Liberty (LPT) Q4 FFO & Revenues Beat Estimates, Stock Up

Liberty Property Trust (NYSE:LPT) reported fourth-quarter 2017 funds from operations (FFO) per share of 68 cents, which surpassed the Zacks Consensus Estimate of 65 cents. Total operating revenues of around $192.8 million for the quarter also outpaced the Zacks Consensus Estimate of $173.0 million.

On a year-over-year basis, the company’s FFO per share climbed from 41 cents per share recorded in the year-earlier quarter, while total operating revenues increased 13.6% year over year.

During the reported quarter, Liberty Property accomplished lease deals for 6.1 million square feet of space. As of Dec 31, 2017, occupancy at the company’s in-service portfolio, spanning 102 million square feet, expanded 100 basis points (bps) sequentially to 96.9%.

For full-year 2017, FFO per share came in at $2.59, up 9.3% from the prior-year tally of $2.37. This was backed by 1.3% year-over-year growth in total revenues to nearly $719.8 million.

Amid these, shares of Liberty Property inched up 1.8% to $39.63 during regular trading session on Feb 6.

Quarter in Detail

Liberty Property’s industrial portfolio, spanning 94.2 million square feet, enjoyed occupancy of 97.0% at the end of the quarter, marking an expansion of 70 bps from the prior quarter. Industrial rents escalated 14.8% on renewal and replacement leases signed during the quarter.

The office portfolio, comprising 7.4 million square feet of space, had occupancy of 95.6%, up 460 bps from the previous quarter. Office rents were up 22.2% on renewal and replacement leases.

Same-store properties’ operating income increased 5.1% year over year on a cash basis and straight-line basis. Additionally, same-store operating income for the industrial portfolio climbed 4.6% on a cash and straight-line basis. Same-store operating income for office portfolio ascended 8.0% on a cash basis and 7.9% on a straight-line basis.

Portfolio Activity

During the fourth quarter, Liberty enhanced its positions in California, Georgia and New Jersey through acquisition of four 100% leased buildings, aggregating 1.4 million square feet of space for $195.1 million.

On the other hand, Liberty sold four properties aggregating around 2.1 million square feet of space and 64 acres of land for $325.3 million during the quarter.

The company brought into service six wholly-owned development properties, having 960,000 square feet of leasable space and 80.5% occupied as of the end of the quarter, for a total investment of $78.8 million. Further, Liberty commenced development of two wholly-owned properties during the quarter, aggregating 705,000 square feet of leasable space, at an estimated investment of $44.4 million.

Balance Sheet Position

Liberty Property exited fourth-quarter 2017 with cash and cash equivalents of around $11.9 million, down from $43.6 million recorded at the end of the prior year.

Notably, during the reported quarter, the company closed on credit facilities totaling up to $830 million outstanding at any one time as well as a delayed draw term-loan facility aggregating up to $100 million.

Outlook

Liberty Property provided its guidance for 2018 and projects FFO per share in the range of $2.53-$2.65. The Zacks Consensus Estimate for the same is currently pegged at $2.61.

Further, the company’s full-year 2018 FFO per share projection is backed by same-store operating income for the industrial portfolio’s estimated growth of 3-4% on a straight line and 4-5% on a cash basis.

Also, the company expects asset sales in the $600-$800 million band and acquisitions in the range of $400-$600 million.

Our Take

The better-than-expected performance of Liberty Property in the fourth quarter is encouraging. Notably, the company is gradually shifting its focus toward industrial properties due to favorable demand supply conditions. The company plans to fund investments in industrial assets through proceeds from dispositions of office properties. While such efforts are a strategic fit for long-term growth, the near-term dilution effect of such moves on earnings is unavoidable.

Moreover, supply of industrial real estates is likely to increase in the upcoming quarters and adversely affect the growth tempo of this real estate market. Also, rate hike remains a concern. Nevertheless, its premium quality industrial properties, situated in key locations, have the capacity to drive long-term growth by leveraging on the e-commerce boom and supply-chain strategy transformations.

Currently, Liberty Property carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of other REITs like Taubman Centers, Inc. (NYSE:TCO) , Regency Centers Corporation (NYSE:REG) and HCP Inc. (NYSE:HCP) . Taubman Centers and Regency Centers are scheduled to release results on Feb 8, while HCP Inc. is slated to report its numbers on Feb 13.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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