One Liberty Properties, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. The company is a self-managed REIT focused primarily on industrial and retail properties, with 118 properties in 31 states and approximately 97.5% occupancy by square footage. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $22.4 | $21.5 | $45.4 | $43.0 |
| Net income attributable to One Liberty | $6.5 | $16.8 | $11.9 | $26.1 |
| Diluted earnings per share | $0.30 | $0.79 | $0.55 | $1.23 |
| NAREIT FFO | $9.6 | $14.7 | $19.7 | $25.4 |
| AFFO | $10.8 | $10.4 | $21.6 | $21.1 |
- Revenue increased 4.4% in Q2 and 5.4% for the first half. Same-store rental income rose 1.8% and 2.9%, respectively; 2022 acquisitions also contributed.
- First-half operating cash flow was $24.9 million, versus $23.8 million a year earlier. Investing activities provided $6.5 million, primarily reflecting $10.1 million of sale proceeds; financing activities used $27.5 million, including $19.1 million of common distributions.
- At June 30, assets were $769.4 million and total equity was $313.0 million. Cash and cash equivalents were $8.1 million; cash, equivalents and restricted cash totaled $11.3 million.
- Mortgages payable were $419.7 million gross ($415.7 million net of financing costs and mortgage intangible). The credit line had $2.5 million gross outstanding. Mortgage debt after swaps carried a 4.17% weighted-average rate and a 6.2-year weighted-average remaining maturity. The floating-rate credit facility rate was 6.89% at June 30.
- At August 1, the company reported $90.8 million of available liquidity, including $7.3 million of cash and $83.5 million available under the credit facility. It was in compliance with credit-facility covenants at June 30.
- Common distributions were $0.45 per share per quarter, or $0.90 per share for the first half. AFFO per share was $0.50 for Q2 and $1.01 for the first half.
Changes versus the prior comparable period
- Net income and FFO were substantially lower year over year, largely because 2022 included a $5.4 million litigation settlement; first-half 2022 also included a $0.9 million insurance recovery and materially higher property-sale gains. These are significant comparability items, rather than solely changes in recurring rent.
- Net gain on property sales declined to $4.7 million in the first half from $12.7 million. 2023 sales included two properties for $10.2 million gross proceeds; the company recorded $4.7 million of gains.
- Higher revenue was partly offset by higher operating costs and interest. First-half operating expenses increased 6.7% to $28.7 million and interest expense increased 6.4% to $9.2 million. Credit-line interest rose as market rates increased.
- AFFO increased 3.3% in Q2 and 2.4% for the first half, despite the decline in GAAP net income, as AFFO excludes specified nonrecurring items and other adjustments. FFO and AFFO are non-GAAP supplemental measures, not substitutes for GAAP results or cash flow.
Outlook, risks and unusual items
- No formal earnings or FFO guidance is provided. Contractual base rent for the twelve months ending June 30, 2024 was approximately $70.3 million, including $1.2 million from Regal; this is not a forecast of collected rent. The company reported no rent collected from The Vue ground lease in the first half.
- Debt maturities are a key financing exposure: scheduled mortgage payments total $62.3 million in 2024, including $50.7 million due at maturity. Approximately $29.4 million matures in the first half of 2024; management expects to refinance a substantial portion but gives no assurance of refinancing or favorable terms.
- Regal Cinemas lease amendments became effective July 31, 2023 following its parent’s bankruptcy reorganization. They reduced or shortened rent commitments, including shorter lease terms at two wholly owned theaters; Regal’s lease at the unconsolidated property now provides only percentage rent. Continued theater-industry and tenant risk could affect rent and property costs.
- Bed Bath & Beyond filed for Chapter 11 and rejected its Kennesaw, Georgia lease in April 2023. The company wrote off $133,000 of unbilled rent; the property had $4.5 million of mortgage debt at June 30.
- The company was negotiating a short-term LA Fitness lease extension at a significantly reduced rent, with the existing lease due to expire in November 2023. Failure to extend or re-lease could create vacancy, reconfiguration costs or negative cash flow.
- The Manahawkin property, held through an unconsolidated joint venture, is being considered for sale rather than redevelopment. There is no sale contract; a sale could require a write-off of approximately $586,000 of capitalized development costs.
- The Vue ground-lease land had a $17.0 million carrying value and was subordinated to the tenant/operator’s $64.2 million mortgage. The company funded $668,000 of property shortfalls and capital expenditures in the first half; its stated maximum exposure to loss was $17.0 million.
- On July 13, 2023, the company acquired a South Carolina industrial property for $13.4 million, assuming $4.3 million of debt at 4.60%. Its tenants’ weighted-average remaining lease term was approximately 1.6 years.
- The Board maintained the quarterly dividend at $0.45 per share. The filing identifies tenant defaults or bankruptcies, lease renewals and reletting, interest rates, refinancing availability, real-estate conditions and dividend capacity as principal risks.
Important facts for investors to verify
- Progress and terms of refinancing the 2024 mortgage maturities, and liquidity available after those transactions.
- Rent collection, replacement leasing and carrying costs at the former Bed Bath & Beyond property and the outcome of LA Fitness negotiations.
- Regal’s rent payments and ability to operate under amended leases, including the shorter expiration dates and percentage-rent arrangement.
- Whether the Manahawkin property sale proceeds, if any, justify the potential development-cost write-off, and whether The Vue requires further company funding.
- How recurring operating cash flow and AFFO compare with distributions and required capital spending; neither FFO nor AFFO is GAAP cash flow.