Balanced View on Liberty Property - Analyst Blog

On Apr 10, 2014, we issued an updated research report on the real estate investment trust (REIT) – Liberty Property Trust LPT.

On Feb 4, Liberty Property reported fourth-quarter 2013 FFO of 63 cents per share, which was in line with the Zacks Consensus Estimate as well as the prior-year quarter figure. Year-over-year revenue gains, strong leasing and portfolio restructuring activity aided the decent results.

Going forward, we believe that the repositioning efforts by the company through strategic acquisitions, JV investments and dispositions would help it ride on the growth trajectory. In particular, the Cabot buyout accomplishment and the Comcast deal are expected to enhance the company's growth prospects.

Additionally, Liberty Property's leasing activity in select, premium office and industrial market bodes well. Accordingly, in recent times the company inked its first lease deal with WageWorks, Inc. WAGE for its Class A office development in Tempe. Also, the deal for leasing space at its new business park in Baltimore/Washington industrial corridor is notable.

However, Liberty Property has a large development pipeline, which increases its operational risks by exposing it to rising construction costs, entitlement delays and lease-up risks. Also, although the continued portfolio restructuring activity is encouraging, it weighs on the company's profitability in the near term. Moreover, with a gradual reduction in the Fed's support, interest rates are expected to increase, which may in turn hurt the rate-sensitive business of the company in the long run.

Over the last 30 days, the Zacks Consensus Estimate has moved north by a penny to $2.52 and $2.73 per share for 2014 and 2015, respectively. Consequently, the stock currently has a Zacks Rank #2 (Buy).

Stocks That Warrant a Look

Investors interested in the REITs may consider stocks like Cousins Properties Inc. CUZ and Duke Realty Corp. DRE. Both stocks have the same rank as Liberty Property.

Note: FFO, a widely used metric to gauge the performance of REITs, are obtained after adding depreciation, amortization and other non-cash expenses to net income.