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, 2011

 

 

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 “small 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

(Do not check if a smaller reporting company)

 

 

 

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

 

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

 

As of August 1, 2011, the registrant had 14,494,859 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, 2011 and December 31, 2010

 

1

 

 

 

 

 

Consolidated Statements of Income — Three and six months ended June 30, 2011 and 2010

 

2

 

 

 

 

 

Consolidated Statement of Stockholders’ Equity and Comprehensive Income — Six months ended June 30, 2011 and year ended December 31, 2010

 

4

 

 

 

 

 

Consolidated Statements of Cash Flows — Six months ended June 30, 2011 and 2010

 

5

 

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

 

Item 2.

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

 

19

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

25

 

 

 

 

Item 4.

Controls and Procedures

 

26

 

 

 

 

Part II — Other Information

 

 

 

 

 

 

Item 6.

Exhibits

 

26

 

 

 

 

 

Signatures

 

27

 

Ex 31.1

 

 

 

Ex 31.2

 

 

 

Ex 32.1

 

 

 

Ex 32.2

 

 

 

Ex 101

 

 

 

 



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,
2011

 

December 31,
2010

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Real estate investments, at cost

 

 

 

 

 

Land

 

$

127,531

 

$

126,697

 

Buildings and improvements

 

323,110

 

319,203

 

 

 

450,641

 

445,900

 

Less accumulated depreciation

 

58,365

 

54,137

 

Real estate investments, net

 

392,276

 

391,763

 

 

 

 

 

 

 

Property held for sale (including related assets of $808)

 

 

10,678

 

Investment in unconsolidated joint ventures

 

5,287

 

4,777

 

Cash and cash equivalents

 

11,447

 

7,732

 

Available-for-sale securities

 

367

 

422

 

Unbilled rent receivable

 

11,811

 

11,149

 

Unamortized intangible lease assets

 

10,501

 

10,887

 

Escrow, deposits and other assets and receivables

 

3,021

 

4,684

 

Investment in BRT Realty Trust at market (related party)

 

234

 

266

 

Unamortized deferred financing costs

 

2,402

 

2,265

 

 

 

 

 

 

 

Total assets

 

$

437,346

 

$

444,623

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Liabilities:

 

 

 

 

 

Mortgages payable

 

$

198,174

 

$

215,308

 

Line of credit

 

4,500

 

36,200

 

Dividends payable

 

4,762

 

3,806

 

Accrued expenses and other liabilities

 

4,323

 

5,144

 

Unamortized intangible lease liabilities

 

5,384

 

4,982

 

 

 

 

 

 

 

Total liabilities

 

217,143

 

265,440

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

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

 

 

 

Common stock, $1 par value; 25,000 shares authorized; 14,081 and 11,212 shares issued and outstanding

 

14,081

 

11,212

 

Paid-in capital

 

187,222

 

147,158

 

Accumulated other comprehensive loss

 

(443

)

(156

)

Accumulated undistributed net income

 

19,343

 

20,969

 

 

 

 

 

 

 

Total stockholders’ equity

 

220,203

 

179,183

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

437,346

 

$

444,623

 

 

See accompanying notes to consolidated financial statements.

 

1



Table of Contents

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands, Except Per Share Data)

(Unaudited)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Revenues:

 

 

 

 

 

 

 

 

 

Rental income, net

 

$

11,241

 

$

10,323

 

$

22,343

 

$

20,079

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

2,323

 

2,091

 

4,648

 

4,159

 

General and administrative (including $847, $647, $1,444 and $1,194, respectively, to related party)

 

2,053

 

1,913

 

3,802

 

3,566

 

Real estate acquisition costs

 

18

 

168

 

45

 

514

 

Real estate expenses

 

527

 

485

 

988

 

665

 

Leasehold rent

 

77

 

77

 

154

 

154

 

Total operating expenses

 

4,998

 

4,734

 

9,637

 

9,058

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

6,243

 

5,589

 

12,706

 

11,021

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated joint ventures

 

105

 

128

 

135

 

253

 

Gain on disposition of real estate held by unconsolidated joint venture

 

 

107

 

 

107

 

Gain on settlement of debt

 

1,240

 

 

1,240

 

 

Other income, including realized gain on sale of available-for-sale securities and interest income

 

40

 

174

 

53

 

225

 

Interest:

 

 

 

 

 

 

 

 

 

Expense

 

(3,333

)

(3,701

)

(6,974

)

(6,980

)

Amortization of deferred financing costs

 

(182

)

(150

)

(495

)

(292

)

Income from continuing operations

 

4,113

 

2,147

 

6,665

 

4,334

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

Income from operations

 

97

 

252

 

277

 

486

 

Net gain on sale

 

932

 

 

932

 

 

Income from discontinued operations

 

1,029

 

252

 

1,209

 

486

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

5,142

 

$

2,399

 

$

7,874

 

$

4,820

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

14,078

 

11,453

 

13,419

 

11,424

 

Diluted

 

14,178

 

11,453

 

13,469

 

11,453

 

 

Continued on next page

 

2



Table of Contents

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands, Except Per Share Data)

(Unaudited) (Continued)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Net income per common share — basic:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

.29

 

$

.19

 

$

.48

 

$

.38

 

Income from discontinued operations

 

.07

 

.02

 

.09

 

.04

 

 

 

 

 

 

 

 

 

 

 

Net income per common share — basic

 

$

.36

 

$

.21

 

$

.57

 

$

.42

 

 

 

 

 

 

 

 

 

 

 

Net income per common share — diluted:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

.28

 

$

.19

 

$

.48

 

$

.38

 

Income from discontinued operations

 

.07

 

.02

 

.09

 

.04

 

 

 

 

 

 

 

 

 

 

 

Net income per common share — diluted

 

$

.35

 

$

.21

 

$

.57

 

$

.42

 

 

 

 

 

 

 

 

 

 

 

Cash distribution declared per share of common stock

 

$

.33

 

$

.30

 

$

.66

 

$

.60

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

AND COMPREHENSIVE INCOME

For the six month period ended June 30, 2011 (Unaudited)

and the year ended December 31, 2010

(Amounts in Thousands, Except Per Share Data)

 

 

 

Common
Stock

 

Paid-in
Capital

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Accumulated
Undistributed
Net Income

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, January 1, 2010

 

$

10,879

 

$

143,272

 

$

191

 

$

25,786

 

$

180,128

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions - common stock

 

 

 

 

 

 

 

 

 

 

 

Cash - $1.23 per share

 

 

 

 

(14,123

)

(14,123

)

