ONE LIBERTY PROPERTIES INC - Quarter Report: 2012 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC   20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2012

 

OR

 

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

 

Commission File Number 001-09279

 

ONE LIBERTY PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

(516) 466-3100

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

 

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

 

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

 

As of August 1, 2012, the registrant had 14,822,416 shares of common stock outstanding.

 

 

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One Liberty Properties, Inc. and Subsidiaries

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		Page No.
Part I - Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets — June 30, 2012 and December 31, 2011	1
	Consolidated Statements of Income — Three and six months ended June 30, 2012 and 2011	2
	Consolidated Statements of Comprehensive Income — Three and six months ended June 30, 2012 and 2011	3
	Consolidated Statements of Changes in Equity — Six months ended June 30, 2012 and year ended December 31, 2011	4
	Consolidated Statements of Cash Flows — Six months ended June 30, 2012 and 2011	5
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
Part II — Other Information
Item 6.	Exhibits	30

 

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Part I — FINANCIAL INFORMATION

 

Item 1.    Financial Statements

 

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Par Value)

 

		June 30, 2012			December 31, 2011
		(Unaudited)
Assets
Real estate investments, at cost
Land		$	133,842		$	130,048
Buildings and improvements		329,931			320,593
Total real estate investments, at cost		463,773			450,641
Less accumulated depreciation		61,517			57,127
Real estate investments, net		402,256			393,514
Property contributed to joint venture		—			11,842
Properties held for sale, net (including related assets of $88 and $378, respectively)		2,732			7,718
Investment in unconsolidated joint ventures		17,334			5,093
Cash and cash equivalents		15,353			12,668
Unbilled rent receivable		13,094			12,426
Unamortized intangible lease assets		14,563			11,779
Escrow, deposits and other assets and receivables		3,742			3,252
Investment in BRT Realty Trust at market (related party)		241			235
Unamortized deferred financing costs		2,646			2,209
Total assets		$	471,961		$	460,736
Liabilities and Equity
Liabilities:
Mortgages and loan payable		$	209,807		$	198,879
Mortgages payable - property held for sale		6,923			6,970
Line of credit		19,600			20,000
Dividends payable		4,880			4,805
Accrued expenses and other liabilities		5,758			5,969
Unamortized intangible lease liabilities		4,955			5,166
Total liabilities		251,923			241,789
Commitments and contingencies		—			—
Equity:
One Liberty Properties, Inc. stockholders’ equity:
Preferred stock, $1 par value; 12,500 shares authorized; none issued		—			—
Common stock, $1 par value; 25,000 shares authorized; 14,378 and 14,213 shares issued and outstanding		14,378			14,213
Paid-in capital		191,796			189,486
Accumulated other comprehensive loss		(1,444		)	(1,019		)
Accumulated undistributed net income		14,836			15,605
Total One Liberty Properties, Inc. stockholders’ equity		219,566			218,285
Non-controlling interest in joint ventures		472			662
Total equity		220,038			218,947
Total liabilities and equity		$	471,961		$	460,736

 

See accompanying notes to consolidated financial statements.

 

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Amounts in Thousands, Except Per Share Data)

(Unaudited)

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2012			2011			2012			2011
Revenues:
Rental income, net		$	11,707		$	10,964		$	23,072		$	21,790
Operating expenses:
Depreciation and amortization		2,507			2,254			4,948			4,510
General and administrative (including $572, $697, $1,144 and $1,144, respectively, to related party)		1,796			1,903			3,686			3,502
Real estate acquisition costs		123			18			166			45
Real estate expenses (including $150, $150, $300 and $300, respectively, to related party)		679			615			1,306			1,159
Leasehold rent		77			77			154			154
Total operating expenses		5,182			4,867			10,260			9,370
Operating income		6,525			6,097			12,812			12,420
Other income and expenses:
Equity in earnings of unconsolidated joint ventures		384			105			453			135
Gain on settlement of debt		—			1,240			—			1,240
Other income		209			40			224			53
Interest:
Expense		(3,430		)	(3,224		)	(6,738		)	(6,755		)
Amortization of deferred financing costs		(192		)	(174		)	(381		)	(479		)
Gain on sale of real estate		—			—			319			—
Income from continuing operations		3,496			4,084			6,689			6,614
Discontinued operations:
Income from operations		53			126			85			328
Net gain on sale		2,205			932			2,205			932
Income from discontinued operations		2,258			1,058			2,290			1,260
Net income		5,754			5,142			8,979			7,874
Less net income attributable to non-controlling interests		(4		)	—			(7		)	—
Net income attributable to One Liberty Properties, Inc.		$	5,750		$	5,142		$	8,972		$	7,874
Weighted average number of common shares outstanding:
Basic		14,378			14,078			14,333			13,419
Diluted		14,478			14,178			14,433			13,469
Per common share attributable to common stockholders — basic:
Income from continuing operations		$	.24		$	.29		$	.45		$	.48
Income from discontinued operations		.15			.07			.16			.09
		$	.39		$	.36		$	.61		$	.57
Per common share attributable to common stockholders — diluted:
Income from continuing operations		$	.24		$	.28		$	.44		$	.48
Income from discontinued operations		.15			.07			.16			.09
		$	.39		$	.35		$	.60		$	.57
Cash distribution declared per share of common stock		$	.33		$	.33		$	.66		$	.66

