One Liberty Properties, Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. One Liberty Properties (NYSE: OLP) is a self-managed REIT focused mainly on industrial and retail properties, generally leased on a net-lease basis. At year-end, it reported 117 owned properties and interests in joint ventures owning three properties, across 31 states.
Business context and operating profile
- Portfolio totaled approximately 11.2 million square feet; occupancy was 99.8% for owned properties, compared with 99.2% at year-end 2021. Unconsolidated joint-venture property occupancy was 58.7%.
- 2023 contractual rental income was $71.5 million, a company-defined operating measure of base rent that excludes certain variable rents and GAAP adjustments. Industrial properties represented 63.2% and retail 26.2% of this amount.
- Weighted-average remaining lease term was 5.9 years. Leases representing 19.3% of 2023 contractual rent expire in 2027; 10.5% expire in 2028.
Financial results and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $92.2 million | $82.7 million | +11.5% |
| Rental income, net | $92.2 million | $82.2 million | +12.2% |
| Net income attributable to OLP | $42.2 million | $38.9 million | +8.5% |
| Diluted earnings per share | $1.99 | $1.85 | +7.6% |
| NAREIT FFO | $49.7 million; $2.34 per diluted share | $36.1 million; $1.72 per diluted share | +37.6% total |
| AFFO | $42.1 million; $1.98 per diluted share | $41.0 million; $1.95 per diluted share | +2.6% total |
| Net cash provided by operating activities | $44.2 million | $48.6 million | −9.0% |
| Net cash used in investing activities | $25.3 million | Net cash provided: $23.4 million | — |
| Cash distributions to common stockholders | $37.8 million | $37.3 million | — |
FFO and AFFO are non-GAAP supplemental measures and are not substitutes for GAAP earnings or operating cash flow. FFO growth reflected, among other items, the Vue settlement, Round Rock litigation proceeds, and lower debt prepayment costs. AFFO excludes key settlement proceeds and other adjustments, and grew much more modestly.
- Operating expenses: $54.8 million, versus $51.2 million in 2021. Real estate expenses rose 12.4% to $15.5 million; general and administrative expense rose 6.6% to $15.3 million.
- Property-sale gains: $16.8 million, down from $25.5 million in 2021. The company sold seven properties in 2022.
- Balance sheet: Total assets were $783.3 million and total liabilities $466.3 million at year-end. Cash and cash equivalents were $6.7 million.
- Debt: Gross mortgage debt was $409.2 million, with a 4.10% weighted-average rate and 6.5-year weighted-average remaining maturity. Credit-facility borrowings were $21.8 million; gross total debt was approximately $431.0 million. Substantially all mortgage debt was fixed-rate or hedged.
- Debt maturities: Mortgage principal due, including scheduled amortization, was $25.3 million in 2023, $62.1 million in 2024 and $42.1 million in 2025. The credit facility was extended to December 31, 2026. At March 6, 2023, reported available liquidity was approximately $94.9 million, including $6.4 million of cash and $88.5 million available under the facility, subject to borrowing-base requirements.
- Dividend: The company declared $1.80 per share in cash distributions for both 2022 and 2021. In March 2023, the board declared a further quarterly dividend of $0.45 per share.
Material changes, outlook, risks and unusual items
- Rental income increased with acquisitions, rent escalations, tenant reimbursements and lease changes. OLP acquired six industrial properties for $56.5 million; their contribution to 2023 contractual rent was $3.4 million. It entered into, amended or extended 19 leases covering about 1.1 million square feet.
- Management said economic uncertainty, inflation, higher interest rates and supply-chain disruption could weigh on operations. It expected to reduce near-term acquisitions; no specific numerical earnings or FFO guidance was provided.
- Nonrecurring proceeds: 2022 results included $5.4 million of income from settlement of the Round Rock litigation and $4.6 million of Vue-related settlement proceeds recorded as rental income. The Vue proceeds were received in January 2023. The company also recognized $918,000 of insurance recoveries in other income.
- Regal Cinemas: Parent Cineworld entered Chapter 11 in September 2022. OLP was negotiating possible lease changes, including rent reductions and shorter terms, and had not accrued Regal rent when collection was considered less than probable. Re-leasing theater properties may be difficult and costly.
- The Vue: The ground-lease tenant had not paid rent since October 2020 and the property had ongoing operating shortfalls. OLP funded $697,000 in 2022 and reported additional funding needs; its $16.5 million land carrying value is subordinate to the tenant’s approximately $64.8 million mortgage.
- Manahawkin joint-venture center: Occupancy was 52.8%. OLP was exploring a sale of a vacant parcel as an alternative to redevelopment; no sale contract had been signed, and neither sale nor redevelopment success was assured. Regal is also a tenant at the center.
- LA Fitness indicated it would not renew its Hamilton, Ohio lease expiring in November 2023. Bed Bath & Beyond was experiencing financial difficulty, and Party City filed for Chapter 11 in January 2023.
- Interest-rate and refinancing risks remain material. The revolving facility’s rate was 6.32% as of February 28, 2023, versus a 3.42% 2022 weighted-average rate. OLP also disclosed uncertainty around transitioning remaining LIBOR-linked debt and swaps to replacement rates.
- Other risks include tenant concentration and lease expirations, retail-sector competition from e-commerce, property impairment, covenant compliance, related-party service arrangements, environmental exposure and the ability to sustain dividends. Management reported compliance with credit-facility covenants at December 31, 2022.
Most important facts for investors to verify
- Whether rental collections and lease negotiations with Regal produce materially reduced rent or require impairment charges.
- Progress on The Vue’s operating shortfalls, funding requirements and prospects for collecting ground rent; and the outcome of the Manahawkin parcel sale or redevelopment strategy.
- Execution of the 2023–2025 mortgage refinancing plan, borrowing-base availability and compliance with credit-facility covenants as rates and maturities change.
- Tenant retention and replacement plans for the LA Fitness lease, and the effects of financial distress or bankruptcy involving major tenants.
- How recurring operating performance compares with reported GAAP earnings and FFO after removing litigation, settlement, insurance and property-sale items; and whether operating cash flow supports the dividend and required debt payments.