Issuance of stock for stock dividend obligation at December 31, 2009

 

216

 

1,888

 

 

 

2,104

 

Restricted stock vesting

 

36

 

(36

)

 

 

 

Shares issued through dividend reinvestment plan

 

81

 

1,119

 

 

 

1,200

 

Compensation expense - restricted stock

 

 

915

 

 

 

915

 

Net income

 

 

 

 

9,306

 

9,306

 

Other comprehensive income -

 

 

 

 

 

 

 

 

 

 

 

Net unrealized loss on available-for-sale securities

 

 

 

(60

)

 

(60

)

Net unrealized loss on derivative instruments

 

 

 

(287

)

 

(287

)

Comprehensive income

 

 

 

 

 

8,959

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, December 31, 2010

 

11,212

 

147,158

 

(156

)

20,969

 

179,183

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions - common stock

 

 

 

 

 

 

 

 

 

 

 

Cash - $.66 per share

 

 

 

 

(9,500

)

(9,500

)

Restricted stock vesting

 

46

 

(46

)

 

 

 

Shares issued in stock offering - net of offering costs of $282

 

2,700

 

37,869

 

 

 

40,569

 

Shares issued through dividend reinvestment plan

 

123

 

1,720

 

 

 

1,843

 

Compensation expense - restricted stock

 

 

521

 

 

 

521

 

Net income

 

 

 

 

7,874

 

7,874

 

Other comprehensive income -

 

 

 

 

 

 

 

 

 

 

 

Net unrealized loss on available-for-sale securities

 

 

 

(87

)

 

(87

)

Net unrealized loss on derivative instruments

 

 

 

(128

)

 

(128

)

OLP’s share of joint venture net unrealized loss on derivative instruments

 

 

 

(72

)

 

(72

)

Comprehensive income

 

 

 

 

 

7,587

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, June 30, 2011

 

$

14,081

 

$

187,222

 

$

(443

)

$

19,343

 

$

220,203

 

 

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,

 

 

 

2011

 

2010

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

7,874

 

$

4,820

 

Adjustments to reconcile net income to net cash provided

 

 

 

 

 

by operating activities:

 

 

 

 

 

Gain on settlement of debt

 

(1,240

)

 

Gain on sale of real estate

 

(932

)

 

Gain on sale of available-for-sale securities

 

 

(129

)

Increase in rental income from straight-lining of rent

 

(679

)

(880

)

Decrease in rental income resulting from bad debt expense

 

508

 

79

 

Decrease in rental income from amortization of intangibles relating to leases

 

47

 

10

 

Amortization of restricted stock expense

 

521

 

460

 

Gain on disposition of real estate held by unconsolidated joint venture

 

 

(107

)

Equity in earnings of unconsolidated joint ventures

 

(135

)

(253

)

Distributions of earnings from unconsolidated joint ventures

 

199

 

209

 

Depreciation and amortization

 

4,711

 

4,291

 

Amortization and write off of financing costs

 

495

 

292

 

Changes in assets and liabilities:

 

 

 

 

 

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

 

(693

)

89

 

Decrease in accrued expenses and other liabilities

 

(887

)

(1

)

Net cash provided by operating activities

 

9,789

 

8,880

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of real estate and improvements

 

(2,612

)

(15,936

)

Net proceeds from sale of real estate

 

11,544

 

 

Investment in unconsolidated joint ventures

 

(669

)

 

Distributions of return of capital from unconsolidated joint ventures

 

23

 

22

 

Prepaid tenant improvement allowance

 

 

(1,750

)

Net proceeds from sale of available-for-sale securities

 

 

5,997

 

Net cash provided by (used in) investing activities

 

8,286

 

(11,667

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Scheduled amortization payments of mortgages payable

 

(2,750

)

(2,721

)

Repayment of mortgages payable

 

(15,303

)

(2,433

)

Proceeds from mortgage financings

 

2,000

 

3,000

 

Proceeds from common stock offering, net

 

40,569

 

 

Proceeds from bank line of credit

 

4,500

 

 

Repayment on bank line of credit

 

(36,200

)

 

Issuance of shares through dividend reinvestment plan

 

1,843

 

 

Payment of financing costs

 

(475

)

(882

)

Cash distributions to common stockholders

 

(8,544

)

(3,683

)

Expenses associated with stock issuance

 

 

(48

)

Net cash used in financing activities

 

(14,360

)

(6,767

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

3,715

 

(9,554

)

Cash and cash equivalents at beginning of period

 

7,732

 

28,036

 

Cash and cash equivalents at end of period

 

$

11,447

 

$

18,482

 

 

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,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid during the period for interest expense

 

$

7,131

 

$

6,783

 

 

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

Common stock dividend — portion paid in shares of Company’s common stock

 

 

2,209

 

Assumption of mortgage payable in connection with purchase of real estate

 

 

17,654

 

Settlement of mortgage debt

 

1,259

 

 

Purchase accounting allocation — intangible lease assets

 

234

 

1,121

 

Purchase accounting allocation — intangible lease liabilities

 

612

 

365

 

Reclassification of 2010 prepaid tenant improvement allowance to building improvements

 

1,750

 

 

Reclassification of real estate owned to property held for sale

 

 

10,678

 

 

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, 2011

 

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 (including furniture and office supply stores), industrial, office, flex, health and fitness and other properties, a substantial portion of which are under long-term net leases.  As of June 30, 2011, OLP owned 84 properties, three of which are vacant and one of which is a 50% tenancy in common interest.  OLP’s joint ventures owned a total of five properties. The 89 properties are located in 29 states.

 

Note 2 - Basis of Preparation

 

The accompanying interim unaudited consolidated financial statements as of June 30, 2011 and for the three and six months ended June 30, 2011 and 2010 reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for such interim periods. The results of operations for the three and six months ended June 30, 2011 are not necessarily indicative of the results for the full year.

 

The preparation of the financial statements in conformity with generally accepted accounting principles 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 and its wholly-owned subsidiaries (collectively, the “Company”).   Material intercompany items and transactions have been eliminated. The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting.  All investments in 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 the venture. As a result, none of the Company’s joint ventures are variable interest entities.  In addition, although the Company is the managing member of these joint 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.

 

Certain amounts reported in previous consolidated financial statements have been reclassified in the accompanying consolidated financial statements to conform to the current periods’ presentation, primarily to reclassify the assets of one property, which was sold in May 2011, to property held for sale at December 31, 2010 and to reclassify the operations of this property to discontinued operations for the three and six months ended June 30, 2011 and 2010.  In addition, the operations of one property, which was sold in September 2010, were reclassified to discontinued operations for the three and six months ended June 30, 2010.