 

See accompanying notes to consolidated financial statements.

 

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in Thousands)

(Unaudited)

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2012			2011			2012			2011
Net income		$	5,754		$	5,142		$	8,979		$	7,874
Other comprehensive income (loss)
Net unrealized (loss) gain on available-for-sale securities		(19		)	(8		)	11			(87		)
Net unrealized loss on derivative instruments		(401		)	(259		)	(412		)	(128		)
One Liberty Property’s share of joint venture net unrealized loss on derivative instruments		(35		)	(49		)	(24		)	(72		)
Other comprehensive income (loss)		(455		)	(316		)	(425		)	(287		)
Comprehensive income		5,299			4,826			8,554			7,587
Less: comprehensive income attributable to non-controlling interests		(4		)	—			(7		)	—
Comprehensive income attributable to One Liberty Properties, Inc.		$	5,295		$	4,826		$	8,547		$	7,587

 

See accompanying notes to consolidated financial statements.

 

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the six month period ended June 30, 2012 (Unaudited)

and the year ended December 31, 2011

(Amounts in Thousands, Except Per Share Data)

 

		Common Stock			Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Undistributed Net Income			Non-Controlling Interests in Joint Ventures			Total
Balances, January 1, 2011		$	11,212		$	147,158		$	(156	)	$	20,969		$	—		$	179,183
Distributions - common stock Cash - $1.32 per share		—			—			—			(19,088		)	—			(19,088		)
Shares issued in public offering - net of offering costs of $282		2,700			37,869			—			—			—			40,569
Shares issued through dividend reinvestment plan		255			3,496			—			—			—			3,751
Contribution from non-controlling interest		—			—			—			—			666			666
Restricted stock vesting		46			(46		)	—			—			—			—
Compensation expense - restricted stock		—			1,009			—			—			—			1,009
Net income		—			—			—			13,724			(4		)	13,720
Other comprehensive (loss)		—			—			(863		)	—			—			(863		)
Balances, December 31, 2011		14,213			189,486			(1,019		)	15,605			662			218,947
Distributions - common stock Cash - $.66 per share		—			—			—			(9,741		)	—			(9,741		)
Shares issued through dividend reinvestment plan		116			1,773			—			—			—			1,889
Contributions from non-controlling interests		—			—			—			—			93			93
Distribution to non-controlling interest		—			—			—			—			(290		)	(290		)
Restricted stock vesting		49			(49		)	—			—			—			—
Compensation expense - restricted stock		—			586			—			—			—			586
Net income		—			—			—			8,972			7			8,979
Other comprehensive (loss)		—			—			(425		)	—			—			(425		)
Balances, June 30, 2012		$	14,378		$	191,796		$	(1,444	)	$	14,836		$	472		$	220,038

 

See accompanying notes to consolidated financial statements.

 

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited)

 

