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EX-32.2 - EX-32.2 - ONE LIBERTY PROPERTIES INCa15-12066_1ex32d2.htm

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

x      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2015

 

OR

 

o         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number 001-09279

 

ONE LIBERTY PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

 

MARYLAND

 

13-3147497

(State or other jurisdiction of

 

(I.R.S. employer

incorporation or organization)

 

identification number)

 

60 Cutter Mill Road, Great Neck, New York

 

11021

(Address of principal executive offices)

 

(Zip code)

 

(516) 466-3100

 

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes  x          No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes  x          No  o

 

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

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes  o         No   x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

As of August 3, 2015, the registrant had 16,528,096 shares of common stock outstanding.

 

 

 



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Table of Contents

 

 

 

Page No.

Part I - Financial Information

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets — June 30, 2015 and December 31, 2014

1

 

 

 

 

Consolidated Statements of Income — Three and six months ended June 30, 2015 and 2014

2

 

 

 

 

Consolidated Statements of Comprehensive Income — Three and six months ended June 30, 2015 and 2014

3

 

 

 

 

Consolidated Statements of Changes in Equity — Six months ended June 30, 2015 and 2014

4

 

 

 

 

Consolidated Statements of Cash Flows — Six months ended June 30, 2015 and 2014

5

 

 

 

 

Notes to Consolidated Financial Statements

7

 

 

 

Item 2.

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

26

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

 

 

 

Item 4.

Controls and Procedures

37

 

 

 

Part II — Other Information

 

 

 

Item 6.

Exhibits

37

 



Table of Contents

 

Part I — FINANCIAL INFORMATION

 

Item 1.    Financial Statements

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Par Value)

 

 

 

June 30,

 

December 31, 

 

 

 

2015

 

2014

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Real estate investments, at cost

 

 

 

 

 

Land

 

$

184,688

 

$

165,153

 

Buildings and improvements

 

441,562

 

416,272

 

Total real estate investments, at cost

 

626,250

 

581,425

 

Less accumulated depreciation

 

81,203

 

76,575

 

Real estate investments, net

 

545,047

 

504,850

 

 

 

 

 

 

 

Property held-for-sale

 

 

10,176

 

Investment in unconsolidated joint ventures

 

11,118

 

4,907

 

Cash and cash equivalents

 

17,142

 

20,344

 

Restricted cash

 

1,210

 

1,607

 

Unbilled rent receivable (including $120 related to property held-for-sale in 2014)

 

13,348

 

12,815

 

Unamortized intangible lease assets, net

 

28,229

 

27,387

 

Escrow, deposits and other assets and receivables

 

4,542

 

4,310

 

Unamortized deferred financing costs, net

 

3,921

 

4,043

 

 

 

 

 

 

 

Total assets

 

$

624,557

 

$

590,439

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Mortgages payable

 

$

302,274

 

$

292,049

 

Line of credit

 

30,250

 

13,250

 

Dividends payable

 

6,421

 

6,322

 

Accrued expenses and other liabilities

 

11,393

 

12,451

 

Unamortized intangible lease liabilities, net

 

14,671

 

10,463

 

Total liabilities

 

365,009

 

334,535

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

One Liberty Properties, Inc. stockholders’ equity:

 

 

 

 

 

Preferred stock, $1 par value; 12,500 shares authorized; none issued

 

 

 

Common stock, $1 par value; 25,000 shares authorized; 15,925 and 15,728 shares issued and outstanding

 

15,925

 

15,728

 

Paid-in capital

 

223,681

 

219,867

 

Accumulated other comprehensive loss

 

(2,746

)

(3,195

)

Accumulated undistributed net income

 

20,613

 

21,876

 

Total One Liberty Properties, Inc. stockholders’ equity

 

257,473

 

254,276

 

Non-controlling interests in consolidated joint ventures

 

2,075

 

1,628

 

Total equity

 

259,548

 

255,904

 

 

 

 

 

 

 

Total liabilities and equity

 

$

624,557

 

$

590,439

 

 

See accompanying notes to consolidated financial statements.

 

1



Table of Contents

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands, Except Per Share Data)

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

Rental income, net

 

$

14,992

 

$

13,943

 

$

28,886

 

$

27,756

 

Tenant reimbursements

 

790

 

453

 

1,572

 

1,042

 

Lease termination fee

 

 

1,269

 

650

 

1,269

 

Total revenues

 

15,782

 

15,665

 

31,108

 

30,067

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

3,921

 

3,723

 

7,655

 

7,300

 

General and administrative (including $503, $707, $1,009 and $1,414, respectively, to related parties)

 

2,390

 

2,134

 

4,782

 

4,344

 

Real estate expenses (including $223, $212, $446 and $425, respectively, to related party)

 

1,273

 

877

 

2,607

 

1,976

 

Federal excise and state taxes

 

124

 

107

 

198

 

169

 

Real estate acquisition costs

 

79

 

88

 

327

 

128

 

Leasehold rent

 

77

 

77

 

154

 

154

 

Total operating expenses

 

7,864

 

7,006

 

15,723

 

14,071

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

7,918

 

8,659

 

15,385

 

15,996

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

Gain on sale of real estate, net

 

 

 

5,392

 

 

Purchase price fair value adjustment

 

 

 

960

 

 

Prepayment costs on debt

 

 

 

(568

)

 

Equity in (loss) earnings of unconsolidated joint ventures

 

(183

)

130

 

(36

)

263

 

Gain on sale - investment in BRT Realty Trust (related party)

 

 

134

 

 

134

 

Other income

 

72

 

2

 

75

 

10

 

Interest:

 

 

 

 

 

 

 

 

 

Expense

 

(3,907

)

(4,035

)

(7,646

)

(7,988

)

Amortization and write-off of deferred financing costs

 

(186

)

(228

)

(641

)

(466

)

Income from continuing operations

 

3,714

 

4,662

 

12,921

 

7,949

 

Income from discontinued operations

 

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

Net income

 

3,714

 

4,662

 

12,921

 

7,962

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to non-controlling interests

 

(32

)

(22

)

(1,383

)

(49

)

 

 

 

 

 

 

 

 

 

 

Net income attributable to One Liberty Properties, Inc.

 

$

3,682

 

$

4,640

 

$

11,538

 

$

7,913

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

15,883

 

15,518

 

15,830

 

15,436

 

Diluted

 

15,983

 

15,618

 

15,930

 

15,536

 

 

 

 

 

 

 

 

 

 

 

Per common share attributable to common stockholders - basic:

 

$

.22

 

$

.29

 

$

.70

 

$

.49

 

Per common share attributable to common stockholders - diluted:

 

$

.22

 

$

.29

 

$

.70

 

$

.49

 

Cash distributions declared per share of common stock

 

$

.39

 

$

.37

 

$

.78

 

$

.74

 

 

See accompanying notes to consolidated financial statements.

 

2



Table of Contents

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in Thousands)

(Unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

3,714

 

$

4,662

 

$

12,921

 

$

7,962

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain (loss)

 

 

 

 

 

 

 

 

 

Net unrealized (loss) gain on available-for-sale securities

 

(2

)

(130

)

1

 

(125

)

Net unrealized gain (loss) on derivative instruments

 

1,190

 

(867

)

456

 

(1,585

)

One Liberty Property’s share of joint venture net unrealized gain on derivative instruments

 

74

 

7

 

26

 

4

 

Other comprehensive gain (loss)

 

1,262

 

(990

)

483

 

(1,706

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

4,976

 

3,672

 

13,404

 

6,256

 

Comprehensive income attributable to non-controlling interests

 

(32

)

(22

)

(1,383

)

(49

)

Unrealized (gain) loss on derivative instruments attributable to non-controlling interests

 

(9

)

14

 

(34

)

24

 

Comprehensive income attributable to One Liberty Properties, Inc.

