Liberty Property Trust Announces 2018 Fourth Quarter and Full Year Results and Provides Guidance for 2019

WAYNE, Pa., Feb. 05, 2019 (GLOBE NEWSWIRE) -- Liberty Property Trust (NYSE: LPT) announced financial and operating results for the fourth quarter and full year of 2018, as well as guidance for 2019 performance.

Net income available to common shareholders was $1.14 per diluted share for the fourth quarter of 2018 and $3.24 per diluted share for the full year, compared to $0.87 per share and $1.91 per share respectively for the same periods in 2017.

NAREIT FFO* available to common shareholders was $0.74 for the fourth quarter of 2018 and $2.20 for the full year, compared to $0.68 per diluted share and $2.59 per diluted share respectively for the same periods in 2017.

Net income and NAREIT FFO for the fourth quarter of 2018 reflect a gain, net of tax, on the sale of development rights in the UK of over $0.12 per diluted share, partially offset by land impairments of $0.04 per share, resulting in net gains on non-depreciable assets of $0.08 per share in the aggregate.  Net income and NAREIT FFO for the full year of 2018 also reflect $0.57 per share in charges relating to two development projects.

Net income for the fourth quarter and the full year of 2018 also reflects impairment charges relating to depreciable office operating properties of $0.09 per diluted share (including our share of an impairment in an unconsolidated joint venture).  These charges did not impact NAREIT FFO.

Management Comments on the Quarter and Year
“2018 was another outstanding year for the industrial real estate business, particularly Liberty’s core business of developing, leasing and managing multi-tenant industrial properties in great locations. The winning combination of solid demand and moderate supply continues to underpin high occupancy and drive rents,” said Bill Hankowsky, Chairman and Chief Executive Officer. “The fourth quarter was particularly productive from a strategic perspective. We completed the sale of the bulk of our suburban office properties, and further simplified our business by expanding and recapitalizing our UK industrial platform and monetizing the rights to a UK mixed-use land holding for a significant gain.”

Fourth Quarter Activity
Real Estate Dispositions: Liberty sold nine operating properties totaling approximately 905,000 square feet and development rights to a 500-acre mixed use site in the UK for $284.2 million.

Subsequent to quarter end, Liberty sold an office portfolio of three properties in Orlando totaling approximately 151,000 square feet of leasable space for $23.4 million. 

Acquisitions: Liberty acquired nine industrial properties totaling 1.6 million square feet for $204.8 million.

Subsequent to quarter end, Liberty purchased a 290,000 square foot industrial building in Southern California for $31.3 million.

Development Deliveries: Liberty brought into service five industrial properties for a total investment of $133.8 million. The properties contain 1.7 million square feet and were 65.6% occupied as of the end of the quarter. In addition, a joint venture in which Liberty owns a 25% interest brought into service one industrial property for a total investment of $21.0 million.

Development Starts: Development commenced on six industrial properties totaling 1.3 million square feet at a projected investment of $141.5 million.

Operating Performance
Occupancy: At December 31, 2018, Liberty’s in-service portfolio of 106.1 million square feet was 96.3% occupied, compared to 96.6% at the end of the third quarter of 2018. During the quarter, Liberty completed lease transactions totaling 5.4 million square feet.  Liberty leased 22.9 million square feet overall in 2018.

Occupancy of Liberty’s 100.9 million square foot industrial portfolio was 96.3% at quarter-end, compared to 96.5% at the end of the third quarter. Industrial rents on retention and replacement leases commenced during the quarter increased 13.1% on a GAAP basis.

Same Store Performance: Property level operating income for same store industrial properties increased by 3.0% on a cash basis and 2.2% on a GAAP basis for the fourth quarter of 2018 compared to the same quarter in 2017. Fourth quarter same store performance was negatively impacted by 0.9% relating primarily to bad debt expense.  For the full year ended December 31, 2018, property level operating income for same store industrial properties increased by 4.8% on a cash basis and by 3.7% on a GAAP basis, compared to the full year ended December 31, 2017.

Capital and Balance Sheet Activity
Liberty recapitalized its UK industrial portfolio with a £129.5 million, 10-year, interest-only loan at 2.64%. This loan was used to repay short-term borrowings as well as to finance portions of Liberty’s existing UK industrial portfolio.

