GTJ REIT, INC. - Quarter Report: 2014 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2014

or

For the transition period from                      to                      

Commission file number: 333-136110

GTJ REIT, INC.

(Exact name of registrant as specified in its charter)

60 Hempstead Avenue

West Hempstead, New York

11552

(Address of principal executive offices)

(Zip Code)

(516) 693-5500

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date: 13,729,228 shares of common stock as of November 14, 2014.

GTJ REIT, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2014

TABLE OF CONTENTS

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GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

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

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GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2014 and 2013

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

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

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GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Three and Nine Months Ended September 30, 2014 and 2013

(Unaudited, amounts in thousands)

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

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GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2014

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

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

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GTJ REIT, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited, amounts in thousands)

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

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GTJ REIT, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

1. ORGANIZATION AND DESCRIPTION OF BUSINESS:

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

The Company elected to be treated as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended and elected December 31^st as its fiscal year end. Under the REIT operating structure, the Company is permitted to deduct the dividends paid to its stockholders when determining its taxable income. Assuming dividends equal or exceed the Company’s taxable income, the Company generally will not be required to pay Federal corporate income taxes on such income.

On January 17, 2013, the Company closed on a transaction with Wu/Lighthouse Portfolio, LLC, in which a limited partnership (the “UPREIT”) owned and controlled by the Company, acquired all outstanding ownership interests of a portfolio consisting of 25 commercial properties (the “Acquired Properties”) located in New York, New Jersey and Connecticut, in exchange for 33.29% of the outstanding limited partnership interests in the UPREIT; the owner of all 32 properties. The acquisition was recorded as a business combination and accordingly the purchase price was allocated to the assets acquired and liabilities assumed at fair value. At September 30, 2014, subject to certain anti-dilutive and other provisions contained in the governing agreements, the limited partnership interests in the UPREIT may be convertible in the aggregate, into approximately 1.8 million shares of the Company’s common stock and approximately 5.0 million shares of Series B preferred stock.

As of September 30, 2014, the UPREIT owned 37 properties consisting of approximately 3.2 million square feet of office and industrial properties on 248 acres of land in New York, New Jersey, and Connecticut.

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation:

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

The accompanying unaudited condensed consolidated interim financial information has been prepared according to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted in accordance with such rules and regulations. The Company’s management believes that the disclosures presented in these unaudited condensed consolidated financial statements are adequate to make the information presented not misleading. In Management’s opinion, all adjustments and eliminations, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for the reported periods have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. The accompanying unaudited condensed consolidated interim financial information should be read in conjunction with the Company’s December 31, 2013 audited consolidated financial statements, as previously filed with the SEC on Form 10-K on March 21, 2014, and other public information.

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

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Use of Estimates:

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

Real Estate:

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

Upon the acquisition of real estate properties, the fair values of the real estate purchased are allocated to the acquired tangible assets (generally consisting of land, buildings, and building improvements) and identified intangible assets and liabilities (generally consisting of above-market and below-market leases and the origination value of in-place leases) in accordance with GAAP. The Company utilizes methods similar to those used by independent appraisers in estimating the fair value of acquired assets and liabilities. The fair value of the tangible assets of an acquired property considers the value of the property “as-if-vacant.” In allocating purchase price to identified intangible assets and liabilities of an acquired property, the values of above-market and below-market leases are estimated based on the differences between (i) contractual rentals and the estimated market rents over the applicable lease term discounted back to the date of acquisition utilizing a discount rate adjusted for the credit risk associated with the respective tenants and (ii) the estimated cost of acquiring such leases giving effect to the Company’s history of providing tenant improvements and paying leasing commissions, offset by a vacancy period during which such space would be leased. The aggregate value of in-place leases is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property “as-if-vacant,” determined as set forth above.

Mortgage notes payable assumed in connection with acquisitions are recorded at their fair value using current market interest rates for similar debt at the time of acquisitions. Acquisition related costs are expensed as incurred. The capitalized above-market lease values are amortized as a reduction of rental revenue over the remaining term of the respective leases and the capitalized below-market lease values are amortized as an increase to rental revenue over the remaining term of the respective leases. The value of in-place leases is based on the Company’s evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during expected lease-up periods, current market conditions, and costs to execute similar leases. The values of in place leases are amortized over the remaining term of the respective leases. If a tenant terminates its lease prior to its contractual expiration date, any unamortized balance of the related intangible assets or liabilities is recorded as income or expense in the period. The total net impact to rental revenues due to the amortization of above and below market leases was a net increase of approximately $0.2 million for the nine months ended September 30, 2014.