 

$

4,935

 

$

3,664

 

$

11,987

 

$

6,231

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in Thousands, Except Per Share Data)

 

 

 

Common
Stock

 

Paid-in
Capital

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Accumulated
Undistributed
Net Income

 

Non-
Controlling
Interests in
Joint
Ventures

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2013

 

$

15,221

 

$

210,324

 

$

(490

)

$

23,877

 

$

1,158

 

$

250,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions - common stock Cash - $.74 per share

 

 

 

 

(11,820

)

 

(11,820

)

Shares issued through equity offering program — net

 

156

 

3,148

 

 

 

 

3,304

 

Restricted stock vesting

 

101

 

(101

)

 

 

 

 

Shares issued through dividend reinvestment plan

 

116

 

2,183

 

 

 

 

2,299

 

Contribution from non-controlling interest

 

 

 

 

 

306

 

306

 

Distributions to non-controlling interests

 

 

 

 

 

(156

)

(156

)

Compensation expense - restricted stock

 

 

920

 

 

 

 

920

 

Net income

 

 

 

 

7,913

 

49

 

7,962

 

Other comprehensive loss

 

 

 

(1,682

)

 

(24

)

(1,706

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, June 30, 2014

 

$

15,594

 

$

216,474

 

$

(2,172

)

$

19,970

 

$

1,333

 

$

251,199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2014

 

15,728

 

219,867

 

(3,195

)

21,876

 

1,628

 

255,904

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions - common stock Cash - $.78 per share

 

 

 

 

(12,801

)

 

(12,801

)

Shares issued through equity offering program — net

 

51

 

1,043

 

 

 

 

1,094

 

Restricted stock vesting

 

72

 

(72

)

 

 

 

 

Shares issued through dividend reinvestment plan

 

74

 

1,681

 

 

 

 

1,755

 

Contribution from non-controlling interest

 

 

 

 

 

663

 

663

 

Distributions to non-controlling interests

 

 

 

 

 

(1,633

)

(1,633

)

Compensation expense - restricted stock

 

 

1,162

 

 

 

 

1,162

 

Net income

 

 

 

 

11,538

 

1,383

 

12,921

 

Other comprehensive gain

 

 

 

449

 

 

34

 

483

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, June 30, 2015

 

$

15,925

 

$

223,681

 

$

(2,746

)

$

20,613

 

$

2,075

 

$

259,548

 

 

See accompanying notes to consolidated financial statements.

 

4



Table of Contents

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited)

 

 

 

Six Months Ended
June 30,

 

 

 

2015

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

12,921

 

$

7,962

 

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

 

 

 

 

 

Gain on sale of real estate

 

(5,392

)

 

Purchase price fair value adjustment

 

(960

)

 

Gain on sale - investment in BRT Realty Trust (related party)

 

 

(134

)

Increase in unbilled rent receivable

 

(879

)

(609

)

Write-off of unbilled rent receivable

 

226

 

 

Amortization of intangibles relating to leases, net

 

(326

)

(50

)

Amortization of restricted stock expense

 

1,162

 

920

 

Equity in loss (earnings) of unconsolidated joint ventures

 

36

 

(263

)

Distributions of earnings from unconsolidated joint ventures

 

394

 

289

 

Depreciation and amortization

 

7,655

 

7,300

 

Amortization and write-off of financing costs

 

641

 

466

 

Payment of leasing commissions

 

(639

)

(40

)

Changes in assets and liabilities:

 

 

 

 

 

(Increase) decrease in escrow, deposits, other assets and receivables

 

(36

)

1,242

 

Decrease in accrued expenses and other liabilities

 

(351

)

(539

)

Net cash provided by operating activities

 

14,452

 

16,544

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of real estate

 

(31,748

)

(33,165

)

Improvements to real estate

 

(1,024

)

(645

)

Net proceeds from sale of real estate

 

16,025

 

5,177

 

Purchase of partner’s interest in unconsolidated joint venture

 

(6,300

)

 

Investment in unconsolidated joint ventures

 

(12,686

)

 

Net proceeds on sale — investment in BRT Realty Trust (related party)

 

 

266

 

Distributions of return of capital from unconsolidated joint ventures

 

733

 

50

 

Net cash used in investing activities

 

(35,000

)

(28,317

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Scheduled amortization payments of mortgages payable

 

(3,769

)

(3,765

)

Repayment of mortgages payable

 

(25,308

)

(19,003

)

Proceeds from mortgage financings

 

40,768

 

29,096

 

Proceeds from sale of common stock, net

 

1,094

 

3,304

 

Proceeds from bank line of credit

 

35,900

 

27,500

 

Repayment on bank line of credit

 

(18,900

)

(13,900

)

Issuance of shares through dividend reinvestment plan

 

1,755

 

2,299

 

Payment of financing costs

 

(523

)

(523

)

Capital contributions from non-controlling interests

 

663

 

306

 

Distributions to non-controlling interests

 

(1,633

)

(156

)

Cash distributions to common stockholders

 

(12,701

)

(11,678

)

Net cash provided by financing activities

 

17,346

 

13,480

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(3,202

)

1,707

 

Cash and cash equivalents at beginning of period

 

20,344

 

16,631

 

Cash and cash equivalents at end of period

 

$

17,142

 

$

18,338

 

 

Continued on next page

 

5



Table of Contents

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited) (Continued)

 

 

 

Six Months Ended
June 30,

 

 

 

2015

 

2014

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid during the period for interest expense

 

$

7,773

 

$

8,036

 

Cash paid during the period for Federal excise tax

 

300

 

175

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

Mortgage debt extinguished upon conveyance of property to mortgagee by deed-in-lieu of foreclosure

 

$

1,466

 

$

 

Consolidation of real estate investment

 

2,633

 

 

Purchase accounting allocation - intangible lease assets

 

2,529

 

1,989

 

Purchase accounting allocation - intangible lease liabilities

 

4,782

 

2,671

 

 

See accompanying notes to consolidated financial statements.

 

6



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015

 

Note 1 - Organization and Background

 

One Liberty Properties, Inc. (“OLP”) was incorporated in 1982 in Maryland.  OLP is a self-administered and self-managed real estate investment trust (“REIT”).  OLP acquires, owns and manages a geographically diversified portfolio of retail, industrial, flex, health and fitness and other properties, a substantial portion of which are subject to long-term net leases.  As of June 30, 2015, OLP owns 118 properties, including seven properties owned by consolidated joint ventures and five properties owned by unconsolidated joint ventures. The 118 properties are located in 30 states.

 

Note 2 - Summary Accounting Policies

 

Principles of Consolidation/Basis of Preparation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by U.S. Generally Accepted Accounting Principles (“GAAP”) for interim reporting. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statement disclosures. In the opinion of management, all adjustments necessary for fair presentation (including normal recurring accruals) have been included. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results for the full year. These statements should be read in conjunction with the consolidated financial statements and related notes included in OLP’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results could differ from those estimates.

