Business Overview
One Liberty Properties, Inc. (NYSE:OLP) is a self-administered and self-managed real estate investment trust (REIT) that has evolved its portfolio towards industrial assets, now comprising approximately 70% of its base rent. The company’s strategic shift showcases its ability to adapt to changing market dynamics and capitalize on emerging trends in the real estate sector.
Established in 1982 and incorporated in Maryland, One Liberty Properties has a long and storied history as a diversified REIT. The company initially focused on acquiring and managing a geographically diverse portfolio of retail and industrial properties, many of which were subject to long-term net leases. Over the years, One Liberty has demonstrated its agility by steadily pivoting its focus towards the industrial sector, recognizing the growing demand and attractive fundamentals in this asset class.
As of September 30, 2024, One Liberty owns 104 properties, including two properties owned by consolidated joint ventures and two properties owned by unconsolidated joint ventures, located across 31 states. The company’s portfolio is primarily composed of industrial assets, with the remaining properties classified as retail. This strategic allocation towards industrial real estate has proven beneficial, as the sector has experienced robust demand driven by the growth of e-commerce, supply chain reconfiguration, and the shift towards automation and efficiency.
Financials
One Liberty’s financial performance has been strong, showcasing its ability to navigate the evolving real estate landscape. For the year ended December 31, 2023, the company reported total revenue of $90.65 million and net income of $29.61 million. Its operating cash flow (OCF) and free cash flow (FCF) both stood at $46.05 million for the same period.
In the most recent quarter (Q3 2024), One Liberty reported revenue of $22.21 million, representing a year-over-year decrease of 1.5%, primarily due to the sale of several properties in 2024. Net income for the quarter was $5.18 million, with OCF and FCF both at $9.97 million.
The company’s funds from operations (FFO), a widely used metric in the REIT industry, stood at $9.19 million, or $0.43 per diluted share, for the three months ended September 30, 2024. Adjusted funds from operations (AFFO) for the same period was $9.90 million, or $0.46 per diluted share. The decreases in FFO and AFFO compared to the prior year period were primarily due to a decline in rental income, an increase in real estate operating expenses, and higher interest expense, partially offset by an increase in other income.
Liquidity
The company’s balance sheet remains healthy, with a debt-to-equity ratio of 1.40 as of September 30, 2024. One Liberty’s access to diverse capital sources, including its $100 million revolving credit facility maturing in December 2026, provides it with the financial flexibility to pursue strategic acquisitions and maintain its operational efficiency. The credit facility bears interest at 30-day SOFR plus an applicable margin ranging from 1.75% to 2.75% based on the company’s debt to total value ratio.
As of November 1, 2024, One Liberty’s available liquidity was $129.8 million, including $29.8 million of cash and cash equivalents. The company’s current ratio and quick ratio both stand at 1.70, indicating a strong ability to meet short-term obligations.
One Liberty’s mortgage debt totaled $430.5 million as of September 30, 2024, with a weighted average interest rate of 4.53% and a weighted average remaining term to maturity of 6.2 years. The company expects to meet its short-term and long-term cash requirements, including debt service, dividend payments, and potential stock repurchases, primarily from cash flow from operations, available cash and cash equivalents, its credit facility, property sales, and property financings and refinancings.
Dividend and Shareholder Value
One Liberty’s commitment to shareholder value is evident in its consistent dividend payments. The company has paid quarterly dividends to its shareholders for 127 consecutive quarters, underscoring its stability and the strength of its business model. As of September 30, 2024, One Liberty’s dividend yield stood at 5.97%, making it an attractive investment option for income-oriented investors.
Growth Strategy
The company’s growth strategy is focused on identifying and acquiring high-quality industrial properties in strategic locations, aligning with the broader trend of e-commerce and supply chain optimization. One Liberty’s well-diversified portfolio, strong balance sheet, and experienced management team position it well to capitalize on the continued growth of the industrial real estate sector.
One Liberty’s contractual base rent for 2024 is approximately $73.1 million, representing the base rent payable during the twelve months ending September 30, 2025 under leases in effect at September 30, 2024. This excludes $1.4 million of estimated variable lease payments and the company’s share of base rent payable to its joint ventures. The company’s occupancy rate based on square footage is approximately 99.1% as of September 30, 2024, demonstrating the strength of its portfolio and tenant relationships.
Risks and Challenges
However, One Liberty is not without its risks. The company’s reliance on a limited number of large tenants, exposure to the retail and restaurant sectors, and the potential for rising interest rates could pose challenges. Additionally, the company’s ability to successfully execute its acquisition and integration strategy is crucial to its long-term success.
Despite these risks, One Liberty’s proactive approach to portfolio management, financial discipline, and focus on the industrial sector have positioned the company as a compelling investment opportunity within the REIT industry. As the real estate landscape continues to evolve, One Liberty’s adaptability and strategic vision suggest that it is well-equipped to navigate the challenges and capitalize on the opportunities that lie ahead.
Recent Developments
One Liberty has faced challenges due to the volatile economic environment, with certain properties and tenants experiencing difficulties over the years. For instance, in 2023, one of One Liberty’s tenants, Regal Cinemas, underwent a bankruptcy reorganization, necessitating amendments to leases at two of the company’s properties. Despite these challenges, One Liberty has continued to adapt and evolve its portfolio.
In 2022 and 2023, One Liberty’s Board of Directors authorized and/or amended repurchase programs, allowing the company to repurchase shares of its common stock. During this period, One Liberty repurchased approximately 335,000 shares of common stock for a total consideration of $6.6 million, demonstrating its commitment to creating value for shareholders.
In 2024, One Liberty closed on a previously announced $33 million purchase of an industrial property in Council Bluffs, Iowa, simultaneously obtaining new mortgage debt of $18.4 million. This acquisition further strengthens its industrial platform and provides greater stability of cashflow over the longer term.
Additionally, the company completed sales and secured sales agreements for several properties during 2024. In the three months ended September 30, 2024, One Liberty sold a vacant health and fitness property in Hamilton, Ohio, a vacant industrial property in Wauconda, Illinois, and a Hobby Lobby retail property in Woodbury, Minnesota, generating a total gain on sale of $2.12 million. These strategic moves highlight One Liberty’s ongoing efforts to optimize its portfolio and capitalize on favorable market conditions.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.