As of September 30, 2014, approximately $2.8 million and $12.8 million (net of accumulated amortization) relating to above market and in place leases, respectively, are included in acquired lease intangible assets, net in the accompanying condensed consolidated balance sheets. As of December 31, 2013, approximately $3.3 million and $13.3 million (net of accumulated amortization) relating to above and in place leases, respectively, are included in the acquired lease intangible assets, net in the accompanying condensed consolidated balance sheets. As of September 30, 2014 and December 31, 2013, approximately $8.1 million and $8.9 million, respectively, (net of accumulated amortization) relating to below market leases are included in acquired lease intangible liabilities, net in the accompanying condensed consolidated balance sheets.

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The following table presents the projected impact for the remainder of 2014, the next five years and thereafter related to the increase to rental revenue from the amortization of the acquired above market and below market lease intangibles and the increase to amortization expense of the in place lease intangibles for properties owned at September 30, 2014 (in thousands):

Depreciation and Amortization:

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

Asset Impairment:

Management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable. The review of recoverability is based on an estimate of the undiscounted future cash flows that are expected to result from the real estate investment’s use and eventual disposition. Such cash flow analyses consider factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If an impairment event exists due to the projected inability to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value. Management is required to make subjective assessments as to whether there are impairments in the value of its real estate holdings. Management has determined that there were no indicators of impairment relating to its long-lived assets at September 30, 2014.

Deferred Charges:

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

Reportable Segments:

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

Revenue Recognition:

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

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

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

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Earnings Per Share Information:

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

Cash and Cash Equivalents:

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

Restricted Cash:

Restricted cash represents reserves used to pay real estate taxes, insurance, and tenant improvements. At September 30, 2014 and December 31, 2013, the Company had restricted cash in the amount of $1.4 million and $1.3 million, respectively, which was included in other assets on the condensed consolidated balance sheets. The amount for September 2014 includes a collateral deposit of $0.5 million to lock in an interest rate for a loan that closed in October 2014.  The deposit was returned to the Company upon the loan closing.

Fair Value Measurement:

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

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

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

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

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

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

Income Taxes:

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

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

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

ASC 740-10-65 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740-10-65, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10-65 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. As of September 30, 2014, and December 31, 2013, the Company had determined that no liabilities are required in connection with unrecognized tax positions.

Concentrations of Credit Risk:

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, which from time-to-time exceed the federal depository insurance coverage. Management believes that the Company is not exposed to any significant credit risk due to the credit worthiness of the financial institutions.

Stock-Based Compensation:

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

New Accounting Pronouncements

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

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

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

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3. REAL ESTATE:

On April 9, 2014, the Company acquired a 226,000 square foot building located on 15.1 acres of land in Windsor Locks, CT for $14.2 million, subject to the assumption of a $9 million mortgage that bears interest at 6.07%. A principal payment of $3 million is due in March 2017, with the balance of the loan maturing in March 2020. The equity was financed from the Company’s revolving credit line facility with Capital One. The distribution facility is triple net leased to Ford Motor Company.

On April 23, 2014, the Company acquired a 75,000 square foot industrial building located on 7.8 acres of land in Parsippany, NJ for $3.3 million. The purchase was financed from the Company’s revolving credit line facility with Capital One.

On July 2, 2014, the Company acquired an 84,000 square foot parking lot in Long Island City, Queens, NY for $28.5 million that is leased to FedEx Ground. The acquisition was financed, in part, by a $13 million bridge loan with Capital One and the equity financed from the Company’s revolving credit facility. Permanent financing of $15.5 million closed in October 2014 with People’s United Bank and replaced the bridge loan.  The permanent financing is for 10 years at an interest rate of 4.18%. Payments for the first seven years are interest only. Payments over the remaining three years of the term are based on a 25 year amortization schedule.

On August 22, 2014, the Company acquired a 50,000 square foot distribution center in Norwalk, CT for $4.2 million that is leased to FedEx Corporation. The purchase was financed from the Company’s revolving credit line facility with Capital One.

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

On October 15, 2014, the Company acquired a 125,000 square foot industrial building in Shelton, CT for $9.5 million that is leased to Sikorsky Aircraft Corporation. The purchase was financed from the Company’s revolving credit line facility with Capital One.