		Six Months Ended June 30,
		2012			2011
Cash flows from operating activities:
Net income		$	8,979		$	7,874
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on settlement of debt		—			(1,240		)
Gain on sale of real estate		(2,524		)	(932		)
Gain on sale of available-for-sale securities		(9		)	—
Increase in rental income from straight-lining of rent		(671		)	(679		)
(Increase) decrease in rental income resulting from bad debt expense		(17		)	508
Decrease in rental income from amortization of intangibles relating to leases		4			47
Amortization of restricted stock expense		586			521
Equity in earnings of unconsolidated joint ventures		(453		)	(135		)
Distributions of earnings from unconsolidated joint ventures		236			199
Depreciation and amortization		5,076			4,711
Amortization and write off of financing costs		398			495
Changes in assets and liabilities:
Increase in escrow, deposits, other assets and receivables		(752		)	(693		)
Decrease in accrued expenses and other liabilities		(841		)	(887		)
Net cash provided by operating activities		10,012			9,789
Cash flows from investing activities:
Net proceeds from sale of real estate		7,048			11,544
Purchase of real estate and improvements		(16,516		)	(2,612		)
Investment in unconsolidated joint ventures		—			(669		)
Distributions of return of capital from unconsolidated joint ventures		84			23
Net proceeds from sale of available-for-sale securities		369			—
Net cash (used in) provided by investing activities		(9,015		)	8,286
Cash flows from financing activities:
Scheduled amortization payments of mortgages payable		(2,936		)	(2,750		)
Repayment of mortgages payable		—			(15,303		)
Proceeds from mortgage financings		13,817			2,000
Proceeds from common stock offering, net		—			40,569
Proceeds from bank line of credit		9,300			4,500
Repayment on bank line of credit		(9,700		)	(36,200		)
Issuance of shares through dividend reinvestment plan		1,889			1,843
Payment of financing costs		(819		)	(475		)
Capital contributions from non-controlling interests		93			—
Distribution to non-controlling interest		(290		)	—
Cash distributions to common stockholders		(9,666		)	(8,544		)
Net cash provided by (used in) financing activities		1,688			(14,360		)
Net increase in cash and cash equivalents		2,685			3,715
Cash and cash equivalents at beginning of period		12,668			7,732
Cash and cash equivalents at end of period		$	15,353		$	11,447

 

Continued on next page

 

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited) (Continued)

 

		Six Months Ended June 30,
		2012			2011
Supplemental disclosures of cash flow information:
Cash paid during the period for interest expense		$	6,874		$	7,131
Supplemental schedule of non-cash investing and financing activities:
Contribution of property to unconsolidated joint venture		11,734			—
Settlement of mortgage debt		—			1,259
Purchase accounting allocation - intangible lease assets		3,487			234
Purchase accounting allocation - intangible lease liabilities		11			612
Reclassification of real estate owned to property contributed to joint venture		—			11,842
Reclassification of real estate owned to properties held for sale		2,732			7,718
Reclassification of 2010 prepaid tenant improvement allowance to building improvements		—			1,750

 

See accompanying notes to consolidated financial statements.

 

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2012

 

Note 1 - Organization and Background

 

One Liberty Properties, Inc. (“OLP”) was incorporated in 1982 in Maryland.  OLP is a self-administered and self-managed real estate investment trust (“REIT”).  OLP acquires, owns and manages a geographically diversified portfolio of retail (including furniture and office supply stores), industrial, office, flex, health and fitness and other properties, a substantial portion of which are under long-term net leases.  As of June 30, 2012, OLP owned 92 properties, two of which are owned by consolidated joint ventures and one of which is a 50% tenancy in common interest.  OLP’s unconsolidated joint ventures owned a total of six properties. The 98 properties are located in 29 states.

 

Note 2 - Basis of Preparation

 

The accompanying interim unaudited consolidated financial statements as of June 30, 2012 and for the three and six months ended June 30, 2012 and 2011 reflect all normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the results for such interim periods. The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results for the full year.

 

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

 

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

 

With respect to its two consolidated joint ventures in which the Company has a 90% and 95% interest, the Company has determined that (i) such ventures are not variable interest entities and (ii) the Company exercises substantial operating control and accordingly, such ventures are consolidated for financial statement purposes.

 

In February 2012, the Company entered into a joint venture (see Note 4) and contributed its property located in Plano, Texas in exchange for a 90% equity interest therein. Current accounting guidance provides a framework for determining whether an entity is a variable interest entity (“VIE”) and if consolidation of an entity in which it owns an interest is appropriate. The Company has determined that this joint venture is a VIE; however, the Company is not the primary beneficiary since it does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance due to shared power of the parties to the VIE. Accordingly, the Company accounts for its investment in this joint venture under the equity method from the date of contribution.

 

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2012 (Continued)

 

Note 2  Basis of Preparation (Continued)

 

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

 

Certain amounts reported in previous consolidated financial statements have been reclassified in the accompanying consolidated financial statements to conform to the current period’s presentation, primarily to reclassify the transferred assets and liabilities of two properties that were sold in June 2012 and one property deemed held for sale at June 30, 2012 to properties held for sale at December 31, 2011 and to classify the operations of these properties to discontinued operations for all periods presented. In addition, the net book value of the Plano, Texas property that was contributed to a joint venture in February 2012 was reclassified from real estate investments to property contributed to joint venture at December 31, 2011. The accounting treatment presentation on the accompanying consolidated statements of income is to reflect the results of this property’s operations prospectively following its transfer to the joint venture as “equity in earnings of unconsolidated joint ventures” with no reclassification adjustments for discontinued operations.

