Liberty Property Trust Announces Third Quarter 2017 Results

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MALVERN, Pa., Oct. 24, 2017 (GLOBE NEWSWIRE) -- Liberty Property Trust LPT announced financial and operating results for the quarter ended September 30, 2017.

Highlights for Third Quarter 2017

  • Net income available to common shareholders $0.40 per diluted share
  • NAREIT Funds from Operations $0.66 per diluted share
  • Same store operating income increased by 2.6% over prior year quarter
  • Same store operating income for the industrial portfolio increased by 4.3%
  • Portfolio occupancy increased to 95.9%
  • Industrial rents increased 14.8%
  • Office rents increased 12.6%
  • $98.7 million in development delivered

Earnings Guidance

  • Liberty increased Funds from Operations guidance range for 2017 to be $2.54 - $2.57 from a previous range of $2.49 - $2.55
  • Guidance range for 2017 industrial same store NOI revised to 3 – 3.5% from previous range of 2 – 3%
  • Liberty now expects dispositions for 2017 to be in a range of $400 - $550 million. Fourth quarter dispositions are expected to be in the $380 - $530 million range, with the majority closing late in the quarter.

Financial Results
Net income: Net income available to common shareholders for the third quarter of 2017 was $59.5 million, or $0.40 per diluted share, compared to $54.3 million, or $0.37 per diluted share, for the third quarter of 2016.

For the nine months ended September 30, 2017, net income available to common shareholders was $154.0 million, or $1.04 per diluted share, compared to $161.4 million, or $1.10 per diluted share, for the first nine months of 2016.

Funds from Operations: The company uses the National Association of Real Estate Investment Trusts ("NAREIT") definition of Funds from Operations ("FFO") as an operating measure of the company's financial performance.  A reconciliation of U.S. GAAP net income to NAREIT FFO is included in the financial data tables accompanying this press release.

NAREIT FFO available to common shareholders for the third quarter of 2017 was $99.2 million, or $0.66 per diluted share, compared to $99.6 million, or $0.66 per diluted share, for the third quarter of 2016. 

NAREIT FFO available to common shareholders for the nine months ended September 30, 2017 was $288.1 million, or $1.91 per diluted share, compared to $294.8 million, or $1.96 per diluted share, for the first nine months of 2016.

Management Comments
"Our results for the quarter and the year to-date reflect a continued strong and sustainable market for high-quality industrial properties," said Bill Hankowsky, chief executive officer. "The combination of significant user demand, manageable new supply, and the ongoing evolution of supply chain dynamics is creating constant opportunities to capitalize on our versatile portfolio of distribution facilities and multi-tenant industrial properties in prime locations.

"We believe this environment will produce favorable results for industrial for the foreseeable future, and we intend to fund increased investment in our industrial platform through meaningful sales of office properties, reflected in the guidance update provided today."

Operating Performance               
Same Store Performance: Property level operating income for same store properties increased by 3.0% on a cash basis and by 2.6% on a straight line basis for the third quarter of 2017, compared to the same quarter in 2016.  For the nine months ended September 30, 2017, property level operating income for same store properties increased by 1.7% on a cash basis and by 1.6% on a straight line basis, compared to the same period in 2016.

  • Same store operating income for the industrial portfolio increased by 5.2% on a cash basis and 4.3% on a straight line basis, compared to the same period in 2016. For the nine months ended September 30, 2017, industrial same store operating income increased by 3.2% on a cash basis and 3.0% on a straight line basis, compared to the same period in 2016.
  • Same store operating income for the office portfolio decreased by 7.7% on a cash basis and by 5.3% on a straight line basis, compared to the same period in 2016. For the nine months ended September 30, 2017, office same store operating income decreased by 6.1% on a cash basis and by 5.3% on a straight line basis, compared to the same period in 2016.

Occupancy: At September 30, 2017, Liberty's in-service portfolio of 100 million square feet was 95.9% occupied, compared to 95.6% at the end of the second quarter of 2017. During the quarter, Liberty completed leasing transactions totaling 5.9 million square feet of space.

  • Occupancy of Liberty's 93.4 million square foot industrial portfolio was 96.3% at quarter-end, compared to 95.9% for the previous quarter. Industrial distribution rents increased 14.8% on renewal and replacement leases signed during the quarter.  100% of these leases have built-in rent escalators.
  • Occupancy of Liberty's 6.7 million square foot office portfolio was 91.0%, down from 91.5% from the previous quarter. Office rents increased 12.6% on renewal and replacement leases signed in the office portfolio, and 94.4% of these leases contain built-in rent escalators.