 

The consolidated financial statements include the accounts and operations of OLP, its wholly-owned subsidiaries, its joint ventures in which the Company, as defined, has a controlling interest, and variable interest entities (“VIEs”) of which the Company is the primary beneficiary.  OLP and its consolidated subsidiaries are hereinafter referred to as the “Company”.  Material intercompany items and transactions have been eliminated in consolidation.

 

Variable Interest Entities

 

The Financial Accounting Standards Board, or FASB, provides guidance for determining whether an entity is a VIE.  VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is the party that (i) has the power to control the activities that most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

 

7



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 2 - Summary Accounting Policies (continued)

 

Additionally, the Company assesses the accounting treatment for any interests pursuant to which the Company may have a variable interest as a lessor.  Leases may contain certain protective rights such as the right of sale and the receipt of certain escrow deposits.  In situations where the Company does not have the power over tenant activities that most significantly impact the performance of the property, the Company would not consolidate tenant operations.

 

Investment in Joint Ventures

 

The Company assesses the accounting treatment for each joint venture investment. This assessment includes a review of each joint venture or limited liability company agreement to determine the rights of each party and whether those rights are protective or participating. The agreements typically contain certain protective rights such as the requirement of partner approval to sell, finance or refinance the property and to pay capital expenditures and operating expenditures outside of the approved budget or operating plan. In situations where the Company and its partner, among other things, (i) approve the annual budget, (ii) approve certain expenditures, (iii) prepare or review and approve the joint venture’s tax return before filing, and (iv) approve each lease at a property, the Company does not consolidate the joint venture as the Company considers these to be substantive participation rights that result in shared power over the activities that most significantly impact the performance of the joint venture.

 

The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting.  All investments in these joint ventures have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support and, as a group, the holders of the equity at risk have power through voting rights to direct the activities of these ventures. As a result, none of these joint ventures are VIE’s.  In addition, although the Company is the managing member in certain ventures, it does not exercise substantial operating control over these entities, and therefore the entities are not consolidated. These investments are recorded initially at cost, as investments in unconsolidated joint ventures, and subsequently adjusted for their share of equity in earnings, cash contributions and distributions.  None of the joint venture debt is recourse to the Company, subject to standard carve-outs.

 

Properties Held-for-Sale

 

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

 

Tenant Reimbursements

 

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

 

8



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 2 - Summary Accounting Policies (continued)

 

Reclassifications

 

Certain amounts previously reported in the consolidated financial statements have been reclassified in the accompanying consolidated financial statements to conform to the current period’s presentation; primarily to break out tenant reimbursements that had been included in rental income, net, on the consolidated statements of income of $453,000 and $1,042,000 for the three and six months ended June 30, 2014, respectively.

 

Note 3 - Earnings Per Common Share

 

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

 

Diluted earnings per share reflects the potential dilution that could occur if securities or other rights exercisable for, or convertible into, common stock were exercised or converted or otherwise resulted in the issuance of common stock that shared in the earnings of the Company.  For the three and six months ended June 30, 2015 and 2014, the diluted weighted average number of shares of common stock includes 100,000 shares (of an aggregate of 200,000 shares) of common stock underlying the restricted stock units awarded pursuant to the Pay-For-Performance program.  These 100,000 shares may vest upon satisfaction of the total stockholder return metric. The number of shares that would be issued pursuant to this metric is based on the market price and dividends paid as of the end of each quarterly period assuming the end of that quarterly period was the end of the vesting period.  The remaining 100,000 shares of common stock underlying the restricted stock units awarded under the Pay-For-Performance program are not included during the three and six months ended June 30, 2015 and 2014, as they did not meet the return on capital performance metric during such periods.

 

9



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 3 - Earnings Per Common Share (continued)

 

The following table provides a reconciliation of the numerator and denominator of earnings per share calculations (amounts in thousands, except per share amounts):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Numerator for basic and diluted earnings per share:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

3,714

 

$

4,662

 

$

12,921

 

$

7,949

 

Less net income attributable to non-controlling interests

 

(32

)

(22

)

(1,383

)

(49

)

Less earnings allocated to unvested restricted stock (a)

 

(210

)

(178

)

(420

)

(356

)

Income from continuing operations available for common stockholders

 

3,472

 

4,462

 

11,118

 

7,544

 

Discontinued operations

 

 

 

 

13

 

Net income available for common stockholders, basic and diluted

 

$

3,472

 

$

4,462

 

$

11,118

 

$

7,557

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share:

 

 

 

 

 

 

 

 

 

- weighted average common shares

 

15,883

 

15,518

 

15,830

 

15,436

 

Effect of diluted securities:

 

 

 

 

 

 

 

 

 

- restricted stock units awarded under Pay-for-Performance program

 

100

 

100

 

100

 

100

 

Denominator for diluted earnings per share

 

 

 

 

 

 

 

 

 

- weighted average shares

 

15,983

 

15,618

 

15,930

 

15,536

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share, basic

 

$

.22

 

$

.29

 

$

.70

 

$

.49

 

Earnings per common share, diluted

 

$

.22

 

$

.29

 

$

.70

 

$

.49

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

3,682

 

$

4,640

 

$

11,538

 

$

7,900

 

Income from discontinued operations

 

 

 

 

13

 

Net income attributable to One Liberty Properties, Inc.

 

$

3,682

 

$

4,640

 

$

11,538

 

$

7,913

 

 


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

 

10



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 4 - Real Estate Acquisitions

 

The following chart details the Company’s acquisitions of real estate and an interest in a joint venture during the six months ended June 30, 2015 (amounts in thousands):

 

Description of Property

 

Date Acquired

 

Contract
Purchase
Price

 

Terms of Payment

 

Third Party Real
Estate Acquisition
Costs (a)

 

Marston Park Plaza retail stores, Lakewood, Colorado (b)

 

February 25, 2015

 

$

17,485

 

Cash and $11,853 mortgage (c)

 

$

184

 

Interline Brands distribution facility, Louisville, Kentucky

 

March 18, 2015

 

4,400

 

Cash and $2,640 mortgage (d)

 

42

 

Land — The Meadows Apartments, Lakemoor, Illinois

 

March 24, 2015

 

9,300

 

All cash

 

(e)

Joint venture interest- Shopko retail store, Lincoln, Nebraska (f)

 

March 31, 2015

 

6,300

 

All cash (f)

 

 

Archway Roofing industrial facility, Louisville, Kentucky (g)

 

May 20, 2015

 

300

 

All cash

 

15

 

Other costs (h) 

 

 

 

 

 

 

86

 

Totals

 

 

 

$

37,785

 

 

 

$

327

 

 


(a)

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

(b)

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

(c)

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

(d)

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

(e)

Transaction costs aggregating $263 incurred with this asset acquisition were capitalized.

(f)

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

(g)

This property is adjacent to the Interline Brands distribution facility purchased in March 2015.

(h)

Costs incurred for potential acquisitions and transactions that were not consummated.

