Liberty Property Trust
) first quarter 2014 funds from operations (FFO) of 58 cents per
share fell a penny short of the Zacks Consensus Estimate and came
7 cents below the prior-year quarter figure.
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Results reflect the impact of the company's strategic shift
towards the industrial portfolio from office assets and
consecutive disposition of its suburban office and flex
properties during December and January.
Nevertheless, total operating revenue during the quarter came in
at $197.6 million, up 34.3% year over year and exceeded the Zacks
Consensus Estimate of $192 million.
Quarter in Detail
Liberty accomplished lease deals for 5.3 million square feet of
space. As of Mar 31, 2014, the occupancy at the in-service
portfolio of Liberty - spanning 101.5 million square feet -
decreased 60 basis points (bps) to 91.0% from 91.6% sequentially.
Moreover, same-store properties' operating income declined 1.4%
on a cash basis and 1.8% on a straight-line basis from the
Portfolio Restructuring Activity in Q1
During the quarter, Liberty bought 2 properties for $37.6
million. This included a 523,000 square foot distribution
facility (vacant) in California's Inland Empire and a 90,000
square foot distribution facility (fully-leased) in Greenville,
On the other hand, the company carried on with its disposition
activities and sold 6.6 million square feet of suburban office
and flex properties (159 acres of land and 97 operating
properties) in two phases.
In the first stage, which closed in Dec 2013, the company sold 49
properties and 140 acres of land aggregating 4.0 million square
feet of leasable space for $367.7 million. In the final phase in
Jan 2014, the company disposed the rest of the 19 acres of land
and 48 properties spanning 2.6 million square feet of leasable
space for $329.6 million. Apart from these, the company disposed
a southern California distribution building for $5.0 million.
Among its development activities, the Comcast deal is
noteworthy. Liberty collaborated with
) for a 1.5 million square foot office and hotel property in
Philadelphia. The joint venture, in which Liberty has a 20%
stake, will develop this property with a projected investment of
$900 million. This development is expected to start in summer
Liberty exited first-quarter 2014 with cash and cash equivalents
of $370.6 million, up from $163.4 million as of Dec 31, 2013.
Notably, the company replaced its existing $500 million credit
facility due Nov 2015 with a new $800 million facility that
matures in Mar 2018 (has options to extend for another year).
This helped the company in managing its financial flexibility and
lowering the cost of borrowing.
Liberty expects its 2014 FFO per share in the range of $2.45 -
$2.55. The Zacks Consensus Estimate of $2.52 per share also falls
within this range.
While the earnings miss is definitely not encouraging, we believe
this real estate investment trust (REIT) has the potential to
excel in the years ahead. The company's repositioning efforts
through strategic acquisitions, JV investments and dispositions
would help it ride on the growth trajectory.
In particular, the Cabot buyout accomplishment and the Comcast
deal are expected to enhance the company's growth prospects. It
also lowered its cost of borrowing with a new, expanded line of
credit. Furthermore, the improving U.S. industrial market
positions Liberty Property well for future growth.
Yet, the near-term dilution effect of such repositioning moves is
unavoidable while an expected rise in interest rates in the long
term adds to the woes of this Zacks Rank #3 (Hold) stock.
We now look forward to the results of other REITs such as
Mack-Cali Realty Corp.
) that are scheduled to report this week.
FFO, 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.