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

As disclosed in Note 1, effective January 17, 2013, the Company, through the UPREIT, acquired from Wu/Lighthouse Portfolio, LLC all of the outstanding ownership interests in 25 commercial properties located in New York, New Jersey and Connecticut in exchange for 33.29% of the outstanding limited partnership interests in the UPREIT. The Acquired Properties had a gross asset value of approximately $198 million, subject to approximately $118 million in aggregate outstanding mortgage indebtedness, which was assumed by the UPREIT. In addition, the Company acquired other assets and assumed certain liabilities in connection with the transaction. Paul Cooper, the Company’s Chairman and Chief Executive Officer was a 6% owner and principal of Wu/Lighthouse Portfolio, Louis Sheinker, the Company’s President and Chief Operating Officer and a director was a 6.666% owner and principal of Wu/Lighthouse Portfolio, and Jerome Cooper the Company’s Chairman Emeritus owned a .666% interest.

4. DISCONTINUED OPERATIONS:

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

The following table sets forth the detail of the Company’s loss from discontinued operations for the three and nine months ended September 30, 2014 and 2013, respectively (in thousands):

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

5. MORTGAGE NOTES PAYABLE:

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

The Capital One Bridge Loan was repaid on October 3, 2014 though the permanent financing of 28-20 Borden Avenue with People’s United Bank for $15.5 million at an interest rate of 4.18% and maturing in October 2024.

Mortgage notes payable includes $2.6 million of premiums on the debt assumed in connection with the acquisition of various properties. The premiums are being amortized as a reduction to interest expense over the lives of the underlying debt.

The mortgage notes payable are collateralized by certain of the properties and require monthly interest payments until maturity and are generally non-recourse. Some of the loans also require amortization of principal. Scheduled principal repayments for the remainder of 2014, the next five years and thereafter are as follows (in thousands):

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6. SECURED REVOLVING CREDIT FACILITY:

On April 8, 2014, the Company obtained a $45 million Line of Credit with Capital One, N.A. The revolving credit facility is secured by negative pledges on four properties and is available for the acquisition of real estate, property improvements and general working capital purposes. The facility matures on April 8, 2016, subject to a one year extension option and bears interest using, as defined, (i) LIBOR plus a margin of 200 basis points to 335 basis points depending upon the Company’s leverage ratio, as defined, or (ii) base rate plus an applicable margin, depending upon the Company’s leverage ratio, as defined, with no amortization. The principal amount of the line of credit facility and all interest, fees, and other amounts owing under the line of credit are guaranteed by the Company and the UPREIT. As of September 30, 2014 the outstanding balance of the credit facility was $ 29.8 million.

7. STOCKHOLDERS’ EQUITY:

Common Stock:

The Company is authorized to issue 100,000,000 shares of common stock, $.0001 par value per share. As of September 30, 2014, the Company has a total of 13,729,228 shares issued and outstanding.

Preferred Stock:

The Company is authorized to issue 10,000,000 shares of Series A preferred stock, $.0001 par value per share. Voting and other rights and preferences as may be determined from time to time by the Board of Directors. In addition, the Company is authorized to issue 6,500,000 shares of Series B preferred stock, $.0001 par value per share. There are no voting rights associated with the Series B preferred stock. There was no preferred stock outstanding as of September 30, 2014, or December 31, 2013.

Dividend Distributions:

The following table presents dividends declared by the Company on its common stock during the nine months ended September 30, 2014:

Stock Based Compensation:

The Company has a 2007 Incentive Award Plan (the “Plan”) that has intended purposes to further the growth, development, and financial success of the Company and to obtain and retain the services of those individuals considered essential to the long-term success of the Company. The Plan may provide for awards in the form of restricted shares, incentive stock options, non-qualified stock options and stock appreciation rights. The aggregate number of shares of common stock which may be awarded under the Plan is 1,000,000 shares. As of September 30, 2014, the Company had 446,296 shares available for future issuance of awards under the Plan.

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

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

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

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

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

For the nine months ended September 30, 2014 and 2013, the Company’s total stock compensation expense was approximately $ 300,000 and $ 335,000, respectively. As of September 30, 2014, there was approximately $ 344,760 of unamortized stock compensation related to restricted stock.

