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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC   20549

FORM 10-Q

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

For the quarterly period ended March 31, 2016

OR

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

Commission File Number 001-09279

ONE LIBERTY PROPERTIES, INC.

(Exact name of registrant as specified in its charter)

(516) 466-3100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x          No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x          No o

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

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

Yes o          No x

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

As of May 3, 2016, the registrant had 17,148,686 shares of common stock outstanding.

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One Liberty Properties, Inc. and Subsidiaries

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Part I — FINANCIAL INFORMATION

Item 1.    Financial Statements

ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in Thousands, Except Par Value)

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)

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)

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)

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)

Continued on next page

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ONE LIBERTY PROPERTIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in Thousands)

(Unaudited) (Continued)

See accompanying notes to consolidated financial statements.

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016

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 retail, industrial, flex and health and fitness properties, many of which are subject to long-term net leases.  As of  March 31, 2016, OLP owns 114 properties, including seven properties owned by consolidated joint ventures and five properties owned by unconsolidated joint ventures. The 114 properties are located in 30 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 necessary for fair presentation (including normal recurring accruals) have been included. The results of operations for the three months ended March 31, 2016 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, 2015.

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 hereinafter referred to 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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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016 (Continued)

Note 2 — Summary Accounting Policies (Continued)

On January 1, 2016, the Company adopted ASU 2015-02, Amendments to the Consolidation Analysis, which amends the current consolidation guidance.  The ASU introduces a separate consolidation analysis specific to limited partnerships and other similar entities. Under this analysis, limited partnerships and other similar entities will be considered a VIE unless the limited partners hold substantive kick-out rights or participating rights (see Note 6).

Consistent with the adoption of ASU 2015-02, 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 the Company and its partner, among other things, (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 the joint venture as the Company considers these to be substantive participation rights that result in shared power over the activities that most significantly impact the performance of the joint venture.

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.  In situations where the Company does not have the power over tenant activities that most significantly impact the performance of the property, the Company would not consolidate tenant operations.

The Company accounts for its investments in unconsolidated joint ventures under the equity method of accounting.  All investments in the 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 has shared 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.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016 (Continued)

Note 2 — Summary Accounting Policies (Continued)

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 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.

Properties Held-for-Sale

Real estate investments are classified as properties held-for-sale when management determines that the investment meets the applicable criteria.  Real estate investments which are held-for-sale are not depreciated.

Tenant Reimbursements

Tenant reimbursements represent tenants’ contractual obligations for recoverable real estate taxes and operating expenses and are recognized when earned.

Reclassifications

Certain amounts previously reported in the consolidated financial statements have been reclassified in the accompanying consolidated financial statements to conform to the current period’s presentation, primarily to present debt issuance costs as a direct deduction from the carrying amount of the associated debt on the Company’s December 31, 2015 consolidated balance sheet. See Note 10.

Note 3 — 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.  Unvested restricted stock is not allocated net losses and/or any excess of dividends declared over net income; such amounts are allocated entirely to the common stockholders, other than the holders of unvested restricted stock.  The restricted stock units awarded under the Pay-for-Performance program are excluded from the basic earnings per share calculation, as these units are not participating securities (see Note 14).

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016 (Continued)

Note 3 — Earnings Per Common Share (Continued)

Diluted earnings per share reflects the potential dilution that could occur if securities or other rights exercisable for, or convertible into, common stock were exercised or converted or otherwise resulted in the issuance of common stock that shared in the earnings of the Company.  For the three months ended March 31, 2016 and 2015, the diluted weighted average number of shares of common stock includes 107,000 and 100,000 shares, respectively (of an aggregate of 200,000 shares) of common stock underlying the restricted stock units awarded pursuant to the Pay-For-Performance program.  These amounts include 100,000 shares that would be issued pursuant to a metric based on the market price and dividends paid at the end of each quarterly period, assuming the end of that quarterly period was the end of the vesting period.  Of the remaining 100,000 shares of common stock underlying the restricted stock units awarded under the Pay-For-Performance program, 7,000 shares are included in the diluted weighted average in the three months ended March 31, 2016 and, as they did not meet the return on capital performance metric during such period, none of such 100,000 shares were included in the three months ended March 31, 2015.

