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Liberty Property (LPT) Up 1.8% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Liberty Property (LPT - Free Report) . Shares have added about 1.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Liberty Property due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Liberty Property Q4 FFO Tops, Gives Sears Impact Update

Liberty Property reported fourth-quarter 2018 NAREIT FFO per share of 74 cents, which surpassed the Zacks Consensus Estimate of 63 cents. Total quarterly operating revenues of around $180.3 million also outpaced the Zacks Consensus Estimate of $162.2 million.

The company’s FFO per share improved year over year from the 68 cents per share recorded in the comparable period last year. Total operating revenues marginally climbed from the prior-year figure.

Per management, the fourth quarter marked a notable period from a strategic perspective. The company accomplished the sale of bulk of its suburban office properties, streamlined the business by expanding and recapitalizing its U.K. industrial platform, as well as resorted to monetization of the rights to an U.K. mixed-use land holding for a substantial gain.

It plans an aggressive push toward concluding its repositioning efforts and issued the Sears bankruptcy impact. The company also expects to complete the disposition of its entire wholly-owned office assets within the next 18 months.  

Moreover, the company expects same-store property level operating income for industrial properties to be up 2.5-3.5% on a GAAP basis and 3.75-4.75% on a cash basis in the current year. However, this projection reflects continued occupancy of one property leased to Sears that is bankrupt.

If the lease in terminated by Sears, and the space vacated by first-quarter end, and if Liberty Property is unable to release the space in the current year, the company estimates that this could impact same-store NOI by as much as 1% and the FFO per share by around 3 cents per share.

Reflecting analysts’ bullish sentiments, shares of Liberty Property hit a 52-week high of $47.83 on Feb 5, but crawled back to $47.13 at the close of the trading session, denoting a 0.23% decline from the previous day.

Quarter in Detail

During the reported quarter, Liberty Property accomplished lease deals for 5.4 million square feet of space. As of Dec 31, 2018, occupancy at the company’s in-service portfolio, spanning 106.1 million square feet, shrunk 30 basis points (bps) sequentially to 96.3%.

Liberty Property’s industrial portfolio, spanning 100.9 million square feet of area, had occupancy of 96.3% at the end of the fourth quarter, marking a contraction of 20 bps from the previous quarter. Industrial rents escalated 13.1% on an U.S. GAAP basis on retention and replacement leases commenced during the quarter.  

Same-store operating income for the industrial portfolio increased 3% on a cash and 2.2 % on a GAAP basis from the prior-year quarter.

Portfolio Activity

During the Dec-end quarter, Liberty acquired nine industrial properties, aggregating 1.6 million square feet, for $204.8 million.

At the same time, the company also sold nine operating properties totaling around 905,000 square feet and development rights to a 500-acre mixed-use site in the U.K. for $284.2 million.

The company brought into service five industrial properties, spreading 1.7 million square feet of space and 65.6% occupied as of the end of the quarter, for a total investment of $133.8 million. Liberty Property commenced development on six industrial properties during the quarter, aggregating 1.3 million square feet of space at an estimated investment of $141.5 million.

Balance-Sheet Position

Liberty Property exited 2018 with cash and cash equivalents of around $84.9 million, up from $11.9 million recorded at the end of December 2017.

Outlook

For 2019, Liberty Property guides FFO per share of $2.53-$2.65. Notably, for FFO purposes, the company made the Sears-related assumption and reduced FFO by about 3 cents per share relating to that assumed move out as of Apr 1, 2019.

The company projects asset sales of $600-$650 million and acquisitions of $300-$350 million. Further, it expects to commence development of $475-$550 million in wholly-owned properties.

The company expects same-store property level operating income for industrial properties to grow by 2.5-3.5% on a GAAP basis and 3.75-4.75% on a cash basis, assuming continued occupancy of the Sears space. The company has guided for industrial rental growth of 13-15% on a GAAP basis, and 3 -5% on a cash basis.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Liberty Property has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Liberty Property has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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