Issues related to rate hike and a cautious approach have affected gains from the REIT industry so far this year. However, make sure not to ignore the chances of scooping big gains from this special hybrid asset class which also benefits from the favorable dynamics of the individual asset categories.
In fact, one such REIT stock which has been displaying strength is Liberty Property Trust (LPT - Free Report) — a real estate investment trust (REIT) that deals with portfolio of industrial and office properties.
This Zacks Rank #2 (Buy) stock has gained 6.7% year to date compared with 2.8% growth recorded by the industry it belongs to. The stock is likely to move higher in the near term, as there are a number of favorable factors.
In second-quarter 2017, the company delivered a better-than expected performance, with both funds from operations (FFO) per share and revenues surpassing estimates. This Malvern, PA-based REIT also recently announced that it would develop a 220,000 square foot industrial building for global conveyance solutions leader — Intralox — at 7157 Ridge Road, in Hanover, MD.
Key Driving Factors
FFO per Share Growth: Liberty Property witnessed 5.8% growth in FFO per share over the last three-five years, outperforming the 1.8% increase of that of the industry. Further, its FFO per share is estimated to grow at a rate of 5.7% for 2017, which is well ahead of the industry average of 2.1%.
Upward Estimate Revisions: We note that the FFO per share estimates for Liberty Property have displayed a healthy trend of late. The company’s fourth-quarter and full-year 2017 estimates moved north over the last 30 days. Particularly, its fourth-quarter FFO per share estimate inched up 1.6% to 64 cents, while the full-year estimate moved up 1.2% to $2.50. Moreover, concurrent with its second-quarter results, the company updated its guidance and now expects full-year 2017 FFO per share in the range of $2.49-$2.55, against $2.42-$2.52 guided earlier.
Cash Flow Growth: Liberty Property’s historical cash flow growth (3-5 years) of 14.2% came short of the industry’s growth of 18.0%. However, the company’s current cash flow growth of 20.4% is way ahead of the industry’s rate of 16.0%, indicating robust fundamentals and bright prospects for the near term.
Well-Positioned Portfolio: Liberty Property’s portfolio spans 99 million square feet, comprising 560 properties. These properties offer office, distribution, as well as light manufacturing facilities to 1,200 tenants. During second-quarter 2017, leasing activities remained solid, with Liberty Property accomplishing lease deals for 6.5 million square feet of space. Occupancy at the company’s operating portfolio remained high at 95.6% at the end of the recently reported quarter.
Strength in Industrial Real Estate: Liberty Property is shifting its focus toward industrial real estate as the market is providing solid growth opportunities. Industrial real estate has been witnessing solid demand amid an economic recovery, growth of e-commerce and U.S.-based manufacturing. This, in turn, is driving demand for warehouse space, as companies are compelled to enhance, and renovate their distribution and production platforms.
In fact, Liberty Property’s industrial portfolio, spanning 92.3 million square feet, was leased 95.9% at the end of second-quarter 2017. Additionally, industrial distribution rents escalated 11.9% on renewal and replacement leases signed during the quarter. Thus, Liberty Property is poised to gain on the back of its premium quality industrial portfolio in upscale locations, pro-business environment and continued e-commerce demand.
Other Stocks to Consider
Other top-ranked stocks in the real estate space include Communications Sales & Leasing, Inc. (UNIT - Free Report) , InfraREIT Inc. (HIFR - Free Report) and PS Business Parks Inc. (PSB - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
While Communications Sales & Leasing and PS Business Parks have expected long-term growth rates of 7.5% and 5%, respectively, the expected long-term growth rate for InfraREIT is currently pegged at around 8%.
Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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.
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