Liberty Property Marginally Beats

Liberty Property Trust (LRY - Analyst Report), a leading real estate investment trust (REIT), reported second quarter 2010 FFO (fund from operations) of $0.67 per share compared to $0.72 in the year-earlier quarter. Fund 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.
 
The earnings marginally beat the Zacks Consensus Estimate by a penny. The year-over-year decrease in FFO was primarily due to lease termination fees of $1.5 million and mortgage loan prepayment charges of $2.1 million.
 
At quarter end, the in-service portfolio of Liberty Property spanning 78.8 million square feet had occupancy of 88.7% compared to 88.2% in the previous quarter. During the quarter, Liberty Property completed lease transactions totaling 4.1 million square feet of space.
 
Operating income from the same-store properties decreased 1.8% (cash basis) and decreased 3.2% (straight line basis) year-over-year. Same-store occupancy during the quarter was 90.8% compared to 89.2% at the end of fiscal 2010 first quarter.
 
The company continues its portfolio repositioning program as it focuses on higher growth markets with better job and rent growth prospects. During the quarter, Liberty Property sold two operating properties spanning 72,000 square feet and 12 acres of land for $10.2 million.
 
In addition, the company brought into service a development property measuring 211,000 square feet for a total investment of $45.7 million. At quarter end, the property was 99.4% occupied at a current yield of 8.0%. In addition, a joint-venture in which Liberty Property has a 25% stake commissioned a 464,000 square feet development property for a total investment of $25.1 million.
 
The company did not commence any new development during the quarter. Subsequent to the end of the quarter, Liberty Property acquired two distribution facilities spanning 228,000 square feet in Houston for $14.7 million.
 
At quarter end, Liberty Property had a development pipeline of 251,000 square feet of wholly-owned and joint venture properties, at a total projected investment of $146.4 million at an expected yield of 5.1%. The properties were 67.2% leased at quarter end, as suburban office and industrial landlords are having a much more difficult time leasing space as the U.S. economy sheds jobs and corporate expansion stalls.
 
During the quarter, Liberty Property repaid mortgage loans totaling $119.3 million. At quarter end, the company had cash and cash equivalents of $39.5 million. We maintain our Neutral recommendation on Liberty Property with a Zacks #3 Rank, which translates into a short-term “Hold” rating.
 

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