ONE LIBERTY PROPERTIES, INC. — Q2 2012 Form 10-Q
Reporting period: Three and six months ended June 30, 2012. One Liberty Properties is a self-managed REIT focused on a diversified portfolio of commercial properties, many under long-term net leases. At quarter-end, it owned 92 properties and its unconsolidated joint ventures owned six; the portfolio spanned 29 states. Occupancy was approximately 98.8% by square footage.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Rental income | $11.707 million | $10.964 million | $23.072 million | $21.790 million |
| Operating income | $6.525 million | $6.097 million | $12.812 million | $12.420 million |
| Net income attributable to One Liberty | $5.750 million | $5.142 million | $8.972 million | $7.874 million |
| Diluted earnings per share | $0.39 | $0.35 | $0.60 | $0.57 |
| Operating margin | 55.8% | 55.6% | 55.5% | 57.0% |
Rental income rose 6.8% in Q2 and 5.9% for the first half, primarily from properties acquired beginning in 2011; the Plano, Texas property contribution to a joint venture partially offset the increase. First-half earnings included $2.205 million in gains on sales reported in discontinued operations and a $319,000 gain related to the Plano joint venture. The prior-year comparison included a $1.240 million debt-settlement gain. Q2 and first-half dividends declared were $0.33 and $0.66 per share, respectively.
Cash flow, balance sheet and liquidity
- First-half operating cash flow was $10.012 million, compared with $9.789 million a year earlier. Investing activities used $9.015 million, mainly reflecting $16.516 million of property purchases, partly offset by $7.048 million in net sale proceeds. Financing activities provided $1.688 million. Cash increased to $15.353 million from $12.668 million at year-end.
- At June 30, total assets were $471.961 million and total liabilities were $251.923 million. Debt on the balance sheet comprised $209.807 million of mortgages and loan payable, $6.923 million of mortgages on property held for sale, and $19.600 million drawn on the credit line.
- Mortgage and loan principal, including debt on property held for sale, was approximately $216.7 million; weighted-average fixed interest rate was 5.5%, with maturities from 2012 to 2037. The filing reports $72.1 million of mortgage debt due from July 2012 through 2014, including $22.8 million maturing in 2012.
- On July 31, the company amended its credit facility: maximum permitted borrowings increased from $55 million to $75 million, subject to the borrowing base; the term was extended to March 31, 2015; and the rate floor fell from 5.5% to 4.75%. The company reported $19.6 million outstanding at June 30 and $15.35 million at July 31. Management reported approximately $69.3 million of available liquidity at July 31, including $9.6 million cash and $59.7 million facility availability, after accounting for the required deposit balance.
Material changes, outlook and risks
- The company purchased six properties in the first half for an aggregate contract price of $14.3 million; acquired properties were fully occupied and leased to single tenants under long-term net leases. It also contributed the Plano property to a joint venture for a 90% interest. Its investment in unconsolidated joint ventures increased to $17.334 million from $5.093 million at year-end.
- Two properties were sold in June for net proceeds of $7.048 million, producing a combined $2.205 million gain. In July, the company agreed to sell a New York City property for $18.25 million and anticipated closing by September 30, 2012. Management estimated an approximately $15 million financial-statement gain, excluding a possible additional $2 million payment tied to a later resale or conversion. The sale was not completed as of the filing.
- Management expected operating cash flow to cover substantially all operating needs, including dividends, but warned that failure to refinance debt or finance unencumbered properties could require additional borrowing, equity issuance, or property sales on unfavorable terms. Management believed the $22.8 million Haverty Furniture mortgage due September 1, 2012 could be refinanced on favorable terms, while noting there was no assurance.
- Interest-rate swaps had a $1.335 million liability fair value at June 30; the company estimated another $501,000 would be reclassified from accumulated other comprehensive income as additional interest expense over the following 12 months. Rate changes can affect swap fair values and variable-rate borrowing costs.
- No formal earnings or operating guidance was provided. The company cited tenant payment and leasing risks, refinancing needs, and risks outside its control in its forward-looking-statement discussion. It reported compliance with credit-facility covenants at June 30 and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the anticipated New York City property sale closed, and the final proceeds and recognized gain, including any contingent payment terms.
- Whether the $22.8 million Haverty Furniture mortgage due September 1, 2012 was refinanced, and at what rate and terms.
- Actual borrowing availability under the amended facility after borrowing-base and covenant requirements, as well as subsequent outstanding balances.
- How much reported earnings growth reflects recurring property operations versus property-sale and other settlement gains.
- Tenant concentration, lease expirations, occupancy, and the performance and funding needs of the joint ventures.