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, 2019

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

Commission File Number 001-09279

ONE LIBERTY PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

MARYLAND		13-3147497
(State or other jurisdiction of		(I.R.S. employer
incorporation or organization)		identification number)

60 Cutter Mill Road, Great Neck, New York		11021
(Address of principal executive offices)		(Zip code)

(516) 466-3100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		OLP		New York Stock Exchange

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 every Interactive Data File required to be submitted 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 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, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer x

Non-accelerated filer o		Smaller reporting company x

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes o No o

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

Yes o No x

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

As of August 1, 2019, the registrant had 19,883,529 shares of common stock outstanding.

Table of Contents

Part I — FINANCIAL INFORMATION

Item 1. Financial Statements

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Par Value)

	June 30, 2019			December 31, 2018
	(Unaudited)
ASSETS
Real estate investments, at cost
Land	$	205,660		$	204,162
Buildings and improvements	645,442			624,981
Total real estate investments, at cost	851,102			829,143
Less accumulated depreciation	131,589			123,684
Real estate investments, net	719,513			705,459

Investment in unconsolidated joint ventures	10,724			10,857
Cash and cash equivalents	17,381			15,204
Restricted cash	337			1,106
Unbilled rent receivable	14,394			13,722
Unamortized intangible lease assets, net	26,001			26,541
Escrow, deposits and other assets and receivables	9,312			8,023
Total assets(1)	$	797,662		$	780,912

LIABILITIES AND EQUITY
Liabilities:
Mortgages payable, net of $4,352 and $4,298 of deferred financing costs, respectively	$	434,151		$	418,798
Line of credit, net of $156 and $312 of deferred financing costs, respectively	31,994			29,688
Dividends payable	8,923			8,724
Accrued expenses and other liabilities	15,437			11,094
Unamortized intangible lease liabilities, net	12,546			14,013
Total liabilities (1)	503,051			482,317

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; 19,139 and 18,736 shares issued and outstanding	19,139			18,736
Paid-in capital	296,840			287,250
Accumulated other comprehensive (loss) income	(2,196		)	1,890
Distributions in excess of net income	(20,401		)	(10,730		)
Total One Liberty Properties, Inc. stockholders’ equity	293,382			297,146
Non-controlling interests in consolidated joint ventures (1)	1,229			1,449
Total equity	294,611			298,595
Total liabilities and equity	$	797,662		$	780,912

(1) The Company’s consolidated balance sheets include assets and liabilities of consolidated variable interest entities (“VIEs”). See Note 7. The consolidated balance sheets include the following amounts related to the Company’s consolidated VIEs: $12,158 and $14,722 of land, $24,602 and $27,642 of building and improvements, net of $3,886 and $4,119 of accumulated depreciation, $3,781 and $3,931 of other assets included in other line items, $24,605 and $26,850 of real estate debt, net, $1,115 and $2,455 of other liabilities included in other line items and $1,229 and $1,449 of non-controlling interests as of June 30, 2019 and December 31, 2018, respectively.

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,
	2019			2018			2019			2018
Revenues:
Rental income, net	$	20,719		$	19,752		$	41,874		$	39,286

Operating expenses:
Depreciation and amortization	5,440			5,250			10,787			10,432
General and administrative (see Note 10 for related party information)	3,005			2,969			6,176			5,928
Real estate expenses (see Note 10 for related party information)	3,511			2,592			6,852			5,336
State taxes	108			154			187			227
Total operating expenses	12,064			10,965			24,002			21,923

Other operating income
Gain on sale of real estate, net	1,099			—			1,099			2,408
Operating income	9,754			8,787			18,971			19,771

Other income and expenses:
Equity in earnings (loss) of unconsolidated joint ventures	34			348			(82		)	543
Equity in earnings from sale of unconsolidated joint venture property	—			71			—			71
Other income	6			6			10			10
Interest:
Expense	(4,981		)	(4,445		)	(9,843		)	(8,747		)
Amortization and write-off of deferred financing costs	(255		)	(221		)	(487		)	(449		)

Net income	4,558			4,546			8,569			11,199

Net income attributable to non-controlling interests	(446		)	(29		)	(486		)	(831		)
Net income attributable to One Liberty Properties, Inc.	$	4,112		$	4,517		$	8,083		$	10,368

Weighted average number of common shares outstanding:
Basic	19,023			18,519			18,959			18,458
Diluted	19,129			18,593			19,060			18,532

Per common share attributable to common stockholders:
Basic	$	.20		$	.23		$	.39		$	.53
Diluted	$	.20		$	.23		$	.39		$	.53

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,
	2019			2018			2019			2018
Net income	$	4,558		$	4,546		$	8,569		$	11,199

Other comprehensive (loss) gain
Net unrealized (loss) gain on derivative instruments	(2,518		)	1,104			(4,095		)	3,800
Reclassification of One Liberty Properties Inc.’s share of joint venture net realized gain on derivative instrument	—			(110		)	—			(110		)
One Liberty Properties Inc.’s share of joint venture net unrealized gain on derivative instruments	—			22			—			76
Other comprehensive (loss) gain	(2,518		)	1,016			(4,095		)	3,766

Comprehensive income	2,040			5,562			4,474			14,965
Net income attributable to non-controlling interests	(446		)	(29		)	(486		)	(831		)
Adjustment for derivative instruments attributable to non- controlling interests	4			(2		)	9			(8		)

Comprehensive income attributable to One Liberty Properties, Inc.	$	1,598		$	5,531		$	3,997		$	14,126

See accompanying notes to consolidated financial statements.

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in Thousands, Except Per Share Data)

(Unaudited)

	Common Stock		Paid-in Capital			Accumulated Other Comprehensive Income (loss)			Accumulated distributions in excess of net income			Non-Controlling Interests in Consolidated Joint Ventures			Total
Balances, December 31, 2018	$	18,736	$	287,250		$	1,890		$	(10,730	)	$	1,449		$	298,595
Distributions — common stock Cash - $.45 per share	—		—			—			(8,832		)	—			(8,832		)
Restricted stock vesting	112		(112		)	—			—			—			—
Shares issued through equity offering program — net	37		1,002			—			—			—			1,039
Shares issued through dividend reinvestment plan	52		1,147			—			—			—			1,199
Distributions to non-controlling interests	—		—			—			—			(5		)	(5		)
Compensation expense — restricted stock	—		954			—			—			—			954
Net income	—		—			—			3,971			40			4,011
Other comprehensive loss	—		—			(1,572		)	—			(5		)	(1,577		)
Balances, March 31, 2019	18,937		290,241			318			(15,591		)	1,479			295,384
Distributions — common stock Cash - $.45 per share	—		—			—			(8,922		)	—			(8,922		)
Shares issued through equity offering program — net	143		4,132			—			—			—			4,275
Shares issued through dividend reinvestment plan	59		1,529			—			—			—			1,588
Distributions to non-controlling interests	—		—			—			—			(692		)	(692		)
Compensation expense — restricted stock	—		938			—			—			—			938
Net income	—		—			—			4,112			446			4,558
Other comprehensive loss	—		—			(2,514		)	—			(4		)	(2,518		)
Balances, June 30, 2019	$	19,139	$	296,840		$	(2,196	)	$	(20,401	)	$	1,229		$	294,611

See accompanying notes to consolidated financial statements.

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Amounts in Thousands, Except Per Share Data)

(Unaudited) (Continued)

	Common Stock		Paid-in Capital			Accumulated Other Comprehensive Income		Accumulated (distributions in excess of net income) undistributed net income			Non-Controlling Interests in Consolidated Joint Ventures			Total
Balances, December 31, 2017	$	18,261	$	275,087		$	155	$	3,257		$	1,742		$	298,502
Distributions — common stock
Cash - $.45 per share	—		—			—		(8,581		)	—			(8,581		)
Restricted stock vesting	106		(106		)	—		—			—			—
Shares issued through dividend reinvestment plan	50		1,131			—		—			—			1,181
Distributions to non-controlling interests	—		—			—		—			(1,082		)	(1,082		)
Compensation expense — restricted stock	—		826			—		—			—			826
Net income	—		—			—		5,851			802			6,653
Other comprehensive income	—		—			2,744		—			6			2,750
Balances, March 31, 2018	18,417		276,938			2,899		527			1,468			300,249
Distributions — common stock
Cash - $.45 per share	—		—			—		(8,652		)	—			(8,652		)
Shares issued through equity offering program — net	93		2,165			—		—			—			2,258
Shares issued through dividend reinvestment plan	65		1,437			—		—			—			1,502
Distributions to non-controlling interests	—		—			—		—			(77		)	(77		)
Compensation expense — restricted stock	—		856			—		—			—			856
Net income	—		—			—		4,517			29			4,546
Other comprehensive income	—		—			1,014		—			2			1,016
Balances, June 30, 2018	$	18,575	$	281,396		$	3,913	$	(3,608	)	$	1,422		$	301,698

