OREANDA-NEWS. Liberty Property Trust (NYSE:LPT) announced today that net income available to common shareholders for the second quarter of 2016 was $49.6 million, or $0.34 per diluted share, compared to $35.5 million, or $0.24 per diluted share, for the second quarter of 2015.

For the six months ended June 30, 2016, net income available to common shareholders was $107.2 million, or $0.73 per diluted share, compared to $66.5 million, or $0.45 per diluted share, for the first six months of 2015.

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 FFO to GAAP net income is included in the financial data tables accompanying this press release.

FFO available to common shareholders for the second quarter of 2016 was $102.2 million, or $0.68 per diluted share, compared to $103.0 million, or $0.67 per diluted share, for the second quarter of 2015.  FFO for the second quarter of 2016 reflects gain on debt forgiveness of $3.3 million, or $0.02 per diluted share, with no such gains in the same period of 2015.

FFO available to common shareholders for the six months ended June 30, 2016 was $195.3 million, or $1.30 per diluted share, compared to $209.5 million, or $1.37 per diluted share, for the first six months of 2015. 

“Fundamentals in the industrial markets remain very strong. Continued solid demand and tempered supply are contributing to high occupancies, significant rent growth and development opportunities. We expect these conditions to continue for some time,” said Bill Hankowsky, chairman and chief executive officer. “At mid-year we are ahead of our plans to advance our core business and we are poised to execute significant capital activity in the second half of the year, activity which we expect to further enhance our growth platform.”

Portfolio Performance 
Occupancy: At June 30, 2016, Liberty’s in-service portfolio of 104 million square feet was 94.3% occupied, compared to 93.8% at the end of the first quarter of 2016. During the quarter, Liberty completed lease transactions totaling 5.4 million square feet of space.

Same Store Performance: Property level operating income for same store properties increased by 2.6% on a cash basis and by 2.2% on a straight line basis for the second quarter of 2016 compared to the same quarter in 2015.  For the six months ended June 30, 2016, property level operating income for same store properties increased by 3.0% on a cash basis and by 2.2% on a straight line basis, compared to the same period in 2015.

Real Estate Development Activity
Development Deliveries: In the second quarter, Liberty brought into service four development properties for a total investment of $77.6 million. The properties contain 795,000 square feet of leasable space and were 66.6% leased and 52.2% occupied as of the end of the quarter. The yield on these properties at June 30, 2016 was 5.9% and the projected stabilized yield is 8.6%.

A joint venture in which Liberty holds a 50% interest brought into service one development property for a total investment of $10.8 million. The property contains 196,000 square feet and was 100% leased at June 30, 2016.

Development Starts: In the second quarter, Liberty began development of five distribution properties totaling 1.6 million square feet of leasable space at a projected investment of $116.3 million. The properties consist of:

  • 8924 Pioneer Way, Charlotte NC, 109,200 square feet, 100% leased
  • 8742 Congdon Hill Drive, Mertztown PA, 650,000 square feet
  • 7205 West Buckeye Road, Phoenix AZ, 222,910 square feet
  • 1801 South 16th Street, LaPorte TX, 415,272 square feet
  • 11440 NW 122 Street, Medley FL 159,180 square feet

Development Leasing: Subsequent to quarter end, Liberty signed a lease agreement for 8260 Congdon Hill Drive in Alburtis, Pennsylvania, a 1.2 million square foot development pipeline project.

Liberty has also reached an agreement with American Water Works Company to develop, for a fee, their new headquarters at Liberty’s proposed Camden Waterfront in Camden, NJ. Construction of the 222,000 square foot office building and adjacent parking garage would commence upon completion of Liberty’s due diligence and purchase of the site later in 2016.

Real Estate Disposition Activity
During the second quarter, Liberty sold one property which contained 198,000 square feet of leasable space for $12.0 million. This property was 100% leased at the time of sale. In addition, two properties containing 248,000 square feet of leasable space owned by a joint venture in which Liberty holds a 25% interest were transferred to the mortgage lender in satisfaction of nonrecourse debt of $46.4 million that was secured by the properties. These properties were 65.3% leased at the time of sale. In addition, a joint venture in which Liberty holds a 50% interest sold one operating property which contained 55,000 square feet of leasable space and 0.8 acres of land for $13.7 million. This property was 50.6% leased at the time of sale.

Portfolio Sale Agreement

Liberty also announced that it has signed an agreement to sell a portfolio of non-core suburban properties, consisting of 108 buildings totaling approximately 7.6 million square feet of leasable space in five markets and approximately 26.7 acres of land in two markets for $969 million.  The sale is expected to close late in the third quarter of 2016.

Liberty expects to use proceeds from this sale to reduce aggregate indebtedness outstanding on the company’s unsecured revolving line of credit and by prepaying up to $700 million of unsecured senior indebtedness. 

