Use these links to rapidly review the documentTABLE OF CONTENTS Form 10-KPART IV
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, | ||
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Or | ||
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☐ | 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 (State or other jurisdiction of Incorporation or Organization) | 13-3147497 (I.R.S. employer Identification No.) | |
60 Cutter Mill Road, Great Neck, New York (Address of principal executive offices) | 11021 (Zip Code) |
Registrant's
Registrant’s telephone number, including area code:(516) (516) 466-3100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of exchange on which registered | ||||
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Common Stock, par value $1.00 per share | | OLP | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:NONE
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes o◻No ý⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o◻No ý⌧
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 ý⌧ No o◻
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý⌧ No o◻
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a small reporting company or an emerging growth company. See definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "small” “small reporting company"company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act. o◻
Indicate by check mark whether registrant is a shell company (defined in Rule 12b-2 of the Act). Yes o☐ No ý☒
As of June 30, 201728, 2019 (the last business day of the registrant'sregistrant’s most recently completed second quarter), the aggregate market value of all common equity held by non-affiliates of the registrant, computed by reference to the price at which common equity was last sold on said date, was approximately $338$450 million.
As of March 1, 2018,2020, the registrant had 19,068,33620,081,682 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the 20182020 annual meeting of stockholders of One Liberty Properties, Inc., to be filed pursuant to Regulation 14A not later than April 30, 2018,29, 2020, are incorporated by reference into Part III of this Annual Report on Form 10-K.
Form 10-K
Item No. | | Page(s) | ||||
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PART I |
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1. | Business | 1 | ||||
1A. | Risk Factors | 9 | ||||
1B. | Unresolved Staff Comments | 19 | ||||
2. | Properties | 19 | ||||
3. | Legal Proceedings | 25 | ||||
4. | Mine Safety Disclosures | 25 | ||||
PART II |
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5. | Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 26 | ||||
6. | Selected Financial Data | 28 | ||||
7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 32 | ||||
7A. | Quantitative and Qualitative Disclosures About Market Risk | 46 | ||||
8. | Financial Statements and Supplementary Data | 47 | ||||
9. | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure | 47 | ||||
9A. | Controls and Procedures | 47 | ||||
9B. | Other Information | 48 | ||||
PART III |
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10. | Directors, Executive Officers and Corporate Governance | 51 | ||||
11. | Executive Compensation | 52 | ||||
12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 52 | ||||
13. | Certain Relationships and Related Transactions, and Director Independence | 53 | ||||
14. | Principal Accountant Fees and Services | 53 | ||||
PART IV |
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15. | Exhibits and Financial Statement Schedules | 54 | ||||
16. | Form 10-K Summary | 56 | ||||
Signatures | 57 |
PART I General We are a self-administered and self-managed real estate investment trust, also known as a REIT. We were incorporated in Maryland on December 20, 1982. We acquire, own and manage a geographically diversified portfolio consisting primarily of industrial, retail, As of December 31, In In 2020, we 1 Other Information In the narrative portion of this Annual Report on Form 10-K, except as otherwise indicated: Acquisition Strategies We seek to acquire properties throughout the United States that have locations, demographics and other investment attributes that we believe to be attractive. We believe that long-term leases provide a predictable income stream over the term of the lease, making fluctuations in market rental rates and in real estate values less significant to achieving our overall investment objectives. Our primary goal is to acquire single-tenant properties that are subject to long-term net leases that include periodic contractual rental increases or rent increases based on increases in the consumer price index. Periodic contractual rental increases provide reliable increases in future rent payments and rent increases based on the consumer price index provide protection against inflation. Historically, long-term leases have made it easier for us to obtain longer-term, fixed-rate mortgage financing with principal amortization, thereby moderating the interest rate risk associated with financing or refinancing our property portfolio and reducing the outstanding principal balance over time. We may, however, acquire a property that is subject to a short-term lease when we believe the property represents a favorable opportunity for generating additional income from its re-lease or has significant residual value. Although the acquisition of single-tenant properties subject to net leases is the focus of our investment strategy, we also consider investments in, among other things, (i) properties that can be re-positioned or re-developed, (ii) community shopping centers anchored by national or regional tenants and (iii) properties ground leased to operators of multi-family properties. We pay substantially all the operating expenses at community shopping centers, a significant portion of which is reimbursed by tenants pursuant to their leases. Generally, we hold the properties we acquire for an extended period of time. Our investment criteria are intended to identify properties from which increased asset value and overall return can be realized from an extended period of ownership. Although our investment criteria favor an extended period of ownership, we will dispose of a property if we regard the disposition of the property as an opportunity to realize the overall value of the property sooner or to avoid future risks by achieving a determinable return from the property. Historically, a significant portion of our portfolio generated rental income from retail properties. We are sensitive to the risks facing the retail industry and over the past several years have been addressing our exposure thereto by seeking to acquire industrial properties (including warehouse and distribution facilities) and properties that capitalize on 2 We identify properties through the network of contacts of our senior management and our affiliates, which contacts include real estate brokers, private equity firms, banks and law firms. In addition, we attend industry conferences and engage in direct solicitations. Our charter documents do not limit the number of properties in which we may invest, the amount or percentage of our assets that may be invested in any specific property or property type, or the concentration of investments in any region in the United States. We do not intend to acquire properties located outside of the United States. We will continue to form entities to acquire interests in real properties, either alone or with other investors, and we may acquire interests in joint ventures or other entities that own real property. It is our policy, and the policy of our affiliated entities, that any investment opportunity presented to us or to any of our affiliated entities that involves the acquisition of a net leased property, a ground lease (other than a ground lease of a multi-family property) or a community shopping center, will first be offered to us and may not be pursued by any of our affiliated entities unless we decline the opportunity. Further, to the extent our affiliates are unable or unwilling to pursue an acquisition of a multi-family property (including a ground lease of a multi-family property), we may pursue such transaction if it meets our investment objectives. Investment Evaluation In evaluating potential investments, we consider, among other criteria, the following: Our Business Objective Our business objective is to 3 Typical Property Attributes As of December 31, Our Tenants The following table sets forth information about the diversification of our tenants by industry sector as of December 31, Percentage of Number of Number of 2020 Contractual 2020 Contractual Type of Property Tenants Properties Rental Income(1) Rental Income Industrial 48 44 $ 36,029,541 50.1 Retail—General 53 32 13,756,690 19.1 Retail—Furniture(2) 3 14 6,136,053 8.5 Restaurant 10 16 3,443,555 4.8 Health & Fitness 1 3 3,215,762 4.5 Retail—Supermarket 2 3 2,497,400 3.5 Theater 1 2 2,338,726 3.2 Retail—Office Supply(3) 1 5 2,015,001 2.8 Other 3 3 2,537,399 3.5 122 122 $ 71,970,127 100.0 Industrial Retail—General Retail—Furniture(1) Restaurant Health & Fitness Retail—Supermarket Retail—Office Supply(2) Theater Other Many of our tenants (including franchisees of national chains) operate on a national basis including, among others, Advanced Auto, Applebees, 4 Our Leases Most of our leases are net leases under which the tenant, in addition to its rental obligation, typically is responsible, directly or indirectly for expenses attributable to the operation of the property, such as real estate taxes and assessments, insurance and ordinary maintenance and repairs. The tenant is also generally responsible for maintaining the property and for restoration following a casualty or partial condemnation. The tenant is typically obligated to indemnify us for claims arising from the property and is responsible for maintaining insurance coverage for the property it leases and naming us an additional insured. Under some net leases, we are responsible for structural repairs, including foundation and slab, roof repair or replacement and restoration following a casualty event, and at several properties we are responsible for certain expenses related to the operation and maintenance of the property. Generally, our strategy is to acquire properties that are subject to existing long-term leases or to enter into long-term leases with our tenants. Our leases generally provide the tenant with one or more renewal options. The following table sets forth scheduled expirations of leases at our properties as of December 31, Approximate Square Percentage of Footage 2020 Contractual 2020 Contractual Number of Subject to Rental Income Rental Income Expiring Expiring Under Expiring Represented by Year of Lease Expiration(1) Leases Leases(2) Leases Expiring Leases 2020 5 10,382 $ 112,208 0.2 2021 16 418,648 3,027,574 4.2 2022 24 2,103,373 14,251,247 19.8 2023 21 1,190,358 8,217,645 11.4 2024 20 948,891 5,612,934 7.8 2025 13 437,606 5,783,689 8.0 2026 11 551,229 5,347,735 7.4 2027 9 915,359 5,902,181 8.2 2028 10 592,983 3,905,224 5.4 2029 and thereafter 29 2,755,651 19,809,690 27.6 158 9,924,480 $ 71,970,127 100.0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 and thereafter Financing, Re-Renting and Disposition of Our Properties Our We mortgage specific properties on a non-recourse basis, subject to 5 With respect to properties we acquire on a free and clear basis, we usually seek to obtain long-term fixed-rate mortgage financing, when available at acceptable terms, shortly after the acquisition of such property to avoid the risk of movement of interest rates and fluctuating supply and demand in the mortgage markets. We also will acquire a property that is subject to (and will assume) a fixed-rate mortgage. Substantially all of our mortgages provide for amortization of part of the principal balance during the term, thereby reducing the refinancing risk at maturity. Some of our properties may be financed on a cross-defaulted or cross-collateralized basis, and we may collateralize a single financing with more than one property. After termination or expiration of any lease relating to any of our properties, we will seek to re-rent or sell such property in a manner that will maximize the return to us, considering, among other factors, the income potential and market value of such property. We acquire properties for long-term investment for income purposes and do not typically engage in the turnover of investments. We will consider the sale of a property if a sale appears advantageous in view of our investment objectives. If there is a substantial tax gain, we may seek to enter into a tax deferred transaction and reinvest the proceeds in another property. Cash realized from the sale of properties, net of required payoffs of the related mortgage debt, if any, required paydowns of our credit facility, and distributions to stockholders, is available for general working capital purposes and the acquisition of additional properties. Our Joint Ventures As of December 31, Based on the leases in effect at December 31, See Competition We face competition for the acquisition of properties from a variety of investors, including domestic and foreign corporations and real estate companies, financial institutions, insurance companies, pension funds, investment funds, other REITs and individuals, many of which have significant advantages over us, including a larger, more diverse group of properties and greater financial (including access to debt on more favorable terms) and other resources than we have. Regulation Environmental Investments in real property create the potential for environmental liability on the part of the owner or operator of such real property. If hazardous substances are discovered on or emanating from a property, the owner or operator of the property may be held strictly liable for all costs and liabilities relating to such hazardous substances. We have obtained a Phase I environmental study (which involves inspection without soil sampling or ground water analysis) conducted by independent environmental consultants on each of our properties and, in certain instances, have conducted additional investigations. We do not believe that there are hazardous substances existing on our properties that would have a material adverse effect on our business, financial position or results of operations. We do not carry insurance coverage for the types of environmental risks described above. 6 We believe that we are in compliance, in all material respects, with all federal, state and local ordinances and regulations regarding hazardous or toxic substances. Furthermore, we have not been notified by any governmental authority of any noncompliance, liability or other claim in connection with any of our properties, that we believe would have a material adverse effect on our business, financial position or results of operations. Americans with Disabilities Act of 1990 Our properties, as commercial facilities, are required to comply with Title III of the Americans with Disabilities Act of 1990 and similar state and local laws and regulations (collectively, the “ADA”). The primary responsibility for complying with the ADA, (i.e., either us or our tenant) generally depends on the applicable lease, but we may incur costs if the tenant is responsible and does not comply. As of December 31, 2019, we have not been notified by any governmental authority, nor are we otherwise aware, of any non-compliance with the ADA that we believe would have a material adverse effect on our business, financial position or results of operations. Our Structure Nine employees, including Patrick J. Callan, Jr., our president and chief executive officer, Lawrence G. Ricketts, Jr., our executive vice president and chief operating officer, Richard Figueroa, senior vice president, Justin Clair, We In We believe that the compensation and services agreement allows us to benefit from (i) access to, and from the services of, a group of senior executives with significant knowledge and experience in the real estate industry and our company, (ii) other individuals who perform services on our behalf, and (iii) general economies of scale. If not for this agreement, we believe that a company of our size would not have access to the skills and expertise of these executives at the cost that we have incurred and will incur in the future. For a description of the background of our management, please see the information under the heading Information About Our Executive Officers NAME AGE POSITION WITH THE COMPANY Matthew J. Gould* 60 Chairman of the Board Fredric H. Gould* 84 Vice Chairman of the Board Patrick J. Callan, Jr. 57 President, Chief Executive Officer and Director Lawrence G. Ricketts, Jr. 43 Executive Vice President and Chief Operating Officer Jeffrey A. Gould* 54 Senior Vice President and Director David W. Kalish** 72 Senior Vice President and Chief Financial Officer Mark H. Lundy 57 Senior Vice President Israel Rosenzweig 72 Senior Vice President Karen Dunleavy 61 Senior Vice President, Financial Alysa Block 59 Treasurer Richard M. Figueroa 52 Senior Vice President and Assistant Secretary Isaac Kalish** 44 Vice President and Assistant Treasurer Justin Clair 37 Senior Vice President — Acquisitions * Matthew J. Gould and Jeffrey A. Gould are Fredric H. Gould’s sons. ** Isaac Kalish is David W. Kalish’s son. Lawrence G. Ricketts, Jr. Mr. Ricketts has been our Chief Operating Officer since 2008, Vice President from 1999 through 2006 and Executive Vice President since 2006. David W. Kalish. Mr. Kalish has served as our Senior Vice President and Chief Financial Officer since 1990 and as Senior Vice President, Finance of BRT Apartments Corp. since 1998. Since 1990, he has served as Vice President and Chief Financial Officer of the Mark H. Lundy. Mr. Lundy has served as Israel Rosenzweig. Mr. Rosenzweig has served as our Senior Vice President since 1997, as Chairman of the Board of Directors of BRT Apartments Corp. since 2013, as Vice Chairman of its Board of Directors from 2012 through 2013, and as its Senior Vice President from 1998 through 2012. He has been a Vice President of the managing general partner of Gould Investors since 1997. Karen Dunleavy. Ms. Dunleavy has served our Senior Vice President, Financial since 2019, as our Vice President, Financial from 1994 through 2019, and as Treasurer of the managing general partner of Gould Investors from 1986 through 2013. Ms. Dunleavy is a certified public accountant. Alysa Block. Ms. Block has been our Treasurer since 2007, and served as Assistant Treasurer from 1997 to 2007. Ms. Block has also served as the Treasurer of BRT Apartments Corp. from 2008 through 2013, and served as its Assistant Treasurer from 1997 to 2008. Richard M. Figueroa. Mr. Figueroa has served as our Senior Vice President since 2019, as Vice President from 2001 through 2019, as Vice President of BRT Apartments Corp. since 2002 and as Vice President of the managing general partner of Gould Investors since 1999. Mr. Figueroa is an attorney admitted to practice in New York. Isaac Kalish. Mr. Kalish has served as our Vice President since 2013, Assistant Treasurer since 2007, as Assistant Treasurer of the managing general partner of Gould Investors from 2012 through 2013, as Treasurer from 2013, as Vice President and Treasurer of BRT Apartments Corp. since 2013, and as its Assistant Treasurer from 2009 through 2013. Mr. Kalish is a certified public accountant. 8 Justin Clair. Mr. Clair has been employed by us since 2006, served as Assistant Vice President from 2010 through 2014, as Vice President from 2014 through 2019, and as Senior Vice President - Acquisitions, since 2019. Additional Information Additional information about us can be found at our website located at www.1liberty.com. We make available, free of charge, on or Forward-Looking Statements This Annual Report on Form 10-K, together with other statements and information publicly disseminated by us, 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 Any or all of our forward-looking statements in this report and in any other public statements we make may turn out to be incorrect. Actual results may differ from our forward-looking statements because of inaccurate assumptions we might make or because of the occurrence of known or unknown risks and uncertainties. Many factors mentioned in the discussion below will be important in determining future results. Consequently, no forward-looking statement can be guaranteed and you are cautioned not to place undue reliance on these forward- looking statements. Actual future results may vary materially. Except as may be required under the United States federal securities laws, we undertake no obligation to publicly update our forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make in our reports that are filed with or furnished to the SEC. 9 Item 1A. Risk Factors. Set forth below is a discussion of certain risks affecting our business. The categorization of risks set forth below is meant to help you better understand the risks facing our business and is not intended to limit your consideration of the possible effects of these risks to the listed categories. Any adverse effects arising from the realization of any of the risks discussed, including our financial condition and results of operations, may, and likely will, adversely affect many aspects of our business. In addition to the other information contained or incorporated by reference in this Form 10-K, readers should carefully consider the following risk factors: Risks Related to Our Business If we are unable to re-rent properties upon the expiration of our leases or if our tenants default or seek bankruptcy protection, our rental income will be reduced and we would incur additional costs. Substantially all of our rental income is derived from rent paid by our tenants. From Approximately 33.9% of our 2020 contractual rental income is derived from retail tenants, including 8.5% from tenants engaged in selling furniture (i.e., Haverty Furniture accounts for 6.7% of 2020 contractual rental income) and 2.8% from tenants engaged in selling office supplies (i.e., Office Depot accounts for 2.8% of 2020 contractual rental income). Our retail tenants face increasing competition from e-commerce retailers. E-commerce retailers may be able to provide customers with better pricing and the ease and comfort of shopping from their home or office. E-commerce sales have been obtaining an increasing percentage of retail sales over the past few years and this trend is continuing. The continued growth of e-commerce sales could decrease the need for traditional retail outlets and reduce retailers’ space and property requirements. This could adversely impact our ability to rent space at our retail properties and increase competition for retail tenants thereby reducing the rent we would receive at these properties and adversely affect our results of operations and financial condition. Approximately 22.2% of our 2020 contractual rental income is derived from five tenants. The default, financial distress or failure of any of these tenants, or such tenant’s determination not to renew or extend their lease, could significantly reduce our revenues. Haverty Furniture, LA Fitness, Northern Tool, If we are unable to refinance our mortgage loans at maturity, we may be forced to sell properties at disadvantageous terms, which would result in the loss of revenues and in a decline in the value of our portfolio. We had, as of December 31, Generally, only a portion of the principal of our mortgage indebtedness will be repaid prior to or at maturity and we do not plan to retain sufficient cash to repay such indebtedness at maturity. Accordingly, to meet these obligations if they cannot be refinanced at maturity, we will have to use funds available under our credit facility, if any, and our available cash and cash equivalents to pay our mortgage debt or seek to raise funds through the financing of unencumbered properties, sale of properties or the issuance of additional equity. From We may find that the value of a property could be less than the mortgage secured by such property. We may also have to decide whether we should refinance or pay off a mortgage on a property at which the mortgage matures prior to lease expiration and the tenant may not renew the lease. In these types of situations, after evaluating various factors, including among other things, the Write-offs of unbilled rent receivables and intangible lease assets will reduce our net income, total assets and stockholders’ equity and may result in breaches of financial covenants under our credit facility. At December 31, 2019, the aggregate of our unbilled rent receivable and intangible lease assets is $41.1 million; three tenants account for 21% of such sum. We are required to assess the collectability of our unbilled rent receivables and the remaining useful lives of our intangible lease assets. Such assessments take into consideration, among other things, a tenant’s payment history, financial condition, and the likelihood of collectability of future rent. If we determine, based on our assessment, that the collectability of a tenant’s unbilled rent receivable is unlikely or that the useful life of a tenant’s intangible lease asset has changed, write-offs would be required. Such write-offs would result in a reduction of our net income, total assets and stockholders’ equity and in certain circumstances may result in the breach of our financial covenants under the credit facility. Declines in the value of our properties could result in impairment charges. If we are presented with indications of 11 The concentration of our properties in certain states may make our revenues and the value of our portfolio vulnerable to adverse changes in local economic conditions. Our portfolio of properties is concentrated in the industrial and retail real estate sectors, and our business would be adversely affected by an economic downturn in either of such sectors. Approximately 50.1% and 33.9% of our 2020 contractual rental income is derived from industrial and retail tenants, respectively, and we are vulnerable to economic declines that negatively impact these sectors of the economy, which could have an adverse effect on our results of operations, liquidity and financial condition. If interest rates increase or credit markets tighten, it may be more difficult for us to secure financing, which may limit our ability to finance or refinance our real estate properties, reduce the number of properties we can acquire, sell certain properties, and decrease our stock price. An increase in interest rates could reduce the amount investors are willing to pay for our common stock. Because REIT stocks are often perceived as high-yield investments, investors may perceive less relative benefit to owning REIT stocks as interest rates and the yield on government treasuries and other bonds increase. Increases in interest rates or reduced access to credit markets may make it difficult for us to obtain financing, refinance mortgage debt, limit the mortgage debt available on properties we wish to acquire and limit the properties we can acquire. Even in the event that we are able to secure mortgage debt on, or otherwise finance our real estate properties, due to increased costs associated with securing financing and other factors beyond our control, we may be unable to refinance the entire outstanding loan balance or be subject to unfavorable terms (such as higher loan fees, interest rates and periodic payments) While interest rates have been at historically low levels the past several years, they have Principal Balances Weighted Average Due at Interest Rate Maturity Percentage 2018 2019 2020 $ — — 2021 8,463 4.13 2022 31,539 3.92 2023 and thereafter 2023 16,673 4.39 2024 50,504 4.42 2025 and thereafter 198,012 4.11 We manage a substantial portion of our exposure to interest rate risk by accessing debt with staggered maturities, obtaining fixed rate mortgage debt and through the use of interest rate swap agreements. However, no amount of hedging activity can fully insulate us from the risks associated with changes in interest rates. Swap agreements involve risk, including that counterparties may fail to honor their obligations under these arrangements, and that these arrangements may cause us to pay higher interest rates on our debt obligations than would otherwise be the case. Failure to hedge effectively against interest rate risk could adversely affect our results of operations and financial condition. 12 If our borrowings increase, the risk of default on our repayment obligations and our debt service requirements will also increase. The terms of our revolving credit facility limit our ability to incur indebtedness, including limiting the total indebtedness that we may incur to an amount equal to If a significant number of our tenants default or fail to renew expiring leases, or we take impairment charges against our properties, a breach of our Our Failure to meet interest and other payment obligations under our revolving credit facility or a breach by us of the covenants to maintain the financial ratios would place us in default under our credit facility, and, if the banks called a default and required us to repay the full amount outstanding under the credit facility, we might be required to rapidly dispose of our properties, which could have an adverse impact on the amounts we receive on such disposition. If we are unable to dispose of our properties in a timely fashion to the satisfaction of the banks, the banks could foreclose on that portion of our collateral pledged to the banks, which could result in the disposition of our properties at below market values. The disposition of our properties at below our carrying value would adversely affect our net income, reduce our The re-development of a multi-tenant community shopping center located in Manahawkin, New Jersey owned by an unconsolidated joint venture may be unsuccessful or fail to meet our expectations. An unconsolidated joint venture in which we are a 50% partner is re-developing a multi-tenant community shopping center located in Manahawkin, New Jersey, and which we refer to as the Manahawkin Property. We anticipate that this project will be completed in stages through 2022 and that our share of the capital expenditures required in connection therewith may range from $12 million to $15 million. During the re-development period, the venture has experienced, and may continue to experience, a significant reduction in cash flow as tenants are relocated or the venture chooses not to renew leases. This re-development project may be unsuccessful or fail to meet our expectations due to a variety of risks and uncertainties including: See “Item 2. Properties” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other 2019 Developments” for further information about the Manahawkin Property. 13 Certain of our net leases and our ground leases require us to pay property related expenses that are not the obligations of our tenants. Under the terms of substantially all of our net leases, in addition to satisfying their rent obligations, our tenants are responsible for the payment of real estate taxes, insurance and ordinary maintenance and repairs. However, under the provisions of certain net and ground leases, we are required to pay some expenses, such as the costs of environmental liabilities, roof and structural repairs, insurance premiums, certain non-structural repairs and maintenance. If our properties incur significant expenses that must be paid by us under the terms of our leases, our business, financial condition and results of operations will be adversely affected and the amount of cash available to meet expenses and pay dividends may be reduced. Uninsured and underinsured losses may affect the revenues generated by, the value of, and the return from a property affected by a casualty or other claim. Most all of our tenants obtain, for our benefit, comprehensive insurance covering our properties in amounts that are intended to be sufficient to provide for the replacement of the improvements at each property. However, the amount of insurance coverage maintained for any property may be insufficient (i) to pay the full replacement cost of the improvements at the property following a casualty event or (ii) if coverage is provided pursuant to a blanket policy and the of time that a tenant may be entitled to a rent abatement as a result of, or that may be required to complete restoration following, a casualty Our revenues and the value of our portfolio are affected by a number of factors that affect investments in leased real estate generally. We are subject to the general risks of investing in leased real estate. These include the non-performance of lease obligations by tenants, leasehold improvements that will be costly or difficult to remove should it become necessary to re-rent the leased space for other uses, covenants in certain retail leases that limit the types of tenants to which available space can be rented (which may limit demand or reduce the rents realized on re-renting), rights Real estate investments are relatively illiquid and their values may decline. Real estate investments are relatively illiquid. Therefore, we will be limited in our ability to reconfigure our real estate portfolio in response to economic changes. We may encounter difficulty in disposing of properties when tenants vacate either at the expiration of the applicable lease or otherwise. If we decide to sell any of our properties, our ability to sell these properties and the prices we receive on their sale may be affected by many factors, including the number of potential buyers, the number of competing properties on the market and other market conditions, as well as whether the property is leased and if it is leased, the terms of the lease. As a result, we may be unable to sell our properties for an extended period of time without incurring a loss, which would adversely affect our results of operations, liquidity and financial condition. 