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,
	2019			2018
Cash flows from operating activities:
Net income	$	8,569		$	11,199
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of real estate, net	(1,099		)	(2,408		)
Increase in unbilled rent receivable	(799		)	(537		)
Amortization and write-off of intangibles relating to leases, net	(509		)	(488		)
Amortization of restricted stock expense	1,892			1,682
Equity in loss (earnings) of unconsolidated joint ventures	82			(543		)
Equity in earnings from sale of unconsolidated joint venture property	—			(71		)
Distributions of earnings from unconsolidated joint ventures	41			88
Depreciation and amortization	10,787			10,432
Amortization and write-off of deferred financing costs	487			449
Payment of leasing commissions	(186		)	(95		)
Decrease in escrow, deposits, other assets and receivables	683			718
Decrease in accrued expenses and other liabilities	(1,637		)	(1,627		)
Net cash provided by operating activities	18,311			18,799

Cash flows from investing activities:
Purchase of real estate	(26,978		)	(18,452		)
Improvements to real estate	(2,335		)	(5,991		)
Net proceeds from sale of real estate	5,314			8,958
Distributions of capital from unconsolidated joint venture	11			—
Net cash used in investing activities	(23,988		)	(15,485		)

Cash flows from financing activities:
Scheduled amortization payments of mortgages payable	(6,433		)	(5,313		)
Repayment of mortgages payable	(1,705		)	(9,827		)
Proceeds from mortgage financings	23,545			13,550
Proceeds from sale of common stock, net	5,314			2,258
Proceeds from bank line of credit	33,650			25,000
Repayment on bank line of credit	(31,500		)	(14,100		)
Issuance of shares through dividend reinvestment plan	2,787			2,683
Payment of financing costs	(382		)	(262		)
Distributions to non-controlling interests	(697		)	(1,159		)
Cash distributions to common stockholders	(17,555		)	(17,074		)
Net cash provided by (used in) financing activities	7,024			(4,244		)

Net increase (decrease) in cash, cash equivalents and restricted cash	1,347			(930		)
Cash, cash equivalents and restricted cash at beginning of year	16,733			14,668
Cash, cash equivalents and restricted cash at end of period	$	18,080		$	13,738

Supplemental disclosure of cash flow information:
Cash paid during the period for interest expense	$	9,912		$	8,721
Supplemental disclosure of non-cash investing activity:
Right of use asset and related lease liability	4,381			—
Purchase accounting allocation — intangible lease assets	1,753			—
Purchase accounting allocation — intangible lease liabilities	(305		)	—

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, 2019

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 consisting primarily of industrial, retail, restaurant, health and fitness, and theater properties, many of which are subject to long-term net leases. As of June 30, 2019, OLP owns 126 properties, including four properties owned by consolidated joint ventures and four properties owned by unconsolidated joint ventures. The 126 properties are located in 31 states.

Note 2 — Summary Accounting Policies

Principles of Consolidation/Basis of Preparation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and include all of the information and disclosures required by U.S. Generally Accepted Accounting Principles (“GAAP”) for interim reporting. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statement disclosures. In the opinion of management, all adjustments of a normal recurring nature necessary for fair presentation have been included. The results of operations for the three and six months ended June 30, 2019 and 2018 are not necessarily indicative of the results for the full year. These statements should be read in conjunction with the consolidated financial statements and related notes included in OLP’s Annual Report on Form 10-K for the year ended December 31, 2018.

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

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

Investment in Joint Ventures and Variable Interest Entities

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

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 2 — Summary Accounting Policies (Continued)

The Company assesses the accounting treatment for each of its investments, including a review of each venture or limited liability company or partnership agreement, to determine the rights of each party and whether those rights are protective or participating. The agreements typically contain certain protective rights, such as the requirement of partner approval to sell, finance or refinance the property and to pay capital expenditures and operating expenditures outside of the approved budget or operating plan. In situations where, among other things, the Company and its partners jointly (i) approve the annual budget, (ii) approve certain expenditures, (iii) prepare or review and approve the joint venture’s tax return before filing, and (iv) approve each lease at a property, the Company does not consolidate as the Company considers these to be substantive participation rights that result in shared, joint power over the activities that most significantly impact the performance of the joint venture or property. Additionally, the Company assesses the accounting treatment for any interests pursuant to which the Company may have a variable interest as a lessor. Leases may contain certain protective rights, such as the right of sale and the receipt of certain escrow deposits.

The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting. All investments in unconsolidated joint ventures have sufficient equity at risk to permit the entity to finance its activities without additional subordinated financial support and, as a group, the holders of the equity at risk have power through voting rights to direct the activities of these ventures. As a result, none of these joint ventures are VIEs. In addition, the Company shares power with its co-managing members 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.

The Company periodically reviews its investments in unconsolidated joint ventures for other-than-temporary losses in investment value. Any decline that is not expected to be recovered based on the underlying assets of the investment is considered other than temporary and an impairment charge is recorded as a reduction in the carrying value of the investment. During the three and six months ended June 30, 2019 and 2018, there were no impairment charges related to the Company’s investments in unconsolidated joint ventures.

The Company has elected to follow the cumulative earnings approach when assessing, for the consolidated statement of cash flows, whether the distribution from the investee is a return of the investor’s investment as compared to a return on its investment. The source of the cash generated by the investee to fund the distribution is not a factor in the analysis (that is, it does not matter whether the cash was generated through investee refinancing, sale of assets or operating results). Consequently, the investor only considers the relationship between the cash received from the investee to its equity in the undistributed earnings of the investee, on a cumulative basis, in assessing whether the distribution from the investee is a return on or a return of its investment. Cash received from the unconsolidated entity is presumed to be a return on the investment to the extent that, on a cumulative basis, distributions received by the investor are less than its share of the equity in the undistributed earnings of the entity.

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 3 - Leases

As of January 1, 2019, the Company adopted ASU No. 2016-02, Leases, ASU No. 2018-11, Leases (Topic 842), Targeted Improvements, and ASU No. 2018-10, Codification Improvements to Topic 842, Leases, using the modified retrospective approach and elected the package of practical expedients that allows an entity to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases. Upon adoption, there was no cumulative-effect adjustment to retained earnings as of January 1, 2019.

As Lessor

The Company owns rental properties which are leased to tenants under operating leases with current expirations ranging from 2019 to 2055, with options to extend or terminate the lease or purchase the property exercisable at the option of our tenants. Revenues from such leases are reported as Rental income, net and are comprised of (i) lease components, which includes fixed and variable lease payments and (ii) non-lease components which includes reimbursements of property level operating expenses. The Company adopted the practical expedient offered in ASU No. 2018-11 which allows lessors to not separate non-lease components from the related lease components, as the timing and pattern of transfer are the same, and account for the combined component in accordance with ASC 842.

Fixed lease revenues represent the base rent that each tenant is required to pay in accordance with the terms of their respective leases reported on a straight-line basis over the non-cancelable term of the lease. Variable lease revenues include payments based on (i) tenant reimbursements, (ii) changes in the index or market-based indices after the inception of the lease, (iii) percentage rents or (iv) the operating performance of the property. Variable lease revenues are not recognized until the specific events that trigger the variable payments have occurred.

The components of lease revenues are as follows (amounts in thousands):

	Three Months Ended		Six Months Ended
	June 30, 2019
Fixed lease revenues	$	17,435	$	35,080
Variable lease revenues	3,029		6,285
Lease revenues (a)	$	20,464	$	41,365

(a) Excludes $255 and $509 of amortization related to lease intangible assets and liabilities for the three and six months ended June 30, 2019, respectively.

On a quarterly basis, the Company assesses the collectability of substantially all lease payments due under its leases, including unbilled rent receivable balances, by reviewing the tenant’s payment history and financial condition. Changes to such collectability is recognized as a current period adjustment to rental revenue. The Company has assessed the collectability of all lease payments as probable as of June 30, 2019.

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 3 — Leases (Continued)

In many of the Company’s leases, the tenant is obligated to pay the real estate taxes, insurance, and certain other expenses directly to the vendor. These obligations, which have been assumed by the tenants, are not reflected in our consolidated financial statements. To the extent any such tenant defaults on its lease or if it is deemed probable that the tenant will fail to pay for such obligations, a liability for such obligations would be recorded.

As a lessor, the adoption of ASU No. 2016-02, and the related accounting guidance, did not have a material impact on the consolidated financial statements. As a result of the adoption, the Company combined $2,034,000 and $3,978,000 from its Tenant reimbursements line item into Rental income, net, on its consolidated statements of income for the three and six months ended June 30, 2018, respectively.

Minimum Future Rents

As of June 30, 2019, under ASC 842, the minimum future contractual rents to be received on non-cancellable operating leases are included in the table below (amounts in thousands). The minimum future contractual rents do not include (i) straight-line rent or amortization of intangibles and (ii) variable lease payments as described above.

