Business Context and Reporting Period
Company: One Liberty Properties, Inc. (OLP)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2010
Business Overview: OLP is a self-administered, self-managed Real Estate Investment Trust (REIT) incorporated in Maryland. It acquires, owns, and manages a geographically diversified portfolio of retail, industrial, office, flex, and health/fitness properties, primarily under long-term net leases. As of December 31, 2010, the company owned 84 properties (two vacant) and participated in four joint ventures owning four additional properties, totaling approximately 5.1 million square feet across 29 states.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Total Revenues | $41.9 million | $40.2 million |
| Net Income | $9.3 million | $19.6 million |
| Net Income Per Share (Diluted) | $0.81 | $1.82 |
| Funds From Operations (FFO) | $18.2 million ($1.58/share) | $23.3 million ($2.15/share) |
| Adjusted FFO | $17.0 million ($1.48/share) | $22.1 million ($2.04/share) |
| Real Estate Investments (Net) | $401.6 million | $341.9 million |
| Total Assets | $444.6 million | $408.7 million |
| Total Liabilities | $265.4 million | $228.6 million |
| Stockholders' Equity | $179.2 million | $180.1 million |
| Mortgage Debt Outstanding | $215.3 million | $190.5 million |
| Line of Credit Outstanding | $36.2 million | $27.0 million |
| Cash and Cash Equivalents | $7.7 million | $28.0 million |
| Occupancy Rate (Owned Properties) | 98.5% | 98.6% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 4.1% to $41.9 million, driven by $3.0 million in rental revenue from 14 properties acquired in 2010. This was partially offset by a $1.8 million decrease in lease termination fees (none in 2010 vs. $1.8 million in 2009) and a $0.7 million reduction in rental income due to the bankruptcy of tenant Robb & Stucky.
- Net Income Decline: Net income decreased significantly to $9.3 million from $19.6 million in 2009. The decline is primarily attributed to the absence of a $5.8 million gain on the sale of properties in discontinued operations (recorded in 2009) and a $0.95 million income from a settlement with a former president (recorded in 2009).
- Acquisitions and Dispositions: In 2010, OLP acquired 14 properties for $72.3 million (including $33.6 million in assumed mortgage debt). The company sold two properties for $4.1 million, realizing a gain of $235,000.
- Debt and Liquidity: Mortgage debt increased by $24.8 million due to acquisitions and new financing. The line of credit balance increased by $9.2 million. Cash and cash equivalents decreased by $20.3 million, largely due to property acquisitions and dividend payments.
Guidance, Outlook, Risks, and Unusual Items
Recent Developments and Outlook
- Capital Raise: In February 2011, OLP completed a public offering of 2.7 million shares for net proceeds of approximately $40.6 million. Proceeds were used to repay $7.7 million in mortgage debt and reduce the line of credit by $26.2 million.
- Credit Facility: In January 2011, the revolving credit line was amended to increase capacity to $55 million and extend maturity to March 2013.
- Dividend Policy: The company intends to distribute at least 90% of taxable income to maintain REIT status. In 2010, all dividends were paid in cash ($1.23 per share), a shift from the 2009 policy of 90% stock/10% cash distributions.
Risks and Contingencies
- Tenant Bankruptcy: Robb & Stucky Limited LLLP, a tenant accounting for 2.1% of 2010 rental income, filed for Chapter 11 bankruptcy in February 2011. OLP recorded a $0.66 million charge in Q4 2010 related to rent reversals and accrued $0.29 million in unpaid taxes. The company may incur negative cash flow or require an impairment charge if the property is not re-leased.
- Concentration Risk: Approximately 60% of rental revenue is derived from retail tenants. Five major tenants (Haverty Furniture, Office Depot, Ferguson Enterprises, DSM Nutritional Products, and L-3 Communications) accounted for 38% of 2010 revenues.
- Refinancing Risk: Approximately $35.7 million of mortgage debt matures between 2011 and 2013. Failure to refinance could force property sales at disadvantageous terms.
- Economic Conditions: The company notes that the recent economic crisis has weakened retail spending, increasing the risk of tenant defaults and lease non-renewals.
Key Facts for Investor Verification
- Robb & Stucky Impact: Verify the status of the Plano, Texas property tenanted by Robb & Stucky, including potential impairment charges and the timeline for re-leasing or foreclosure.
- Debt Maturity Wall: Confirm the company's ability to refinance the $35.7 million in mortgage debt maturing between 2011 and 2013 given current market conditions.
- FFO vs. Net Income: Note the significant divergence between Net Income ($9.3M) and FFO ($18.2M) due to non-cash depreciation and the absence of one-time gains in 2010 compared to 2009.
- Acquisition Strategy: Assess the performance of the 14 properties acquired in 2010, which now represent 13.9% of 2011 contractual rental income.
- Related Party Transactions: Review the $2.225 million annual fee paid to Majestic Property Management Corp. (wholly-owned by the Chairman) for management and administrative services.