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Liberty Property Beats Estimates

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Liberty Property Trust reported first quarter 2011 FFO (fund from operations) of 64 cents per share at par with 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 reported earnings marginally beat the Zacks Consensus Estimate by a penny. Recurring FFO for the quarter stood at 62 cents per share.

At quarter-end, the in-service portfolio of Liberty Property spanning 79.6 million square feet had an occupancy of 88.7%, unchanged from the previous quarter. During the quarter, Liberty Property completed lease transactions totaling 3.4 million square feet of space.

Operating income from the same-store properties increased 3.4% (cash basis) and 1.4% (straight-line basis) year over year. Same-store occupancy during the quarter was 89.9% compared with 90.1% at the end of the previous 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 one property spanning 30,000 square feet for a total of $3.6 million. The company did not acquire any properties during the quarter.

Liberty Property has recently started construction work on two industrial flex buildings in The Navy Yard Commerce Center – a business park in Philadelphia. The project (22% pre-leased) will span across 103,000 square feet of space.

Liberty Property is also mulling the development of a third building at the site when leasing of the first two is on full swing. This will expand the total capacity of the project by an additional 205,170 square feet of space. The entire cost of development is anticipated to be approximately $95.7 million and is expected to yield 10.5% upon completion. The investment is part of the long-term strategy of the company to capitalize on the significant growth potential of The Philadelphia Navy Yard.

During the quarter, Liberty Property repaid 7.25% senior notes totaling $246.5 million. At quarter-end, the company had cash and cash equivalents of $32.7 million. 

For fiscal 2011, Liberty Property expects FFO in the range of $2.50- $2.65. Liberty Property expects the real estate markets to improve gradually and expects its development starts to be in the range of $200-$300 million in fiscal 2011. The company expects its property sales guidance to be in the range of $300-$400 million and acquisitions to be in the range of $100-$200 million for fiscal 2011.

Liberty Property currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Duke Realty Corp (DRE - Free Report) currently retains a Zacks #4 Rank, which translates into a short-term Sell rating.

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