 

The following chart provides the preliminary allocation of the purchase price for the Company’s acquisitions of real estate and an interest in a joint venture during the six months ended June 30, 2015 (amounts in thousands):

 

 

 

 

 

 

 

Building

 

Intangible Lease

 

 

 

Description of Property

 

Land

 

Building

 

Improvements

 

Asset

 

Liability

 

Total

 

Marston Park Plaza retail stores, Lakewood, Colorado

 

$

6,005

 

$

10,109

 

$

700

 

$

1,493

 

$

(822

)

$

17,485

 

Interline Brands distribution facility, Louisville, Kentucky

 

578

 

3,622

 

105

 

95

 

 

4,400

 

Land — The Meadows Apartments, Lakemoor, Illinois (a)

 

9,563

 

 

 

 

 

9,563

 

Joint venture interest- Shopko retail store, Lincoln, Nebraska (b)

 

3,768

 

11,262

 

570

 

922

 

(3,929

)

12,593

 

Archway Roofing industrial facility, Louisville, Kentucky

 

51

 

221

 

9

 

19

 

 

300

 

Subtotals

 

19,965

 

25,214

 

1,384

 

2,529

 

(4,751

)

44,341

 

Other (c)

 

12

 

19

 

 

 

(31

)

 

Totals

 

$

19,977

 

$

25,233

 

$

1,384

 

$

2,529

 

$

(4,782

)

$

44,341

 

 

11



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 4 - Real Estate Acquisitions (continued)

 


(a)

Includes capitalized transaction costs of $263 incurred with this asset acquisition.

(b)

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

(c)

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

 

With the exception of the Lakewood, Colorado property, the properties purchased by the Company during the six months ended June 30, 2015 are each net leased and occupied by a single tenant pursuant to leases that expire between 2017 through 2045.  The Lakewood, Colorado property has 29 retail tenant spaces and at June 30, 2015, is 92.0% occupied with leases expiring between 2015 and 2032.

 

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

 

As a result of the 2015 acquisitions, the Company recorded intangible lease assets of $2,529,000 and intangible lease liabilities of $4,751,000 representing the value of the origination costs and acquired leases.  As of June 30, 2015, the weighted average amortization period is 6.7 years for these intangible lease assets and 6.5 years for these intangible lease liabilities. The Company assessed the fair value of the lease intangibles based on estimated cash flow projections that utilize appropriate discount rates and available market information. Such inputs are Level 3 (as defined in Note 15) in the fair value hierarchy. The Company is currently in the process of finalizing the purchase price allocations for the properties acquired during the six months ended June 30, 2015; therefore the allocations are preliminary and subject to change.

 

Acquisition Subsequent to June 30, 2015

 

On July 28, 2015, the Company purchased an industrial property located in McCalla, Alabama for $16,750,000.  The property is net leased through 2022 to a tenant that is a supplier to the auto industry.

 

12



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 5 - Sale and Disposal of Properties and Discontinued Operations

 

On January 13, 2015, a consolidated joint venture of the Company sold a property located in Cherry Hill, New Jersey for approximately $16,025,000, net of closing costs.  The sale resulted in a gain of $5,392,000, recorded as Gain on sale of real estate, net, for the six months ended June 30, 2015. In connection with the sale, the Company paid off the $7,376,000 mortgage balance on this property and incurred a $472,000 swap termination fee (included in Prepayment costs on debt) and a $249,000 write-off of deferred financing costs (included in Amortization and write-off of deferred financing costs). The non-controlling interest’s share of income from the transaction is $1,320,000 and is included in net income attributable to non-controlling interests.

 

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

 

On February 3, 2014, the Company sold two properties located in Michigan for a total sales price of $5,177,000, net of closing costs.  At December 31, 2013, the Company recorded a $61,700 impairment charge representing the loss on the sale of these properties. Income from discontinued operations applicable to these properties for the six months ended June 30, 2014 totaled $13,000 consisting of rental income of $141,000 less real estate expenses of $17,000 and mortgage interest of $111,000.

 

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

 

Variable Interest Entities — Ground Leases

 

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

 

The Company determined that it has a variable interest through its ground leases and the owner/operators are VIEs because their equity investment at risk is insufficient to finance its activities without additional subordinated financial support.  Simultaneously with the closing of each acquisition, the owner/operator obtained a mortgage from a third party ($16,230,000 for Sandy Springs and $43,824,000 for Lakemoor) which, together with the Company’s purchase of the land, provided substantially all of the aggregate funds to acquire the complex.  The Company provided this land as collateral for the respective owner/operator’s mortgage loans; accordingly each land position is subordinated to the applicable mortgage. Other than as described above, no other financial support has been provided by the Company.

 

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

 

13



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

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

 

these investments as land and the revenues from the ground leases as Rental income, net.  Such rental income amounted to $460,000 and $711,000 for the three and six months ended June 30, 2015, respectively, and $67,000 for each of the three and six months ended June 30, 2014.

 

The following is a summary of the Company’s variable interests in identified VIEs, in which it is not the primary beneficiary, and the aggregate carrying amount and maximum exposure to loss as of June 30, 2015 (amounts in thousands):

 

Property

 

Type of Exposure

 

Carrying
Amount

 

Maximum
Exposure to Loss

 

River Crossing Apartments,
Sandy Springs, Georgia

 

Land

 

$

6,528

 

$

6,528

 

 

 

Unbilled rent receivable

 

364

 

364

 

The Meadows Apartments, Lakemoor, Illinois

 

Land

 

9,563

 

9,563

 

Total

 

 

 

$

16,455

 

$

16,455

 

 

Pursuant to the terms of the ground lease for the property in Sandy Springs, Georgia, the owner/operator is obligated to make certain unit renovations as and when units become vacant. Cash reserves totaling $1,894,000 were received by the Company in conjunction with the purchase of the property in June 2014 to cover such renovation work and other reserve requirements.  These cash reserves are held by the Company and disbursed once the renovations have been completed. For the six months ended June 30, 2015 and June 30, 2014, the Company disbursed approximately $397,000 and $0, respectively, for renovation costs to the owner/operator. The balance at June 30, 2015 and December 31, 2014 was $1,210,000 and $1,607,000, respectively, and is classified as Restricted cash on the consolidated balance sheets.

 

Consolidated Variable Interest Entity

 

In June 2014, the Company entered into a joint venture, in which the Company has a 95% equity interest, and acquired a property located in Joppa, Maryland.  The Company also made a senior preferred equity investment in the joint venture.  The Company determined that this joint venture is a VIE as the Company’s voting rights are not proportional to its economic interests and substantially all of the joint venture’s activities are conducted on behalf of the Company.

 

The Company further determined that it is the primary beneficiary of the VIE as it has the power to direct the activities that most significantly impact the joint venture’s performance including management, approval of expenditures, and the obligation to absorb the losses or rights to receive benefits from the VIE.  Accordingly, the Company consolidates the operations of this joint venture for financial statement purposes.  The joint venture’s creditors do not have recourse to the assets of the Company other than those held by the joint venture.

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

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

 

The following is a summary of the carrying amounts and classification in the Company’s consolidated balance sheets of the VIE’s accounts, none of which are restricted (amounts in thousands):

 

 

 

June 30,

 

December 31,

 

 

 

2015

 

2014

 

Land

 

$

3,815

 

$

3,805

 

Building and improvements, net of depreciation of $221 and $17, respectively

 

7,963

 

8,069

 

Cash

 

741

 

527

 

Prepaid expenses and receivables

 

12

 

42

 

Accrued expenses and other liabilities

 

219

 

152

 

Non-controlling interest in joint venture

 

318

 

312

 

 

Non-VIE Consolidated Joint Ventures

 

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

 

MCB Real Estate, LLC and its affiliates (“MCB”) are the Company’s joint venture partner in five consolidated joint ventures (including the Joppa, Maryland joint venture described above).  At June 30, 2015, the Company has aggregate equity investments of approximately $19,000,000 in such ventures.

 

Distributions by Consolidated Joint Ventures

 

The distributions to each joint venture partner are determined pursuant to the applicable operating agreement and may not be pro rata to the equity interest each partner has in the applicable venture.