14 We have been, and in the future will be, subject to significant competition and we may not be able to compete successfully for investments. We have been, and in the future will be, subject to significant competition for attractive investment opportunities from other real estate investors, many of which have greater financial resources than us, including publicly-traded REITs, non-traded REITs, insurance companies, commercial and investment banking firms, private institutional funds, hedge funds, private equity funds and other investors. We may not be able to compete successfully for investments. If we pay higher prices for investments, our returns may be lower and the value of our assets may not increase or may decrease significantly below the amount we paid for such assets. If such events occur, we may experience lower returns on our investments. We cannot assure you of our ability to pay dividends in the future. We intend to pay quarterly dividends and to make distributions to our stockholders in amounts such that all or substantially all of our ordinary taxable income in each year is distributed. This, along with other factors, will enable us to qualify for the tax benefits accorded to a REIT under the Internal Revenue Code of 1986, as amended, which we refer to as the If we reduce or do not increase our dividend, the market value of our common stock may decline. The level of our Our current and future investments in joint ventures could be adversely affected by the lack of sole decision making authority, reliance on joint venture joint venture partners and their respective affiliates, 15 Our senior management and other key personnel are critical to our business and our future success depends on our ability to retain them. We depend on the services of Matthew J. Gould, chairman of our board of directors, Fredric H. Gould, vice chairman of our board of directors, Patrick J. Callan, Jr., our president and chief executive officer, Lawrence G. Ricketts, Jr., our executive vice president and chief operating officer, and David W. Kalish, our senior vice president and chief financial officer, and other members of senior management to carry out our business and investment strategies. Only two of these executive officers, Messrs. Callan and Ricketts, devote all of their business time to us. Other members of senior management provide services to us either on a full-time or on a part-time, as-needed basis. The loss of the services of any of our senior management or other key personnel, the inability or failure of the members of senior management providing services to us on a part-time basis to devote sufficient time or attention to our activities or our inability to recruit and retain qualified personnel in the future, could impair our ability to carry out our business and investment strategies. Our transactions with affiliated entities involve conflicts of interest. From time to time we have entered into transactions with persons and entities affiliated with us and with certain of our officers and directors. Such transactions involve a potential conflict of interest, and entail a risk that we could have obtained more favorable terms if we had entered into such transaction with an unaffiliated third party. We are a party to a compensation and services agreement with Majestic Property effective as of January 1, 2007, as amended. Majestic Property is wholly-owned by the vice chairman of our board of directors and it provides compensation to certain of our part-time senior executive officers and other individuals performing services on our behalf. Pursuant to the compensation and services agreement, we pay an annual fee to Majestic Property which provides us with the services of all affiliated executive, administrative, legal, accounting and clerical personnel that we use on a part time basis, as well as property management services, property acquisition, sales and leasing and mortgage brokerage services. In 2019 we paid, and in 2020 we anticipate paying, Majestic Property, (i) a fee of $2.8 million and $3.0 million, respectively, and (ii) $216,000 and $275,000, respectively, for our share of all direct office expenses, including rent, telephone, postage, computer services, supplies, and internet usage. We also obtain our property insurance in conjunction with Gould Investors L.P., our affiliate, and in 2019, reimbursed Gould Investors $1.0 million for our share of the insurance premiums paid by Gould Investors. Gould Investors beneficially owns approximately 9.0% of our outstanding common stock and certain of our senior executive officers are also executive officers of the managing general partner of Gould Investors. See Note 10 of our consolidated financial statements for information regarding equity awards to individuals performing services on our behalf pursuant to the compensation and services agreement. The phasing out of LIBOR may adversely affect our cash flow and financial results. At December 31, 2019, our variable rate debt that bears interest at the one month LIBOR rate plus a negotiated spread is in principal amount of $107.7 million (i.e., $96.2 million of mortgage debt and $11.5 million of credit facility debt). We hedged our exposure to the fluctuating interest payments on this mortgage debt by entering into interest rate swaps with the counterparties (or their affiliates) to such debt – these swaps effectively fix our interest payments under the related debt. At December 31, 2019, we have 24 swaps with six separate counterparties and an aggregate notional amount of $96.2 million. The fluctuating interest payments on the credit facility debt are not hedged. The authority regulating LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021 and it is possible that LIBOR will become unavailable at an earlier date. Substantially all of this mortgage debt matures, and our credit facility debt expires, after 2021. Accordingly, there is uncertainty as to how the interest rate on this mortgage debt, the related swaps and the credit facility debt will be determined when LIBOR is unavailable. Though these agreements, and instruments provide for alternative methods of calculating the interest rate if LIBOR is unavailable, such alternative rates may be unavailable (or the alternative rate provided for in the variable rate mortgage debt may be inconsistent with the alternative rate provided for by the related swap), in which case we may have to negotiate an alternative rate with the counterparties to such debt, the related swaps and the credit facility debt - we can provide no assurance that we and our counterparties will be able to agree to alternative rates. Even if alternative rates are available, the swaps may not effectively hedge our interest payment obligation on this variable rate mortgage debt and may result in fluctuating interest payments with respect to such debt. Our cash flow and financial results may be adversely affected if we are unable to arrange a mutually satisfactory alternative rate to LIBOR for our variable rate mortgage debt and the credit facility debt. Further, the absence of LIBOR or a generally acceptable alternative thereto may make it difficult to hedge our interest rate exposure on variable rate mortgage debt that we incur in the future which in turn may make it more difficult to acquire properties. 16 Breaches of information technology systems could materially harm our business and reputation. We collect and retain on information technology systems, certain financial, personal and other sensitive information provided by third parties, including tenants, vendors and employees. We also rely on information technology systems for the collection and distribution of funds. We have been, and continue to be, subject to cybersecurity attacks though we have not incurred any loss therefrom. There can be no assurance that we will be able to prevent unauthorized access to sensitive information or the unauthorized distribution of funds. Any loss of this information or unauthorized distribution of funds as a result of a cybersecurity attack may result in loss of funds to which we are entitled, legal liability and costs (including damages and penalties), as well as damage to our reputation, that could materially and adversely affect our business. Compliance with environmental regulations and associated costs could adversely affect our results of operations and liquidity. Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at the property and may be held liable to a governmental entity or to third parties for property damage and for investigation and cleanup costs incurred in connection with contamination. The cost of investigation, remediation or removal of hazardous or toxic substances may be substantial, and the presence of such substances, or the failure to properly remediate a property, may adversely affect our ability to sell or rent the property or to borrow money using the property as collateral. In connection with our ownership, operation and management of real properties, we may be considered an owner or operator of the properties and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and liability for injuries to persons and property, not only with respect to properties we own now or may acquire, but also with respect to properties we have owned in the past. We cannot provide any assurance that existing environmental studies with respect to any of our properties reveal all potential environmental liabilities, that any prior owner of a property did not create any material environmental condition not known to us, or that a material environmental condition does not otherwise exist, or may not exist in the future, as to any one or more of our properties. If a material environmental condition does in fact exist, or exists in the future, the remediation costs could have a material adverse impact upon our results of operations, liquidity and financial condition. Compliance with the Americans with Disabilities Act could be costly. Under the Americans with Disabilities Act of 1990, all public accommodations must meet Federal requirements for access and use by disabled persons. A determination that our properties do not comply with the Americans with Disabilities Act could result in liability for both governmental fines and damages. If we are required to make unanticipated major modifications to any of our properties to comply with the Americans with Disabilities Act, which are determined not to be the responsibility of our tenants, we could incur unanticipated expenses that could have an adverse impact upon our results of operations, liquidity and financial condition. 17 Actual or threatened epidemics, pandemics, outbreaks, or other public health crises may adversely affect our tenants' financial condition and the profitability of our properties. Our The failure of any bank in which we deposit our funds could have an adverse impact on our financial condition. We have diversified our cash and cash equivalents between several banking institutions in an attempt to minimize exposure to any one of these entities. However, the Federal Deposit Insurance Corporation only insures accounts in amounts up to $250,000 per depositor per insured bank. We currently have cash and cash equivalents deposited in certain financial institutions significantly in excess of federally insured levels. If any of the banking institutions in which we have deposited funds ultimately fails, we may lose our deposits over $250,000. The loss of our deposits may have an adverse effect on our financial condition. We are dependent on third party software for our billing and financial reporting processes. We are dependent on third party software, and in particular Risks Related to the REIT Industry Certain provisions of our charter, our Bylaws, as amended, and Maryland law may inhibit a change in control that stockholders consider favorable and could also limit the market price of our common stock. Certain provisions of our charter (the "Charter"), our Bylaws, as amended and Maryland law may impede, or prevent, a third party from acquiring control of us without the approval of our board of directors. These provisions: 18 Certain provisions of the Maryland General Corporation Law (the “MGCL”) may impede a third party from making a proposal to acquire us or inhibit a change of control under circumstances that otherwise could be in the best interest of holders of shares of our common stock, including: Ownership of less than 9.9% of our outstanding stock could violate the restrictions on ownership and transfer in our Charter, which would result in the shares owned or acquired in violation of such restrictions being designated as “excess shares” and transferred to a trust for the benefit of a charitable beneficiary and loss of the right to receive dividends and other distributions on, and the economic benefit of any appreciation of, such shares, and you may not have sufficient information to determine at any particular time whether an acquisition of our shares will result in a loss of the economic benefit of such shares. In order for us to qualify as a real estate investment trust under the Code, no more than 50% of the value of the outstanding shares of our stock may be owned, directly or indirectly or through application of certain attribution rules, by five or fewer “individuals” (as defined in the Code) at any time during the last half of a taxable year. To facilitate our qualification as a REIT under the Code, among other purposes, the Charter generally prohibits any person other than Fredric H. Gould, currently vice chairman of our board of directors, from actually or constructively owning more than 9.9% of the outstanding shares of all classes and series of our stock, which we refer to as the “ownership limit.” In addition, the Charter prohibits any person from beneficially or constructively owning shares of our stock that would result in more than 50% of the value of the outstanding shares of our stock to be beneficially owned by five or fewer individuals, regardless of whether such ownership is during the last half of any taxable year, which we refer to as the “Five or Fewer Limit.” Shares transferred in violation of either of these restrictions will be designated automatically as “excess shares” and transferred to a trust for the benefit of a charitable beneficiary selected by us. The person that attempted to acquire the shares of our stock in violation of the restrictions in the Charter will not be entitled to any dividends or distributions paid after the date of the transfer to the trust and, upon a sale of such shares by the trust, will generally be entitled to receive only the lesser of the market value on the date of the event that resulted in the transfer to the trust or the net proceeds of the sale by the trust to a person who could own the shares without violating the ownership limits. Pursuant to the attribution rules under the Code, Fredric H. Gould, is our only stockholder that beneficially owned in excess of 9.9% of our capital stock on June 14, 2005, when the ownership limit became effective, and is the only person permitted to own and acquire shares of our capital stock, directly or indirectly, in excess of the ownership limit. Based on information supplied to us, as of March 5, 2020, Mr. Gould beneficially owns approximately 13.861% of the outstanding shares of our stock. As a result of Mr. Gould’s beneficial ownership of our stock, compliance with the 9.9% ownership limit will not ensure that your ownership of shares of our stock will not violate the Five or Fewer Limit or prevent shares of stock that you intended to acquire from being designated as “excess shares” and transferred to a charitable trust. Currently, if three other individuals unrelated to Mr. Gould were to beneficially own exactly 9.9% of our outstanding stock, no other individual may beneficially own 6.439% or more of our outstanding stock without violating the Five or Fewer Limit and causing the newly-acquired shares to be designated as “excess shares” and transferred to the charitable trust. However, there is no limitation on Mr. Gould acquiring additional shares of our stock or otherwise increasing his percentage of ownership of our stock, meaning that the amount of our stock that other persons or entities may acquire without potentially violating the Five or Fewer Limit could be reduced in the future and without notice. 19 Fredric H. Gould will be required by the Exchange Act and regulations promulgated thereunder to report, with certain exceptions, his acquisition of additional shares of our stock within two days of such acquisitions, and all holders of our stock will be required to file reports of their acquisition of beneficial ownership (as defined in the Exchange Act) of more than 5% of our outstanding stock. However, beneficial ownership for purposes of the reporting requirements under the Exchange Act is calculated differently than beneficial ownership for purposes of determining compliance with the Five or Fewer Limit. As a result, you may not have enough information currently available to you at any time to determine the percentage of ownership of our stock that you can acquire without violating the Five or Fewer Limit and losing the economic benefit of the ownership of such newly-acquired shares. Legislative or regulatory tax changes could have an adverse effect on us. There are a number of issues associated with an investment in a REIT that are related to the Federal income tax laws, including, but not limited to, the consequences of our failing to continue to qualify as a REIT. At any time, the Federal income tax laws governing REITs or the administrative Failure to qualify as a REIT could result in material adverse tax consequences and could significantly reduce cash available for distributions. We operate so as to qualify as a REIT under the Code. Qualification as a REIT involves the application of technical and complex legal provisions for which there are limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to qualify as a REIT. In addition, no assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not significantly change the tax laws with respect to qualification as a REIT or the federal income tax consequences of such qualification. If we fail to quality as a REIT, we will be subject to federal, certain additional state and local income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates and would not be allowed a deduction in computing our taxable income for amounts distributed to stockholders. In addition, unless entitled to relief under certain statutory provisions, we would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification is lost. The additional tax would reduce significantly our net income and the cash available to pay dividends. We are subject to certain distribution requirements that may result in our having to borrow funds at unfavorable rates. To obtain the favorable tax treatment associated with being a REIT, we generally are required, among other things, to distribute to our stockholders at least 90% of our ordinary taxable income As a result of differences in timing between the receipt of income and the payment of expenses, and the inclusion of such income and the deduction of such expenses in arriving at taxable income, and the effect of nondeductible capital expenditures Compliance with REIT requirements may hinder our ability to maximize profits. In order to qualify as a REIT for Federal income tax purposes, we must continually satisfy tests concerning, among other things, our sources of income, the amounts we distribute to our stockholders and the ownership of our stock. We may also be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. Accordingly, compliance with REIT requirements may hinder our ability to operate solely on the basis of maximizing profits. 20 In order to qualify as a REIT, we must also ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and real estate assets. Any investment in securities cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, no more than 5% of the value of our assets can consist of the securities of any one issuer, other than a qualified REIT security. If we fail to comply with these requirements, we must dispose of such portion of these securities in excess of these percentages within 30 days after the end of the calendar quarter in order to avoid losing our REIT status and suffering adverse tax consequences. This requirement could cause us to dispose of assets for consideration that is less than their true value and could lead to an adverse impact on our results of operations and financial condition. Item 1B. Unresolved Staff Comments. None. Item 2. Properties. As of December 31, 21 Our Properties The following table details, as of December 31, ��� Percentage 2020 of 2020 Approximate Contractual Contractual Square Footage Rental Income Location Type of Property Rental Income of Building per Square Foot Fort Mill, SC Industrial 4.0 701,595 $ 4.14 Hauppauge, NY Industrial 3.7 201,614 13.24 Baltimore, MD Industrial 3.3 367,000 6.39 Royersford, PA(1) Retail 3.0 194,600 11.50 Lebanon, TN Industrial 2.9 540,200 3.83 El Paso, TX Industrial 2.6 419,821 4.47 Greensboro, NC Theater 2.2 61,213 26.43 West Hartford, CT Retail—Supermarket 2.2 47,174 33.80 Secaucus, NJ Health & Fitness 2.1 44,863 32.93 Delport, MO(2) Industrial 2.0 339,094 4.31 Littleton, CO(3) Retail 1.9 101,617 16.42 El Paso, TX(4) Retail 1.9 110,179 12.55 McCalla, AL Industrial 1.8 294,000 4.35 Brooklyn, NY Office 1.8 66,000 19.24 St. Louis Park, MN(2) Retail 1.7 131,710 9.46 Fort Mill, SC Industrial 1.6 303,188 3.84 Knoxville, TN Retail 1.6 35,330 32.84 Joppa, MD Industrial 1.5 258,710 4.25 Ankeny, IA(2) Industrial 1.5 208,234 5.12 Moorestown, NJ(2) Industrial 1.4 219,881 4.73 Pittston, PA Industrial 1.4 249,600 3.92 Beachwood, OH(5) Land 1.4 349,999 2.78 Englewood, CO Industrial 1.3 63,882 14.92 Tucker, GA Health & Fitness 1.3 58,800 16.16 Pennsburg, PA(2) Industrial 1.3 291,203 3.11 Saco, ME Industrial 1.1 131,400 6.12 Hamilton, OH Health & Fitness 1.1 38,000 20.75 Cedar Park, TX Retail—Furniture 1.0 50,810 14.71 Greenville, SC(6) Industrial 1.0 142,200 5.20 Bakersfield, CA Industrial 1.0 218,116 3.36 Indianapolis, IN Theater 1.0 57,688 12.49 Green Park, MO Industrial 1.0 119,680 6.02 Columbus, OH Retail—Furniture 1.0 96,924 7.40 Indianapolis, IN Industrial 1.0 125,622 5.45 Lake Charles, LA(7) Retail—Office Supply 0.9 54,229 12.52 Ronkonkoma, NY(2) Industrial 0.9 90,599 7.49 Columbus, OH Industrial 0.9 105,191 6.20 Huntersville, NC Industrial 0.9 78,319 7.87 Ft. Myers, FL Retail 0.8 29,993 20.17 Memphis, TN Industrial 0.8 224,749 2.66 Chandler, AZ Industrial 0.8 62,121 9.46 Kennesaw, GA Retail 0.8 32,138 17.90 Champaign, IL(2) Retail 0.8 50,530 11.27 Chicago, IL Retail—Office Supply 0.8 23,939 23.45 Wichita, KS Retail—Furniture 0.8 88,108 6.35 Moorestown, NJ Industrial 0.8 64,000 8.55 Nashville, TN(2) Industrial 0.8 99,500 5.45 Melville, NY Industrial 0.7 51,351 10.47 New Hope, MN Industrial 0.7 122,461 4.33 Shakopee, MN Industrial 0.7 114,000 4.45 Tyler, TX Retail—Furniture 0.7 72,000 6.75 Onalaska, WI(8) Retail 0.7 63,919 7.50 Greenville, SC Industrial 0.7 88,800 5.34 Cary, NC Retail—Office Supply 0.7 33,490 14.07 Fayetteville, GA Retail—Furniture 0.6 65,951 6.97 Louisville, KY Industrial 0.6 125,370 3.60 22 Fort Mill, SC Baltimore, MD Royersford, PA(1) Round Rock, TX Lebanon, TN Hauppauge, NY El Paso, TX Beachwood, OH(2) Greensboro, NC W. Hartford, CT Littleton, CO(3) St. Louis, MO(4) Secaucus, NJ El Paso, TX(5) McCalla, AL Lincoln, NE Brooklyn, NY Wheaton, IL(2) Knoxville, TN St. Louis Park, MN(4) Fort Mill, SC Joppa, MD Ankeny, IA(4) Tucker, GA Pittston, PA Lakemoor, IL(2) Saco, ME Cedar Park, TX Hamilton, OH Columbus, OH Indianapolis, IN Indianapolis, IN Lake Charles, LA(6) Greenville, SC(7) Ft. Myers, FL Ronkonkoma, NY(4) Huntersville, NC Kennesaw, GA Memphis, TN Wichita, KS Greenville, SC(7) Champaign, IL(4) Chicago, IL New Hope, MN Percentage 2020 of 2020 Approximate Contractual Contractual Square Footage Rental Income Location Type of Property Rental Income of Building per Square Foot New Hyde Park, NY Industrial 0.6 38,000 11.66 Rincon, GA Industrial 0.6 95,000 4.60 Bensalem, PA(6) Industrial 0.6 85,663 5.05 Houston, TX Retail 0.6 25,005 16.70 Plymouth, MN Industrial 0.6 82,565 5.05 Richmond, VA Retail—Furniture 0.6 38,788 10.53 Amarillo, TX Retail—Furniture 0.6 72,027 5.64 Deptford, NJ Retail 0.6 25,358 15.90 Highland Ranch, CO(2) Retail 0.6 42,920 9.39 Virginia Beach, VA Retail—Furniture 0.5 58,937 6.82 Eugene, OR Retail—Office Supply 0.5 24,978 15.75 Lexington, KY Retail—Furniture 0.5 30,173 12.48 Duluth, GA Retail—Furniture 0.5 50,260 7.29 El Paso, TX Retail—Office Supply 0.5 25,000 14.62 Woodbury, MN Retail 0.5 49,406 7.25 Newport, VA Retail—Furniture 0.5 49,865 7.09 Houston, TX Retail 0.4 20,087 16.00 Durham, NC Industrial 0.4 46,181 6.95 LaGrange, GA Industrial 0.4 80,000 3.98 Greensboro, NC Retail 0.4 12,950 23.08 Greenville, SC(9) Industrial 0.4 128,000 5.33 Naples, FL Retail—Furniture 0.4 15,912 18.70 Newark, DE Other 0.4 23,547 12.56 Selden, NY Retail 0.4 14,555 20.00 Wauconda, IL Industrial 0.4 53,750 5.32 Somerville, MA Retail 0.4 12,054 23.23 Gurnee, IL Retail—Furniture 0.4 22,768 12.21 Bluffton, SC Retail—Furniture 0.4 35,011 7.92 Carrollton, GA Restaurant 0.4 6,012 44.97 Pinellas Park, FL Industrial 0.4 53,064 5.03 Hauppauge, NY Restaurant 0.4 7,000 36.65 Cartersville, GA Restaurant 0.4 5,635 45.27 Hyannis, MA Retail 0.3 9,750 24.85 Richmond, VA Restaurant 0.3 9,367 25.70 Greensboro, NC Restaurant 0.3 6,655 36.01 West Hartford, CT(10) Retail—Supermarket 0.3 — — Myrtle Beach, SC Restaurant 0.3 6,734 31.68 Chandler, AZ Industrial 0.3 25,035 8.51 Everett, MA Retail 0.3 18,572 11.43 Kennesaw, GA Restaurant 0.3 4,051 51.70 Bolingbrook, IL Retail 0.3 33,111 6.10 Lawrenceville, GA Restaurant 0.3 4,025 49.86 Concord, NC Restaurant 0.3 4,749 42.04 Cape Girardeau, MO Retail 0.3 13,502 14.71 Miamisburg, OH Industrial 0.3 35,707 5.48 Marston, MA Retail 0.3 8,775 21.00 Indianapolis, IN Restaurant 0.3 12,820 14.14 Monroeville, PA Retail 0.2 6,051 26.35 Reading, PA Restaurant 0.2 2,754 54.10 Reading, PA Restaurant 0.2 2,551 57.01 West Palm Beach, FL Industrial 0.2 10,361 13.98 Batavia, NY Retail 0.2 23,483 6.00 Gettysburg, PA Restaurant 0.2 2,944 45.17 Hanover, PA Restaurant 0.2 2,702 48.63 Palmyra, PA Restaurant 0.2 2,798 46.23 Trexlertown, PA Restaurant 0.2 3,004 42.19 Cuyahoga Falls, OH Retail 0.2 6,796 17.21 South Euclid, OH Retail 0.1 11,672 9.94 Hilliard, OH Retail 0.1 6,751 15.55 Lawrence, KS Retail 0.1 8,600 12.21 Port Clinton, OH Retail 0.1 6,749 15.19 Seattle, WA Retail 0.1 3,053 26.06 23 Clemmons, NC Melville, NY Tyler, TX Athens, GA(8) Fayetteville, GA Louisville, KY Onalaska, WI Cary, NC Highlands Ranch, CO New Hyde Park, NY Houston, TX Richmond, VA Amarillo, TX Deptford, NJ Virginia Beach, VA Lexington, KY Eugene, OR Duluth, GA Newark, DE Newport News, VA Woodbury, MN El Paso, TX Columbus, OH Houston, TX Durham, NC Greensboro, NC Hyannis, MA Selden, NY Gurnee, IL Bluffton, SC Naples, FL Pinellas Park, FL Carrollton, GA Batavia, NY Philadelphia, PA Hauppauge, NY Cartersville, GA Richmond, VA Greensboro, NC W. Hartford, CT(9) Myrtle Beach, SC Somerville, MA Kennesaw, GA Bolingbrook, IL Concord, NC Cape Girardeau, MO Lawrenceville, GA Everett, MA Percentage 2020 of 2020 Approximate Contractual Contractual Square Footage Rental Income Location Type of Property Rental Income of Building per Square Foot Rosenberg, TX Retail 0.1 8,000 8.79 Louisville, KY Industrial 0.1 9,642 4.26 Crystal Lake, IL(11) Retail — 32,446 — Philadelphia, PA(12) Retail—Supermarket — 57,653 — 100.0 10,112,039 Marston Mills, MA Miamisburg, OH Monroeville, PA Reading, PA Reading, PA West Palm Beach, FL Gettysburg, PA Hanover, PA Houston, TX Palmyra, PA Trexlertown, PA Cuyahoga Falls, OH South Euclid, OH Hilliard, OH Lawrence, KS Port Clinton, OH Indianapolis, IN Rosenberg, TX Seattle, WA Louisville, KY Crystal Lake, IL(10) Properties Owned by Joint Ventures The following table sets forth, as of December 31, Percentage of Base Rent Payable in 2020 Contributed by Approximate 2020 Type of the Applicable Square Footage Base Rent Location Property Joint Venture(1) of Building per Square Foot Manahawkin, NJ(2) Retail 80.2 319,349 $ 15.92 Savannah, GA Retail 12.1 46,058 8.76 Savannah, GA(3) Restaurant 6.0 — — Savannah, GA(4) Retail 1.7 7,959 7.03 100.0 373,366 24 Manahawkin, NJ(2) Milwaukee, WI Savannah, GA Savannah, GA Savannah, GA Geographic Concentration As of December 31, Percentage of 2020 2020 Contractual Contractual Approximate Number of Rental Rental Building State Properties Income Income Square Feet New York 8 $ 6,286,499 8.7 492,602 South Carolina 7 6,071,891 8.4 1,405,528 Texas 9 6,043,268 8.4 802,929 Pennsylvania 12 5,482,451 7.6 901,523 Tennessee 4 4,369,714 6.1 899,779 Georgia 10 4,041,993 5.6 401,872 Ohio 9 3,766,199 5.2 657,789 North Carolina 7 3,764,997 5.2 243,557 New Jersey 4 3,466,810 4.8 354,102 Maryland 2 3,445,447 4.8 625,710 Minnesota 5 3,057,809 4.3 500,142 Colorado 3 2,709,643 3.8 208,419 Missouri 3 2,381,620 3.3 472,276 Illinois 6 1,897,094 2.6 216,544 Connecticut 2 1,818,250 2.5 47,174 Indiana 3 1,586,745 2.2 196,130 Virginia 4 1,404,852 2.0 156,957 Florida 4 1,314,118 1.8 109,330 Alabama 1 1,277,979 1.8 294,000 Iowa 1 1,066,037 1.5 208,234 Massachusetts 4 918,849 1.3 49,151 Kentucky 3 869,074 1.2 165,185 Maine 1 803,670 1.1 131,400 Arizona 2 800,429 1.1 87,156 California 1 733,260 1.0 218,116 Louisiana 1 678,705 1.0 54,229 Kansas 2 664,617 0.9 96,708 Other 4 1,248,107 1.8 115,497 122 $ 71,970,127 100.0 10,112,039 25 Texas South Carolina New York Pennsylvania North Carolina Ohio Georgia Tennessee Illinois Maryland Minnesota Colorado Connecticut New Jersey Missouri Indiana Virginia Florida Alabama Nebraska Iowa Massachusetts Kentucky Maine Kansas Louisiana Other The following table sets forth information, presented by state, related to the properties owned by our joint ventures as of December 31, New Jersey Wisconsin Georgia Our Share of the Base Rent Payable in 2020 Approximate Number of to these Building State Properties Joint Ventures Square Feet New Jersey 1 $ 1,332,637 319,349 Georgia 3 329,579 54,017 4 $ 1,662,216 373,366 Mortgage Debt At December 31, The following table sets forth scheduled principal mortgage payments due on our properties as of December 31, PRINCIPAL PAYMENTS DUE 2018 2019 2020 $ 13,530 2021 22,963 2022 46,083 2023 30,182 2024 62,819 Thereafter 264,701 Total $ 440,278 At December 31, PRINCIPAL PAYMENTS DUE 2018 2019 2020 $ 740 2021 770 2022 802 2023 834 2024 868 Thereafter 19,148 Total $ 23,162 The mortgages on our properties (including properties owned by joint ventures) are generally non-recourse, subject to standard carve-outs. Item 3. Legal Proceedings. (including furniture stores and supermarkets), restaurant, health and fitness and theater properties, many of which are subject to long-term leases. Most of our leases are "net leases"“net leases” under which the tenant, directly or indirectly, is responsible for paying the real estate taxes, insurance and ordinary maintenance and repairs of the property. As of December 31, 2017,2019, we own 113122 properties (excluding a property disposed of in January 2018) and participate in joint ventures that own fivefour properties. These 118126 properties are located in 3031 states and have an aggregate of approximately 10.710.5 million square feet (including an aggregate of approximately 1.2 million373,000 square feet at properties owned by our joint ventures).2017:2019:•our 2018 contractual rental income (as described below) is $67.7 million.•the occupancy rate of our properties is 99.6% based on square footage.•the weighted average remaining term of our mortgage debt is 8.8 years and the weighted average interest rate thereon is 4.22%.•the weighted average remaining term of the leases generating our 2018 contractual rental income is 8.4 years.● our 2020 contractual rental income (as described in “–Our Tenants”) is $72.0 million; ● the occupancy rate of our properties is 98.1% based on square footage; ● the weighted average remaining term of our mortgage debt is 8.1 years and the weighted average interest rate thereon is 4.21%; and ● the weighted average remaining term of the leases generating our 2020 contractual rental income is 6.6 years. Our 2018 contractual rental income represents, after giving effect to any abatements, concessions or adjustments, the base rent payable to us in 2018 under leases in effect at December 31, 2017. Excluded from 2018 contractual rental income are approximately $483,000 of straight-line rent, amortization of approximately $1.0 million of intangibles, $56,000 of base rent payable through January 31, 2018 with respect to a property we sold in January 2018, and our share of the base rent payable to our joint ventures, which in 2018 is approximately $2.4 million.20172019 Highlights and Recent Developments2017:2019:
have, through March 5, 2020:•our rental income, net, increased by $4.1 million, or 6.4%, from 2016.•● our rental income, net, increased by $5.0 million, or 6.4%, from 2018. ● we earned $950,000 of lease termination fees from two properties – one property was re-leased. ● we acquired eight industrial properties for an aggregate purchase price of $49.3 million. The acquired properties account for $3.3 million, or 4.6%, of our 2020 contractual rental income. ● we sold three retail properties, a land parcel ground leased to a multi-family operator, and an assisted living facility in Round Rock, Texas, for an aggregate net gain on sale of real estate of $4.3 million, without giving effect to $422,000 of a non-controlling interest’s share of the gain and $827,000 of prepayment costs. The properties sold accounted for 3.0% and 3.9% of 2019 and 2018 rental income, net, respectively. ● we extended the term of our credit facility through December 31, 2022 and increased the amount that may be used for renovation and operating expense purposes. ● we obtained proceeds of $50.3 million from mortgage financings. acquired four properties for an aggregate purchase price of $43.2 million. The acquired properties account for $3.1 million, or 4.6%, of our 2018 contractual rental income.•we sold four properties, three of which were vacant, for a net gain on sale of real estate of $9.8 million. The properties sold accounted for 0.5% and 2.6% of 2017 and 2016 rental income, net, respectively.•we obtained proceeds of $21.2 million from mortgage financings, all of which relate to properties acquired in 2017.•we increased our quarterly dividend by 4.7% to $0.45 per share, commencing with the dividend declared in December 2017 and paid in January 2018.•we raised net proceeds of approximately $5.6 million from the issuance of 231,000 shares of common stock pursuant to our at-the-market equity offering program.● acquired two industrial properties for an aggregate purchase price of $28.3 million – the leases at such properties expire from 2027 to 2034 and will contribute approximately $1.6 million in base rent in 2020. ● sold a retail property for $7.1 million, net of closing costs, and paid off the $3.3 million mortgage debt – we anticipate recognizing a gain of approximately $4.3 million from this sale during the three months ending March 31, 2020, without giving effect to a $290,000 mortgage prepayment charge. •we re-leased four vacant properties or portions thereof. In 2017, we incurred an aggregate of $739,000 of real estate operating expenses in carrying such properties. In 2018, we will generate an aggregate of approximately $1.2 million of rental income from such properties and in the future, will not be responsible for the related operating expenses.•on January 30, 2018, we sold a multi-tenant retail property located in Fort Bend, Texas, in which we held an 85% interest, for gross proceeds of $9.2 million and paid off the $4.4 million mortgage. In the quarter ending March 31, 2018, we anticipate recognizing a gain on this sale of approximately $2.4 million. The non-controlling interests' share of the gain from the transaction will be approximately $800,000.•the information with respect to our consolidated joint ventures is generally described as if such ventures are our wholly owned subsidiaries and information with respect to unconsolidated joint ventures is generally separately described,•(i) all references to joint ventures refer to unconsolidated joint ventures, (ii) all interest rates with respect to debt give effect to the related interest rate derivative, if any, (iii) amounts reflected as debt, reflects the gross debt owed, without deducting deferred financing costs, and (iv) square footage and terms of like import refers to the total square footage of the applicable building, including common areas, if any,•2018 contractual rental income derived from multiple properties leased pursuant to a master lease is allocated among such properties based on management's estimate of the appropriate allocations, and•the rental, operating, mortgage and statistical information, excludes the Fort Bend, Texas property sold in January 2018, other than with respect to the disclosures under"Item 6. Selected Financial Data" and"Item 7. Management's Discussion and Analysis of Financial Condition—Results of Operations—Comparison of Years Ended December 31, 2017 and 2016 " and "—Results of Operations—Comparison of Years Ended December 31, 2016 and 2015."● the information with respect to our consolidated joint ventures is generally described as if such ventures are our wholly owned subsidiaries and information with respect to unconsolidated joint ventures is generally separately described. ● (i) all references to joint ventures refer to unconsolidated joint ventures, (ii) all interest rates with respect to debt give effect to the related interest rate derivative, if any, (iii) amounts reflected as debt reflect the gross debt owed, without deducting deferred financing costs and (iv) references to industrial properties include properties (a) a portion of which may be used for office purposes and (b) that are used for distribution, warehouse and flex purposes. ● 2020 contractual rental income derived from multiple properties leased pursuant to a master lease is allocated among such properties based on management’s estimate of the appropriate allocations. ● the term “standard carve-outs,” when used in describing mortgages or mortgage financings, refers to recourse items to an otherwise non-recourse mortgage. While carve-outs vary from lender to lender and transaction to transaction, the carve-outs may include, among other things, voluntary bankruptcy filings, 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 the property and the conversion of security deposits, insurance proceeds or condemnation awards. e-commercee- commerce activities, such as e-commerce distribution and warehousing facilities, and by being especially selective in acquiring retail properties. As a result, of this emphasis, retail properties generated 43.3%35.2%, 46.1%41.9%, 43.7% and 49.5%51.8%, of rental income, net, in 2019, 2018, 2017 and 2016, respectively, and 2015,industrial properties generated 48.7%, 40.1%, 35.1% and 31.6%, of rental income, net, in 2019, 2018, 2017 and 2016, respectively.•the current and projected cash flow of the property;•the estimated return on equity to us;•an evaluation of the property and improvements, given its location and use;•local demographics (population and rental trends);•the terms of tenant leases, including co-tenancy provisions and the relationship between current rents and market rents;•the ability of a tenant, if a net leased property, or major tenants, if a multi-tenant property, to meet operational needs and lease obligations;•an evaluation of the credit quality of the tenant;•the projected residual value of the property;•the potential to finance or refinance the property;•potential for income and capital appreciation;● the current and projected cash flow of the property; ● the estimated return on equity to us; ● an evaluation of the property and improvements, given its location and use; ● alternate uses or tenants for the property; ● local demographics (population and rental trends); ● the terms of tenant leases, including co-tenancy provisions and the relationship between current rents and market rents; ● the potential to finance or refinance the property; ● an evaluation of the credit quality of the tenant; ● the projected residual value of the property; ● the ability of a tenant, if a net leased property, or major tenants, if a multi-tenant property, to meet operational needs and lease obligations; ● potential for income and capital appreciation; and ● occupancy of and demand for similar properties in the market area. •occupancy of and demand for similar properties in the market area; and•alternate uses or tenants for the property.maintain and increase over time, the cash available for distribution to our stockholderslong-term stockholder value by:•identifying opportunistic and strategic property acquisitions consistent with our portfolio and our acquisition strategies;•obtaining mortgage indebtedness (including refinancings) on favorable terms and maintaining access to capital to finance property acquisitions; and•monitoring and maintaining our portfolio, including tenant negotiations and lease amendments with tenants that are renewing, expanding or having financial difficulty; and•managing our portfolio effectively, including opportunistic and strategic property sales.● identifying opportunistic and strategic property acquisitions consistent with our portfolio and our acquisition strategies; ● monitoring and maintaining our portfolio, including tenant negotiations and lease amendments with tenants that are renewing, expanding or having financial difficulty; ● managing our portfolio effectively, including opportunistic and strategic property sales; and ● obtaining mortgage indebtedness (including refinancings) on favorable terms and maintaining access to capital to finance property acquisitions. 2017,2019, the properties in our portfolio have the following attributes:•Net leases. Most of our leases are net leases under which the tenant is typically responsible for real estate taxes, insurance and ordinary maintenance and repairs. We believe that investments in net leased properties offer reasonably predictable returns.•Long-term leases. Many of our leases are long-term leases. The weighted average remaining term of our leases is 8.4 years. Leases representing approximately 27.3% of our 2018 contractual rental income expire between 2023 and 2026 and leases representing approximately 36.4% of our 2018 contractual rental income expire after 2027.•Scheduled rent increases. Leases representing approximately 73.6% of our 2018 contractual rental income provide for either periodic contractual rent increases or a rent increase based on the consumer price index.● Net leases. Most of our leases are net leases under which the tenant is typically responsible for real estate taxes, insurance and ordinary maintenance and repairs. We believe that investments in net leased properties offer reasonably predictable returns. ● Long-term leases. Many of our leases are long-term leases. The weighted average remaining term of our leases is 6.6 years. Leases representing approximately 43.4%, 29.0% and 27.6% of our 2020 contractual rental income expire between 2020 and 2024, 2025 and 2028, and 2029 and thereafter, respectively. ● Scheduled rent increases. Leases representing approximately 74.3% of our 2020 contractual rental income provide for either periodic contractual rent increases or a rent increase based on the consumer price index. 2017:2019:(1) Our 2020 contractual rental income represents, after giving effect to any abatements, concessions or adjustments, the base rent payable to us in 2020 under leases in effect at December 31, 2019, including $479,000 from our Onalaska, Wisconsin property which was sold in February 2020. Excluded from 2020 contractual rental income is an aggregate of $3.0 million comprised of $530,000 of straight-line rent, $731,000 of amortization of intangibles, and $1.7 million representing our share of the base rent payable in 2020 to our unconsolidated joint ventures. (2) Eleven properties are net leased to Haverty Furniture Companies, Inc., which we refer to as Haverty Furniture, pursuant to a master lease covering all such properties. (3) Includes five properties which are net leased to Office Depot pursuant to five separate leases. Four of the Office Depot leases contain cross-default provisions. Number of
Tenants Number of
Properties 2018 Contractual
Rental Income Percentage of
2018 Contractual
Rental Income 31 28 $ 25,119,990 37.1 57 35 15,963,958 23.6 3 14 6,109,003 9.0 10 16 3,185,623 4.7 1 3 3,080,333 4.5 3 3 2,718,682 4.0 1 7 2,406,728 3.6 1 2 2,293,132 3.4 5 5 6,856,708 10.1 112 113 $ 67,734,157 100.0 (1)Eleven properties are net leased to Haverty Furniture Companies, Inc., which we refer to as Haverty Furniture, pursuant to a master lease covering all such properties.(2)Includes seven properties which are net leased to Office Depot pursuant to seven separate leases. Five of the Office Depot leases contain cross-default provisions.Barnes & Noble, Burlington Coat Factory, CarMax, CVS, Famous Footwear, FedEx, Ferguson Enterprises, LA Fitness, L-3, Marshalls, Men's Wearhouse, Northern Tool, Office Depot, Party City, PetSmart, Regal Cinemas, Ross Stores, Shutterfly, TGI Friday's,Friday’s, The Toro Company, Urban Outfitters, Walgreens, Wendy'sWendy’s and Whole Foods, and some of our tenants operate on a regional basis, including Haverty Furniture and Giant Food Stores. Our typical lease providesMany of our leases provide for contractual rent increases periodically throughout the term of the lease or for rent increases pursuant to a formula based on the consumer price index. Some of our leases provide for minimum rents supplemented by additional payments based on sales derived from the property subject to the lease (i.e., percentage rent). Percentage rent from four properties contributed $263,000 to 2017 rental income,less than $150,000 of which $174,000 was contributed by one tenant. Percentage rent contributed $42,000, and $38,000 to rental income in 2016each of 2019 and 2015, respectively.Table of Contents2018.2017:2019:(1) Lease expirations assume tenants do not exercise existing renewal options. (2) Excludes an aggregate of 187,559 square feet of vacant space. Number of
Expiring
Leases Approximate
Square
Footage
Subject to
Expiring
Leases 2018 Contractual
Rental Income
Under Expiring
Leases Percentage of
2018 Contractual
Rental Income
Represented by
Expiring Leases 12 206,592 $ 1,333,898 2.0 12 321,507 2,952,389 4.4 9 110,548 1,621,506 2.4 18 578,070 4,194,598 6.2 25 2,144,389 14,424,295 21.3 13 852,141 5,689,479 8.4 6 408,093 2,069,484 3.1 10 387,202 5,410,643 8.0 11 551,229 5,266,182 7.8 33 3,827,219 24,771,683 36.4 149 9,386,990 $ 67,734,157 100.0 (1)Lease expirations assume tenants do not exercise existing renewal options. revolving credit facility provides us with a source of funds that may be used to acquire properties, payoff existing mortgages, and to a more limited extent, invest in joint ventures, implement property improvementsimprove properties and for working capital purposes. Net proceeds received from the sale, financing or refinancing of properties are generally required to be used to repay amounts outstanding under our facility. See"“Item 7. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facility"Facility”.the standard carve-outs described under"Item 2. Properties—Mortgage Debt", to enhance the return on our investment in a specific property. The proceeds of mortgage loans may be usedare applied to reduce indebtedness on our credit facility and for other general purposes, including property acquisitions, investments in joint ventures or other entities that own real property, to reduce bank debt and for working capital purposes.capital.2017,2019, we participatedown a 50% equity interest in fivefour joint ventures that own an aggregate of five properties with approximately 1.2 million373,000 square feet of space. Four of the properties are retail properties and one is an industrial property. We own 50% of the equity interest in all of these joint ventures. At December 31, 2017,2019, our investment in these joint ventures was approximately $10.7$11.1 million and the occupancy rate at thethese properties, owned by these ventures, based on square footage, was 97.6%59.3%. See “Item 2. Properties-Properties Owned by Joint Ventures” for information about, among other things, the occupancy rate at our joint venture properties and the sale of one of such properties in March 2020.2017,2019, we anticipate that our share of the base rent payable in 20182020 to our joint ventures is approximately $2.4$1.7 million. Leases for two properties areOur multi-tenant community shopping center located in Manahawkin, New Jersey is expected to contribute 86.5%80.2% of the aggregate base rent payable by all of our joint ventures in 2020. Leases with respect to 31.8%, 23.2% and 45.0% of the aggregate base rent payable to all of our joint ventures in 2018. Leases with respect to 55.6%, 11.9% and 32.5% of the aggregate base rent payable to all of our joint ventures in 2018,2020 is payable pursuant to leases expiring from 2018 to 2019, from 2020 to 2021, from 2022 to 2023, and thereafter, respectively."“Item 7. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations—Operations - Other Developments"2019 Developments.” for information regarding properties tenanted by Kmart.our Manahawkin, New Jersey joint venture.asenior vice president - acquisitions, Karen Dunleavy, senior vice president-financial and fivefour other employees, devote all of their business time to us. Our other executive, administrative, legal, accounting and clerical personnel provide their services to us on a part-time basis, which services generally are provided pursuant to the compensation and services agreement described below.entered into apay Majestic Property Management Corp., pursuant to the compensation and services agreement, with Majestic Property Management Corp. effective as of January 1, 2007.2007, as amended, for providing us with the services of executive, administrative, legal, accounting, clerical and property management personnel, as well as property acquisition, sale and lease consulting and brokerage services, consulting services with respect to mortgage financings and construction supervisory services (collectively, the “Services”). Majestic Property is wholly-ownedwholly owned by our vice chairman of the board and it provides compensation to certain of our executive officers. Pursuant to this agreement, we pay fees to Majestic Property and Majestic Property provides us with the services of all affiliated executive, administrative, legal, accounting and clerical personnel that we use on a part time basis, as well as property management services, property acquisition, sales and leasing and mortgage brokerage services. The feesamount we pay Majestic Property are negotiatedfor the Services is approved each year by usthe compensation and/or audit committees of our board of directors, and Majestic Property in consultation with our audit and compensation committees, and are approved by these committees and ourthe independent directors.2017,2019, pursuant to the compensation and services agreement, we paid Majestic Property a fee of approximately $2.7$2.8 million plus $216,000 for our share of all direct office expenses, including rent, telephone, postage, computer services, supplies and internet usage. Included in the $2.7$2.8 million fee is $1,154,000$1.3 million for property management services—the feeamount for the property management services is based on 1.5% and 2.0% of the rental payments (including tenant reimbursements) actually received by us from net lease tenants and operating lease tenants, respectively. Property management fees areWe do not paid topay Majestic Property with respect to properties managed by third parties. Based on our portfolio of properties at December 31, 2017,2019, we estimate that the property management fee in 20182020 will be approximately $1,190,000.$1.3 million."Executive Officers"“Information About Executive Officers” in Part I of this Annual Report. See Note 1210 to our consolidated financial statements for information regarding equity awards to individuals performing services on our behalf pursuant to the compensation and services agreement.Available 7 Our Internet addressSet forth below is www.onelibertyproperties.com. On the Investor Information pagea list of our web site, we postexecutive officers whose terms expire at our 2020 annual board of directors’ meeting. The business history of our officers, who are also directors, will be provided in our proxy statement to be filed pursuant to Regulation 14A not later than April 29, 2020.following filingsmanaging general partner of Gould Investors L.P., a master limited partnership involved primarily in the ownership and operation of a diversified portfolio of real estate assets. Mr. Kalish is a certified public accountant.soonour Vice President since 2000 and as reasonably practicable after they are electronically filed withour Senior Vice President since 2006. Mr. Lundy has been a Vice President of BRT Apartments Corp. from 1993 to 2006, its Senior Vice President since 2006, a Vice President of the managing general partner of Gould Investors from 1990 through 2012 and its President and Chief Operating Officer since 2013. He is an attorney admitted to practice in New York and the District of Columbia.furnished to the Securities and Exchange Commission (the "SEC"):through our website, annual reportreports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. Allamended, as soon as reasonably practicable after we electronically file such filings on our Investor Information Web page, which also includes Forms 3, 4material with, or furnish it to, the SEC. The SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and 5 filed pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, are available to be viewed free of charge. On the Corporate Governance page of our web site, we post the following chartersinformation statements, and guidelines: Audit Committee Charter, Compensation Committee Charter, Nominating and Corporate Governance Committee Charter, Corporate Governance Guidelines and Code of Business Conduct and Ethics, as amended and restated. All such documents on our Corporate Governance Web page are available to be viewed free of charge. Information contained on our web site is not part of, and is not incorporated by reference into, this Annual Report on Form 10-K or our other filingsinformation regarding issuers that file electronically with the SEC. A copy of this Annual Report on Form 10-K and those items disclosed on our Investor Information Web page and our Corporate Governance Web page are available without charge upon written request to: One Liberty Properties, Inc., 60 Cutter Mill Road, Suite 303, Great Neck, New York 11021, Attention: Secretary."may," "will," "could," "believe," "expect,""intend," "anticipate," "estimate," "project,"“may,” “will,” “could,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions or variations thereof. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performance or achievements. Factors which may cause actual results to differ materially from current expectations include, but are not limited to:•the financial condition of our tenants and the performance of their lease obligations;•general economic and business conditions, including those currently affecting our nation's economy and real estate markets;•the availability of and costs associated with sources of liquidity;•accessibility of debt and equity capital markets;•general and local real estate conditions, including any changes in the value of our real estate;•compliance with credit facility covenants;•increased competition for leasing of vacant space due to current economic conditions;•changes in governmental laws and regulations relating to real estate and related investments;•the level and volatility of interest rates;•competition in our industry; and•the other risks described underItem 1A. Risk Factors.● the financial condition of our tenants and their performance of lease obligations; ● general economic and business conditions, including those currently affecting our nation’s economy and real estate markets; ● the availability of and costs associated with sources of liquidity; ● general and local real estate conditions, including any changes in the value of our real estate; ● compliance with credit facility covenants; ● increased competition for leasing of vacant space due to current economic conditions; ● changes in governmental laws and regulations relating to real estate and related investments; ● the level and volatility of interest rates; ● competition in our industry; and ● the other risks described under Item 1A. Risk Factors. Approximately 40.2% of our 2018 contractual rental income is derived from tenants operating in the retail industry and the failure of those tenants to pay rent would significantly reduce our revenues. Approximately 40.2% of our 2018 contractual rental income is derived from retail tenants, including 9.0% from tenants engaged in retail furniture (i.e., Haverty Furniture accounts for 7.1% of2018 contractual rental income) and 3.6% from tenants engaged in office supply activities (i.e., Office Depot accounts for 3.6% of 2018 contractual rental income). Various factors could cause our retail tenants to close their locations, including difficult economic conditions and e-commerce competition. The failure of our retail tenants to meet their lease obligations, including rent payment obligations, due to these and other factors, may make it difficult for us to satisfy our operating and debt service requirements, make capital expenditures and pay dividends.20182020 through 2020,2022, leases with respect to 3345 tenants that account for 8.8%24.2% of our 20182020 contractual rental income, expire, and from 2023 through 2024, leases with respect to 41 tenants that account for 19.2% of our 2020 contractual rental income, expire. If our tenants, and in particular, our significant tenants, (i) do not renew their leases upon the expiration of same, (ii) default on their obligations or (iii) seek rent relief, lease renegotiation or other accommodations, our revenues could decline and, in certain cases, co-tenancyco-tenancy provisions may be triggered possibly allowing other tenants at the same property to reduce their rental payments or terminate their leases. At the same time, we would remain responsible for the payment of the mortgage obligations with respect to the related properties and would become responsible for the operating expenses related to these properties, including, among other things, real estate taxes, maintenance and insurance. In addition, we may incur expenses in enforcing our rights as landlord. Even if we find replacement tenants or renegotiatere-negotiate leases with current tenants, the terms of the new or renegotiated leases, including the cost of required renovations or concessions to tenants, or the expense of the reconfiguration of a tenant'stenant’s space, may be less favorable than current lease terms and could reduce the amount of cash available to meet expenses and pay dividends. If tenants facing financial difficulties default on their obligation to pay rent or do not renew their leases at lease expiration, our results of operations and financial condition may be adversely affected. See "Item 7. Management's Discussion and Analysis of Financial Condition or Results of Operations—Other Developments".Approximately 22.9%Traditional retail tenants account for 33.9% of our 20182020 contractual rental income and the competition that such tenants face from e-commerce retail sales could adversely affect our business.Office DepotL-3 Harris Technologies and Ferguson Enterprises account for approximately 7.1%6.7%, 4.5%, 4.2%4.0%, 3.6%3.7% and 3.5%3.3%, respectively, of our 20182020 contractual rental income. The default, financial distress or bankruptcy of any of these tenants or such tenant’s determination not to renew or extend their lease, could significantly reduce our revenues, could cause interruptions in the receipt of, or the loss of, a significant amount of rental income and would require us to pay operating expenses (including real estate taxes) currently paid by the tenant. This could also result in the vacancy of the property or properties occupied by the defaulting or non-renewing tenant, which would significantly reduce our rental revenues and net income until the re-rental of the property or properties, and could decrease the ultimate sale value of the property.Competition that traditional retail tenants face from e-commerce retail sales could adversely affect our business.10 Our retail tenants face increasing competition from e-commerce retailers. These retailers may be able to provide customers with better pricing and the ease and comfort of shopping from their home or office. E-commerce sales have been obtaining an increasing percentage of retail sales over the past few years and this trend is expected to continue. The continued growth of e-commerce sales could decrease the need for traditional retail outlets and reduce retailers' space and property requirements. This could adversely impact our ability to rent space at our retail properties and increase competition for retail tenants thereby reducing the rent we would receive at these properties and adversely affect our results of operations and financial condition.2017, $392.52019, $440.3 million in mortgage debt outstanding all(all of which is non-recourse (subjectsubject to standard carve-outs)carve-outs) and our ratio of mortgage debt to total assets was 53.3%. Our joint ventures had $35.0 million in total mortgage indebtedness (all of which is non-recourse, subject to standard carve-outs)56.8%. The risks associated with our mortgage debt, and the mortgage debt of our joint ventures includeincludes the risk that cash flow from properties securing the indebtedness and our available cash and cash equivalents will be insufficient to meet required payments of principal and interest.20182020 through 2022,2024, approximately $111.4$175.6 million of our mortgage debt matures—specifically, $20.4 million in 2018, $14.6 million in 2019, $11.9$13.5 million in 2020, $20.7$23.0 million in 2021, and $43.8$46.1 million in 2022. With respect to our joint ventures, approximately $14.2 million of mortgage debt matures from 2018 through 2022—specifically, $4.32022, $30.2 million in 2018, $877,000 in 2019, $911,000 in 2020, $948,000 in 2021,2023 and $7.2$62.8 million in 2022.2024. If we (or our joint ventures) are unsuccessful in refinancing or extending existing mortgage indebtedness or financing unencumbered properties, selling properties on favorable terms or raising additional equity, our cash flow (or the cash flow of a joint venture) will not be sufficient to repay all maturing mortgage debt when payments become due, and we (or a joint venture) may be forced to dispose of properties on disadvantageous terms or convey properties secured by mortgages to the mortgagees, which would lower our revenues and the value of our portfolio.tenant'stenant’s competitive position in the applicable submarket,sub-market, our and our tenant'stenant’s estimates of its prospects, consideration of alternative uses and opportunities to re-purpose or re-let the property, we may seek to renegotiate the terms of the mortgage, or to the extent that the loan is non-recourse and the terms of the mortgage cannot be satisfactorily renegotiated, forfeit the property by conveying it to the mortgagee and writing off our investment. an impairment in the value of a particular property or group of properties, we will be required to evaluate any such property or properties. If we determine that any of our properties at which indicators of impairment exist have a fair market value below the net book value of such property, we will be required to recognize an impairment charge for the difference between the fair value and the book value during the quarter in which we make such determination; such impairment charges may then increase in subsequent quarters. This evaluation may lead us to write off any straight-line rent receivable and lease intangible balances recorded with respect to such property. In addition, we may incur losses from time to time if we dispose of properties for sales prices that are less than our book value. ManySome of the properties we own are located in the same or a limited number of geographic regions. Approximately 40.7%39.2% of our 20182020 contractual rental income will beis derived from properties located in five states—Texas (11.9%New York (8.7%), South Carolina (8.3%(8.4%), New York (7.9%Texas (8.4%), Pennsylvania (6.4%(7.6%) and North Carolina (6.2%). At December 31, 2017, approximately 43.1% of the net book value of our real estate investments was located in five states—Texas (11.3%), South Carolina (9.6%), Pennsylvania (9.3%), Tennessee (7.2%) and Maryland (5.7%(6.1%). As a result, a decline in the economic conditions in these states or in regions where our properties may be concentrated in the future, may have an adverse effect on the rental and occupancy rates for, and the property values of, these properties, which could lead to a reduction of our rental income and/or impairment charges. if we do refinance the loan balance.. In addition, an increase in interest rates could decrease the amount third parties are willing to pay for our assets, thereby limiting our ability to reposition our portfolio promptly in response to changes in economic or other conditions.recently been increasing and become increasingly volatile. AtDuring the three years ended December 29, 2017 and February 28, 2018,31, 2019, the interest rate on the 10-year treasury note was 2.40% and 2.87%, respectively.ranged from 1.46% to 3.24%. If we are required to refinance mortgage debt that matures over the next several years at higher interest rates than such mortgage debt currently bears, the funds available for dividends may be reduced. The following table sets forth, as of December 31, 2017,2019, the principal balance of the mortgage payments due at maturity on our properties and the weighted average interest rate thereon (dollars in thousands): Principal
Balances
Due at Maturity Weighted
Average Interest
