Business Context and Reporting Period
Company: ONE LIBERTY PROPERTIES INC (OLP)
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2002
Business Overview: OLP is a self-administered Real Estate Investment Trust (REIT) incorporated in Maryland. It acquires, owns, and manages a geographically diversified portfolio of retail, industrial, office, movie theater, and other properties, primarily under long-term net leases. As of December 31, 2002, the company owned 33 properties directly and participated in four joint ventures owning 11 additional properties (9 of which are megaplex movie theaters). The portfolio spans 15 states with approximately 3.36 million square feet of rentable space and a 99.9% occupancy rate.
Key Financial Metrics
| Metric | 2002 | 2001 | 2000 |
|---|---|---|---|
| Total Revenues | $15,705,000 | $15,237,000 | $12,669,000 |
| Net Income | $5,880,000 | $4,866,000 | $7,932,000 |
| Net Income Applicable to Common Stockholders | $4,843,000 | $3,829,000 | $6,888,000 |
| Funds From Operations (FFO) - Common | $7,757,000 | $6,303,000 | $5,324,000 |
| EPS (Basic) | $1.05 | $1.27 | $2.30 |
| FFO per Share (Basic) | $1.68 | $2.09 | $1.78 |
| Total Assets | $179,609,000 | $132,939,000 | $128,219,000 |
| Total Liabilities | $90,915,000 | $78,591,000 | $74,843,000 |
| Stockholders' Equity | $88,694,000 | $54,348,000 | $53,376,000 |
| Long-Term Mortgages Payable | $77,367,000 | $76,587,000 | $64,123,000 |
| Line of Credit Outstanding | $10,000,000 | $0 | $10,000,000 |
| Cash and Cash Equivalents | $2,624,000 | $2,285,000 | $2,069,000 |
Debt-to-Asset Ratio: Approximately 49% (including line of credit) as of December 31, 2002.
Dividends Paid (2002): $1.32 per share on Common Stock; $1.60 per share on Preferred Stock.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 3.1% to $15.7 million in 2002 compared to $15.2 million in 2001. This increase was driven by a significant rise in "Equity in earnings of unconsolidated joint ventures" ($1.078 million in 2002 vs. $83,000 in 2001), primarily due to the expansion of movie theater joint ventures. This offset a 1% decrease in direct rental income ($14.9 million vs. $15.1 million) caused by property sales and vacancies.
- Net Income: Net income increased 20.8% to $5.88 million in 2002 from $4.87 million in 2001. The 2000 net income was significantly higher ($7.93 million) due to a $3.8 million gain on the sale of 13 Total Petroleum properties, a non-recurring event.
- Capital Structure: In May 2002, the company completed a public offering of 2.5 million shares of common stock, raising approximately $35 million in net proceeds. This significantly increased stockholders' equity from $54.3 million in 2001 to $88.7 million in 2002.
- Joint Venture Expansion: The company invested heavily in two joint ventures focused on megaplex movie theaters. Total equity investment in these ventures reached approximately $20 million by year-end 2002, compared to minimal investment in 2001.
- Expense Increases: General and administrative expenses rose 47.4% to $1.68 million, largely due to increased payroll costs and allocated shared services expenses related to business activity and the public offering.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Strategy
Management intends to maintain and increase cash available for distribution by acquiring net-leased properties with long-term leases and obtaining favorable mortgage indebtedness. The company plans to continue investing in megaplex movie theaters through joint ventures. Contractual rental income for 2003 is projected at approximately $21.1 million.
Liquidity and Capital Resources
On March 21, 2003, the company secured a new $30 million revolving credit facility, replacing a $15 million facility. As of the filing date, $10 million was outstanding. The company expects to refinance approximately $31.5 million of maturing debt between 2003 and 2007.
Risks and Contingencies
- Tenant Concentration: Four tenants accounted for a significant portion of 2003 contractual rental income: L-3 Communications (7.4%), Barnes & Noble (6.6%), GE Medical Systems (9.8%), and Regal Cinemas (8.7%). The financial failure of any of these tenants could materially reduce revenues.
- Refinancing Risk: The company relies on refinancing maturing debt. Inability to refinance at favorable rates or at all could force the sale of properties on disadvantageous terms.
- Joint Venture Control: The company does not have full control over its joint ventures. Disagreements with co-venturers could divert management time or prevent desired actions.
- REIT Status: Failure to qualify as a REIT would result in significant corporate income tax liabilities and reduced cash available for distributions.
- Vacancies: Two retail properties were vacant as of December 31, 2002, with a third becoming vacant in February 2003. Re-leasing these properties is not guaranteed.
Unusual Items
The 2000 financial results included a $3.8 million gain on the sale of 13 Total Petroleum properties, which is not comparable to 2001 or 2002 results. In 2002, the company recorded a $29,000 loss on the sale of three properties.
Investor Verification Checklist
- Joint Venture Performance: Verify the actual cash flow and occupancy rates of the nine megaplex movie theaters acquired through joint ventures, as these represent a significant portion of recent earnings growth.
- Tenant Credit Quality: Review the financial health of the top four tenants (L-3 Communications, Barnes & Noble, GE Medical Systems, Regal Cinemas), as they represent over 30% of 2003 contractual rental income.
- Refinancing Terms: Confirm the terms and successful closing of the refinancing for the $9.97 million in debt maturing in 2003 and the $44.2 million in joint venture debt.
- Vacancy Resolution: Monitor the status of the three vacant retail properties (Hamilton, NY; Ottumwa, IA; and the February 2003 vacancy) to assess potential revenue shortfalls.
- Related Party Transactions: Review the allocation of expenses under the Shared Services Agreement with affiliated entities (Gould Investors L.P., BRT Realty Trust) to ensure costs are reasonable and comparable to market rates.