From July 1 — December 31, 2019	$	34,397
For the year ended December 31,
2020	69,303
2021	67,852
2022	59,260
2023	50,456
2024	41,992
Thereafter	172,261
Total	$	495,521

As of December 31, 2018, under ASC 840, the minimum future contractual rents to be received on non-cancellable operating leases were as follows (amounts in thousands):

For the year ended December 31,
2019	$	66,959
2020	66,691
2021	65,130
2022	56,444
2023	47,644
Thereafter	208,923
Total	$	511,791

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 3 — Leases (Continued)

As Lessee

The Company is a lessee under a ground lease in Greensboro, North Carolina, which is classified as an operating lease. The lease expires March 3, 2020 and provides for up to five, 5-year renewal options and one seven-month renewal option. On January 1, 2019, upon adoption of ASC 842, the Company recorded a $4,381,000 liability for the obligation to make payments under the lease and a $4,381,000 asset for the right to use the underlying asset during the lease term which were included in other liabilities and other assets, respectively, on the consolidated balance sheet. Lease payments associated with renewal option periods that the Company determined were reasonably certain to be exercised are included in the measurement of the lease liability and right of use asset. The Company applied a discount rate of 4.75%, based on its incremental borrowing rate given the term of the lease, as the rate implicit in the lease is not known. As of June 30, 2019, the remaining lease term is 10.7 years. During the three and six months ended June 30, 2019, the Company recognized $131,000 and $262,000, respectively, of lease expense related to this ground lease which is included in Real estate expenses on the consolidated statements of income.

Minimum Future Lease Payments

As of June 30, 2019, under ASC 842, the minimum future lease payments related to this operating ground lease are as follows (amounts in thousands):

From July 1 — December 31, 2019	$	224
For the year ended December 31,
2020	464
2021	464
2022	464
2023	464
2024	512
Thereafter	3,086
Total undiscounted cash flows	$	5,678
Present value discount	(1,398		)
Lease liability	$	4,280

As of December 31, 2018, under ASC 840, the minimum future lease payments related to this operating ground lease were $371,000 through July 2019 and $464,000 through March 3, 2020.

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 4 — Earnings Per Common Share

Basic earnings per share was determined by dividing net income allocable to common stockholders for each period by the weighted average number of shares of common stock outstanding during the applicable period. Net income is also allocated to the unvested restricted stock outstanding during each period, as the restricted stock is entitled to receive dividends and is therefore considered a participating security. As of June 30, 2019, the shares of common stock underlying the restricted stock units (the “RSUs”) awarded under the 2016 Incentive Plan are excluded from the basic earnings per share calculation, as these units are not participating securities.

Diluted earnings per share reflects the potential dilution that could occur if securities or other rights exercisable for, or convertible into, common stock were exercised or converted or otherwise resulted in the issuance of common stock that shared in the earnings of the Company.

The following table identifies the number of shares of common stock underlying the RSUs that are included in determining the diluted weighted average number of shares of common stock:

		Three and Six Months Ended June 30, 2019 (b)			Three and Six Months Ended June 30, 2018 (c)
Date of Award and Total Number of Underlying Shares (a)		Return on Capital metric	Stockholder Return metric	Total	Return on Capital metric	Stockholder Return metric	Total
September 26, 2017
76,250 shares	(d)	32,824	38,125	70,949	36,120	38,125	74,245
July 1, 2018
76,250 shares	(e)	29,771	38,125	67,896	n/a	n/a	n/a
		62,595	76,250	138,845	36,120	38,125	74,245

(a) The RSUs awarded in 2017 and 2018 vest, subject to satisfaction of the applicable market and/or performance conditions, on June 30, 2020 and 2021, respectively.

(b) Reflects the number of shares underlying RSUs that would be issued assuming the measurement date used to determine whether the applicable conditions are satisfied is June 30, 2019.

(c) Reflects the number of shares underlying RSUs that would be issued assuming the measurement date used to determine whether the applicable conditions are satisfied is June 30, 2018.

(d) None of the remaining 5,301 shares and 2,005 shares are included at June 30, 2019 and 2018, respectively, as the applicable condition had not been met for these shares at the respective measurement dates.

(e) None of the remaining 8,354 shares are included at June 30, 2019, as the applicable conditions had not been met for these shares at the measurement date.

See Note 13 for information regarding the Company’s equity incentive plans.

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 4 — Earnings Per Common Share (Continued)

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Numerator for basic and diluted earnings per share:
Net income	$	4,558		$	4,546		$	8,569		$	11,199
Less net income attributable to non-controlling interests	(446		)	(29		)	(486		)	(831		)
Less earnings allocated to unvested restricted stock (a)	(310		)	(293		)	(620		)	(586		)
Net income available for common stockholders: basic and diluted	$	3,802		$	4,224		$	7,463		$	9,782

Denominator for basic earnings per share:
Weighted average number of common shares	19,023			18,519			18,959			18,458
Effect of diluted securities:
RSUs	106			74			101			74
Denominator for diluted earnings per share:
Weighted average number of shares	19,129			18,593			19,060			18,532

Earnings per common share, basic	$	.20		$	.23		$	.39		$	.53
Earnings per common share, diluted	$	.20		$	.23		$	.39		$	.53

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

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 5 — Real Estate Acquisitions

The following chart details the Company’s acquisitions of real estate during the six months ended June 30, 2019 (amounts in thousands):

Description of Property	Date Acquired	Contract Purchase Price		Terms of Payment	Capitalized Third Party Real Estate Acquisition Costs
Zwanenberg Food Group/Metro Carpets industrial facility,
Nashville, Tennessee	May 30, 2019	$	8,000	All cash (a)	$	77
Echo, Inc. industrial facility,
Wauconda, Illinois	May 30, 2019	3,800		All cash	26
Tinicum Mechanical Supply/Philly Motors industrial facility,
Bensalem, Pennsylvania	June 18, 2019	6,200		All cash	168
International Flora Technologies industrial facility,
Chandler, Arizona	June 26, 2019	8,650		All cash	57
Totals		$	26,650		$	328

(a) In July 2019, the Company obtained new mortgage debt of $5,200.

The Company determined that with respect to each of these acquisitions, the gross assets acquired are concentrated in a single identifiable asset. Therefore, these transactions do not meet the definition of a business and are accounted for as asset acquisitions. As such, direct transaction costs associated with these asset acquisitions have been capitalized to real estate assets and depreciated over their respective useful lives.

The following chart details the allocation of the purchase price for the Company’s acquisitions of real estate during the six months ended June 30, 2019 (amounts in thousands):

					Building		Intangible Lease
Description of Property	Land		Building		Improvements		Asset		Liability			Total
Zwanenberg Food Group/Metro Carpets industrial facility,
Nashville, Tennessee	$	1,058	$	6,280	$	70	$	750	$	(81	)	$	8,077
Echo, Inc. industrial facility,
Wauconda, Illinois	67		3,283		141		339		(4		)	3,826
Tinicum Mechanical Supply/Philly Motors industrial facility,
Bensalem, Pennsylvania	1,602		4,285		37		664		(220		)	6,368
International Flora Technologies industrial facility,
Chandler, Arizona	1,334		7,152		221		—		—			8,707
Totals	$	4,061	$	21,000	$	469	$	1,753	$	(305	)	$	26,978

On July 24, 2019, the Company purchased an industrial property in LaGrange, Georgia for $5,200,000.

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 7 — Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures (Continued)

The following chart details the VIEs through the Company’s ground leases and the aggregate carrying amount and maximum exposure to loss as of June 30, 2019 (dollars in thousands):

Description of Property(a)	Date Acquired	Land Contract Purchase Price		# Units in Apartment Complex	Owner/ Operator Mortgage from Third Party(b)		Type of Exposure	Carrying Amount and Maximum Exposure to Loss
The Briarbrook Village Apartments,
Wheaton, Illinois	August 2, 2016	$	10,530	342	$	39,411	Land	$	10,536
The Vue Apartments,
Beachwood, Ohio	August 16, 2016	13,896		348	67,444		Land	13,901
Totals		$	24,426	690	$	106,855		$	24,437

(a) Simultaneously with each purchase, the Company entered into a triple net ground lease with affiliates of Strategic Properties of North America, the owner/operators of these properties.

(b) Simultaneously with the closing of each acquisition, the owner/operator obtained a mortgage from a third party which, together with the Company’s purchase of the land, provided substantially all of the funds to acquire the complex. The Company provided its land as collateral for the respective owner/operator’s mortgage loans; accordingly, each land position is subordinated to the applicable mortgage. No other financial support has been provided by the Company to the owner/operator.

Pursuant to the terms of the ground lease for the Wheaton, Illinois property, the owner/operator is obligated to make certain unit renovations as and when units become vacant. Cash reserves to cover such renovation work, received by the Company in conjunction with the purchase of the property, are disbursed when the unit renovations are completed. The related cash reserve balance for this property was $337,000 and $356,000 at June 30, 2019 and December 31, 2018, respectively, and is classified as Restricted cash on the consolidated balance sheets. The Restricted cash balance at December 31, 2018 also included, pursuant to a lease amendment, an escrow deposit of $750,000 from the owner/operator of the Beachwood, Ohio property and was paid in January 2019.

Variable Interest Entity — Consolidated Joint Ventures

The Company has determined that the four consolidated joint ventures in which it holds between a 90% to 95% interest are VIEs because the non-controlling interests do not hold substantive kick-out or participating rights. The Company has determined it is the primary beneficiary of these VIEs as it has the power to direct the activities that most significantly impact each joint venture’s performance including management, approval of expenditures, and the obligation to absorb the losses or rights to receive benefits. Accordingly, the Company consolidates the operations of these VIEs for financial statement purposes. The VIEs’ creditors do not have recourse to the assets of the Company other than those held by these joint ventures.

