Liberty Property Trust reported second-quarter 2013 funds from operations (FFO) of 66 cents per share. This was in line with the Zacks Consensus Estimate and ahead of the prior-year quarter figure of 63 cents.
The year-over-year increase was attributable to the strong leasing deals, portfolio-restructuring activities and improving market fundamentals. However, the sluggish pace of industrial market recovery in the second-quarter and rising operating expenses acted as headwinds.
Total operating revenue during the quarter came in at $178.1 million, up 8.3% from $164.5 million in the prior-year period. It also surpassed Zacks Consensus Estimate of $174 million.
Behind the Headlines
This office and industrial real estate investment trust (REIT) witnessed strong leasing activities in the second quarter, with about 7.1 million square feet of leased space. At the end of the quarter, the occupancy at the in-service portfolio of Liberty Property – spanning 80.6 million square feet – increased 20 basis points (bps) to 92.8% from 92.6% sequentially.
Subsequent to the reported quarter-end, Liberty Property inked a lease deal for 550,800 square feet of space at a Penn.-based building, 40 Logistics Drive. The lease for the property, which is currently under development, will start in Aug 15, 2013.
In addition, the operating income from same-store properties inched up 1.7% on a cash basis and 0.4% on a straight-line basis from the year-ago quarter.
Portfolio Restructuring Activity
During the quarter under review, Liberty Property purchased a Wash.D.C.-based office building (77.4% occupied) for $133.5 million. In addition, subsequent to quarter-end, the company acquired a Phoenix-based untenanted distribution facility for $27.9 million.
On the other hand, Liberty Property offloaded 6 operating assets, spanning 498,000 square feet of leasable space (34.3% leased at the time of the sale) for $51.4 million.
Additionally, Liberty Property brought 1 development property (100% occupied) into operation with a total investment of $28.1 million. The asset, spanning 139,000 square feet of leasable space, generates a current yield of 7.5%.
The company also commenced construction at 5 properties with an estimated cost of $139.2 million. The properties under construction include 1 build-to-suit distribution facility and 4 distribution buildings.
As of Jun 30, 2013, Liberty Property had cash and cash equivalents of $61.7 million, compared with $38.4 million as of Dec 31, 2012.
During the reported quarter, the company sold 1.2 million shares under its equity program and generated net proceeds of $50.4 million, which was primarily used to pay off debts under the company’s unsecured credit facility.
Management at Liberty Property remains confident regarding the company’s performance in 2013, due to its satisfactory second quarter results. Consequently, it reaffirmed its guidance for full-year 2013 FFO in the range of $2.60–$2.70 per share.
Moreover, management expects the rise in pent-up demand for premium quality industrial space to strengthen market fundamentals further. They anticipate this to positively effect Liberty Property in form of rent and occupancy increments going forward.
Going forward, we expect the company’s ongoing portfolio repositioning activity, which is aimed at increasing its dominance in vibrant markets, to bode well for long-term profitability. In addition, Liberty Property’s relatively healthy balance sheet with adequate liquidity puts the company at ease. We expect these factors to add to Liberty Property’s growth going forward. However, continuous portfolio enhancement transactions tend to keep operating expenses high, which affect the near-term earnings.
Liberty Property currently carries a Zacks Rank #3 (Hold).
Further, we look forward to the results of other REITs that are scheduled to release second-quarter 2013 results on Jul 25, after the closing bell. These include Highwoods Properties Inc. (HIW - Analyst Report) , CBRE Group Inc. (CBG - Analyst Report) and Taubman Centers Inc. (TCO - Analyst Report) .
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.