OLP

Business Context and Reporting Period

Company: One Liberty Properties, Inc. (OLP)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2010
Business Overview: OLP is a self-administered and self-managed Real Estate Investment Trust (REIT) owning a diversified portfolio of retail, industrial, office, and flex properties, primarily under long-term net leases. As of September 30, 2010, the Company owned 79 properties and participated in four joint ventures totaling 83 properties across 28 states.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Rental income increased 13.1% ($1.2M) for the quarter and 8.5% ($2.5M) for the nine months compared to 2009. This growth was driven by acquisitions, specifically a community shopping center acquired in February 2010 and eight properties purchased between April and August 2010.
• Operating Expenses: Total operating expenses rose 11.2% for the quarter and 13.8% for the nine months. Increases were attributed to higher general and administrative fees, real estate acquisition costs ($738k for the nine months vs. $0 in 2009), and increased real estate expenses at newly acquired properties.
• Discontinued Operations: Income from discontinued operations decreased significantly (78.9% for the nine months) compared to 2009. The 2009 period included an $897,000 gain from the conveyance of five properties to a mortgagee (deeds-in-lieu of foreclosure) related to Circuit City Stores, Inc., which did not recur in 2010.
• Interest Expense: Interest expense increased 5.1% for the nine months due to interest on a mortgage assumed in February 2010 and higher rates on the line of credit effective April 2010.

Guidance, Outlook, and Risks

• Acquisition Strategy: Management intends to continue pursuing acquisition opportunities despite an uncertain economic climate. In 2010, the Company acquired 11 properties for an aggregate of $62.3 million and sold 2 properties for net proceeds of $4.1 million.
• Dividends: The Board declared a quarterly cash dividend of $0.30 per share on September 14, 2010. The Company reinstated its Dividend Reinvestment Plan in June 2010, offering a 5% discount.
• Liquidity: Available liquidity was approximately $20.6 million as of September 30, 2010, comprising cash, available-for-sale securities, and available borrowings under a $40 million revolving credit facility. Subsequent to the period end, liquidity was estimated at $16.6 million following a new acquisition.
• Risks: Primary risks include tenant non-payment, inability to re-lease properties on favorable terms, and interest rate fluctuations affecting the variable-rate credit facility. The Company utilizes interest rate swaps to manage interest rate risk.
• Subsequent Events: On October 7, 2010, the Company purchased two adjacent properties in Connecticut for $20.55 million, utilizing a $13 million mortgage assumption and cash/line of credit borrowings.

Investor Verification Checklist

• Acquisition Integration: Verify the occupancy and lease terms of the 11 properties acquired in 2010, particularly the community shopping center in Pennsylvania and the Whole Foods facility acquired in October 2010.
• Debt Maturities: Review the schedule of mortgage maturities (ranging from 2011 to 2037) and the terms of the $40 million credit facility maturing in March 2012.
• Tenant Concentration: Assess the impact of single-tenant leases on the portfolio, as most acquired properties are leased to a single tenant under long-term net leases.
• Discontinued Operations: Confirm that the significant gains from 2009 (Circuit City conveyance) are non-recurring and do not distort year-over-year comparisons of core operating performance.
• Stock-Based Compensation: Monitor the vesting conditions of the 200,000 performance share units awarded in September 2010, which depend on return on capital and total stockholder return targets through 2017.