Business context and reporting period
One Liberty Properties, Inc. (OLP) is a self-managed REIT that owns and manages a geographically diversified portfolio of primarily net-leased industrial, retail, restaurant, health and fitness, and theater properties. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2021; financial amounts below are in millions unless otherwise noted. OLP owned 122 properties in 30 states and reported 96.7% occupancy by square footage.
Financial performance and condition
- Revenue: Second-quarter revenue was $20.4 million, down 2.1% year over year; six-month revenue was $41.2 million, down 2.0%. Rental income declined 2.7% and 2.6%, respectively.
- Profit: Net income attributable to OLP was $23.3 million in Q2 ($1.12 diluted EPS), versus $2.3 million ($0.10) a year earlier. Six-month net income was $26.3 million ($1.26 diluted EPS), versus $10.1 million ($0.49). The 2021 periods include a $21.5 million gain on the sale of a Connecticut retail property; the gain is not representative of recurring rental operations.
- REIT operating measures: Six-month FFO was $16.5 million, down 5.5%, and AFFO was $20.2 million, up 2.6%. AFFO per share was $0.96 for six months and $0.48 for Q2, compared with cash distributions of $0.90 and $0.45 per share, respectively. FFO and AFFO are non-GAAP measures and do not represent cash available for all obligations.
- Cash flow: Operating cash flow for the first half was $27.1 million, up from $18.1 million. Investing activities provided $29.1 million, primarily reflecting $39.5 million in net property-sale proceeds, partly offset by acquisitions and improvements. Financing used $53.1 million, including $18.6 million of cash distributions and debt repayments. Cash, cash equivalents and restricted cash totaled $16.7 million at period-end.
- Debt and liquidity: Mortgages payable were $412.1 million gross ($408.6 million net of financing costs), down from $433.5 million gross at year-end 2020. The $100 million credit facility had no balance at June 30; it matures December 31, 2022. OLP reported covenant compliance. As of August 2, management reported $105.7 million of available liquidity, including $10.6 million cash and $95.1 million available on the facility. Mortgage maturities, including amortization, total $45.6 million in 2022, $29.7 million in 2023 and $62.5 million in 2024.
- Dividend: The quarterly cash dividend was $0.45 per share, versus a 2020 quarter in which shareholders could elect a cash or stock distribution.
Material changes versus the prior comparable period
- The West Hartford property sale generated the $21.5 million gain and $39.5 million net proceeds; OLP repaid its $15.4 million mortgage and incurred $0.8 million in swap termination costs.
- Rental income was pressured by property dispositions and lower same-store income, including no 2021 ground-lease rent from The Vue and deferred rent at Regal Cinemas properties. Acquisitions partly offset the declines.
- Interest expense fell 6.3% for the first half, reflecting lower average credit-line borrowings and lower borrowing rates, as well as lower average mortgage principal.
- Operating expenses rose 4.2% for the first half, notably from higher general and administrative and real estate expenses. General and administrative costs included increased non-cash stock compensation.
Outlook, risks and unusual items
- The filing provides no formal earnings or FFO guidance. Management described expected funding sources for operations and distributions as operating cash flow, cash and borrowing capacity, with property financings, sales and equity issuance also available for investment and financing needs.
- Management identified a resurgence of COVID-19 and its economic effects as the most significant risk, including possible tenant defaults, vacancies, rent collection problems, and difficulty refinancing or re-leasing properties. Retail-sector disruption and the ability to reinvest sale proceeds at comparable returns are additional risks.
- The Vue owner/operator had not paid rent since October 2020. OLP’s $15.1 million land position is subordinated to the tenant’s $66.6 million mortgage, and OLP funded $1.1 million for operating shortfalls and capital expenditures during the first half. Further funding may be required.
- OLP deferred $3.36 million of pandemic-related rents in 2020; $0.96 million remained and was deemed collectible, with collection expected through 2023. Separately, Regal rent deferrals under amendments were not accrued where collection was considered less than probable.
- After quarter-end, OLP sold the vacant Philadelphia property for $8.3 million and anticipated a gain of about $1.3 million; an unconsolidated venture sold land, for which OLP anticipated an $0.8 million share of gain. The Manahawkin redevelopment is targeted for completion in 2024, with OLP’s estimated share of capital costs of $13 million to $15 million.
- Management anticipated increased legal expenses related to Round Rock litigation in late 2021 and early 2022. OLP also disclosed related-party payments to Majestic Property Management, an affiliate of the vice-chairman.
Important facts for investors to verify
- Whether The Vue resumes rent payments and how much additional support OLP must provide.
- Collection timing and amounts for pandemic-related deferred rent, especially Regal obligations not accrued as collectible.
- Whether recurring property cash flows and AFFO sustain the $0.45 quarterly dividend, given FFO declines and planned capital needs.
- Refinancing or repayment plans for 2022–2024 mortgage maturities and the credit facility’s December 2022 maturity.
- Actual proceeds and gains from post-quarter property and joint-venture sales, plus funding and returns on planned redevelopment and tenant improvements.