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MALVERN, PA-During third quarter, Liberty Property Trust's expenses rose, causing a drop in net earnings to $46.9 million, down from $51.9 million for the same quarter a year ago. However, the locally based REIT's operating revenue rose 5.7% for the quarter to $171.4 million, up from $162.2 million for the same quarter of 2005.
Rent rates and occupancy in the company's portfolio are inching up, projected to rise 1.7% and 1.5%, respectively, this year and up 1.3% and 1.1%, respectively in 2007, Bill Hankowsky, chairman and CEO, said during a third-quarter conference call. As of this Sept. 30, the company's 64.8-million-sf in-service portfolio was 93.1% occupied, compared with 91.9% on the same date a year ago.
Looking forward, "the US economy is slowing down a bit," Hankowsky said. "We see a soft landing in 2007," yet he predicted "a measured, but real upward trend" for office and industrial real estate. "Tenants are not over-leasing and landlords are not over-building," which should create continued positive demand for the next five quarters.
Liberty continues to reposition and upgrade its portfolio, selling old assets at higher cap rates and acquiring newer ones at lower cap rates. The REIT will continue to be a "net acquirer," management said, and its recent acquisitions are approximately eight years newer than those sold.
Third-quarter acquisitions totaled nine properties for $127.6 million. They were in Tampa, Orlando, South Florida, Houston and the Baltimore/Washington corridor, areas in which Liberty plans continued expansion. As of Sept. 30, the company had seven million sf under development at a total investment of nearly $1 billion. By quarter-end, the properties were 45.1% leased.
Asked if construction costs would temper development, Hankowsky predicted construction costs would rise at "inflation plus. While they will outpace inflation, it feels like the spikiness is out of it." He cited a decline in oil prices, but also predicted wage inflation on the labor side.
Shares of LRY common stock closed at $48 a share on the NYSE on Oct. 24, down about 2.4% following the conference call. This compares with a 52-week high of $49.21 a share, reached the day before, and a 52-week low of $39.62 a share nearly a year ago on Oct. 26, 2005.
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