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Liberty Raising Cap to Fund Buyout

Zacks Equity Research

Liberty Property Trust (LRY) – a real estate investment trust – is raising capital through stock offering to fund its recently announced $1.25 billion acquisition of the operating partnership of Cabot Industrial Value Fund III. The remaining amount for the acquisition would be met through debt and property sale.    

In particular, Liberty is selling 21 million common shares at $36.00 each and the underwriters have been granted a 30-day option to purchase an additional 3.15 common shares. It expects approximately $725.3 million in net proceeds, and if in case the acquisition is not carried out, the fund could be used for meeting its working capital needs and debt payment.

Alongside, banking majors are helping in the execution of this offering. Citigroup Inc. (C), Goldman, Sachs & Co. (GS), BofA Merrill Lynch (BAC) and J.P. Morgan (JPM) acted as the joint book-running managers for the offering.

Though dilution of shares will occur, the capital raise activity is a strategic fit as the acquisition would help Liberty enhance its portfolio and scope. It would augment its industrial portfolio with 23 million square feet and 177 properties in new and existing Liberty markets.

Going forward, we expect Liberty’s ongoing portfolio repositioning activity, which is aimed at increasing its dominance in vibrant markets, to bode well for long-term profitability.

Recently, Liberty reported its second-quarter 2013 results. The company’s funds from operations (:FFO) of 66 cents per share, was in line with the Zacks Consensus Estimate and ahead of the prior-year quarter figure of 63 cents.

Total operating revenue came in at $178.1 million, up 8.3% year over year. The year-over-year increase was attributable to the strong leasing deals, portfolio-restructuring activities and improving market fundamentals.

Liberty Property currently carries a Zacks Rank #3 (Hold). The other REIT that is performing well and deserves a look is Extra Space Storage Inc. (EXR) that carries a Zacks Rank #2 (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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