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Liberty Property Stays Neutral

Zacks Equity Research

On Jun 27, 2013, we reiterated our long-term recommendation on Liberty Property Trust (LRY), a Pa.-based industrial real estate investment trust (:REIT) at Neutral. The move reflects the company’s solid operating platform, ongoing portfolio repositioning activity amid uneven economic conditions, to focus on markets having better job and rent growth prospects.

Why Neutral?

Liberty Property Trust reported first-quarter 2013 FFO (funds from operations) of 65 cents per share, beating the Zacks Consensus Estimate by 2 cents. However, this compared unfavorably with the prior-year quarter figure of 68 cents. The results were attributable to consistent performance of the overall portfolio as well as strong leasing and development activities. Yet, increase in operating expenses acted as a headwind.

Liberty Property boasts a strong portfolio of multi-tenant industrial and office properties located in multiple prime U.S. markets that enable the mitigation of geographical concentration risk.

The company recently acquired a property in Washington, D.C. for $133.5 million. The deal brings in leasable space to Liberty Property, whose current downtown properties are mostly occupied. This property has retail tenants like The UPS Store of United Parcel Service Inc. (UPS) and M Street Store. Moreover, its office tenants are The Urban Institute, George Washington University, Stewart & Stewart, GSA-SSA.

Nevertheless, the company generates significant revenue from its office portfolio. Office demand is highly correlated to job growth. Given the current economic environment and the volatility in the job market, demand for Liberty Property’s office portfolio is likely to suffer.

For Liberty Property, the Zacks Consensus Estimates for 2013 FFO per share remained stable at $2.65, while for 2014 the estimate has moved up by a cent to $2.76 per share, over the last 30 days. Hence, the stock carries a Zacks Rank #3 (Hold).

Other REITs to Consider

A number of REITs that are worth considering include CommonWealth REIT (CWH) and Winthrop Realty Trust (FUR), both carrying a Zacks Rank # 1(Strong Buy).

Note: Funds from operations, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation and amortization and other non-cash expenses to net income.

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