 

7



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2011 (Continued)

 

Note 2   Basis of Preparation (Continued)

 

These statements should be read in conjunction with the consolidated financial statements and related notes which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

Note 3 - Earnings Per Common Share

 

For the three and six months ended June 30, 2011 and 2010, basic earnings per share was determined by dividing net income allocable to common stockholders for the applicable period by the weighted average number of shares of common stock outstanding during such period, including the effect of the 2,700,000 shares sold in February 2011 as described in Note 10. Net income during the applicable period is also allocated to the unvested restricted stock 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 weighted average unvested shares of restricted stock outstanding was 348,000 and 357,000 during the three and six months ended June 30, 2011, respectively, and 327,000 and 342,000 during the three and six months ended June 30, 2010, respectively.  The dividends declared payable to unvested restricted stockholders was $115,000 and $230,000 during the three and six months ended June 30, 2011, respectively, and $97,000 and $204,000 during the three and six months ended June 30, 2010, respectively.  The restricted stock units awarded under the Pay-for-Performance program described in Note 13 are excluded from the basic earnings per share calculation, as these units are not participating securities.

 

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, converted or otherwise resulted in the issuance of common stock that shared in the earnings of the Company.  The weighted average number of common shares outstanding used  for the  diluted  earnings  per share calculation for the three and six months ended June 30, 2010 includes the full impact of common stock issued in connection with the dividend paid in January 2010, based on the December 11, 2009 dividend declaration date, as the shares were contingently issuable as of December 11, 2009.  This stock dividend was included in basic earnings per share as of the January 25, 2010 issuance date. The diluted weighted average number of common shares also includes 100,000 shares of common stock underlying the restricted stock units awarded on September 14, 2010 under the Pay-for-Performance Program.  These shares would be deemed issued based on the Company’s stock price at June 30, 2011 and dividends paid through such date.  The remaining 100,000 shares of common stock underlying the restricted stock units awarded under the Pay-For-Performance Program are not included, as they did not meet the defined performance metric as of June 30, 2011.

 

There were no options outstanding to purchase shares of common stock or other rights exercisable for, or convertible into, common stock during the three and six months ended June 30, 2011 and 2010.

 

8



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2011 (Continued)

 

Note 4 - Investment in Unconsolidated Joint Ventures

 

The Company’s five unconsolidated joint ventures each own and operate one property, including a 50% owned joint venture which acquired a retail property in March 2011 for a total purchase price of $3,200,000.  At June 30, 2011 and December 31, 2010, the Company’s equity investment in unconsolidated joint ventures totaled $5,287,000 and $4,777,000, respectively. In addition to the $107,000 gain on sale of property in the three and six months ended June 30, 2010, the Company recorded equity in earnings of $135,000 and $253,000 for the six months ended June 30, 2011 and 2010, respectively, and $105,000 and $128,000 for the three months ended June 30, 2011 and 2010, respectively.

 

Note 5 - 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, 2011 and December 31, 2010, the balance in allowance for doubtful accounts was $1,485,000 and $977,000, respectively, recorded as a reduction to accounts receivable. The Company records bad debt expense as a reduction of rental income. For the three and six months ended June 30, 2011, the Company recorded bad debt expense of $197,000 and $508,000, respectively.   For the three and six months ended June 30, 2010, the Company recorded bad debt expense of $17,000 and $79,000, respectively.  For the three and six months ended June 30, 2010, $14,000 of such bad debt expense was recorded in discontinued operations. The bad debt expense for the three months ended June 30, 2011 results substantially from uncollected rental income and real estate taxes related to a property previously leased by Robb & Stucky.  Robb & Stucky filed for bankruptcy protection in February 2011, thereafter rejected its lease and vacated the property as of June 30, 2011.

 

Note 6 - Real Estate Acquisition

 

On March 4, 2011, the Company acquired a retail property in Illinois for an all cash purchase price of $2,325,000. The Company incurred third party acquisition costs of $21,000 related to this acquisition.

 

As a result of this acquisition, the Company recorded intangible lease liabilities of $612,000 and intangible lease assets of $234,000, representing the value of the acquired below market lease and origination costs.  The Company assessed the fair value of the lease intangibles based on estimated cash flow projections that use appropriate discount rates and available market information (including an evaluation of lease renewal options). Such inputs are Level 3 in the fair value hierarchy. The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant.  The value, as determined, is allocated to land, buildings and improvements based on management’s judgment.

 

9



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2011 (Continued)

 

Note 7 - Discontinued Operations and Property Held for Sale

 

On May 20, 2011, the Company sold a property, leased to Office Depot and located in California, to an unrelated party for consideration of $11,544,000, net of closing costs, and realized a gain of approximately $932,000, which is included in net gain on sale in discontinued operations in the three and six months ended June 30, 2011. The net book value of the property, including related assets of $808,000, was $10,678,000 at December 31, 2010 and is included in property held for sale on the accompanying balance sheet.

 

The following is a summary of income from discontinued operations applicable to the property sold in May 2011 and the two properties sold in July 2010 and September 2010 (dollars in thousands):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

120

 

$

371

 

$

342

 

$

717

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

21

 

66

 

63

 

132

 

Real estate expenses

 

2

 

10

 

2

 

12

 

Interest expense

 

 

43

 

 

87

 

 

 

 

 

 

 

 

 

 

 

Total expenses

 

23

 

119

 

65

 

231

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

97

 

252

 

277

 

486

 

Net gain on sale

 

932

 

 

932

 

 

 

 

 

 

 

 

 

 

 

 

Income from discontinued operations

 

$

1,029

 

$

252

 

$

1,209

 

$

486

 

 

Note 8 — Gain on Settlement of Debt

 

On June 27, 2011, the Company paid off the $8,893,000 principal balance of the mortgage secured by the property previously leased to Robb & Stucky with a payment of $7,634,000. The $1,240,000 gain on settlement of debt is net of a $19,000 write off of the remaining balance of related deferred mortgage costs.

 

This property was tested for impairment and it was determined that no charge was required.

 

10



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2011 (Continued)

 

Note 9 - Line of Credit

 

On January 6, 2011, the Company entered into an amendment of its credit facility with VNB New York Corp., Bank Leumi USA, Israel Discount Bank of New York and Manufacturer’s & Trader’s Trust Company, which, among other things, increased the Company’s borrowing capacity by $15,000,000 to $55,000,000 and extended the maturity by one year to March 31, 2013.  The interest rate thereon is the greater of (i) 90 day LIBOR plus 3% (3.25% at June 30, 2011), and (ii) 6% per annum, and there is an unused facility fee of .25% per annum. In connection with the amendment, the Company incurred a $350,000 commitment fee which is being amortized over the remaining term of the facility. At June 30, 2011, there was $4,500,000 outstanding under the facility.  The Company was in compliance with all covenants at June 30, 2011.