 

Note 7 - Investment in Unconsolidated Joint Ventures

 

On March 31, 2015, the Company purchased its partner’s 50% interest in an unconsolidated joint venture for $6,300,000 (see Note 4).

 

In June 2015, the Company entered into a joint venture in which it has a 50% interest, with MCB and an affiliate of The Hampshire Companies. The joint venture purchased a retail center located in Manahawkin, New Jersey for approximately $43,500,000, before closing costs. The purchase was financed with $26,100,000 of new mortgage debt which bears an annual fixed interest rate of 4% and matures in 2025.  At June 30, 2015, the Company’s equity investment in the joint venture is $8,559,000.

 

15



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 7 - Investment in Unconsolidated Joint Ventures (continued)

 

At June 30, 2015 and December 31, 2014, the Company’s five unconsolidated joint ventures each owned and operated one property. The Company’s equity investment in such unconsolidated joint ventures at such dates totaled $11,118,000 and $4,907,000, respectively.  The Company recorded equity in loss of $183,000 and $36,000 for the three and six months ended June 30, 2015, respectively, and equity in earnings of $130,000 and $263,000 for the three and six months ended June 30, 2014, respectively. The loss in the three and six months ended June 30, 2015 results from the Company’s $400,000 share of the acquisition expenses associated with the June 2015 purchase of the Manahawkin, New Jersey property.

 

Note 8 - Lease Termination Fee Income

 

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

 

In June 2014, the Company received a $1,269,000 lease termination fee from a retail tenant in a lease buy-out transaction.  In connection with the receipt of this fee, the Company wrote-off $150,000 as an offset to rental income, representing the entire balance of the unbilled rent receivable and the intangible lease asset related to this property.  The Company re-leased this property simultaneously with the termination of the lease.

 

Note 9 - Allowance for Doubtful Accounts

 

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its tenants to make required rent payments.  If the financial condition of a specific tenant were to deteriorate resulting in an impairment of its ability to make payments, additional allowances may be required.  At June 30, 2015 and December 31, 2014, there was no balance in allowance for doubtful accounts.

 

The Company records bad debt expense as a reduction of rental income. For the three and six months ended June 30, 2015 and 2014, the Company did not incur any bad debt expense.

 

Note 10 - Line of Credit

 

On December 31, 2014, the Company entered into an amendment to its $75,000,000 credit facility with Manufacturers & Traders Trust Company, VNB New York, LLC, Bank Leumi USA and Israel Discount Bank of New York, which, among other things, extended the facility’s maturity from March 31, 2015 to December 31, 2018, decreased the minimum required average bank deposit balances to $3 million and eliminated the 4.75% interest rate floor. Under the amendment, the interest rate equals the one month LIBOR rate plus an applicable margin which ranges from 175 basis points to 300 basis points depending on the ratio of the Company’s total debt to total value, as determined pursuant to the facility.  An unused facility fee of .25% per

 

16



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 10 - Line of Credit (continued)

 

annum applies to the facility.  The average interest rate on the facility in the first half of 2015 was approximately 1.93%.  Prior to the amendment, the interest rate was 4.75% per annum.  In connection with the amendment, the Company incurred a $562,500 commitment fee which is being amortized over the remaining term of the facility.  At June 30, 2015 and August 3, 2015, there were outstanding balances of $30,250,000 and $33,250,000, respectively, under the facility. The Company was in compliance with all covenants at June 30, 2015.

 

Note 11 — Related Party Transactions

 

The Company agreed to pay quarterly fees of $633,750 in 2015 (including overhead expenses of $48,900 and property management fees of $223,125) pursuant to the compensation and services agreement, as amended, with Majestic Property Management Corp., a company wholly-owned by the Company’s vice-chairman.  For the six months ended June 30, 2014, such quarterly fees were $825,000 (including overhead expenses of $46,600 and property management fees of $212,500). The 2015 amount reflects an adjustment to the compensation and services agreement that was effective July 1, 2014.

 

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

 

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

 

During the three and six months ended June 30, 2015 and 2014, a portion of the Company’s property insurance ($57,000, $114,000, $50,000 and $100,000, respectively) was obtained in conjunction with Gould Investors L.P., a related party. This expense, which represents the Company’s proportionate share of property insurance premiums paid by Gould Investors, is included in real estate expenses on the consolidated statements of income.

 

During the three and six months ended June 30, 2015, the Company received a $131,000 financing fee for obtaining the mortgage debt for the unconsolidated joint venture that acquired the Manahawkin, New Jersey property (discussed in Note 7). Fifty percent of this income is included in Other income on the consolidated statements of income and the balance is recorded as a reduction to Investment in unconsolidated joint ventures on the consolidated balance sheets. In conjunction with the acquisition, the joint venture paid an acquisition fee to the other partners of the venture.

 

During the three and six months ended June 30, 2015 and 2014, the Company paid an aggregate of $359,000, $464,000, $9,000 and $21,000, respectively, to its joint venture partners or their affiliates for property management and acquisition fees, which were included on the consolidated statements of income.

 

17



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 12 - Common Stock Cash Dividend

 

On June 11, 2015, the Board of Directors declared a quarterly cash dividend of $.39 per share on the Company’s common stock, totaling $6,421,000. The quarterly dividend was paid on July 6, 2015 to stockholders of record on June 24, 2015.

 

Note 13 - Shares Issued through Equity Offering Program

 

On March 20, 2014, the Company entered into an amended and restated equity offering sales agreement to sell shares of the Company’s common stock from time to time with an aggregate sales price of up to approximately $38,360,000, through an “at the market” equity offering program.  During the six months ended June 30, 2015, the Company sold 51,000 shares for proceeds of $1,142,000, net of commissions of $12,000, and incurred offering costs, primarily professional fees, of $48,000.  The Company has not sold any shares subsequent to June 30, 2015.

 

Note 14 - Stock Based Compensation

 

A maximum of 600,000 shares of the Company’s common stock is authorized for issuance pursuant to the Company’s 2012 Incentive Plan, of which 359,000 shares of restricted stock are outstanding as of June 30, 2015.  For accounting purposes, the restricted stock is not included in the shares shown as outstanding on the balance sheet until they vest; however dividends are paid on the unvested shares.  An aggregate of 380,000 shares of restricted stock and restricted stock units outstanding under the Company’s 2009 equity incentive plan have not yet vested and no additional awards may be granted under this plan.

 

Pursuant to the Pay-for-Performance Program, there are 200,000 performance share awards in the form of restricted stock units (the “Units”) outstanding under the Company’s 2009 Incentive Plan. The holders of Units are not entitled to dividends or to vote the underlying shares until the Units vest and shares are issued. Accordingly, for accounting purposes, the shares underlying the Units are not included in the shares shown as outstanding on the balance sheet.  No Units were forfeited or vested in the six months ended June 30, 2015.