Rate Percentage $ 10,260 4.26 3,485 3.88 — — 8,463 4.13 31,539 3.92 214,048 4.20 70%70.0% of the total value (as defined in the credit facility) of our properties. (At December 31, 2019, such total indebtedness was 50.3% of the total value of our properties). Increased leverage could result in increased risk of default on our payment obligations related to borrowings and in an increase in debt service requirements, which could reduce our net income and the amount of cash available to meet expenses and to pay dividends.revolving credit facility could occur. revolving credit facility includes covenants that require us to maintain certain financial ratios and comply with other requirements. If our tenants default under their leases with us or fail to renew expiring leases, generally accepted accounting principles may require us to recognize impairment charges against our properties, and our financial position could be adversely affected causing us to be in breach of the financial covenants contained in our credit facility.stockholders'stockholders’ equity and adversely affect our ability to pay dividends.● the joint venture’s inability to obtain all necessary zoning and other required governmental permits and authorizations on a timely basis, ● occupancy rates and rents at the re-developed property may not meet the expected levels and could be insufficient to make the property profitable, ● the inability to complete the project on schedule, or at all, as a result of factors, many of which are beyond the joint venture’s control, including weather, labor conditions and material shortages, ● development and construction costs of the project may exceed the joint venture’s estimates, ● we or our joint venture partner may not have sufficient resources to fund the project, and ● fluctuations in local and regional economic conditions due to the time lag between commencement and completion of the project. tenant'stenant’s other properties are subject to insurance claims. In addition, the rent loss coverage under the policy may not extend for the full periodeventevent. In addition, there are certain types of losses, such as those arising from earthquakes, floods, hurricanes and terrorist attacks, that may be uninsurable or that may not be economically insurable. Changes in zoning, building codes and ordinances, environmental considerations and other factors also may make it impossible or impracticable for us to use insurance proceeds to replace damaged or destroyed improvements at a property. If restoration is not or cannot be completed to the extent, or within the period of time, specified in certain of our leases, the tenant may have the right to terminate the lease. If any of these or similar events occur, it may reduce our revenues, the value of, or our return from, an affected property.Our revenues and the value of our portfolio are affected by a number of factors that affect investments in real estate generally. We are subject to the general risks of investing in real estate. These include adverse changes in economic conditions and local conditions such as changing demographics, retailing trends and traffic patterns, declines in the rental rates, changes in the supply and price of quality properties and the market supply and demand of competing properties, the impact of environmental laws, security concerns, prepayment penalties applicable under mortgage financings, changes in tax, zoning, building code, fire safety and other laws and regulations, the type of insurance coverage available in the market, and changes in the type, capacity and sophistication of building systems. Approximately 40.2% and 37.1% of our 2018 contractual rental income is from retail and industrial tenants, respectively, and we are vulnerable to economic declines that negatively impact these sectors of the economy, which could have an adverse effect on our results of operations, liquidity and financial condition.of termination ofto terminate leases due to co-tenancy provisions (i.e., a tenant’s right to reduce their rent or terminate their lease if certain key tenants vacate a property), events of casualty or condemnation affecting the leased space or the property or due to interruption of the tenant'stenant’s quiet enjoyment of the leased premises, and obligations of a landlord to restore the leased premises or the property following events of casualty or condemnation.condemnation, adverse changes in economic conditions and local conditions (e.g., changing demographics, retailing trends and traffic patterns), declines in rental rates, changes in the supply and price of quality properties and the market supply and demand of competing properties, the impact of environmental laws, security concerns, prepayment penalties applicable under mortgage financings, changes in tax, zoning, building code, fire safety and other laws and regulations, the type of insurance coverage available, and changes in the type, capacity and sophistication of building systems. The occurrence of any of these events could adversely impact our results of operations, liquidity and financial condition."Code".Code. We have not established a minimum dividend payment level and our ability to pay dividends may be adversely affected by the risk factors described in this Annual Report on Form 10-K. All distributions will be made at the discretion of our board of directors and will depend on our earnings (including taxable income), our financial condition, maintenance of our REIT status and such other factors as our board of directors may deem relevant from time to time. common stock dividend is established by our board of directors from time to time based on a variety of factors, including our cash available for distribution, funds from operations, adjusted funds from operations and maintenance of our REIT status. Various factors could cause our board of directors to decrease or not increase our dividend, level, including insufficient income to cover our dividends, tenant defaults or bankruptcies resulting in a material reduction in our funds from operations, or a material loss resulting from an adverse change in the value of one or more of our properties.properties, or insufficient income to cover our dividends. In 2019, our dividends exceed our “earnings and profits” as determined pursuant to the Code (approximately 27% of our dividends exceeded our earnings and profits and therefor constituted a return of capital); accordingly, we were not required to pay dividends that exceeded such earnings and profits to maintain our REIT status. We anticipate that at least a portion of the dividends we will pay in 2020 will constitute a return of capital and we would not be required to pay dividends that qualify as return of capital to maintain our REIT status. If our board of directors determines to reduce or not increase our common stock dividend for the foregoing or any other reason, the market value of our common stock could be adversely affected.partners'partners’ financial condition or insurance coverage, disputes that may arise between our joint venture partners and us and our reliance on one significant joint venture partner. A number ofEight properties in which we have an interest are owned through consolidated joint ventures (four properties) and unconsolidated joint ventures.ventures (four properties). We may continue to acquire properties through joint ventures and/or contribute some of our properties to joint ventures. Investments in joint ventures may, under certain circumstances, involve risks not present when a third party is not involved, including the possibility that joint venture partners might file for bankruptcy protection, fail to fund their share of required capital contributions or obtain insurance coverage pursuant to a blanket policy as a result of which claims with respect to other properties covered by such policy and in which we have no interest could reduce or eliminate the coverage available with respect to the joint venture properties. Further, joint venture partners may have conflicting business interests or goals, and as a result there is the potential risk of impasses on decisions, such as a sale and the timing thereof. Any disputes that may arise between joint venture partners and us may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. Consequently, actions by or disputes with joint venture partners might result in subjecting properties owned by the joint venture to additional risk. With respect to our (i) consolidated joint ventures, we own, with twofive properties that account for 5.1%3.7% of 20182020 contractual rental income, (and we own one property, of which our share of the annual base rent in 2018 is $1.4 million, with one of these joint venture partners through an unconsolidated joint venture), and (ii) unconsolidated joint ventures, we own, with onetwo joint venture partnerpartners and itstheir affiliates, three properties which account for our $326,000$1.7 million share of 20182020 base rent payable. We may be adversely affected if we are unable to maintain a satisfactory working relationship with these joint venture partners or if any of these partners becomes financially distressed.senior managementbusiness and the businesses of our tenants could be materially and adversely affected by the risks, or the public perception of the risks, related to an epidemic, pandemic, outbreak, or other public health crisis, such as the recent outbreak of novel coronavirus (COVID-19). The risk, or public perception of the risk, of a pandemic or media coverage of infectious diseases could cause customers to avoid retail properties, and with respect to our properties generally, could cause temporary or long-term disruptions in our tenants' supply chains and/or delays in the delivery of our tenants’ inventory. Moreover, an epidemic, pandemic, outbreak or other public health crisis, such as COVID-19, could cause the on-site employees of our tenants to avoid our tenants’ properties, which could adversely affect our tenants’ ability to adequately manage their businesses. Risks related to an epidemic, pandemic or other health crisis, such as COVID-19, could also lead to the complete or partial closure of one or more of our tenants’ stores or facilities. Such events could adversely impact our tenants’ sales and/or cause the temporary closure of our tenants’ businesses, which could severely disrupt their operations and the rental revenue we generate from our leases with them. The ultimate extent of the impact of any epidemic, pandemic or other health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. These and other key personnel are critical topotential impacts of an epidemic, pandemic or other health crisis, such as COVID-19, could therefore materially and adversely affect our business, financial condition and our future success depends on our ability to retain them.results of operations. We depend on the services of Matthew J. Gould, chairman of our board of directors, Fredric H. Gould, vice chairman of our board of directors, Patrick J. Callan, Jr., our president and chief executive officer, Lawrence G. Ricketts, Jr., our executive vice president and chief operating officer, David W. Kalish, our senior vice president and chief financial officer and Karen Dunleavy, our vice president—financial, and other members of our senior management to carry out our business and investment strategies. Only three of our senior officers, Messrs. Callan and Ricketts, and Ms. Dunleavy, devote all of their business time to us. The remainder of our senior management provides services to us on a part-time, as-needed basis. The loss of the services of any of our senior management or other keypersonnel, the inability or failure of the members of senior management providing services to us on a part-time basis to devote sufficient time or attention to our activities or our inability to recruit and retain qualified personnel in the future, could impair our ability to carry out our business and investment strategies.Our transactions with affiliated entities involve conflicts of interest. From time to time we have entered into transactions with persons and entities affiliated with us and with certain of our officers and directors. Such transactions involve a potential conflict of interest, and entail a risk that we could have obtained more favorable terms if we had entered into such transaction with an unaffiliated third party. Our policy for transactions with affiliates is to have these transactions approved by our audit committee. We entered into a compensation and services agreement with Majestic Property effective as of January 1, 2007. Majestic Property is wholly-owned by the vice chairman of our board of directors and it provides compensation to certain of our part-time senior executive officers and other individuals performing services on our behalf. Pursuant to the compensation and services agreement, we pay an annual fee to Majestic Property which provides us with the services of all affiliated executive, administrative, legal, accounting and clerical personnel that we use on a part time basis, as well as property management services, property acquisition, sales and leasing and mortgage brokerage services. In 2017, pursuant to the compensation and services agreement, we paid Majestic Property a fee of $2.7 million and an additional $216,000 for our share of all direct office expenses, including rent, telephone, postage, computer services, supplies, and internet usage. We also obtain our property insurance in conjunction with Gould Investors L.P., our affiliate, and in 2017, reimbursed Gould Investors $790,000 for our share of the insurance premiums paid by Gould Investors. Gould Investors beneficially owns approximately 9.5% of our outstanding common stock and certain of our senior executive officers are also executive officers of the managing general partner of Gould Investors. See Note 12 of our consolidated financial statements for information regarding equity awards to individuals performing services on our behalf pursuant to the compensation and services agreement.Breaches of information technology systems could materially harm our business and reputation. We collect and retain on information technology systems, certain financial, personal and other sensitive information provided by third parties, including tenants, vendors and employees. We also rely on information technology systems for the collection and distribution of funds. There can be no assurance that we will be able to prevent unauthorized access to sensitive information or the unauthorized distribution of funds. Any loss of this information or unauthorized distribution of funds as a result of a breach of information technology systems may result in loss of funds to which we are entitled, legal liability and costs (including damages and penalties), as well as damage to our reputation, that could materially and adversely affect our business.Yardi'sYardi’s property management software, for generating tenant invoices and financial reports. If the software fails (including a failure resulting from such parties unwillingness or inability to maintain or upgrade the functionality of the software), our ability to bill tenants and prepare financial reports could be impaired which would adversely affect our business.● provide for a staggered board of directors consisting of three classes, with one class of directors being elected each year and each class being elected for three-year terms and until their successors are duly elected and qualify; ● impose restrictions on ownership and transfer of our stock (such provisions being intended to, among other purposes, facilitate our compliance with certain requirements under the Code, relating to our qualification as a REIT under the Code); and ● provide that directors may be removed only for cause and only by the vote of at least a majority of all outstanding shares entitled to vote. ● “control share” provisions that provide that, subject to certain exceptions, holders of “control shares” of our company (defined as voting shares which, when aggregated with other shares controlled by the stockholder, entitle the holder to exercise voting power in the election of directors within one of three increasing ranges) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares,” subject to certain exceptions) have no voting rights with respect to the control shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares; and ● additionally, Title 3, Subtitle 8 of the MGCL permits our board of directors, without stockholder approval and regardless of what is currently provided in the Charter or the Bylaws, to implement certain corporate governance provisions. changesinterpretations of those laws may be amended or modified. Any new laws or interpretations may take effect retroactively and could adversely affect us or our stockholders. The tax laws or regulations governing REITs or the administrative interpretations thereof may be amended at any time. We cannot predict if or when any new or amended law, regulation or administrative interpretation will be adopted, promulgated or become effective, and any such change may apply retroactively. We and our stockholders may be adversely affected by any new or amended law, regulation or administrative interpretation. On December 22, 2017, the Tax Cuts and Jobs Act, which we refer to as the "Tax Act", was enacted. The Tax Act enacted significant changes to the U.S. federal income tax rules for taxation of individuals and corporations, generally effective for taxable years beginning after December 31, 2017. Most of the changes applicable to individuals are temporary and apply only to taxable years beginning after December 31, 2017 and before January 1, 2026. The Tax Act makes numerous large and small changes to the tax rules that do not affect REITs directly but may affect our stockholders and may indirectly affect us. While the changes in the Tax Act generally appear to be favorable with respect to REITs, the extensive changes to non-REIT provisions in the Code may have unanticipated effects on us or our stockholders. Investors are urged to consult with their tax advisors with respect to the status of the Tax Act and any other regulatory or administrative developments and proposals and their potential effect on investment in our capital stock.(subject (subject to certain adjustments) each year. To the extent that we satisfy these distribution requirements, but distribute less than 100% of our taxable income we will be subject to Federal and state corporate tax on our undistributed taxable income. the creation of reserves and the timing of required debt service (including amortization) payments, we may need to borrow funds in order to make the distributions necessary to retain the tax benefits associated with qualifying as a REIT, even if we believe that then prevailing market conditions are not generally favorable for such borrowings. Such borrowings could reduce our net income and the cash available to pay dividends.2017,2019, we own 113122 properties with an aggregate net book value of $660.0$700.5 million. Our occupancy rate, based on square footage, was 99.6%98.1% and 97.3%99.2% as of December 31, 20172019 and 2016,2018, respectively. We also participateAt December 31, 2019, we participated in joint ventures that own fiveowned four properties and at December 31, 2017,such date, our investment in these unconsolidated joint ventures is $10.7$11.1 million. The occupancy rate of our joint venture properties, based on square footage, was 97.6%59.3%, 59.3% and 97.9%97.6% as of December 31, 2019, 2018 and 2017, respectively. On March 2, 2020, a joint venture sold a property in Savannah, Georgia (the “Savannah Sale”). For further information about the Manahawkin Property, including information about the related mortgage debt and 2016, respectively.re-development activities, and the Savannah Sale, see “—Properties Owned by Joint Ventures”, “—Mortgage Debt” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”.2017,2019, certain information about our properties:properties (except as otherwise indicated, each property is tenanted by a single tenant): Type of Property Percentage
of 2018
Contractual
Rental Income Approximate
Square Footage
of Building 2018
Contractual
Rental Income
per Square Foot Industrial 4.2 701,595 $ 4.02 Industrial 3.5 367,000 6.39 Retail 3.2 194,600 11.48 Assisted Living Facility 3.0 87,560 23.27 Industrial 3.0 540,200 3.73 Industrial 2.6 149,870 11.87 Industrial 2.6 419,821 4.21 Apartments 2.4 349,999 4.68 Theater 2.3 61,213 25.92 Retail—Supermarket 2.3 47,174 32.97 Retail 2.1 101,596 14.45 Industrial 2.1 339,094 4.17 Health & Fitness 2.0 44,863 30.40 Retail 1.9 110,179 12.22 Industrial 1.8 294,000 4.18 Retail 1.8 112,260 10.75 Office 1.8 66,000 18.15 Apartments 1.7 300,104 3.88 Retail 1.7 35,330 32.84 Retail 1.7 131,710 8.50 Industrial 1.7 303,188 3.69 Industrial 1.6 258,710 4.08 Industrial 1.5 208,234 4.96 Health & Fitness 1.4 58,800 16.67 Industrial 1.4 249,600 3.73 Apartments 1.2 480,684 1.70 Industrial 1.2 131,400 6.12 Retail—Furniture 1.1 50,810 14.71 Health & Fitness 1.1 38,000 19.38 Retail—Furniture 1.1 96,924 7.40 Theater 1.0 57,688 12.25 Industrial 1.0 125,622 5.43 Retail 1.0 54,229 12.23 Industrial 0.9 142,200 4.39 Retail 0.9 29,993 20.17 Industrial 0.9 90,599 6.61 Industrial 0.9 78,319 7.50 Retail 0.8 32,138 17.90 Industrial 0.8 224,749 2.56 Retail—Furniture 0.8 88,108 6.35 Industrial 0.8 128,000 4.35 Retail 0.8 50,530 10.78 Retail—Office Supply 0.8 23,939 22.16 Industrial 0.8 122,461 4.33 Type of Property Percentage
of 2018
Contractual
Rental Income Approximate
Square Footage
of Building 2018
Contractual
Rental Income
per Square Foot Retail 0.8 96,725 5.40 Industrial 0.8 51,351 10.06 Retail—Furniture 0.7 72,000 6.75 Retail 0.7 41,280 11.63 Retail—Furniture 0.7 65,951 6.97 Industrial 0.7 125,370 3.60 Retail 0.7 63,919 7.00 Retail—Office Supply 0.7 33,490 13.29 Retail 0.6 43,480 10.12 Industrial 0.6 38,000 10.99 Retail 0.6 25,005 16.70 Retail—Furniture 0.6 38,788 10.53 Retail—Furniture 0.6 72,027 5.64 Retail 0.6 25,358 15.90 Retail—Furniture 0.6 58,937 6.82 Retail—Furniture 0.6 30,173 12.48 Retail—Office Supply 0.5 24,978 14.88 Retail—Furniture 0.5 50,260 7.29 Retail 0.5 23,547 15.40 Retail—Furniture 0.5 49,865 7.09 Retail 0.5 49,406 7.00 Retail—Office Supply 0.5 25,000 13.81 Industrial 0.5 105,191 3.25 Retail 0.5 20,087 16.00 Industrial 0.5 46,181 6.95 Retail 0.4 12,950 23.00 Retail 0.4 9,750 30.07 Retail 0.4 14,555 20.00 Retail—Furniture 0.4 22,768 12.21 Retail—Furniture 0.4 35,011 7.92 Retail—Furniture 0.4 15,912 17.00 Industrial 0.4 53,064 5.03 Restaurant 0.4 6,012 43.87 Retail—Office Supply 0.4 23,483 11.09 Retail—Supermarket 0.4 57,653 4.51 Restaurant 0.4 7,000 36.65 Restaurant 0.4 5,635 44.16 Restaurant 0.3 9,367 25.07 Restaurant 0.3 6,655 35.13 Retail 0.3 — — Restaurant 0.3 6,734 31.83 Retail 0.3 12,054 17.42 Restaurant 0.3 4,051 50.43 Retail 0.3 33,111 6.10 Restaurant 0.3 4,749 42.23 Retail 0.3 13,502 14.71 Restaurant 0.3 4,025 48.64 Retail 0.3 18,572 10.39 (1) This property, a community shopping center, is leased to eleven tenants. Contractual rental income per square foot excludes 3,850 vacant square feet. Approximately 27.9% of the square footage is leased to a supermarket. (2) This property has two tenants. (3) This property, a community shopping center, is leased to 23 tenants. Contractual rental income per square foot excludes 19,215 vacant square feet. (4) This property has four tenants. Contractual rental income per square foot excludes 2,395 vacant square feet. (5) This property is ground leased to a multi-unit apartment complex owner/operator. Reflects contingent rent that may be received subject to the satisfaction of performance requirements. See Note 6 of our consolidated financial statements and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Other 2019 Developments.” (6) This property has three tenants. (7) This property has three tenants. Approximately 43.4% of the square footage is leased to a retail office supply operator. (8) This property was sold in February 2020. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Property Transactions Subsequent to December 31, 2019”. (9) Contractual rental income excludes 72,000 vacant square feet. (10) This property provides additional parking for the W. Hartford, CT, retail supermarket. (11) This property has been vacant since 2017. (12) The tenant vacated this property in December 2019 and paid a lease termination fee. At December 31, 2019, this property is vacant. Type of Property Percentage
of 2018
Contractual
Rental Income Approximate
Square Footage
of Building 2018
Contractual
Rental Income
per Square Foot Retail 0.3 8,775 20.75 Industrial 0.2 35,707 4.57 Retail 0.2 6,051 25.30 Restaurant 0.2 2,754 52.00 Restaurant 0.2 2,551 54.79 Industrial 0.2 10,361 13.17 Restaurant 0.2 2,944 43.42 Restaurant 0.2 2,702 46.74 Retail 0.2 12,000 10.50 Restaurant 0.2 2,798 44.43 Restaurant 0.2 3,004 40.55 Retail 0.2 6,796 17.21 Retail 0.2 11,672 9.94 Retail 0.2 6,751 15.55 Retail 0.2 8,600 12.21 Retail 0.1 6,749 15.19 Restaurant 0.1 12,820 6.43 Retail 0.1 8,000 8.79 Retail 0.1 3,053 16.00 Industrial 0.1 9,642 4.02 Vacant — 32,446 — 100.0 9,428,251 (1)This property, a community shopping center, is leased to eleven tenants. Contractual rental income per square foot excludes 3,850 vacant square feet. Approximately 27.9% of the square footage is leased to a supermarket.(2)This property is ground leased to a multi-unit apartment complex owner/operator. Reflects contingent rent that may be received subject to the satisfaction of performance requirements. See Notes 4 and 7 of our consolidated financial statements.(3)This property, a community shopping center, is leased to 27 tenants. Contractual rental income per square foot excludes 2,570 vacant square feet.(4)This property has two tenants.(5)This property has four tenants. Contractual rental income per square foot excludes 2,395 vacant square feet.(6)This property has three tenants. Approximately 43.4% of the square footage is leased to a retail office supply operator.(7)This property has three tenants.(8)This property has two tenants. Approximately 48.4% of the square footage is leased to a retail office supply operator.(9)This property provides additional parking for the W. Hartford, CT, retail supermarket.(10)This property was operated as a hhgregg. The tenant filed for Chapter 11 bankruptcy protection, rejected the lease and in late May 2017, vacated the property. At December 31, 2017, the property is vacant.2017,2019, information about the properties owned by joint ventures in which we are a venture partner:(1) Represents our share of the base rent payable in 2020 with respect to such joint venture property, expressed as a percentage of the aggregate base rent payable in 2020 with respect to all of our joint venture properties. Type of
Property Percentage of
Base Rent Payable
in 2018
Contributed by
the Applicable
Joint Venture(1) Approximate
Square Footage
of Building 2018
Base Rent
per Square Foot Retail 59.4 319,349 $ 9.92 Industrial 27.1 750,300 1.75 Retail 7.4 45,973 7.77 Retail 5.1 101,550 2.44 Retail 1.0 7,959 5.93 100.0 1,225,131 (1)Represents the base rent payable in 2018 with respect to such joint venture property, expressed as a percentage of the aggregate base rent payable in 2018 with respect to all of our joint venture properties.(2)This property, a community shopping center, is leased to 25 tenants. Base rent per square foot excludes 29,068 vacant square feet.(2) The Manahawkin Property, a community shopping center, is leased to 21 tenants and is undergoing re-development. Base rent per square foot excludes 151,901 vacant square feet. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Other 2019 Developments.” (3) Portions of this property are used by a tenant for a parking lot and ground leased to a restaurant. (4) On March 2, 2020, we sold this property for $819,000, net of closing costs. Our 50% share of the gain from this sale is anticipated to be approximately $121,000 which will be included in our results for the three months ending March 31, 2020. 2017,2019, the 113122 properties owned by us are located in 3031 states. The following table sets forth information, presented by state, related to our properties as of December 31, 2017:2019: Number of
Properties 2018
Contractual
Rental
Income Percentage of
2018
Contractual
Rental
Income Approximate
Building
Square Feet 11 $ 8,043,732 11.9 902,489 6 5,610,987 8.3 1,316,728 8 5,317,586 7.9 440,858 10 4,316,651 6.4 524,657 8 4,193,700 6.2 340,282 9 4,037,748 6.0 657,789 9 3,774,291 5.6 268,152 3 3,750,286 5.5 800,279 7 3,538,228 5.2 943,582 2 3,402,779 5.0 625,710 3 1,994,870 2.9 303,577 2 1,871,008 2.8 145,076 2 1,779,365 2.6 47,174 2 1,766,818 2.6 70,221 2 1,611,325 2.4 352,596 3 1,471,540 2.2 196,130 4 1,398,944 2.1 156,957 4 1,278,657 1.9 109,330 1 1,228,353 1.8 294,000 1 1,207,188 1.8 112,260 1 1,033,122 1.5 208,234 4 878,252 1.3 49,151 3 866,722 1.3 165,185 1 803,670 1.1 131,400 2 664,617 1.0 96,708 1 663,125 1.0 54,229 4 1,230,593 1.7 115,497 113 $ 67,734,157 100.0 9,428,251 2017:2019: Number of
Properties Our Share
of the
Base Rent
Payable in 2018
to these
Joint Ventures Approximate
Building
Square Feet 1 $ 1,439,770 319,349 1 657,844 750,300 3 325,958 155,482 5 $ 2,423,572 1,225,131 2017,2019, we had:•69 first mortgages secured by 86 of our 113 properties; and•$392.5 million of mortgage debt outstanding with a weighted average interest rate of 4.22% and a weighted average remaining term to maturity of approximately 8.8 years. Substantially all of such mortgage debt bears fixed interest at rates ranging from 3.02% to 6.59% and contains prepayment penalties.● 74 first mortgages secured by 91 of our 122 properties; and ● $440.3 million of mortgage debt outstanding with a weighted average interest rate of 4.21% and a weighted average remaining term to maturity of approximately 8.1 years. Substantially all of such mortgage debt bears fixed interest at rates ranging from 3.02% to 5.87% and contains prepayment penalties. 20172019 (dollars in thousands): PRINCIPAL
PAYMENTS DUE $ 20,448 14,610 11,901 20,742 43,771 281,051 $ 392,523 2017, our2019, the first mortgage on the Manahawkin Property, the only joint venturesventure property with mortgage debt, had first mortgages on four properties withan outstanding balances aggregating approximately $35.0principal balance of $23.2 million, bearing interest at rates ranging from 3.49% to 5.81% with a weighted averagecarries an annual interest rate of 4.07%4% and matures in July 2025. This mortgage contains a weighted average remaining term to maturity of 6.1 years. Substantially all of these mortgages contain prepayment penalties.penalty. The following table sets forth the scheduled principal mortgage payments due for properties owned by our joint venturesthis property as of December 31, 20172019 (dollars in thousands): PRINCIPAL
PAYMENTS DUE $ 4,272 877 911 948 7,189 20,850 $ 35,047 The term "standard carve-outs" refers to recourse items to an otherwise non-recourse mortgage and are customary to mortgage financing. While carve-outs vary from lender to lender and transaction to transaction, the carve-outs may include, among other things, voluntary bankruptcy filings, 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 and the conversion of security deposits, insurance proceeds or condemnation awards.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
26
Part II
Item 5. Market for the Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is listed on the New York Stock Exchange under the symbol "OLP." The following table sets forth for the periods indicated, the high and low prices for our common stock as reported by the New York Stock Exchange and the per share distributions declared on our common stock.
| 2017 | 2016 | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Quarter Ended | High | Low | Dividend Declared Per Share(1) | High | Low | Dividend Per Share(1) | |||||||||||||
March 31 | $ | 25.45 | $ | 21.96 | $ | .43 | $ | 22.96 | $ | 18.80 | $ | .41 | |||||||
June 30 | 25.24 | 22.21 | .43 | 24.90 | 21.65 | .41 | |||||||||||||
September 30 | 24.81 | 22.67 | .43 | 25.85 | 23.50 | .41 | |||||||||||||
December 31 | 27.70 | 23.61 | .45 | 25.89 | 22.43 | .43 |
“OLP.” As of March 7, 2018,3, 2020, there were approximately 294271 holders of record of our common stock.
We qualify as a REIT for Federal income tax purposes. In order to maintain that status, we are required to distribute to our stockholders at least 90% of our annual ordinary taxable income. The amount and timing of future distributions will be at the discretion of our board of directors and will depend upon our financial condition, earnings, business plan, cash flow and other factors. We intend to make distributions in an amount at least equal to that necessary for us to maintain our status as a real estate investment trust for Federal income tax purposes.
Stock Performance Graph
The following graph compares the five year cumulative return of our common stock with the Standard and Poor's 500 index (the "S&P Index") and the FTSE-NAREIT Equity REITs, a peer group index (the "Peer Group Index"). The graph assumes $100 was invested on December 31, 2012 in our common stock, the S&P Index and the Peer Group Index and assumes the reinvestment of dividends.
| December 31, | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||
OLP | $ | 100.00 | $ | 105.80 | $ | 133.05 | $ | 129.41 | $ | 162.39 | $ | 180.11 | |||||||
S&P 500 | 100.00 | 132.39 | 150.51 | 152.59 | 170.84 | 208.14 | |||||||||||||
FTSE NAREIT Equity REITs Index | 100.00 | 102.47 | 133.35 | 137.61 | 149.33 | 157.14 |
Issuer Purchases of Equity Securities
We did not repurchase any shares of our outstanding common stock in 2017.2019. We are authorized to repurchase up to $7.5 million shares of our common stock.
