OLP

Business Context and Reporting Period

Company: One Liberty Properties, Inc. (OLP)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
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 March 31, 2010, the Company owned 72 properties and participated in five joint ventures owning five additional properties, totaling 77 properties across 27 states.

Key Financial Metrics

Note: Q1 2009 included income from discontinued operations ($315k), which was absent in Q1 2010.

Material Changes vs. Prior Period

• Revenue Growth: Rental income increased 2.7% to $10.1 million, driven primarily by $198,000 in revenue from a neighborhood shopping center acquired in February 2010.
• Operating Expenses: Total operating expenses rose to $4.4 million from $4.0 million. This increase included $346,000 in property acquisition costs (primarily for the February acquisition) and a 14.5% increase in real estate expenses due to tax liabilities on a property where the tenant (Hollywood Entertainment Corp.) rejected its lease following a bankruptcy filing.
• Interest Expense: Decreased 3.1% to $3.3 million due to the payoff of three mortgage loans and lower rates on the line of credit, partially offset by interest on a newly assumed mortgage.
• Discontinued Operations: Q1 2009 included $315,000 in income from discontinued operations (sales and deeds-in-lieu of foreclosure). There were no discontinued operations in Q1 2010.
• Dividend Policy: The Company declared a cash dividend of $0.30 per share for Q1 2010, compared to a combined cash and stock dividend of $0.22 per share in Q1 2009.

Outlook, Risks, and Management Commentary

• Acquisition Activity: On February 24, 2010, OLP acquired a 99% occupied community shopping center in Pennsylvania for $23.5 million, assuming a $17.7 million mortgage.
• Credit Facility Restructuring: The Company's $62.5 million revolving credit facility matured on March 31, 2010. Management has negotiated a new agreement reducing the facility to $40 million, extending the maturity to March 31, 2012, and increasing the interest rate floor to 6% per annum. Until finalized, no additional funds can be drawn.
• Liquidity Position: Available liquidity was approximately $30 million as of March 31, 2010, comprising $25.3 million in cash and $4.8 million in available-for-sale securities. The Company holds $78 million in unencumbered real estate that could be financed.
• Debt Maturities: Two mortgage loans totaling $13.4 million mature on May 5, 2010. The Company is negotiating extensions with lenders.
• Risks: The Company faces risks related to the potential inability to consummate the new credit facility agreement, which could constrain acquisition capabilities. Additionally, the tenant bankruptcy of Hollywood Entertainment Corp. introduces uncertainty regarding lease renewals and rent collection.

Investor Verification Checklist

• Credit Facility Finalization: Verify the execution status of the Second Amended and Restated Loan Agreement and the impact of the reduced borrowing capacity ($40M vs. $62.5M) on future growth.
• Debt Extension: Confirm the outcome of negotiations to extend the $13.4 million in mortgages maturing May 5, 2010.
• Tenant Bankruptcy Impact: Assess the long-term financial impact of the Hollywood Entertainment Corp. lease rejection and potential vacancy.
• Dividend Sustainability: Review the ability to maintain the $0.30 quarterly cash dividend given the increased interest rate floor on the credit facility and potential refinancing costs.
• Acquisition Allocation: Monitor the finalization of the purchase price allocation for the February 2010 Pennsylvania acquisition, specifically the valuation of intangible lease assets.