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 14 - Stock Based Compensation (continued)

 

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

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Restricted share grants

 

 

 

129,975

 

118,850

 

Per share grant price

 

 

 

$

24.60

 

$

20.54

 

Deferred compensation to be recognized over vesting period

 

 

 

$

3,197,000

 

$

2,441,000

 

Number of non-vested shares:

 

 

 

 

 

 

 

 

 

Non-vested beginning of period

 

540,285

 

481,045

 

480,995

 

470,015

 

Grants

 

 

 

129,975

 

118,850

 

Vested during period

 

(1,295

)

 

(71,980

)

(101,300

)

Forfeitures

 

 

 

 

(6,520

)

Non-vested end of period

 

538,990

 

481,045

 

538,990

 

481,045

 

 

The following information includes the 200,000 Units:

 

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

 

$

17.12

 

$

14.55

 

$

17.12

 

$

14.55

 

 

 

 

 

 

 

 

 

 

 

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

 

$

21,000

 

$

 

$

607,000

 

$

621,000

 

 

 

 

 

 

 

 

 

 

 

The total charge to operations for all incentive plans is as follows:

 

 

 

 

 

 

 

 

 

Outstanding restricted stock grants

 

$

555,000

 

$

419,000

 

$

1,103,000

 

$

862,000

 

Outstanding restricted stock units

 

30,000

 

29,000

 

59,000

 

58,000

 

Total charge to operations

 

$

585,000

 

$

448,000

 

$

1,162,000

 

$

920,000

 

 

As of June 30, 2015, there were approximately $6,891,000 of total compensation costs related to non-vested awards that have not yet been recognized, including $237,000 related to the Units (net of forfeiture and performance assumptions which are re-evaluated quarterly). These compensation costs will be charged to general and administrative expense over the remaining respective vesting periods. The weighted average vesting period is approximately 2.6 years.

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 15 - Fair Value Measurements

 

The Company measures the fair value of financial instruments based on the assumptions that market participants would use in pricing the asset or liability.  As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions.  In accordance with the fair value hierarchy, Level 1 assets/liabilities are valued based on quoted prices for identical instruments in active markets, Level 2 assets/liabilities are valued based on quoted prices in active markets for similar instruments, on quoted prices in less active or inactive markets, or on other “observable” market inputs and Level 3 assets/liabilities are valued based significantly on “unobservable” market inputs.

 

The carrying amounts of cash and cash equivalents, restricted cash, escrow, deposits, receivables, certain other assets, dividends payable, and accrued expenses and other liabilities (excluding interest rate swaps), are not measured at fair value on a recurring basis, but are considered to be recorded at amounts that approximate fair value.

 

At June 30, 2015, the $313,838,000 estimated fair value of the Company’s mortgages payable is more than their carrying value by approximately $11,564,000 assuming a blended market interest rate of 4.2% based on the 9.4 year weighted average remaining term of the mortgages.  At December 31, 2014, the $300,541,000 estimated fair value of the Company’s mortgages payable is more than their carrying value by approximately $8,492,000 assuming a blended market interest rate of 4.5% based on the 9.1 year weighted average remaining term of the mortgages.

 

At June 30, 2015 and December 31, 2014, the $30,250,000 and $13,250,000, respectively, carrying amount of the Company’s line of credit approximates its fair value.

 

The fair value of the Company’s mortgages payable and line of credit are estimated using unobservable inputs such as available market information and discounted cash flow analysis based on borrowing rates the Company believes it could obtain with similar terms and maturities. These fair value measurements fall within Level 3 of the fair value hierarchy.

 

Considerable judgment is necessary to interpret market data and develop estimated fair value.  The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 15 - Fair Value Measurements (continued)

 

Fair Value on a Recurring Basis

 

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

 

 

 

 

 

Carrying and

 

Fair Value Measurements
on a Recurring Basis

 

 

 

As of

 

Fair Value

 

Level 1

 

Level 2

 

Financial assets:

 

 

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

Equity securities

 

June 30, 2015

 

$

30

 

$

30

 

$

 

 

 

December 31, 2014

 

29

 

29

 

 

Derivative financial instruments:

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

June 30, 2015

 

$

51

 

$

 

$

51

 

 

 

December 31, 2014

 

27

 

 

27

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments:

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

June 30, 2015

 

$

2,716

 

$

 

$

2,716

 

 

 

December 31, 2014

 

3,139

 

 

3,139

 

 

The Company does not own any financial instruments that are classified as Level 3.

 

Available-for-sale securities

 

At June 30, 2015, the Company’s available-for-sale securities included a $30,300 investment in equity securities (included in other assets on the consolidated balance sheets). The aggregate cost of these securities was $5,300 and at June 30, 2015, the unrealized gain was $25,000.  Such unrealized gains are included in accumulated other comprehensive loss on the consolidated balance sheets.  Fair values are approximated based on current market quotes from financial sources that track such securities.

 

In May 2014, the Company sold to Gould Investors L.P., a related party, 37,081 shares of BRT Realty Trust, a related party, for proceeds of $266,000 (based on the average of the closing prices for the 30 days preceding the sale).  The cost of these shares was $132,000 and the Company realized a gain on sale of $134,000, of which $132,000 was reclassified from Accumulated other comprehensive loss on the consolidated balance sheets into earnings.

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 15 - Fair Value Measurements (continued)

 

Derivative financial instruments

 

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

 

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

 

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with it use Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparty.  As of June 30, 2015, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.  As a result, the Company determined that its derivative valuation is classified in Level 2 of the fair value hierarchy.

 

As of June 30, 2015, the Company had entered into 19 interest rate derivatives, all of which were interest rate swaps, related to 19 outstanding mortgage loans with an aggregate $92,721,000 notional amount and mature between 2016 and 2027 (weighted average maturity of 7.4 years).  Such interest rate swaps, all of which were designated as cash flow hedges, converted LIBOR based variable rate mortgages to fixed annual rate mortgages (with interest rates ranging from 3.55% to 5.75% and a weighted average interest rate of 4.53% at June 30, 2015).  The fair value of the Company’s derivatives designated as hedging instruments in asset and liability positions reflected as other assets or other liabilities on the consolidated balance sheets were $51,000 and $2,716,000, respectively, at June 30, 2015, and $27,000 and $3,139,000, respectively, at December 31, 2014.

 

Three of the Company’s unconsolidated joint ventures, in which wholly-owned subsidiaries of the Company are 50% partners, had two interest rate derivatives outstanding at June 30, 2015 with an aggregate $11,108,000 notional amount.  These interest rate swaps, which were designated as cash flow hedges, have interest rates of 3.49% and 5.81% and mature between April 2018 and March 2022.

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 15 - Fair Value Measurements (continued)

 

The following table presents the effect of the Company’s derivative financial instruments on the consolidated statements of income for the periods presented (amounts in thousands):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

One Liberty Properties and Consolidated Subsidiaries

 

 

 

 

 

 

 

 

 

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

 

$

732

 

$

(1,227

)

$

(891

)

$

(2,408

)

Amount of loss reclassification from Accumulated other comprehensive loss into Interest expense

 

(458

)

(1,302

)

(1,347

)

(824

)

Unconsolidated Joint Ventures (Company’s share)

 

 

 

 

 

 

 

 

 

Amount of gain (loss) recognized on derivative in Other comprehensive loss

 

$

46

 

$

(245

)

$

(25

)

$

(48

)

Amount of (loss) gain reclassification from accumulated other comprehensive loss into Equity in earnings of unconsolidated joint ventures

 

(29

)

(34

)

(51

)

55

 

 

No gain or loss was recognized with respect to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company’s cash flow hedges for the three and six months ended June 30, 2015 and 2014.  During the six months ended June 30, 2015, the Company terminated one of its interest rate swaps, in connection with the sale of its Cherry Hill, New Jersey property, and accelerated the reclassification of amounts in other comprehensive loss to earnings as a result of the hedged forecasted transactions being terminated. The accelerated amount was a loss of $472,000 and is included in Prepayment costs on debt on the Company’s consolidated statements of income.  During the twelve months ending June 30, 2016, the Company estimates an additional $1,818,000 will be reclassified from other comprehensive income (loss) as an increase to interest expense.