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

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

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016 (Continued)

Note 4 — Real Estate Acquisitions

The following chart details the Company’s acquisitions of real estate during the three months ended March 31, 2016 (amounts in thousands):

The following chart provides the preliminary allocation of the purchase price for the Company’s acquisitions of real estate during the three months ended March 31, 2016 (amounts in thousands):

As of March 31, 2016, the weighted average amortization period is 3.4 years for these intangible lease assets and 12.2 years for these intangible lease liabilities. The Company assessed the fair value of the lease intangibles based on estimated cash flow projections that utilize appropriate discount rates and available market information. Such inputs are Level 3 (as defined in Note 15) in the fair value hierarchy. The Company is currently in the process of finalizing the purchase price allocations for the properties acquired during the three months ended March 31, 2016; therefore the allocations are preliminary and subject to change.

The properties purchased by the Company during the three months ended March 31, 2016 are each 100% occupied.  Each property is net leased by three unrelated tenants pursuant to leases which expire between 2017 and 2021.

As a result of the Company’s $6,300,000 purchase on March 31, 2015 of its partner’s 50% interest in an unconsolidated joint venture that owns a property in Lincoln, Nebraska, the

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016 (Continued)

Note 4 — Real Estate Acquisitions (Continued)

Company obtained a controlling financial interest. In consolidating the investment, the Company recorded a purchase price fair value adjustment of $960,000 on the consolidated statement of income, representing the difference between the book value of its preexisting equity investment on the March 31, 2015 purchase date and the fair value of the net assets acquired.

Note 5 — Sale of Properties

On February 1, 2016, the Company sold a portfolio of eight retail properties located in Louisiana and Mississippi for a total sales price of $13,750,000.  The sale resulted in a gain of $787,000, recorded as Gain on sale of real estate, net, for the three months ending March 31, 2016.  In connection with the sale, the Company paid off the $7,801,000 mortgage balance on these properties and incurred a $380,000 expense for the early termination of the mortgage (included in Prepayment costs on debt) and a $26,000 write-off of deferred financing costs (included in Amortization and write-off of deferred financing costs).  As a result of the sale, the Company also wrote-off, as a reduction to Gain on sale of real estate, net, $706,000 of unbilled straight-line rent receivable, $79,000 of intangible lease assets and $54,000 of tenant origination costs.  At December 31, 2015, the Company classified the net book value of the land and buildings, intangible lease assets and tenant origination costs  totaling $12,259,000 as Properties held-for-sale.

On January 13, 2015, a consolidated joint venture of the Company sold a property located in Cherry Hill, New Jersey for $16,025,000, net of closing costs.  The sale resulted in a gain of $5,392,000, recorded as Gain on sale of real estate, net, for the three months ended March 31, 2015. In connection with the sale, the Company paid off the $7,376,000 mortgage balance on this property and incurred a $472,000 swap termination fee (included in Prepayment costs on debt) and a $249,000 write-off of deferred financing costs (included in Amortization and write-off of deferred financing costs). The non-controlling interest’s share of income from the transaction was $1,320,000 and is included in net income attributable to non-controlling interests.

Note 6 — Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures

Variable Interest Entities — Ground Leases

In June 2014, the Company purchased land for $6,510,000 in Sandy Springs, Georgia, improved with a 196 unit apartment complex, and in March 2015, the Company purchased land for $9,300,000 in Lakemoor, Illinois, improved with a 496 unit apartment complex.  With each purchase, the Company simultaneously entered into a triple net ground lease with the owner/operator of the applicable complex.

The Company determined that it has a variable interest through its ground leases and the owner/operators are VIEs because their equity investment at risk is insufficient to finance its activities without additional subordinated financial support; this assessment did not change as a result of the adoption of ASU 2015-02 (see Note 2). Simultaneously with the closing of each

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016 (Continued)

Note 6 — Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures (Continued)

acquisition, the owner/operator obtained a mortgage from a third party ($16,230,000 for Sandy Springs and $43,824,000 for Lakemoor) which, together with the Company’s purchase of the land, provided substantially all of the aggregate 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. Other than as described above, no other financial support has been provided by the Company.

The Company further determined that for each acquisition it is not the primary beneficiary because the Company does not have the power to direct the activities that most significantly impact the owner/operator’s economic performance, such as management, operational budgets and other rights, including leasing of the units, and therefore, does not consolidate the VIEs for financial statement purposes.  Accordingly, the Company accounts for these investments as land and the revenues from the ground leases as Rental income, net.  Such rental income amounted to $428,000 and $252,000 for the three months ended March 31, 2016 and 2015, respectively.