As a result of the repayment of debt described above, the company expects that it will record a charge of up to $30 million, or $0.20 per diluted share, in the fourth quarter of 2016 relating to the early extinguishment of debt. 

Liberty does not expect the portfolio sale and the related financing transactions described above to impact the company’s third or fourth quarter common dividends, payable in October 2016 and January 2017, respectively.  However, in light of the cumulative impact on the company’s business resulting from the strategic sales of non-core assets to date, among other factors, the company expects that the Board of Trustees will consider adjustments to its dividend policy beginning in 2017.  The company expects to further address its dividend policy on Tuesday’s earnings conference call.

2016 Outlook
The estimates and assumptions presented below are forward looking and are based on the company’s future view of the industrial and office real estate markets and of general economic conditions, as well as other risks outlined below under the caption “Forward-Looking Statements.”  There can be no assurance that the company’s actual results will not differ materially from the estimates set forth below.  The company assumes no obligation to update this guidance in the future.

  Current
Outlook		 Previously Issued
Outlook
Net income, per diluted share(1) $2.60 - $2.70 $1.25 - $1.50
Depreciation and amortization of unconsolidated joint ventures 0.04 – 0.07 0.06 – 0.08
Depreciation and amortization 1.29 – 1.32 1.35 – 1.38
Gain on property dispositions(2) (1.66) – (1.70) (0.30) – (0.40)
Noncontrolling interest share of addbacks 0.03 – 0.01 (0.01) – (0.01)
FFO, per diluted share(1) $2.30 - $2.40 $2.35 - $2.55

(1) As discussed above, the company’s outlook also includes a charge relating to the early extinguishment of indebtedness of approximately $0.20 per diluted share anticipated to be incurred in the fourth quarter of 2016.

(2) Includes equity share of gain on disposition of unconsolidated joint ventures.

The company had previously indicated that it intended to sell approximately $900 million to $1.2 billion of non-core suburban office and flex properties in 2016.  The company now anticipates that it will sell up to $1.3 billion of non-core properties in 2016, which is reflected in its revised outlook above.

About the Company
Liberty Property Trust (NYSE: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 104 million square foot portfolio includes 684 properties which provide office, distribution and light manufacturing facilities to 1,600 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 second quarter results, on Tuesday, July 26, 2016, at 1 p.m. Eastern Time.  To access the conference call, please dial 855-277-7530. The passcode needed for access is 70954664. A replay of the call will be available until August 26, 2016, 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.

 

 Liberty Property Trust   
 Statement of Operations   
June 30, 2016  
 (Unaudited and in thousands, except per share amounts)   
                     
                     
       Quarter Ended     Six Months Ended   
      June 30, 2016   June 30, 2015   June 30, 2016   June 30, 2015  
             
Operating Revenue                   
Rental   $ 139,143     $ 147,367     $ 278,198     $ 295,952    
Operating expense reimbursement     47,511       56,151       98,597       114,467    
  Total operating revenue     186,654       203,518       376,795       410,419    
                     
Operating Expenses                   
Rental property     24,745       31,949       53,255       67,520    
Real estate taxes     25,202       26,462       50,522       52,626    
General and administrative     15,629       17,053       36,619       35,855    
Depreciation and amortization     53,545       56,833       107,623       115,629    
Impairment - real estate assets     -       1,036       -       16,775    
  Total operating expenses     119,121       133,333       248,019       288,405    
                     
  Operating Income     67,533       70,185       128,776       122,014    
                     
Other Income/Expense                   
Interest and other income     4,992       6,581       9,590       12,952    
Interest expense     (30,131 )     (35,066 )     (61,543 )     (69,736 )  
  Total other income/expense     (25,139 )     (28,485 )     (51,953 )     (56,784 )  
                     
Income before gain on property dispositions, income taxes, noncontrolling interest and equity in earnings (loss) of unconsolidated joint ventures     42,394       41,700       76,823       65,230    
Gain on property dispositions     3,832       1,249       24,353       3,520    
Income taxes     (752 )     (1,169 )     (1,553 )     (2,014 )  
Equity in earnings (loss) of unconsolidated joint ventures     5,583       (5,254 )     10,497       1,652    
                     
Net Income      51,057       36,526       110,120       68,388    
  Noncontrolling interest - operating partnerships     (1,317 )     (958 )     (2,826 )     (1,811 )  
  Noncontrolling interest - consolidated joint ventures     (113 )     (55 )     (113 )     (113 )  
Net Income available to common shareholders    $ 49,627     $ 35,513     $ 107,181     $ 66,464    
                     
