ONE Liberty Properties, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 8, 2020. Dollar amounts below are in millions unless stated otherwise. The company is a REIT with 126 properties in 31 states and approximately 97% occupancy at quarter-end.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Rental income, net | $21.239 | $21.155; up 0.4% |
| Operating income | $13.059 | $9.217 |
| Net income attributable to One Liberty | $7.826 | $3.971 |
| Diluted EPS | $0.39 | $0.19 |
| FFO / AFFO per share | $0.46 / $0.51 | $0.48 / $0.51 |
| Cash from operating activities | $10.051 | $8.115 |
Net income included a $4.252 gain on a property sale; the sale also incurred $0.290 of debt prepayment costs. Cash used in investing was $21.520, including $28.504 of real estate purchases and $7.093 of sale proceeds. Cash provided by financing was $21.907. Cash and cash equivalents were $21.360 at quarter-end; cash, cash equivalents and restricted cash totaled $22.406.
At March 31, total assets were $805.751 and equity was $287.095. Mortgages payable were $451.757 gross and the credit line was $30.850 gross; the balance sheet reports these net of financing costs at $447.337 and $30.283, respectively. Mortgage debt carried a 4.19% weighted-average rate after swaps, with a 7.9-year weighted-average remaining term. The $100 million credit facility matures December 31, 2022. The company reported covenant compliance at quarter-end.
Changes versus the prior comparable period
- Rental income increased only 0.4% overall. Acquisitions added income, offset by dispositions and a 0.8% decline in same-store rental income.
- Operating expenses rose 4.1% to $12.432, mainly reflecting higher depreciation and amortization and general and administrative expense.
- Reported earnings rose substantially, primarily because of the $4.252 property-sale gain and the absence of the prior-year $0.116 joint-venture receivable write-off. FFO per share declined from $0.48 to $0.46; AFFO per share was unchanged at $0.51.
- Derivative-related other comprehensive loss was $4.818, versus $1.577 in Q1 2019. The reported fair value of interest-rate swap liabilities increased to $6.447 from $1.715 at year-end 2019.
Outlook, risks and notable items
- Management said COVID-19 had not materially adversely affected the company during Q1, but the subsequent tenant and economic impact was uncertain. As of May 4, the company had collected 71.9% of April cash base rent; collection was 86.8% from industrial tenants and 55.9% from other tenants.
- As of May 4, the company had agreed or was negotiating to defer approximately $3.0 million of rent otherwise due in Q2. Management expected deferrals to reduce near-term cash available for operations and dividends, although they generally were not expected to affect net income, FFO or AFFO.
- Available liquidity at May 4 was reported as $70.0 million, comprising $13.8 million of cash and $56.2 million available under the credit facility. The company had drawn the $10 million facility capacity designated for operating expenses. Liquidity figures include the required $3 million average deposit balance.
- Management stated there was uncertainty about the amount and form of the dividend for Q2. The Q1 dividend of $0.45 per share was declared in March and paid April 7.
- No mortgage debt was scheduled to mature in 2020; $8.5 million was scheduled to mature in 2021. Lenders had agreed by May 5 to defer an estimated $1.5 million of debt service. The company anticipated refinancing, extending or repaying upcoming maturities, but gave no assurance of success.
- The company acquired two industrial properties for $28.25 million and sold a Wisconsin retail property for net proceeds of $7.093 million. Its share of a joint venture’s property sale gain was $0.121 million.
- The company’s share of estimated capital expenditures for redevelopment of the Manahawkin property was $12–$15 million; funding sources were under evaluation.
- Key risks include tenant defaults or requests for concessions, reduced access to capital, covenant compliance, interest-rate exposure, retail-sector disruption, and restrictions on legal remedies. The company’s ground-lease land position in Beachwood, Ohio is subordinated to the tenant’s $67.4 million mortgage; the company’s maximum exposure was $13.9 million.
Important facts for investors to verify
- Subsequent rent collections, deferred-rent agreements, tenant payment trends and any later impairment or collectability adjustments.
- Dividend declarations and payment form, and whether operating cash flow supports distributions during the pandemic.
- Credit-facility availability, borrowing-base requirements and covenant compliance as tenant conditions and cash flows change.
- Refinancing or repayment plans for 2021–2023 mortgage maturities, and funding for the Manahawkin redevelopment.
- Underlying operating performance excluding property-sale gains, including same-store rent trends and FFO/AFFO.