Liberty (LPT) Beats Q1 FFO & Revenue Estimates, Stock Up

Shares of Liberty Property Trust (NYSE:LPT) inched up 0.27%, during Tuesday’s regular trading session, after the company reported better-than-expected funds from operations (“FFO”) per share and revenues for first-quarter 2017.

The company reported FFO per share of 60 cents, which surpassed the Zacks Consensus Estimate of 58 cents. Total operating revenue of around $175.4 million also came ahead of the Zacks Consensus Estimate of $175.3 million.

However, on a year-over-year basis, the company’s FFO per share reported a decline of 2 cents from 62 cents reported in the year-ago quarter. Also, total operating revenue declined 7.8% year over year.

Quarter in Detail

During the reported quarter, Liberty Property accomplished lease deals for 6.7 million square feet of space. Further, as of Mar 31, 2017, occupancy at the company’s operating portfolio, spanning 98.2 million square feet, contracted 30 basis points (bps) sequentially to 96.1%.

The industrial portfolio, spanning 91.7 million square feet, was leased 96.6% at the end of the quarter, reflecting a contraction of 10 bps from the prior quarter. However, industrial distribution rents escalated 17.8% on renewal and replacement leases during the quarter.

On the other hand, the office portfolio, comprising 6.6 million square feet, had occupancy of 88.4%, down from 92.0% from the prior quarter. This was due to two anticipated tenant move-outs. However, office rents increased 11.6% on renewal and replacement leases.

Same-store properties’ operating income increased 1.2% year over year on a cash basis and 0.7% on a straight-line basis. Additionally, same-store operating income for the industrial portfolio increased 2.4% on a cash basis and 2.0% on a straight-line basis. However, same-store operating income for the office portfolio decreased 4.9% on a cash basis and 5.8% on a straight-line basis, reflecting the two tenant move-outs.

Liberty Property exited first-quarter 2017 with cash and cash equivalents of around $36.5 million, down from $43.6 million at the end of the prior year.

Portfolio Activity

During the first quarter, one wholly owned development property was brought into service by Liberty Property, for an aggregate investment of $16.3 million. The property comprised 215,000 square feet of leasable space and was 81.7% occupied at the end of the quarter.

Furthermore, the company began development of four wholly owned properties which included an industrial build-to-suit and three inventory industrial buildings. These properties aggregate 777,000 square feet of leasable space and involve projected investment of $84.4 million.

On the other hand, during the reported quarter, the company sold one 33,000 square feet suburban office building for $2.1 million.

Outlook

Liberty Property updated its guidance and now expects full-year 2017 FFO per share in the range of $2.42–$2.52, against $2.40–$2.52 guided earlier. The Zacks Consensus Estimate for the same is currently pegged at $2.46.

Our Take

We are encouraged with the better-than-expected performance of Liberty Property in the first quarter. The company is poised for growth as fundamentals of the industrial real estate market remain robust, backed by growing demand amid manageable supply, resulting in solid rent growth, increased occupancy and development opportunities. However, adverse near-term impact on earnings from dispositions and rise in interest rates remain concerns.

Currently, Liberty Property carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let us now look forward to the earnings releases of Essex Property Trust Inc. (NYSE:ESS) , Apartment Investment and Management Company (NYSE:AIV) and Simon Property Group, Inc. (NYSE:SPG) , all of which are expected to report this week.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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