Liberty Property Trust (



Q3 2011 Earnings Call

October 25, 2011 1:00 PM ET


Jeanne Leonard – VP, Corporate Communications

William Hankowsky – Chairman, President and CEO

George Alburger – EVP, CFO and Treasurer

Michael Hagan – SVP, Acquisitions and CIO

Robert Fenza – EVP and COO


Sloan Bohlen – Goldman Sachs

Gabriel Hilmoe – UBS

Anthony Paolone – JP Morgan

Ki Bin Kim – Macquarie

Alexander Goldfarb – Sandler O’Neill

Brendan Maiorana – Wells Fargo

Josh Attie – Citi

Michael Bilerman – Citi

Jordan Sadler – Key Bank Capital

John Guinee – Stifel

John Steward – Green Street Advisor

Vincent Chao – Deutsche Bank

Daniel Donlan – Janney Capital



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Good afternoon. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Liberty Property Trust 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).

Thank you. Mrs. Leonard. You may begin your conference.

Jeanne Leonard

Thank you, Michelle and thanks everyone for tuning in today. You will hear prepared remarks from Chief Executive Office, Bill Hankowsky; Chief Financial Officer, George Alburger; Chief Investment Officer, Mike Hagan; and Chief Operating Officer, Rob Fenza.

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 In this package and in the press release, you will also find a reconciliation of non-GAAP financial measures we referenced 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 law. 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 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?

William Hankowsky

Thank you, Jeanne, and good afternoon, everyone. Liberty had a very solid third quarter. We leased 4.5 million square feet which was our best quarter of the year bringing year-to-date leasing to 11.3 million square feet. This leasing was driven in part by a 66% renewal rate yielding 89.9% occupancy, up 40 basis points.

We continue to execute on our strategic investment activity. Year-to-date, we’ve sold $370 million, acquired $207 million, and commenced development on a $171 million with another $117 million in development to start in the fourth quarter. Mike and Rob will provide further color on this activity in a moment.

We’re now near the high end of our guidance ranges for each of the activities, sales, acquisitions, and development. And as we’ve said in the past if we see opportunities to advance our strategy we will take advantage of them.

The economy continues to be challenged. The unemployment rate has been stuck above 9% now for several quarters, while GDP growth is below 2%. Added to this weakness in the last 60 days, there seems to be an increased level of uncertainty and anxiety. We don’t know why. Starting with the debt ceiling debate in August has been fed by the daily Euro Greek concerns and now is fed by the belief that nothing will change until the 2012 elections at the earliest.

So we certainly escape with the split personality. On the one hand we continue to see leasing activity in our markets clearly stronger on the industrial side than the office side. But on the other hand today’s anxiety may translate into curtail 2012 business plans for our customers. And that’s what keeps us up at night. How this all plays out, we will take the next several months to see.

Liberty’s plan in this environment is to be very active, very alert, and very adroit to respond to both the challenges and the opportunities that will arise. As I said, if we can advance our strategy in this environment we’ll sell more suburban office and acquire more industrial product. We anticipate more development built-to-suit activity given the large pipeline we currently have. The largest we’ve seen in three years. And we will be very, very selective with inventory development in the few discrete markets. Rob will explain on this in just a moment.

Let me close by commenting on our continued strong execution on the balance sheet front with our recent Moody’s upgrade and our $500 million line of credit. Our balance sheet and our platform are poised and we will apply classic Liberty patience, discipline and hard work to take advantage of these unsettled times.

And with that, let me turn it over to George.

George Alburger

Thank you, Bill. FFO for the third quarter of 2011 was $0.65 per share. The operating results for the quarter include $1.1 million in lease termination fees, which is in line with our guidance that lease termination fees would be in the $0.04 to $0.06 per share range for the year.

FFO for the quarter also includes a $1 million gain on sale of land. During the quarter, we sold seven operating properties and the land I mentioned above for $75 million. Five of the properties that were sold were office properties and they accounted for $61 million of the sale proceeds.

Our strategy is clear; we are decreasing our investment in suburban office and increasing our investment in industrial real estate and metro office. We acquired eight properties for $104 million during the quarter. Five of the properties were industrial properties and accounted for $83 million of this investment.

During the quarter, we begin construction of 1.2 million square feet of property with the projected investment of $76 million. Three of the properties with the projected investment of $61 million are industrial properties. The remaining property with the projected investment of $15 million is a 100% pre-leased office building at Philadelphia Navy Yard. As of September 30, the committed investment in development properties is a $171 million and the projected yield on this investment is 10.2%.

Moving on to the core portfolio. During the quarter, we executed 3.6 million square feet of renewal and replacement leases. For these leases, rents decreased by 8.6%. Our guidance for the year is that rents would decrease by 7% to 12%. For the same-store group of properties, operating income decreased by 1% on a straight-line basis and increased by 0.7% on a cash basis for the third quarter of 2011 compared to the third quarter 2010.

On the capital front, last week we replaced our existing credit facility with the new facility. We didn’t change the size of the facility. It remains at $500 million and the facility covenants are essentially unchanged. We did change the term and the borrowing rate. The old facility was due November 2013. The new facility expires in November 2015 and there is now a one-year extension option.

Borrowings under the new facility are at a spread of 107.5 basis points over LIBOR. This borrowing spread reflects the adjusted borrowing rate under the new facility as well as the adjustment due to our recent credit rating upgrade.

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