life Insurance Company. The Allstate Loan Agreement provided a secure facility with a 10-year term loan. During the first three years of the term of the loan, it requires interest only payments at the rate of 4% per annum. Following this period until the loan matures on April 1, 2025, payments will be based on a 30-year amortization schedule.

18


Financial Condition and Results of Operations:

Three Months Ended March 31, 2015 vs. Three Months Ended March 31, 2014

The following table sets forth our results of operations for the periods indicated (in thousands):

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

Increase/(Decrease)

 

 

2015

 

 

2014

 

 

Amount

 

 

Percent

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

$

9,298

 

 

$

7,817

 

 

$

1,481

 

 

 

19

%

Tenant reimbursements

 

2,059

 

 

 

1,457

 

 

 

602

 

 

 

41

%

Total revenues

 

11,357

 

 

 

9,274

 

 

 

2,083

 

 

 

22

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating

 

2,659

 

 

 

2,245

 

 

 

414

 

 

 

18

%

General and administrative

 

2,317

 

 

 

2,304

 

 

 

13

 

 

 

1

%

Acquisition costs

 

611

 

 

 

270

 

 

 

341

 

 

 

126

%

Depreciation and amortization

 

2,606

 

 

 

2,262