One Liberty Properties, Inc. — FY2012 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2012. One Liberty is a self-managed REIT that owns and manages primarily long-term, net-leased commercial real estate. At year-end, it owned 93 properties and held interests in joint ventures owning seven properties, across 29 states. Company-owned properties were 98.4% occupied; joint-venture properties were 100% occupied. 2013 contractual rental income was approximately $45.8 million.
Financial and operating highlights
| Metric | FY2012 / year-end 2012 | Comparison / context |
|---|---|---|
| Revenue | $44.75 million | Up 7.0% from $41.81 million in 2011 |
| Operating income | $23.52 million | Up 2.2%; operating expenses rose 12.9% to $21.23 million |
| Income from continuing operations | $11.86 million; $0.79 diluted per share | 2011: $11.57 million; $0.80 diluted per share |
| Net income attributable to One Liberty | $32.32 million; $2.16 diluted per share | 2011: $13.72 million; $0.96 per share; FY2012 includes substantial property-sale gains |
| Funds from operations (FFO) | $23.78 million; $1.59 diluted per share | 2011: $22.83 million; $1.61 per share |
| Adjusted FFO (AFFO) | $22.58 million; $1.51 diluted per share | 2011: $21.43 million; $1.51 per share |
| Cash from operating activities | $22.31 million | 2011: $21.64 million |
| Cash and cash equivalents | $14.58 million | 2011: $12.67 million |
| Mortgage debt | $225.97 million; weighted average rate 5.25% | 2011: $190.97 million of mortgages and loans, plus $20.0 million on the credit line |
| Credit facility | $75 million capacity; no balance outstanding at year-end | Matures March 31, 2015; minimum rate 4.75% |
| Equity and total assets | $238.06 million equity; $481.17 million assets | Mortgage debt was approximately 47% of total assets |
| Common dividend | $1.34 per share declared for 2012 | 2011: $1.32 per share; fourth-quarter dividend was $0.35 |
Material changes versus 2011
- Revenue growth was driven mainly by properties acquired since March 2011, partly offset by transferring the Plano, Texas property into an unconsolidated joint venture.
- Net income rose sharply because five properties were sold in 2012 for $36.1 million, producing a net gain of $19.41 million. Discontinued operations totaled $20.45 million, compared with $2.15 million in 2011. Continuing income increased only modestly.
- The company acquired 11 properties for approximately $44.6 million and sold five properties. Acquisition-related costs increased to $823,000 from $213,000.
- Operating expenses increased 12.9%, including higher depreciation, general and administrative costs, real estate expenses and a $290,000 federal excise tax. Interest expense was nearly flat at $12.81 million.
- Mortgage debt increased to $225.97 million. The company refinanced debt secured by the Haverty Furniture portfolio: approximately $22.85 million at 6.87% was replaced with a $25 million loan at 5.125%, subject to lender call rights after September 2022.
- The credit facility was amended to raise permitted borrowings from $55 million to $75 million, lower its rate floor from 5.5% to 4.75%, and extend maturity from 2013 to 2015.
Outlook, risks and unusual items
- Near-term contractual rent: Leases in place at year-end supported approximately $45.8 million of 2013 contractual rental income, excluding joint-venture rent share. Management reported a 7.9-year weighted-average remaining lease term for leases generating company contractual rent.
- Debt refinancing: Approximately $132.9 million of company mortgage debt matures from 2013 through 2017, including $37.4 million in 2014 and $43.1 million in 2017. Management expects to refinance or extend maturities where possible but gives no assurance of success. At March 12, 2013, reported available liquidity was approximately $91 million, including about $16 million cash and $75 million of facility capacity; the facility requires a $6 million average deposit balance.
- Tenant and sector concentration: Retail generated about 64% of 2012 rental revenue. Five tenants accounted for approximately 31.6% of 2012 rental revenue; Haverty Furniture alone contributed 10.8%. Management identifies tenant default, bankruptcy, rent relief, non-renewal and online retail competition as risks.
- Lease expirations: Leases representing 12.7% of 2013 contractual rental income expire in 2014. The filing also notes that 27 tenants’ leases expiring from 2013 through 2015 represented 18.9% of 2012 rental revenue.
- Plano transaction: In February 2013, the company declined to participate in a proposed redevelopment and its partner exercised an option to buy the company’s 90% joint-venture interest for approximately $13.5 million; completion was anticipated during 2013.
- Dividends and REIT status: Dividend decisions remain at the board’s discretion. The company recorded a $290,000 federal excise tax because 2012 distributions were below the relevant tax distribution threshold. Maintaining REIT qualification requires meeting distribution and other tests.
- Related-party arrangements: The company paid Majestic Property Management, an affiliate owned by the chairman, a $2.725 million annual fee and $175,000 for direct office expenses in 2012. The filing describes approval by independent directors; related-party costs and governance remain relevant to review.
- Other risks and contingencies: Property impairment, refinancing and interest-rate exposure, environmental and casualty liabilities, geographic concentration, joint-venture partner disagreements and access to capital are identified risks. The filing reports no material legal proceeding, no off-balance-sheet arrangements, and effective disclosure controls and internal control over financial reporting. Auditors issued unqualified opinions on the financial statements and internal controls.
Most important facts for investors to verify
- How much of FY2012’s $32.32 million net income and $2.16 diluted EPS reflects recurring operations versus the $19.41 million gain on property sales; compare recurring performance using continuing income, FFO and AFFO.
- The refinancing plan and available funding for the $37.4 million 2014 mortgage maturity and the larger 2016–2017 maturities, including covenant headroom and the credit facility’s borrowing-base limits.
- Tenant credit and renewal prospects, especially for major retail tenants and leases expiring in 2013–2015; confirm whether occupancy and rent collections remain strong.
- Completion and net proceeds of the planned $13.5 million Plano interest sale, and how proceeds are used.
- The sustainability of the $1.34 annual dividend relative to operating cash flow, recurring FFO/AFFO, debt service, capital spending and REIT distribution requirements.
- Related-party fees, compensation arrangements and governance disclosures, including the terms and independent-director oversight of the Majestic agreement.