  Net income   $ 51,057     $ 36,526     $ 110,120     $ 68,388    
  Other comprehensive (loss) gain - foreign currency translation     (13,509 )     12,151       (18,596 )     1,741    
  Other comprehensive (loss) gain - derivative instruments     (435 )     628       (1,795 )     (319 )  
Comprehensive income      37,113       49,305       89,729       69,810    
  Less: comprehensive income attributable to noncontrolling interest     (1,101 )     (1,309 )     (2,458 )     (1,957 )  
Comprehensive income attributable to common shareholders    $ 36,012     $ 47,996     $ 87,271     $ 67,853    
                     
Basic income per common share    $ 0.34     $ 0.24     $ 0.73     $ 0.45    
                     
Diluted income per common share    $ 0.34     $ 0.24     $ 0.73     $ 0.45    
                     
Weighted average shares                   
  Basic     145,995       148,778       146,002       148,574    
  Diluted     146,735       149,454       146,622       149,247    
                     
 Liberty Property Trust   
 Statement of Funds From Operations   
June 30, 2016  
 (Unaudited and in thousands, except per share amounts)   
                             
                             
       Quarter Ended     Six Months Ended   
      June 30, 2016   June 30, 2015   June 30, 2016   June 30, 2015  
        Per      Per      Per      Per   
        Weighted     Weighted     Weighted     Weighted  
         Average       Average       Average       Average   
      Dollars Share   Dollars Share   Dollars Share   Dollars Share  
                         
Reconciliation of net income to NAREIT FFO - basic:                           
Basic - income available to common shareholders    $ 49,627   $ 0.34     $ 35,513   $ 0.24     $ 107,181   $ 0.73     $ 66,464   $ 0.45    
                             
Adjustments:                           
Depreciation and amortization of unconsolidated joint ventures     2,262         3,058         4,938         6,010      
Depreciation and amortization     53,142         56,413         106,894         114,778      
Gain on property dispositions / impairment - real estate assets of unconsolidated joint ventures     (153 )       7,431         (1,993 )       7,431      
Gain on property dispositions / impairment - real estate assets     (3,832 )       (213 )       (24,353 )       13,255      
Noncontrolling interest share in addback for depreciation and amortization and gain on property dispositions / impairment - real estate assets     (1,213 )       (1,541 )       (2,017 )       (3,276 )    
NAREIT Funds from operations available to common shareholders - basic  $ 99,833   $ 0.68     $ 100,661   $ 0.68     $ 190,650   $ 1.31     $ 204,662   $ 1.38    
                             
Reconciliation of net income to NAREIT FFO - diluted:                           
Diluted - income available to common shareholders    $ 49,627   $ 0.34     $ 35,513   $ 0.24     $ 107,181   $ 0.73     $ 66,464   $ 0.45    
                             
Adjustments:                           
Depreciation and amortization of unconsolidated joint ventures     2,262         3,058         4,938         6,010      
Depreciation and amortization     53,142         56,413         106,894         114,778      
Gain on property dispositions / impairment - real estate assets of unconsolidated joint ventures     (153 )       7,431         (1,993 )       7,431      
Gain on property dispositions / impairment - real estate assets     (3,832 )       (213 )       (24,353 )       13,255      
Noncontrolling interest excluding preferred unit distributions     1,199         840         2,590         1,575      
 NAREIT Funds from operations available to common shareholders - diluted  $ 102,245   $ 0.68     $ 103,042   $ 0.67     $ 195,257   $ 1.30     $ 209,513   $ 1.37    
                             
Reconciliation of weighted average shares:                           
Weighted average common shares - all basic calculations     145,995         148,778         146,002         148,574      
Dilutive shares for long term compensation plans     740         676         620         673      
Diluted shares for net income calculations     146,735         149,454         146,622         149,247      
Weighted average common units     3,539         3,539         3,539         3,540      
Diluted shares for NAREIT Funds from operations calculations     150,274         152,993         150,161         152,787      
                             
                             
The Company believes that the calculation of NAREIT Funds from operations is helpful to investors and management as it is a measure of the Company’s operating performance that excludes depreciation and amortization and gains and losses from dispositions of depreciable property.  As a result, year over year comparison of NAREIT Funds from operations reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, providing perspective not immediately apparent from net income.  In addition, management believes that NAREIT Funds from operations provides useful information to the investment community about the Company’s financial performance when compared to other REITs since NAREIT Funds from operations is generally recognized as the standard for reporting the operating performance of a REIT.  NAREIT Funds from operations available to common shareholders is defined by NAREIT as net income (computed in accordance with generally accepted accounting principles (“GAAP”)), excluding gains (or losses) from sales of depreciable property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. NAREIT Funds from operations available to common shareholders does not represent net income or cash flows from operations as defined by GAAP and does not necessarily indicate that cash flows will be sufficient to fund cash needs. It should not be considered as an alternative to net income as an indicator of the Company’s operating performance or to cash flows as a measure of liquidity. NAREIT Funds from operations available to common shareholders also does not represent cash flows generated from operating, investing or financing activities as defined by GAAP.