ONE LIBERTY PROPERTIES INC (OLP) FY 2024 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Overview

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We are a self-administered and self-managed REIT focused on acquiring, owning and managing a geographically diversified portfolio consisting of industrial and, to a lesser extent, retail properties, many of which are subject to long-term leases. Most of our leases are “net leases” under which the tenant, directly or indirectly, is responsible for paying the real estate taxes, insurance and ordinary maintenance and repairs of the property. As of December 31, 2024, we own, in 31 states, 102 properties, including two properties owned by consolidated joint ventures and two properties owned through unconsolidated joint ventures.

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Challenges and Uncertainties as a Result of the Volatile Economic Environment

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There is significant economic uncertainty due, among other things, to volatile interest rates, the challenges presented by an inflationary/potential recessionary environment and the proposed policies of the current administration. As a result of this uncertainty, volatility and the related causes, we may be cautious in pursuing acquisition opportunities in 2025 and our ability to grow revenue, net income and cash flow through acquisitions may be adversely affected.

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General Challenges and Uncertainties

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In addition to the challenges and uncertainties as also described under “Cautionary Note Regarding Forward-Looking Statements”, “Item 1A. Risk Factors”, and “— Challenges and Uncertainties as a Result of the Volatile Economic Environment”, we, among other things, face additional challenges and uncertainties, including the possibility we will not be able to: lease our properties on terms favorable to us or at all; collect amounts owed to us by our tenants; renew or re-let, on acceptable terms, leases that are expiring or otherwise terminating; acquire or dispose of properties on acceptable terms; or grow, through acquisitions or otherwise, our property portfolio so as to generate additional rental and net income. If we are unable to address these challenges successfully, we may be unable to sustain our current level of dividend payments.

Other than with respect to our continuing focus on acquiring industrial properties, we generally seek to manage the risk of our real property portfolio and the related financing arrangements by (i) diversifying among locations, tenants, scheduled lease expirations, mortgage maturities and lenders, and (ii) minimizing our exposure to interest rate fluctuations. As a result, as of December 31, 2024:

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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, reviewing changes in tenant payment patterns, 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.

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We monitor, on an ongoing basis, our expiring leases and generally approach tenants with expiring leases (including those subject to renewal options) at least a year prior to lease expiration to determine their interest in renewing their leases. During the three years ending December 31, 2027, 57 leases for 49 tenants at 36 properties representing $22.0 million, or 30.5%, of 2025 contractual rental income expire.

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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.

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At December 31, 2024, we have unhedged variable rate mortgage debt in the principal amount of $7.3 million which bears a weighted average interest rate of 3.88%. The table below provides information about such debt as of December 31, 2024.

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Challenges and Uncertainties Facing The Vue - Beachwood, Ohio

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A multi-family complex, which we refer to as The Vue, ground leases from us the underlying land located in Beachwood, Ohio. Since 2018, the property has faced, and we anticipate that the property will continue to face, occupancy and financial challenges. As the property has not generated specified levels of positive operating cash flows, the tenant has not been required to pay rent since October 2020, and we anticipate that it will not pay rent in the near future. After giving effect to debt service, the property, during the past several years (other than 2024), has been operating on a negative cash flow basis, although management believes that the property’s operating performance is improving.

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Since 2022 (through February 28, 2025), we provided The Vue with an aggregate of $3.5 million (including $109,000 from January 1, 2024 through February 28, 2025) to cover, among other things, operating cash flow shortfalls and capital expenditures, and the amount to be funded in 2025, if any, has not been definitively determined. At December 31, 2024, (i) 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 $17.4 million and is subordinate to $62.3 million of mortgage debt incurred by the owner/operator. Our cash flow will be adversely impacted by our funding of additional capital expenditures and operating expense shortfalls at the property (including our payment of the tenant’s debt service obligations) and the continuing non-payment of rent. If we determine that under GAAP the property has been impaired, we may incur a substantial impairment charge and if we sell the property, we may recognize a substantial loss. See Note 6 to our consolidated financial statements.

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2024 and Recent Developments

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In 2024:

Subsequent to December 31, 2024, we:

Purchases

We estimate that after giving effect to the purchase of New Properties, 2025 contractual rental income will be approximately $77.3 million.

Sale

In January 2025, we terminated the previously announced contract to sell a multi-tenant retail center located in St. Louis Park, Minnesota.

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Comparison of Years Ended December 31, 2024 and 2023

Results of Operations -

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Revenues

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The following table compares total revenues for the periods indicated:

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Rental income, net.

