On Apr 18, 2013, we reiterated our long-term recommendation on Liberty Property Trust – a real estate investment trust (REIT) – at Neutral. Our decision rests on Liberty Property’s decent fourth-quarter 2012 results and its ongoing portfolio repositioning activity, amid uneven economic conditions, to focus on markets having better job and rent growth prospects.
Going forward, we expect Liberty Property’s strong portfolio of multi-tenant industrial and office properties and its portfolio repositioning initiatives to provide a significant upside potential to the stock. Yet, the continuous acquisition spree of Liberty Property involves significant upfront operating expenses, which will limit its near-term profitability.
Why the Reiteration?
Liberty Property specifically focuses on metro-office, multi-tenant industrial and flex properties and markets having strong demographic and economic fundamentals, which ensure a steady revenue stream for the company. Moreover, as the demand is continuously rising for premium quality industrial space, the company is boosting its portfolio repositioning program to expand its reach in upscale markets. This provides a significant upside potential for the company going forward.
Liberty Property’s fourth-quarter 2012 FFO came in at $0.63 per share, in line with the Zacks Consensus Estimate as well as the year-ago quarter. The result was attributable to the strong acquisitions and development activities, slightly impacted by uncertain economic conditions.
Furthermore, Liberty Property has a strong and dedicated management team and it also benefits from the reputation and relationships of its key personnel with the industry as a whole, which further helps to attract profitable business and investment opportunities.
However, Liberty Property generates a significant amount of revenue from its office portfolio. Office demand is highly correlated to job growth. If job cuts continue, operations in the company’s office portfolio are likely to suffer as most companies will shelve expansion plans. This could adversely affect the top-line growth of the company.
Over the last 60 days, the Zacks Consensus Estimate for 2013 remained unchanged at $2.65 per share. On the other hand, the Zacks Consensus Estimate for 2014 has slightly moved down to $2.79 per share. Consequently,Liberty Property carries a Zack Rank #4 (Sell).
Other Stocks to Consider
REITs that are currently performing much better include MHI Hospitality Corp. , Ryman Hospitality Properties Inc. (RHP - Snapshot Report) and Extra Space Storage Inc. (EXR - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).
Note: FFO, 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.