ONE LIBERTY PROPERTIES, INC. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. One Liberty is a self-managed REIT focused primarily on industrial and retail properties, many under long-term net leases. At quarter-end, it owned 119 properties in 31 states, with approximately 97.8% occupancy by square footage.
Financial performance and key metrics
- Revenue: $22.95 million, up 6.5% from $21.56 million. Rental income increased 6.6% to $22.95 million, including 4.0% same-store growth.
- Profit: Net income attributable to One Liberty was $5.39 million, down from $9.32 million; diluted EPS was $0.25 versus $0.44. Operating income was $10.11 million versus $12.81 million. Reported results include a $1.53 million property-sale gain in 2023, compared with $4.65 million in 2022.
- FFO and AFFO: NAREIT FFO was $10.11 million ($0.47 per diluted share), down 4.9% from $10.64 million. AFFO was $10.80 million ($0.50 per diluted share), up 1.4% from $10.65 million. These are non-GAAP supplemental measures.
- Cash flow: Operating cash flow was $14.71 million, up from $8.83 million. Investing activities provided $2.90 million; financing activities used $17.11 million. Cash, cash equivalents and restricted cash ended the quarter at $7.78 million.
- Distributions: Quarterly cash distributions were $0.45 per common share, unchanged year over year. The company declared a $0.45 dividend payable April 4, 2023.
- Debt and liquidity: Mortgages payable were $410.9 million gross and the credit-line balance was $11.5 million gross at quarter-end. Mortgage rates, after swaps, were fixed at a weighted average of 4.12%, with a 6.2-year weighted-average remaining maturity. The credit facility rate was 6.47% at March 31. The company reported covenant compliance and $88.5 million available under the facility at quarter-end; reported total available liquidity at May 1 was $87.9 million, including $80.0 million of facility capacity.
- Balance sheet: Total assets were $771.1 million and total liabilities were $456.4 million at March 31, 2023. Cash on the balance sheet was $7.0 million.
Material changes versus Q1 2022
- Revenue rose mainly from properties acquired in 2022 and same-store rent growth, partly offset by properties sold.
- Net income and EPS declined largely because the prior-year period included larger property-sale gains and a $918,000 insurance recovery; 2023 had neither the comparable sale gains nor insurance recovery.
- Interest expense increased 6.8% to $4.60 million. Credit-line interest rose to $360,000 from $122,000 as both the average balance and average rate increased; the facility’s weighted-average rate was 6.23% versus 1.89%.
- Operating expenses increased 7.3% to $14.38 million, including higher depreciation, general and administrative costs, and real estate expenses.
- Operating cash flow increased, while cash, cash equivalents and restricted cash at quarter-end were lower than the prior-year comparable balance of $11.82 million.
Outlook, risks and unusual items
- The filing provides no formal earnings guidance. Management estimated 2023 contractual base rent of approximately $70.7 million, subject to stated exclusions and tenant-specific uncertainties.
- The company expected to sell its Duluth, Georgia retail property in Q2 2023 for approximately $6.0 million and anticipated a gain of about $3.1 million; it expected to use net proceeds of approximately $5.9 million to repay the credit facility.
- Regal Cinemas: Its parent, Cineworld, filed for Chapter 11 in September 2022. The company had not accrued Regal base rent or deferred rent since October 2020 because collection was considered less than probable. It was negotiating possible lease changes and warned collections could be materially below contracted amounts; impairment and difficulty re-leasing theater space are risks.
- Bed Bath & Beyond: BBBY filed for Chapter 11 on April 23, 2023 and announced store-closing efforts. Its Georgia lease had approximately $2.3 million of base rent remaining through January 2027; the related property had $4.6 million of mortgage debt at quarter-end.
- The Vue Apartments ground lease: No rent was collected in Q1. The company’s land position, carried at approximately $16.8 million, is subordinate to the tenant’s $64.5 million mortgage. The company funded $447,000 for property shortfalls/capital expenditures during Q1; future funding and rent recovery are uncertain.
- Management highlighted tenant defaults and bankruptcies, retail/theater/restaurant-sector weakness, interest rates, property values, lease renewals, refinancing availability and covenant compliance as risks. Approximately $62.1 million of mortgage principal was scheduled to mature in 2024, including about $23.7 million in Q1; refinancing is anticipated but not assured.
- Unusual prior-period items include the 2022 hurricane-insurance recovery and larger gains on property sales. A $4.626 million Vue-related settlement was received in January 2023 but had been accrued as income in 2022.
Important facts for investors to verify
- Progress and final terms of Regal lease negotiations, actual rent collections, required approvals and any impairment assessment.
- Effects of BBBY’s bankruptcy and store closures on rent, occupancy, property value and debt service.
- Completion and proceeds of the anticipated Duluth property sale and use of proceeds.
- Refinancing terms and liquidity plans for upcoming mortgage maturities, particularly 2024.
- Future funding needs and rent prospects for The Vue, including the subordinated land position.
- Dividend sustainability relative to operating cash flow and AFFO; reconcile supplemental FFO/AFFO measures with GAAP results.