Subsequent to quarter end, Liberty issued $350 million of 4.375% senior unsecured notes.  The notes are due February 1, 2029 and were priced to yield 4.407%.  In October and November of 2018, in anticipation of conducting the offering of senior unsecured notes, Liberty separately entered into two interest rate lock agreements tied to the U.S. treasury rate.  These agreements were settled prior to consummation of the offering for an aggregate cost to Liberty of $5.7 million.

2019 Outlook
“The fundamental drivers of our business appear relatively unchanged from 2018, and we expect similar opportunities to grow in 2019. In 2018 we set the stage for, and completed a great deal of work toward, returning to our roots as an industrial real estate company. We are concentrating our efforts and capital solely in the industrial business. Our outlook for 2019 incorporates a similarly aggressive push toward completion of this repositioning activity. To look out a bit further, it is reasonable to expect we will complete the disposition of all wholly-owned office assets within 18 months,” said Mr. Hankowsky.

For 2019, Liberty expects to report net income available to common shareholders in the range of $2.21-$2.32 per diluted share, and NAREIT FFO in the range of $2.53-$2.65 per diluted share.

In 2019, Liberty expects asset sales in the range of $600-$650 million and acquisitions in the range of $300-$350 million. Liberty expects to start development of $475-$550 million in wholly-owned properties.

Liberty anticipates property level operating income for industrial same store properties to grow by 2.5% to 3.5% on a GAAP basis and 3.75% to 4.75% on a cash basis. This projection reflects continued occupancy of one property leased to a major retailer which is in bankruptcy.  Should this tenant terminate its lease and vacate by the end of the first quarter, it could impact Liberty’s same store NOI growth by as much as 1.0% during 2019. Industrial rental growth is projected to be between 13% to 15% on a GAAP basis and 3.0% to 5.0% on a cash basis.

As is customary the first quarter will reflect approximately $0.04 per diluted share of incremental non-cash expenses due to the accelerated vesting of grants to certain employees under the retirement provisions of our compensation plan.

A reconciliation of GAAP net income available to common shareholders per diluted share to NAREIT FFO per diluted share for 2019 is below (all 2019 amounts projected). Additional information on assumptions underlying this guidance is included in Liberty’s fourth quarter 2018 supplemental financial report on the company’s website.

                        Projected 2019 Outlook
  Net income, per diluted share $2.21 – $2.32
  Depreciation and amortization of unconsolidated joint ventures 0.09 – 0.09
  Depreciation and amortization 1.26 – 1.36
  Gain on property dispositions (1.08) – (1.17)
  Noncontrolling interest share of addbacks 0.05 – 0.05
  NAREIT FFO, per diluted share $2.53 - $2.65

*Funds from Operations: Liberty 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 (“GAAP”) net income to NAREIT FFO is included in the financial data tables accompanying this press release.

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 logistics, warehouse, manufacturing, and R&D facilities in key markets. Liberty's 106 million square foot operating portfolio provides productive work environments 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 fourth quarter, full year results and 2019 guidance, on Tuesday, February 5, 2019, at 12 p.m. Eastern Time.  To access the conference call, please dial 855-277-7530. The passcode needed for access is 4255088. A replay of the call will be available until March 5, 2019, 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 other 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 
December 31, 2018
(Unaudited and in thousands)
 
  December 31, 2018   December 31, 2017
Assets      
  Real estate:      
  Land and land improvements $   1,256,706     $   1,023,553  
  Building and improvements   4,655,784       4,113,163  
  Less: accumulated depreciation   (974,972 )     (851,624 )
       
  Operating real estate   4,937,518       4,285,092  
       
  Development in progress   472,169       333,437  
  Land held for development   296,244       330,748  
       
  Net real estate   5,705,931       4,949,277  
       
  Cash and cash equivalents   84,923       11,882  
  Restricted cash   10,899       13,803  
  Accounts receivable   14,217       10,373  
  Deferred rent receivable   125,291       106,257  
  Deferred financing and leasing costs, net   168,739       147,455  
  Investments in and advances to unconsolidated joint ventures   350,981       288,456  
  Assets held for sale   220,545       622,575  
  Prepaid expenses and other assets   252,868       289,679  
       
