One Liberty Properties, Inc. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. One Liberty is a self-managed REIT focused primarily on geographically diversified properties leased under long-term net or ground leases. At year-end it owned 104 properties and held interests in five additional joint-venture properties, across 29 states.
Key financial and operating metrics
| Metric | 2013 | 2012 |
|---|---|---|
| Net rental income | $51.0 million | $43.8 million |
| Income from continuing operations | $17.4 million | $11.3 million |
| Net income attributable to One Liberty | $17.9 million | $32.3 million |
| Diluted earnings per share | $1.14 | $2.16 |
| Funds from operations (FFO) | $25.8 million; $1.67 per diluted share | $23.8 million; $1.59 per diluted share |
| Adjusted FFO (AFFO) | $24.7 million; $1.59 per diluted share | $22.6 million; $1.51 per diluted share |
| Cash flow from operations | $26.9 million | $22.3 million |
| Cash and cash equivalents | $16.6 million | $14.6 million |
| Total assets | $571.9 million | $481.2 million |
| Mortgage debt | $278.0 million | $226.0 million |
| Line of credit outstanding | $23.3 million | None |
- Operating income was $26.6 million, up 17.0%; operating expenses rose 15.8% to $24.4 million. No GAAP operating margin was stated.
- Properties owned by the company were 99.6% occupied, versus 98.4% a year earlier; joint-venture properties were fully occupied. Year-end contractual rental income for 2014 was $53.1 million, with an 8.2-year weighted-average remaining lease term for the company’s leases.
- Mortgage debt had a 5.22% weighted-average interest rate and nine-year weighted-average remaining term; substantially all mortgage debt was fixed-rate and non-recourse, subject to customary carve-outs.
- Available liquidity was approximately $69.4 million at March 12, 2014: $7.2 million of cash net of the required facility deposit and $62.2 million available under the revolving facility.
Changes versus 2012
- Rental income increased 16.4%, principally reflecting acquisitions: 11 properties acquired in 2013 for $107.5 million and the full-year contribution of 2012 acquisitions. The 2013 purchases represented approximately $7.9 million of 2014 contractual rental income.
- Continuing-operations income grew 53.7%, including $4.7 million of gains from selling the company’s interests in a Texas joint venture and a California property. Excluding the impact of these transactions, reported growth was lower.
- Net income and diluted EPS fell from 2012, when discontinued operations included $19.4 million of gains from property sales. Thus, the headline decline contrasts with higher continuing-operations income and FFO.
- Cash from operations rose to $26.9 million. Investing cash outflow increased to $91.7 million, mainly reflecting $107.6 million of property purchases; financing provided $66.8 million, including mortgage and credit-facility borrowings and equity issuance.
- Mortgage debt increased by approximately $52.1 million year over year, while total equity rose to $250.1 million. Cash distributions were $1.42 per share for 2013, up from $1.34 in 2012.
Outlook, risks and unusual items
- Management stated it expects to meet substantially all operating cash needs, including dividends and mortgage amortization, from operating cash flow. No quantified earnings or FFO guidance was provided.
- Management intends generally to refinance or extend mortgage loans maturing in 2014–2016. Approximately $83.5 million of company mortgage principal was scheduled for payment in 2014–2016 at year-end 2013; a $16.3 million loan due in May 2014 was subsequently refinanced in February 2014.
- The $75 million revolving credit facility matures March 31, 2015 and carries a rate equal to the greater of 90-day LIBOR plus 3% or 4.75%. The company reported compliance with its covenants at December 31, 2013.
- Key exposures include tenant defaults and lease renewals, retail-sector conditions and online competition, refinancing and interest-rate risk, property values and impairment, geographic concentration, and access to capital. Retail tenants accounted for 57.3% of 2014 contractual rent; five tenants represented 30.4%.
- Leases representing 6.9% of 2014 contractual rental income were scheduled to expire in 2014, assuming no renewal options. The filing describes extensions or a new lease for three affected properties after year-end.
- Two Michigan health and fitness properties were sold in February 2014 for $5.5 million; a $62,000 impairment was recorded in 2013. The company also acquired two properties for a combined $5.11 million in January 2014.
- Related-party arrangements include a $2.725 million annual services fee and $175,000 of office expenses paid to Majestic Property Management in 2013; Majestic is owned by the company’s vice chairman. The filing identifies potential conflicts of interest.
- Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. Management reported effective disclosure controls and internal controls, with no material weaknesses identified.
Most important facts for investors to verify
- Whether acquisitions translate into durable rent growth and whether FFO and AFFO continue to cover cash distributions and debt service.
- Tenant credit quality, particularly the largest tenants, and the outcome of near-term lease expirations and re-leasing.
- Refinancing progress and terms for scheduled maturities, including the revolving facility’s 2015 maturity and covenant headroom.
- The sustainability of the $1.42-per-share 2013 distribution relative to recurring cash generation; distributions remain at the board’s discretion.
- How much reported earnings depend on asset sales, and how sensitive property valuations and impairment estimates are to management assumptions.