Liberty Property Trust (LPT) reported second quarter 2014 funds from operations (FFO) of 59 cents per share, which missed the Zacks Consensus Estimate by 2 cents and came below the prior-year quarter figure by 7 cents. Following this announcement, shares of the company slipped 3.76% during the regular trading session on Jul 22.
Results reflect the impact of the company’s strategic shift towards the industrial portfolio and consecutive curtailment of its office properties. Also, the company cut down its full-year 2014 FFO per share guidance.
Moreover, the company’s total operating revenue of $193.0 million in the quarter fell short of the Zacks Consensus Estimate of $199 million. Nevertheless, this exceeded the year-ago quarter figure of $151.0 million by 27.8%.
Quarter in Detail
Liberty accomplished lease deals for 7.2 million square feet of space, up from 5.3 million square feet of space leased in first-quarter 2014. Consequently, as of Jun 30, 2014, the occupancy at the in-service portfolio of Liberty – spanning 102.5 million square feet – climbed 70 basis points (bps) sequentially to 91.7%.
However, for the quarter, same-store properties’ operating income declined 2.3% on a cash basis and 0.6% year over year on a straight-line basis.
Liberty exited second-quarter 2014 with cash and cash equivalents of $228.7 million, down from $370.6 million as of Mar 31, 2014.
Portfolio Restructuring Activity in Q2
During the quarter, Liberty bought 5 industrial properties in Durham, NC and 1 distribution building in Garden Grove, CA for a total price of $53.2 million. All assets are 100% leased. On the other hand, the company divested three distribution properties for $32.2 million in southern NJ. The assets were sold to a joint venture in which the company has 25% stake.
On the construction front, Liberty brought in-operation 1 development asset for total investment of $12.4 million. Additionally, the company started construction at 3 properties for total estimated investment of $69.2 million.
Moreover, in early July, Liberty revealed that in collaboration with Comcast Corporation (CMCSA) it has started the development of the Comcast Innovation & Technology Center – a $933 million office and hotel property – in Philadelphia. Comcast has an 80% stake in this JV while the rest is owned by Liberty, with the latter’s expected total investment of around $185 million (Read: Liberty, Comcast JV Developing Philadelphia Tower).
2014 Outlook Trimmed
Liberty trimmed its guidance for 2014 FFO per share to the range of $2.42 – $2.48, from the previous range of $2.45 – $2.55. The Zacks Consensus Estimate of $2.47 for the same falls within the new range.
The pessimism stemmed from slower-than-expected growth in its core portfolio’s occupancy level, decreased 2014 acquisition numbers and development starts delay.
Our Take
Yet again Liberty came up with lower-than-expected results, followed by a guidance cut. In addition to this miss in second-quarter 2014, Liberty has failed to meet expectations in a couple of prior quarters and reported an average negative surprise of 4.13% in the last four quarters.
The persisting weakness in the company’s core office markets continues to impact its business. Although the company is aiming at strengthening its portfolio base through industrial properties buyouts and office assets divestiture, its aggressive disposition efforts would continue to have a dilutive impact on its financials in the near-to-medium term. Consequently, Liberty currently carries a Zacks Rank #4 (Sell).
We now look forward to the results of other REITs such as Mack-Cali Realty Corp. (CLI) and SL Green Realty Corp. (SLG) that are scheduled to report 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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