Equity Compensation Plan Information
As of December 31, 2019, the only equity compensation plan under which equity compensation may be awarded is our 2019 Incentive Plan, which was approved by our stockholders in June 2019. This plan permits us to grant stock options, restricted stock, restricted stock units and performance based awards to our employees, officers, directors, consultants and other eligible participants. The following table provides information as of December 31, 2019 about shares of our common stock that may be issued upon the exercise of options, warrants and rights under our 2019 Incentive Plan:
| | | | | | | |
|
| |
| |
| Number of |
|
| | | | | | securities |
|
| | | | | | remaining available |
|
| | Number of | | | | for future issuance |
|
| | securities | | Weighted‑average | | under equity |
|
| | to be issued | | exercise price | | compensation |
|
| | upon exercise | | of outstanding | | plans (excluding |
|
| | of outstanding | | options, | | securities |
|
| | options, warrants | | warrants | | reflected in |
|
Plan Category | | and rights(1) | | and rights | | column(a))(2) |
|
|
| (a) |
| (b) |
| (c) | |
Equity compensation plans approved by security holders |
| 75,026 |
| — |
| 674,974 | |
Equity compensation plans not approved by security holders |
| — |
| — |
| — | |
Total |
| 75,026 |
| — |
| 674,974 | |
(1) | Represents 75,026 shares of common stock issuable pursuant to restricted stock units (“RSUs”). On June 30, 2022, the shares of common stock underlying these units vest, if and to the extent specified performance (i.e., average annual return on capital) and/or market (i.e., average annual total stockholder return) conditions are satisfied by such dates. Excludes 150,000 shares of common stock underlying RSUs outstanding pursuant to our 2016 Incentive Plan. |
(2) | Does not give effect to 149,550 shares of restricted stock granted January 17, 2020 pursuant to our 2019 Incentive Plan. |
27
Item 6. Selected Financial Data
.The following table sets forth on a historical basis our selected financial data. This information should be read in conjunction with our consolidated financial statements and"“Item 7. Management'sManagement’s Discussion and Analysis of Financial Conditions and Results of Operations"Operations” appearing elsewhere in this Annual Report on Form 10-K.
| | | | | | | | | | | | | | | | |
| | As of and for the Year Ended December 31, |
| |||||||||||||
| | (Dollars in thousands, except per share data) |
| |||||||||||||
|
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| |||||
OPERATING DATA |
| |
|
| |
|
| |
|
| |
|
| |
| |
Total revenues | | $ | 84,736 | (1) | $ | 79,126 | (1) | $ | 75,916 | | $ | 70,588 | | $ | 65,711 | (1) |
Gain on sale of real estate, net | | | 4,327 | |
| 5,262 | |
| 9,837 | |
| 10,087 | |
| 5,392 | |
Operating income | | | 40,173 | |
| 36,330 | |
| 41,803 | |
| 41,780 | |
| 38,045 | |
Equity in earnings of unconsolidated joint ventures | | | 16 | |
| 1,304 | |
| 826 | |
| 1,005 | |
| 412 | |
Equity in earnings from sale of unconsolidated joint venture properties | | | — | |
| 2,057 | |
| — | |
| — | |
| — | |
Prepayment costs on debt | | | (827) | |
| — | |
| (201) | |
| (577) | |
| (568) | |
Net income attributable to One Liberty Properties, Inc. | | | 18,011 | |
| 20,665 | |
| 24,147 | |
| 24,422 | |
| 20,517 | |
Weighted average number of common shares outstanding: | | | | |
| | |
| | |
| | |
| | |
Basic | | | 19,090 | |
| 18,575 | |
| 17,944 | |
| 16,768 | |
| 15,971 | |
Diluted | | | 19,119 | |
| 18,588 | |
| 18,047 | |
| 16,882 | |
| 16,079 | |
Net income per common share—basic | | $ | 0.88 | | $ | 1.05 | | $ | 1.29 | | $ | 1.40 | | $ | 1.23 | |
Net income per common share—diluted | | $ | 0.88 | | $ | 1.05 | | $ | 1.28 | | $ | 1.39 | | $ | 1.22 | |
Cash distributions declared per share of common stock | | $ | 1.80 | | $ | 1.80 | | $ | 1.74 | | $ | 1.66 | | $ | 1.58 | |
BALANCE SHEET DATA | | | | |
| | |
| | |
| | |
| | |
Real estate investments, net | | $ | 700,535 | | $ | 705,459 | | $ | 666,374 | | $ | 651,213 | | $ | 562,257 | |
Unamortized intangible lease assets, net | | | 26,068 | |
| 26,541 | |
| 30,525 | |
| 32,645 | |
| 28,978 | |
Investment in unconsolidated joint ventures | | | 11,061 | |
| 10,857 | |
| 10,723 | |
| 10,833 | |
| 11,350 | |
Cash and cash equivalents | | | 11,034 | |
| 15,204 | |
| 13,766 | |
| 17,420 | |
| 12,736 | |
Total assets | | | 774,629 | |
| 780,912 | |
| 742,586 | |
| 733,445 | |
| 646,499 | |
Mortgages payable, net of deferred financing costs | | | 435,840 | |
| 418,798 | |
| 393,157 | |
| 394,898 | |
| 331,055 | |
Due under line of credit, net of deferred financing costs | | | 10,831 | |
| 29,688 | |
| 8,776 | |
| 9,064 | |
| 17,744 | |
Unamortized intangible lease liabilities, net | | | 12,421 | |
| 14,013 | |
| 17,551 | |
| 19,280 | |
| 14,521 | |
Total liabilities | | | 482,645 | |
| 482,317 | |
| 444,084 | |
| 441,518 | |
| 384,073 | |
Total equity | | | 291,984 | |
| 298,595 | |
| 298,502 | |
| 291,927 | |
| 262,426 | |
OTHER DATA(2) | | | | |
| | |
| | |
| | |
| | |
Funds from operations | | $ | 36,579 | | $ | 38,879 | | $ | 36,193 | | $ | 33,256 | | $ | 32,717 | |
Funds from operations per common share: | | | | |
| | |
| | |
| | |
| | |
Basic | | $ | 1.85 | | $ | 2.02 | | $ | 1.95 | | $ | 1.91 | | $ | 1.98 | |
Diluted | | $ | 1.84 | | $ | 2.02 | | $ | 1.94 | | $ | 1.90 | | $ | 1.97 | |
Adjusted funds from operations | | $ | 39,377 | | $ | 41,059 | | $ | 39,065 | | $ | 34,848 | | $ | 31,997 | |
Adjusted funds from operations per common share: | | | | |
| | |
| | |
| | |
| | |
Basic | | $ | 1.99 | | $ | 2.14 | | $ | 2.10 | | $ | 2.01 | | $ | 1.94 | |
Diluted | | $ | 1.98 | | $ | 2.13 | | $ | 2.09 | | $ | 1.99 | | $ | 1.92 | |
(1) | Includes lease termination fees of $950,000, $372,000 and $2.9 million for 2019, 2018 and 2015, respectively. |
28
| As of and for the Year Ended December 31, (Dollars in thousands, except per share data) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||
OPERATING DATA | ||||||||||||||||
Total revenues | $ | 75,916 | $ | 70,588 | $ | 65,711 | (1) | $ | 60,477 | (1) | $ | 50,979 | ||||
Gain on sale of real estate, net | 9,837 | 10,087 | 5,392 | 10,180 | 4,705 | |||||||||||
Equity in earnings of unconsolidated joint ventures | 826 | 1,005 | 412 | 533 | 651 | |||||||||||
Income from continuing operations | 24,249 | 24,481 | 21,907 | 22,197 | 17,409 | |||||||||||
Income from discontinued operations | — | — | — | 13 | 515 | |||||||||||
Net income attributable to One Liberty Properties, Inc. | 24,147 | 24,422 | 20,517 | 22,116 | 17,875 | |||||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||
Basic | 17,944 | 16,768 | 15,971 | 15,563 | 14,948 | |||||||||||
Diluted | 18,047 | 16,882 | 16,079 | 15,663 | 15,048 | |||||||||||
Net income per common share—basic | $ | 1.29 | $ | 1.40 | $ | 1.23 | $ | 1.37 | $ | 1.15 | ||||||
Net income per common share—diluted | $ | 1.28 | $ | 1.39 | $ | 1.22 | $ | 1.37 | $ | 1.14 | ||||||
Cash distributions declared per share of common stock | $ | 1.74 | $ | 1.66 | $ | 1.58 | $ | 1.50 | $ | 1.42 | ||||||
BALANCE SHEET DATA | ||||||||||||||||
Real estate investments, net | $ | 666,374 | $ | 651,213 | $ | 562,257 | $ | 504,850 | $ | 496,187 | ||||||
Unamortized intangible lease assets, net | 30,525 | 32,645 | 28,978 | 27,387 | 26,035 | |||||||||||
Investment in unconsolidated joint ventures | 10,723 | 10,833 | 11,350 | 4,907 | 4,906 | |||||||||||
Cash and cash equivalents | 13,766 | 17,420 | 12,736 | 20,344 | 16,631 | |||||||||||
Total assets | 742,586 | 733,445 | 646,499 | 587,162 | 568,693 | |||||||||||
Mortgages payable, net of deferred financing costs | 393,157 | 394,898 | 331,055 | 288,868 | 275,319 | |||||||||||
Due under line of credit, net of deferred financing costs | 8,776 | 9,064 | 17,744 | 13,154 | 22,772 | |||||||||||
Unamortized intangible lease liabilities, net | 17,551 | 19,280 | 14,521 | 10,463 | 6,917 | |||||||||||
Total liabilities | 444,084 | 441,518 | 384,073 | 331,258 | 318,603 | |||||||||||
Total equity | 298,502 | 291,927 | 262,426 | 255,904 | 250,090 | |||||||||||
OTHER DATA(2) | ||||||||||||||||
Funds from operations | $ | 36,193 | $ | 33,256 | $ | 32,717 | $ | 28,248 | $ | 25,740 | ||||||
Funds from operations per common share: | ||||||||||||||||
Basic | $ | 1.95 | $ | 1.91 | $ | 1.98 | $ | 1.76 | $ | 1.67 | ||||||
Diluted | $ | 1.94 | $ | 1.90 | $ | 1.97 | $ | 1.75 | $ | 1.66 | ||||||
Adjusted funds from operations | $ | 39,065 | $ | 34,848 | $ | 31,997 | $ | 29,703 | $ | 27,094 | ||||||
Adjusted funds from operations per common share: | ||||||||||||||||
Basic | $ | 2.10 | $ | 2.01 | $ | 1.94 | $ | 1.85 | $ | 1.76 | ||||||
Diluted | $ | 2.09 | $ | 1.99 | $ | 1.92 | $ | 1.84 | $ | 1.75 |
(2) | See “—Funds from Operations and Adjusted Funds from Operations” for a discussion of the limitations on such data and a reconciliation of such data to our financial information presented in accordance with GAAP. |
Funds from Operations and Adjusted Funds from Operations
Funds from Operations and Adjusted Funds from Operations
We compute funds from operations, or FFO, in accordance with the "White“White Paper on Funds From Operations"Operations” issued by the National Association of Real Estate Investment Trusts ("NAREIT"(“NAREIT”) and NAREIT'sNAREIT’s related guidance. FFO is defined in the White Paper as net income (computed(calculated in accordance with generally accepting accounting principles)GAAP), excluding gains (or losses) from sales of property, plus real estate depreciation and amortization (including amortizationrelated to real estate, gains and losses from the sale of deferred leasing costs), pluscertain real estate assets, gains and losses from change in control, impairment write-downs of certain real estate assets and investments in entities where the impairment is directly attributable to decreases in the value of depreciable real estate and after adjustments for unconsolidated partnerships and joint ventures.held by the entity. Adjustments for unconsolidated partnerships and joint ventures will beare calculated to reflect funds from operationsFFO on the same basis. In computing FFO, we do not add back to net income the amortization of costs in connection with our financing activities or depreciation of non-real estate assets.
We compute adjusted funds from operations, or AFFO, by adjusting from FFO for our straight-line rent accruals and amortization of lease intangibles, deducting lease termination fees and gain on extinguishment of debt and adding back amortization of restricted stock and restricted stock unit compensation expense, amortization of costs in connection with our financing activities (including our share of our unconsolidated joint ventures) and debt prepayment costs. Since the NAREIT White Paper does not provide guidelines for computing AFFO, the computation of AFFO may vary from one REIT to another.
We believe that FFO and AFFO are useful and standard supplemental measures of the operating performance for equity REITs and are used frequently by securities analysts, investors and other interested parties in evaluating equity REITs, many of which present FFO and AFFO when reporting their operating results. FFO and AFFO are intended to exclude GAAP historical cost depreciation and amortization of real estate assets, which assumes that the value of real estate assets diminish predictability over time. In fact, real estate values have historically risen and fallen with market conditions. As a result, we believe that FFO and AFFO provide a performance measure that when compared year over year, should reflect the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not be necessarily apparent from net income. We also consider FFO and AFFO to be useful to us in evaluating potential property acquisitions.
FFO and AFFO do not represent net income or cash flows from operations as defined by GAAP. FFO and AFFO and should not be considered to be an alternative to net income as a reliable measure of our operating performance; nor should FFO and AFFO be considered an alternative to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity. FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders.
Management recognizes that there are limitations in the use of FFO and AFFO. In evaluating our performance, management is careful to examine GAAP measures such as net income and cash flows from operating, investing and financing activities.
29
The table below provides a reconciliation of net income in accordance with GAAP to FFO and AFFO for each of the indicated years (dollars in thousands):
| | | | | | | | | | | | | | | |
|
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |||||
GAAP net income attributable to One Liberty Properties, Inc. | | $ | 18,011 | | $ | 20,665 | | $ | 24,147 | | $ | 24,422 | | $ | 20,517 |
Add: depreciation and amortization of properties | |
| 21,574 | |
| 23,792 | |
| 20,674 | |
| 17,865 | |
| 16,150 |
Add: our share of depreciation and amortization of unconsolidated joint ventures | |
| 527 | |
| 709 | |
| 872 | |
| 893 | |
| 634 |
Add: impairment loss | |
| — | |
| — | |
| 153 | |
| — | |
| — |
Add: amortization of deferred leasing costs | |
| 452 | |
| 363 | |
| 319 | |
| 299 | |
| 234 |
Add: amortization of deferred leasing costs of unconsolidated joint ventures | | | 18 | | | — | | | — | | | — | | | — |
Add: Federal excise tax relating to gain on sale | |
| — | |
| — | |
| — | |
| 6 | |
| 174 |
Deduct: gain on sale of real estate, net | |
| (4,327) | |
| (5,262) | |
| (9,837) | |
| (10,087) | |
| (5,392) |
Deduct: purchase price fair value adjustment | |
| — | |
| — | |
| — | |
| — | |
| (960) |
Deduct: equity in earnings from sale of unconsolidated joint venture properties | |
| — | |
| (2,057) | |
| — | |
| — | |
| — |
Adjustments for non‑controlling interests | |
| 324 | |
| 669 | |
| (135) | |
| (142) | |
| 1,360 |
NAREIT funds from operations applicable to common stock | |
| 36,579 | |
| 38,879 | |
| 36,193 | |
| 33,256 | |
| 32,717 |
Deduct: straight‑line rent accruals and amortization of lease intangibles | |
| (1,876) | |
| (1,491) | |
| (1,329) | |
| (2,991) | |
| (1,605) |
(Deduct) add: our share of straight‑line rent accruals and amortization of lease intangibles of unconsolidated joint ventures | |
| (62) | |
| (539) | |
| 36 | |
| 49 | |
| 7 |
Deduct: lease termination fee income | |
| (950) | |
| (372) | |
| — | |
| — | |
| (2,886) |
Add: amortization of restricted stock compensation | |
| 3,870 | |
| 3,510 | |
| 3,133 | |
| 2,983 | |
| 2,334 |
Add: prepayment costs on debt | |
| 827 | |
| — | |
| — | |
| 577 | |
| 568 |
Add: amortization and write‑off of deferred financing costs | |
| 995 | |
| 985 | |
| 977 | |
| 904 | |
| 1,023 |
Add: our share of amortization and write‑off of deferred financing costs of unconsolidated joint ventures | |
| 17 | |
| 45 | |
| 25 | |
| 25 | |
| 23 |
Adjustments for non‑controlling interests | |
| (23) | |
| 42 | |
| 30 | |
| 45 | |
| (184) |
Adjusted funds from operations applicable to common stock | | $ | 39,377 | | $ | 41,059 | | $ | 39,065 | | $ | 34,848 | | $ | 31,997 |
30
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
GAAP net income attributable to One Liberty Properties, Inc. | $ | 24,147 | $ | 24,422 | $ | 20,517 | $ | 22,116 | $ | 17,875 | ||||||
Add: depreciation and amortization of properties | 20,674 | 17,865 | 16,150 | 14,494 | 11,891 | |||||||||||
Add: our share of depreciation and amortization of unconsolidated joint ventures | 872 | 893 | 634 | 374 | 517 | |||||||||||
Add: impairment loss | 153 | — | — | 1,093 | 62 | |||||||||||
Add: amortization of deferred leasing costs | 319 | 299 | 234 | 168 | 152 | |||||||||||
Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures | — | — | — | — | 8 | |||||||||||
Add: Federal excise tax relating to gain on sale | — | 6 | 174 | 302 | 45 | |||||||||||
Deduct: gain on sale of real estate | (9,837 | ) | (10,087 | ) | (5,392 | ) | (10,180 | ) | — | |||||||
Deduct: purchase price fair value adjustment | — | — | (960 | ) | — | — | ||||||||||
Deduct: net gain on sale of real estate of unconsolidated joint ventures | — | — | — | — | (4,705 | ) | ||||||||||
Adjustments for non-controlling interests | (135 | ) | (142 | ) | 1,360 | (119 | ) | (105 | ) | |||||||
| | | | | | | | | | | | | | | | |
NAREIT funds from operations applicable to common stock | 36,193 | 33,256 | 32,717 | 28,248 | 25,740 | |||||||||||
Deduct: straight-line rent accruals and amortization of lease intangibles | (1,329 | ) | (2,991 | ) | (1,605 | ) | (1,756 | ) | (1,274 | ) | ||||||
Add (deduct): our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures | 36 | 49 | 7 | (1 | ) | 91 | ||||||||||
Deduct: lease termination fee income | — | — | (2,886 | ) | (1,269 | ) | — | |||||||||
Add: amortization of restricted stock compensation | 3,133 | 2,983 | 2,334 | 1,833 | 1,440 | |||||||||||
Add: prepayment costs on debt | — | 577 | 568 | 1,581 | 171 | |||||||||||
Add: amortization and write-off of deferred financing costs | 977 | 904 | 1,023 | 1,038 | 891 | |||||||||||
Add: our share of amortization and write-off of deferred financing costs of unconsolidated joint ventures | 25 | 25 | 23 | 17 | 25 | |||||||||||
Adjustments for non-controlling interests | 30 | 45 | (184 | ) | 12 | 10 | ||||||||||
| | | | | | | | | | | | | | | | |
Adjusted funds from operations applicable to common stock | $ | 39,065 | $ | 34,848 | $ | 31,997 | $ | 29,703 | $ | 27,094 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The table below provides a reconciliation of net income per common share (on a diluted basis) in accordance with GAAP to FFO and AFFO:
| 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | ||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |||||||||||||||||||||
GAAP net income attributable to One Liberty Properties, Inc. | $ | 1.28 | $ | 1.39 | $ | 1.22 | $ | 1.37 | $ | 1.14 | | $ | 0.88 | | $ | 1.05 | | $ | 1.28 | | $ | 1.39 | | $ | 1.22 | ||||||
Add: depreciation and amortization of properties | 1.12 | 1.02 | .98 | .90 | .78 | |
| 1.11 | |
| 1.24 | |
| 1.12 | |
| 1.02 | |
| 0.98 | |||||||||||
Add: our share of depreciation and amortization of unconsolidated joint ventures | .05 | .05 | .04 | .02 | .03 | |
| 0.03 | |
| 0.04 | |
| 0.05 | |
| 0.05 | |
| 0.04 | |||||||||||
Add: impairment loss | .01 | — | — | .07 | .01 | |
| — | |
| — | |
| 0.01 | |
| — | |
| — | |||||||||||
Add: amortization of deferred leasing costs | .02 | .02 | .02 | .01 | .01 | |
| 0.02 | |
| 0.02 | |
| 0.02 | |
| 0.02 | |
| 0.02 | |||||||||||
Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures | — | — | — | — | — | ||||||||||||||||||||||||||
Add: amortization of deferred leasing costs of unconsolidated joint ventures | | | — | | | — | | | — | | | — | | | — | ||||||||||||||||
Add: Federal excise tax relating to gain on sale | — | — | .01 | .02 | — | |
| — | |
| — | |
| — | |
| — | |
| 0.01 | |||||||||||
Deduct: gain on sale of real estate | (.53 | ) | (.57 | ) | (.32 | ) | (.63 | ) | — | |
| (0.22) | |
| (0.27) | |
| (0.53) | |
| (0.57) | |
| (0.32) | |||||||
Deduct: purchase price fair value adjustment | — | — | (.06 | ) | — | — | |
| — | |
| — | |
| — | |
| — | |
| (0.06) | ||||||||||
Deduct: net gain on sale of real estate of unconsolidated joint ventures | — | — | — | — | (.30 | ) | |||||||||||||||||||||||||
Adjustments for non-controlling interests | (.01 | ) | (.01 | ) | .08 | (.01 | ) | (.01 | ) | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||
Deduct: equity in earnings from sale of unconsolidated joint venture properties | |
| — | |
| (0.10) | |
| — | |
| — | |
| — | ||||||||||||||||
Adjustments for non‑controlling interests | |
| 0.02 | |
| 0.04 | |
| (0.01) | |
| (0.01) | |
| 0.08 | ||||||||||||||||
NAREIT funds from operations per share of common stock | 1.94 | 1.90 | 1.97 | 1.75 | 1.66 | |
| 1.84 | |
| 2.02 | |
| 1.94 | |
| 1.90 | |
| 1.97 | |||||||||||
Deduct: straight-line rent accruals and amortization of lease intangibles | (.07 | ) | (.16 | ) | (.10 | ) | (.10 | ) | (.07 | ) | |||||||||||||||||||||
Add: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures | — | — | — | — | — | ||||||||||||||||||||||||||
Deduct: straight‑line rent accruals and amortization of lease intangibles | |
| (0.10) | |
| (0.07) | |
| (0.07) | |
| (0.16) | |
| (0.10) | ||||||||||||||||
Deduct: our share of straight‑line rent accruals and amortization of lease intangibles of unconsolidated joint ventures | |
| — | |
| (0.03) | |
| — | |
| — | |
| — | ||||||||||||||||
Deduct: lease termination fee income | — | — | (.17 | ) | (.08 | ) | — | |
| (0.05) | |
| (0.02) | |
| — | |
| — | |
| (0.17) | |||||||||
Add: amortization of restricted stock compensation | .17 | .17 | .14 | .11 | .09 | |
| 0.20 | |
| 0.18 | |
| 0.17 | |
| 0.17 | |
| 0.14 | |||||||||||
Add: prepayment costs on debt | — | .03 | .03 | .10 | .01 | |
| 0.04 | |
| — | |
| — | |
| 0.03 | |
| 0.03 | |||||||||||
Add: amortization and write-off of deferred financing costs | .05 | .05 | .06 | .06 | .06 | ||||||||||||||||||||||||||
Add: our share of amortization and write-off of deferred financing costs of unconsolidated joint ventures | — | — | — | — | — | ||||||||||||||||||||||||||
Adjustments for non-controlling interests | — | — | (.01 | ) | — | — | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||
Add: amortization and write‑off of deferred financing costs | |
| 0.05 | |
| 0.05 | |
| 0.05 | |
| 0.05 | |
| 0.06 | ||||||||||||||||
Add: our share of amortization and write‑off of deferred financing costs of unconsolidated joint ventures | |
| — | |
| — | |
| — | |
| — | |
| — | ||||||||||||||||
Adjustments for non‑controlling interests | |
| — | |
| — | |
| — | |
| — | |
| (0.01) | ||||||||||||||||
Adjusted funds from operations per share of common stock | $ | 2.09 | $ | 1.99 | $ | 1.92 | $ | 1.84 | $ | 1.75 | | $ | 1.98 | | $ | 2.13 | | $ | 2.09 | | $ | 1.99 | | $ | 1.92 | ||||||
| | | | | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | | |||||||||||||||||||||
| | | | | | | | | | | | | | | |
Item 7. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We are a self-administered and self-managed real estate investment trust. We are focused on acquiring, owning and managing a geographically diversified portfolio of industrial, retail (including furniture stores and supermarkets), restaurant, health and fitness and theater properties, many of which are subject to long-term leases. Most of our leases are "net leases"“net leases” under which the tenant, directly or indirectly, is responsible for paying the real estate taxes, insurance and ordinary maintenance and repairs of the property. As of December 31, 2017,2019, we own 113122 properties and our joint ventures own fivefour properties. These 118126 properties are located in 3031 states.
We face a variety of risks and challenges in our business. As more fully described under "“Item 1A. Risk Factors"”, 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,re-let, on acceptable terms, leases that are expiring or otherwise terminating.
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We seek to manage the risk of our real property portfolio and the related financing arrangements by diversifying among types of properties, industries, locations, tenants, scheduled lease expirations, mortgage maturities and lenders, and by seeking to minimize our exposure to interest rate fluctuations. As a result, as of December 31, 2017:2019:
● | our 2020 contractual rental income is derived from the following property types: 50.1% from industrial, 33.9% from retail, 4.8% from restaurant, 4.5% from health and fitness, 3.2% from theater and 3.5% from other properties, |
● | there are eight states with properties that account for more than five percent of 2020 contractual rental income, |
● | there is one tenant that accounts for more than five percent of 2020 contractual rental income, |
● | through 2028, there are two years in which the percentage of our 2020 contractual rental income represented by expiring leases exceeds 10% (i.e., 19.8% in 2022 and 11.4% in 2023)—approximately 27.6% of our 2020 contractual rental income is represented by leases expiring in 2029 and thereafter, |
● | after giving effect to interest rate swap agreements, substantially all of our mortgage debt bears interest at fixed rates, |
● | until 2022, not more than 6% of our total scheduled principal mortgage payments is due in any year, and |
● | there are six different counterparties to our portfolio of interest rate swaps: four counterparties, rated A- or better by a national rating agency, account for 91.6%, or $88.1 million, of the notional value of our swaps; and two counterparties, rated A- or better by other ratings providers, account for 8.4%, or $8.1 million, of the notional value of such swaps. |
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'stenant’s financial condition through one or more of the following actions: reviewing tenant financial statements or other financial information, obtaining other tenant related information, regular
contact with tenant'stenant’s representatives, tenant credit checks and regular management reviews of our tenants. We may sell a property if the tenant'stenant’s financial condition is unsatisfactory.
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.
We are sensitive to the risks facing the retail industry as a result of the growth of e-commerce. We areOver the past several years, we have been addressing our exposure to the retail industry by seeking to acquire industrial properties that we believe capitalize on e-commerce activities, such as e-commerce distribution and warehousing facilities, and by being especially selective in acquiring retail properties. As a result, retail properties generated 43.3%35.2%, 46.1%41.9%, 43.7% and 49.5%51.8%, of rental income, net, in 2019, 2018, 2017 2016 and 20152016, respectively, and industrial properties generated 34.1%48.7%, 30.8%40.1%, 35.1% and 27.3%31.6%, of rental income, net, in 2017, 2016, 2015, respectively .
2017 Highlights
In 2017:
Challenges Facing Certain Retail Tenants
Four tenants at four retail properties have ceased operations (or have advised they intend to cease operations prior to the expiration of their lease) and continue to pay rent. At December 31, 2017,2019, we have variable rate debt in principal amount of $107.7 million (i.e., $96.2 million of mortgage debt and $11.5 million of credit facility debt) that bear interest at the unbilled rent receivable balance, tenant origination costs and unamortized intangible lease liabilities associated with these properties were $195,000, $972,000, and $4.5 million, respectively. These properties account for $2.3 million, or 3.4%, of our contractual rental incomeone month LIBOR rate plus a negotiated spread. This mortgage debt is hedged through interest rate swaps and the weighted average remaining lease termcredit facility debt is not hedged. The authority regulating LIBOR announced it intends to stop compelling banks to submit rates for these tenants at these properties is 3.1 years.
We own interests in three properties tenanted by Kmart Holdings Corp.the circulation of LIBOR after 2021 and its subsidiaries. Kmart and its parent, Sears Holding Corporation, have experienced financial difficulties for several years. During 2017, Kmart closed two stores owned by our unconsolidated joint ventures at properties located
in Savannah, Georgia and Manahawkin, New Jersey. Our share of the aggregate annual base rent at those two properties is $510,000 and the leases expire in November 2018 and July 2019. The 2018 contractual rental income associated with our third Kmart property is $522,000, and the lease at this property, which Kmart recently extended, expires in 2023.
In light of the difficulties these retail tenants are experiencing, it is possible that they may cease payingLIBOR will become unavailable at an earlier date. As substantially all of this debt matures after 2021, there is uncertainty as to how the interest rate on this variable rate debt and related swaps will be determined when LIBOR is unavailable.
32
2019 Highlights
In 2019:
● | our rental income, net, increased by $5.0 million, or 6.4%, from 2018. |
● | we earned $950,000 of lease termination fees from two properties - one property was re-leased. |
● | we acquired eight industrial properties for an aggregate purchase price of $49.3 million. The acquired properties account for $3.3 million, or 4.6%, of our 2020 contractual rental income. |
● | we sold three retail properties, a land parcel ground leased to a multi-family operator, and the Round Rock Property, for an aggregate net gain on sale of real estate of $4.3 million, without giving effect to $422,000 of a non-controlling interest’s share of the gain and $827,000 of prepayment costs. The properties sold accounted for 3.0% and 3.9% of 2019 and 2018 rental income net, respectively. |
● | we extended the term of our credit facility through December 31, 2022 and increased the amount that may be used for renovation and operating expense purposes. |
● | we obtained proceeds of $50.3 million from mortgage financings. |
Other 2019 Developments
Round Rock Property
In December 2018, our tenant at an 87,500 square foot assisted living facility in Round Rock, Texas, filed for bankruptcy protection and we wrote-off an aggregate of $4.9 million, including lease intangibles and unbilled rent and/or we may not be ablereceivables. Though the tenant rejected the lease, it continued to re-leaseoccupy the property and during 2019, we recognized $584,000 of a rental income and incurred costs (including $361,000 of principal payments on our mortgage) aggregating $2.2 million with respect to this property. In October 2019, we settled our bankruptcy court claim against the tenant - debtor (but not, as described below, our claims against the lease guarantor) for, among other things, $584,000. In December 2019, we sold this property for a timely basis. Thoughsales price of $16.6 million, of which $13.2 million was used to repay the mortgage debt associated with the property. We recognized a tenant may close$435,000 gain from this sale, without giving effect to a store prior to lease expiration, such closure, without a bankruptcy or similar filing, does not relieve it$625,000 mortgage swap termination fee. Net of its obligation to pay rent. If these tenants stop paying rent,this fee and we are unable to re-lease these properties on an as favorable and a timely basis, we may be adversely effected.