The following is a summary of restricted stock activity:

The following is a vesting schedule of the total non-vested shares of restricted stock outstanding as of September 30, 2014:

8. EARNINGS (LOSS) PER SHARE:

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

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The following table sets forth the computation of basic and diluted earnings per share information for the three and nine months ended September 30, 2014 and 2013 (in thousands, except share and per share data):

9. RELATED PARTY TRANSACTIONS:

Douglas Cooper, an officer and director of the Company, is a partner of Ruskin, Moscou, Faltischek, P.C. (“RMF”), and RMF has acted as counsel to the Company. Fees paid to RMF for the nine months ended September 30, 2014 and 2013 were negligible and $.3 million, respectively, representing fees and expenses for various divestitures, the Wu/Lighthouse transaction, and general corporate matters.

Paul Cooper is the Chief Executive Officer and Chairman of the Company. Louis Sheinker is President, Chief Operating Officer and a director of the Company. The Company formerly was subject to a lease agreement with Lighthouse 444 Limited Partnership (“Lighthouse”), the owner of the building at 444 Merrick Road, Lynbrook, NY in which Paul Cooper and Louis Sheinker were managing members of the general partner. The lease was terminated on January 16, 2014 in exchange for a $150,000 termination fee paid by the Company. Additionally, Lighthouse Sixty, LP, owner of the building at 60 Hempstead Avenue, West Hempstead, NY, and of which Paul Cooper and Louis Sheinker are managing members of the general partner, have a lease agreement with the Company expiring in 2020 for office and storage space at a current annual base rent of approximately $234,000.

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

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

10. COMMITMENTS AND CONTINGENCIES:

Legal Matters:

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

Divestiture:

The Company has a pension withdrawal liability relating to a previous divestiture. As of September 30, 2014 and December 31, 2013, the remaining liability was approximately $1.3 million and $1.4 million, respectively, and is included in liabilities of discontinued operations on the accompanying condensed consolidated balance sheets. The liability is payable in monthly installments of approximately $8,100, including interest, over a twenty-year term ending in 2032.

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11. FAIR VALUE:

Fair Value of Financial Instruments:

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

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

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

This report contains statements that we believe to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue,” or similar words or the negative thereof. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results. They can be affected by assumptions we might make or by known or unknown risks or uncertainties. Consequently, we cannot provide any assurance with respect to these or any other forward-looking statements. Investors are cautioned not to place undue reliance on any forward-looking statements. Investors should also understand that it is not possible to predict or identify all such factors and should not consider the potential risks and uncertainties set forth herein and in our Annual Report on Form 10-K for the year ended December 31, 2013 (or our subsequently filed reports) as being exhaustive, and new factors may emerge that could affect our business. We assume no obligation, and disclaim any duty, to update the forward-looking statements in this report. You should read the following discussion in conjunction with the condensed consolidated financial statements and notes appearing elsewhere in this filing and our previously filed annual audited financial statements.

Executive Summary:

GTJ REIT, Inc. is a self-administered and self-managed real estate investment trust (“REIT”) which, as of September 30, 2014, owns and operates a total of 37 properties consisting of approximately 3.2 million square feet of primarily industrial properties on approximately 248 acres of land in New York, New Jersey and Connecticut. As of September 30, 2014, our properties were 90% leased to 54 tenants.

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

Critical Accounting Policies:

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that could affect the reported amounts in our condensed consolidated financial statements. Actual results could differ from these estimates. Please refer to the section of our Annual Report on Form 10-K for the year ended December 31, 2013, entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” for a discussion of our critical accounting policies. During the nine months ended September 30, 2014, there were no material changes to these policies. Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements included in this report.

Recent Developments:

Recent Acquisitions

Long Island City, Queens, NY

On July 2, 2014, the Company acquired an 84,000 square foot parking lot in Long Island City, Queens, NY for $28.5 million that is leased to FedEx Ground. The acquisition was financed, in part, by means of a $13 million bridge loan with Capital One and the equity financed from the Company’s revolving credit facility. Permanent financing of $15.5 million closed in October 2014 with People’s United Bank and replaced the bridge loan. The permanent loan is for 10 years at 4.18% with interest only payments for the first seven years. Payments over the remaining three years of the term are based on a 25 year amortization schedule.

Norwalk, CT

On August 22, 2014, the Company acquired a 50,000 square foot distribution facility located on 2.9 acres of land in Norwalk, CT for $4.2 million. The purchase was financed from the Company’s revolving credit line facility with Capital One. The entire facility is leased to FedEx Corporation.

