ONE LIBERTY PROPERTIES, INC. — FY 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; selected fourth-quarter results are also noted below. The company is a self-managed REIT investing primarily in U.S. retail, industrial, flex, health and fitness, and other properties, many under long-term net leases.
Business context and portfolio
- At year-end, the company owned 110 properties and participated in joint ventures owning five more, across 30 states. Owned-property occupancy was 98.3%, down from 99.6% in 2013; joint-venture properties were 100% occupied.
- Retail represented 56.1% of projected 2015 contractual rental income; industrial represented 20.8%. Contractual rental income for 2015 was approximately $53.3 million. The weighted-average remaining lease term was 7.8 years.
- Five tenants accounted for approximately 29.8% of 2015 contractual rental income. Haverty Furniture was the largest, at approximately 8.6%.
Financial performance and position
| Metric | 2014 | 2013 |
|---|---|---|
| Total revenue | $60.5 million | $51.0 million |
| Net rental income | $56.6 million | $49.3 million |
| Income from continuing operations | $22.2 million | $17.4 million |
| Net income attributable to One Liberty | $22.1 million | $17.9 million |
| Diluted earnings per share | $1.37 | $1.14 |
| Funds from operations (FFO) | $28.2 million; $1.75 diluted per share | $25.7 million; $1.66 diluted per share |
| Adjusted FFO (AFFO) | $29.7 million; $1.84 diluted per share | $27.1 million; $1.75 diluted per share |
| Cash provided by operating activities | $31.8 million | $26.7 million |
- Total revenue rose 18.6%; net rental income rose 14.9%; continuing-operations income rose 27.5%. Operating income was $30.2 million, about 50% of total revenue.
- Reported income included a $10.2 million gain on the Parsippany property sale, partly offset by $1.6 million of related mortgage prepayment costs. A $1.3 million lease termination fee also increased revenue. These items make reported earnings less representative of recurring property operations.
- At December 31, total assets were $590.4 million, cash and cash equivalents $20.3 million, and total equity $255.9 million. Mortgage debt was $292.0 million and the credit-line balance was $13.3 million. Mortgage debt equaled 49.5% of total assets, as reported by the company. Mortgage debt had a 5.02% weighted-average interest rate and 9.1-year weighted-average remaining term; substantially all was fixed-rate after swaps.
- Cash distributions were $1.50 per share for 2014, versus $1.42 in 2013. AFFO per diluted share exceeded the annual distribution, but FFO and AFFO are non-GAAP supplemental measures and do not equal cash available for distributions.
- Fourth-quarter revenue was $15.2 million and net income attributable to One Liberty was $11.6 million, including the Parsippany sale-related earnings effect.
Material changes, outlook, and notable items
- The company acquired nine properties in 2014 for approximately $56.8 million and sold three properties for an aggregate stated sales price of $45.5 million. Acquisitions, especially properties purchased in 2013 and 2014, drove much of the rental-income growth; debt and interest expense also increased.
- A December 2014 credit-facility amendment extended maturity to December 31, 2018, removed the 4.75% interest-rate floor, and set pricing at one-month LIBOR plus a leverage-based margin. Management estimated a 1.92% rate for first-quarter 2015 assuming LIBOR remained at 0.17%; that was an estimate, not a full-year forecast. The facility balance was $13.25 million at year-end, and the company reported covenant compliance.
- Management expected operating cash flow to fund substantially all operating needs, including dividends and mortgage amortization, and intended generally to refinance or extend mortgage loans maturing in 2015–2017. Approximately $120.2 million of company mortgage debt was scheduled to mature during 2015–2019; refinancing and capital-market access remain important.
- After year-end, the Morrow, Georgia property was taken through foreclosure. The Cherry Hill, New Jersey retail center was sold for approximately $16.0 million, producing an estimated $5.4 million gain before specified swap-breakage and deferred-financing charges. A joint venture acquired a Colorado shopping center for approximately $17.5 million.
- Management highlighted tenant defaults and renewals, retail-sector and e-commerce pressure, refinancing and interest-rate risk, covenant compliance, regional concentration, property impairments, and the ability to sustain distributions. Four of eight Office Depot properties were identified as geographically overlapping with Staples locations in connection with a contemplated merger.
- The filing reports no applicable material legal proceedings. The company identified related-party arrangements, including 2014 payments of approximately $2.7 million to Majestic Property Management and shared office expenses, as well as insurance purchased with an affiliate.
Most important facts for investors to verify
- Whether scheduled mortgage maturities are refinanced or repaid on acceptable terms, particularly near-term maturities and the joint venture debt due in 2015.
- Tenant credit, lease renewals, and exposure to retail tenants; review the 2015–2018 expirations and risks involving major tenants such as Haverty Furniture and Office Depot.
- Recurring operating performance excluding the Parsippany gain, lease termination fee, impairment, and other nonrecurring items; reconcile GAAP cash flows with FFO and AFFO.
- Available liquidity, credit-facility borrowing capacity, covenant headroom, and sensitivity to variable-rate borrowing costs.
- Dividend sustainability and REIT distribution requirements, including the effects of cash needs, debt service, and future property sales.
- Post-year-end property dispositions, foreclosure, refinancing, acquisition financing, and related transaction costs; assess the continuing effect on rental income and leverage.