 

Note 10 — Public Offering

 

On February 11, 2011, the Company sold 2,700,000 shares of its common stock for net proceeds of approximately $40,569,000.  The proceeds were used to repay two mortgages in aggregate amount of $7,700,000 having a weighted average interest rate of 7.9% and to reduce the amount outstanding under the line of credit by $26,200,000.  The remaining balance of the proceeds was used for general corporate purposes, including the purchase of a property in March 2011.

 

Note 11 - Common Stock Cash Dividend

 

On June 14, 2011, the Board of Directors declared a quarterly cash dividend of $.33 per share on the Company’s common stock, totaling $4,762,000. The quarterly dividend was paid on July 6, 2011 to stockholders of record as of June 28, 2011.

 

Note 12 - Comprehensive Income

 

Comprehensive income for the three and six months ended June 30, 2011 and 2010 is as follows (dollars in thousands):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

5,142

 

$

2,399

 

$

7,874

 

$

4,820

 

Other comprehensive income -

 

 

 

 

 

 

 

 

 

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

 

(8

)

(206

)

(87

)

(133

)

Net unrealized gain (loss) on derivative instruments

 

(308

)

(277

)

(200

)

(406

)

Comprehensive income

 

$

4,826

 

$

1,916

 

$

7,587

 

$

4,281

 

 

11



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  June 30, 2011 (Continued)

 

Note 12 - Comprehensive Income (Continued)

 

Accumulated other comprehensive loss includes an accumulated net unrealized loss on available-for-sale securities of $40,000, an unrealized loss on available-for-sale securities in a joint venture of $27,000, a net unrealized loss on derivative instruments of $303,000, and our 50% share of a net unrealized loss on a joint venture derivative instrument of $73,000, resulting in a total cumulative net loss of $443,000 at June 30, 2011.  At December 31, 2010, accumulated other comprehensive loss of $156,000 was comprised of a net accumulated unrealized gain on available-for-sale securities of $47,000, an unrealized loss on available-for-sale securities in a joint venture of $27,000 and a net unrealized loss on derivative instruments of $176,000.

 

Note 13 - Stock Based Compensation

 

The Company’s 2009 Incentive Plan, approved by the Company’s stockholders in June 2009, permits the Company to grant stock options, restricted stock and/or performance-based awards to its employees, officers, directors and consultants.  A maximum of 600,000 shares of the Company’s common stock is authorized for issuance pursuant to the 2009 Incentive Plan.

 

The Company’s 2003 Incentive Plan, approved by the Company’s stockholders in June 2003, permitted the Company to grant stock options and restricted stock to its employees, officers, directors and consultants.  A maximum of 275,000 shares of the Company’s common stock was authorized for issuance pursuant to the 2003 Incentive Plan.

 

The restricted stock grants are charged to general and administrative expense over the respective vesting periods based on the market value of the common stock on the grant date. Substantially all restricted stock awards made to date provide for vesting upon the fifth anniversary of the grant date and under certain circumstances may vest earlier. 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.

 

On September 14, 2010, the Board of Directors approved a Pay-For-Performance Program under the Company’s 2009 Incentive Plan, and awarded 200,000 performance share awards in the form of restricted stock units (the “Units”). 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.  If the defined performance criteria are satisfied in full at June 30, 2017, one share of the Company’s common stock will vest and be issued for each Unit outstanding and a pro-rata portion of the Units will vest and be issued if the performance criteria fall between defined ranges.  In the event that the performance criteria are not satisfied in whole or in part at June 30, 2017, the unvested Units will be forfeited and no shares of the Company’s common stock will be issued for those Units.  No Units were granted, vested or forfeited in the six months ended June 30, 2011.

 

Through June 30, 2011, a total of 416,910 and 274,100 stock awards (i.e. restricted shares and restricted stock units) were issued pursuant to the Company’s 2009 and 2003

 

12



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2011 (Continued)

 

Note 13 - Stock Based Compensation (Continued)

 

Incentive Plans, respectively. Under the 2009 Incentive Plan, 183,090 shares remain available for grant. No additional shares may be granted under the 2003 Incentive Plan.  As of June 30, 2011, there were approximately $2,932,000 of total compensation costs related to nonvested awards that have not yet been recognized, including $537,000 related to the Pay-for-Performance Program (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 four years.  As of June 30, 2011, there were no options outstanding under the 2009 and 2003 Incentive Plans.

 

A summary of the activity of the incentive plans follows:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Restricted share grants

 

 

 

74,040

 

 

Average per share grant price

 

 

 

$

16.19

 

 

Recorded as deferred compensation

 

 

 

$

1,199,000

 

 

 

 

 

 

 

 

 

 

 

 

Non-vested shares:

 

 

 

 

 

 

 

 

 

Non-vested beginning of period

 

348,385

 

357,925

 

320,940

 

357,925

 

Grants

 

 

 

74,040

 

 

Vested during period

 

 

(36,050

)

(46,450

)

(36,050

)

Forfeitures

 

 

 

(145

)

 

Non-vested end of period

 

348,385

 

321,875

 

348,385

 

321,875

 

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

 

$

12.96

 

$

13.33

 

$

12.96

 

$

13.33

 

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

 

$

 

$

 

$

960,000

 

$

687,000

 

 

 

 

 

 

 

 

 

 

 

Total charge to operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding restricted stock grants

 

$

227,000

 

$

210,000

 

$

476,000

 

$

460,000

 

Outstanding restricted stock units

 

22,000

 

 

45,000

 

 

 

 

$

249,000

 

$

210,000

 

$

521,000

 

$

460,000

 

 

Note 14 - Fair Value of Financial Instruments

 

Financial Instruments Not Measured at Fair Value

 

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which adjustments to measure at fair value are not reported:

 

Cash and cash equivalents:  The carrying amounts reported in the balance sheet for these instruments approximate their fair values.

 

13



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2011 (Continued)

 

Note 14 - Fair Value of Financial Instruments (Continued)

 

Mortgages payable: At June 30, 2011, the $201,819,000 estimated fair value of the Company’s mortgages payable is more than their carrying value by approximately $3,645,000, assuming a blended market interest rate of 5.5% based on a five year weighted average remaining term of the mortgages.

