One Liberty Properties, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter filing. One Liberty is a self-managed REIT focused mainly on industrial properties, with a smaller retail portfolio. At year-end it owned 108 properties and held interests in joint ventures owning two more, across 31 states.
Financial and operating performance
| Metric | 2023 | 2022 |
|---|---|---|
| Total revenue | $90.6 million | $92.2 million |
| Net income attributable to One Liberty | $29.6 million | $42.2 million |
| Diluted earnings per share | $1.38 | $1.99 |
| FFO / diluted share | $39.0 million / $1.82 | $49.7 million / $2.34 |
| AFFO / diluted share | $42.6 million / $1.99 | $42.1 million / $1.98 |
| Cash provided by operating activities | $46.1 million | $44.2 million |
- Revenue declined 1.7%; attributable net income fell about 30%. The filing attributes the earnings comparison in part to prior-year litigation and Vue settlement income and insurance recovery, along with higher interest and operating costs. FFO declined 21.5%, while AFFO increased 1.1%.
- Rental income was $90.6 million, down 1.7%. Same-store rental income decreased 3.9%, primarily reflecting $4.6 million of Vue settlement-related income included in 2022 and reduced Regal rent; lease amendments, new tenants and tenant reimbursements partly offset declines.
- Operating expenses rose 4.6% to $57.3 million. Interest expense increased 6.9% to $18.8 million, including higher credit-facility borrowing costs during the year.
- Net gain on property sales was $17.0 million, versus $16.8 million in 2022. Net income and operating income include these gains, so they are not solely measures of recurring leasing performance.
- Operating cash flow was $46.1 million. Investing activities provided $33.0 million, largely reflecting property-sale proceeds; financing activities used $56.7 million, including $38.1 million of distributions and $9.6 million of share repurchases.
- At year-end, cash and cash equivalents were $26.4 million; total assets were $761.6 million and stockholders’ equity was $306.7 million. Gross mortgage debt was $422.6 million ($418.3 million net of financing costs and mortgage intangibles). The credit facility had no balance outstanding.
- Mortgage debt carried a 4.31% weighted-average interest rate and 5.9-year weighted-average remaining maturity. The company reported $16.0 million of unhedged variable-rate mortgage debt. Scheduled mortgage principal payments, including amortization, were $61.8 million in 2024; $99.9 million of principal was due at maturity in 2024–2026.
- Available liquidity was approximately $123.9 million at March 1, 2024: $23.9 million of cash and cash equivalents and up to $100.0 million available under the credit facility, subject to borrowing-base requirements.
- Occupancy was 98.8% by square footage, compared with 99.8% at year-end 2022. The portfolio’s net book value was $682.0 million.
Material changes and transactions
- Sold 10 properties and an out-parcel in 2023, generating $17.0 million of net gains. Management estimates these sales will reduce 2024 rental income by approximately $2.5 million versus 2023, assuming no acquisitions, dispositions or lease amendments.
- Used sale proceeds in part to repay approximately $21.8 million on the credit facility. Acquired a multi-tenant industrial property for $13.4 million.
- A 50%-owned unconsolidated joint venture sold its Manahawkin, New Jersey shopping center. One Liberty recorded $904,000 of equity losses from unconsolidated joint ventures and a separate $108,000 share of loss on the sale in 2023; its share included an $850,000 impairment charge.
- Amended, extended or entered into 28 leases covering approximately 988,000 square feet. Repurchased approximately 499,000 shares for $9.6 million, at an average $19.24 per share.
- The annual cash dividend was $1.80 per share in 2023. In March 2024, the board declared a $0.45-per-share quarterly dividend.
Outlook, risks and unusual items
- Management said economic and interest-rate uncertainty made it cautious about acquisitions in 2023 and may continue to constrain acquisitions and near-term growth. No formal earnings or FFO guidance is provided.
- 2024 contractual rental income was $71.3 million at year-end. This is an operating metric, not GAAP revenue, and excludes variable rent; it includes certain amounts with collection or lease-status uncertainty and excludes $1.3 million of estimated Vue variable rent and $235,000 of the company’s share of joint-venture base rent.
- Lease expirations are concentrated in 2027–2029: leases representing 44.3% of 2024 contractual rental income expire in those years. Management monitors renewals and typically approaches tenants at least a year before expiration.
- Regal Cinemas’ bankruptcy-related lease amendments shortened the two leases and reduced scheduled aggregate base rent over their remaining terms from $21.0 million to $7.7 million. The company reports Regal rent on a cash basis because collectability is considered less than probable.
- The Vue ground-lease tenant has not paid rent since October 2020. One Liberty had funded $3.4 million through March 1, 2024 for operating shortfalls and capital expenditures. Its $17.3 million land carrying value is subordinate to the tenant’s $63.6 million mortgage; further funding needs and potential impairment are uncertain.
- LA Fitness terminated its Hamilton, Ohio lease effective May 1, 2024. The property has a $4.0 million variable-rate mortgage scheduled to mature in September 2024; re-leasing or repurposing may be difficult or costly.
- Key risks include refinancing maturities amid elevated interest rates, tenant defaults or non-renewals, industrial and retail sector conditions, regional concentration, covenant compliance, property impairment, and the ability to maintain dividends. Environmental risks may be uninsured; management stated it does not carry insurance for the described environmental risks.
- Related-party arrangements include payments to Majestic Property Management, owned by the vice chairman, of $3.3 million for services plus $317,000 for office expenses in 2023. The auditor identified real estate impairment assessment as a critical audit matter because of the judgment involved in projected rents and capitalization rates. The auditor issued an unqualified opinion; management reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Refinancing plans and available proceeds for the $49.9 million of mortgage principal due at maturity in 2024 and the $99.9 million due at maturity through 2026.
- Actual rent collections, renewal outcomes and leasing costs for near-term expirations, particularly 2027–2029, and the assumptions underlying 2024 contractual rental income.
- Whether the Vue tenant resumes rent payments, the amount of any further support required, and the recoverability of the land investment.
- The outcome of the LA Fitness lease termination and Hamilton mortgage maturity, and the operating impact of Regal’s amended leases.
- Recurring cash generation and dividend coverage apart from property-sale gains and non-recurring 2022 settlement and insurance income; FFO and AFFO are non-GAAP supplemental measures.