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Liberty Property Meets FFO, Revs Up

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Liberty Property Trust – a hybrid real estate investment trust (REIT) – reported fourth quarter 2012 FFO (funds from operations) of 63 cents per share, in line with the Zacks Consensus Estimate as well as the prior-year quarter. The result was attributable to the strong acquisitions and development activities, slightly impacted by uncertain economic conditions.

For full year 2012, Liberty Property reported FFO of $2.58 per share, well ahead of the Zacks Consensus Estimate of $2.52. Yet, it was slightly below the prior-year FFO of $2.61 per share.

Total revenue during the reported quarter came in at $176.2 million, up 4.4% from the prior-year period. Also, it came well ahead of the Zacks Consensus Estimate of $174 million. For the full year, total revenue increased 3.4% year over year to $685.6 million, but marginally missed the Zacks Consensus Estimate of $686 million.

Inside the Headlines Numbers

At the end of the quarter, the occupancy at in-service portfolio of Liberty Property – spanning 81.3 million square feet – increased 30 bps (basis point) to 92.1% from 91.8% in the previous quarter. The company witnessed strong leasing activities in the quarter with about 4.9 million square feet of leased space. In the full year, the company leased total 18.5 million square feet of space.

Operating income from same-store properties slipped 0.2% on a cash basis and 0.3% on a straight-line basis from the year-ago quarter. For 2012, it dipped by 0.3% on a cash basis and by 0.8% on a straight-line basis compared with 2011.

Portfolio Restructuring Activity

Liberty Property witnessed continuous demand for premium quality industrial space from large corporate users and build-to-suit opportunities for both industrial and office users. During the reported quarter, the company acquired 22 industrial buildings for $176.3 million. The properties, spanning total 3.5 million square feet of leasable space, were 92.5% occupied.
Also, the company divested two properties, spanning 257,000 square feet of leasable space (61.9% leased at the time of the sale), for $17.7 million.

During the same period, Liberty Property brought 5 development properties worth $44.1 million into operation. The properties, spanning 290,000 square feet of leasable space, were 77.0% occupied and 97.7% leased as of Dec 31, 2012. The properties, generating current yield of 8.5%, is projected to generate stabilized yield of 10.5%.

In addition, the company started developing 1 property for GAC Industries in Houston, Texas. The estimated construction cost of the property, spanning 181,000 square foot, is $11.6 million.

Subsequent to end of the quarter, Liberty Property unveiled its plan to start construction at 3 Quarry Ridge in Malvern, Pa. – a 200,000 square foot, six-story office building – for The Vanguard Group. The construction cost of 100% pre leased property is estimated to be $55 million.


During the reported quarter, Liberty Property issued 10 ½ year 3.375% Senior Unsecured Notes worth $300 million. The net proceeds from the offering was used to pay off partly or fully the borrowings under its unsecured credit facility and for general corporate purposes.

At the end of 2012, the company has cash and cash equivalents of $38.4 million.


Management at Liberty Property remains optimistic about the company’s performance in 2013. For full year 2013, it expects FFO per share in the range of $2.60–$2.70. The guidance reflected an expected increase in overall occupancy along with organic growth through increased development opportunities.

Our Take

We believe that, though the uneven economic conditions remain a concern for the short term, Liberty Property’s portfolio repositioning activity to focus on markets having better job and rent growth prospects will boost its top-line growth. In addition, the company has a relatively healthy balance sheet with adequate liquidity to repay debt. Yet, the continuous acquisition spree of Liberty Property involves significant upfront operating expenses, which limits its near-term profitability.

Last week, one of Liberty Property’s peers, Duke Realty Corp. (DRE - Free Report) reported fourth quarter 2012 core FFO of 27 cents per share, in line with the Zacks Consensus Estimate, but fell 3 cents from the prior-year quarter.

Liberty Property currently holds a Zacks Rank #4 (Sell). However, other REITs that are performing better than Liberty Property include Ventas Inc. (VTR - Free Report) and Simon Property Group Inc. (SPG - Free Report) , both carrying a Zacks Rank #2 (Buy).

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.

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