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Shelton, CT

On October 15, 2014, the Company acquired a 125,000 square foot industrial building in Shelton, CT for $9.5 million that is leased to Sikorsky Aircraft Corporation. The purchase was financed from the Company’s revolving credit line facility with Capital One.

Garden City, NY

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

Financial Condition and Results of Operations:

Three Months Ended September 30, 2014 vs. Three Months Ended September 30, 2013

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

Revenues

Revenues increased $0.9 million, or 9%, to $10.1 million for the three months ended September 30, 2014 from $9.3 million for the three months ended September 30, 2013. The increase is principally comprised of $0.8 million from the acquisitions of the Windsor Locks, CT property in April of 2014 and the Long Island City, NY and Norwalk, CT properties in the third quarter of 2014.

Operating Expenses

Operating expenses increased $0.3 million, or 6%, to $5.3 million for the three months ended September 30, 2014 from $5 million for the three months ended September 30, 2013. The increase is primarily due to the acquisition of four properties during 2014.

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Interest Expense

Interest expense increased $0.5 million or 22%, to $2.7 million for the three months ended September 30, 2014 from $2.2 million for the three months ended September 30, 2013. The increase is due to the assumption of debt for the Windsor Locks, CT property acquired in April 2014, the bridge loan for the Long Island City, NY property acquired in July 2014 and the equity financing for the four acquisitions in 2014 through the line of credit facility.

Acquisition Costs

Acquisition costs increased $0.5 million or 382% to $0.4 million for the three months ended September 30, 2014 from ($0.1) million for the three months ended September 30, 2013. The increase is due to the two properties acquired in the third quarter of 2014.

Loss from Discontinued Operations

Loss from discontinued operations was $0.1 million for the three months ended September 30, 2014 reflecting the wind down of former operating companies.

Nine Months Ended September 30, 2014 vs. Nine Months Ended September 30, 2013

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

Revenues

Revenues increased $3 million, or 12%, to $28.9 million for the nine months ended September 30, 2014 from $25.8 million for the nine months ended September 30, 2013. The increase is principally due to the 2014 results reflecting a full nine months of activity for the 25 properties acquired in January 2013 (“Acquired Properties”) and $1.1 million from the acquisitions of the Windsor Locks property in the second quarter of 2014 and the Long Island City, NY and Norwalk, CT properties in the third quarter of 2014. The 2013 results included activity from the January 17, 2013 acquisition effective date through September 30, 2013.

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Operating Expenses

Operating expenses increased $1 million, or 6%, to $17.7 million for the nine months ended September 30, 2014 from $16.7 million for the nine months ended September 30, 2013. The increase is primarily due to the 2014 results reflecting a full nine   months of activity for the Acquired Properties and the acquisitions of four properties in 2014. The 2013 results included activity from the January 17, 2013 acquisition effective date through September 30, 2013. Additionally, there was an increase in weather related property operating costs and compensation expense in 2014.

Interest Expense

Interest expense increased $0.9 million or 14%, to $7.2 million for the nine months ended September 30, 2014 from $6.3 million for the nine months ended September 30, 2013. The increase is principally due to the 2014 results reflecting a full nine months of activity for the Acquired Properties and the financing of four property acquisitions in the second and third quarters of 2014. The 2013 results included activity from the January 17, 2013 effective date through September 30, 2013.

Liquidity and Capital Resources

Our liquidity needs are and will continue to be satisfied through cash flows generated by operations and financing activities. Rental revenue, and expense recoveries from tenants are our principal sources of cash that we use to pay operating expenses, debt service, recurring capital expenditures and the distributions required to maintain our REIT status. We seek to increase cash flows from our buildings by maintaining quality standards for our buildings that promote high occupancy rates and permit increases in rental rates while reducing tenant turnover and controlling operating expenses. We believe that our revenue and use of our new revolving credit facility will continue to provide the funds necessary for our short-term liquidity needs.

Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, non-recurring capital expenditures and scheduled debt maturities. We intend to satisfy our long-term liquidity needs through cash flow from operations, use of our new revolving credit facility and long-term secured and unsecured borrowings and refinancings.

As of September 30, 2014 the outstanding balance on the Company’s revolving credit facility was $29.8 million.

