Liberty Property Trust (
Q3 2010 Earnings Call
October 26, 2010 10:30 am ET
Jeanne Leonard - IR
Bill Hankowsky - CEO
George Alburger - CFO
Mike Hagan - CIO
Jordan Sander - KeyBanc Capital
Sloan Bohlen - Goldman Sachs
Michael Bilerman - Citi
John Guinee - Stifel
Sheila McGrath - Keefe, Bruyette & Woods
Alexander Goldfarb - Sandler O’Neill
Brendan Maiorana - Wells Fargo Securities
Mitch Germain - JMP Securities
Ross Nussbaum - UBS Securities
Ki Bin Kim - Macquarie
John Stewart - Green Street
Previous Statements by LRY
» Liberty Property Trust (LRY) Q2 2010 Earnings Call Transcript
» Liberty Property Trust Q1 2010 Earnings Call Transcript
» Liberty Property Trust Q4 2009 Earnings Call Transcript
» Liberty Property Trust Q3 2009 Earnings Call Transcript
Good afternoon. My name is [Wes] and I will be your conference operator today. At this time, I would like to welcome everyone to the Liberty Property Trust Quarterly Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions). I will now turn the conference over to Ms. Jeanne Leonard. Please go ahead.
Thank you, Wes. Thank you everyone for tuning in. Today you will hear prepared remarks from Chief Executive Officer, Bill Hankowsky; Chief Financial Officer, George Alburger; and Chief Investment Officer, Mike Hagan.
During the call, management will be referring to our quarterly supplemental information package. You can access this package, as well as the corresponding press release on the investor section of Liberty’s website at www.libertyproperty.com. In this package and in the press release, you will also find a reconciliation of non-GAAP financial measures we reference today to GAAP measures.
I will also remind you that some of the statements made during this call will include forward-looking statements within the meaning of the Federal Securities Laws. Although Liberty believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, we can give no assurance that these 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, risks that were detailed in the issued press release and from time-to-time 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.
Bill, would you like to begin?
Thank you, Jeanne and good afternoon, everyone.
On Sunday evening, Liberty lost one of the architects of our vision as a company and a dear friend, Larry Gildea. Larry was the long time Head of our North Carolina operation and more recently served as a Regional Director for Mid-Atlantic and Midwest regions. I think some of you in the audience have probably met Larry on a property tour or in a meeting. So you know what a great person he was. Larry believed that everyday you get up and try to make the world a better place, and if you do you will prosper. He chose real estate as his path to making life better in business and he worked tirelessly to see that his ideals were replicated throughout our organization. We will miss him.
Let me now turn to the quarter. I have two major topics I want to comment on during my opening remarks. First, our third quarter performance and, second, our guidance for 2011. The third quarter was another solid quarter evidencing our consistent performance during this extended economic down turn. We leased 6.277 million sq ft, the largest quarter leasing levels in our history. This high production was assisted by a 73% renewal rate also higher than our typical quarterly average.
Occupancy increased 30 basis points to 89% which was driven by 110 basis points increase in industry occupancy offset by occupancy declines in our office and flex portfolios. Transaction costs declined and rental declined at 9% and minus 9% were consistent with the first half of the year.
On the capital front, we renewed our line and had terrific execution on a $350 million senior debt issuance, both of which speak to our balance sheet strength. We acquired 941,000 sq ft of industrial product in Orlando and Houston consistent with our long term strategic goals. In sum, another quarter of consistent performance.
Let me turn to our guidance for year end 2010 and full year 2011. The fundamental building blocks for our guidance are our views on the economy and real estate markets over the next five quarters. Our view of the economy is totally consistent with the view we held over the last year. This economic recovery will be very long and slow. We assume that unemployment remains above 9% for at least 4 of the next 5 quarters and we also assume that GDP growth will be between abut 1.5% and 2.5%.
This economic view then frames our view of real estate fundamentals. This quarter, the national office and industrial vacancy rates each declined 10 basis points, the first decreases in 3 years. Each product also had positive net absorption nationally. That is the good news. The problem is the vacancy for office and industrial remain at 16.6% and 14% respectively. At 10 basis points per quarter, it is going to take a long time to bring straight to these markets.
We think we have hit inflection points and that the markets will improve over the course of the year more quickly and pronounced in industrial and slowly and more muted in the office, but in neither case will be improvement be sufficient to provide for positive market revenue growth.
As we look more closely over the next five quarters we anticipate occupancy to be flat in the fourth quarter, dip the first quarter of 2011 and move up gradually during the remainder of the year. This will be driven by industrial product with office and flex trailing.