Real Estate Investments

Development Deliveries: In the third quarter, Liberty brought into service six development properties for a total investment of $98.7 million. The properties contain 994,545 square feet of leasable space and were 54.2% leased and yielding 3.7% as of the end of the quarter. The projected stabilized yield for these properties is 8.0%. The properties are 74.9% leased on a signed basis as of October 24, 2017.

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Development Starts: In the third quarter, Liberty began development of three distribution properties totaling 308,892 square feet of leasable space at a projected investment of $29.4 million. The properties consist of:

  • A build-to-suit at 1806 Highway 146 South, LaPorte, TX, 77,892 square feet
  • 2980 Green Road, Greer, SC, 94,500 square feet
  • 1955 TW Alexander Drive, Durham, NC, 136,500 square feet

Acquisitions: During the third quarter, Liberty increased its position in northern New Jersey and southern California with the purchase of three industrial buildings totaling 354,391 square feet for $42.2 million. The buildings are 100% leased.

Real Estate Dispositions
During the third quarter Liberty disposed of two industrial buildings totaling 104,994 square feet for $5.8 million via a condemnation conveyance, and one 28,495 square foot office property for $2.8 million.

Balance Sheet and Capital Activity
During the quarter, Liberty's board of trustees renewed the company's share repurchase authority to purchase up to $250 million of its outstanding common shares, valid through September 28, 2019.

Subsequent to quarter end, Liberty amended and restated its existing $800 million unsecured revolving credit facility which was set to mature in March 2018 with a new, $900 million unsecured facility.  The new facility includes a revolving credit facility for aggregate borrowings of up to $800 million and a delayed draw term loan facility for aggregate borrowings of up to $100 million, and may be increased up to $1.6 billion in the aggregate in accordance with the terms of the credit agreement.  The new facility matures in October 2021 and Liberty has rights to extend the maturity date for up to one additional year. Subject to adjustment based upon Liberty's corporate credit ratings, borrowings under the new facility currently bear interest at LIBOR plus 0.875% for revolving credit loans and LIBOR plus 0.95% for the delayed draw term loans.  The credit facility also contains customary covenants consistent with this type of facility.

In addition, subsequent to quarter end, Liberty also entered into a new $30 million unsecured working capital revolving credit facility on terms substantially consistent with the new unsecured revolving credit facility discussed above.

2017 Outlook
A reconciliation of projected U.S. GAAP net income available to common shareholders per share to projected NAREIT FFO per share for 2017 is below (all amounts projected). Additional information on assumptions underlying this guidance is included in Liberty's third quarter supplemental financial report on the company's website.

 Revised 2017
Outlook
Previous 2017
Outlook
Net income, per diluted share$2.27 - $2.80$1.99 - $2.19
Depreciation and amortization of unconsolidated joint ventures0.06 – 0.080.05 – 0.07
Depreciation and amortization1.19 – 1.211.18 – 1.20
Gain on property dispositions(0.98) – (1.52)(0.74) – (0.92)
Noncontrolling interest share of addbacks0.0 – 0.00.01 – 0.01
NAREIT FFO, per diluted share$2.54 - $2.57$2.49 - $2.55

About the Company
Liberty Property Trust LPT is a leader in commercial real estate, serving customers in the United States and United Kingdom, through the development, acquisition, ownership and management of superior office and industrial properties. Liberty's 100 million square foot portfolio includes 566 properties which provide office, distribution and light manufacturing facilities to 1,200 tenants. 

Additional information about the company, including Liberty's Quarterly Supplemental Package with detailed financial information is available in the Investors section of the company's web site at www.libertyproperty.com. If you are unable to access the web site, a copy of the supplemental package may be obtained by contacting Liberty by phone at 610-648-1704, or by e-mail to jleonard@libertyproperty.com.

Liberty will host a conference call during which management will discuss third quarter results, on Tuesday, October 24, 2017, at 1 p.m. Eastern Time.  To access the conference call, please dial 855-277-7530. The passcode needed for access is 80597739. A replay of the call will be available until November 24, 2017, by dialing 1-855-859-2056 using the same passcode as above. The call can also be accessed via the Internet on the Investors page of Liberty's web site at www.libertyproperty.com.