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The following table details the components of rental income, net, for the periods indicated:

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Changes at same store properties

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The increase in same store rental income is due to increases of:

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The increase was offset by decreases of:

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Lease Termination Fee

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In March 2024, a consolidated joint venture in Lakewood, Colorado, in which we hold a 90% interest, received a lease termination fee of $250,000 from a tenant due to the early termination of its lease in connection with the sale of the related restaurant parcel.

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Operating Expenses

The following table compares operating expenses for the periods indicated:

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Depreciation and amortization. The decrease is due primarily to:

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The decrease was offset by:

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Real estate expenses.

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The increase is primarily due to:

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The increase was offset primarily by a $202,000 decrease related to properties sold in 2023 and 2024.

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A substantial portion of real estate expenses are rebilled to tenants and are included in Rental income, net, on the consolidated statements of income.

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General and administrative. The decrease in 2024 is due primarily to decreases in (i) non-cash compensation expense primarily due to the inclusion, in 2023, of $233,000 from the retirement, and related accelerated vesting, of an executive officer’s restricted stock awards, and (ii) professional fees of $166,000 related to litigation that has been settled.

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Impairment loss. During 2024, we recorded a $1.1 million impairment loss at our former Hamilton, Ohio property tenanted by LA Fitness. (See Note 5 to our consolidated financial statements).

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State taxes. During 2024, our state tax expense was offset by a $238,000 refund from Tennessee related to franchise taxes paid during 2020 through 2022, as the state amended the method of calculating such taxes, resulting in overpayments in such years.

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Gain on sale of real estate, net

The following table lists the sold properties and related gains, net, for the periods indicated:

Other Income and Expenses

The following table compares other income and expenses for the periods indicated:

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Equity in earnings (loss) of unconsolidated joint ventures. The 2023 period includes our 50% share of (i) an $850,000 impairment charge and (ii) $103,000 debt prepayment charge, related to the early payoff of the mortgage, in connection with the sale of our former Manahawkin, New Jersey joint venture property (the “Manahawkin Property”). The Manahawkin Property was sold in December 2023 - see Note 7 to our consolidated financial statements.

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Equity in loss from sale of unconsolidated joint venture property. The 2023 results represent a loss of $108,000 from the sale of the Manahawkin Property.

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Other income. The change in 2024 is due to an increase of $778,000 in interest income primarily from investments in short-term U.S. treasury bills.

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Interest expense. The following table compares interest expense for the periods indicated:

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Mortgage interest

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The following table reflects the weighted average interest rate on the weighted average principal amount of outstanding mortgage debt during the applicable year:

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The increase in 2024 is due primarily to the increase in the weighted average interest rate on the principal amount of mortgage debt outstanding. Among other things, the mortgages (i) that we refinanced generally bore a higher interest rate than the mortgages we paid off and (ii) obtained in connection with acquisitions generally bore a higher rate of interest than the mortgages on properties we sold.

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Credit facility interest

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The decrease in credit line interest in 2024 is due to the payoff of the principal balance outstanding on the credit facility. The interest expense of $254,000 for 2024 constitutes the unused facility fee.

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The weighted average interest rate was 6.69% for 2023 and the weighted average principal amount outstanding was $15.7 million

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Funds from Operations and Adjusted Funds from Operations

We compute funds from operations, or FFO, in accordance with the “White Paper on Funds From Operations” issued by the National Association of Real Estate Investment Trusts (“NAREIT”) and NAREIT’s related guidance. FFO is defined in the White Paper as net income (calculated in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, gains and losses from change in control, impairment write-downs of certain real estate assets and investments in entities where the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Adjustments for unconsolidated partnerships and joint ventures are calculated to reflect FFO on the same basis. In computing FFO, we do not add back to net income the amortization of costs in connection with our financing activities or depreciation of non-real estate assets.

We compute adjusted funds from operations, or AFFO, by adjusting FFO for straight-line rent accruals and amortization of lease intangibles, deducting from income (i) additional rent from a ground lease tenant, (ii) income on settlement of litigation, (iii) income on insurance recoveries from casualties, (iv) lease termination and assignment fees, and adding back to income (i) amortization of restricted stock and restricted stock unit compensation expense, (ii) amortization of costs in connection with its financing activities (including its share of its unconsolidated joint ventures), (iii) debt prepayment costs, (iv) amortization of lease incentives and (v) mortgage intangible assets. Since the NAREIT White Paper does not provide guidelines for computing AFFO, the computation of AFFO varies from one REIT to another.