  Total assets $   6,934,394     $   6,439,757  
       
Liabilities      
       
  Mortgage loans, net $   395,202     $   267,093  
  Unsecured notes, net   2,285,698       2,283,513  
  Credit facilities   411,846       358,939  
  Accounts payable   65,591       76,077  
  Accrued interest   22,309       21,796  
  Dividend and distributions payable   60,560       60,330  
  Other liabilities   285,696       201,483  
  Liabilities held for sale   3,183       14,623  
  Total liabilities   3,530,085       3,283,854  
       
  Noncontrolling interest   7,537       7,537  
       
Equity      
  Shareholders' equity      
  Common shares of beneficial interest   148       147  
  Additional paid-in capital   3,691,778       3,674,978  
  Accumulated other comprehensive loss   (55,243 )     (37,797 )
  Distributions in excess of net income   (306,822 )     (549,970 )
  Total shareholders' equity   3,329,861       3,087,358  
       
  Noncontrolling interest - operating partnership   61,471       56,159  
  Noncontrolling interest - consolidated joint ventures   5,440       4,849  
       
  Total equity   3,396,772       3,148,366  
       
  Total liabilities, noncontrolling interest - operating partnership and equity $   6,934,394     $   6,439,757  
 

Liberty Property Trust
Statement of Operations
December 31, 2018
(Unaudited and in thousands, except per share amounts)
   
  Quarter Ended   Year Ended
  December 31, 2018   December 31, 2017   December 31, 2018   December 31, 2017
Operating Revenue              
  Rental   124,961       114,398       480,389       446,527  
  Operating expense reimbursement   41,229       36,674       151,276       136,184  
  Development service fee income   14,092       28,753       73,224       82,673  
  Total operating revenue   180,282       179,825       704,889       665,384  
               
Operating Expenses              
  Rental property   18,723       15,135       62,301       57,614  
  Real estate taxes   24,491       22,132       91,663       83,152  
  General and administrative   12,658       12,237       53,843       56,191  
  Other operating expenses   4,746       938       11,994       6,167  
  Interest expense   23,205       21,910       86,630       84,238  
  Loss on debt extinguishment         49             49  
  Depreciation and amortization   43,237       39,618       169,717       162,700  
  Development service fee expense   14,026       33,308       134,825       85,805  
  Impairment charges - real estate assets   6,431       11       32,431       3,946  
  Total operating expenses   147,517       145,338       646,404       539,862  
               
  Interest and other income   3,483       2,248       12,048       7,734  
  Gain on property dispositions   26,809       69,845       81,514       100,387  
  Income taxes   (5,397 )     (464 )     (7,364 )     (1,992 )
  Equity in earnings of unconsolidated joint ventures   424       3,129       21,382       17,155  
               
Income from continuing operations   58,084       109,245       166,065       248,806  
  Discontinued operations (including net gain of $118.5 million and $303.2
million on property dispositions for the three and twelve months ended
December 31, 2018, respectively and $14.6 million for the three and
twelve months ended December 31, 2017)
  115,832       22,579       326,538       41,239  
Net Income   173,916       131,824       492,603       290,045  
  Noncontrolling interest - operating partnerships   (4,148 )     (3,180 )     (11,886 )     (7,224 )
  Noncontrolling interest - consolidated joint ventures   (100 )     (286 )     (1,110 )     (481 )
Net Income available to common shareholders $   169,668     $   128,358     $   479,607     $   282,340  
               
  Net income $   173,916     $   131,824     $   492,603     $   290,045  
  Other comprehensive (loss) gain - foreign currency translation   (4,940 )     1,752       (14,161 )     18,066  
  Other comprehensive (loss) gain - derivative instruments   (4,193 )     239       (3,700 )     605  
Comprehensive income   164,783       133,815       474,742       308,716  
  Less: comprehensive income attributable to noncontrolling interest   (4,036 )     (3,513 )     (12,581 )     (8,142 )
Comprehensive income attributable to common shareholders $   160,747     $   130,302     $   462,161     $   300,574  
               