The following is a summary of the Company’s variable interests in identified VIEs, in which it is not the primary beneficiary, and the aggregate carrying amount and maximum exposure to loss as of March 31, 2016 (amounts in thousands):

Pursuant to the terms of the ground lease for the property in Sandy Springs, Georgia, the owner/operator is obligated to make certain unit renovations as and when units become vacant.  Cash reserves totaling $1,894,000 were received by the Company in conjunction with the purchase of the property in June 2014 to cover such renovation work and other reserve requirements.  Through the year ended December 31, 2015, an additional $121,000 of reserves was received by the Company and an additional $67,000 was received during the three months ended March 31, 2016.  These cash reserves are held by the Company and disbursed once the renovations have been completed. Through the year ended December 31, 2015, the Company disbursed approximately $941,000 and for the three months ended March 31, 2016 the Company disbursed approximately $110,000 for renovation costs to the owner/operator. The cash reserve balance at March 31, 2016 and December 31, 2015 was $1,031,000 and $1,074,000, respectively, and is classified as Restricted cash on the consolidated balance sheets.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016 (Continued)

Note 6 — Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures (Continued)

Variable Interest Entity — Consolidated Joint Ventures

A joint venture in which the Company has a 95% equity interest and a senior preferred equity interest, acquired a property located in Joppa, Maryland.  The Company had historically determined that this joint venture was a VIE.  As a result of the adoption of ASU 2015-02, the Company re-assessed its evaluation and determined this venture is still a VIE as the Company’s voting rights are not proportional to its economic interests and substantially all of the joint venture’s activities are conducted on behalf of the Company.

With respect to the six other consolidated joint ventures in which the Company has between an 85% to 95% interest, the Company had historically determined that such ventures were not VIEs.  As a result of the adoption of ASU 2015-02, the Company re-assessed its evaluation of these investments and determined such ventures are VIEs because the non-controlling interests do not have substantive kick-out or participating rights.

In each of these seven joint ventures, the Company has determined it is the primary beneficiary of the VIE 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 has continued to consolidate the operations of these joint ventures for financial statement purposes.  The joint ventures’ creditors do not have recourse to the assets of the Company other than those held by these joint ventures.

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):

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016 (Continued)

Note 6 — Variable Interest Entities, Contingent Liabilities and Consolidated Joint Ventures (Continued)

MCB Real Estate, LLC and its affiliates (“MCB”) are the Company’s joint venture partner in five consolidated joint ventures.  At March 31, 2016, the Company has aggregate equity investments of approximately $18,064,000 in such ventures.

A joint venture with MCB, in which the Company has a net equity investment of $2,763,000, owns a property formerly operated as a Pathmark supermarket in Philadelphia, Pennsylvania. In July 2015, this tenant filed for Chapter 11 bankruptcy protection, rejected the lease, and in late September 2015, vacated the property. This tenant accounted for approximately 1.3% of the Company’s rental income for the three months ended March 31, 2015.  At March 31, 2016, the mortgage debt on such property is $4,485,000. The Company has determined that no impairment charge is required currently with respect to this property.

Distributions by Consolidated Joint Ventures

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

Note 7 — Investment in Unconsolidated Joint Ventures

At March 31, 2016 and December 31, 2015, the Company’s five unconsolidated joint ventures each own and operate one property.  Such ventures are not considered VIEs (see Note 2).  The Company’s equity investment in such unconsolidated joint ventures at such dates totaled $11,076,000 and $11,350,000, respectively. The Company recorded equity in earnings of $209,000 and $147,000 for the three months ended March 31, 2016 and 2015, respectively.

Note 8 — Lease Termination Fee Income

In March 2015, the Company received a $650,000 lease termination fee from an industrial tenant in a lease buy-out transaction.  In connection with the receipt of this fee, the Company wrote-off $226,000 as an offset to rental income, representing the entire balance of the unbilled rent receivable related to the sole tenant at this property.  The Company re-leased this property simultaneously with the termination of the lease.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016 (Continued)

Note 9 — Allowance for Doubtful Accounts

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its tenants to make required rent payments.  If the financial condition of a specific tenant were to deteriorate resulting in an impairment of its ability to make payments, additional allowances may be required.  At March 31, 2016 and December 31, 2015, there was no balance in allowance for doubtful accounts.

