One Liberty Properties(OLP) - 2023 Q4 - Annual Report

PART I Item 1. Business One Liberty Properties is a REIT managing a diversified portfolio of industrial and retail properties under long-term net leases General Overview and 2023 Developments The company's portfolio was 98.8% occupied at year-end 2023, with key activities including property sales and stock repurchases Portfolio Snapshot as of December 31, 2023 | Metric | Value | | :--- | :--- | | Total Properties (incl. JVs) | 110 | | Total Square Feet | ~10.9 million | | States | 31 | | Occupancy Rate | 98.8% | | 2024 Contractual Rental Income | $71.3 million | | Weighted Avg. Lease Term | 5.5 years | | Weighted Avg. Mortgage Term | 5.9 years | | Weighted Avg. Mortgage Interest Rate | 4.31% | - In 2023, the company sold 10 properties, generating a net gain of $17.0 million, which is expected to decrease 2024 rental income by approximately $2.5 million[17] - The company utilized proceeds from property sales to pay down its credit facility by approximately $21.8 million, leaving no outstanding balance as of December 31, 2023[17] - Approximately 499,000 shares of common stock were repurchased for an aggregate price of $9.6 million, at an average price of $19.24 per share[18] Business Objective and Strategies The company aims to increase stockholder value through strategic acquisitions, primarily of single-tenant industrial properties - The company's business objective is to increase stockholder value by identifying strategic acquisitions, managing the portfolio effectively, obtaining favorable financing, and maintaining or increasing dividends[20] - The primary acquisition target is single-tenant industrial properties subject to long-term net leases that include periodic contractual or CPI-based rental increases[19] Our Tenants and Leases The tenant base is diversified with industrial properties comprising 66.1% of rental income and most leases being net leases Property Type Breakdown | Type of Property | % of 2024 Contractual Rental Income | | :--- | :--- | | Industrial | 66.1% | | Retail—General | 15.7% | | Retail—Furniture | 5.6% | | Health & Fitness | 3.7% | | Retail—Office Supply | 2.9% | | Other | 2.7% | | Restaurant | 1.7% | | Theater | 1.6% | Lease Expiration Schedule | Year of Lease Expiration | % of 2024 Contractual Rental Income | | :--- | :--- | | 2024 | 3.6% | | 2025 | 7.7% | | 2026 | 8.7% | | 2027 | 20.4% | | 2028 | 13.8% | | 2029 | 10.1% | - The weighted average remaining lease term has decreased from 6.0 years at year-end 2021 to 5.5 years at year-end 2023[29] Financing, Regulation, and Human Capital The company uses a credit facility for acquisitions, complies with regulations, and utilizes an affiliated management company - The company's financing strategy involves using its credit facility for acquisitions and then obtaining long-term, fixed-rate, non-recourse mortgage financing on the properties[32][33][34] - The company has 10 full-time employees and relies on an agreement with Majestic Property Management Corp (an affiliated entity) for various executive, administrative, and property management services[43] - In 2023, the company paid Majestic Property approximately $3.3 million for services and $317,000 for direct office expenses, with the 2024 property management fee estimated at $1.4 million[44] Item 1A. Risk Factors The company faces risks from tenant defaults, sector concentration, refinancing maturing debt, and interest rate volatility - A significant portion of leases are expiring, with 20.0% of 2024 contractual rental income from leases expiring between 2024-2026 and 44.3% from leases expiring between 2027-2029[58] - The portfolio is concentrated in the industrial (66.1% of 2024 contractual rental income) and retail (24.2%) sectors, making it vulnerable to downturns in these areas[59] - Five tenants account for approximately 22.3% of 2024 contractual rental income, including FedEx, Havertys Furniture, and LA Fitness[61] - The company has significant mortgage debt maturing, with approximately $168.6 million due between 2024 and 2028, creating refinancing risk[69] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[111] Item 1C. Cybersecurity Cybersecurity is managed internally with third-party support and oversight from the Audit Committee, with no material risks identified - Cybersecurity is managed by a network administrator reporting to the CFO, with oversight from the Audit Committee[113][117] - The company retains a third-party cybersecurity firm for periodic assessments and continuous monitoring of its IT systems[114] - The company states it is not aware of any cybersecurity risks that have materially affected or are reasonably likely to materially affect its operations[115] Item 2. Properties The company's portfolio of 108 owned properties has a net book value of $682.0 million and is 98.8% occupied Occupancy Rates | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Occupancy Rate (Owned Properties) | 98.8% | 99.8% | 99.2% | | Occupancy Rate (JV Properties) | 100% | 58.7% | 59.1% | Geographic Concentration | State | % of 2024 Contractual Rental Income | | :--- | :--- | | South Carolina | 12.0% | | New York | 9.2% | | Texas | 7.9% | | Pennsylvania | 7.6% | | New Jersey | 5.3% | | Maryland | 5.2% | - As of December 31, 2023, the company had $422.6 million of mortgage debt outstanding across 68 first mortgages, with a weighted average interest rate of 4.31% and a remaining term of 5.9 years[132] Item 3. Legal Proceedings The company reports this item is not applicable - Not applicable[130] Item 4. Mine Safety Disclosures The company reports this item is not applicable - Not applicable[131] PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE, and it repurchased 164,067 shares in Q4 2023 with $8.1 million remaining for buybacks - The company's common stock trades on the NYSE under the symbol "OLP"[134] Q4 2023 Stock Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 2023 | 133,667 | $18.40 | | Nov 2023 | 30,400 | $18.80 | | Dec 2023 | — | — | | Q4 Total | 164,067 | $18.47 | - As of March 1, 2024, the company is authorized to repurchase up to an additional $8.1 million of its common