Liberty Property Trust LPT is aiming for growth of its industrial platform and financing through the disposition of office assets. The move marks a strategic fit as fundamentals of the industrial real estate market remain robust. This is backed by strong demand, recovery in the economy and job market, strengthening e-commerce and a healthy manufacturing environment.
This is leading to decent growth in rents, helping in growing occupancy level and offering development opportunities. In fact, the company's industrial portfolio, spanning 93.4 million square feet, enjoyed occupancy of 96.3% at the end of third-quarter 2017, marking an expansion of 40 basis points from the prior quarter. Moreover, industrial distribution rents escalated 14.8% on renewal and replacement leases signed during the quarter. The company's decent balance sheet and superior access to capital also lends it financial flexibility to pursue growth initiatives.
The company also came up with decent performance in the third quarter. It reported funds from operations ("FFO") per share of 66 cents, which surpassed the Zacks Consensus Estimate of 63 cents. Total operating revenues of around $193.7 million for the quarter also outpaced the Zacks Consensus Estimate of $167.9 million.
Further, Liberty Property raised guidance and now projects full-year 2017 FFO per share in the range of $2.54-$2.57, compared with $2.49-$2.55 guided earlier. Further, the company revised 2017 industrial same-store NOI guidance range to 3-3.5% from the prior range of 2-3%.
Amid these, shares of Liberty Property outperformed the industry
it belongs to in the past six months. The company's shares logged in a gain of 8.4% compared with growth of 2.9% recorded by the industry. Moreover, the stock has witnessed the Zacks Consensus Estimate for current-year FFO per share being revised 0.8% upward in a month's time, reflecting analyst' bullish sentiments. Given its progress on fundamentals, the stock is likely to keep performing well in the quarters ahead.
Nonetheless, the recovery in the industrial market has continued for long and chances of any striking decrease in availability rates are less. Consequently, any robust improvement in the performance of Liberty Property is unlikely. Further, supply is likely to increase in the upcoming quarters and somewhat adversely affect growth tempo of this real estate category.
Moreover, with the focus shifting towards industrial properties, the company is enhancing portfolio mix through continued divestitures of office properties. While such efforts are a strategic fit for long-term growth, the near-term dilution effect of such moves on earnings is unavoidable.
Further, rise in interest rate can pose a challenge for Liberty Property. This is because, in case of a hike in interest rates, the company's ability to refinance existing debt would be restricted while the interest cost on new debt would increase. This could adversely affect the company's financial results and consequently dent dividend payout.
Liberty Property currently carries a Zacks Rank #3 (Hold). Stocks to Consider
Some better-ranked stocks in the REIT space are Cedar Realty Trust CDR
, DCT Industrial Trust DCT
and Regency Centers Corporation REG
. Each of these stocks carries a Zacks Rank of 2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here
Cedar Realty's FFO per share estimates for 2017 remained unchanged at 54 cents in a month. Its share price has increased 17.0% in the past six months.
DCT Industrial Trust's current-year FFO per share estimates have been revised upward by a cent to $2.44 in a month's time. Its share price has increased 15.3% in the past six months.
Regency Centers' 2017 FFO per share estimates have remained unchanged at $3.67 in a month's time. Its share price has increased 9.2% in the past six months.
Note: All EPS numbers presented in this report represent funds from operations (FFO) per share. FFO, 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. Today's Stocks from Zacks' Hottest Strategies
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Regency Centers Corporation (REG): Free Stock Analysis Report Cedar Realty Trust, Inc. (CDR): Free Stock Analysis Report DCT Industrial Trust Inc (DCT): Free Stock Analysis Report Liberty Property Trust (LPT): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research