Forward-Looking Statements
The statements contained in this press release may include forward-looking statements within the meaning of the federal securities law.  These forward-looking statements include statements relating to, among others things, achievement of strategic targets, expectations for our operating results, business and financial condition, business and our growth prospects, as well as statements that are generally accompanied by words such as "believes," "anticipates," "expects," "estimates," "should," "seeks," "intends," "proposed," "planned," "outlook," "remain confident," and "goal" or similar expressions. Although Liberty believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved.  As forward-looking statements, these statements involve risks, uncertainties and other factors that could cause actual results to differ materially from the expected results.  These risks, uncertainties and other factors include, without limitation, uncertainties affecting real estate business generally (such as entry into new leases, renewals of leases and dependence on tenants' business operations), risks relating to our ability to maintain and increase property occupancy and rental rates, risks relating to the continued repositioning of the Company's portfolio, risks relating to construction and development activities, risks relating to acquisition and disposition activities, risks relating to the integration of the operations of entities that we have acquired or may acquire, risks relating to joint venture relationships and any possible need to perform under certain guarantees that we have issued or may issue in connection with such relationships, risks related to properties developed by the Company on a fee basis, risks associated with tax abatement, tax credit programs, or other government incentives, possible environmental liabilities, risks relating to leverage and debt service (including availability of financing terms acceptable to the Company and sensitivity of the Company's operations and financing arrangements to fluctuations in interest rates), dependence on the primary markets in which the Company's properties are located, the existence of complex regulations relating to status as a REIT and the adverse consequences of the failure to qualify as a REIT, risks relating to litigation and the potential adverse impact of market interest rates on the market price for the Company's securities, and other risks and uncertainties detailed in the company's filings with the Securities and Exchange Commission.  The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

Liberty Property Trust
Balance Sheet 
September 30, 2017
(Unaudited and in thousands)
    
 September 30, 2017 December 31, 2016
Assets   
Real estate:   
Land and land improvements$  1,081,447  $  1,094,470 
Building and improvements 4,539,552   4,501,921 
Less: accumulated depreciation (1,015,786)  (940,115)
    
Operating real estate 4,605,213   4,656,276 
    
Development in progress 395,089   267,450 
Land held for development 331,340   336,569 
    
Net real estate 5,331,642   5,260,295 
    
Cash and cash equivalents 47,666   43,642 
Restricted cash 16,824   12,383 
Accounts receivable 13,258   13,994 
Deferred rent receivable 123,718   109,245 
Deferred financing and leasing costs, net 154,147   153,393 
Investments in and advances to unconsolidated joint ventures 283,803   245,078 
Assets held for sale 177,549   4,548 
Prepaid expenses and other assets 161,067   150,235 
    
Total assets$  6,309,674  $  5,992,813 
    
Liabilities   
    
Mortgage loans, net$  269,380  $  276,650 
Unsecured notes, net 2,282,828   2,280,286 
Credit facility 295,000    
Accounts payable 78,384   65,914 
Accrued interest 34,707   21,878 
Dividend and distributions payable 60,131   71,501 
Other liabilities 209,710   206,124 
Total liabilities 3,230,140   2,922,353 
    
Noncontrolling interest 7,537   7,537 
    
Equity   
Shareholders' equity   
Common shares of beneficial interest 147   147 
Additional paid-in capital 3,671,757   3,655,910 
Accumulated other comprehensive loss (39,741)  (56,031)
Distributions in excess of net income (619,349)  (596,635)
Total shareholders' equity 3,012,814   3,003,391 
    
Noncontrolling interest - operating partnership 54,525   54,631 
Noncontrolling interest - consolidated joint ventures 4,658   4,901 
    
Total equity 3,071,997   3,062,923 
    
Total liabilities, noncontrolling interest - operating partnership and equity$  6,309,674  $  5,992,813 
    

 

Liberty Property Trust
Statement of Operations
September 30, 2017
(Unaudited and in thousands, except per share amounts)
        
 Quarter Ended Year to Date
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
Operating Revenue       
Rental$  129,356  $  140,697  $  377,706  $  418,896 
Operating expense reimbursement 40,121   50,160   120,523   148,757 
Development service fee income 24,176      53,920    
Total operating revenue 193,653   190,857   552,149   567,653 
        
Operating Expenses       
Rental property 18,941   26,496   56,541   79,752 
Real estate taxes 23,258   25,968   69,783   76,490 
General and administrative 11,910   15,379   43,949   51,888 
Expensed pursuit costs 4,772   772   4,957   882 
Depreciation and amortization 46,582   46,920   137,831   154,543 
Development service fee expense 23,665      52,497    
Impairment charges - real estate assets 9,650      9,650    
Total operating expenses 138,778   115,535   375,208   363,555 
        
Operating Income 54,875   75,322   176,941   204,098 
        
Other Income/Expense       
Interest and other income 1,781   3,153   5,585   12,743 
Loss on debt extinguishment    (3,494)     (3,494)
Interest expense (23,060)  (29,528)  (67,345)  (91,071)
Total other income/expense (21,279)  (29,869)  (61,760)  (81,822)
        