The Company records bad debt expense as a reduction of rental income and/or tenant reimbursements. On March 2, 2016, Sports Authority Inc., a tenant at the Company’s Greenwood Village, Colorado property filed for Chapter 11 bankruptcy protection. This tenant accounted for approximately 0.8% of the Company’s rental income for the three months ended March 31, 2015.  At March 31, 2016, the Company recorded an aggregate bad debt expense of $153,000, relating to rental income and tenant reimbursements due from this tenant.

Note 10 — Debt Obligations

Mortgages Payable

On January 1, 2016, the Company adopted ASU 2015-03, Interest — Imputation of Interest — Simplifying the Presentation of Debt Issuance Costs, which amends the balance sheet presentation for debt issuance costs.  Under the amended guidance, a company will present unamortized debt issuance costs as a direct deduction from the carrying amount of that debt liability with retrospective application to all prior periods presented.  The adoption of this ASU had no impact on the Company’s previously reported income from operations, net income or accumulated undistributed net income for the periods presented.

As a result of the adoption of this guidance, the following table depicts the adjustments to the Company’s previously reported consolidated balance sheet amounts at December 31, 2015 (amounts in thousands):

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016 (Continued)

Note 10 — Debt Obligations (Continued)

The following table details the Mortgages payable, net, balances per the consolidated balance sheets at March 31, 2016 and December 31, 2015 (amounts in thousands):

At March 31, 2016 and December 31, 2015, $236,000 and $35,000, respectively, is included in other assets on the consolidated balance sheets representing unamortized deferred financing costs incurred for which there is no associated mortgage debt.

Line of Credit

The Company has a $75,000,000 credit facility with Manufacturers & Traders Trust Company, VNB New York, LLC, Bank Leumi USA and Israel Discount Bank of New York which matures December 31, 2018.  The facility provides that the Company pay an interest rate equal to the one month LIBOR rate plus an applicable margin which ranges 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.   The applicable margin was 175 basis points at March 31, 2016 and 2015.   An unused facility fee of .25% per annum applies to the facility.  The average interest rate on the facility was 2.18% and 1.92% for the three months ended March 31, 2016 and 2015, respectively.

The following table details the Line of credit, net, balances per the consolidated balance sheets at March 31, 2016 and December 31, 2015 (amounts in thousands):

At May 2, 2016, there was an outstanding balance of $25,350,000 (before netting unamortized deferred financing costs) under the facility.  The Company was in compliance with all covenants at March 31, 2016.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016 (Continued)

Note 11 — Related Party Transactions

Effective January 1, 2016, pursuant to the compensation and services agreement, as amended, with Majestic Property Management Corp., a company wholly-owned by the Company’s vice-chairman, property management fees are 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 will not pay Majestic property management fees with respect to properties managed by third parties.  For the three months ended March 31, 2016, the Company paid $652,000 (including overhead expenses of $49,000 and property management fees of $241,000).  For the three months ended March 31, 2015, such quarterly fees were $634,000 (including overhead expenses of $49,000 and property management fees of $223,000).

For 2016, the Company agreed to pay quarterly fees of $65,625 to the Company’s chairman and $26,250 to the Company’s vice-chairman, the same fees paid to such officers in 2015.

Executive officers and others providing services under the compensation and services agreement were awarded shares of restricted stock and restricted stock units under the Company’s stock incentive plans (described in Note 14).  The costs of the plans charged to the Company’s operations applicable to the executive officers and others providing services under the compensation and services agreement amounted to $344,000 and $310,000 for the three months ended March 31, 2016 and 2015, respectively.

In February 2015, a subsidiary of Gould Investors L.P. (“Gould”), a related party, sold the building where the Company’s corporate offices are located to an unrelated party. During the three months ended March 31, 2015, the Company paid the Gould subsidiary rent of $7,000 and all subsequent lease payments have been made to the purchaser.

The fees paid under the compensation and services agreement (except for the property management fees which are included in Real estate expenses), the chairman and vice-chairman fees, the costs of the stock incentive plans, and the rent expense are included in General and administrative expense on the consolidated statements of income.

The Company obtains its property insurance in conjunction with Gould and reimburses Gould annually for the Company’s insurance cost relating to its properties. Included in Real estate expenses on the consolidated statements of income is insurance expense of $101,000 and $57,000 for the three months ended March 31, 2016 and 2015, respectively.