 

Line of credit: The $4,500,000 carrying amount of the Company’s line of credit approximates its fair value at June 30, 2011.

 

The fair value of the Company’s mortgages and line of credit were estimated using observable 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.

 

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.

 

Financial Instruments Measured at Fair Value

 

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

 

14



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2011 (Continued)

 

Note 14 - Fair Value of Financial Instruments (Continued)

 

The fair values of the Company’s financial instruments were determined using the following inputs as of June 30, 2011 (dollars in thousands):

 

 

 

Carrying and

 

Fair Value Measurements
Using Fair Value Hierarchy

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Financial assets:

 

 

 

 

 

 

 

Available-for-sale securities:

 

 

 

 

 

 

 

Equity securities

 

$

601

 

$

601

 

$

 

Derivative financial instrument

 

65

 

 

65

 

 

 

 

 

 

 

 

 

Financial liabilities:

 

 

 

 

 

 

 

Derivative financial instrument

 

368

 

 

368

 

 

Available-for-sale securities

 

The Company’s available-for-sale securities have a total cost of $641,000.  At June 30, 2011, unrealized gains on such securities were $120,000 and unrealized losses were $160,000. The aggregate net unrealized loss of $40,000 is included in accumulated other comprehensive loss on the balance sheet.  Fair values are approximated based on current market quotes from financial sources that track such securities. All of the available-for-sale securities in an unrealized loss position are equity securities and amounts are not considered to be other than temporary impairment because the Company expects the value of these securities to recover and plans on holding them until at least such recovery occurs.

 

Derivative financial instruments

 

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, foreign exchange rates, and implied volatilities.  At June 30, 2011 and December 31, 2010, these derivatives are included in other liabilities and other assets on the consolidated balance sheet.

 

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 utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparty.  However, as of June 30, 2011, 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

 

15



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2011 (Continued)

 

Note 14 - Fair Value of Financial Instruments (Continued)

 

Company has determined that its derivative valuation is classified in Level 2 of the fair value hierarchy.

 

Note 15 - Derivative Financial Instruments

 

As of June 30, 2011, the Company had the following outstanding interest rate derivatives, all of which were designated as cash flow hedges of interest rate risk (dollars in thousands):

 

Interest Rate Derivative

 

Notional Amount

 

Fixed Interest
Rate

 

Maturity Date

 

Interest Rate Swap

 

$

9,500

 

6.50

%

December 2014

 

Interest Rate Swap

 

$

4,500

 

5.75

%

November 2020

 

Interest Rate Swap (a)

 

$

2,000

 

5.81

%

April 2018

 

 


(a)          Represents the Company’s 50% share of the $4,000 interest rate swap held by two of the Company’s unconsolidated joint ventures.

 

The following table presents the fair value of the Company’s derivatives designated as hedging instruments as of June 30, 2011 and December 31, 2010 (dollars in thousands):

 

Asset Derivatives

 

Liability Derivatives

 

As of
June 30, 2011

 

As of
December 31, 2010

 

As of
June 30, 2011

 

As of
December 31, 2010

 

Balance
Sheet
Location

 

Fair
Value

 

Balance
Sheet
Location

 

Fair
Value

 

Balance
Sheet
Location

 

Fair
Value

 

Balance
Sheet
Location

 

Fair
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Assets

 

$

65

 

Other Assets

 

$

126

 

Other Liabilities

 

$

368

 

Other Liabilities

 

$

302

 

 

The Company’s 50% share of the value of the interest rate swap held by two of the Company’s unconsolidated joint ventures is $(73,000) as of June 30, 2011 and zero as of December 31, 2010 and is included in “Investment in Unconsolidated Joint Ventures” on the Company’s balance sheet.

 

16



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2011 (Continued)

 

Note 15 - Derivative Financial Instruments (Continued)

 

The following table presents the effect of the Company’s derivative financial instruments on the consolidated statement of income for the three and six months ended June 30, 2011 and June 30, 2010 (dollars in thousands):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Amount of loss recognized on derivative in Other Comprehensive Income

 

$

(342

)

$

(331

)

$

(290

)

$

(516

)

Amount of loss reclassified from Accumulated Other Comprehensive Income into Interest Expense

 

$

(80

)

$

(54

)

$

(162

)

$

(109

)

 

For the interest rate swap held by two of the Company’s unconsolidated joint ventures, the Company’s 50% share of loss recognized in other comprehensive income was $63,000 and $87,000 for the three and six months ended June 30, 2011 and the amount of loss reclassified from accumulated other comprehensive income into equity in earnings of unconsolidated joint ventures was $14,000 for the three and six months ended June 30, 2011.

 

No gain or loss was recognized related to hedge ineffectiveness or to amounts excluded from effectiveness testing on the Company’s cash flow hedges during the three and six months ended June 30, 2011 or June 30, 2010.  During the twelve months ending June 30, 2012, the Company estimates an additional $308,000 will be reclassified from other comprehensive income as an increase to interest expense.

 

The derivative agreements in effect at June 30, 2011 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.

 

As of June 30, 2011, the fair value of the derivative in a liability position including adjustments for nonperformance risk was approximately $368,000.  If the Company breaches any of the contractual provisions of this derivative contract, it would be required to settle its obligation under the derivative agreement at its termination value of $398,000.

 

17



Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2011 (Continued)

 

Note 16 - New Accounting Pronouncements

 

In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income. This standard eliminates the current option to report other comprehensive income and its components in the statement of stockholders’ equity and instead requires the components of other comprehensive income to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This standard is intended to enhance comparability between entities that report under GAAP and to provide a more consistent method of presenting other comprehensive income transactions that affect an entity’s equity. This standard is effective for the Company on January 1, 2012 and is to applied retrospectively. The amendments in this update do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income but will change the way the information is presented in the Company’s consolidated financial statements.

 

In May 2011, FASB issued ASU No. 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S GAAP and IFRS. This update defines fair value, clarifies a framework to measure fair value, and requires specific disclosures of fair value measurements. The guidance will be effective for the Company’s interim and annual reporting periods beginning January 1, 2012, and applied prospectively. The Company does not expect adoption of this guidance to have a material impact on its financial condition, results of operations, or disclosures.

 

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures, Improving Disclosures about Fair Value Measurements which requires a number of additional disclosures regarding fair value measurements, including the amount of transfers between Level 1 and 2 of the fair value hierarchy, the reasons for transfers in or out of Level 3 of the fair value hierarchy and activity for recurring Level 3 measures.