 

Property management costs of $150,000 and $300,000 incurred under the compensation and services agreement were reclassified from general and administrative expenses to real estate operating expenses for the three and six months ended June 30, 2011.

 

These statements should be read in conjunction with the consolidated financial statements and related notes which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

Note 3 - Earnings Per Common Share

 

For the three and six months ended June 30, 2012 and 2011, basic earnings per share was determined by dividing net income allocable to common stockholders for the applicable period by the weighted average number of shares of common stock outstanding during such period. Net income is also allocated to the unvested restricted stock, during the applicable period as the restricted stock is entitled to receive dividends and is therefore considered a participating security.  Unvested restricted stock is not allocated net losses and/or any excess of dividends declared over net income; such amounts are allocated entirely to the common stockholders other than the holders of unvested restricted stock.  The restricted stock units awarded under the Pay-for-Performance program described in Note 11 are excluded from the

 

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2012 (Continued)

 

Note 3 - Earnings Per Common Share (Continued)

 

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.  For the three and six months ended June 30, 2012 and 2011, the diluted weighted average number of common shares also includes 100,000 shares of common stock underlying the restricted stock units awarded on September 14, 2010 under the Pay-For-Performance Program.  These 100,000 shares may vest upon satisfaction of the total stockholder return threshold based on the number of shares that would be issued based on the current market price and dividends paid at the end of each quarterly period assuming the end of that quarterly period was the end of the vesting period.  The remaining 100,000 shares of common stock underlying the restricted stock units awarded under the Pay-For-Performance Program are not included, as they did not meet the defined performance metric during the three and six months ended June 30, 2012 and 2011.

 

There were no options outstanding to purchase shares of common stock or other rights exercisable for, or convertible into, common stock during the three and six months ended June 30, 2012 and 2011.

 

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2012 (Continued)

 

Note 3 - Earnings Per Common Share (Continued)

 

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

 

		Three Months Ended June 30,									Six Months Ended June 30,
		2012				2011				2012				2011
Numerator for basic and diluted earnings per share:
Income from continuing operations		$		3,496		$	4,084			$		6,689		$	6,614
Less net income attributable to noncontrolling interests		(4			)	—				(7			)	—
Less earnings allocated to unvested shares		—				—				(270			)	(230		)
Income from continuing operations available for common stockholders		3,492				4,084				6,412				6,384
Discontinued operations		2,258				1,058				2,290				1,260
Net income available for common stockholders, basic and diluted		$		5,750		$	5,142			$		8,702		$	7,644
Denominator for basic earnings per share
- weighted average common shares		14,378				14,078				14,333				13,419
- weighted average unvested restricted stock shares (a)		409				348				—				—
		14,787				14,426				14,333				13,419
Effect of diluted securities
- restricted stock units awarded under Pay-for-Performance program		100				100				100				50
Denominator for diluted earnings per share
- weighted average shares		14,887				14,526				14,433				13,469
Earnings per common share, basic		$		.39		$	.36			$		.61		$	.57
Earnings per common share, diluted		$		.39		$	.35			$		.60		$	.57
Amounts attributable to One Liberty Properties, Inc. common stockholders, net of noncontrolling interests:
Income from continuing operations		$		3,492		$	4,084			$		6,682		$	6,614
Income from discontinued operations		2,258				1,058				2,290				1,260
Net income		$		5,750		$	5,142			$		8,972		$	7,874

 

(a)         The three months ended June 30, 2012 and 2011 include unvested restricted stock since the earnings are in excess of the distributions for such periods.

 

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2012 (Continued)

 

Note 4 - Investment in Unconsolidated Joint Ventures

 

In February 2012, the Company entered into a joint venture with an affiliate of Trammell Crow Company pursuant to which the venture contemplates re-developing a 6.2 acre site located in Plano, Texas into up to two Class A office buildings. The Company contributed this property to the joint venture in exchange for a 90% equity interest therein and Trammell Crow contributed $1,500,000 in exchange for a 10% equity interest therein which resulted in a $319,000 gain to the Company.  At June 30, 2012, the Company’s investment in this VIE, which includes the original basis of the property it contributed to the joint venture adjusted for the Company’s share of net income for the six months ended June 30, 2012, was $12,115,000, which represents its maximum exposure to loss.

 

The Company’s six unconsolidated joint ventures each own and operate one property.  At June 30, 2012 and December 31, 2011, the Company’s equity investment in unconsolidated joint ventures totaled $17,334,000 and $5,093,000, respectively. The Company recorded equity in earnings of $453,000 and $135,000 for the six months ended June 30, 2012 and 2011, respectively, and $384,000 and $105,000 for the three months ended June 30, 2012 and 2011, respectively. Equity in earnings for the three and six months ended June 30, 2012 includes the Company’s $233,000 equity share of income pertaining to the net settlement entered into with a former tenant.

