On Nov 28, we downgraded our long-term recommendation on
Liberty Property Trust
) from Neutral to Underperform following disappointing
third-quarter 2013 results and a guidance cut. In addition,
continued volatility in the office sector with job cuts pose a
menace to the company's top-line growth.
Why the Downgrade?
Liberty Property came up with lower-than-expected
third-quarter results with funds from operations(FFO) of 57 cents
per share missing the Zacks Consensus Estimate of 61 cents as
well as the year-ago figure of 64 cents.
Lower-than-expected growth in the top line, Cabot buyout
related expenses, share dilutions and high termination fees were
major dampeners. Also, increase in operating expenses and decline
in occupancy levels were the headwinds. We believe that in the
backdrop of a protracted economic recovery, top-line growth would
remain restrained in the coming quarters.
Currently, weak growth in jobs and persistent office space
efficiency trends are still hindering the pace of growth of
office sector fundamentals, thereby affecting demand for Liberty
Property's properties. Furthermore, the company's continuous
acquisition spree involves significant upfront operating expenses
with limited near-term profitability. In relation to that,
Liberty Property lowered its 2013 FFO per share guidance, keeping
in mind the effects of the recent Cabot Fund acquisition.
Moreover, Liberty Property has a significant development
pipeline ($136.2 million worth of developments in progress at the
end of third-quarter 2013) that exposes it to various risks such
as rising construction costs, entitlement delays and
Over the last 30 days, the Zacks Consensus Estimate for 2013
FFO per share remained stable at $2.50. For 2014, it moved down
3.4% to $2.57 per share. The stock currently has a Zacks Rank #3
Other Stocks to Consider
However, some better-ranked REIT-Equity Trust - Other stocks
National Health Investors Inc.
Getty Realty Corp.
Sabra Health Care REIT, Inc.
). All the stocks carry a Zacks Rank #1 (Strong Buy).
FFO, a widely accepted and reported measure of the
performance of REITs is derived by adding depreciation,
amortization and other non-cash expenses to net income.
GETTY REALTY CP (GTY): Free Stock Analysis
LIBERTY PPTY TR (LRY): Free Stock Analysis
NATL HEALTH INV (NHI): Free Stock Analysis
SABRA HEALTHCR (SBRA): Free Stock Analysis
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