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Liberty Property (LPT) Sells Medical Office Tower for $99.25M

Zacks Equity Research

Liberty Property Trust LPT recently announced the sale of a medical office building, 800 Walnut Street in Philadelphia, PA, for $99.25 million. The sale price is notably more than double what it cost to build the property six years ago.

Specifically, the 12-story building, spanning 153,242 square feet of space, was developed in 2013 for an investment of $48.5 million. This property was leased by the University of Pennsylvania Health System for medical office use.

The company used part of the sale proceeds to repay $35.9 million of mortgage debt that encumbered the property. Hence, it will record a loss of $7.6 million, or five cents per diluted share, for early extinguishment of debt, in second-quarter 2019. Notably, the secured loan carried an interest rate of 4.84% and was slated to mature in 2033.

This sale is appropriate for Liberty Property that has been aiming at divesting its non-core properties and using the dry powder to invest in the highly profitable business as an industrial landlord across the United States. Specifically, the company is aiming for growth of its industrial platform in top-tier markets and financing that through disposition of office assets.

In fact, continuing its strategic disposition program, the company sold $85 million of office properties in the March-end quarter. Per management, the company may exit its wholly-owned office portfolio by the end of this year and exceed the asset sales guidance of $600-$650 million. These measures are likely to help the company achieve a favorable portfolio mix.

Shares of this Zacks Rank #3 (Hold) company have gained 4.8% as compared with the industry’s rally of 3.1% over the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Obviously, the expansion of industrial real estate portfolio is a strategic fit for Liberty Property. This is because fundamentals of the industrial market remain solid, backed by growing demand for such properties amid economic recovery, job-market improvements, high-consumer spending and e-commerce boom, which has led to strong rent growth, high occupancy and development opportunities. Therefore, given its premium quality industrial portfolio located in upscale locations, pro-business environment and continued e-commerce demand, Liberty Property is poised to gain.

In addition to Liberty Property, other REITs, including Prologis Inc. PLD,Terreno Realty Corporation TRNO and Duke Realty DRE, are expected to benefit from the same.

Nevertheless, there is rising supply of industrial real estate space and this might partly dampen the robust growth momentum in rents. This apart, trade tensions and any rate hike add to REITs’ woes.

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