Will Liberty Property (LPT) Disappoint this Earnings Season?

Liberty Property Trust LPT is slated to report its second-quarter 2014 results on Jul 22. Last quarter, it posted a negative surprise of 1.69%. Also, this real estate investment trust (REIT) has an average earnings surprise of -4.13% over the past four quarters. Let's see what is in store for us this season.

Factors to Consider

Liberty Property is aggressively enhancing its portfolio mix through continued portfolio restructuring activity to capitalize on the growing U.S. industrial sector fundamentals. Although this is encouraging for long-term growth, the continuous acquisition and development spree involves significant upfront operating expenses and drags on the margin, thereby leading to a dilutive effect on the near-term earnings.

In addition, Liberty Property generates a significant amount of revenues from its office portfolio. Demand for office properties is highly correlated to job growth. Currently, persistent office space efficiency trends are continuing to limit any robust recovery in the office sector fundamentals. This could affect its top-line growth.

Liberty Property's first-quarter 2014 funds from operations (FFO) of 58 cents per share fell a penny short of the Zacks Consensus Estimate and came 7 cents below the prior-year quarter figure. The company made consecutive dispositions of its suburban office and flex properties during December and January.

Earnings Whispers

Our proven model does not conclusively show that Liberty Property is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Negative Zacks ESP:  The company's Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at -3.28%.

Zacks Rank: Liberty Property's Zacks Rank #4 (Sell) further reduces the predictive power of ESP.

Other Stocks to Consider

You could consider other REIT stocks that have both a positive Earnings ESP and a favorable Zacks Rank:

SL Green Realty Corp. SLG has an Earnings ESP of +0.70% with a Zacks Rank #2 (Buy). The company will report its second-quarter 2014 results on Jul 23.

Avalonbay Communities Inc. AVB has an Earnings ESP of +0.60% with a Zacks Rank #2. The company will report its second-quarter 2014 results on July 23.

American Capital Agency Corp. AGNC has an Earnings ESP of +6.06% with a Zacks Rank #2. The company will report its second-quarter 2014 results on Jul 28.

Note: FFO, 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.