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 7 — Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures (Continued)

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

	June 30, 2019			December 31, 2018 (a)
Land	$	12,158		$	14,722
Buildings and improvements, net of accumulated depreciation of $3,886 and $4,119, respectively	24,602			27,642
Cash	1,177			1,020
Unbilled rent receivable	1,248			1,211
Unamortized intangible lease assets, net	810			890
Escrow, deposits and other assets and receivables	546			810
Mortgages payable, net of unamortized deferred financing costs of $344 and $391, respectively	24,605			26,850
Accrued expenses and other liabilities	485			761
Unamortized intangible lease liabilities, net	630			1,694
Accumulated other comprehensive (loss) income	(66		)	31
Non-controlling interests in consolidated joint ventures	1,229			1,449

(a) Includes a consolidated joint venture, in which the Company held a 90% interest located in Clemmons, North Carolina which was sold in June 2019 (see Note 6).

MCB Real Estate, LLC and its affiliates (‘‘MCB’’) are the Company’s joint venture partner in three and four consolidated joint ventures at June 30, 2019 and December 31, 2018, respectively, in which the Company has aggregate equity investments of approximately $7,833,000 and $9,891,000, respectively.

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

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 8 — Investment in Unconsolidated Joint Ventures

The Company participates in four unconsolidated joint ventures, each of which owns and operates one property. At June 30, 2019 and December 31, 2018, the Company’s equity investment in these ventures totaled $10,724,000 and $10,857,000, respectively. The Company recorded equity in earnings of $34,000 and equity in loss of $82,000 for the three and six months ended June 30, 2019, respectively, and, in addition to the equity in earnings from the sale of property of $71,000 in 2018, equity in earnings of $348,000 and $543,000 for the three and six months ended June 30, 2018, respectively. Included in equity in earnings from unconsolidated joint ventures for the three and six months ended June 30, 2018 is $110,000 related to the discontinuance of hedge accounting on a mortgage swap related to an unconsolidated joint venture property, located in Milwaukee, Wisconsin, that was sold in July 2018 (see Note 14).

At June 30, 2019 and December 31, 2018, MCB and the Company are partners in an unconsolidated joint venture in which the Company’s equity investment is approximately $8,893,000 and $9,087,000, respectively.

Note 9 — Debt Obligations

Mortgages Payable

The following table details the Mortgages payable, net, balances per the consolidated balance sheets (amounts in thousands):

	June 30, 2019			December 31, 2018
Mortgages payable, gross	$	438,503		$	423,096
Unamortized deferred financing costs	(4,352		)	(4,298		)
Mortgages payable, net	$	434,151		$	418,798

Line of Credit

On July 1, 2019, the Company amended its credit facility with Manufacturers & Traders Trust Company, People’s United Bank, VNB New York, LLC, and Bank Leumi USA, which among other things, extended the facility’s maturity to December 31, 2022 from December 31, 2019. In connection with the amendment, the Company incurred a $550,000 commitment fee which will be amortized over the remaining term of the facility. The Company can borrow up to $100,000,000, subject to borrowing base requirements. The Company’s interest rate is the one month LIBOR rate plus an applicable margin ranging from 175 basis points to 300 basis points depending on the ratio of the Company’s total debt to total value, as determined pursuant to the facility. At June 30, 2019 and 2018, the applicable margin was 200 and 175 basis points, respectively. An unused facility fee of .25% per annum applies to the facility. The average interest rate on the facility was approximately 4.22% and 3.54% for the six months ended June 30, 2019 and 2018, respectively. The Company was in compliance with all covenants at June 30, 2019.

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 9 — Debt Obligations (Continued)

The following table details the Line of credit, net, balances per the consolidated balance sheets (amounts in thousands):

	June 30, 2019			December 31, 2018
Line of credit, gross	$	32,150		$	30,000
Unamortized deferred financing costs	(156		)	(312		)
Line of credit, net	$	31,994		$	29,688

At August 2, 2019, there was an outstanding balance of $30,350,000 (before unamortized deferred financing costs) under the facility.

Note 10 — Related Party Transactions

Compensation and Services Agreement

Pursuant to the compensation and services agreement with Majestic Property Management Corp. (“Majestic”), Majestic provides the Company with the services of executive, administrative, legal, accounting, clerical and property management personnel, as well as property acquisition, sale and lease consulting and brokerage services, consulting services with respect to mortgage financings and construction supervisory services (collectively, the “Services”). Majestic is wholly-owned by the Company’s vice-chairman and certain of the Company’s executive officers are officers of, and are compensated by, Majestic. The amount the Company pays Majestic for the Services is approved each year by the Compensation and/or Audit Committees of the Company’s Board of Directors, and the independent directors.

In consideration for the Services, the Company paid Majestic $702,000 and $1,405,000 for the three and six months ended June 30, 2019, respectively, and $689,000 and $1,367,000 for the three and six months ended June 30, 2018, respectively. Included in these fees are $322,000 and $646,000 of property management costs for the three and six months ended June 30, 2019, respectively, and $309,000 and $608,000 for the three and six months ended June 30, 2018, respectively. The amounts paid pursuant to the property management portion of the compensation and services agreement is paid based on 1.5% and 2.0% of the rental payments (including tenant reimbursements) actually received by the Company from net lease tenants and operating lease tenants, respectively. The Company does not pay Majestic with respect to properties managed by third parties. Majestic credits against the amounts due to it under the compensation and services agreement any management or other net payments received by it from any joint venture in which the Company is a joint venture partner. The Company also paid Majestic, pursuant to the compensation and services agreement, $54,000 and $108,000 in the three and six months ended June 30, 2019 and 2018, respectively, for the Company’s share of all direct office expenses, including rent, telephone, postage, computer services, internet usage and supplies. The Company does not pay Majestic for any services except as described in this paragraph.

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 11 — Common Stock Cash Dividend

On June 13, 2019, the Board of Directors declared a quarterly cash dividend of $.45 per share on the Company’s common stock, totaling approximately $8,923,000. The quarterly dividend was paid on July 9, 2019 to stockholders of record on June 25, 2019.

Note 12 — Shares Issued through Equity Offering Program

During the three months ended June 30, 2019, the Company sold 143,120 shares for proceeds of $4,308,000, net of commissions of $44,000, and incurred offering costs of $33,000 for professional fees. During the six months ended June 30, 2019, the Company sold 180,120 shares for proceeds of $5,392,000, net of commissions of $54,000, and incurred offering costs of $78,000 for professional fees.

Note 13 — Stock Based Compensation

The Company’s 2019 Incentive Plan (‘‘Plan’’), approved by the Company’s stockholders in June 2019, permits the Company to grant, among other things, stock options, restricted stock, RSUs, performance share awards and dividend equivalent rights and any one or more of the foregoing to its employees, officers, directors and consultants. A maximum of 750,000 shares of the Company’s common stock is authorized for issuance pursuant to this Plan. An aggregate of 841,650 shares of restricted stock and restricted stock units are outstanding under the Company’s 2016 and 2012 equity incentive plans (collectively, the “Prior Plans”) and have not yet vested. No additional awards may be granted under the Prior Plans.

For accounting purposes, the restricted stock is not included in the shares shown as outstanding on the balance sheet until they vest; however, dividends are paid on the unvested shares. The restricted stock grants are charged to General and administrative expense over the respective vesting periods based on the market value of the common stock on the grant date. Unless earlier forfeited because the participant’s relationship with the Company terminated, unvested restricted stock awards vest on the fifth anniversary of the grant date, and under certain circumstances, may vest earlier.

In 2017, 2018 and in July 2019, the Company granted RSUs exchangeable for up to 76,250, 76,250 and 77,776 shares, respectively, of common stock upon satisfaction, through June 30, 2020, June 30, 2021 and June 30, 2022, respectively, of specified conditions. Specifically, up to 50% of these RSUs vest upon achievement of metrics related to average annual total stockholder return (the “TSR Awards”), which metrics meet the definition of a market condition, and up to 50% vest upon achievement of metrics related to average annual return on capital (the “ROC Awards”), which metrics meet the definition of a performance condition. The holders of the RSUs are not entitled to dividends or to vote the underlying shares until such RSUs vest and shares are issued. Accordingly, the shares underlying these RSUs are not included in the shares shown as outstanding on the balance sheet. For the TSR awards, a third party appraiser prepared a Monte Carlo simulation pricing model to determine the fair value, which is recognized ratably over the service period. For the ROC Awards, the fair value is based on the market value on the date of grant and the performance assumptions are re-evaluated quarterly.

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 13 — Stock Based Compensation (Continued)

Expense is not recognized on the RSUs which the Company does not expect to vest as a result of the Company’s performance expectations.

As of June 30, 2019, based on performance and market assumptions, the fair value of the RSUs granted in 2017 and 2018 is $781,000 and $853,000, respectively. Recognition of such deferred compensation expense will be charged to General and administrative expense over the respective three year performance cycle. None of these RSUs were forfeited or vested during the six months ended June 30, 2019.

