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LRY Q4 FFO in Line, Revs Miss

Zacks Equity Research

The office and industrial real estate investment trust (:REIT), Liberty Property Trust (LRY), reported fourth-quarter 2013 funds from operations (:FFO) of 63 cents per share. This was in line with the Zacks Consensus Estimate as well as the prior-year quarter figure. Also, this was within the company’s 2014 FFO per share guidance range of 62–64 cents.

The decent results were attributable to year-over-year revenue gains, strong leasing and portfolio restructuring activity. Total operating revenue during the quarter came in at $192.4 million, up 33.2% year over year but fell short of the Zacks Consensus Estimate of $200 million.

For full-year 2013, Liberty Property reported FFO per share of $2.49, down from $2.58 in 2012. However, the operating revenues of $645.9 million in 2013 came above $560.3 million reported in 2012.

Inside the Headlines

Liberty Property continued notable leasing activity in the fourth quarter, with about 5.7 million square feet of leased space. As of Dec 31, 2013, the occupancy at the in-service portfolio of Liberty Property – spanning 103 million square feet – increased 100 basis points (bps) to 91.6% from 90.6% sequentially.

On the other hand, in fourth-quarter 2013, same-store properties’ operating income upped 1.6% on a cash basis and 1.2% on a straight-line basis from the year-ago quarter.

Portfolio Restructuring Activity in Q4

Liberty Property sealed the buyout of 100% ownership stake in 177 operating properties of Cabot Industrial Value Fund III for $1.469 billion. In addition, the company bought 2 operating assets worth $39.8 million and 184 acres land for $30.5 million during the said quarter.

Liberty Property also brought 1 development asset into operation with a total investment of $9.2 million. Moreover, the company commenced construction at 4 properties with an estimated cost of $91.9 million during the quarter.

Additionally, a joint venture (:JV) by Liberty Property started construction at an inventory distribution facility on 2277 Center Square Road in Logan Township. The estimated cost of the project is $11.8 million.

Also, Liberty Property inked a deal to sell 159 acres of land and 97 operating properties during the quarter. Of these, the company completed the disposition of 49 properties and 140 acres of land in Dec 2013 for $367.7 million. The remaining 48 properties and 19 acres of land were sold in Jan 2014 for $329.6 million. 

The company divested two other operating assets for $14.0 million. Alongside, Liberty Property’s JV offloaded 4 operating properties for $31.5 million and another JV divested 1 operating asset for $9.6 million in the quarter.

Comcast Deal

Subsequent to the quarter end, Liberty Property collaborated with Comcast Corporation (CMCSA) to build a 59-story, 1.5 million square foot tower in Philadelphia. The joint venture, in which Liberty Property has a 20% stake and the rest is owned by Comcast, will develop this tower with a projected investment of $900 million.


As of Dec 31, 2013, Liberty Property had cash and cash equivalents of $163.4 million, up from $38.4 million as of Dec 31, 2012.

2014 Outlook

Liberty Property has previously issued the guidance for 2014 FFO per share and expected it to be in the range between $2.45 and $2.55. The outlook is in line with the Zacks Consensus Estimate of $2.50.

Our Take

Although the revenue miss is disappointing, we believe the strong leasing and notable operating portfolio performance helped Liberty Property sail over the tides. The Cabot buyout accomplishment and Comcast deal also promises huge growth prospects for the company. Going forward, we believe that the repositioning efforts by the company through strategic acquisitions, JV investments and dispositions would help it ride on the growth trajectory. While the dispositions result in a near-term drag to profitability, we believe these provide the wherewithal to be invested in acquiring and developing premium assets that go a long way in enhancing the top line.

Liberty Property currently carries a Zacks Rank #3 (Hold). However, some better-ranked REIT stocks include Sabra Health Care REIT Inc (SBRA) and WP Carey Inc (WPC). Both carry 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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