Basic income per common share              
  Continuing operations $   0.38     $   0.72     $   1.09     $   1.65  
  Discontinued operations $   0.77     $   0.15     $   2.17     $   0.27  
Basic income per common share $   1.15     $   0.87     $   3.26     $   1.92  
               
Diluted income per common share              
  Continuing operations $   0.38     $   0.72     $   1.09     $   1.64  
  Discontinued operations $   0.76     $   0.15     $   2.15     $   0.27  
Diluted income per common share $   1.14     $   0.87     $   3.24     $   1.91  
               
Weighted average shares              
  Basic   147,379       146,919       147,275       146,742  
  Diluted   148,406       147,885       148,221       147,541  
               

 

Liberty Property Trust
Statement of Funds from Operations
December 31, 2018
(Unaudited and in thousands, except per share amounts)
 
  Quarter Ended   Year Ended
  December 31, 2018   December 31, 2017   December 31, 2018   December 31, 2017
NAREIT FFO              
       
Reconciliation of net income available to common shareholders to NAREIT FFO available to common shareholders:            
Net income available to common shareholders $   169,668     $   128,358     $   479,607     $   282,340  
               
Adjustments:              
Depreciation and amortization of unconsolidated joint ventures   3,319       2,958       12,950       10,155  
Depreciation and amortization   42,974       43,501       173,258       180,117  
(Gain) on property dispositions / impairment - depreciable real estate assets of unconsolidated joint ventures   6,347       2,972       6,347       2,972  
(Gain) on property dispositions / impairment - depreciable real estate assets continuing operations   (3,017 )     (64,679 )     (54,244 )     (83,800 )
(Gain) on property dispositions / impairment - depreciable real estate assets discontinued operations   (111,213 )     (13,607 )     (295,902 )     (7,892 )
Noncontrolling interest share in addback for depreciation and amortization and gain on property dispositions
/ impairment - depreciable real estate assets
  1,429       672       3,663       (2,379 )
NAREIT FFO available to common shareholders - basic   109,507       100,175       325,679       381,513  
               
Noncontrolling interest share in addback for depreciation and amortization and gain on property dispositions
/ impairment - depreciable real estate assets
  (1,429 )     (672 )     (3,663 )     2,379  
Noncontrolling interest excluding preferred unit distributions   4,030       3,062       11,414       6,752  
NAREIT FFO available to common shareholders - diluted $   112,108     $   102,565     $   333,430     $   390,644  
               
               
NAREIT FFO available to common shareholders - basic per share $   0.74     $   0.68     $   2.21     $   2.60  
NAREIT FFO available to common shareholders - diluted per share $   0.74     $   0.68     $   2.20     $   2.59  
               
Reconciliation of weighted average shares:              
Weighted average common shares - all basic calculations   147,379       146,919       147,275       146,742  
Dilutive shares for long term compensation plans   1,027       966       946       799  
Diluted shares for net income calculations   148,406       147,885       148,221       147,541  
Weighted average common units   3,520       3,525       3,520       3,528  
Diluted shares for NAREIT FFO calculations   151,926       151,410       151,741       151,069  
               
NAREIT Funds from Operations available to common shareholders is defined by NAREIT as net income (computed in accordance with U.S. GAAP), excluding gains (or losses) from sales of depreciable property and impairments of depreciable real estate assets, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures.  The SEC has agreed to the disclosure of this non-GAAP financial measure on a per share basis in its Release No. 34-47226, Conditions for Use of Non-GAAP Financial Measures. The Company believes that the calculation of NAREIT FFO 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 operating property dispositions. As a result, year over year comparison of NAREIT FFO 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 FFO provides useful information to the investment community about the Company’s financial performance when compared to other REITs since NAREIT FFO is generally recognized as the standard for reporting the operating performance of a REIT. NAREIT FFO available to common shareholders does not represent net income or cash flows from operations as defined by U.S. 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 FFO available to common shareholders also does not represent cash flows generated from operating, investing or financing activities as defined by U.S. GAAP. The Company believes that the line on its consolidated statements of comprehensive income entitled “net income available to common shareholders” is the most directly comparable U.S. GAAP measure to FFO.

Inquiries: Jeanne Leonard, Liberty Property Trust, 610.648.1704

Source: Liberty Property Trust