 

The derivative agreements in effect at June 30, 2015 provide that if the wholly-owned subsidiary of the Company which is a party to the agreement defaults or is capable of being declared in default on any of its indebtedness, then a default can be declared on such subsidiary’s derivative obligation. In addition, the Company is a party to one of 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, then the Company could be held liable for such swap breakage losses, if any.

 

As of June 30, 2015, the fair value of the derivatives in a liability position, including accrued interest and excluding any adjustments for nonperformance risk, was approximately $2,923,000.  In the unlikely event that the Company breaches any of the contractual provisions of the derivative contracts, it would be required to settle its obligations thereunder at their termination liability value of $2,923,000.  This termination liability value, net of $207,000 adjustments for nonperformance risk, or $2,716,000, is included in accrued expenses and other liabilities on the consolidated balance sheets at June 30, 2015.

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 16 - New Accounting Pronouncements

 

In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest - Simplifying the Presentation of Debt Issuance Costs, which amends the balance sheet presentation for debt issuance costs. Under the amended guidance, a company will present unamortized debt issuance costs as a direct deduction from the carrying amount of that debt liability. The guidance is to be applied on a retrospective basis, and is effective for annual reporting periods beginning after December 15, 2015, with early adoption being permitted.  The Company is currently in the process of evaluating the impact the adoption of the guidance will have on its consolidated financial statements.

 

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, which amends the current consolidation guidance, including introducing a separate consolidation analysis specific to limited partnerships and other similar entities. Under this analysis, limited partnerships and other similar entities will be considered a VIE unless the limited partners hold substantive kick-out rights or participating rights. The guidance is effective for annual and interim periods beginning after December 15, 2015, with early adoption permitted. The Company has not elected early adoption and is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements.

 

In January 2015, the FASB issued ASU No. 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, which simplifies income statement presentation by eliminating extraordinary items from US GAAP. The ASU retains current presentation and disclosure requirements for an event or transaction that is of an unusual nature or of a type that indicates infrequency of occurrence. Transactions that meet both criteria would now also follow such presentation and disclosure requirements. The ASU is effective in annual periods, and interim periods within those annual periods, beginning after December 15, 2015.  Early adoption is permitted; however, adoption must occur at the beginning of an annual period.  An entity can elect to apply the guidance prospectively or retrospectively.  The Company had elected early adoption for the year ended December 31, 2014, and its adoption did not have any impact on its consolidated financial statements.

 

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40), which provides guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures.  For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued.  The amendments in this update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.  Early application is permitted.  The Company has elected early adoption for the year ending December 31, 2015, and its adoption is not expected to have any impact on its consolidated financial statements.

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2015 (Continued)

 

Note 16 - New Accounting Pronouncements (continued)

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized.  The effective date of this standard will be for fiscal years, and interim periods within those years, after December 15, 2017.  Early adoption is permitted after December 15, 2016.  Entities have the option of using either a full retrospective or a modified approach to adopt the guidance in the ASU.  The Company is currently in the process of evaluating the impact, if any, the adoption of this ASU will have on its consolidated financial statements.

 

Note 17 - Subsequent Events

 

Subsequent events have been evaluated and except as disclosed in Note 4 (Real Estate Acquisitions), there were no other events relative to the Company’s consolidated financial statements that require additional disclosure.

 

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Table of Contents

 

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

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions.  Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “could,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions or variations thereof.  Forward-looking statements should not be relied on since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performance or achievements.  Investors are encouraged to review the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2014 under the caption “Item 1A. Risk Factors” for a discussion of certain factors which may cause actual results to differ materially from current expectations and are cautioned not to place undue reliance on any forward-looking statements.

 

Acquisition, Disposition and Financing Activities During the Six Months Ended June 30, 2015

 

We acquired five properties (including the purchase of our partner’s 50% interest in a joint venture that owns a property in Lincoln, Nebraska) for an aggregate purchase price of $37.8 million (including mortgage debt of $14.5 million incurred in connection with two of the acquisitions). These acquisitions contributed $1.3 million of rental income during the six months ended June 30, 2015 - one acquisition was completed in mid-February, three acquisitions were completed in mid-to-late March, and one acquisition was completed in May.

 

In addition, in June 2015 we purchased, through an unconsolidated joint venture in which we have a 50% equity interest, a retail center located in Manahawkin, New Jersey for approximately $43.5 million, inclusive of $26.1 million of new mortgage debt bearing an annual interest rate of 4% and maturing in 2025.

 

We sold our Cherry Hill, New Jersey retail property in January 2015 resulting in a gain of approximately $5.4 million, before giving effect to a swap breakage charge of $472,000 and the write-off of $249,000 of the remaining deferred financing cost. The non-controlling interest’s share of income from the transaction is $1.3 million.  This property generated $697,000 of rental income in the six months ended June 30, 2014.

 

We obtained $32.6 million from mortgage financings and refinancings (including $14.5 million in connection with two properties acquired in 2015), net of refinanced amounts. The weighted average interest rate on these mortgages is 4.0% and the weighted average remaining term is 9.8 years.

 

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Table of Contents

 

Recent Developments

 

In July 2015, the tenant that leases a property operated as a Pathmark supermarket in Philadelphia, Pennsylvania filed for Chapter 11 bankruptcy protection and moved to reject the lease.  This tenant accounted for approximately 1% of our rental income for the six months ended June 30, 2015 and at June 30, 2015, the mortgage debt on such property is $4.6 million.  We are in the process of seeking a replacement tenant.

 

On July 28, 2015, we purchased a 294,000 square foot industrial property located in McCalla, Alabama for $16.8 million.  The property is net leased through 2022 to a tenant that is a supplier to the auto industry.

 

Overview

 

We are a self-administered and self-managed real estate investment trust, organized in Maryland in 1982.  We acquire, own and manage a geographically diversified portfolio of retail (including furniture stores, restaurants, office supply stores and supermarkets), industrial, flex, health and fitness and other properties, a substantial portion of which are leased under long-term net leases.  As of June 30, 2015, we own 118 properties (including seven properties owned by consolidated joint ventures and five properties owned by unconsolidated joint ventures) located in 30 states.  Based on square footage, our occupancy rate at June 30, 2015 is approximately 98.8%.

 

We face a variety of risks and challenges in our business. We, among other things, face the possibility we will not be able to acquire accretive properties on acceptable terms, lease our properties on terms favorable to us or at all, our tenants may not be able to pay their rental and other obligations and we may not be able to renew or relet, on acceptable terms, leases that are expiring.

 

We seek to manage the risk of our real property portfolio by diversifying among types of properties and industries, locations, tenants and scheduled lease expirations. 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, obtaining other tenant related financial information, regular contact with tenant’s representatives, tenant credit checks and regular management reviews of our tenants.

 

In acquiring properties, we balance an evaluation of the terms of the leases and the credit of the existing tenants with a fundamental analysis of the real estate to be acquired, which analysis takes into account, among other things, the estimated value of the property, local demographics and the ability to re-rent or dispose of the property on favorable terms upon lease expiration or early termination.

 

Further, we are sensitive to the risks facing the retail industry as a result of the growth of e-commerce.  We are addressing this exposure by seeking to acquire properties that we believe capitalize on e-commerce activities, such as e-commerce distribution and warehousing facilities - however, we intend to continue to acquire retail properties as we deem appropriate.

