Executive Summary / Key Takeaways

• One Liberty Properties ($OLP) is executing a strategic portfolio transformation, aggressively pivoting towards industrial properties through substantial acquisitions exceeding $112 million in 2025, while divesting non-core retail assets.
• The company reported solid operational growth in the first half of 2025, with rental income increasing by 10% and Funds From Operations (FFO) rising by 2.5%, reflecting successful acquisitions and positive same-store performance.
• OLP maintains a compelling TTM dividend yield of 7.61%, yet its payout ratio and AFFO coverage warrant close investor scrutiny, particularly as the portfolio rebalancing strategy intensifies.
• The REIT's long-term net lease model and diversified property base are foundational to its income stability, though the current higher interest rate environment presents a notable headwind for refinancing maturing mortgage debt.
• OLP's competitive edge stems from its self-managed structure and strategic alignment with broader industrial real estate trends, rather than proprietary technology, positioning it distinctly against larger, more specialized peers.

Setting the Stage: OLP's Enduring Income Strategy and Industrial Evolution

One Liberty Properties, Inc. ($OLP), established in Maryland in 1982, operates as a self-administered and self-managed real estate investment trust (REIT). Its core business model centers on acquiring, owning, and managing a geographically diversified portfolio predominantly composed of industrial properties. A hallmark of OLP's strategy is the prevalence of long-term net leases, which typically obligate tenants to cover real estate taxes, insurance, and routine maintenance, thereby providing predictable and stable income streams for the REIT.

OLP's historical journey has been marked by a consistent focus on income generation and prudent risk management through diversification. This approach has guided its strategic responses to evolving market dynamics. For instance, the company's investment in "The Vue Apartments" in Beachwood, Ohio, a multi-family complex on ground-leased land, has presented challenges, with no ground lease rental income collected since October 2020. This situation underscores the inherent risks in real estate and OLP's ongoing need for active portfolio management.

In recent periods, OLP has significantly sharpened its strategic focus. The company is in the midst of a deliberate and aggressive pivot towards industrial properties, a move well-aligned with favorable market tailwinds in logistics and e-commerce. This strategic rebalancing is evident in its recent transactional activity. In the first six months of 2025, OLP completed substantial industrial acquisitions totaling $88.3 million, including multi-tenant properties in Theodore, Alabama, an Amazon.com Services, LLC (AMZN) property in Wichita, Kansas, and a multi-tenant facility in Council Bluffs, Iowa. This momentum continued post-June 2025 with an agreement to acquire a 210,600 square foot single-tenant industrial property in Blythewood, South Carolina for $24 million, bringing 2025 industrial acquisitions to over $112 million. Concurrently, OLP has divested non-industrial assets, such as various retail and restaurant properties, to streamline its portfolio and reinforce its industrial concentration.

OLP, as a real estate investment trust, does not possess proprietary "core differentiated technology" in the sense of a manufacturing or software company. Its competitive advantages are instead rooted in its operational model and strategic positioning. The company's self-managed structure allows for potentially greater control over operational costs and direct tenant relationships, fostering efficiency. Its long-term net lease model inherently provides a stable revenue base, insulating it from short-term market fluctuations in operating expenses. Furthermore, OLP's geographically diversified portfolio, now increasingly concentrated in industrial assets, positions it to capitalize on broader technological and economic trends such as the growth of e-commerce, supply chain reconfiguration, and the increasing demand for data center infrastructure, which requires robust industrial real estate. While OLP does not develop these technologies, its strategic asset allocation allows it to be a beneficiary of their market impact.