We believe that FFO and AFFO are useful and standard supplemental measures of the operating performance for equity REITs and are used frequently by securities analysts, investors and other interested parties in evaluating equity REITs, many of which present FFO and AFFO when reporting their operating results. FFO and AFFO are intended to exclude GAAP historical cost depreciation and amortization of real estate assets, which assumes that the value of real estate assets diminish predictably over time. In fact, real estate values have historically risen and fallen with market conditions. As a result, we believe that FFO and AFFO provide a performance measure that when compared year over year, should reflect the impact to operations from trends in occupancy rates, rental rates, operating costs, interest costs and other matters without the inclusion of depreciation and amortization, providing a perspective that may not be necessarily apparent from net income. We also consider FFO and AFFO to be useful in evaluating potential property acquisitions.

FFO and AFFO do not represent net income or cash flows from operating, investing or financing activities as defined by GAAP. FFO and AFFO should not be considered to be an alternative to net income as a reliable measure of our operating performance; nor an alternative to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity. FFO and AFFO do not measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders.

Management recognizes that there are limitations in the use of FFO and AFFO. In evaluating our performance, management is careful to examine GAAP measures such as net income and cash flows from operating, investing and financing activities.

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The following tables provide a reconciliation of net income and net income per common share (on a diluted basis) in accordance with GAAP to FFO and AFFO for the years indicated (dollars in thousands, except per share amounts):

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(1) The weighted average number of diluted common shares used to compute FFO and AFFO applicable to common stock includes unvested restricted shares that are excluded from the computation of diluted EPS.

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The $969,000, or 2.5%, decrease in FFO is due primarily to:

Offsetting the decrease is:

See “—Comparison of Years Ended December 31, 2024 and 2023” for further information regarding these changes.

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The $1.4 million, or 3.4%, decrease in AFFO is due primarily to the factors impacting FFO as described immediately above, other than the (i) decrease in general and administrative expenses and (ii) lease termination fee income.

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See “—Comparison of Years Ended December 31, 2024 and 2023” for further information regarding these changes.

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Comparison of Years Ended December 31, 2023 and 2022

As we qualify as a smaller reporting company, this comparison is omitted in accordance with Instruction 1 to Item 303(a) of Regulation S-K.

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Liquidity and Capital Resources

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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, issuance of our equity securities and property sales. In 2024, we obtained approximately (i) $38.2 million of net proceeds from property sales (after giving effect to $19.9 million of mortgage debt repayments) and (ii) $45.0 million of proceeds from mortgage financings (after giving effect to $33.1 million of refinanced amounts). Our available liquidity at February 28, 2025 was approximately $110.1 million, including approximately $10.1 million of cash and cash equivalents (including the credit facility’s required $3.0 million average deposit maintenance balance) and, subject to borrowing base requirements, up to $100.0 million available under our credit facility.

Liquidity and Financing

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We expect to meet our short-term (i.e., one year or less) and long-term (i) operating cash requirements (including debt service and anticipated dividend payments) principally from cash flow from operations, our available cash and cash equivalents, proceeds from and, to the extent permitted and needed, our credit facility and (ii) investing and financing cash requirements (including an estimated aggregate of $3.5 million of capital expenditures) from the foregoing, as well as property financings, property sales and sales of our common stock.

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The following table sets forth, as of December 31, 2024, information with respect to our mortgage debt that is payable from January 2025 through December 31, 2027:

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(1)Of such sum, $18,737 matures during the six months ending June 30, 2025. We anticipate that we will extend $5,790 and payoff $12,947 of the principal payments that mature during the six months ending June 30, 2025.

We intend to make debt amortization payments from operating cash flow and, though no assurance can be given that we will be successful in this regard, generally intend to refinance, extend or payoff the mortgage loans which mature in 2025 through 2027. 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).

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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, although we have done so infrequently and primarily in the context of a tenant default at a property for which we have not found a replacement tenant, if we believe we have negative equity in a property subject to a non-recourse mortgage loan, we may convey such property to the mortgagee to terminate our mortgage obligations, including payment of interest, principal and real estate taxes, with respect to such property.

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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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Material Contractual Obligations

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The following sets forth our material contractual obligations as of December 31, 2024:

As of December 31, 2024, we had $425.0 million of mortgage debt outstanding, all of which is non-recourse (subject to standard carve-outs). We expect that mortgage interest and amortization payments (excluding repayments of principal at maturity) of approximately $83.8 million due through 2027 will be paid primarily from cash generated from our operations. We anticipate that principal balances due at maturity through 2027 of $79.4 million will be paid primarily from cash and cash equivalents and mortgage financings and refinancings. If we are unsuccessful in refinancing our existing indebtedness or financing our unencumbered properties, our cash flow, funds available under our credit facility and available cash, if any, may not be sufficient to repay all debt obligations when payments become due, and we may need to issue additional equity, obtain long or short-term debt, or dispose of properties on unfavorable terms.