Net Cash Flows:

Nine Months Ended September 30, 2014 vs. Nine Months Ended September 30, 2013

Operating Activities

Net cash provided by operating activities was $6.1 million and $3.3 million for the nine months ended September 30, 2014, and September 30, 2013, respectively. For the 2014 period, cash provided by operating activities included (i) income before depreciation and amortization of $3 million, (ii) an increase in depreciation and amortization of $6.1 million and (iii) an increase in stock based compensation of $0.3 million offset by (iv) increases in rental income in excess of amounts billed of $1.4 million, (v) increases in other assets of $0.5 million (vi) a decrease in other liabilities of $1.3 million and (vii) a decrease in accounts payable and accrued expenses of $0.1 million.

Investing Activities

Net cash used in investing activities was $44 million for the nine months ended September 30, 2014 and $2.2 million for the nine months ended September 30, 2013. For the 2014 period, cash used in investing activities was attributable to the acquisitions of four properties totaling approximately $40.7 million, $2.2 million in property improvements and $1.1 million in deal pursuit costs. For the 2013 period, cash used in investing activities were for property improvements and deal pursuit costs.

Financing Activities

Net cash provided by financing activities was $36.7 million and $3.8 million for the nine months ended September 30, 2014 and September 30, 2013, respectively. For the 2014 period, cash provided by financing activities included (i) proceeds of $29.8 million from our revolving credit facility and (ii) a $13 million bridge loan for the acquisition of the Long Island City, NY property offset by (iii) payments of the Company’s quarterly and supplemental dividends of $3.5 million, (iv) distributions to non-controlling interests of $1.8 million and (v) payments of mortgage principal of $0.8 million. For the 2013 period, cash provided by financing activities included (i) proceeds of $16.8 million in mortgage proceeds related to the financing of property acquisitions offset by (ii) repayment of the revolving credit facility of $5 million, (iii) payments of the Company’s quarterly and supplemental dividends of $4.6 million, (iv) distributions to non-controlling interests of $2.6 million, (v) payments of mortgage principal of $0.7 million and repurchases of common stock of $0.1 million.

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Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization)

EBITDA and Adjusted EBITDA are non-GAAP financial measures. Our EBITDA and Adjusted EBITDA computation may not be comparable to EBITDA and Adjusted EBITDA reported by other companies that interpret the definitions of EBITDA and Adjusted EBITDA differently than we do. Management believes EBITDA and Adjusted EBITDA to be meaningful measures of a REIT’s performance because they are widely followed by industry analysts, lenders and investors and are used by management as measures of performance. EBITDA and Adjusted EBITDA should be considered along with, but not as alternatives to, net income as measures of our operating performance.

Adjusted EBITDA allows investors to measure our operating performance independent of our capital structure and indebtedness. Additionally, acquisition related costs and discontinued operations expenses have been excluded from Adjusted EBITDA in order to assist with measuring core real estate operating performance.

The reconciliation of Net income (loss) to EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2014, and 2013, are as follows (in thousands):

Funds from Operations and Adjusted Funds from Operations

We consider Funds from Operations (“FFO”) and Adjusted Funds from Operations (“AFFO”), each of which are non-GAAP measures, to be additional measures of an equity REIT’s operating performance. We report FFO in addition to our net income (loss) and net cash provided by operating activities. Management has adopted the definition suggested by the National Association of Real Estate Investment Trusts (“NAREIT”) and defines FFO to mean net income (loss) computed in accordance with GAAP; excluding gains or losses from sales of property, excluding asset impairments, plus real estate-related depreciation and amortization and loss from discontinued operations.

Management considers FFO a meaningful, additional measure of operating performance because it primarily excludes the assumption that the value of our real estate assets diminishes predictably over time and industry analysts have accepted it as a performance measure. FFO is presented to assist investors in analyzing our performance. It is helpful as it excludes various items included in net income that are not indicative of our operating performance, such as gains or losses from sales of property and depreciation and amortization. We define Core Funds from Operations (“Core FFO”) as FFO plus acquisition costs.

However, FFO and Core FFO:

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FFO, Core FFO and AFFO as defined by us may not be comparable to similarly titled items reported by other real estate investment trusts due to possible differences in the application of the NAREIT definition used by such REITs. The following table provides a reconciliation of net loss in accordance with GAAP to FFO, Core FFO and AFFO for the three and nine months ended September 30, 2014 and 2013 (in thousands, except share and per share data):