 

In addition, the amendments clarify certain existing disclosure requirements related to the level at which fair value disclosures should be disaggregated and the requirement to provide disclosures about the valuation techniques and inputs used in determining the fair value of assets or liabilities classified as Level 2 or 3. These required disclosures were effective January 1, 2010, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures were effective for the Company on January 1, 2011. There were no transfers between Level 1, 2 and no significant transfers into or out of Level 3 of the fair value hierarchy during the three and six months ended June 30, 2011.  The adoption did not have a material effect on the Company’s consolidated financial condition, results of operations, or cash flows.  See Note 14 for the related disclosures.

 

Note 17 - Subsequent Events

 

On July 29, 2011, the Company acquired a property, which is operated as a Federal Express shipping center and is located in Durham, North Carolina.  The $3,975,000 purchase price was paid in cash.

 

18



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, 2010 under the caption “Item 1A. Risk Factors” for a discussion of certain factors which may cause actual results to differ materially from current expectations and are cautioned not to place undue reliance on any forward-looking statements.

 

Overview

 

We are a self-administered and self-managed real estate investment trust, organized in Maryland in 1982.  We acquire, own and manage a geographically diversified portfolio of retail (including furniture and office supply stores), industrial, office, flex, health and fitness and other properties, a substantial portion of which are under long-term net leases.  As of June 30, 2011, we owned 84 properties, three of which are vacant, and one of which is a 50% tenancy in common interest.  Our joint ventures owned a total of five properties.  The 89 properties are located in 29 states.

 

We face a variety of risks and challenges in our business. Among other things, we face the possibility we will not be able to lease our properties on terms favorable to us or at all and that our tenants may not be able to pay their rental and other obligations owing under their leases.  In particular, during the recent national economic recession, consumer confidence and retail spending declined, which negatively impacted certain of our retail tenants.

 

We seek to manage the risk of our real property portfolio by diversifying among types of properties and industries, tenant identity, geography and lease expiration dates. 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.

 

19



Table of Contents

 

During 2010, economic conditions began to improve and credit became more available.  In 2010, we purchased 14 properties for an aggregate of $72.3 million and in 2011, we purchased a property for $2.3 million and a joint venture purchased a property for $3.2 million.  We also sold two properties in 2010 and recognized an aggregate net gain of $235,000 and we sold one property in 2011, tenanted by Office Depot, and recognized a net gain of $932,000.  Our occupancy rate at June 30, 2011 was approximately 95.6%.

 

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

 

Results of Operations

 

The following table compares revenues and operating expenses of continuing operations for the three and six months ended June 30, 2011 and 2010:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

(Dollars in thousands)

 

2011

 

2010

 

Increase
(Decrease)

 

Percent
Change

 

2011

 

2010

 

Increase
(Decrease)

 

Percent
Change

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

11,241

 

$

10,323

 

$

918

 

8.9

%

$

22,343

 

$

20,079

 

$

2,264

 

11.3

%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

2,323

 

2,091

 

232

 

11.1

%

4,648

 

4,159

 

489

 

11.8

%

General and administrative

 

2,053

 

1,913

 

140

 

7.3

%

3,802

 

3,566

 

236

 

6.6

%

Real estate acquisition costs

 

18

 

168

 

(150

)

(89.3

)%

45

 

514

 

(469

)

(91.2

)%

Real estate expenses

 

527

 

485

 

42

 

8.7

%

988

 

665

 

323

 

48.6

%

Leasehold rent

 

77

 

77

 

 

 

154

 

154

 

 

 

Total operating expenses

 

4,998

 

4,734

 

264

 

5.6

%

9,637

 

9,058

 

579

 

6.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

6,243

 

$

5,589

 

$

654

 

11.7

%

$

12,706

 

$

11,021

 

$

1,685

 

15.3

%

 

Revenues

 

Rental income.  The increases are attributable to $1.2 million and $2.6 million earned during the three and six months ended June 30, 2011, respectively, from 15 properties we acquired since February 2010, of which $44,000 and $106,000, respectively, represents real estate tax and expense reimbursements from tenants.  Partially offsetting the increases were decreases of approximately $35,000 and $262,000 in rental income in the three and six months ended June 30, 2011, respectively, resulting from Robb & Stucky’s bankruptcy filing in February 2011.  The current year periods include rental income from this tenant for the 4.5 months subsequent to its bankruptcy filing through June 30, 2011, whereas the three and six months ended June 30, 2010 includes rental income for the entire period.  We will not be receiving any rental payments from Robb & Stucky in the future, as they vacated the premises at the end of June 2011.

 

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Operating Expenses

 

Depreciation and amortization.  The increases are attributable to the 15 properties we acquired since February 2010.

 

General and administrative expenses.  The increases in the three and six months ended June 30, 2011 are attributable primarily to a $250,000 estimated increase in the amount payable pursuant to the compensation and services agreement.  Also affecting general and administration expenses in the three and six months ended June 30, 2011 is (i) a $25,000 quarterly fee paid to our vice-chairman effective January 1, 2011; (ii) increases of $35,000 and $65,000 in the three and six months ended June 30, 2011, respectively, in payroll and payroll related expenses; and (iii) the inclusion of $22,000 per quarter in non-cash compensation expense related to pay-for-performance restricted stock units awarded in September 2010.  Partially offsetting these increases was a $138,000 decrease from 2010 in professional fees incurred in connection with an equity financing that was not pursued.

 

Real estate acquisition costs.  These expenses decreased because of the inclusion in the corresponding prior year periods of expenses related to several acquisitions in such periods.

 

Real estate expenses.  The three and six months ended June 30, 2011 includes approximately $86,000 and $184,000, respectively, of real estate taxes relating to the property previously leased by Robb & Stucky, whereas the corresponding periods in the prior year do not include real estate taxes as they were paid directly to the taxing authority by the tenant. The balance of the increase in the current six months is primarily attributable to the inclusion of real estate taxes and expenses that due to the timing of acquisitions in 2010, were either not included or not included in full in the six months ended June 30, 2010.  The tenants are contractually obligated to, and have reimbursed us, for a substantial portion of these expenses.