New Accounting Standards
We (i) have determined thatexcluding the adoptioneffect of the New Revenue Recognition Standards,2018 write-off of $4.9 million related to this property, the sale resulted in a net loss of approximately $190,000.
We are seeking damages in excess of $10 million in our lawsuit against the lease guarantor (i.e., OLP Wyoming Springs, LLC, Plaintiff, v. Harden Healthcare, LLC, Defendant, v Benjamin Hanson, Intervenor, District Court of Williamson County, Texas, Cause No. 18-1511-C368). We will continue to incur significant legal expense in connection with this lawsuit and cannot provide any assurance that we will realize any recovery therefrom.
The Vue
A multi-family complex, which we refer to as such term is usedThe Vue, which ground leases from us the underlying land located in Note 2Beachwood, Ohio, experienced a significant decrease in its operating cash flow in 2018 due to a decrease in the property’s occupancy and rental rates. The occupancy and rental rates decreased due to a casualty loss at the property and competition from newly constructed residential buildings located nearby. To address the decrease in operating cash flow (i) the owner/operator has and continues to obtain capital infusions from its members and (ii) we and the owner/operator of The Vue entered into a lease amendment which, among other things, reduced the annual base rent payable in 2019 pursuant to the ground lease to $783,000 (from an annual base rent of $1.6 million in 2018) increasing in stages to approximately $1.3 million beginning April 2021. At December 31, 2019, (i) there are no unbilled rent receivables, intangibles or tenant origination costs associated with this property and (ii) the net book value of our consolidated financial statements, will not have a material impact on our consolidated financial statementsland subject to this ground lease is $13.9 million and (ii) are evaluating the impact on our consolidated financial statements, if any, resulting from the guidance issuedis subordinate to $67.4 million of mortgage debt incurred by the Financial Accounting Standards Board in February 2016owner/operator. Unlike our other tenancies, the owner/operator is responsible for the property’s current monthly mortgage interest payments of approximately $228,000—the interest only period with the respect to the treatment of leases.such mortgage expires August 2020. See “—Off Balance Sheet Arrangements” and Note 2 of6 to our consolidated financial statements.
33
Re-development of the Manahawkin Property
We are re-developing the Manahawkin Property, which is owned by an unconsolidated joint venture in which we have a 50% equity interest. As a result of this re-development activity and the related decrease in occupancy, income and cash flow from this property have decreased from prior years. We believe that during the re-development period, which we anticipate will extend through 2022, available cash and cash flow from the operations at this property will cover the property’s carrying costs and debt service obligations, though we can provide no assurance in this regard. See “—TransactionLiquidity and Capital Resources.”
Property Transactions Subsequent to December 31, 20172019
On January 30, 2018,February 11, 2020, we sold a multi-tenant retail property located in Fort Bend, Texas, in which we held an 85% interest, with an aggregateOnalaska, Wisconsin for approximately $7.1 million, net of 42,446 square feet for gross proceeds of $9.2 millionclosing costs, and paid off the $4.4$3.3 million mortgage. In the quarter ending March 31, 2018, weThis property accounted for approximately 0.7% of our rental income during 2019. We anticipate recognizing a gain onfrom this sale of approximately $2.4$4.3 million during the three months ending March 31, 2020, without giving effect to a $290,000 mortgage prepayment charge.
On February 20, 2020, we acquired an industrial property located in Ashland, Virginia, a suburb of Richmond, for $9.1 million. The non-controlling interest's sharelease expires in 2034 and provides for annual base rent in 2020 of the gain from the transaction will be approximately $800,000. In 2017, this$599,000.
On February 24, 2020, we acquired an industrial property accountedlocated in Lowell, Arkansas for $732,000$19.2 million. The lease expires in 2027 and provides for annual base rent in 2020 of rental income and an aggregate of $448,000 of real estate operating expenses (net of tenant reimbursements), depreciation and amortization and interest expense.$1.2 million.
Changes to Federal Tax Laws
On December 22, 2017, the Tax Act was enacted. The Tax Act makes significant changes to the U.S. federal income tax rules for taxation of individuals and corporations, generally effective for taxable years beginning after December 31, 2017. While the changes in the Tax Act generally appear to be favorable with respect to REITs, the extensive changes to non-REIT provisions in the Code may have unanticipated effects on us or our stockholders.
Results of Operations
Comparison of Years Ended December 31, 20172019 and 20162018
Revenues
The following table compares total revenues for the periods indicated:
| Year Ended December 31, | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) | | |||||||||||
(Dollars in thousands) | 2017 | 2016 | % Change | ||||||||||
Rental income, net | $ | 68,244 | $ | 64,164 | $ | 4,080 | 6.4 | ||||||
Tenant reimbursements | 7,672 | 6,424 | 1,248 | 19.4 | |||||||||
| | | | | | | | | | | | | |
Total revenues | $ | 75,916 | $ | 70,588 | $ | 5,328 | 7.5 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | |
| | Year Ended | | | | | | ||||
| | December 31, | | Increase | | | |||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| (Decrease) |
| % Change | |||
Rental income, net | | $ | 83,786 | | $ | 78,754 | | $ | 5,032 |
| 6.4 |
Lease termination fees | | | 950 | | | 372 | | | 578 |
| 155.4 |
Total revenues | | $ | 84,736 | | $ | 79,126 | | $ | 5,610 |
| 7.1 |
Rental income, net.
The following table details the components of rental income, net, for the periods indicated:
| | | | | | | | | | | |
| | Year Ended | | | | | | ||||
| | December 31, | | Increase | | | |||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| (Decrease) |
| % Change | |||
Acquisitions (a) | | $ | 9,646 | | $ | 1,724 | | $ | 7,922 | | 459.5 |
Dispositions (b) | | | 2,553 | | | 5,249 | | | (2,696) | | (51.4) |
Same store (c) | | | 71,587 | | | 71,781 | | | (194) | | (0.3) |
Rental income, net | | $ | 83,786 | | $ | 78,754 | | $ | 5,032 | | 6.4 |
(a) | The 2019 column represents rental income from properties acquired since January 1, 2018; the 2018 column represents rental income from properties acquired during the year ended December 31, 2018. |
(b) | The 2019 column represents rental income from properties sold during the year ended December 31, 2019; the 2018 column represents rental income from properties sold since January 1, 2018. |
(c) | Represents rental income from properties that were owned for the entirety of the periods presented. |
34
Changes due to acquisitions and dispositions.
The increase is due to:
● | $7.9 million from properties acquired in 2018 and 2019 (including $2.0 million from properties acquired in 2019) - we estimate that rental income in 2020 from the properties acquired in 2019 will be approximately $3.7 million, and |
● | $581,000 from our Round Rock Property (i.e., the inclusion during 2018 of a $1.4 million non-cash allowance against rental income of the entire unbilled rent receivable balance related to this property, offset by a decrease of $859,000 of rent received from this property for 2018 compared to 2019). |
Offsetting the increasesincrease are decreases of:
Changes at same store properties
The decrease is due to:
● | the inclusion, in 2018, of an $804,000 non-cash write-off of a lease intangible liability (i.e., an addition to rental income) related to the Savers Buyout described below, |
● | a $610,000 reduction in rental income from The Vue, and |
● | a $548,000 non-cash allowance against rental income in 2019 of the entire unbilled rent receivable balance related to our Philadelphia, Pennsylvania (i.e., $380,000) and Columbus, Ohio properties. |
Offsetting the decrease are increases of:
● | $917,000 due to the additional rent from the expansion of our Hauppauge, New York property, and |
● | $851,000 primarily due to tenant reimbursements which generally relate to real estate taxes and operating expenses incurred in the same period. |
Lease termination fees.
In 2019, we received $950,000 of lease termination fees in connection with the buyout of leases at our Philadelphia, Pennsylvania, and Newark, Delaware retail properties. In 2018, we received a $372,000 lease termination fee in connection with the buyout of the lease with Savers for a retail property formerly tenanted by Quality Bakery,located in Colorado, which lease expired November 2016, and is now re-tenanted, and
Tenant reimbursements. Real estate tax and operating expense reimbursements increased due primarily to reimbursements of approximately $855,000 and $377,000 from properties acquired in 2016 and 2017, respectively. Tenant reimbursements generally relate to real estate expenses incurred inas the same period.“Savers Buyout”.
Operating Expenses
The following table compares operating expenses for the periods indicated:
| Year Ended December 31, | | | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) | | ||||||||||||||||||||||
| | | | | | | | | | | | |||||||||||||
| | Year Ended | | | | | | |||||||||||||||||
| | December 31, | | Increase | | | ||||||||||||||||||
(Dollars in thousands) | 2017 | 2016 | Increase (Decrease) | % Change |
| 2019 |
| 2018 |
| (Decrease) |
| % Change | ||||||||||||
Operating expenses: |
| |
|
| |
|
| |
|
|
| |||||||||||||
Depreciation and amortization | $ | 20,993 | $ | 18,164 | $ | 2,829 | 15.6 | | $ | 22,026 | | $ | 24,155 | | $ | (2,129) |
| (8.8) | ||||||
General and administrative | 11,279 | 10,693 | 586 | 5.5 | |
| 12,442 | |
| 11,937 | |
| 505 |
| 4.2 | |||||||||
Real estate expenses | 10,736 | 8,931 | 1,805 | 20.2 | |
| 14,074 | |
| 11,596 | |
| 2,478 |
| 21.4 | |||||||||
Real estate acquisition costs | — | 596 | (596 | ) | (100.0 | ) | ||||||||||||||||||
Federal excise and state taxes | 481 | 203 | 278 | 136.9 | ||||||||||||||||||||
Leasehold rent | 308 | 308 | — | — | ||||||||||||||||||||
Impairment loss | 153 | — | 153 | n/a | ||||||||||||||||||||
| | | | | | | | | | | | |||||||||||||
State taxes | |
| 348 | |
| 370 | |
| (22) |
| (5.9) | |||||||||||||
Total operating expenses | 43,950 | 38,895 | 5,055 | 13.0 | | $ | 48,890 | | $ | 48,058 | | $ | 832 |
| 1.7 | |||||||||
| | | | | | | | | | | | |||||||||||||
Operating income | $ | 31,966 | $ | 31,693 | $ | 273 | 0.9 | |||||||||||||||||
| | | | | | | | | | | | |||||||||||||
| | | | | | | | | ||||||||||||||||
| | | | | | | | | | | |
Depreciation and amortization. The increasedecrease is due primarily to increasesthe inclusion in 2018 of: (i) $1.6
● | a $3.1 million write-off of tenant origination costs, including $2.7 million at the Round Rock Property and $430,000 in connection with the Savers Buyout, |
● | amortization of $709,000 of tenant origination costs at several properties that were fully amortized in 2018 or 2019 in connection with lease expirations, |
● | $618,000 from the properties sold since January 1, 2018, and |
35
● | a $418,000 decrease due to a change in the depreciable life with respect to our Greensboro, North Carolina property. |
The decrease was offset by $2.7 million and $761,000 of depreciation and amortization expense on the properties acquired in 20162019 and 2017, respectively, and (ii) an aggregate $884,000 of write-offs of tenant origination costs related to the hhgregg and Joe's Crab Shack properties. The increase was offset by $433,000 due to the sales of2018 (including $1.9 million from properties acquired in 2016 and 2017. 2018).
We estimate that in 2020, depreciation and amortization in 2018 related tofrom the properties acquired in 20172019 will be approximately $1.5$1.7 million. This expense for these properties in 2019 was $766,000.
General and administrative.The increase is due primarily to increases of: (i) $278,000 in compensation expense primarily due to higher compensation levels; (ii) $166,000 in non-cash
● | $326,000 in non-cash compensation expense due to the increase in the number, and higher fair value, of the shares of restricted stock granted in 2019 in comparison to the awards granted in 2014, |
● | $167,000 in compensation expense primarily due to higher compensation levels, and |
● | $160,000 in non-cash compensation expense related to the restricted stock units awarded in 2019, 2018 and 2017. |
TableThe increase was offset by $126,000 resulting from the cancellation of Contents
compensation expenserestricted stock related to the accelerated vesting of restricted stock due to the retirementresignation of a non-management director; and (iii) $142,000 for other miscellaneous expenses.director.
Real estate expenses. The increase is due primarily to increases of:
● | $1.5 million from properties acquired in 2019 and 2018 (including $448,000 from properties acquired in 2019), |
● | $802,000 of legal and real estate tax expense for our Round Rock Property which was sold in December 2019, and |
● | an aggregate of $459,000 at same store properties, including $217,000 at our Greensboro, North Carolina property, due to the adoption of a lease accounting pronouncement, and $173,000 at our Delport, Missouri property. |
The increase of $1.3 millionwas offset by a $246,000 decrease related to properties sold (other than the Round Rock Property) during 2019 and 2018 (including $96,000 from properties acquiredsold in 2016 and 2017; substantially all these2019).
A substantial portion of real estate expenses are rebilled to tenants and are included in Tenant reimbursements. Also contributing toRental income, net, on the increase are: (i) $435,000 related to properties formerly tenanted by Quality Bakery and hhgregg-Crystal Lake, Illinois; and (ii) $245,000consolidated statements of income, other than the expenses related to the hhgregg-Niles,Round Rock Property and the Greensboro, North Carolina property.
Gain on sale of real estate, net
The following table compares gain on sale of real estate, net:
| | | | | | | | | | | |
| | Year Ended | | | | | | ||||
| | December 31, | | Increase | | | |||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| (Decrease) |
| % Change | |||
Gain on sale of real estate, net | | $ | 4,327 | | $ | 5,262 | | $ | (935) |
| (17.8) |
The gain in 2019 was realized from the sales of our Wheaton, Illinois property, that we sold.a $1.5 million gain, our Clemmons, North Carolina property, a $1.1 million gain (before giving effect to the non-controlling interest’s $422,000 share of the gain), our Athens, Georgia property, a $1.0 million gain, our Round Rock Property, a $435,000 gain and our Houston, Texas property, a $218,000 gain. The increasegain in 2018 was realized from the sales of our Lakemoor, Illinois property, a $4.6 million gain, and our Fort Bend, Texas property, a $2.4 million gain (before giving effect to the non-controlling interest’s $776,000 share of the gain). The 2018 gain was offset by a decrease$1.7 million loss on the December 2018 sale of $197,000 of expenses related to the vacanta property formerly tenanted by Sports Authority, which was sold in May 2017.
Real estate acquisition costs. The expense in 2016 primarily relates to properties purchased that year. As a result of the adoption of ASU 2017-01 in January 2017, asset acquisition costs of $387,000 in 2017 were capitalized to the related real estate assets.
Federal excise and state taxes. The increase primarily relates to an annual state franchise tax resulting from the 2016 and 2017 purchase of two properties located in Tennessee.Lincoln, Nebraska.
Impairment loss. In 2017, we recorded an impairment loss36
Other Income and Expenses
The following table compares other income and expenses for the periods indicated:
| Year Ended December 31, | | | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) | | ||||||||||||||||||||||
| | | | | | | | | | | | |||||||||||||
| | Year Ended | | | | | | |||||||||||||||||
| | December 31, | | Increase | | | ||||||||||||||||||
(Dollars in thousands) | 2017 | 2016 | Increase (Decrease) | % Change |
| 2019 |
| 2018 |
| (Decrease) |
| % Change | ||||||||||||
Other income and expenses: | | | | | | | | | | | | |||||||||||||
Equity in earnings of unconsolidated joint ventures | $ | 826 | $ | 1,005 | $ | (179 | ) | (17.8 | ) | | $ | 16 | | $ | 1,304 | | $ | (1,288) |
| (98.8) | ||||
Equity in earnings from sale of unconsolidated joint venture properties | |
| — | |
| 2,057 | |
| (2,057) |
| (100.0) | |||||||||||||
Prepayment costs on debt | — | (577 | ) | (577 | ) | (100.0 | ) | | | (827) | | | — | | | 827 | | n/a | ||||||
Other income | 407 | 435 | (28 | ) | (6.4 | ) | |
| 8 | |
| 720 | |
| (712) |
| (98.9) | |||||||
Interest: | |
| | |
|
| |
| |
| | |||||||||||||
Expense | (17,810 | ) | (17,258 | ) | 552 | 3.2 | |
| (19,831) | |
| (17,862) | |
| 1,969 |
| 11.0 | |||||||
Amortization and write-off of deferred financing costs | (977 | ) | (904 | ) | 73 | 8.1 | ||||||||||||||||||
Income before gain on sale of real estate, net | 14,412 | 14,394 | 18 | 0.1 | ||||||||||||||||||||
Amortization and write‑off of deferred financing costs | |
| (995) | |
| (985) | |
| 10 |
| 1.0 |
Equity in earnings of unconsolidated joint ventures. The 2016 income includes our 50% share, or $146,000,decrease is due to the inclusion, in 2018, of:
● | $576,000 of rental income from Kmart at the Manahawkin Property, |
● | a $550,000 write-off of an intangible lease liability (i.e., an addition to rental income) in connection with the expiration, in late 2018, of the Kmart lease at the Manahawkin Property, and |
● | $287,000 of earnings (including our $110,000 share of the gain realized from the discontinuance of hedge accounting on a related interest rate swap) from a property in Milwaukee, Wisconsin which was sold in July 2018. |
Equity in earnings from sale of income obtainedunconsolidated joint venture properties. The results for permanent utility easements granted at two properties. There was no such income during 2017.2018 include a $2.0 million gain from the sale of the Milwaukee, Wisconsin property.
Prepayment costs on debt.These costs were incurred in connection with the property sales and the payoff, prior to the stated maturity, of the related mortgage debt in 2016, primarily relating to the sales of several properties.
Other income. Other income in 2017 includes $243,000 paid to us by a former tenant2019 in connection with the resolutionsale of a dispute, and $74,000 that we received for easements on a property soldthree properties, including $625,000 incurred in 2017.connection with the sale of the Round Rock Property. There was no corresponding expense in 2018.
Other income. Other income in 20162018 includes $356,000 that we received for such easements.
Table$395,000 from the early termination of Contentsan interest rate derivative in connection with a refinancing transaction and a non-recurring $298,000 consulting fee.
Interest expense. The following table summarizes interest expense for the periods indicated:
| Year Ended December 31, | �� | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) | | |||||||||||
(Dollars in thousands) | 2017 | 2016 | % Change | ||||||||||
Interest expense: | |||||||||||||
Credit facility interest | $ | 478 | $ | 590 | $ | (112 | ) | (19.0 | ) | ||||
Mortgage interest | 17,332 | 16,668 | 664 | 4.0 | |||||||||
| | | | | | | | | | | | | |
Total | $ | 17,810 | $ | 17,258 | $ | 552 | 3.2 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | |
| | Year Ended | | | | | | ||||
| | December 31, | | Increase | | | |||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| (Decrease) |
| % Change | |||
Interest expense: |
| |
|
| |
|
| |
|
|
|
Credit facility interest | | $ | 1,016 | | $ | 668 | | $ | 348 |
| 52.1 |
Mortgage interest | |
| 18,815 | |
| 17,194 | |
| 1,621 |
| 9.4 |
Total | | $ | 19,831 | | $ | 17,862 | | $ | 1,969 |
| 11.0 |
Credit facility interest
The decreaseincrease in 20172019 is due primarily to the $11.2$8.5 million decreaseincrease in the weighted average balance outstanding under our line of credit. The decrease was offset by anthe facility and, to a lesser extent, a 30 basis point increase of 64 basis points in the weighted average interest rate (from 3.73% to 4.03%) due to the increase in the one month LIBOR rate and an increaserate.
37
Mortgage interest
The following table reflects the average interest rate on the average principal amount of outstanding mortgage debt during the applicable year:
| Year Ended December 31, | | | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) | | ||||||||||||||||||||||
| | | | | | | | | | | | |||||||||||||
| | Year Ended | | | | | | |||||||||||||||||
| | December 31, | | Increase | | | ||||||||||||||||||
(Dollars in thousands) | 2017 | 2016 | Increase (Decrease) | % Change |
| 2019 |
| 2018 |
| (Decrease) |
| % Change | ||||||||||||
Average interest rate on mortgage debt | 4.31 | % | 4.61 | )% | (6.5 | ) |
| | 4.29 | % | | 4.26 | % | | 0.03 | % | 0.7 | |||||||
Average principal amount of mortgage debt | $ | 399,086 | $ | 361,645 | $ | 37,441 | 10.4 | | $ | 438,014 | | $ | 404,035 | | $ | 33,979 |
| 8.4 |
The increase in mortgage interest expense is due primarily to the increase in the average principal amount of mortgage debt outstanding, offset by a decrease in the average interest rate on outstanding mortgage debt.outstanding. The increase in the average balance outstanding is due substantially to mortgage debt of $72.9 million incurred in connection with properties acquired in 2016 and 2017 and the financing or refinancing of $51.5 million of mortgage debt, net of refinanced amounts, in connection with properties acquired prior to 2016. The decrease in the average interest rate is dueprimarily to the financing (including financings effectuated in connection with acquisitions) or refinancing in 20172019 and 20162018 of $158.8$112.0 million of gross mortgage debt (including $34.4$14.7 million of refinanced amounts) with an average interest rate of approximately 3.7%.
We estimate that in 2018,2020, the mortgage interest expense associated with the properties acquired in 20172019 will be approximately $973,000.$1.0 million for six of the eight acquired properties that at December 31, 2019, had mortgage debt. Interest expense for these six properties in 20172019 was $374,000.$269,000.
Gain on sale of real estate, net.Funds from Operations and Adjusted Funds from Operations
The following table compares gain on salesummarizes the changes in FFO and AFFO for the periods indicated:
| | | | | | | | | | | |
| | Year Ended | | | | | | ||||
| | December 31, | | Increase | | | |||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| (Decrease) |
| % Change | |||
Funds from operations | | $ | 36,579 | | $ | 38,879 | | $ | (2,300) |
| (5.9) |
Adjusted funds from operations | |
| 39,377 | |
| 41,059 | |
| (1,682) |
| (4.1) |
The decrease in FFO is primarily due to:
● | a $1.3 million decrease in equity in earnings of unconsolidated joint ventures, |
● | a $712,000 decrease in other income, |
● | a $2.5 million increase in real estate expenses, |
● | $2.0 million increase in interest expense, |
● | an $827,000 increase in prepayment costs on debt, and |
● | a $505,000 increase in general and administrative expense. |
Offsetting the decrease is a $5.6 million increase in total revenues, primarily due to the net impact of real estate, net:acquisitions and dispositions during 2019 and 2018.
| Year Ended December 31, | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) | | |||||||||||
(Dollars in thousands) | 2017 | 2016 | % Change | ||||||||||
Gain on sale of real estate, net | $ | 9,837 | $ | 10,087 | $ | (250 | ) | (2.5 | ) |
The gainThese changes are described in 2017 was realized from the sales of the Greenwood Village, Colorado property, the Kohl's property in Kansas City, Missouri, and the former hhgregg property in Niles, Illinois. See "—“Comparison of Years Ended December 31, 20162019 and 2015—Other Income2018”.
The decrease in AFFO is due to the decrease in FFO as described above and Expenses" for information regarding the gain on salea $578,000 increase in 2016.lease termination fee income.
The decrease was offset primarily by:
● | an $827,000 increase in prepayment costs on debt, and |
● | a $360,000 increase in amortization of restricted stock compensation. |
These changes are described in “- Comparison of Years Ended December 31, 20162019 and 20152018”.
RevenuesComparison of Years Ended December 31, 2018 and 2017
The following table compares total revenues for the periods indicated:As we qualify as a smaller reporting company, this comparison is omitted in accordance with Instruction 1 to Item 303(a) of Regulation S-K.
38
| Year Ended December 31, | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) | | |||||||||||
(Dollars in thousands) | 2016 | 2015 | % Change | ||||||||||
Rental income, net | $ | 64,164 | $ | 58,973 | $ | 5,191 | 8.8 | ||||||
Tenant reimbursements | 6,424 | 3,852 | 2,572 | 66.8 | |||||||||
Lease termination fees | — | 2,886 | (2,886 | ) | (100.0 | ) | |||||||
| | | | | | | | | | | | | |
Total revenues | $ | 70,588 | $ | 65,711 | $ | 4,877 | 7.4 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Rental income, net. The increase is due primarily to (i) $4.4 million earned from 11 properties acquired in 2016 and $2.7 million from seven properties acquired in 2015; (ii) the $530,000 write-off against rental income in 2015 of the entire balance of unbilled rent receivable and the intangible lease asset related to the 2015 lease termination fees described below; and (iii) $383,000 from three replacement tenants that leased vacant space at one of our El Paso, Texas properties.
Offsetting the increase are decreases of (i) $2.1 million due to the 2016 sale of 12 properties (the "2016 Sold Properties"), including a portfolio of eight convenience stores (the "Pantry Portfolio"); and (ii) $909,000 from three vacant properties which were leased to Pathmark, Sports Authority and Quality Bakery (the "Vacant Properties"). During 2016, Pathmark did not generate rental income and Sports Authority and Quality Bakery generated an aggregate of $751,000 of rental income.
Tenant reimbursements. Real estate tax and operating expense reimbursements in 2016 increased by (i) $781,000 and $644,000 from the properties acquired in 2016 and 2015, respectively, and (ii) $1.1 million from other properties in our portfolio. We recognized an equivalent amount of real estate expense for these tenant reimbursements.
Lease termination fees. In 2015, we received lease termination fees of $2.9 million in lease buy-out transactions and re-leased substantially all of such premises simultaneously with the lease terminations. There were no such fees in 2016.
Operating Expenses
The following table compares operating expenses for the periods indicated:
| Year Ended December 31, | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) | | |||||||||||
(Dollars in thousands) | 2016 | 2015 | % Change | ||||||||||
Operating expenses: | |||||||||||||
Depreciation and amortization | $ | 18,164 | $ | 16,384 | $ | 1,780 | 10.9 | ||||||
General and administrative | 10,693 | 9,527 | 1,166 | 12.2 | |||||||||
Real estate expenses | 8,931 | 6,047 | 2,884 | 47.7 | |||||||||
Real estate acquisition costs | 596 | 449 | 147 | 32.7 | |||||||||
Federal excise and state taxes | 203 | 343 | (140 | ) | (40.8 | ) | |||||||
Leasehold rent | 308 | 308 | — | — | |||||||||
| | | | | | | | | | | | | |
Total operating expenses | 38,895 | 33,058 | 5,837 | 17.7 | |||||||||
| | | | | | | | | | | | | |
Operating income | $ | 31,693 | $ | 32,653 | $ | (960 | ) | (2.9 | ) | ||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Depreciation and amortization. Approximately $1.5 million and $932,000 of the increase is due to depreciation expense on the properties acquired in 2016 and 2015, respectively, approximately $365,000 of the increase is due to depreciation on property improvements and approximately $94,000 is due to amortization of leasing commissions. Offsetting these increases are decreases in 2016 of (i) $440,000 of expenses related to the 2016 Sold Properties and (ii) $657,000 of amortization and write-offs of intangibles and lease commissions. The $657,000 includes a $380,000 write-off of tenant origination costs in 2015 related to the Pathmark property and the balance relates primarily to the write-off of intangibles and lease commissions with respect to leases that expired or terminated in 2015 and 2016.
General and administrative. Contributing to the increase were increases of: (i) $649,000 in non-cash compensation expense primarily related to the increase in the number of shares of restricted stock granted in 2016 and the higher fair value of the awards granted in 2016 in comparison to the awards granted in 2011 that vested in 2016; (ii) $286,000 for third party audit and audit related services; and (iii) $97,000 in compensation expense payable to our full and part time personnel, primarily due to higher levels of compensation.