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Credit Facility

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Our credit facility provides that subject to borrowing base requirements, we can borrow up to $100.0 million for the acquisition of commercial real estate, repayment of mortgage debt, and renovation and operating expense purposes; provided, that if used for renovation and operating expense purposes, the amount outstanding for such purposes will not exceed the lesser of $40.0 million and 40% of the borrowing base. See “—Liquidity and Capital Resources”. The facility matures December 31, 2026 and bears interest equal to 30-day SOFR plus the applicable margin. The applicable margin ranges from 175 basis points if our ratio of total debt to total value (as calculated pursuant to the facility) is equal to or less than 50%, increasing to a maximum of 275 basis points if such ratio is greater than 60%. The applicable margin was 175 basis points for each of 2024 and 2023. There is an unused facility fee of 0.25% per annum on the difference between the outstanding loan balance and $100.0 million. The credit facility requires the maintenance of $3.0 million in average deposit balances. As of February 28, 2025, the rate on the facility was 6.06%.

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The terms of our credit facility include certain restrictions and covenants which may limit, among other things, the incurrence of liens, and which require compliance with financial ratios relating to, among other things, the minimum amount of tangible net worth, the minimum amount of debt service coverage, the minimum amount of fixed charge coverage, the maximum amount of debt to value, the minimum level of net income, certain investment limitations and the minimum value of unencumbered properties and the number of such properties. Net proceeds received from the sale, financing or refinancing of properties are generally required to be used to repay amounts outstanding under our credit facility.

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Inflation

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We are exposed to inflation risk as income from long-term leases is the primary source of our cash flows from operations. Approximately 72% of our leases contain provisions intended to mitigate the impact of inflation. These provisions generally increase rental rates during the terms of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures). In addition, many of our leases require the tenant to pay, or reimburse us for our payment of, all or a majority of the property’s operating expenses, including real estate taxes, utilities, insurance and building repairs, which may also mitigate our risks associated with rising costs. However, these rent escalation provisions may not adequately offset the effects of inflation.

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Inflation may also affect the overall cost of our unhedged debt (i.e., primarily debt incurred pursuant to our credit facility) and affects the mortgage debt we may incur in the future. (The interest rate risk associated with substantially all of our current mortgage debt is either mitigated through long-term fixed interest rate loans and interest rate hedges). Increasing interest rates on acquisition mortgage debt limits the acquisition opportunities we can pursue and reduces the prices at which we sell our properties.

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Distribution Policy

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We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. Accordingly, to qualify as a REIT, we must, among other things, meet a number of organizational and operational requirements, including a requirement that we distribute currently at least 90% of our ordinary taxable income to our stockholders. It is our current intention to comply with these requirements and maintain our REIT status. As a REIT, we generally will not be subject to corporate federal, state or local income taxes on taxable income we distribute currently (in accordance with the Internal Revenue Code and applicable regulations) to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal, state and local income taxes at regular corporate rates and may not be able to qualify as a REIT for four subsequent tax years. Although we qualify for federal taxation as a REIT, we are subject to certain state and local taxes on our income and to federal income taxes on our undistributed taxable income (i.e., taxable income not distributed in the amounts and in the time frames prescribed by the Internal Revenue Code and applicable regulations thereunder) and are subject to Federal excise taxes on our undistributed taxable income.

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It is our current intention to pay to our stockholders within the time periods prescribed by the Internal Revenue Code no less than 90%, and, if possible, 100% of our annual taxable income, including taxable gains from the sale of real estate. It will continue to be our policy to make sufficient distributions to stockholders in order for us to maintain our REIT status under the Internal Revenue Code.

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Our board of directors will continue to evaluate, on a quarterly basis, the amount and nature (i.e., cash, stock or a combination of the foregoing) of dividend payments based on its assessment of, among other things, our short and long-term cash and liquidity requirements, prospects, debt maturities, maintenance of our REIT status, projections of our REIT taxable income, net income, funds from operations and adjusted funds from operations.

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Critical Accounting Estimates

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Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, we reconsider and evaluate our estimates and assumptions.

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We base our estimates on historical experience, current trends and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could materially differ from any of our estimates under different assumptions or conditions. Our significant accounting policies are discussed in Note 2 of our consolidated financial statements in this report. We believe the accounting estimates listed below are the most critical to aid in fully understanding and evaluating our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.