 

Other Income and Expenses

 

The following table compares other income and expenses for the three and six months ended June 30, 2011 and 2010:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

(Dollars in thousands)

 

2011

 

2010

 

Increase
(Decrease)

 

Percent
Change

 

2011

 

2010

 

Increase
(Decrease)

 

Percent
Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in earnings of unconsolidated joint ventures

 

$

105

 

$

128

 

$

(23

)

(18.0

)%

$

135

 

$

253

 

$

(118

)

(46.6

)%

Gain on disposition of real estate held by unconsolidated joint venture

 

 

107

 

(107

)

(100

)%

 

107

 

(107

)

(100

)%

Gain on settlement of debt

 

1,240

 

 

1,240

 

n/a

 

1,240

 

 

1,240

 

n/a

 

Other income, including realized gain on sale of available-for-sale securities and interest income

 

40

 

174

 

(134

)

(77.0

)%

53

 

225

 

(172

)

(76.4

)%

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expense

 

(3,333

)

(3,701

)

(368

)

(9.9

)%

(6,974

)

(6,980

)

(6

)

(0.1

)%

Amortization of deferred financing costs

 

(182

)

(150

)

32

 

21.3

%

(495

)

(292

)

203

 

69.5

%

 

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Equity in earnings of unconsolidated joint ventures.  Approximately $61,000 of the decrease in the six months ended June 30, 2011 is attributable to our 50% share of real estate acquisition costs incurred by one of our joint ventures in connection with the purchase of a property in March 2011.  In addition, $29,000 and $54,000 of the decreases in the three and six months ended June 30, 2011, respectively, result from a sale by a joint venture of a property in April 2010 at the same time the related lease expired.

 

Gain on disposition of real estate held by unconsolidated joint venture.  In 2010, we recognized a net gain of $107,000 on the sale by a joint venture of a property.  There was no comparable gain in 2011.

 

Gain on settlement of debt.  This gain represents the satisfaction of the $8.9 million mortgage payable related to the property previously leased by Robb & Stucky at less than its face value.  The $1.24 million gain is net of a $19,000 write off of the remaining balance of related deferred mortgage costs.

 

Other income, including realized gain on sale of available-for-sale securities and interest income.  The 2010 periods include a $130,000 gain on the sale of corporate bonds and related interest income.  There was no such income in the 2011 periods.

 

Interest expense.  The following table details interest expense for the periods indicated:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

(Dollars in thousands)

 

2011

 

2010

 

Increase
(Decrease)

 

Percent
Change

 

2011

 

2010

 

Increase
(Decrease)

 

Percent
Change

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit line interest

 

$

110

 

$

417

 

$

(307

)

(73.6

)%

$

460

 

$

600

 

$

(140

)

(23.3

)%

Mortgage interest

 

3,223

 

3,284

 

(61

)

(1.9

)%

6,514

 

6,380

 

134

 

2.1

%

Total

 

$

3,333

 

$

3,701

 

$

(368

)

(9.9

)%

$

6,974

 

$

6,980

 

$

(6

)

(0.1

)%

 

Credit line interest - the decreases are due to the reduction in the weighted average balances outstanding under our line of credit.  For the three months ended June 30, 2011 and 2010, such balances were approximately $7.0 million and $27 million, respectively, and for the six months ended June 30, 2011 and 2010, such balances were approximately $13 million and $27 million, respectively.  In February 2011, we applied $26.2 million of our public offering proceeds to reduce the outstanding credit line balance.  The decrease in this expense for the current six months was partially offset by an increase of approximately $235,000 from the increase, effective April 1, 2010, in the annual interest rate charged on the credit line to 6%.  The Company was paying interest at LIBOR plus 2.15% (2.44% at March 31, 2010).

 

Mortgage interest -  during the current three months, this expense decreased due to the decrease from approximately 6.5% to approximately 6.27% in the weighted average interest rate on outstanding mortgage debt, partially offset by the approximately $3.4 million increase in the weighted average amount of outstanding mortgage debt.  During the current six months, this expense increased due to the approximately $11.6 million increase in the weighted average amount of outstanding mortgage debt, partially offset by the decrease from approximately 6.49% to 6.25% in the weighted average interest rate thereon.  The weighted average amount of outstanding mortgage debt (approximately $205.6 million and $208.4 million for the current three and six months, respectively, and $202.2 million and $196.8 million for the corresponding periods in 2010) increased in 2011 primarily due to the assumption of mortgage debt in the aggregate amount of $33.6 million in connection with the acquisition of properties in

 

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Table of Contents

 

2010 and $9.5 million in connection with the financing of certain properties in 2010 and 2011.  The increase in 2011 in the weighted amount of outstanding mortgage debt was partially offset by decreases to such debt due to the payoff in February 2011 of two mortgage loans aggregating $7.7 million, the payoff and paydown in August 2010 of three mortgage loans aggregating $8.3 million and regular monthly principal amortization of other mortgages of approximately $8.1 million since January 1, 2010.  The weighted average interest rate of the mortgages that were paid off was approximately 8% and the weighted average interest rate of the mortgages we assumed and on the properties we financed was approximately 5.97%.  The weighted average interest rates in the current three and six month periods decreased from the corresponding periods in the prior year due to financing, refinancing and paydown of debt as described above.

 

Amortization of deferred financing costs.  The increase in the six months ended June 30, 2011 is primarily due to accelerated amortization of deferred financing costs of approximately $120,000 relating to two mortgage loans that were paid in full in February 2011.  The increases in the three and six month periods were also due to the amortization of deferred financing costs that were incurred in connection with financings on four properties we acquired in 2010 and in connection with the amendment of our line of credit in January 2011.

 

Discontinued Operations

 

The following table compares discontinued operations for the three and six months ended June 30, 2011 and 2010:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

(Dollars in thousands)

 

2011

 

2010

 

Increase
(Decrease)

 

Percent
Change

 

2011

 

2010

 

Increase
(Decrease)

 

Percent
Change

 

Discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

$

97

 

$

252

 

$

(155

)

(61.5

)%

$

277

 

$

486

 

$

(209

)

(43.0

)%

Net gain on sale

 

932

 

 

932

 

n/a

 

932

 

 

932

 

n/a

 

Income from discontinued operations

 

$

1,029

 

$

252

 

$

777

 

308

%

$

1,209

 

$

486

 

$

723

 

149

%

 

Discontinued operations.  Discontinued operations for the three and six months ended June 30, 2011 includes the income from operations and net gain on sale of a property sold in May 2011. For the three and six months ended June 30, 2010, discontinued operations includes the income from operations of the property sold in May 2011 and two properties sold in the three months ended September 2010.

 

Liquidity and Capital Resources

 

Our sources of liquidity and capital include cash flow from our operations, cash and cash equivalents, available-for-sale securities, borrowings under our revolving credit facility, refinancing existing mortgage loans and obtaining mortgage loans secured by our unencumbered properties.  Our available liquidity at June 30, 2011 was, without giving effect to the $6 million balance we are required to maintain pursuant to the credit facility, approximately $62.5 million, including $11.4 million of cash and cash equivalents, $601,000 of available-for-sale securities and $50.5 million available under our revolving line of credit.

