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Will Liberty Property (LRY) Beat FFO Estimates This Quarter?

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Liberty Property Trust – a Pa.-based industrial real estate investment trust (REIT) – is set to report second-quarter 2013 results on Jul 23, before the opening bell. Our proven model does not conclusively show that Liberty Property will beat the Zacks Consensus Estimate in the upcoming quarter.

Earnings Whispers

To beat the estimate, a stock needs to have both a positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) and a Zacks Rank #1, 2 or 3. However, that is not the case here, as you will see below.

Zacks ESP: The earnings ESP for Liberty Property is 0.00% – indicating that the difference between the Most Accurate Estimate and the Zacks Consensus Estimate is nil. Both the estimates stand at 66 cents.

Zacks Rank #3 (Hold): Liberty Property’s Zacks Rank of 3, when combined with a 0.00% ESP, makes surprise prediction difficult.

Stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. We caution against stocks with a Zacks Rank #4 and 5 (Sell rated stocks) which should not be considered going into earnings announcement.

Factors to Consider

For Liberty Property, the strengthening of industrial markets fundamentals is likely to help its occupancy level. Additionally, the company’s ongoing portfolio repositioning activity to focus on markets having better job and rent growth prospects bodes well for its overall growth.

Liberty Property, which reported a positive earnings surprise of 3.17% in the first quarter, also made a strategic acquisition in the recent past. The company bought a Wash.-based property which boasts high-end tenants like The UPS Store of United Parcel Service Inc. (UPS - Analyst Report) and M Street Store.

Nevertheless, Liberty Property generates significant revenues from its office portfolio. The demand for offices is 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. Also, the continuous development activity of Liberty Property involves significant upfront operating expenses, which remain a drag on the company’s near-term profitability.

Other Stocks to Consider

Here are some other REITs you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:

DDR Corp. (DDR - Analyst Report) has Earnings ESP of +7.41% and a Zacks Rank #3. The company is scheduled to report earnings on Jul 31, after the market closes.

The Macerich Company (MAC - Analyst Report) has Earnings ESP of +1.24% and a Zacks Rank #2 (Buy). The company is scheduled to report earnings on Aug 5, after the closing bell.

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

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