One Liberty Properties, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. One Liberty is a self-managed REIT with 118 properties in 31 states, primarily industrial and retail; portfolio occupancy was approximately 97.5% by square footage.
Financial performance
Amounts below are in millions, except per-share data.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $22.5 | $21.5 | $67.9 | $64.5 |
| Net income attributable to One Liberty | $2.7 | $7.2 | $14.7 | $33.3 |
| Diluted EPS | $0.12 | $0.34 | $0.66 | $1.57 |
| NAREIT FFO | $9.7 | $9.2 | $29.4 | $34.6 |
| AFFO | $10.5 | $10.1 | $32.0 | $31.2 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $36.1 | $34.8 |
Nine-month rental income increased 5.3%, including growth from acquisitions and same-store rent. Same-store rental income rose 2.7%. Nine-month operating expenses increased 5.8%; interest expense rose 7.3% to $14.0 million. Net income fell substantially as property-sale gains declined to $5.0 million from $16.8 million and the prior-year period included a $5.4 million litigation settlement and $0.9 million insurance recovery. Nine-month FFO declined 15.1%; AFFO increased 2.7%, reflecting adjustments that exclude certain nonrecurring items.
Balance sheet, debt and liquidity
- At September 30, total assets were $767.8 million, total liabilities $464.7 million, and equity $303.1 million. Cash and cash equivalents were $5.5 million.
- Gross mortgage debt was $420.9 million; gross credit-facility borrowings were $12.5 million. Mortgages had a 4.18% weighted-average rate after swaps and a six-year weighted-average remaining term. The variable-rate credit facility matures December 31, 2026; its rate was 7.08% at September 30.
- At November 1, available liquidity was reported as $83.6 million, comprising $6.1 million of cash (including the facility’s required $3.0 million average deposit balance) and $77.5 million available on the credit facility. The company reported compliance with facility covenants at September 30.
- Mortgage principal due at maturity totals $50.7 million in 2024, $32.1 million in 2025 and $19.2 million in 2026; additional scheduled amortization is due. Management expects to refinance, extend or repay maturities but cautions that refinancing may be unavailable or on less favorable terms.
- Cash distributions remained $0.45 per share quarterly, or $1.35 per share for the nine months. Nine-month AFFO per share was $1.49.
Material developments, outlook and risks
- Management cited approximately $71.0 million of contractual base rent for the 12 months following September 30, including rent associated with properties under sale contract. It gave no formal earnings or FFO guidance.
- Five restaurant and retail properties were under contracts from July through November 1 for approximately $18.9 million aggregate. Management estimated $16–$18 million net proceeds and $7–$8 million gains, with proceeds expected to reduce credit-facility debt; closings were subject to conditions and not assured. Separately, a Manahawkin joint-venture property was contracted for sale at $36.5 million; One Liberty estimated $6–$8 million net proceeds after its share of mortgage repayment and expected a nominal gain. Its share of a $1.7 million joint-venture impairment was $0.85 million.
- The Hamilton, Ohio LA Fitness lease was amended to month-to-month from December 1, at $30,000 monthly gross rent versus $66,000 monthly base rent previously, with mutual 90-day termination rights. The property’s mortgage matures in December 2023; extension discussions were ongoing. Management warned cash flow could be pressured and re-leasing could be difficult or costly.
- New York City’s lease at a Brooklyn office property expired around October 15. The parties signed a nonbinding term sheet for an extension through October 2028 at approximately $1.3 million annual base rent; final documentation was pending.
- The Vue ground lease generated no rental income in the first nine months. One Liberty’s $17.0 million land position is subordinated to the tenant’s $63.9 million mortgage, and the company funded $0.7 million of property shortfalls and capital needs in the first nine months of 2023. The company’s stated maximum exposure to loss was $17.0 million.
- Other tenant/property exposures include Regal Cinemas, Party City and tenant bankruptcy risk. Bed Bath & Beyond rejected its Kennesaw, Georgia lease in bankruptcy; the company wrote off $133,000 of unbilled rent.
- Higher rates raise refinancing and floating-rate borrowing costs. The company reported $56.9 million of mortgage maturities from October 2023 through December 2024. Most mortgage debt is fixed-rate or hedged; a 100-basis-point increase on the September 30 credit-facility balance would add an estimated $125,000 of annual interest cost.
- In October, the board authorized a new $10 million share-repurchase plan; approximately $1.3 million had been used by October 16. Management said it anticipated continued repurchases in the near term. Potential property sales could lower future operating cash flow and, over time, dividend capacity.
Key facts for investors to verify
- Whether contracted property sales close on schedule, their final net proceeds and gains, and whether proceeds reduce credit-facility debt as expected.
- Refinancing, extension or repayment plans for near-term mortgage maturities, including the Hamilton, Ohio loan, and the resulting interest costs.
- LA Fitness’s ongoing occupancy and cash contribution, and completion of the proposed New York City lease extension.
- Developments at The Vue, including rent collection and further funding obligations, and the status of challenged tenants such as Regal Cinemas and Party City.
- Whether operating cash flow and AFFO continue to support the quarterly dividend, given property dispositions, debt costs and the distribution level.