stock[136] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Total revenues decreased 1.7% in 2023, with net income and FFO declining due to prior-year one-time items, while AFFO remained stable Challenges and Uncertainties The company faces challenges from specific tenant issues, including Regal Cinemas, The Vue, and an LA Fitness lease termination - Regal Cinemas' parent company emerged from bankruptcy, resulting in amended leases with shortened terms and an aggregate base rent reduction from a potential $21.0 million to $7.7 million over the remaining term[148] - The tenant at The Vue property has not paid rent since October 2020, an aggregate of $3.9 million that would have been due, requiring the company to fund $3.4 million in shortfalls[151] - LA Fitness terminated its lease at the Hamilton, Ohio property effective May 1, 2024; this property accounted for $893,000 of rental income in 2023[153][154] Comparison of Years Ended December 31, 2023 and 2022 Total revenues decreased 1.7% to $90.6 million in 2023, driven by lower same-store rental income, while operating expenses rose 4.6% Revenue Comparison | Revenue (in thousands) | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Rental income, net | $90,646 | $92,191 | $(1,545) | (1.7)% | | Total revenues | $90,646 | $92,216 | $(1,570) | (1.7)% | - Same-store rental income decreased by $3.3 million (3.9%), primarily because 2022 results included $4.6 million from a litigation settlement with The Vue[160][162] Operating Expenses | Operating Expenses (in thousands) | 2023 | 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Depreciation and amortization | $24,789 | $23,781 | $1,008 | 4.2% | | General and administrative | $15,822 | $15,258 | $564 | 3.7% | | Real estate expenses | $16,444 | $15,508 | $936 | 6.0% | | Total operating expenses | $57,339 | $54,832 | $2,507 | 4.6% | - Equity in earnings of unconsolidated joint ventures swung to a loss of $904,000 in 2023 from earnings of $400,000 in 2022, mainly due to an $850,000 impairment charge[167] Funds from Operations and Adjusted Funds from Operations FFO decreased 21.5% to $39.0 million due to non-recurring 2022 income, while AFFO remained stable at $42.6 million FFO and AFFO Reconciliation | Metric (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | GAAP net income | $29,614 | $42,177 | | NAREIT FFO | $38,996 | $49,669 | | Adjusted FFO (AFFO) | $42,595 | $42,129 | Per Share Data | Per Share Data | 2023 | 2022 | | :--- | :--- | :--- | | GAAP net income (diluted) | $1.38 | $1.99 | | NAREIT FFO (diluted) | $1.82 | $2.34 | | Adjusted FFO (AFFO) (diluted) | $1.99 | $1.98 | - The $10.7 million decrease in FFO was primarily driven by the inclusion in 2022 of $5.4 million from the Round Rock Settlement and $4.6 million from The Vue litigation settlement[182] Liquidity and Capital Resources The company maintains strong liquidity of $123.9 million and plans to refinance $132.9 million in debt maturing by 2026 - As of March 1, 2024, available liquidity was approximately $123.9 million, comprising $23.9 million in cash and $100.0 million available under the credit facility[188] Mortgage Debt Maturities | Mortgage Debt Due (in thousands) | 2024 | 2025 | 2026 | Total (2024-2026) | | :--- | :--- | :--- | :--- | :--- | | Amortization payments | $11,873 | $10,627 | $10,491 | $32,991 | | Principal due at maturity | $49,906 | $30,850 | $19,179 | $99,935 | | Total | $61,779 | $41,477 | $29,670 | $132,926 | - The $100 million credit facility matures on December 31, 2026, and bears interest at 30-day SOFR plus an applicable margin (175 basis points in 2023)[197] Critical Accounting Estimates Key accounting estimates involve revenue recognition, purchase accounting, impairment testing, and equity-based compensation - Key estimates include determining the collectability of unbilled rent receivables, which are reviewed quarterly based on tenant payment history and financial condition[208] - The company reviews its real estate portfolio quarterly for impairment indicators, performing a recoverability test by comparing carrying amount to estimated undiscounted future cash flows[211] - Fair value for equity-based compensation is determined using a Monte Carlo simulation for TSR Awards and the grant date stock price for ROC Awards[212] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure, managed through interest rate swaps on variable-rate debt - The primary market risk exposure is from changes in interest rates on its variable rate debt and interest rate swaps[214] - At December 31, 2023, the company had 13 interest rate swap agreements with a total notional amount of $29.6 million to limit interest rate risk[216] Fixed Rate Debt Obligations | Debt Obligations (Fixed Rate, in thousands) | Total | Fair Market Value | | :--- | :--- | :--- | | Long-term debt | $422,565 | $397,031 | Item 8. Financial Statements and Supplementary Data This item incorporates by reference the company's financial statements and supplementary data from Item 15(a) - The financial statements and supplementary data are located in Item 15(a) of the report[218] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2023[222] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023, based on the criteria set forth by COSO[224][225] PART III Items 10-14 Required information for Items 10-14 is incorporated by reference from the company's forthcoming 2024 proxy statement - Detailed information for Items 10, 11, 12, 13, and 14 will be provided in the forthcoming proxy statement for the 2024 annual meeting of stockholders[230][231][232][235][236] Equity Compensation Plan Information | Plan Category | Securities to be issued upon exercise | Securities remaining available for future issuance | | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 248,112 | 428,675 | PART IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K report - The report includes the company's consolidated financial statements and Schedule III for Real Estate and Accumulated Depreciation[238] - A comprehensive list of exhibits filed with the report is provided, including governance documents, loan agreements, compensation plans, and required certifications[239][241]