In the competitive landscape, OLP operates alongside larger, more specialized REITs such as Realty Income Corporation (O), W. P. Carey Inc. (WPC), and Agree Realty Corporation (ADC). Compared to these peers, OLP's diversified property portfolio, encompassing industrial, retail, restaurant, health and fitness, and theater properties, offers a broader exposure that can mitigate sector-specific downturns. For instance, while Realty Income and Agree Realty are heavily retail-centric, OLP's industrial focus provides a distinct advantage in the current market environment. W. P. Carey, with its global footprint, offers greater international exposure, whereas OLP's U.S.-centric approach may offer simpler operational management. OLP's TTM Gross Profit Margin of 79.55% and Operating Profit Margin of 53.25% demonstrate solid operational efficiency, though these metrics can vary significantly across the industry based on portfolio mix and scale. Its TTM P/E ratio of 17.42 is notably lower than Realty Income's 54.18 and Agree Realty's 37.65, suggesting a potentially more attractive valuation relative to earnings, while W. P. Carey stands at 26.03. This indicates OLP may be perceived as having a more moderate market share and growth trajectory compared to its larger rivals, but its strategic pivot aims to enhance its competitive standing.

Financial Performance: Growth and Profitability in Transition

OLP's financial performance in the first half of 2025 reflects the initial benefits of its strategic rebalancing, even as it contends with broader economic shifts. For the three months ended June 30, 2025, rental income, net, increased by a robust 12.3% to $24.479 million compared to $21.800 million in the prior year. Over the six-month period, rental income, net, grew by 10% to $48.649 million from $44.246 million. This growth was primarily fueled by new acquisitions, which contributed $5.222 million to rental income in the first six months of 2025, alongside positive contributions from same-store properties. Same-store rental income saw increases from tenant reimbursements (including $480,000 related to real estate tax expenses in H1 2025), lease amendments/extensions, and new tenants, partially offset by lease expirations and fully amortized lease intangibles.

Despite the strong top-line growth, net income attributable to One Liberty Properties, Inc. saw a decline, reaching $8.431 million for the three months ended June 30, 2025, down from $9.553 million in the prior year. Similarly, for the six-month period, net income was $12.586 million, compared to $14.708 million in 2024. This translated to a decrease in basic and diluted earnings per common share, which fell to $0.39 for the quarter and $0.57 for the six months. The primary drivers for this decline were a significant increase in interest expense, higher real estate operating expenses, and increased general and administrative costs, which outpaced the growth in rental income.

However, a more nuanced picture emerges when examining Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO), key metrics for REIT performance. FFO for the three months ended June 30, 2025, increased by 4.9% to $9.695 million, and AFFO rose by 3.8% to $10.621 million. For the six-month period, FFO increased by 2.5% to $19.268 million, and AFFO grew by 3.4% to $21.131 million. These FFO and AFFO increases, despite the GAAP net income dip, highlight the underlying operational strength and cash flow generation of OLP's portfolio, particularly from its growing industrial segment. The increases were partially offset by higher interest expenses and general and administrative costs, including compensation expense from RSU amortization and payroll-related expenses. Additionally, the increase in the weighted average number of common shares outstanding, due to equity incentive and dividend reinvestment programs, negatively impacted per-share FFO and AFFO.

OLP's TTM financial ratios further illustrate its profile. A Gross Profit Margin of 79.55% and an EBITDA Margin of 80.37% underscore the high-margin nature of its net lease business. The TTM Net Profit Margin stands at 29.85%, reflecting the impact of non-operating expenses. The company's TTM Free Cash Flow Per Share is $2.10, indicating healthy cash generation from operations.

Capital Allocation and Liquidity: Fueling Future Growth

OLP's capital allocation strategy is geared towards funding its industrial pivot and maintaining a robust liquidity position. As of August 1, 2025, the company reported $115.5 million in available liquidity, comprising $15.5 million in cash and cash equivalents and up to $100 million available under its credit facility. This facility is crucial for new acquisitions, mortgage debt repayment, and up to $40 million for renovation and operating expenses.

The company's approach to financing new acquisitions involves initially utilizing its credit facility, followed by securing long-term, fixed-rate mortgage debt on the acquired properties. The proceeds from these long-term mortgages are then used to repay the credit facility, replenishing its capacity for further strategic investments. This revolving capital strategy is vital for its ongoing portfolio transformation.

