One Liberty Properties, Inc. — FY2021 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2021, with financial position at that date. One Liberty Properties (NYSE: OLP) is a self-managed REIT owning and operating primarily net-leased industrial and retail real estate. It owned 118 properties and held interests in joint ventures owning three more, across 31 states. Portfolio occupancy was 99.2%; the weighted-average remaining lease term was 6.0 years. Industrial properties generated 57.8% of 2022 contractual rental income and retail 27.4%.
Financial performance and position
| Metric | FY2021 / Dec. 31, 2021 | FY2020 / Dec. 31, 2020 |
|---|---|---|
| Total revenue | $82.7 million | $81.9 million |
| Net rental income | $82.2 million | $81.9 million |
| Net income attributable to OLP | $38.9 million | $27.4 million |
| Diluted EPS | $1.85 | $1.33 |
| NAREIT FFO | $36.1 million; $1.72 per share | $33.9 million; $1.66 per share |
| AFFO | $41.0 million; $1.95 per share | $38.8 million; $1.90 per share |
| Cash provided by operating activities | $48.6 million | $35.1 million |
| Cash and cash equivalents | $16.2 million | $12.7 million |
| Mortgage debt, gross | $399.7 million | $433.5 million |
| Credit-facility debt, gross | $11.7 million | $13.0 million |
| Stockholders’ equity attributable to OLP | $305.3 million | $290.8 million |
Margins and cash flow. The filing does not present a standalone NOI or comparable operating-margin measure. Net income includes substantial property-sale gains. Cash from operations increased; investing activities provided $23.4 million, while financing activities used $68.8 million, including $37.3 million of cash distributions to common stockholders.
Debt and liquidity. Mortgage debt had a 4.18% weighted-average interest rate and 6.4-year weighted-average remaining term; substantially all mortgage debt was fixed-rate or hedged. Mortgage principal payments due were $44.8 million in 2022, $25.8 million in 2023 and $62.6 million in 2024. The $100 million revolving facility matures December 31, 2022. At March 4, 2022, reported available liquidity was approximately $97.9 million, including $12.6 million of cash and up to $85.3 million available under the facility, subject to borrowing-base requirements.
Material changes versus the prior year
- Revenue rose 1.0%, while net rental income increased 0.4%. Same-property rental income rose 2.2%, partly reflecting improved Regal Cinemas collections and tenant reimbursements; lower rent from The Vue offset some gains.
- Net income attributable to OLP increased 41.8%, but gain on real estate sales rose to $25.5 million from $17.3 million. The gain from 2021 property sales is a significant contributor to reported earnings and should not be treated as recurring rental performance.
- Operating cash flow increased by $13.4 million. Interest expense declined 7.1%, mainly because average mortgage and credit-facility balances were lower.
- FFO increased 6.5% and AFFO increased 5.9%. Per-share measures also reflect higher weighted-average shares outstanding.
- OLP acquired three industrial properties for $24.3 million and sold five properties, reporting $25.5 million of net sale gains before $848,000 of mortgage prepayment costs. The portfolio continued its shift toward industrial assets.
Outlook, commentary, risks and unusual items
- Rent and lease outlook: 2022 contractual rental income was $68.3 million, an operating metric representing base rent under leases in effect at year-end, not GAAP revenue or a guarantee of collections. About 76.4% of that amount came from leases with contractual or CPI-based increases. Lease expirations represent 14.6% of the metric in 2023 and 18.2% in 2027.
- Tenant relief and concentration: At year-end, $1.8 million of deferred rent was owed by four tenants; Regal Cinemas and LA Fitness accounted for 99.1%. OLP collected 99.7% of pandemic-related deferred rent due in 2021 and reported that Regal had made required installments through February 2022. Tenant defaults, renewals and the financial health of retail, theater, restaurant and fitness tenants remain risks.
- Property-specific exposures: The Vue ground lease generated no rent in 2021. OLP funded $2.0 million for operating shortfalls and capital items during 2021 through March 1, 2022, and estimated about $700,000 of 2022 funding. Its $15.8 million land carrying value is subordinate to approximately $66.0 million of the property operator’s mortgage debt. The Manahawkin joint-venture shopping center was 53.2% occupied; redevelopment plans, costs and timing remained uncertain, with $571,000 of OLP’s share of capitalized costs at year-end.
- Near-term transactions: Subsequent to year-end, OLP acquired a Florida industrial property for $8.1 million and entered into agreements to sell an Ohio industrial property for $8.5 million and four Pennsylvania restaurant properties for $10.0 million. Management anticipated April 2022 closings and estimated gains of $6.9 million and $4.7 million, respectively; these were forward-looking estimates, not completed results in this filing.
- Refinancing and interest-rate risks: The revolving facility’s 2022 maturity and mortgage maturities create refinancing needs. The facility is LIBOR-based and unhedged; OLP also disclosed uncertainty in transitioning LIBOR-based debt and swaps after LIBOR cessation. A 100-basis-point increase in the facility rate was estimated to raise annual interest cost by about $117,000 at year-end debt levels.
- Litigation and contingencies: A February 2022 settlement of the Round Rock guaranty litigation calls for approximately $5.4 million to be received by April 15, 2022; if unpaid, the parties may continue litigation. The filing states routine legal proceedings and tenant-improvement commitments were not expected to have a material adverse effect.
- Dividends and governance: OLP declared $1.80 per share in cash dividends for 2021 and declared a $0.45 quarterly dividend in March 2022. The board determines future distributions; dividend sustainability depends on recurring cash generation, leasing and financing. OLP also disclosed related-party service fees paid to Majestic Property Management Corp. of $3.1 million in 2021, plus $295,000 of office expenses.
- Audit and controls: Ernst & Young issued an unqualified opinion on the financial statements. Its critical audit matter was impairment testing of real estate investments. Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2021; the auditor was not engaged to opine on internal-control effectiveness.
Key facts for investors to verify
- Whether the 2022 revolving facility was renewed, on what terms, and how upcoming mortgage maturities were refinanced or repaid.
- Completion and realized proceeds and gains for the announced Ohio and Pennsylvania property sales, and receipt of the $5.4 million Round Rock settlement.
- Collection of remaining deferred rent, especially amounts due from Regal Cinemas and LA Fitness, and subsequent tenant renewals or defaults.
- Updated funding needs, occupancy, impairment assessments and redevelopment decisions for The Vue and Manahawkin.
- Recurring rental performance and FFO/AFFO relative to dividends, separating property-sale gains and other non-recurring items from operating results.
- Actual liquidity, debt covenants, interest costs and LIBOR-transition outcomes, including any changes in credit-facility availability.