The following is a summary of the activity of the equity incentive plans:

	Three Months Ended June 30,			Six Months Ended June 30,
	2019	2018		2019			2018
Restricted stock grants:
Number of shares	—	—		150,050			144,750
Average per share grant price	—	—		$	25.70		$	25.31
Deferred compensation to be recognized over vesting period	—	—		$	3,856,000		$	3,664,000

Number of non-vested shares:
Non-vested beginning of period	689,150	651,650		651,250			612,900
Grants	—	—		150,050			144,750
Vested during period	—	—		(112,150		)	(106,000		)
Forfeitures	—	(150	)	—			(150		)
Non-vested end of period	689,150	651,500		689,150			651,500

RSU grants:
Number of underlying shares	—	—		—			—
Average per share grant price	—	—		—			—
Deferred compensation to be recognized over vesting period	—	—		—			—

Number of non-vested shares:
Non-vested beginning of period	152,500	76,250		152,500			76,250
Grants	—	—		—			—
Vested during period	—	—		—
Forfeitures	—	—		—			—
Non-vested end of period	152,500	76,250		152,500			76,250

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 13 — Stock Based Compensation (Continued)

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Restricted stock and RSU grants:
Weighted average per share value of non- vested shares (based on grant price)	$	24.60	$	23.56	$	24.60	$	23.56
Value of stock vested during the period (based on grant price)	$	—	$	—	$	2,304,000	$	2,289,000
Weighted average per share value of shares forfeited during the period based on grant price)	$	—	$	23.93	$	—	$	23.93

The total charge to operations:
Outstanding restricted stock grants	$	843,000	$	765,000	$	1,686,000	$	1,500,000
Outstanding RSUs	95,000		91,000		206,000		182,000
Total charge to operations	$	938,000	$	856,000	$	1,892,000	$	1,682,000

As of June 30, 2019, total compensation costs of $8,985,000 and $851,000 related to non-vested restricted stock awards and RSUs, respectively, have not yet been recognized.

These compensation costs will be charged to General and administrative expense over the remaining respective vesting periods. The weighted average remaining vesting period is 2.6 years for the restricted stock and 1.5 years for the RSUs.

Note 14 — Fair Value Measurements

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

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

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 14 — Fair Value Measurements (Continued)

At June 30, 2019, the $446,700,000 estimated fair value of the Company’s mortgages payable is more than their $438,503,000 carrying value (before unamortized deferred financing costs) by approximately $8,197,000 assuming a blended market interest rate of 4.0% based on the 8.2 year weighted average remaining term to maturity of the mortgages. At December 31, 2018, the $420,396,000 estimated fair value of the Company’s mortgages payable is less than their $423,096,000 carrying value (before unamortized deferred financing costs) by approximately $2,700,000 assuming a blended market interest rate of 4.41% based on the 8.7 year weighted average remaining term to maturity of the mortgages.

At June 30, 2019 and December 31, 2018, the carrying amount of the Company’s line of credit (before unamortized deferred financing costs) of $32,150,000 and $30,000,000, respectively, approximates its fair value.

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

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

Fair Value on a Recurring Basis

The fair value of the Company’s derivative financial instruments, using Level 2 inputs, was determined to be the following (amounts in thousands):

	As of	Carrying and Fair Value
Financial assets:
Interest rate swaps	June 30, 2019	$	126
	December 31, 2018	2,399
Financial liabilities:
Interest rate swaps	June 30, 2019	$	2,327
	December 31, 2018	505

The Company does not own any financial instruments that are measured on a recurring basis and that are classified as Level 1 or 3.

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

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

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 14 — Fair Value Measurements (Continued)

Although the Company has determined the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with it use Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparty. As of June 30, 2019, the Company has assessed and determined the impact of the credit valuation adjustments on the overall valuation of its derivative positions is not significant. As a result, the Company determined its derivative valuation is classified in Level 2 of the fair value hierarchy.

As of June 30, 2019, the Company had entered into 26 interest rate derivatives, all of which were interest rate swaps, related to 26 outstanding mortgage loans with an aggregate $113,733,000 notional amount and mature between 2019 and 2028 (weighted average remaining term to maturity of 5.4 years). Such interest rate swaps, all of which were designated as cash flow hedges, converted LIBOR based variable rate mortgages to fixed annual rate mortgages (with interest rates ranging from 3.02% to 5.38% and a weighted average interest rate of 4.12% at June 30, 2019). The fair values of the Company’s derivatives in asset and liability positions are reflected as other assets or other liabilities on the consolidated balance sheets.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
One Liberty Properties, Inc. and Consolidated subsidiaries
Amount of (loss) gain recognized on derivatives in other comprehensive (loss) income	$	(2,477	)	$	1,009		$	(3,962	)	$	3,509
Amount of reclassification from Accumulated other comprehensive (loss) income into Interest expense	41			(95		)	133			(291		)

Unconsolidated Joint Ventures (Company’s share)
Amount of gain recognized on derivatives in other comprehensive (loss) income	n/a			$	22		n/a			$	69
Amount of reclassification from Accumulated other comprehensive (loss) income into Equity in earnings (loss) of unconsolidated joint ventures	n/a			110			n/a			103

During the three and six months ended June 30, 2019 and 2018, the Company (including one of its unconsolidated joint ventures) discontinued hedge accounting on two interest rate swaps as the forecasted hedged transactions were no longer probable of occurring. As a result, during the three and six months ended June 30, 2019 and 2018, the Company reclassified $41,000 and $110,000 of realized loss and gain, respectively, from Accumulated other comprehensive (loss) income to earnings. No gain or loss was recognized with respect to amounts excluded from effectiveness testing on the Company’s cash flow hedges for the three and six months ended June 30, 2019 and 2018.

Table of Contents

One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2019 (Continued)

Note 14 — Fair Value Measurements (Continued)

During the twelve months ending June 30, 2020, the Company estimates an additional $355,000 will be reclassified from Accumulated other comprehensive (loss) income as an increase to Interest expense.

The derivative agreements in effect at June 30, 2019 provide that if the wholly-owned subsidiary of the Company which is a party to the agreement defaults or is capable of being declared in default on any of its indebtedness, then a default can be declared on such subsidiary’s derivative obligation. In addition, the Company is a party to the derivative agreements and if there is a default by the subsidiary on the loan subject to the derivative agreement to which the Company is a party and if there are swap breakage losses on account of the derivative being terminated early, the Company could be held liable for such swap breakage losses.

As of June 30, 2019 and December 31, 2018, the fair value of the derivatives in a liability position, including a net accrued interest receivable of $16,000 and an accrued interest payable of $8,000, respectively, but excluding any adjustments for non-performance risk, was approximately $2,457,000 and $554,000, respectively. In the event the Company had breaches of any of the contractual provisions of the derivative contracts, it would be required to settle its obligations thereunder at their termination liability value of $2,457,000 and $554,000 as of June 30, 2019 and December 31, 2018, respectively. This termination liability value, net of adjustments for non-performance risk of $146,000 and $41,000, is included in Accrued expenses and other liabilities on the consolidated balance sheet at June 30, 2019 and December 31, 2018, respectively.

Note 15 — New Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. An entity is permitted to early adopt either the entire standard or only the provisions that eliminate or modify requirements. The Company is evaluating the new guidance to determine if, and to the extent, it will impact the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current “incurred loss” model with an “expected loss” approach. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted after December 2018. The Company is evaluating the new guidance to determine if, and to the extent, it will impact the consolidated financial statements.

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such forward-looking statements to be covered by the safe harbor provision for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “could,” “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” or similar expressions or variations thereof. Forward-looking statements should not be relied on since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect actual results, performance or achievements. Investors are encouraged to review the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2018 under the caption “Item 1A. Risk Factors” for a discussion of certain factors which may cause actual results to differ materially from current expectations and are cautioned not to place undue reliance on any forward-looking statements.

Overview

We are a self-administered and self-managed real estate investment trust, or REIT, incorporated in Maryland in 1982. To qualify as a REIT, under the Internal Revenue Code of 1986, as amended, we must meet a number of organizational and operational requirements, including a requirement that we distribute currently at least 90% of ordinary taxable income to our stockholders. We intend to comply with these requirements and to maintain our REIT status.

We acquire, own and manage a geographically diversified portfolio consisting primarily of industrial, retail (including furniture stores and supermarkets), restaurant, health and fitness and theater properties, many of which are subject to long-term net leases. As of June 30, 2019, we own 126 properties (including four properties owned by consolidated joint ventures and four properties owned by unconsolidated joint ventures) located in 31 states. Based on square footage, our occupancy rate at June 30, 2019 is approximately 96.6%.

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

We seek to manage the risk of our real property portfolio and the related financing arrangements by diversifying among types of properties, industries, locations, tenants, scheduled lease expirations, mortgage maturities and lenders, and by seeking to minimize our exposure to interest rate fluctuations. Substantially all of our mortgage debt either bears interest at fixed rates or is subject to interest rate swaps, limiting our exposure to fluctuating interest rates on our outstanding mortgage debt.

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We monitor the risk of tenant non-payments through a variety of approaches tailored to the applicable situation. Generally, based on our assessment of the credit risk posed by our tenants, we monitor a tenant’s financial condition through one or more of the following actions: reviewing tenant financial statements or other financial information, obtaining other tenant related information, regular contact with tenant’s representatives, tenant credit checks and regular management reviews of our tenants. We may sell a property if the tenant’s financial condition is unsatisfactory.

