Liberty Property Trust: Earnings Preview

| About: Liberty Property (LPT)

Liberty Property Trust (LRY), a real estate investment trust, is scheduled to report its second quarter 2011 earnings on July 26, 2011. The current Zacks Consensus Estimate for the second quarter is pegged at 65 cents per share, representing a year-over-year decline of approximately 3.6%.

First Quarter Recap

Liberty Property reported first quarter 2011 FFO (fund from operations) of 64 cents per share, which was at par with the year-earlier quarter. Fund from operations, 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. The reported earnings surpassed the Zacks Consensus Estimate by a penny. Recurring FFO in the quarter stood at 62 cents per share.

At quarter end, the in-service portfolio of Liberty Property, spanning 79.6 million square feet, had occupancy of 88.7%, unchanged from the previous quarter. During the reported quarter, Liberty Property leased approximately 3.4 million square feet of space


Liberty Property believes that the real estate market is recovering gradually and forecasts development starts in the range of $200-$300 million for fiscal 2011. The company expects property sales in the range of $300-$400 million and acquisition costs in the $100-$200 million range for fiscal 2011.

Agreement of Analysts

In the last 7 days and last 30 days, none of the analysts revised their earnings estimates for the second quarter and fiscal 2011. However, the analysts remain apprehensive about the company’s outlook.

Magnitude of Estimate Revisions

Taking into account the analysts’ earnings revision, the Zacks Consensus Estimate for the second quarter and fiscal 2011 remained stagnant over the last 7 days and last 30 days at 65 cents per share and $2.57 per share, respectively. For fiscal 2011, Liberty Property expects FFO in the range of $2.50-$2.65

Our Recommendation

Based in Pennsylvania, Liberty Property Trust is a leading real estate investment trust (REIT) that provides leasing, property management, development, construction management, design management, and related services for a portfolio of industrial and office properties. The company focuses primarily on prime suburban properties in the Southeast, Mid-Atlantic, and Midwest regions of the United States. In addition, Liberty Property also owns certain assets in the United Kingdom.

Liberty Property’s assets are located in prime business locations and are specifically designed to cater to various types of tenants and space requirements. Liberty Property primarily focuses on metro-office, multi-tenant industrial and flex properties and markets that have strong demographic and economic fundamentals, which increase the probability of a steady revenue stream for the company. However, the company possesses a large development pipeline, which increases operational risks in the current credit-constrained market, thereby exposing it to rising construction costs, entitlement delays and lease-up risks.

Liberty Property currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. We are also maintaining our long-term Underpeform recommendation on the stock. One of its competitors, Duke Realty Corp (NYSE:DRE) currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.