Real estate expenses. The increase in 2016 is due primarily to increases of $1.4 million from properties acquired in 2015 and 2016 and $719,000 from other properties in our portfolio. Most of these increases are rebilled to tenants and are included in Tenant reimbursement revenues. Also contributing to the increase in 2016 are $587,000 of expenses related to taxes and maintenance of the Vacant Properties and $165,000 due to the change in which property management fees are determined pursuant to the Compensation and Services Agreement.
Real estate acquisition costs. The increase is due to increased acquisition activity in 2016.
Federal excise and state taxes. We incurred Federal excise tax of $174,000 in 2015 and $6,000 in 2016 because profitable property sales resulted in calendar year distributions to stockholders being less than the amount required to be distributed during such year. In 2016, we deferred a $6.8 million taxable gain on a property sale through an IRC Section 1031 exchange.
Other Income and Expenses
The following table compares other income and expenses for the periods indicated:
| Year Ended December 31, | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) | | |||||||||||
(Dollars in thousands) | 2016 | 2015 | % Change | ||||||||||
Other income and expenses: | |||||||||||||
Equity in earnings of unconsolidated joint ventures | $ | 1,005 | $ | 412 | $ | 593 | 143.9 | ||||||
Purchase price fair value adjustment | — | 960 | (960 | ) | (100.0 | ) | |||||||
Prepayment costs on debt | (577 | ) | (568 | ) | 9 | 1.6 | |||||||
Other income | 435 | 108 | 327 | 302.8 | |||||||||
Interest: | |||||||||||||
Expense | (17,258 | ) | (16,027 | ) | 1,231 | 7.7 | |||||||
Amortization and write-off of deferred financing costs | (904 | ) | (1,023 | ) | (119 | ) | (11.6 | ) | |||||
Income before gain on sale of real estate, net | 14,394 | 16,515 | (2,121 | ) | (12.8 | ) |
Equity in earnings of unconsolidated joint ventures. The increase in 2016 is due primarily to an increase of $633,000 in our share of income from the Manahawkin, New Jersey retail center which was acquired in June 2015. The year ended December 31, 2015 included our $400,000 share of acquisition expenses associated with the purchase of this center.
Purchase price fair value adjustment. In connection with the acquisition of our joint venture partner's 50% interest in a property located in Lincoln, Nebraska, we recorded this adjustment,
representing the difference between the book value of the preexisting equity investment on the purchase date of March 31, 2015 and the fair value of the investment.
Prepayment costs on debt. These costs were incurred primarily in connection with property sales and the payoff, prior to the stated maturity, of the related mortgage debt. In 2016, these costs related primarily to the sales of the Tomlinson, Pennsylvania property and the Pantry Portfolio. In 2015, these costs related primarily to the sale of the Cherry Hill, New Jersey property.
Other income. As a result of a partial condemnation of land and easements obtained by the Colorado Department of Transportation ("CDOT") at our Greenwood Village, Colorado property, we received $509,000 from CDOT, of which $356,000 is attributable to easements and is included in Other income in 2016. See "—Gain on sale of real estate, net" below for the gain resulting from the balance.
Interest expense. The following table summarizes interest expense for the periods indicated:
| Year Ended December 31, | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) | | |||||||||||
(Dollars in thousands) | 2016 | 2015 | % Change | ||||||||||
Interest expense: | |||||||||||||
Credit facility interest | $ | 590 | $ | 594 | $ | (4 | ) | (.7 | ) | ||||
Mortgage interest | 16,668 | 15,433 | 1,235 | 8.0 | |||||||||
| | | | | | | | | | | | | |
Total | $ | 17,258 | $ | 16,027 | $ | 1,231 | 7.7 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Credit facility interest
The decrease in 2016 is due to the $3.8 million decrease in the weighted average balance outstanding under our line of credit, offset by an increase of 28 basis points in the average interest rate from 1.95% to 2.23%, as well as an increase in the unused fee resulting from a $25.0 million increase in our borrowing capacity in connection with the November 2016 amendment and restatement of the credit facility.
Mortgage interest
The following table reflects the average interest rate on the average principal amount of outstanding mortgage debt during the applicable year:
| Year Ended December 31, | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) | | |||||||||||
(Dollars in thousands) | 2016 | 2015 | % Change | ||||||||||
Interest rate on mortgage debt | 4.61 | % | 4.96 | % | (.35 | )% | (7.1 | ) | |||||
Principal amount of mortgage debt | $ | 361,645 | $ | 310,991 | $ | 50,654 | 16.3 |
The increase in mortgage interest expense is due to the increase in the average principal amount of mortgage debt outstanding, offset by a decrease in the average interest rate on outstanding mortgage debt. The increase in the average balance outstanding is substantially due to the incurrence of mortgage debt of $89.5 million in connection with properties acquired in 2015 and 2016 and the financing or refinancing of $85.2 million of mortgage debt, net of refinanced amounts, in connection with properties acquired prior to 2015. The decrease in the average interest rate is due to the financing (including financings effectuated in connection with acquisitions) or refinancing in 2016 and 2015 of $217.2 million of gross mortgage debt (including $42.6 million of refinanced amounts) with an average interest rate of approximately 3.8%.
Amortization and write-off of deferred financing costs. The decrease in 2016 is primarily due to the write-off in 2015 of $249,000 relating to the sale of the Cherry Hill, New Jersey property. This decrease was offset by the write-off and increased amortization in 2016 of $66,000 relating to the new line of credit and other write-offs of $57,000 relating to property sales.
Gain on sale of real estate, net.
The following table compares gain on sale of real estate, net,:
| Year Ended December 31, | | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Increase (Decrease) | | |||||||||||
(Dollars in thousands) | 2016 | 2015 | % Change | ||||||||||
Gain on sale of real estate, net | $ | 10,087 | $ | 5,392 | $ | 4,695 | 87.1 |
The gain for 2016 was realized from (i) the sales of 12 properties, including the Pantry Portfolio and (ii) a $116,000 gain on the partial condemnation of land at our former Sports Authority property in Greenwood Village, Colorado. The 2015 gain was realized from the January 2015 sale of the Cherry Hill, New Jersey property. The minority partner's share of the gain on the Cherry Hill, New Jersey property was $1.3 million, which is the primary reason for the decrease in net income attributable to non-controlling interests for 2016 as compared to 2015.
Liquidity and Capital Resources
Our sources of liquidity and capital include cash flow from operations, cash and cash equivalents, borrowings under our revolving credit facility, refinancing existing mortgage loans, obtaining mortgage loans secured by our unencumbered properties, issuance of our equity securities and property sales. In 2017,2019, we obtained $21.2$50.3 million of proceeds from mortgage financings, $5.6approximately $21.2 million of net proceeds (after giving effect to repayment of mortgage debt, non-controlling interests and debt prepayment costs) from property sales and $5.2 million of net proceeds from the sale of our common stock pursuant to our at-the-market equity offering program and $5.9 million from a fixed rent payment, which is deferred over the lease term, received from a ground lease tenant in connection with its obtaining supplemental mortgage financing. See Note 7 to our consolidated financial statements.program. Our available liquidity at March 5, 20182020 was approximately $102.8$67.7 million, including approximately $6.7$7.3 million of cash and cash equivalents (net of the credit facility'sfacility’s required $3.0 million deposit maintenance balance) and, subject to borrowing base requirements, up to $96.1$60.4 million available under our revolving credit facility.
Liquidity and Financing
We expect to meet our (i) operating cash requirements (including debt service and dividends)anticipated dividend payments) principally from cash flow from operations and (ii) capital requirements of $4.2 million of building expansion and improvements at our property tenanted by L-3 located in Hauppauge, NY, from cash flow from operations, our available cash and cash equivalents, proceeds from the sale of our common stock and, to the extent permitted, our credit facility. We and our joint venture partner are also contemplating a significant redevelopmentre-developing the Manahawkin Property—we estimate that our share of our multi-tenant shopping center in Manahawkin, New Jersey—we anticipate that the capital expenditures that may be incurred ifrequired in connection with such property is redevelopedre-development will be funded by the foregoingrange from $12 million to $15 million. We are evaluating various sources as well as equity contributionsof funding for such expenditures including borrowings from us and our joint venture partner.
Table of Contentscredit facility.
The following table sets forth, as of December 31, 2017,2019, information with respect to our mortgage debt that is payable from January 20182020 through December 31, 20202022 (excluding the mortgage debt of our unconsolidated joint ventures):
| | | | | | | | | | | | | |||||||||||||
(Dollars in thousands) | 2018 | 2019 | 2020 | Total |
| 2020 |
| 2021 |
| 2022 |
| Total | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Amortization payments | $ | 10,188 | $ | 11,125 | $ | 11,901 | $ | 33,214 | | $ | 13,530 | | $ | 14,500 | | $ | 14,544 | | $ | 42,574 | |||||
Principal due at maturity | 10,260 | 3,485 | — | 13,745 | |
| — | |
| 8,463 | |
| 31,539 | |
| 40,002 | |||||||||
| | | | | | | | | | | | | |||||||||||||
Total | $ | 20,448 | $ | 14,610 | $ | 11,901 | $ | 46,959 | | $ | 13,530 | | $ | 22,963 | | $ | 46,083 | | $ | 82,576 | |||||
| | | | | | | | | | | | | |||||||||||||
| | | | | | | | | |||||||||||||||||
| | | | | | | | | | | | |
At December 31, 2017, our2019, an unconsolidated joint venturesventure had a first mortgagesmortgage on four propertiesits property (i.e., the Manahawkin Property) with an outstanding balances aggregatingbalance of approximately $35.0$23.2 million, bearing interest at rates ranging from 3.49% to 5.81% (i.e., a 4.07% weighted average interest rate)4.0% per annum and maturing between 2018 and 2025 (i.e., a weighted average remaining term to maturity of 6.1 years).in July 2025.
We intend to make debt amortization payments from operating cash flow and, though no assurance can be given that we will be successful in this regard, generally intend to refinance, extend or payoff the mortgage loans which mature in 20182020 through 2020.2022. We intend to repay the amounts not refinanced or extended from our existing funds and sources of funds, including our available cash, proceeds from the sale of our common stock and our credit facility (to the extent available).
We continually seek to refinance existing mortgage loans on terms we deem acceptable to generate additional liquidity. Additionally, in the normal course of our business, we sell properties when we determine that it is in our best interests, which also generates additional liquidity. Further, since each of our encumbered properties is subject to a non-recourse mortgage (with standard carve-outs), if our in-house evaluation of the market value of such property is less than the principal balance outstanding on the mortgage loan, we may determine to convey, in certain circumstances, such property to the mortgagee in order to terminate our mortgage obligations, including payment of interest, principal and real estate taxes, with respect to such property.
Typically, we utilize funds from our credit facility to acquire a property and, thereafter secure long-term, fixed rate mortgage debt on such property. We apply the proceeds from the mortgage loan to repay borrowings under the credit facility, thus providing us with the ability to re-borrow under the credit facility for the acquisition of additional properties.
39
Credit Facility
Subject to borrowing base requirements, we can borrow up to $100.0 million pursuant to our revolving credit facility which is available to us for the acquisition of commercial real estate, repayment of mortgage debt, property improvements and general working capitalrenovation and operating expense purposes; provided, that if used for property improvementsrenovation and working capitaloperating expense purposes, the amount outstanding for such purposes will not exceed the lesser of $15.0$30.0 million and 15%30% of the borrowing base subject to a cap of (i) $20.0 million for renovation expenses and if used(ii) $10.0 million for working capital purposes, will not exceed $10.0 million.operating expense purposes. The facility matures December 31, 20192022 and bears interest equal to the one month LIBOR rate plus the applicable margin. The applicable margin ranges from 175 basis points if our ratio of total debt to total value (as calculated pursuant to the facility) is equal to or less than 50%, increasing to a maximum of 300 basis points if such ratio is greater than 65%. The applicable margin was 200 and 175 basis points for 20162019 and 2017.2018. There is an unused facility fee of 0.25% per annum on the difference between the outstanding loan balance and $100.0 million. The credit facility requires the maintenance of $3.0 million in average deposit balances. For 2017,2019, the weighted average interest rate on the facility was approximately 2.87%4.03% and as of March 6, 2018,1, 2020, the rate on the facility was 3.33%.3.42%
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 amount of debt to value, the minimum level of net income, certain investment limitations and the minimum value of unencumbered properties and the number of such properties. Net proceeds received from the sale, financing or refinancing of properties are generally required to be used to repay amounts outstanding under our credit facility. At December 31, 2017,2019, we were in compliance in all material respects with the covenants under this facility.
Contractual Obligations
The following sets forth our contractual obligations as of December 31, 2017:2019:
| | | | | | | | | | | | | | | |
| | Payment due by period | |||||||||||||
|
| Less than |
| | |
| | |
| More than |
| | | ||
(Dollars in thousands) | | 1 Year | | 1 ‑ 3 Years | | 4 ‑ 5 Years | | 5 Years | | Total | |||||
Contractual Obligations | |
| | |
| | |
| | |
| | |
| |
Mortgages payable—interest and amortization | | $ | 32,422 | | $ | 63,352 | | $ | 52,819 | | $ | 109,322 | | $ | 257,915 |
Mortgages payable—balances due at maturity | |
| — | |
| 40,002 | |
| 67,177 | |
| 198,012 | |
| 305,191 |
Credit facility(1) | |
| — | |
| 11,450 | |
| — | |
| — | |
| 11,450 |
Purchase obligations(2) | |
| 3,831 | |
| 7,659 | |
| 7,706 | |
| 455 | |
| 19,651 |
Total | | $ | 36,253 | | $ | 122,463 | | $ | 122,702 | | $ | 307,789 | | $ | 594,207 |
(1) | Represents the amount outstanding at December 31, 2019. We may borrow up to $100.0 million under such facility. The facility expires December 31, 2022. |
(2) | Assumes that $3.3 million will be payable annually during the next five years pursuant to the compensation and services agreement. Excludes an estimated $12 million to $15 million anticipated to be expended in connection with the re-development of the Manahawkin Property, which we expect will be completed in stages through 2022. |
| Payment due by period | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in thousands) | Less than 1 Year | 1 - 3 Years | 4 - 5 Years | More than 5 Years | Total | |||||||||||
Contractual Obligations | ||||||||||||||||
Mortgages payable—interest and amortization | $ | 26,833 | $ | 53,376 | $ | 52,190 | $ | 110,928 | $ | 243,327 | ||||||
Mortgages payable—balances due at maturity | 10,260 | 3,485 | 40,002 | 214,048 | 267,795 | |||||||||||
Credit facility(1) | — | 9,400 | — | — | 9,400 | |||||||||||
Purchase obligations(2) | 7,520 | 6,425 | 5,895 | — | 19,840 | |||||||||||
| | | | | | | | | | | | | | | | |
Total | $ | 44,613 | $ | 72,686 | $ | 98,087 | $ | 324,976 | $ | 540,362 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
As of December 31, 2017,2019, we had $392.5$440.3 million of mortgage debt outstanding (excluding mortgage indebtednessdebt of our unconsolidated joint ventures), all of which is non-recourse (subject to standard carve-outs). We expect that mortgage interest and amortization payments (excluding repayments of principal at maturity) of approximately $80.2$95.8 million due through 20202022 will be paid primarily from cash generated from our operations. We anticipate that principal balances due at maturity through 20202022 of $13.7$40.0 million will be paid primarily from cash and cash equivalents 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-termshort- term debt, or dispose of properties on unfavorable terms.
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Statement of Cash Flows
The following discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be a comprehensive discussion of the changes in our cash flows for the years presented.
| For the Years ended December 31, | |||||||||
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(Dollars in thousands) | 2017 | 2016 | 2015 | |||||||
Cash flow provided by operating activities | $ | 44,557 | $ | 31,405 | $ | 34,484 | ||||
Cash flow used in investing activities | (23,444 | ) | (80,911 | ) | (73,498 | ) | ||||
Cash flow (used in) provided by financing activities | (24,767 | ) | 54,190 | 31,406 | ||||||
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Net (decrease) increase in cash and cash equivalents | (3,654 | ) | 4,684 | (7,608 | ) | |||||
Cash and cash equivalents at beginning of year | 17,420 | 12,736 | 20,344 | |||||||
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Cash and cash equivalents at end of year | $ | 13,766 | $ | 17,420 | $ | 12,736 | ||||
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Our principal source of operating cash flow is the net funds generated from the operation of our properties. Our properties provide a relatively consistent stream of cash flow that provides us with resources to pay operating expenses, debt service and fund quarterly dividend requirements.
The decrease in cash used in investing activities during 2017 compared to 2016 is due primarily to the decrease in purchases of real estate in 2017, offset by the decrease in net proceeds from sales of real estate in 2017.
The increase in cash flow used in financing activities during 2017 compared to 2016 is due primarily to the net decrease of $65.6 million in financings/repayments of mortgages payable and to a lesser extent, the net increase of $7.7 million in repayments (net of proceeds from drawdowns) on the credit facility in 2017. The increase in cash flow used in financing activities also resulted from a $20.2 million decrease in net proceeds from the sale of our common stock in 2017.
Cash Distribution Policy
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. Accordingly, to qualify as a REIT, we must, among other things, meet a number of organizational and operational requirements, including a requirement that we distribute currently at least 90% of our ordinary taxable income to our stockholders. It is our current intention to comply with these requirements and maintain our REIT status. As a REIT, we generally will not be subject to corporate federal, state or local income taxes on taxable income we distribute currently (in accordance with the Internal Revenue Code and applicable regulations) to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal, state and local income taxes at regular corporate rates and may not be able to qualify as a REIT for four subsequent tax years. Even if we qualify for federal taxation as a REIT, we may be subject to certain state and local taxes on our income and to federal income taxes on our undistributed taxable income (i.e., taxable income not distributed in the amounts and in the time frames prescribed by the Internal Revenue Code and applicable regulations thereunder) and are subject to Federal excise taxes on our undistributed taxable income.
It is our intention to pay to our stockholders within the time periods prescribed by the Internal Revenue Code no less than 90%, and, if possible, 100% of our annual taxable income, including taxable gains from the sale of real estate. It will continue to be our policy to make sufficient distributions to stockholders in order for us to maintain our REIT status under the Internal Revenue Code.
Our board of directors reviews the dividend policy regularly to determine if any changes to our dividend should be made.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements other than with respect to a land parcelsparcel owned by us and located in Lakemoor, Illinois, Wheaton, Illinois and Beachwood, Ohio. These parcels areThis parcel is improved by a multi-family complexescomplex and we ground leased the parcelsparcel to the owner/operatorsoperator of such complexes. Thesecomplex. The ground leaseslease generated $3.7 million$783,000 of rental income, net, during 2017.2019. At December 31, 2017,2019, our maximum exposure to loss with respect to these propertiesthis property is $34.0$13.9 million, representing the carrying value of the land; our leasehold positions areposition is subordinate to an aggregate of $158.2$67.4 million of mortgage debt incurred by our tenants,tenant, the owner/operatorsoperator of the multi-family complexes. These owner/operators are affiliated with one another.complex. We do not believe that this type of off-balance sheet arrangement has been or will be material to our liquidity and capital resource positions. See Notes 4“ – Other 2019 Developments – The Vue” and 7Note 6 to our consolidated financial statements for additional information regarding these arrangements.this arrangement.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included in this Annual Report on Form 10-K.statements. Certain of our accounting policies are particularly important to an understanding of our financial position and results of operations and require the application of significant judgment by our management; as a result they are subject to a degree of uncertainty. These critical accounting policies include the following, discussed below.
Purchase Accounting for Acquisition of Real Estate
The fair value of real estate acquired is allocated to acquired tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and other value of in-place leases based in each case on their fair values. The fair value of the tangible assets of an acquired property (which includes land, building and building improvements) is determined by valuing the property as if it were vacant, and the "as-if-vacant"“as-if-vacant” value is then allocated to land, building and building improvements based on our determination of relative fair values of these assets. We assess fair value of the lease intangibles based on estimated cash flow projections that utilize appropriate discount rates and available market information. The fair values associated with below-market rental renewal options are determined based on our experience and the relevant facts and circumstances that existed at the time of the acquisitions. The portion of the values of the leases associated with below-market renewal options that we deem likely to be exercised are amortized to rental income over the respective renewal periods. The allocation made by us may have a positive or negative effect on net income and may have an effect on the assets and liabilities on the balance sheet.
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Revenues
Our revenues, which are substantially derived from rental income, include rental income that our tenants pay in accordance with the terms of their respective leases reported on a straight-line basis over the non-cancellable term of each lease. Since many of our leases provide for rental increases at specified intervals, straight-line basis accounting requires us to record as an asset and include in revenues, unbilled rent receivables which we will only receive if the tenant makes all rent payments required through the expiration of the term of the lease. Accordingly, our management must determine, in its judgment, that the unbilled rent receivable applicable to each specific tenant is collectible. We review unbilled rent receivables on a quarterly basis and take into consideration the tenant'stenant’s payment history and the financial condition of the tenant. In the event that the collectability of an unbilled rent receivable is in doubt,unlikely, we are required to take a reserve against the receivable or a direct write-off of the receivable, which has an adverse effect on net income for the year in which the reserve or direct write-off is taken, and will decrease total assets and stockholders'stockholders’ equity.
Carrying Value of Real Estate Portfolio
We review our real estate portfolio on a quarterly basis to ascertain if there are any indicators of impairment to the value of any of our real estate assets, including deferred costs and intangibles, to determine if there is any need for an impairment charge. In reviewing the portfolio, we examine the type of asset, the current financial statements or other available financial information of the tenant, the economic situation in the area in which the asset is located, the economic situation in the industry in which the tenant is involved and the timeliness of the payments made by the tenant under its lease, as well as any current correspondence that may have been had with the tenant, including property inspection reports. For each real estate asset owned for which indicators of impairment exist, we perform a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the asset to its carrying amount. If the undiscounted cash flows are less than the asset'sasset’s carrying amount, an impairment loss is recorded to the extent that the estimated fair value is less than the asset'sasset’s carrying amount. The estimated fair value is determined using a discounted cash flow model of the expected future cash flows through the useful life of the property. Real estate assets that are expected to be disposed of are valued at the lower of carrying amount or fair value less costs to sell on an individual asset basis. We generally do not obtain any independent appraisals in determining value but rely on our own analysis and valuations. Any impairment charge taken with respect to any part of our real estate portfolio will reduce our net income and reduce assets and stockholders'stockholders’ equity to the extent of the amount of any impairment charge, but it will not affect our cash flow or our distributions until such time as we dispose of the property.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Our primary market risk exposure is the effect of changes in interest rates on the interest cost of draws on our revolving variable rate credit facility and the effect of changes in the fair value of our interest rate swap agreements. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.
We use interest rate swaps to limit interest rate risk on variable rate mortgages. These swaps are used for hedging purposes-not for speculation. We do not enter into interest rate swaps for trading purposes. At December 31, 2017,2019, our aggregate liability in the event of the early termination of our swaps was $1.6$1.8 million.
At December 31, 2017,2019, we had 3024 interest rate swap agreements outstanding (including two held by three of our unconsolidated joint ventures).outstanding. The fair market value of the interest rate swaps is dependent upon existing market interest rates and swap spreads, which change over time. As of December 31, 2017,2019, if there had been an increase of 100 basis points in forward interest rates, the fair market value of the interest rate swaps would have increased by approximately $7.5$4.1 million and the net unrealized gainloss on derivative instruments would have increaseddecreased by $7.5$4.1 million. If there were a decrease of 100 basis points in forward interest rates, the fair market value of the interest rate swaps would have decreased by approximately $8.1$4.4 million and the net unrealized gainloss on derivative instruments would have decreasedincreased by $8.1$4.4 million. These changes would not have any impact on our net income or cash.
Our variable mortgage debt, after giving effect to the interest rate swap agreements, 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.
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Our variable rate credit facility is sensitive to interest rate changes. At December 31, 2017,2019, a 100 basis point increase of the interest rate on this facility would increase our related interest costs by approximately $94,000$115,000 per year and a 100 basis point decrease of the interest rate would decrease our related interest costs by approximately $94,000$115,000 per year.
The fair market value of our long-term debt is estimated based on discounting future cash flows at interest rates that our management believes reflect the risks associated with long term debt of similar risk and duration.
The following table sets forth our debt obligations by scheduled principal cash flow payments and maturity date, weighted average interest rates and estimated fair market value at December 31, 2017:2019:
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(Dollars in thousands) | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total | | Value |
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Fixed rate: |
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Long‑term debt | | $ | 13,530 | | $ | 22,963 | | $ | 46,083 | | $ | 30,182 | | $ | 62,819 | | $ | 264,701 | | $ | 440,278 | | $ | 454,039 | |
Weighted average interest rate | |
| 4.30 | % |
| 4.25 | % |
| 4.05 | % |
| 4.36 | % |
| 4.39 | % |
| 4.17 | % |
| 4.21 | % |
| 3.72 | % |
Variable rate: | |
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Long‑term debt(1) | | $ | — | | $ | — | | $ | 11,450 | | $ | — | | $ | — | | $ | — | | $ | 11,450 | | $ | — | |
| For the Year Ended December 31, | ||||||||||||||||||||||||
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(Dollars in thousands) | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | Fair Market Value | |||||||||||||||||
Fixed rate: | |||||||||||||||||||||||||
Long-term debt | $ | 20,448 | $ | 14,610 | $ | 11,901 | $ | 20,742 | $ | 43,771 | $ | 281,051 | $ | 392,523 | $ | 397,103 | |||||||||
Weighted average interest rate | 4.32 | % | 4.24 | % | 4.35 | % | 4.27 | % | 4.05 | % | 4.23 | % | 4.22 | % | 4.25 | % | |||||||||
Variable rate: | |||||||||||||||||||||||||
Long-term debt(1) | — | $ | 9,400 | — | — | — | — | $ | 9,400 | — |
(1) | Our credit facility matures on December 31, 2022 and bears interest at the 30 day LIBOR rate plus the applicable margin. The applicable margin varies based on the ratio of total debt to total value. See “Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Liquidity and Capital Resources—Credit Facility.” |
Item 8. Financial Statements and Supplementary Data.
This information appears in Item 15(a) of this Annual Report on Form 10-K, and is incorporated into this Item 8 by reference thereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
A review and evaluation was performed by our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”) as of the end of the period covered by this Annual Report on Form 10-K. Based on that review and evaluation, the CEO and CFO have concluded that our disclosure controls and procedures, as designed and implemented as of December 31, 2017,2019, were effective.
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal controls over financial reporting, as defined in in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, that occurred during the three months ended December 31, 20172019 that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Management's43
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, a company'scompany’s principal executive and principal financial officers and effected by a company'scompany’s board,
management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
● | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of a company; |
● | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of a company are being made only in accordance with authorizations of management and directors of a company; and |
● | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company’s assets that could have a material effect on the financial transactions. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2017.2019. In making this assessment, our management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013).
Based on its assessment, our management concluded that, as of December 31, 2017,2019, our internal control over financial reporting was effective based on those criteria.
Our independent registered public accounting firm, Ernst & Young LLP, have issued a report on management'smanagement’s assessment of the effectiveness of internal control over financial reporting. This report appears on page F-2 of this Annual Report on Form 10-K.
Item 9B. Other Information
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Property Transactions Subsequent to December 31, 2019.”
The following discussion supplements and updates the discussion (the "Prior Discussion") contained in our prospectus dated May 10, 2017 under the heading "Federal Income Tax Considerations" and supersedes the Prior Discussion to the extent the discussion below is inconsistent with the Prior Discussion. The Prior Discussion and the discussion below (collectively referred to as the "Tax Discussion") are subject to the qualifications set forth therein and below. The tax treatment of security holders will vary depending upon the holder's particular situation, and the Tax Discussion addresses only holders that hold securities as a capital asset and does not deal with all aspects of taxation that may be relevant to particular holders in light of their personal investment or tax circumstances. The Tax Discussion also does not deal with all aspects of taxation that may be relevant to certain types of holders, to which special provisions of the federal income tax laws apply, including:
● | dealers in securities or currencies; |
● | traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; |
● | banks and other financial institutions; |
● | tax-exempt organizations; |
● | certain insurance companies; |
● | persons liable for the alternative minimum tax; |
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● | persons that hold securities as a hedge against interest rate or currency risks or as part of a straddle or conversion transaction; |
● | non-U.S. individuals and foreign corporations; and |
● | holders whose functional currency is not the U.S. dollar. |
The statements in the Tax Discussion are based on the Code, its legislative history, current and proposed regulations under the Code, published rulings and court decisions. This summary describes the provisions of these sources of law only as they are currently in effect. All of these sources of law may change at any time, and any change in the law may apply retroactively. We cannot assure you that new laws, interpretations of law or court decisions, any of which may take effect retroactively, will not cause any statement in this discussion to be inaccurate.
