OLP

Business Context and Reporting Period

Company: One Liberty Properties, Inc. (OLP)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: OLP is a self-administered and self-managed Real Estate Investment Trust (REIT) owning a geographically diversified portfolio of retail, industrial, office, and flex properties, primarily under long-term net leases. As of June 30, 2009, the Company owned 78 properties (including five formerly leased to Circuit City classified as held for sale) and participated in five joint ventures owning five additional properties across 29 states.

Key Financial Metrics

Note: Total Debt includes $216,436 in mortgages payable, $8,706 in mortgages on properties held for sale, and $27,000 on the line of credit.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 22% to $22.96 million, driven by a $1.78 million lease termination fee and $2.3 million in rental income from properties acquired in 2008.
• Profitability: Net income rose 17.8% to $7.10 million. This increase occurred despite a $369,000 loss from discontinued operations, primarily due to the lease termination fee and improved rental income.
• Discontinued Operations: The Company reclassified five former Circuit City properties and one sold Texas property to discontinued operations. The loss from these operations decreased to $369,000 (six months 2009) from $637,000 (six months 2008), aided by a $400,000 lease termination payment received in March 2009.
• Interest Expense: Interest expense increased 3.9% to $7.29 million, largely due to higher utilization of the revolving credit facility for acquisitions in late 2008 and new fixed-rate mortgages.
• Dividend Policy: The Company reduced its quarterly dividend by 38.8% to $0.22 per share in January 2009. Recent dividends (April and July 2009) were paid partially in cash and partially in stock to preserve liquidity.

Outlook, Risks, and Management Commentary

• Liquidity and Credit Facility: OLP maintains a $62.5 million revolving credit facility with $27 million outstanding, maturing March 31, 2010. Management notes that refinancing this facility or securing new mortgage debt is challenging due to tight credit markets. The Company has adopted a conservative acquisition strategy.
• Circuit City Resolution: Five properties formerly leased to Circuit City were conveyed to the mortgagee via deeds-in-lieu of foreclosure in July 2009 (subsequent to the period end), releasing the Company from obligations on the $8.7 million non-recourse debt secured by these assets.
• Market Risk: The Company utilizes interest rate swaps to hedge variable-rate debt. A 1% increase in interest rates would decrease annual net income by approximately $270,000 based on current exposure.
• Capital Allocation: The Company expects to meet short-term liquidity needs through operating cash flow and existing cash reserves. Long-term liquidity depends on refinancing existing debt or liquidating properties if necessary.

Investor Verification Checklist

• Credit Facility Refinancing: Verify the status of the $27 million credit facility maturing March 31, 2010, given the stated difficulty in securing new mortgage debt.
• Circuit City Asset Disposition: Confirm the final accounting treatment and any residual liabilities following the July 2009 conveyance of the five Circuit City properties.
• Dividend Sustainability: Assess the impact of the reduced dividend and the shift to stock dividends on future cash flow requirements and REIT qualification.
• Tenant Concentration: Review the occupancy status of the remaining portfolio, noting that seven properties were vacant as of June 30, 2009.
• Derivative Hedging: Monitor the effectiveness of interest rate swaps and potential reclassification of gains/losses from other comprehensive income to interest expense.