Liberty Property Trust CEO Discusses Q2 Results - Earnings Call Transcript

Liberty Property Trust (LRY)

Q2 2012 Earnings Call

June 24, 2012 1:00 pm ET

Executives

Jeanne Leonard - Investor Relations

Bill Hankowsky - Chairman, President & Chief Executive Officer

George Alburger - Executive Vice President & Chief Financial Officer

Mike Hagan - Executive Vice President and Chief Investment Officer

Rob Fenza - Executive Vice President & Chief Operating Officer

Analysts

Ross Nussbaum - United Bank of Switzerland

Jordan Sadler - KeyBanc Capital Markets

John Guinee

Ki Bin Kim - Macquarie

Brendan Maiorana - Wells Fargo

Joshua Attie - Citi

Alex Goldfarb - Sandler O'Neill

John Stewart - Green Street Advisors

Presentation

Operator

Good afternoon. My name is Shirley, and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter 2012 Earnings Conference Calls. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Thank you. Ms. Jeanne Leonard, you may begin your conference.

Jeanne Leonard

Thank you, Shirley. Thank you, everyone for tuning in today. You are going to hear prepared remarks from Chief Executive Officer, Bill Hankowsky; Chief Financial Officer, George Alburger; Chief Investment Officer, Mike Hagan; and Chief Operating Officer, Rob Fenza.

Liberty issued a press release on our results this morning. You can access this in the corresponding supplemental information package in the Investor section of Liberty's website at www.libertyproperty.com. In both documents, you will 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 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 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?

Bill Hankowsky

Thank you, Jeanne, and good afternoon, everyone. Second quarter was another very strong quarter for Liberty. We leased over 5.4 million square feet, our best quarter in a year-and-a-half, and our third-best quarter in the company's history.

Occupancy increased by 20 basis points overall to 90.7%. Our renewal rate was over 60% and our retention rate was over 92%, the highest ever. We (Inaudible) $209 million of real estate, which was 2.7 million square feet of predominantly suburban office and high-finish flex, including the large repositioning sale we've discussed over the last several calls.

We acquired over 600,000 square feet of predominantly industrial value-add real estate in Minnesota and Phoenix, and our development pipeline continue to be strong with the addition of three new projects bringing the pipeline to $310 million a total of 3.3 million square feet.

Finally, a preferred redemption in an unsecured debt transaction further strengthened our already robust balance sheet. George, Mike and Rob will provide further color on all this activity in a moment. So, this was a solid quarter by any measure, but even more so, given the weakening economic landscape, the second quarter saw monthly job growth average 75,000 per month, down two-thirds from the first quarter. With unemployment stock at 8.2%. Business settlement has softened and business uncertainty pervades whether generated by Europe or by Washington, and yet the real estate markets have a bifurcated character to them. Small and mid-size local prospects are behaving more defensively given this environment, but larger or corporate customers are one might turn (Inaudible) are very active. Thinking about long-term decisions and (Inaudible) cash planning offensively.

We are currently working with a larger potential built-to-suit pipeline than any time in the last five years. The net result is we are worried about the general economic landscape, but the potential was stalled (Inaudible), and at the same time we are extremely busy and energized by the prospects of organic growth development and increased market share for Liberty.

With that, let me now turn it over to George.

George Alburger

Thank you, Bill. FFO for the second quarter of 2012 was $0.63 per share. The operating results for the quarter include $700,000 in lease termination fees. Our guidance for the year is that lease termination fees will be in the $0.04 to $0.06 per share range.

On April 3 rd, we closed the large sales transaction that we originally provided color on during December's earnings guidance call. This was $495 million. In addition to this sale during the quarter, we sold five additional properties for $14 million.

During the quarter, we acquired three industrial properties and one office property for $29 million. The projected stabilized yield on this investment is 8.2%. Mike will provide color on these acquisitions and on the sales.

During the quarter, we brought into service one development property with an investment of $6.6 million and we started three properties which have a projected investment of $23.5 million. As of June 30, our committed investment in development properties is $310 million and the projected yield on this investment is 9.9%.

Our development pipeline was zero at September 30, 2010. We have now built a development pipeline to $310 million. This quarter's delivery of a development property into service is the first delivery from this new development pipeline. Our last delivery was in the third quarter of 2010. As you can see from a review of the development schedule that's in our supplemental package, there are now projected development completions for five of the next six quarters.

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