As supplemented and updated by this summary, and by the discussion in any applicable prospectus supplement, investors should review the discussion in the prospectus under the heading "Federal Income Tax Considerations" for a more detailed summary of the federal income tax consequences of the purchase, ownership, and disposition of our securities and our election to be subject to federal income tax as a REIT.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF OUR SECURITIES.
Enactment of Tax Act
On December 22, 2017, the Tax Cuts and Jobs Act, which we refer to as the "Tax Act", was enacted. The Tax Act makes major changes to the Code, including a number of provisions of the Code that may affect the taxation of REITs and the holders of their securities. The most significant of these provisions are described below. The individual and collective impact of these changes on REITs and their security holders is uncertain and may not become evident for some period of time. Prospective investors should consult their tax advisors regarding the implications of the Tax Act on their investment.
Revised Individual Tax Rates and Deductions
The Tax Act adjusted the tax brackets and reduced the top federal income tax rate for individuals from 39.6% to 37%. In addition, numerous deductions were eliminated or limited, including the deduction for state and local taxes being limited to $10,000 per year. These individual income tax changes are generally effective beginning in 2018, but without further legislation, they will sunset after 2025.
Pass-Through Business Income Tax Rate Lowered through Deduction
Under the Tax Act, individuals, trusts, and estates generally may deduct 20% of "qualified business income" (generally, domestic trade or business income other than certain investment items) of a partnership, S corporation, or sole proprietorship. In addition, "qualified REIT dividends" (i.e., REIT dividends other than capital gain dividends and portions of REIT dividends designated as qualified dividend income eligible for capital gain tax rates) and certain other income items are eligible for the deduction. The deduction, however, is subject to complex limitations to its availability. As with the other individual income tax changes, the provisions related to the deduction are effective beginning in 2018, but without further legislation, they will sunset after 2025.
Graduated Corporate Tax Rates Replaced With Single Rate; Elimination of Corporate Alternative Minimum Tax
The Tax Act eliminated graduated corporate income tax rates with a maximum rate of 35% and replaced them with a single corporate income tax rate of 21%, and reduced the dividends received deduction for certain corporate subsidiaries. The 21% rate may also apply to (i) our net income for any taxable period in which we fail to qualify as a REIT, or (ii) our net income from nonqualifying assets during a period in which we fail to satisfy the REIT asset test but otherwise qualify as a REIT. The Tax Act also permanently eliminated the corporate alternative minimum tax. These provisions are effective beginning in 2018.
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Net Operating Loss Modifications
The Tax Act limited the net operating loss ("NOL") deduction to 80% of taxable income (before the deduction). The Tax Act also generally eliminated NOL carrybacks for individuals and non-REIT corporations (NOL carrybacks did not apply to REITs under prior law) but allows indefinite NOL carryforwards. The new NOL rules apply beginning in 2018.
Limitations on Interest Deductibility
The Tax Act limits the net interest expense deduction of a business to 30% of the sum of adjusted taxable income, business interest, and certain other amounts. The Tax Act allows a real property trade or business to elect out of such limitation so long as it uses the alternative depreciation system which lengthens the depreciation recovery period with respect to certain property. The limitation with respect to the net interest expense deduction applies beginning in 2018.
Withholding Rate Reduced
The Tax Act reduced the highest rate of withholding with respect to distributions to non-U.S. holders that are treated as attributable to gains from the sale or exchange of U.S. real property interests from 35% to 21%. These provisions are effective beginning
Information Reporting Requirements and Backup Withholding Tax
The discussion under “Federal Income Tax Considerations — Information Reporting Requirements and Backup Withholding Tax” in 2018.our prospectus dated May 10, 2017 is hereby modified to reflect regulations proposed by the Treasury Department indicating its intent to eliminate the requirements under the HIRE Act of withholding on gross proceeds from the sale, exchange, maturity or other disposition of relevant financial instruments. The Treasury Department has indicated that taxpayers may rely on these proposed regulations pending their finalization.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Governance.
Apart from certain information concerning our executive officers which is set forth in Part I of this Annual Report, additional information required by this Item 10 shall be included in our proxy statement for our 20182020 annual meeting of stockholders, to be filed with the SEC not later than April 30, 2018,29, 2020, and is incorporated herein by reference.
Set forth below is a list of our executive officers whose terms expire at our 2018 annual board of directors' meeting. The business history of our officers, who are also directors, will be provided in our proxy statement to be filed pursuant to Regulation 14A not later than April 30, 2018.
Lawrence G. Ricketts, Jr. Mr. Ricketts has been our Chief Operating Officer since 2008, Vice President from 1999 through 2006 and Executive Vice President since 2006.
David W. Kalish. Mr. Kalish has served as our Senior Vice President and Chief Financial Officer since 1990 and as Senior Vice President, Finance of BRT Apartments Corp. since 1998. Since 1990, he has served as Vice President and Chief Financial Officer of the managing general partner of Gould Investors L.P., a master limited partnership involved primarily in the ownership and operation of a diversified portfolio of real estate assets. Mr. Kalish is a certified public accountant.
Mark H. Lundy. Mr. Lundy has served as our Secretary since 1993, as our Vice President since 2000 and as our Senior Vice President since 2006. Mr. Lundy has been a Vice President of BRT Apartments Corp. from 1993 to 2006, its Senior Vice President since 2006, a Vice President of the managing general partner of Gould Investors from 1990 through 2012 and its President and Chief Operating Officer since 2013. He is an attorney admitted to practice in New York and the District of Columbia.
Israel Rosenzweig. Mr. Rosenzweig has served as our Senior Vice President since 1997, as Chairman of the Board of Directors of BRT Apartments Corp. since 2013, as Vice Chairman of its Board of Directors from 2012 through 2013, and as its Senior Vice President from 1998 through 2012. He has been a Vice President of the managing general partner of Gould Investors since 1997.
Karen Dunleavy. Ms. Dunleavy has been our Vice President, Financial since 1994. She served as Treasurer of the managing general partner of Gould Investors from 1986 through 2013. Ms. Dunleavy is a certified public accountant.
Alysa Block. Ms. Block has been our Treasurer since 2007, and served as Assistant Treasurer from 1997 to 2007. Ms. Block has also served as the Treasurer of BRT Apartments Corp. from 2008 through 2013, and served as its Assistant Treasurer from 1997 to 2008.
Richard M. Figueroa. Mr. Figueroa has served as our Vice President and Assistant Secretary since 2001, as Vice President and Assistant Secretary of BRT Apartments Corp. since 2002 and as Vice President of the managing general partner of Gould Investors since 1999. Mr. Figueroa is an attorney admitted to practice in New York.
Isaac Kalish. Mr. Kalish has served as our Vice President since 2013, Assistant Treasurer since 2007, as Assistant Treasurer of the managing general partner of Gould Investors from 2012 through 2013, as Treasurer from 2013, as Vice President and Treasurer of BRT Apartments Corp. since 2013, and as its Assistant Treasurer from 2009 through 2013. Mr. Kalish is a certified public accountant.
Justin Clair. Mr. Clair has been employed by us since 2006, served as Assistant Vice President from 2010 through 2014 and as Vice President since 2014.
Item 11. Executive Compensation.
The information concerning our executive compensation required by this Item 11 shall be included in our proxy statement for our 20182020 annual meeting of stockholders, to be filed with the SEC not later than April 30, 2018,29, 2020, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information concerning our beneficial owners and management required by this Item 12 shall be included in our proxy statement for our 20182020 annual meeting of stockholders, to be filed with the SEC not later than April 30, 201829, 2020 and is incorporated herein by reference.
Equity Compensation Plan Information
As of December 31, 2017, the only equity compensation plan under which equity compensation may be awarded is our 2016 Incentive Plan, which was approved by our stockholders in June 2016. This plan permits us to grant stock options, restricted stock, restricted stock units and performance based awards to our employees, officers, directors, consultants and other eligible participants. The following
table provides information as of December 31, 2017 about shares of our common stock that may be issued upon the exercise of options, warrants and rights under our 2016 Incentive Plan:
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a))(2) | |||||||
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| (a) | (b) | (c) | |||||||
Equity compensation plans approved by security holders | 76,250 | — | 533,750 | |||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||
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Total | 76,250 | — | 533,750 | |||||||
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Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information concerning certain relationships, related transactions and director independence required by this Item 13 shall be included in our proxy statement for our 20182020 annual meeting of stockholders, to be filed with the SEC not later than April 30, 201829, 2020 and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information concerning our principal accounting fees required by this Item 14 shall be included in our proxy statement for our 20182020 annual meeting of stockholders, to be filed with the SEC not later than April 30, 201829, 2020 and is incorporated herein by reference.
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) | Documents filed as part of this Report: |
(1) | The following financial statements of the Company are included in this Annual Report on Form 10-K: |
— | Reports of Independent Registered Public Accounting Firm | F-1 through | ||
—Statements: |
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Consolidated Balance Sheets | F-3 | |||
Consolidated Statements of Income | F-4 | |||
Consolidated Statements of Comprehensive Income | F-5 | |||
Consolidated Statements of Changes in Equity | F-6 | |||
Consolidated Statements of Cash Flows | F-7 | |||
Notes to Consolidated Financial Statements | F-9 through |
(2) | Financial Statement Schedules: |
— | Schedule III—Real Estate and Accumulated Depreciation | F-37 through |
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto.
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The file number for all the exhibits incorporated by reference is 001- 09279 other than exhibit 49 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Exchange, the Registrant has duly caused this report to be signed on its behalf of the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities
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To the Stockholders and the Board of Directors of One Liberty Properties, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of One Liberty Properties, Inc. and subsidiaries (the Company) as of December 31, We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Adoption of ASU No. 2016-02 As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842), and the related amendments. Basis for Opinion These financial statements are the responsibility of the We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Ernst & Young LLP We have served as the New York, New York March F-1
To the Stockholders and the Board of Directors of One Liberty Properties, Inc. Opinion on Internal Control over Financial Reporting We have audited One Liberty Properties, Inc. and We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Basis for Opinion The We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP New York, New York March F-2
Consolidated Balance Sheets (Amounts in Thousands, Except Par Value)
See accompanying notes. F-3
Consolidated Statements of Income (Amounts in Thousands, Except Per Share Data)
See accompanying notes. F-4
Consolidated Statements of Comprehensive Income (Amounts in Thousands)
See accompanying notes. F-5
Consolidated Statements of Changes in Equity For the Three Years Ended December 31, (Amounts in Thousands, Except Per Share Data)
See accompanying notes. F-6
Consolidated Statements of Cash Flows (Amounts in Thousands)
(Continued on next page) F-7
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Continued) (Amounts in Thousands) The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows (amounts in thousands):
Amounts included in restricted cash in 2018 represent the cash reserve balance received from owner/operators at two of the Company’s ground leased properties (as discussed in Note 6). Restricted cash included in escrow, deposits and other assets and receivables represent amounts related to real estate tax and other reserve escrows required to be held by lenders in accordance with the Company’s mortgage agreements. The restriction on these escrow reserves will lapse when the related mortgage is repaid. See accompanying notes. F-8
December 31, NOTE 1—ORGANIZATION AND BACKGROUND One Liberty Properties, Inc. NOTE 2—SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation 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 Investment in Joint Ventures and Variable Interest Entities The Financial Accounting Standards Board, or FASB, provides guidance for determining whether an entity is a VIE. VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A VIE is required to be consolidated by its primary beneficiary, which is the party that (i) has the power to control the activities that most significantly impact the The Company assesses the accounting treatment for each of its investments, including a review of each venture or limited liability company or partnership agreement, to determine the rights of each party and whether those rights are protective or participating. The agreements typically contain certain protective rights, such as the requirement of partner approval to sell, finance or refinance the property and to pay capital expenditures and operating expenditures outside of the approved budget or operating plan. In situations where, among other things, the Company and its partners jointly (i) approve the annual budget, (ii) approve certain expenditures, (iii) prepare or review and approve the joint The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting. All investments in unconsolidated joint ventures have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support and, as a group, the holders of the equity at risk have power through voting rights to direct the activities of these
ventures. As a result, F-9 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019 NOTE 2—SIGNIFICANT ACCOUNTING POLICIES (Continued) The Company During the three years ended December 31, The Company has elected to follow the cumulative earnings approach when assessing, for the consolidated statement of cash flows, whether the distribution from the investee is a return of the Use of Estimates The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles Management believes that the estimates and assumptions that are most important to the portrayal of the Revenue Recognition Rental income includes the base rent that each tenant is required to pay in accordance with the terms of their respective leases reported on a straight-line basis over the non-cancelable term of the
lease. In determining, in its judgment, that the unbilled rent receivable applicable to each specific property is collectible, management reviews unbilled rent receivables on a quarterly basis and takes into consideration the F-10 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019 NOTE 2—SIGNIFICANT ACCOUNTING POLICIES (Continued) Many of the Gains and losses on the sale of real estate investments are recorded when the Company no longer holds a controlling financial interest in the entity which holds the real estate investment and the relevant revenue recognition criteria under GAAP have been met. 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. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). 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 Purchase Accounting for Acquisition of Real Estate In
The Company allocates the purchase price of real estate, including direct transaction costs applicable to an asset acquisition, among land, building, improvements and intangibles, such as the value of above, below and at-market leases, and origination costs associated with in-place leases at the acquisition date. The Company assesses the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. The value, as determined, is allocated to land, building and improvements based on The Company assesses 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 in the fair value hierarchy. In valuing an acquired F-11 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019 NOTE 2—SIGNIFICANT ACCOUNTING POLICIES (Continued) The values of acquired above-market and below-market leases are recorded based on the present values (using discount rates which reflect the risks associated with the leases acquired) of the difference between the contractual amounts to be received and Accounting for Long-Lived Assets and Impairment of Real Estate Owned The Company reviews its real estate portfolio on a quarterly basis to ascertain if there are any indicators of impairment to the value of any of its real estate assets, including deferred costs and intangibles, to determine if there is any need for an impairment charge. In reviewing the portfolio, the Company examines one or more of the following: the type of asset, the current financial statements or other available financial information of the tenant, the economic situation in the area in which the asset is located, the economic situation in the industry in which the tenant is involved, the timeliness of the payments made by the tenant under its lease, property inspection reports and any
Properties Held-for-Sale Real estate investments are classified as properties held-for-sale when management determines that the investment meets the applicable criteria. Real estate assets that are classified as held-for-sale are: (i) valued at the lower of carrying amount or the estimated fair value less costs to sell on an individual asset basis; and (ii) not depreciated.
All highly liquid investments with original maturities of three months or less when purchased are considered to be cash equivalents. Escrows Real estate taxes, insurance and other escrows aggregating F-12 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019 NOTE 2—SIGNIFICANT ACCOUNTING POLICIES (Continued) Depreciation and Amortization Depreciation of buildings is computed on the straight-line method over an estimated useful life of 40 Deferred Financing Costs Mortgage and credit line costs are deferred and amortized on a straight-line basis over the terms of the respective debt obligations, which approximates the effective interest method. At December 31,
Company presents unamortized deferred financing costs as a direct deduction from the carrying amount of the associated debt liability. Income Taxes The Company is qualified as a real estate investment trust (“REIT”) under the applicable provisions of the Internal Revenue Code. Under these provisions, the Company will not be subject to Federal, and generally, state and local income taxes, on amounts distributed to stockholders, provided it distributes at least 90% of its ordinary taxable income and meets certain other conditions. The Company follows a two-step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. The use of a valuation allowance as a substitute for derecognition of tax positions is prohibited. The Company has not identified any uncertain tax positions requiring accrual. Concentration of Credit Risk The Company maintains cash accounts at various financial institutions. While the Company attempts to limit any financial exposure, substantially all of its deposit balances exceed federally insured limits. The Company has not experienced any losses on such accounts. The
Segment Reporting Substantially all of the F-13 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019 NOTE 2—SIGNIFICANT ACCOUNTING POLICIES (Continued) Stock Based Compensation The fair value of restricted stock grants and restricted stock units, determined as of the date of grant, is amortized into general and administrative expense over the respective vesting period. The deferred compensation to be recognized as expense is net of certain forfeiture and performance assumptions which are re-evaluated quarterly. The Company recognizes the effect of forfeitures when they occur and previously recognized compensation expense
Derivatives and Hedging Activities The The Company records all derivatives on the consolidated balance sheets at fair value using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. In addition, the Company incorporates credit valuation adjustments to appropriately reflect both its own The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows are considered cash flow hedges. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in accumulated other comprehensive income (outside of earnings) and subsequently reclassified to earnings in the period in which the hedged transaction becomes ineffective. For derivatives not designated as cash flow hedges, changes in the fair value of the derivative are recognized directly in earnings in the period in which the change occurs; however, the
F-14 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019 NOTE 2—SIGNIFICANT 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
New Accounting Pronouncements In August
In June 2016, the FASB issued ASU No. 2016-13,Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current
NOTE 3—LEASES As of January 1, 2019, the Company adopted ASU No. 2016-02, Leases, ASU No. 2018-11, Leases (Topic 842), Targeted Improvements, and ASU No. 2018-10, Codification Improvements to Topic 842, Leases, using the modified retrospective approach and elected the package of practical expedients that allows an entity to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases. Upon adoption, there was 0 cumulative-effect adjustment to retained earnings as of January 1, Lessor Accounting The Company Fixed lease revenues represent the base rent that each tenant is required to pay in accordance with the terms of their respective leases reported on a straight-line basis over the non-cancelable term of the F-15 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019 NOTE 3—LEASES (Continued) The components of lease revenues are as follows (amounts in thousands):
In many of the Company's leases, the tenant is obligated to pay the real estate taxes, insurance, and certain other expenses directly to the vendor. These obligations, which have been assumed by the tenants, are not reflected in our consolidated financial statements. To the extent any such tenant defaults on its lease or if it As a lessor, the adoption of Minimum Future Rents As of December 31, 2019, under ASC 842, the minimum future contractual rents to be
As of December 31, 2018, under ASC 840, the minimum future contractual rents to be received on non-cancellable operating leases were as follows (amounts in thousands):
F-16
Notes to Consolidated Financial Statements (Continued) December 31, NOTE 3—
At December 31, 2019 and 2018, the Company’s unbilled rent receivables aggregating $15,037,000 and $13,722,000, respectively, represent rent reported on a straight-line basis in excess of rental payments required under the respective leases. The unbilled rent receivable is to be billed and received pursuant to the lease terms during the next 16 years. During 2019, 2018 and 2017, the Company wrote off $182,000, $45,000 and $105,000, respectively, of unbilled straight-line rent receivable related to the properties sold during such years, which reduced the gain on sale reported on the consolidated statements of income. At December 31, 2019 and 2018, the Company’s unbilled rent payables aggregating $662,000 and $0, respectively, represent rent reported on a straight-line basis less than rental payments required under the respective leases. The unbilled rent payable is to be billed and received pursuant to the lease terms during the next 22 years. On a quarterly basis, the Company assesses the collectability of substantially all lease payments due under its leases, including unbilled rent receivable balances, by Lease Termination Fees During 2019, the Company received an aggregate of $950,000 as lease termination fees from 2 retail tenants in lease buy-out transactions. In connection with one of these transactions, the Company wrote-off $37,000 of unbilled rent receivable against rental income. During 2018, the Company received $372,000 as a lease termination fee from a retail tenant in a lease buy-out transaction. In connection with this transaction, the Company recorded $804,000 as rental income, representing the write-off of the $878,000 balance of the unamortized intangible lease liability, offset in part by the Lessee Accounting Ground Lease The Company is a lessee under a ground lease in Greensboro, North Carolina, which is classified as an operating lease. The ground lease expires March 3, 2025 and provides for up to 4, 5-year renewal options and 1 seven-month renewal option. On January 1, 2019, upon adoption of ASC 842, the Company recorded a $4,381,000 liability for the obligation to make payments under the lease and a $4,381,000 asset for the right to use the underlying asset during the
Notes to Consolidated Financial Statements (Continued) December 31, NOTE 3— Office Lease The
As of December 31, 2018, under ASC 840, the minimum future lease payments related to the operating ground and office leases were as follows (amounts in thousands):
F-18
Notes to Consolidated Financial Statements (Continued) December 31, NOTE 4—REAL ESTATE INVESTMENTS
F-19
Notes to Consolidated Financial Statements (Continued) December 31, NOTE 4—REAL ESTATE INVESTMENTS The following charts detail the allocation of the purchase price for the
As of December 31, At December 31, F-20
Notes to Consolidated Financial Statements (Continued) December 31, NOTE 4—REAL ESTATE INVESTMENTS During The unamortized balance of intangible lease assets as a result of acquired above market leases at December 31,
The unamortized balance of intangible lease liabilities as a result of acquired below market leases at December 31,
The unamortized balance of origination costs associated with in-place leases at December 31,
Property Acquisitions Subsequent to December 31, 2019 On February 20, 2020, the Company acquired an industrial property located in Ashland, Virginia for $9,100,000. The initial term of the lease expires in 2034. On February 24, 2020, the Company acquired an industrial property located in Lowell, Arkansas for $19,150,000. The initial term of the lease expires in 2027. F-21
Notes to Consolidated Financial Statements (Continued) December 31, NOTE 5—SALES OF PROPERTIES
The
F-22
Notes to Consolidated Financial Statements (Continued) December 31,
NOTE 5—SALES OF PROPERTIES
December 31,
NOTE 6—
Variable Interest Entities—Ground Leases The Company determined Ground lease rental income amounted to $1,597,000, $3,357,000 and $3,702,000 The following chart details the
At December 31,
F-23 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019 NOTE 6—VARIABLE INTEREST ENTITIES, CONTINGENT LIABILITY AND CONSOLIDATED JOINT VENTURES (Continued) Variable Interest Entities—Consolidated Joint Ventures
The following is a summary of the consolidated
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 At December 31,
F-24 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019 NOTE 7—INVESTMENT IN UNCONSOLIDATED JOINT VENTURES (Continued) At December 31, 2019 and Sale of Unconsolidated Joint Venture Property Subsequent to December 31, On March 2, 2020, an unconsolidated joint venture sold its property located in Savannah, Georgia for $819,000, net of closing costs. The Company’s 50% share of the NOTE Mortgages Payable The following table details the Mortgages payable, net, balances per the consolidated balance sheets (amounts in thousands):
At December 31,
Scheduled principal repayments during the next five years and thereafter are as follows (amounts in thousands):
F-25
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019
NOTE 8—DEBT OBLIGATIONS (Continued) Line of Credit The Company has a credit facility with Manufacturers & Traders Trust Company, The credit facility includes certain restrictions and covenants which may limit, among other things, the incurrence of liens, and which require compliance with financial ratios relating to, among other things, the minimum amount of tangible net worth, the minimum amount of debt service coverage, the minimum amount of fixed charge coverage, the maximum amount of debt to value, the minimum level of net income, certain investment limitations and the minimum value of unencumbered properties and the number of such properties. The Company was in compliance with all covenants at December 31, The facility is guaranteed by subsidiaries of the Company that own unencumbered properties and the Company pledged to the lenders the equity interests in the
The following table details the Line of credit, net, balances per the consolidated balance sheets (amounts in thousands):
At March 5, NOTE The carrying amounts of cash and cash equivalents, restricted cash, escrow, deposits and other assets and receivables (excluding interest rate swaps), 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 December 31, F-26 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019 NOTE 9—FAIR VALUE MEASUREMENTS (Continued) At December 31, 2018, the $420,396,000 estimated fair value of the Company’s mortgages payable is less than their $423,096,000 carrying value (before unamortized deferred financing costs) by approximately $2,700,000, assuming a blended market interest rate of 4.41% based on the 8.7 year weighted average remaining term to maturity of the mortgages. At December 31,
The fair value of the Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
Fair Value on a Recurring Basis The fair value of the
The Company does not currently own any financial instruments that are measured on a recurring basis and that are classified as Level 1 or 3. The 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 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 December 31, F-27 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019 NOTE 9—FAIR VALUE MEASUREMENTS (Continued) As of December 31,
The following table presents the effect of the
During During the twelve months ending December 31, The derivative agreements in effect at December 31,
As of December 31, F-28
December 31, 2019 NOTE Compensation and Services Agreement Pursuant to the compensation and services agreement with Majestic Property Management Corp. In consideration for the
services, internet usage and supplies. The Company does not pay Executive officers and others providing services to the Company under the compensation and services agreement were awarded shares of restricted stock and RSUs under the The Joint Venture Partners and Affiliates During The
During At December 31, F-29
Notes to Consolidated Financial Statements (Continued) December 31, NOTE The Company obtains its property insurance in conjunction with Gould Investors and reimburses Gould Investors annually for the NOTE Basic earnings per share was determined by dividing net income allocable to common stockholders for each year by the weighted average number of shares of common stock outstanding during the applicable year. Net income is also allocated to the unvested restricted stock outstanding during each year, as the restricted stock is entitled to receive dividends and is therefore considered a participating security. As of December 31, 2019, the shares of common stock underlying the restricted stock units (the "RSUs") awarded under the 2019 and 2016 Incentive Plans (See Note 12) 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 or converted or otherwise resulted in the issuance of common stock that shared in the earnings of the Company. The following tables identify the number of shares of common stock underlying the RSUs that are included in the calculation of diluted weighted average number of shares of common stock for such years:
F-30 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019 NOTE 11—EARNINGS PER COMMON SHARE (Continued)
In 2010, RSUs exchangeable for up to 200,000 shares of common stock were awarded pursuant to the 2009 Incentive Plan. In June 2017, 113,584 of these shares vested and such shares were issued in August 2017. See Note 12 for information regarding the Company’s equity incentive plans. There were 0 options outstanding to purchase shares of common stock or other rights exercisable for, or convertible into, common stock in 2019, 2018 and 2017. The following table provides a reconciliation of the numerator and denominator of earnings per share calculations (amounts in thousands, except per share amounts):
NOTE 12—STOCKHOLDERS’ EQUITY Stock Based Compensation The F-31 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019 NOTE 12—STOCKHOLDERS’ EQUITY (Continued) Under the For accounting purposes, the restricted stock is not included in the shares shown as outstanding on the balance sheet until they vest; however, dividends are paid on the unvested shares. The restricted stock grants are charged to General and administrative expense over the respective vesting periods based on the market value of the common stock on the grant date. Unless earlier forfeited because the
For the ROC
In 2010, RSUs exchangeable for up to 200,000 shares of common stock were awarded pursuant to the F-32
Notes to Consolidated Financial Statements (Continued) December 31, NOTE The following is a summary of the activity of the equity incentive plans:
As of December 31,
Common Stock Dividend Distributions In F-33 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019 NOTE 12—STOCKHOLDERS’ EQUITY (Continued) On March Dividend Reinvestment Plan The Shares Issued Through Equity Offering Program During NOTE The Company maintains a non-contributory defined contribution pension plan covering eligible employees. Contributions by the Company are made through a money purchase plan, based upon a percent of the qualified
The Company pays, with respect to one of its real estate properties, annual fixed leasehold rent of As discussed in Note
In the ordinary course of business, the Company is party to various legal actions which management believes are routine in nature and incidental to the operation of the NOTE The Company elected to be taxed as a REIT under the Internal Revenue Code, commencing with its taxable year ended December 31, 1983. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its F-34 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) December 31, 2019 NOTE 14—INCOME TAXES (Continued) Even though the Company qualifies for taxation as a REIT, the Company is subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. As of December 31, During
The Company treats depreciation expense, straight-line rent adjustments and certain other items differently for tax purposes than for financial reporting purposes. Therefore, its taxable income and dividends paid deduction differs from its financial statement income.
The following table reconciles
NOTE Subsequent events have been evaluated and, except as previously disclosed, there were no other events relative to the consolidated financial statements that require additional disclosure.
F-35
Notes to Consolidated Financial Statements (Continued) December 31, NOTE
F-36
ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Schedule III—Consolidated Real Estate and Accumulated Depreciation December 31, (Amounts in Thousands)
F-37
F-38
Note 1—Depreciation is provided over the estimated useful lives of the buildings and improvements, which range from Note 2—Upon purchase of the property in December 2006, a $416,000 rental income reserve was posted by the seller for the Note 3—These 11 properties are retail furniture stores covered by one master lease and one loan that is secured by Note 4—These F-39 ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES Notes to Schedule III Consolidated Real Estate and Accumulated Depreciation
(Amounts in Thousands)
F-40
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