"Earnings are likely to accelerate in H2 2014 and thereafter, and improvement in portfolio quality hasn't been reflected in current valuation," says analyst Brendan Maiorana, upgrading Liberty Property (LRY) to Buy.
Share weakness since July's Cabot acquisition and a property sale at a low mid-9% cap rate is overdone, says Maiorana. "We acknowledge the $705M portfolio disposition was NAV dilutive (by about $0.75/share), and 2014 FFO will be weak. Yet, LRY now has improved its portfolio quality, has low leverage, and we expect it will post a solid Q4 2014 FFO/FAD run rate, which should bode well for 2015."
"Investors appear concerned there will be another large portfolio disposition at a low valuation and/or performance from the Cabot portfolio will be weak - we don’t believe these are likely. LRY trades at an implied cap rate of 7.5%, P/FFO of about 13x and P/FAD of 16x--on depressed 2014 estimates."