 

We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute currently at least 90% of ordinary

 

27



Table of Contents

 

taxable income to our stockholders.  We intend to comply with these requirements and to maintain our REIT status.

 

Our 2015 contractual rental income is approximately $56.4 million and represents, after giving effect to any abatements, concessions or adjustments, the base rent payable to us in calendar year 2015 under leases in effect at June 30, 2015. The 2015 contractual rental income excludes approximately $1.4 million of straight-line rent, amortization of approximately $671,000 of intangibles, and our share of the rental income payable to our unconsolidated joint ventures, which in 2015 will be approximately $1.9 million.

 

The following table sets forth scheduled lease expirations of leases for our properties (excluding unconsolidated joint ventures) as of June 30, 2015 for the calendar years indicated below:

 

Year of Lease
Expiration (1)

 

Number of
Expiring
Leases

 

Approximate Square
Footage Subject to
Expiring Leases

 

2015 Contractual
Rental Income Under
Expiring Leases

 

Percent of 2015
Contractual Rental
Income
Represented by
Expiring Leases

 

2015

 

6

 

390,251

 

$

1,604,677

 

2.8

%

2016

 

14

 

317,571

 

2,695,548

 

4.8

 

2017

 

19

 

137,267

 

2,426,662

 

4.3

 

2018

 

20

 

399,191

 

4,680,531

 

8.3

 

2019

 

10

 

124,648

 

1,620,264

 

2.9

 

2020

 

11

 

192,270

 

4,616,861

 

8.2

 

2021

 

12

 

472,454

 

3,585,654

 

6.4

 

2022

 

11

 

1,371,415

 

11,001,473

 

19.5

 

2023

 

7

 

562,820

 

3,998,783

 

7.1

 

2024

 

4

 

207,779

 

1,358,143

 

2.4

 

2025 and thereafter

 

32

 

2,333,026

 

18,801,605

 

33.3

 

 

 

146

 

6,508,692

 

$

56,390,201

 

100.0

%

 


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

 

Results of Operations

 

The following table compares revenues for the periods indicated:

 

 

 

Three Months
Ended
June 30,

 

Increase

 

%

 

Six Months
Ended
June 30,

 

Increase

 

%

 

(Dollars in thousands)

 

2015

 

2014

 

(Decrease)

 

Change

 

2015

 

2014

 

(Decrease)

 

Change

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income, net

 

$

14,992

 

$

13,943

 

$

1,049

 

7.5

%

$

28,886

 

$

27,756

 

$

1,130

 

4.1

%

Tenant reimbursements

 

790

 

453

 

337

 

74.4

 

1,572

 

1,042

 

530

 

50.9

 

Lease termination fee

 

 

1,269

 

(1,269

)

(100.0

)

650

 

1,269

 

(619

)

(48.8

)

Total revenues

 

$

15,782

 

$

15,665

 

$

117

 

0.7

 

$

31,108

 

$

30,067

 

$

1,041

 

3.5

 

 

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Table of Contents

 

Revenues

 

Rental income.  The increases are due primarily to $2.1 million and $3.5 million in the three and six months ended June 30, 2015, respectively, generated by nine properties acquired in 2014 and five properties acquired in 2015. Offsetting this increase is the (i) inclusion, in the three and six months ending June 30, 2014, of $1.1 million and $2.1 million, respectively, from three properties that were sold or disposed of from October 2014 through mid-January 2015 (including the sale, for substantial gains, of the Parsippany and Cherry Hill, New Jersey properties), and (ii) $226,000 write-off against rental income, in the six months ended June 30, 2015, of the entire balance of unbilled rent receivable related to the March 2015 lease termination fee described below.

 

Tenant reimbursements.  Approximately $277,000 and $469,000 of the increase in real estate tax and operating expense reimbursements in the three and six months ended June 30, 2015, respectively, is due to five properties acquired since May 2014 with the balance attributable to net increases from various properties. Offsetting the increase in the six months ended June 30, 2015 was a decrease of $112,000 due to the January 2015 sale of the Cherry Hill, New Jersey property.

 

Lease termination fee.  We received lease termination fees of $650,000 and $1,269,000 from tenants of two properties in lease buy-out transactions in March 2015 and June 2014, respectively.  We re-leased both properties simultaneously with the terminations of the leases.

 

The following table compares operating expenses for the periods indicated:

 

 

 

Three Months
Ended
June 30,

 

Increase

 

%

 

Six Months
Ended
June 30,

 

Increase

 

%

 

(Dollars in thousands)

 

2015

 

2014

 

(Decrease)

 

Change

 

2015

 

2014

 

(Decrease)

 

Change

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

3,921

 

$

3,723

 

$

198

 

5.3

%

$

7,655

 

$

7,300

 

$

355

 

4.9

%

General and administrative

 

2,390

 

2,134

 

256

 

12.0

 

4,782

 

4,344

 

438

 

10.1

 

Real estate expenses

 

1,273

 

877

 

396

 

45.2

 

2,607

 

1,976

 

631

 

31.9

 

Federal excise and state taxes

 

124

 

107

 

17

 

15.9

 

198

 

169

 

29

 

17.2

 

Real estate acquisition costs

 

79

 

88

 

(9

)

(10.2

)

327

 

128

 

199

 

155.5

 

Leasehold rent

 

77

 

77

 

 

 

154

 

154

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

7,864

 

7,006

 

858

 

12.2

 

15,723

 

14,071

 

1,652

 

11.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

7,918

 

$

8,659

 

$

(741

)

(8.6

)

$

15,385

 

$

15,996

 

$

(611

)

(3.8

)

 

Operating Expenses

 

Depreciation and amortization.  The three and six months ended June 30, 2015 includes $548,000 and $949,000, respectively, related to properties we acquired in 2014 and 2015 and $37,000 and $119,000, respectively, from amortization of property improvements and leasing commissions. Included in the three and six months ended June 30, 2014 is $317,000 and $635,000, respectively, of expense related to three properties that were sold or disposed of from October 2014 through mid-January 2015 (including the Parsippany and Cherry Hill, New Jersey properties).

 

29



Table of Contents

 

General and administrative expenses.  Contributing to the change in the three and six months ended June 30, 2015 were increases of: (i) $137,000 and $243,000, respectively, in non-cash compensation expense related to the increase in the number of restricted stock awards granted in 2015 and the higher fair value of such awards at the time of grant; and (ii) $73,000 and $176,000, respectively, in net compensation expense due to higher compensation levels.

 

Real estate expenses.  The increases in the three and six months ended June 30, 2015 are due primarily to increases of $525,000 and $318,000, respectively, from five of the properties acquired since May 2014, substantially all of which is rebilled to tenants, and several other increases in various real estate expenses, none of which was individually significant. The increases were offset by the decrease in expenses at our Cherry Hill, New Jersey property as a result of its sale in January 2015.

 

Real estate acquisition costs.  These costs, which include acquisition fees (including a fee paid to our joint venture partner), legal and other transactional costs and expenses, increased primarily in connection with the acquisition of a property in February 2015.

 

Other Income and Expenses

 

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

 

 

 

Three Months
Ended
June 30,

 

Increase

 

%

 

Six Months
Ended
June 30,

 

Increase

 

%

 

(Dollars in thousands)

 

2015

 

2014

 

(Decrease)

 

Change

 

2015

 

2014

 

(Decrease)

 

Change

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sale of real estate, net

 

$

 

$

 

$

 

%

$

5,392

 

$

 

$

5,392

 

n/a

 

Purchase price fair value adjustment

 

 

 

 

 

960