Income before gain on property dispositions, income taxes,       
noncontrolling interest and equity in earnings of       
unconsolidated joint ventures 33,596   45,453   115,181   122,276 
Gain on property dispositions 23,840   1,318   30,542   25,671 
Income taxes (582)  (80)  (1,528)  (1,633)
Equity in earnings of unconsolidated joint ventures 4,305   9,043   14,026   19,540 
        
Net Income 61,159   55,734   158,221   165,854 
Noncontrolling interest - operating partnerships (1,545)  (1,424)  (4,044)  (4,250)
Noncontrolling interest - consolidated joint ventures   (75)    (57)    (195)    (170)
Net Income available to common shareholders$59,539  $54,253  $153,982  $161,434 
        
Net income 61,159   55,734   158,221   165,854 
Other comprehensive gain (loss) - foreign currency translation 5,634   (4,407)  16,314   (23,003)
Other comprehensive gain (loss) - derivative instruments 91   663   366   (1,132)
Comprehensive income 66,884   51,990   174,901   141,719 
Less: comprehensive income attributable to noncontrolling interest$  (1,754) $  (1,393) $  (4,629) $  (3,851)
Comprehensive income attributable to common shareholders$65,130  $50,597  $170,272  $137,868 
        
Basic income per common share$0.41  $0.37  $1.05  $1.10 
        
Diluted income per common share$0.40  $0.37  $1.04  $1.10 
        
Weighted average shares       
Basic 146,811   146,215   146,678   146,121 
Diluted 147,596   147,107   147,430   146,788 
        

 

Liberty Property Trust
Statement of Funds from Operations
September 30, 2017
(Unaudited and in thousands, except per share amounts)
 Quarter Ended Year to Date
 September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016
NAREIT FFO       
        
Reconciliation of net income available to common shareholders to NAREIT FFO available to common shareholders:       
Net income available to common shareholders$  59,539  $  54,253  $  153,982  $  161,434 
        
Adjustments:       
Depreciation and amortization of unconsolidated joint ventures 2,577   3,768   7,197   8,706 
Depreciation and amortization 46,195   46,577   136,616   153,471 
Gain on property dispositions / impairment - depreciable real estate assets of unconsolidated joint ventures    (4,994)     (6,987)
Gain on property dispositions / impairment - depreciable real estate assets (10,491)  (1,318)  (13,406)  (25,671)
Noncontrolling interest share in addback for depreciation and amortization and gain on property dispositions / impairment - real estate assets (896)  (1,035)  (3,051)  (3,052)
NAREIT FFO available to common shareholders - basic 96,924   97,251   281,338   287,901 
        
Noncontrolling interest share in addback for depreciation and amortization and gain on property dispositions / impairment - real estate assets 896   1,035   3,051   3,052 
Noncontrolling interest excluding preferred unit distributions 1,427   1,306   3,690   3,896 
NAREIT FFO available to common shareholders - diluted$  99,247  $  99,592  $  288,079  $  294,849 
        
        
        
NAREIT FFO available to common shareholders - basic per share$0.66  $0.67  $1.92  $1.97 
NAREIT FFO available to common shareholders - diluted per share$0.66  $0.66  $1.91  $1.96 
        
        
        
AFFO       
        
NAREIT FFO available to common shareholders - diluted$  99,247  $  99,592  $  288,079  $  294,849 
Straight line rent adjustment, net of related bad debt expense (4,791)  (3,275)  (14,737)  (10,877)
Share - based compensation expense 2,111   1,670   10,975   10,472 
Tenant Improvements and Lease Transaction Costs (12,372)  (18,387)  (41,899)  (48,315)
Non-reimbursed Capital Expenditures (10,545)  (8,301)  (15,478)  (12,760)
Gain on sale / impairment of non-depreciable assets (3,699)     (7,516)   
Loss (gain) on debt extinguishment    3,494      (749)
AFFO available to common shareholders - diluted$  69,951  $  74,793  $  219,424  $  232,620 
        
Reconciliation of weighted average shares:       
Weighted average common shares - all basic calculations 146,811   146,215   146,678   146,121 
Dilutive shares for long term compensation plans 785   892   752   667 
Diluted shares for net income calculations 147,596   147,107   147,430   146,788 
Weighted average common units 3,528   3,536   3,528   3,538 
Diluted shares for NAREIT FFO calculations 151,124   150,643   150,958   150,326 


Inquiries: Jeanne Leonard, Liberty Property Trust, 610.648.1704
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