 

Note 5 - Allowance for Doubtful Accounts

 

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its tenants to make required rent payments.  If the financial condition of a specific tenant were to deteriorate, resulting in an impairment of its ability to make payments, additional allowances may be required.  At June 30, 2012 and December 31, 2011, the balance in allowance for doubtful accounts was $318,000 and $335,000, respectively, recorded as a reduction to accounts receivable. The Company records bad debt expense as a reduction of rental income. For the three and six months ended June 30, 2012, the Company recorded bad debt expense of $(34,000) and $(17,000), respectively, which reflects collections of amounts previously recorded as bad debt expense from one tenant.  For the three and six months ended June 30, 2011, the Company recorded bad debt expense of $197,000 and $508,000, respectively.

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2012 (Continued)

 

Note 6 - Real Estate Acquisitions

 

The following chart details the Company’s real estate acquisitions during the six months ended June 30, 2012.

 

Description of Property		Date Acquired		Contract Purchase Price			Terms of Payment		Third Party Real Estate Acquisition Costs (a)
Urban Outfitters retail store, Lawrence, Kansas		February 7,2012		$	1,230,000		Cash		$	21,000
Three Applebee’s restaurants, Carrollton, Kennesaw and Cartersville, Georgia		March 12, 2012		8,568,000			Cash		81,000
Avalon Carpet Tile and Flooring, retail store and warehouse, Deptford, New Jersey		April 24, 2012		2,200,000			Cash and $2,040,000 mortgage (b)		—		(c)
Applebee’s restaurant, Lawrenceville, Georgia		May 17, 2012		2,340,000			Cash		18,000
Other				—					46,000
				$	14,338,000				$	166,000

 

(a)         Expensed in the accompanying consolidated statements of income.

(b)         The mortgage bears interest at 5% per annum through April 2017 and matures May 2022.

(c)          Owned by a consolidated joint venture in which the Company has a 95% interest.

The noncontrolling interest contributed $68,000 for its 5% equity interest.

Transaction costs of $90,000 incurred with this asset acquisition were capitalized.

 

All of the properties purchased by the Company during 2012 are 100% occupied and are each leased to a single tenant pursuant to a long term net lease.

 

As a result of the 2012 purchases, the Company recorded intangible lease assets of $3,487,000 and intangible lease liabilities of $11,000, representing the value of the acquired leases and origination costs.  As of June 30, 2012, the weighted average amortization period for the 2012 acquisitions is 18.8 years for the intangible lease assets and 8.8 years for the intangible lease liabilities. The Company assessed the fair value of the lease intangibles based on estimated cash flow projections that utilize appropriate discount rates and available market information. Such inputs are Level 3 (as defined in Note 12) in the fair value hierarchy. The Company is currently in the process of finalizing the purchase price allocations for the properties purchased in the three months ended June 30, 2012; therefore, these allocations are preliminary and subject to change.

 

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Table of Contents

 

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2012 (Continued)

 

Note 7 - Discontinued Operations and Properties Held for Sale

 

During 2012, the Company sold to unrelated parties, a property located in Florida and leased to Office Depot and a vacant property located in New York. The total sales price aggregated $7,048,000, net of closing costs, and the Company realized an aggregate gain of $2,205,000.

 

On July 12, 2012, the Company agreed to sell a property in New York City for $18,250,000 and anticipates that this sale will be completed by September 30, 2012. The Company estimates that the gain for financial statement purposes will be approximately $15 million. At June 30, 2012, this property had a net book value of $2,732,000, including related assets of $88,000, and was deemed held for sale.

 

The net gain from the two sold properties and the operations of the three properties are included in discontinued operations. The net book value of the three properties, including related assets of $378,000, was $7,718,000 at December 31, 2011 and is included in properties held for sale on the accompanying consolidated balance sheet.

 

During 2011, the Company sold one property, leased to Office Depot and located in California, to an unrelated party for $11,544,000, net of closing costs, and realized a gain of $932,000. This gain and the operations of this property are included in discontinued operations.

 

The following summarizes the components of income from discontinued operations (dollars in thousands):

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2012			2011			2012			2011
Rental income		$	270		$	396		$	546		$	895
Depreciation and amortization		68			90			137			201
Real estate expenses		41			63			100			131
Interest expense		108			117			224			235
Total expenses		217			270			461			567
Income from operations		53			126			85			328
Net gain on sale		2,205			932			2,205			932
Income from discontinued operations		$	2,258		$	1,058		$	2,290		$	1,260

 

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