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

We are sensitive to the risks facing the retail industry as a result of the growth of e-commerce. We are addressing our exposure to the retail industry by emphasizing the acquisition of industrial properties and by being especially selective in acquiring retail properties. Approximately 47.6% of our contractual rental income (as described below) is derived from industrial properties and 35.3%, 4.8%, 4.4%, 3.2%, 3.0% and 1.7% from retail, restaurant, health and fitness, theaters, residential ground leases and other properties, respectively.

Our 2019 contractual rental income is approximately $72.0 million and represents, after giving effect to any abatements, concessions or adjustments, the base rent payable to us during the twelve months ending June 30, 2020 under leases in effect at June 30, 2019. Contractual rental income excludes: (i) approximately $884,000 of straight-line rent and $738,000 of amortization of intangibles; and (ii) our share of the rental income payable to our unconsolidated joint ventures, which is approximately $1.6 million.

The following table sets forth scheduled expirations of leases for our properties as of June 30, 2019 for the periods indicated below:

Lease Expiration (1) 12 Months Ending June 30,	Number of Expiring Leases	Approximate Square Footage Subject to Expiring Leases (2)	Contractual Rental Income Under Expiring Leases		Percentage of Contractual Rental Income Represented by Expiring Leases
2020	2	26,007	$	261,050	.4
2021	16	360,890	2,761,138		3.8
2022	20	1,342,813	8,182,915		11.4
2023	22	1,444,265	10,137,742		14.1
2024	21	1,199,466	8,421,653		11.7
2025	19	724,537	7,240,895		10.1
2026	8	230,189	3,523,673		4.9
2027	9	428,481	2,887,541		4.0
2028	11	1,247,262	6,937,892		9.6
2029	8	935,590	5,802,305		8.1
2030 and thereafter	24	2,087,718	15,866,759		21.9
	160	10,027,218	$	72,023,563	100.0

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

(2) Excludes an aggregate of 212,450 square feet of vacant space.

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Property Transactions During the Three Months Ended June 30, 2019

During the three months ended June 30, 2019, we acquired four industrial properties for an aggregate purchase price of $27.0 million, including $328,000 of transaction costs that were capitalized. These acquisitions contributed $137,000 of rental income, net, and $79,000 of depreciation and amortization expense during the three months ended June 30, 2019. We estimate that commencing July 1, 2019, the aggregate quarterly rental income (excluding variable lease revenues) and depreciation and amortization expense from these properties will be $502,000 and $239,000, respectively.

On June 20, 2019, we sold a retail property located in Clemmons, North Carolina and owned by a consolidated joint venture in which we held a 90% interest, for $5.3 million, net of closing costs, and paid off the $1.7 million mortgage. We recognized a gain of $1.1 million, of which the non-controlling interest’s share was $422,000. This property contributed $391,000 and $361,000 of rental income, net, $49,000 and $83,000 of depreciation and amortization expense and $80,000 and $41,000 of mortgage interest expense in the six months ended June 30, 2019 and 2018, respectively.

Property Transaction Subsequent to June 30, 2019

On July 24, 2019, we purchased an industrial property in LaGrange, Georgia for $5.2 million. We estimate that commencing August 1, 2019, the quarterly rental income (excluding variable lease revenues) from this property will be $86,000.

Amendment of Credit Facility

On July 1, 2019, we and our lenders amended our credit facility to extend its expiration date to December 31, 2022 and increase the aggregate amount that may be used thereunder for renovation and operating expense purposes. In connection with the amendment, we incurred a $550,000 commitment fee which will be amortized over the remaining term of the facility. See “- Liquidity and Capital Resources-Credit Facility.”

Challenges and Uncertainties Facing Certain Tenants and Properties

We describe below certain risks and uncertainties associated with tenants and properties that are experiencing financial or other challenges.

Our tenant at an assisted living facility in Round Rock, Texas, which we refer to as the Round Rock Property, filed for bankruptcy protection in December 2018 and though they subsequently rejected the lease, the tenant-debtor continues to occupy the property. At June 30, 2019, the net book value and mortgage debt associated with this property was $15.9 million and $13.3 million, respectively. During the six months ended June 30, 2019, we paid principal mortgage payments of $196,000 and incurred costs of $678,000 (i.e., mortgage interest of $364,000 and legal fees of approximately $314,000) for this property and may continue to incur significant costs for an extended period. We were not paid rent for November and December 2018 (i.e., an aggregate of $344,000), and have not been paid use and occupancy payments since March 2019. We received several offers to buy the property from Licensed Operators (i.e., a person licensed to manage this type of facility) and have entered into

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contract negotiations with a prospective purchaser. Our ability to sell this property may be constrained by, among other things, the tenant-debtor which may impede the contemplated sale, the number of competing assisted living facilities in the area and state regulatory requirements mandating that assisted living facilities be operated by a Licensed Operator. We commenced litigation against the tenant-debtor and the guarantors of the lease seeking, among other things, recovery for the damages we have and continue to incur. We cannot provide any assurance that we will be able to sell this property or that we will be successful in any litigation seeking compensation for the damages we incur.

A multi-family complex, which we refer to as The Vue, ground leases from us the underlying land located in Beachwood, Ohio. As a result of a reduction in the occupancy rate at the complex, we and the owner/operator of The Vue, reduced the annual base rent payable to us in 2019 to $783,000 from the base rent of $1.6 million in 2018. At June 30, 2019, (i) the occupancy rate (based on the number of occupied units) at The Vue was 77.0% (compared to 72.1% at December 31, 2018), (ii) there are no unbilled rent receivables, intangibles or tenant origination costs associated with this property and (ii) the net book value of our land subject to this ground lease is $13.9 million and is subordinate to $67.4 million of mortgage debt incurred by the owner/operator. Unlike most of our tenancies, the owner/operator is responsible for the property’s current monthly mortgage interest payments of $228,000 — the interest only period with respect to such mortgage expires August 2020. See “ - Off Balance Sheet Arrangements” and Note 7 to our consolidated financial statements.

We are pursuing a re-development of a community shopping center located in Manahawkin, New Jersey (the “Manahawkin Property”), which is owned by an unconsolidated joint venture in which we have a 50% equity interest. At December 31, 2018 and June 30, 2019, the occupancy rate (based on square footage) was approximately 52.4%. As a result of, among other things, vacancies at the property (including vacancies resulting from the re-development process), we estimate that our share of the base rent payable to be generated at this property will be approximately $695,000 in the six months ending December 31, 2019. Our share of the base rent in the corresponding period of the prior year was $826,000. We believe that during the re-development period, cash flow from the operations at this property will cover a significant portion of the property’s carrying costs and debt service obligations and that any shortfall will be covered by the cash available to the joint venture and capital contributions to the venture by us and our joint venture partner. We estimate that the redevelopment will be substantially complete and the property stabilized after 2022. See “ - Liquidity and Capital Resources.”

A retail property located in Crystal Lake, Illinois has been vacant for the past two years. At June 30, 2019, the net book value of, and mortgage debt on, the property was $2.0 million and $1.6 million, respectively. The mortgage on this property was paid off in July 2019. We estimate that the carrying costs with respect to this property for the six months ending December 31, 2019 will be approximately $77,000.

A tenant operating a supermarket at a property located in Philadelphia, Pennsylvania advised us in late July 2019 that it intends to cease operations. At June 30, 2019, the unbilled rent receivable, net book value and mortgage debt associated with this property was $375,000, $6.8 million, and $4.0 million, respectively. For the six months ended June 30, 2019 and 2018, rental income for this property was $281,000 and $248,000, respectively, and total operating expenses were $155,000 and $133,000, respectively. Contractual rental income payable with respect to this property for the 12 months ending June 30, 2020 is $420,000. We estimate that the carrying costs (including $66,000 of interest expense) associated with this property for the five months ending December 31, 2019 will be approximately $150,000.

We may be adversely affected if, among other things, (i) any of these tenants reduce, defer, or do not pay the rent (or use and occupancy) payments due us or do not pay the operating expenses of the property for which they are responsible, (ii) the owner/operator of The Vue fails to pay required mortgage payments when due, (iii) we sell our interest in any of these properties when they are in distress, (iv) our interests in these properties are foreclosed upon, or (v) we are required to take write-offs (other than those already taken with respect to the Round Rock Property) or impairment charges with respect to these properties.

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Results of Operations

Rental income, net

The following table compares Rental income, net, for the periods indicated:

	Three Months Ended June 30,				Increase		%	Six Months Ended June 30,				Increase		%
(Dollars in thousands)	2019		2018		(Decrease)		Change	2019		2018		(Decrease)		Change
Rental income, net	$	20,719	$	19,752	$	967	4.9	$	41,874	$	39,286	$	2,588	6.6

Rental income, net. As described below, the changes for the three and six months are due to the rental income from (i) properties acquired and disposed of in 2018 and 2019 and (ii) same store properties (i.e., properties that were owned for the entirety of the periods being presented).

Changes due to acquisitions and dispositions

The three and six months ended June 30, 2019 reflect increases of (i) $1.5 million and $3.5 million, respectively, generated by eight properties acquired in 2018, and (ii) $137,000 generated by four properties acquired in the second quarter of 2019. Offsetting these increases were decreases of $609,000 and $1.3 million, respectively, for the three and six months ended June 30, 2019, primarily due to the inclusion, in the 2018 periods, of rental income from properties sold during 2019 and 2018.

