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Liberty Property (LPT) Beats Q1 FFO Estimates, Stock Gains

Liberty Property Trust LPT reported first-quarter 2016 funds from operations (“FFO”) of 62 cents per share, which beat the Zacks Consensus Estimate by a penny. Results reflect growth in same-store operating income for the industrial distribution portfolio. Following the earnings release, the stock gained 0.7% in the regular session.

However, the figure decreased from 70 cents in the prior-year quarter. Also, total operating revenue of around $190.1 million was down 8.1% year over year and missed the Zacks Consensus Estimate of $199 million.

Quarter in Detail

During the reported quarter, Liberty Property accomplished lease deals for 5.4 million square feet. As of Mar 31, 2016, occupancy at the company’s in-service portfolio – spanning 103 million square feet – rose 10 basis points (bps) sequentially to 93.8%.

Same-store properties’ operating income increased 3.4% year over year on a cash basis and 2.1% on a straight-line basis. Industrial distribution rents climbed 12.2% while same-store operating income for the industrial distribution portfolio increased 6.7%.

Liberty Property exited first-quarter 2016 with cash and cash equivalents of nearly $43.7 million, up from $35.4 million at the end of the prior year. The company also repurchased 1.4 million shares for $40.9 million at an average price of $29.28 per share.

Portfolio Activity

During the quarter, Liberty began development of two distribution properties, aggregating 218,000 square feet of leasable space, in West Palm Beach, FL at a projected investment of $24.3 million.

Five development properties were brought into service during the first quarter for a total investment of $94.5 million. Comprising 716,000 square feet of leasable space, the properties were 59.9% occupied as of the quarter end.

Further, during the first quarter, Liberty purchased one industrial property, comprising 73,000 square feet of space in the O’Hare submarket of Chicago for $8.0 million. On the other hand, the company sold eight operating properties, containing 849,000 square feet of leasable space and 3.5 acres of land for $131.1 million. Moreover, a joint venture in which the company holds a 25% stake sold off seven properties comprising 1,050,000 square feet of leasable space, for $146.6 million.

Notably, Liberty had earlier revealed its plan to sell around $900 million to $1.2 billion of non-core suburban office and flex properties in 2016 and disclosed that it is in talks with a prospective purchaser for the sale of a large portfolio of suburban assets. That is still in the discussion stage and a binding sale agreement has not yet been reached.

Our Take

Liberty Property’s efforts toward leveraging development opportunities and strategic dispositions are expected to enhance its overall portfolio quality. However, adverse near-term impact on earnings from dispositions and an anticipated rise in interest rate remain as concerns.

Currently, Liberty Property carries a Zacks Rank #4 (Sell).

We now look forward to the earnings releases of Essex Property Trust Inc. ESS, Apartment Investment and Management Company AIV, and DDR Corp. DDR which are scheduled this week.

Note: 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.

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