 

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Table of Contents

 

Liquidity and Financing

 

We expect to meet substantially all of our operating cash requirements (including dividend payments) from cash flow from operations. To the extent that cash flow from operations is not adequate to cover all of our operating needs, we will be required to use our available cash and cash equivalents or draw on our credit line (to the extent permitted).

 

At June 30, 2011, excluding mortgages payable of our unconsolidated joint ventures, we had 34 outstanding mortgages payable secured by 50 properties, in aggregate principal amount of approximately $198.2 million. These mortgages represent first liens on individual real estate investments with an aggregate carrying value of approximately $326.1 million, before accumulated depreciation. The mortgages bear interest at fixed rates ranging from 5.44% to 8.8% (a 6% weighted average interest rate) and mature between 2012 and 2037.

 

We anticipate that mortgage debt due through 2013 of approximately $48.5 million will be paid primarily from cash and cash equivalents, cash flow from operations, and mortgage financings and refinancings. If we are unsuccessful in refinancing our existing indebtedness or financing our unencumbered properties, our cash flow, funds available under our credit facility and available cash, if any, may not be sufficient to repay all debt obligations when payments become due, and we may need to issue additional equity, obtain long or short term debt, or dispose of properties on unfavorable terms.

 

We continually seek to refinance existing mortgage loans on terms we deem acceptable, in order to generate additional liquidity.  Also, in the normal course of our business, we sell properties when we determine that it is in our best interests, which generates additional liquidity. Our encumbered properties are subject to non-recourse mortgages, with standard carve outs for, among other things, environmental liabilities, the sale, financing or encumbrance of the property in violation of loan documents, damage to property as a result of intentional misconduct or gross negligence, failure to pay valid taxes and other claims which could create liens on property.

 

Credit Facility

 

We can borrow up to $55 million pursuant to our revolving credit facility which is available to us for the acquisition of commercial real estate, repayment of mortgage debt, and for any other purpose, provided, if used for a purpose other than a property acquisition or mortgage repayment, the amount borrowed for such other purpose will not exceed the lesser of $6 million and 15% of the permitted borrowing base.  The facility matures on March 31, 2013 and bears interest at the greater of (i) 90 day LIBOR plus 3% and (ii) 6%.  There is an unused facility fee of 0.25% per annum on the difference between the outstanding loan balance and $55 million.  We are required to maintain at least $6 million average outstanding collected deposit balances.  The facility is guaranteed by our subsidiaries that own unencumbered properties and is to be secured by the outstanding stock of any newly formed subsidiary.  Net proceeds received from the sale or refinancing of properties are required to be used to repay amounts outstanding under the facility if proceeds from the facility were used to purchase or refinance the property.

 

The terms of our revolving credit facility include certain restrictions and covenants which limit, among other things, the incurrence of liens, and which require compliance with financial ratios relating to, among other things, the minimum amount of tangible net worth, the minimum amount of debt service coverage, the minimum amount of fixed charge coverage, the maximum

 

24



Table of Contents

 

amount of debt to value, the minimum level of net income, certain investment limitations and the minimum value of unencumbered properties and the number of such properties.  As of June 30, 2011, we were in compliance with applicable covenants.

 

Off-Balance Sheet Arrangements

 

We are not a party to any off-balance sheet arrangements.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

Our primary market risk exposure is the effect of changes in interest rates on the interest cost of draws on our revolving variable rate credit facility and the effect of changes in the fair value of our interest rate swap agreements.  Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

 

As of June 30, 2011, we had three interest rate swap agreements outstanding, including one held by two of our unconsolidated joint ventures.  The fair value of our interest rate swaps is dependent upon existing market interest rates and swap spreads, which change over time.  At June 30, 2011, if there had been a 1% increase in forward interest rates, the fair market value of the interest rate swaps and net unrealized loss on derivative instruments would have decreased by approximately $697,000.  If there had been a 1% decrease in forward interest rates, the fair market value of the interest rate swaps and net unrealized loss on derivative instruments would have increased by approximately $792,000.  These changes would not have any impact on our net income or cash.

 

From time to time, we utilize interest rate swaps to limit interest rate risk.  Derivatives are used for hedging purposes - not for speculation.  We do not enter into interest rate swaps for trading purposes.

 

Our mortgage debt (excluding our mortgages subject to the interest swap agreements) bears interest at fixed rates, and accordingly, the effect of changes in interest rates would not impact the amount of interest expense that we incur under these mortgages.  Our credit facility is a revolving variable rate facility which is sensitive to interest rates.  Under current market conditions, we do not believe that our risk of material potential losses in future earnings, fair values and/or cash flows from near-term changes in market rates that we consider reasonably possible is material.

 

We assessed the market risk for our revolving variable rate credit facility and believe that there is no foreseeable market risk because interest is charged at the greater of (i) 90 day LIBOR plus 3% and (ii) 6% per annum.  At June 30, 2011, 90 day LIBOR plus 3% was approximately 3.25%; therefore, a 1% increase or decrease would not have any impact on our interest expense related to this facility.

 

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Table of Contents

 

Item 4.  Controls and Procedures

 

Based on their evaluation as of the end of the period covered by this report, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are effective.

 

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act) during the three months ended June 30, 2011 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II — OTHER INFORMATION

 

Item 6.  Exhibits

 

Exhibit
No.

 

Title of Exhibit

31.1

 

Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

 

Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

 

Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

 

Certification of Senior Vice President and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101

 

Financial statements from the Quarterly Report on Form 10-Q of One Liberty Properties, Inc. for the quarterly period ended June 30, 2011, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income,(iii) the Consolidated Statements of Stockholders’ Equity and Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements.  *

 


*Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

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Table of Contents

 

ONE LIBERTY PROPERTIES, INC.

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

One Liberty Properties, Inc.

 

 

 

 

(Registrant)

 

 

 

 

 

 

 

 

 

 

 

 

August 8, 2011

 

/s/ Patrick J. Callan, Jr.

 

 

Date

 

Patrick J. Callan, Jr.

 

 

 

 

President and Chief Executive Officer

 

 

 

 

(principal executive officer)

 

 

 

 

 

 

 

 

 

 

 

 

August 8, 2011

 

/s/ David W. Kalish

 

 

Date

 

David W. Kalish

 

 

 

 

Senior Vice President and

 

 

 

 

Chief Financial Officer

 

 

 

 

(principal financial officer)

 

 

 

27