Business context and reporting period
One Liberty Properties, Inc. is a self-managed REIT focused mainly on industrial and retail properties, many under long-term net leases. This unaudited Form 10-Q covers the three months ended March 31, 2022. At quarter-end, the company owned 118 properties across 31 states and reported occupancy of approximately 97.1% by square footage.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $21.6 million | $20.8 million |
| Net income attributable to One Liberty | $9.3 million | $3.0 million |
| Diluted earnings per share | $0.44 | $0.13 |
| Net cash from operating activities | $8.8 million | $11.5 million |
| Cash distributions to common stockholders | $9.4 million | $9.3 million |
| NAREIT FFO applicable to common stock | $10.6 million | $8.8 million |
| AFFO applicable to common stock | $10.7 million | $10.0 million |
| FFO / AFFO per share | $0.50 / $0.50 | $0.42 / $0.48 |
Revenue increased 3.6%, principally from same-store rental growth and acquisitions, partly offset by properties sold. Same-store rental income rose 3.8%. Operating expenses increased 1.8% to $13.4 million. Interest expense declined 7.1% to $4.3 million, largely due to lower average mortgage debt. The $9.3 million of attributable net income included a $4.6 million gain on property sales; reported earnings therefore rose much faster than recurring FFO and AFFO.
At March 31, total assets were $750.1 million and total equity was $309.9 million. Gross mortgage debt was $401.1 million; gross line-of-credit borrowings were $5.1 million. Cash and cash equivalents were $11.4 million, plus $0.4 million of restricted cash. Mortgages had a 4.17% weighted-average rate after swaps and a 6.2-year weighted-average remaining maturity. The company reported compliance with credit facility covenants.
Material changes and significant transactions
- Acquired an industrial property in Fort Myers, Florida, for $8.1 million and obtained $4.86 million of nine-year mortgage financing at 3.09%.
- Sold four Pennsylvania restaurant properties for approximately $10.0 million gross proceeds, recognizing a $4.65 million gain.
- Rental income increased $0.85 million year over year. Acquisition-related growth and a $0.76 million same-store increase were partly offset by lower income from dispositions.
- Other income included a $0.92 million insurance recovery related to hurricane damage at the Lake Charles property.
- Comprehensive income included a $1.78 million unrealized gain on derivatives, primarily reflecting interest-rate swap valuation changes.
Liquidity, outlook, and risks
Management reported available liquidity of $112.5 million as of May 3, 2022, comprising $12.5 million of cash and cash equivalents and $100.0 million available under the credit facility. The facility matures December 31, 2022; its borrowing rate is based on one-month LIBOR plus a margin. At May 3, no amount was outstanding under the facility. Borrowing limits for operating and renovation expenses change July 1, 2022, and any excess over the revised limits at June 30 must be repaid immediately.
Management cited 2022 contractual base rent of approximately $68.9 million, subject to lease terms and excluding specified joint-venture rent, variable rent, straight-line rent, certain deferred rent and other items. The company did not provide a formal earnings or FFO forecast. Management said it expects to fund operating needs, debt service and dividends mainly through operating cash flow, cash, borrowings, mortgage financing, property sales and equity issuance. It intends generally to refinance, extend or repay mortgages maturing in 2022–2025, but gave no assurance of success.
Subsequent to quarter-end, the company received approximately $5.4 million under a settlement of the Round Rock guaranty litigation; it expects to recognize the amount as other income in Q2 2022. It sold an Ohio industrial property on May 2 for $8.5 million and anticipated a $6.9 million gain in Q2 2022.
Key risks include tenant defaults and vacancies, exposure to challenged retail, theater and health-and-fitness sectors, lease renewal and re-leasing risk, interest rates, refinancing and credit-facility maturity, and the ability to maintain dividends. The company noted that shifting from higher-yielding retail properties toward industrial assets may reduce returns and make the current dividend harder to sustain. COVID-related rent collection remains a consideration: through April 30, 2022, it had collected 96.2% of previously accrued deferred rent, but had collected 22.2% of Regal Cinemas’ $1.449 million deferred balance. The Beachwood, Ohio ground-lease property generated no ground rent since October 2020; the company’s land carrying amount was $16.0 million, subordinated to the tenant’s $65.7 million mortgage, and the company had agreed to fund certain shortfalls and capital costs.
Important facts for investors to verify
- How much of the earnings increase reflects recurring property operations versus the property-sale gain and insurance recovery; compare GAAP income with FFO and AFFO.
- Progress on collecting Regal Cinemas’ deferred rent and the operating and funding outlook for the Beachwood ground-lease property.
- Plans to renew or refinance the credit facility before its December 31, 2022 maturity, and the effect of changing borrowing limits.
- Debt maturities and refinancing needs: the filing lists $173.0 million of scheduled amortization and principal maturities through 2025.
- Whether operating cash flow and recurring AFFO adequately support the $0.45 quarterly dividend, given Q1 operating cash flow below cash distributions.
- Execution and costs of the Manahawkin redevelopment, for which the company said it had not yet established a cost estimate or completion timeline.