Changes at same store properties

During the three and six months ended June 30, 2019, rental income from same store properties decreased due primarily to decreases in fixed lease revenues, offset by increases in variable lease revenues. (See Note 3 to our consolidated financial statements for a discussion of such revenues.) The following table details the components of same store lease revenues for the periods indicated (amounts exclude amortization related to lease intangible assets and liabilities):

	Three Months Ended June 30,				Increase			%		Six Months Ended June 30,				Increase			%
(Dollars in thousands)	2019		2018		(Decrease)			Change		2019		2018		(Decrease)			Change

Fixed lease revenues	$	15,594	$	15,786	$	(192	)	(1.2	)	$	31,474	$	31,577	$	(103	)	(0.3	)
Variable lease revenues	2,723		2,650		73			2.8		5,647		5,270		377			7.2
	$	18,317	$	18,436	$	(119	)	(0.6	)	$	37,121	$	36,847	$	274		0.7

Fixed lease revenues decreased in the three and six months ended June 30, 2019 primarily due to the inclusion, in the corresponding periods of 2018, of $545,000 and $742,000, respectively, of rent from the Round Rock Property, offset by increases of $321,000 and $643,000, respectively, due to the expansion of our Hauppauge, New York property.

Variable lease revenues increased in the three and six months ended June 30, 2019 primarily due to increases of $268,000 and $777,000, respectively, of tenant reimbursements of operating expenses and real estate taxes, offset by the inclusion, in the corresponding periods of 2018, of higher rent of $220,000 and $440,000, respectively, from The Vue.

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Operating Expenses

The following table compares operating expenses for the periods indicated:

	Three Months Ended June 30,				Increase			%		Six Months Ended June 30,				Increase			%
(Dollars in thousands)	2019		2018		(Decrease)			Change		2019		2018		(Decrease)			Change
Operating expenses:
Depreciation and amortization	$	5,440	$	5,250	$	190		3.6		$	10,787	$	10,432	$	355		3.4
General and administrative	3,005		2,969		36			1.2		6,176		5,928		248			4.2
Real estate expenses	3,511		2,592		919			35.5		6,852		5,336		1,516			28.4
State taxes	108		154		(46		)	(29.9	)	187		227		(40		)	(17.6	)
Total operating expenses	$	12,064	$	10,965	$	1,099		10.0		$	24,002	$	21,923	$	2,079		9.5

Depreciation and amortization. The increases in the three and six months ended June 30, 2019 are due primarily to the inclusion of $526,000 and $1.1 million, respectively, of such expense from the eight properties acquired in 2018. The increases in the three and six months ended June 30, 2019 were offset by (i) the inclusion, in the corresponding periods in 2018, of $195,000 and $376,000, respectively, of tenant origination costs at several properties that, prior to 2019, were fully amortized in connection with lease expirations or, in connection with the Round Rock Property, written off, (ii) the inclusion, in the corresponding periods of 2018, of $136,000 and $278,000, respectively, from the properties sold since January 1, 2018, and (iii) decreases of $94,000 and $205,000, respectively, from a change in the depreciable life with respect to our Greensboro, North Carolina property.

General and administrative. Contributing to the increase in the six months ended June 30, 2019 is $186,000 in non-cash compensation primarily relating to the increase in the number, and higher fair value, of the shares of restricted stock granted in 2019 in comparison to the awards granted in 2014. Included in the three and six months ended June 30, 2018 is a one-time professional fee of $110,000.

Real estate expenses. The increases in the three and six months ended June 30, 2019 are due to increases of (i) $673,000 and $1.0 million, respectively, from several same store properties, including approximately $332,000 and $472,000, respectively, related to legal and real estate tax expense for our Round Rock Property and (ii) $261,000 and $571,000, respectively, from properties acquired since January 2018. A substantial portion of real estate expenses are rebilled to tenants and included in Rental income, net, on the consolidated statements of income, other than the expenses related to the Round Rock Property.

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Gain on sale of real estate, net.

The following table compares gain on sale of real estate, net for the periods indicated:

	Three Months Ended June 30,			Increase		%	Six Months Ended June 30,				Increase			%
(Dollars in thousands)	2019		2018	(Decrease)		Change	2019		2018		(Decrease)			Change
Gain on sale of real estate, net	$	1,099	—	$	1,099	n/a	$	1,099	$	2,408	$	(1,309	)	(54.4	)

The three and six months ended June 30, 2019 includes a $1.1 million gain realized from the sale of the Clemmons, North Carolina property, before giving effect to the non-controlling interest’s $422,000 share of the gain. The six months ended June 30, 2018 includes a $2.4 million gain realized from the sale of the Fort Bend, Texas property, before giving effect to the non-controlling interest’s $776,000 share of the gain.

Other Income and Expenses

Equity in earnings (loss) of unconsolidated joint ventures. The following table compares our equity in earnings (loss) of unconsolidated joint ventures for the periods indicated:

	Three Months Ended June 30,				Increase			%		Six Months Ended June 30,					Increase			%
(Dollars in thousands)	2019		2018		(Decrease)			Change		2019			2018		(Decrease)			Change
Equity in earnings (loss) of unconsolidated joint ventures	$	34	$	348	$	(314	)	(90.2	)	$	(82	)	$	543	$	(625	)	(115.1	)

The three and six months ended June 30, 2019 include decreases of (i) $111,000 and $346,000, respectively, due primarily to increased vacancies (and write-offs of receivables) at the Manahawkin Property and (ii) $207,000 and $291,000, respectively, due to the inclusion, in the three and six months ended June 30, 2018, of earnings from a property in Milwaukee, Wisconsin that was sold in July 2018. The 2018 earnings from the Milwaukee, Wisconsin property includes our $110,000 share of the realized gain resulting from the discontinuance of hedge accounting on an interest rate swap.

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

	Three Months Ended June 30,				Increase			%		Six Months Ended June 30,				Increase		%
(Dollars in thousands)	2019		2018		(Decrease)			Change		2019		2018		(Decrease)		Change
Interest expense:
Credit line interest	$	189	$	219	$	(30	)	(13.7	)	$	479	$	346	$	133	38.4
Mortgage interest	4,792		4,226		566			13.4		9,364		8,401		963		11.5
Total	$	4,981	$	4,445	$	536		12.1		$	9,843	$	8,747	$	1,096	12.5

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Credit line interest

The increase in the six months ended June 30, 2019 is due to a $4.7 million increase in the weighted average balance outstanding under our line of credit due to acquisitions completed during such period and an increase of 68 basis points (from 3.54% to 4.22%) in the weighted average interest rate due to the increase in the one month LIBOR rate.

Mortgage interest

The following table reflects the average interest rate on the average principal amount of outstanding mortgage debt for the periods indicated:

	Three Months Ended June 30,						Increase			%	Six Months Ended June 30,						Increase			%
(Dollars in thousands)	2019			2018			(Decrease)			Change	2019			2018			(Decrease)			Change
Average interest rate on mortgage debt	4.34		%	4.27		%	0.07		%	1.6	4.30		%	4.25		%	0.05		%	1.2
Average principal amount of mortgage debt	$	441,425		$	395,643		$	45,782		11.6	$	434,389		$	395,277		$	39,112		9.9

The increases in mortgage interest expense are due primarily to the increases in the average principal amount of mortgage debt outstanding. The increases in the average balance outstanding are due primarily to the financing (including financings effectuated in connection with acquisitions) or refinancing in 2019 and 2018 of $85.3 million of gross mortgage debt (including $14.7 million of refinanced amounts).

Liquidity and Capital Resources

Our sources of liquidity and capital include cash flow from operations, cash and cash equivalents, borrowings under our credit facility, refinancing existing mortgage loans, obtaining mortgage loans secured by our unencumbered properties, issuances of our equity securities and property sales. Our available liquidity at August 2, 2019, was $74.2 million, including $4.5 million of cash and cash equivalents (net of the credit facility’s required $3.0 million deposit maintenance balance) and, subject to borrowing base requirements, up to $69.7 million available under our credit facility.

Liquidity and Financing

We expect to meet our operating cash requirements (including debt service and anticipated dividend payments) principally from cash flow from operations, our available cash and cash equivalents, proceeds from the sale of our common stock and, to the extent permitted, our credit facility. We estimate that our share of the capital expenditures required in connection with the re-development of the Manahawkin Property will range from $10.0 million to $12.0 million and anticipate that such expenditures will be funded by the joint venture’s cash and capital contributions to the venture by us and our joint venture partner. We may use our credit facility to fund all or a portion of our share of any such capital contributions.

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At June 30, 2019, excluding the mortgage debt of our unconsolidated joint venture, we had 72 outstanding mortgages payable secured by 89 properties, in the aggregate principal amount of $438.5 million (before netting unamortized deferred financing costs of $4.4 million). These mortgages represent first liens on individual real estate investments with an aggregate carrying value of $687.1 million, before accumulated depreciation of $103.8 million. After giving effect to interest rate swap agreements, the mortgage payments bear interest at fixed rates ranging from 3.02% to 5.88% (a 4.28% weighted average interest rate) and mature between 2019 and 2042 (an 8.2 year weighted average remaining term to maturity).