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Revenue Recognition

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Our main source of revenue is rental income from our tenants. Rental income primarily includes: (i) base rents that our tenants pay in accordance with the terms of their respective leases reported on a straight-line basis over the non-cancellable term of each lease and (ii) reimbursements by tenants of certain real estate operating expenses. Since many of our leases provide for rental increases at specified intervals, straight-line basis accounting requires us to record as an asset and include in revenues, unbilled rent receivables which we will only receive if the tenant makes all rent payments required through the expiration of the term of the lease. Accordingly, our management must determine, in its judgment, that the unbilled rent receivable applicable to each specific tenant is collectable. We review unbilled rent receivables on a quarterly basis and take into consideration the tenant’s payment history and the financial condition of the tenant. In the event that the collectability of an unbilled rent receivable is unlikely, we are required to write-off the receivable, which has an adverse effect on net income for the year in which the direct write-off is taken, and will decrease total assets and stockholders’ equity.

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Purchase Accounting for Acquisition of Real Estate

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The fair value of real estate acquired is allocated to acquired tangible assets (which includes land, building and building improvements) and identified intangible assets and liabilities (which include the value of above, below and at-market leases, origination costs associated with in-place leases and above and below-market mortgages assumed) based in each case on their relative fair values. The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, building and building improvements based on our determination of the relative fair values of these assets. We assess the fair value of the lease intangibles and assumed mortgages based on estimated cash flow projections that utilize appropriate discount rates and available market information. The fair values associated with below-market rental renewal options are determined based on our experience and the relevant facts and circumstances that existed at the time of the acquisitions. The portion of the values of the leases associated with below-market renewal options that we deem reasonably certain to be exercised by the tenant are amortized to rental income over the respective renewal periods. The allocation made by us may have a positive or negative effect on net income and may have an effect on the assets and liabilities on the balance sheet.

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Carrying Value of Real Estate Portfolio

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We review our real estate portfolio on a quarterly basis to ascertain if there are any indicators of impairment to the value of any of our real estate assets, including deferred costs and intangibles, to determine if there is any need for an impairment charge. In reviewing the portfolio, we examine the type of asset, the current financial statements or other available financial information of the tenant, the economic situation in the area in which the asset is located, the economic situation in the industry in which the tenant is involved and the timeliness of the payments made by the tenant under its lease, as well as any current correspondence that may have been had with the tenant, including property inspection reports. For each real estate asset owned for which indicators of impairment exist, we perform a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the asset to its carrying amount. Management’s assumptions and estimates include projected rental rates during the holding period and property capitalization rates in order to estimate undiscounted future cash flows. If the undiscounted cash flows are less than the asset’s carrying amount, an impairment loss is recorded to the extent that the estimated fair value is less than the asset’s carrying amount. The estimated fair value is determined using a discounted cash flow model of the expected future cash flows through the useful life of the property. Real estate assets that are expected to be disposed of are valued at the lower of carrying amount or fair value less costs to sell on an individual asset basis. We generally do not obtain any independent appraisals in determining value but rely on our own analysis and valuations. Any impairment charge taken with respect to any part of our real estate portfolio will reduce our net income and reduce assets and stockholders’ equity to the extent of the amount of any impairment charge, but it will not affect our cash flow or our distributions until such time as we dispose of the property.

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Equity-Based Compensation

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We grant shares of restricted stock and restricted stock units (“RSUs”) to eligible plan participants, subject to the recipient’s continued service over a specified period and, with respect to the RSUs, the satisfaction of specified conditions over a specified period. The RSUs vest based upon satisfaction of specified metrics with respect to the (i) average of our annual total stockholder return (“TSR Awards”) and/or (ii) average annual return of capital (“ROC Awards”), in each case as calculated pursuant to the applicable award agreement. We account for the restricted stock awards and RSUs in accordance with ASC 718, Compensation - Stock Compensation, which requires that such compensation be recognized in the financial statements based on its estimated grant date fair value. The value of such awards is recognized as compensation expense in general and administrative expenses in the accompanying consolidated statements of operations over the applicable service periods. Grant date fair value is determined with respect to the (i) restricted stock awards, by the closing stock price on the date of grant, (ii) TSR Awards, by using a Monte Carlo simulation relying upon various assumptions and (iii) ROC Awards, by the closing stock price on the date of grant, subject to quarterly adjustment based upon management’s projections as to the achievability of the specified metrics related to the ROC Awards (the “ROC Metrics”). There is substantial subjectivity in management’s projections as to the achievability of the ROC Metrics and changes in such projections will cause fluctuations in our results of operations. See Note 11 to our consolidated financial statements.

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