Liberty Property (LPT) to be Sold to Prologis, Q3 FFO Flat Y/Y

Liberty Property Trust LPT has announced that it has entered into a definitive merger agreement with Prologis, Inc. PLD to be acquired by the latter in an all-stock transaction, valued at roughly $12.6 billion, including the assumption of debt. The transaction has been approved by the company’s board of trustees.

Also, Liberty Property reported third-quarter 2019 NAREIT funds from operations (FFO) per share of 69 cents, flat year over year. This included gains on sales of non-depreciable assets that were partially offset by expensed pursuit costs, amounting 4 cents per share.

Further, third-quarter revenues were up 1.1% from the prior-year quarter to around $163.2 million. Results indicate decent leasing activity and encouraging rent growth.

Acquisition Deal

The above-mentioned transaction is anticipated to close in first-quarter 2020. Per the acquisition agreement, Liberty Property’s shareholders will receive 0.675x of a Prologis share for per Liberty Property share owned.

This deal is expected to create immediate cost synergies of nearly $120 million. It consists of a logistics operating portfolio spanning 107 million square feet of space that overlaps in 87% of key markets. Furthermore, through this buyout, Prologis will acquire 5.1 million square feet of logistics development in progress. The transaction is a strategic fit as it strengthens Prologis’ presence in target regions such as Chicago, Lehigh Valley, New Jersey Houston, Central PA, and Southern California.

Quarter in Detail

During the reported quarter, Liberty Property accomplished lease deals for 6.2 million square feet of space for its industrial portfolio. As of Sep 30, 2019, occupancy in the company’s in-service operating portfolio, spanning 107 million square feet, shrunk 60 basis points sequentially to 94.6%. Rents increased 5.4% on a cash basis (16% GAAP) on retention and replacement leases commenced during the period under consideration.

Property level operating income for same-store properties inched up 0.1% on a cash basis (0.3% GAAP) year over year.

Portfolio Activity

During the September-end quarter, Liberty Property acquired one industrial property, aggregating 203,000 square feet, for $55.5 million. At the same time, the company sold six operating properties, totaling 763,000 square feet, for $197.3 million.

The company brought into service six industrial properties, comprising 3 million square feet of space for a total investment of $193.6 million. These properties were 59.5% occupied as of the end of the third quarter.

Balance-Sheet Position

Liberty Property exited the third quarter with cash and cash equivalents of around $514.9 million, up from the $84.9 million recorded at the end of December 2018.

Conclusion

Banking on the strong fundamentals of the industrial real estate market, Liberty Property witnessed high leasing transactions and rent growth in its premium quality industrial portfolio. In addition, efforts to strengthen its balance sheet are also encouraging.

Liberty Property Trust Price, Consensus and EPS Surprise

Liberty Property Trust Price, Consensus and EPS Surprise

Liberty Property Trust price-consensus-eps-surprise-chart | Liberty Property Trust Quote

Currently, Liberty Property carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other REITs

Cousins Properties Incorporated CUZ reported third-quarter 2019 FFO per share (before TIER transaction costs) of 72 cents, outpacing the Zacks Consensus Estimate of 69 cents. Also, the figure came in higher than the prior-year quarter’s reported tally of 63 cents.

Ventas, Inc. VTR posted third-quarter 2019 normalized FFO per share of 96 cents, beating the Zacks Consensus Estimate of 94 cents. However, the figure came in lower than the year-ago tally of 99 cents.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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