During the three months ended March 31, 2016 and 2015, the Company paid an aggregate of $51,000 and $105,000, respectively, to its joint venture partners or their affiliates for property management and acquisition fees, which are included in Real estate expenses and Real estate acquisition costs on the consolidated statements of income.  Additionally, in the three months ended March 31, 2016, an unconsolidated joint venture of the Company paid management fees of $35,000 to the other partner of the venture, of which $17,500 reduced Equity in earnings of unconsolidated joint ventures on the consolidated statement of income.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016 (Continued)

Note 12 — Common Stock Cash Dividend

On March 10, 2016, the Board of Directors declared a quarterly cash dividend of $.41 per share on the Company’s common stock, totaling $6,996,000. The quarterly dividend was paid on April 7, 2016 to stockholders of record on March 24, 2016.

Note 13 — Shares Issued through Equity Offering Program

On March 20, 2014, the Company entered into an amended and restated equity offering sales agreement to sell shares of the Company’s common stock from time to time with an aggregate sales price of up to approximately $38,360,000, through an “at the market” equity offering program.  The Company did not sell any shares during the three months ended March 31, 2015.  During the three months ended March 31, 2016, the Company sold 62,499 shares for proceeds of $1,387,000, net of commissions of $14,000, and incurred offering costs of $40,000 for professional fees.  Subsequent to March 31, 2016 and through April 4, 2016, the Company sold 53,563 shares for proceeds of $1,190,000, net of commissions of $12,000.

Note 14 — Stock Based Compensation

A maximum of 600,000 shares of the Company’s common stock is authorized for issuance pursuant to the Company’s 2012 Incentive Plan, of which 497,500 shares of restricted stock are outstanding and have not yet vested as of March 31, 2016.  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.  An aggregate of 307,500 shares of restricted stock and restricted stock units outstanding under the Company’s 2009 equity incentive plan have not yet vested and no additional awards may be granted under this plan.

Pursuant to the Pay-for-Performance program, there are 200,000 performance share awards in the form of restricted stock units (the “Units”) outstanding under the Company’s 2009 Incentive Plan. The holders of Units are not entitled to dividends or to vote the underlying shares until the Units vest and shares are issued. Accordingly, for accounting purposes, the shares underlying the Units are not included in the shares shown as outstanding on the balance sheet.  No Units were forfeited or vested in the three months ended March 31, 2016.

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Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016 (Continued)

Note 14 — Stock Based Compensation (Continued)

The following is a summary of the activity of the equity incentive plans excluding, except as otherwise noted, the 200,000 Units:

The following information includes the 200,000 Units:

As of March 31, 2016, there were approximately $8,080,000 of total compensation costs related to non-vested awards that have not yet been recognized, including $151,000 related to the Units (net of forfeiture and performance assumptions which are re-evaluated quarterly). These compensation costs will be charged to general and administrative expense over the remaining respective vesting periods. The weighted average vesting period is approximately 2.5 years.

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016 (Continued)

Note 15 — 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 available-for-sale securities), dividends payable, and accrued expenses and other liabilities (excluding interest rate swaps), are not measured at fair value on a recurring basis, but are considered to be recorded at amounts that approximate fair value.

At March 31, 2016, the $336,424,000 estimated fair value of the Company’s mortgages payable is more than their $325,186,000 carrying value (before netting unamortized deferred financing costs) by approximately $11,238,000 assuming a blended market interest rate of 4.01% based on the 9.7 year weighted average remaining term of the mortgages.  At December 31, 2015, the $346,614,000 estimated fair value of the Company’s mortgages payable is more than their $334,428,000 carrying value (before netting unamortized deferred financing costs) by approximately $12,186,000 assuming a blended market interest rate of 4.07% based on the 8.9 year weighted average remaining term of the mortgages.

At March 31, 2016 and December 31, 2015, the carrying amount of the Company’s line of credit (before netting unamortized deferred financing costs) of $29,850,000 and $18,250,000, 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.

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One Liberty Properties, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

March 31, 2016 (Continued)

Note 15 — Fair Value Measurements (Continued)

Fair Value on a Recurring Basis

The fair value of the Company’s available-for-sale securities and derivative financial instruments was determined using the following inputs (amounts in thousands):