The following table sets forth, as of June 30, 2019, information with respect to our mortgage debt that is payable from July 1, 2019 through December 31, 2022 (excluding our unconsolidated joint ventures):

(Dollars in thousands)	2019		2020		2021		2022		Total
Amortization payments	$	6,209	$	13,888	$	14,358	$	14,407	$	48,862
Principal due at maturity	3,485		—		8,463		31,539		43,487
Total	$	9,694	$	13,888	$	22,821	$	45,946	$	92,349

At June 30, 2019, an unconsolidated joint venture had a first mortgage on its property with an outstanding balance of $23.5 million, bearing an interest rate at 4.0% and maturing in 2025.

We intend to make debt amortization payments from operating cash flow and, though no assurance can be given that we will be successful in this regard, generally intend to refinance, extend or payoff the mortgage loans which mature from 2019 through 2022. We intend to repay the amounts not refinanced or extended from our existing funds and sources of funds, including our available cash, proceeds from the sale of our common stock and our credit facility (to the extent available).

We continually seek to refinance existing mortgage loans on terms we deem acceptable to generate additional liquidity. Additionally, in the normal course of our business, we sell properties when we determine that it is in our best interests, which also generates additional liquidity. Further, since each of our encumbered properties is subject to a non-recourse mortgage (with standard carve-outs), if our in-house evaluation of the market value of such property is less than the principal balance outstanding on the mortgage loan, we may determine to convey, in certain circumstances, such property to the mortgagee in order to terminate our mortgage obligations, including payment of interest, principal and real estate taxes, with respect to such property.

Typically, we utilize funds from our credit facility to acquire a property and, thereafter secure long-term, fixed rate mortgage debt on such property. We apply the proceeds from the mortgage loan to repay borrowings under the credit facility, thus providing us with the ability to re-borrow under the credit facility for the acquisition of additional properties.

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The table below provides a reconciliation of net income in accordance with GAAP to FFO and AFFO for the periods indicated (dollars in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
GAAP net income attributable to One Liberty Properties, Inc.	$	4,112		$	4,517		$	8,083		$	10,368
Add: depreciation and amortization of properties	5,331			5,165			10,576			10,263
Add: our share of depreciation and amortization of unconsolidated joint ventures	131			191			266			407
Add: amortization of deferred leasing costs	109			85			211			169
Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures	3			—			11			—
Deduct: gain on sale of real estate	(1,099		)	—			(1,099		)	(2,408		)
Deduct: equity in earnings from sale of unconsolidated joint venture property	—			(71		)	—			(71		)
Adjustments for non-controlling interests	397			(27		)	371			722
NAREIT funds from operations applicable to common stock	8,984			9,860			18,419			19,450
Deduct: straight-line rent accruals and amortization of lease intangibles	(696		)	(499		)	(1,308		)	(1,025		)
(Deduct) add: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures	(25		)	10			(35		)	20
Add: amortization of restricted stock compensation	938			856			1,892			1,682
Add: amortization and write-off of deferred financing costs	255			222			487			449
Add: our share of amortization and write-off of deferred financing costs of unconsolidated joint ventures	4			6			8			12
Adjustments for non-controlling interests	6			12			14			26
Adjusted funds from operations applicable to common stock	$	9,466		$	10,467		$	19,477		$	20,614

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The table below provides a reconciliation of net income per common share (on a diluted basis) in accordance with GAAP to FFO and AFFO:

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
GAAP net income per common share attributable to One Liberty Properties, Inc.	$	.20		$	.23		$	.39		$	.53
Add: depreciation and amortization of properties	.27			.27			.56			.54
Add: our share of depreciation and amortization of unconsolidated joint ventures	.01			.01			.01			.02
Add: amortization of deferred leasing costs	.01			—			.01			.01
Add: our share of amortization of deferred leasing costs of unconsolidated joint ventures	—			—			—			—
Deduct: gain on sale of real estate	(.06		)	—			(.06		)	(.13		)
Deduct: equity in earnings from sale of unconsolidated joint venture property	—			—			—			—
Adjustments for non-controlling interests	.02			—			.02			.04
NAREIT funds from operations per share of common stock	.45			.51			.93			1.01
Deduct: straight-line rent accruals and amortization of lease intangibles	(.03		)	(.03		)	(.07		)	(.05		)
(Deduct) add: our share of straight-line rent accruals and amortization of lease intangibles of unconsolidated joint ventures	—			—			—			—
Add: amortization of restricted stock compensation	.05			.05			.10			.09
Add: amortization and write-off of deferred financing costs	.01			.01			.02			.02
Add: our share of amortization and write-off of deferred financing costs of unconsolidated joint ventures	—			—			—			—
Adjustments for non-controlling interests	—			—			—			—
Adjusted funds from operations per share of common stock	$	.48		$	.54		$	.98		$	1.07

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

We use interest rate swaps to limit interest rate risk on variable rate mortgages. These swaps are used for hedging purposes-not for speculation. We do not enter into interest rate swaps for trading purposes. At June 30, 2019, our aggregate liability in the event of the early termination of our swaps was $2.5 million.

At June 30, 2019, we had 26 interest rate swap agreements outstanding. The fair market value of the interest rate swaps is dependent upon existing market interest rates and swap spreads, which change over time. As of June 30, 2019, if there had been an increase of 100 basis points in forward interest rates, the fair market value of the interest rate swaps would have increased by approximately $5.0 million and the net unrealized gain on derivative instruments would have increased by $5.0 million. If there were a decrease of 100 basis points in forward interest rates, the fair market value of the interest rate swaps would have decreased by approximately $5.4 million and the net unrealized gain on derivative instruments would have decreased by $5.4 million. These changes would not have any impact on our net income or cash.

Our mortgage debt, after giving effect to interest rate swap agreements, bears interest at fixed rates and accordingly, the effect of changes in interest rates would not impact the amount of interest expense that we incur under these mortgages.

Our variable rate credit facility is sensitive to interest rate changes. Based on the outstanding balance under this facility of $32.2 million at June 30, 2019, a 100 basis point increase of the interest rate would increase our related interest costs over the next twelve months by approximately $322,000 and a 100 basis point decrease of the interest rate would decrease our related interest costs over the next twelve months by approximately $322,000.

The fair market value of our long-term debt is estimated based on discounting future cash flows at interest rates that our management believes reflect the risks associated with long term debt of similar risk and duration.

Item 4. Controls and Procedures

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

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) promulgated under the Exchange Act) during the three months ended June 30, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Part II - OTHER INFORMATION

Item 5. Other Information

Grant of Restricted Stock Units

See Note 13 of our consolidated financial statements for information regarding the grant, as of July 1, 2019, of restricted stock units to acquire up to 77,776 shares of our common stock upon satisfaction of performance and/or market conditions through June 30, 2022.

Resignation of Director

On August 2, 2019, Louis Karol resigned as a director of One Liberty. Mr. Karol, who served as a director of One Liberty for nine years, did not resign as a result of any disagreement with One Liberty.

Federal Income Tax Consequences

The discussion under “Federal Income Tax Considerations — Information Reporting Requirements and Backup Withholding Tax” in our prospectus dated May 10, 2017 is hereby modified to reflect regulations proposed by the Treasury Department indicating its intent to eliminate the requirements under the HIRE Act of withholding on gross proceeds from the sale, exchange, maturity or other disposition of relevant financial instruments. The Treasury Department has indicated that taxpayers may rely on these proposed regulations pending their finalization.

Item 6. Exhibits

Exhibit No.		Title of Exhibit
10.1		Amendment dated July 1, 2019 to the Third Amended and Restated Loan Agreement dated as of November 9, 2016, between VNB New York, LLC, People’s United Bank, Bank Leumi USA and Manufacturers and Traders Trust Company, as lenders, and One Liberty Properties, Inc.
10.2		Form of Performance Award Agreement for awards granted in 2019 pursuant to the 2019 Incentive Plan
31.1		Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Senior Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Senior Vice President and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Definition Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

		ONE LIBERTY PROPERTIES, INC.
		(Registrant)


Date: August 7, 2019		/s/ Patrick J. Callan, Jr.
		Patrick J. Callan, Jr.
		President and Chief Executive Officer
		(principal executive officer)


Date: August 7, 2019		/s/ David W. Kalish
		David W. Kalish
		Senior Vice President and
		Chief Financial Officer
		(principal financial officer)

		Page No.
Part I - Financial Information

Item 1.	Unaudited Consolidated Financial Statements

	Consolidated Balance Sheets — June 30, 2019 and December 31, 2018	1

	Consolidated Statements of Income — Three and six months ended June 30, 2019 and 2018	2

	Consolidated Statements of Comprehensive Income — Three and six months ended June 30, 2019 and 2018	3

	Consolidated Statements of Changes in Equity — Three and six months ended June 30, 2019 and 2018	4

	Consolidated Statements of Cash Flows — Six months ended June 30, 2019 and 2018	6

	Notes to Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	43

Part II — Other Information

Item 6.	Exhibits	44

	June 30,
	2019		2018
Cash and cash equivalents	$	17,381	$	12,925
Restricted cash	337		416
Restricted cash included in escrow, deposits and other assets and receivables	362		397
Total cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows	$	18,080	$	13,738