As of June 30, 2025, OLP had 59 outstanding mortgages payable, securing 61 properties, with an aggregate principal amount of $452.8 million. These mortgages carry a weighted average interest rate of 4.76% and a weighted average remaining term to maturity of 6.30 years. The company was in compliance with all credit facility covenants at June 30, 2025, demonstrating sound financial management.

The strategic divestitures are also a key component of capital allocation. The sales of various retail properties in Q2 2025 and subsequent to June 30, 2025, generated significant gains and provided additional capital for reinvestment into higher-growth industrial assets. This disciplined approach to recycling capital is fundamental to OLP's long-term value creation.

Outlook and Risks: Managing Macroeconomic Currents

OLP's forward outlook is shaped by its strategic industrial pivot and the prevailing macroeconomic environment, particularly interest rate trends. Management explicitly anticipates that mortgage interest expense will increase as the company refinances mortgages maturing through 2027. This is a critical headwind, as current comparable mortgage interest rates (e.g., 6.21% for recent acquisitions) are generally higher than the weighted average interest rates on maturing mortgages (e.g., 3.78% for H2 2025, 3.91% for 2026, 3.64% for 2027). This implies a potential compression in earnings and, consequently, the amount required for REIT distributions.

The company expects to meet its short-term and long-term operating cash requirements, including debt service and anticipated dividend payments, primarily through cash flow from operations, available cash, and its credit facility. Investing and financing needs, including an estimated $2.5 million in capital expenditures, are also projected to be covered by these sources, alongside property financings, sales, and common stock issuances.

Key risks for OLP include the volatile economic environment, which could impact tenant financial health and lead to defaults or vacancies. The company actively monitors tenant financial conditions to mitigate this risk. The specific challenges at "The Vue" property, where OLP has discretionarily funded shortfalls without receiving ground lease income for several years, highlight property-specific vulnerabilities. Furthermore, the ability to acquire or dispose of properties on acceptable terms, and to lease properties favorably, remains an ongoing operational risk.

The recently enacted One Big Beautiful Bill Act (OBBBA) introduces changes to REIT tax laws, including an increase in the TRS ownership limit and a permanent extension of the 20% deduction for qualified REIT dividends. While potentially beneficial, the complexity of these changes means their long-term impact on OLP's financial structure and stockholder returns cannot be fully predicted.

From a competitive standpoint, OLP's TTM Dividend Yield of 7.61% is attractive, but its high payout ratio and AFFO coverage are areas for investor vigilance. While some market observers suggest that potential Federal Reserve rate cuts could create a favorable environment for dividend stocks like OLP, the company's ability to sustain its dividend will depend on its success in managing refinancing costs and generating sufficient cash flow from its rebalanced portfolio. OLP's strategy to focus on industrial properties positions it well against retail-heavy competitors, but its smaller scale compared to industry giants like Realty Income and W. P. Carey means it must maintain operational efficiency and disciplined capital allocation to thrive.

Conclusion

One Liberty Properties is undergoing a significant and timely strategic transformation, aggressively shifting its portfolio towards the resilient and growing industrial sector. This pivot, evidenced by substantial industrial acquisitions and targeted retail divestitures in 2025, positions OLP to capitalize on favorable market tailwinds driven by e-commerce and supply chain evolution. While the company's recent financial performance demonstrates strong operational growth in rental income and FFO, the impact of rising interest rates on maturing mortgage debt presents a tangible headwind that could pressure future earnings and dividend coverage.

OLP's foundational strengths lie in its self-managed structure, diversified portfolio, and long-term net lease model, which collectively contribute to stable cash flow generation. These operational differentiators, rather than proprietary technology, form its competitive moat against larger, more specialized REITs. Investors should closely monitor OLP's execution of its industrial strategy, its ability to manage refinancing costs in a higher interest rate environment, and the sustainability of its attractive dividend yield. The success of this strategic rebalancing will be critical in determining OLP's long-term growth trajectory and its ability to deliver consistent value to shareholders.