Liberty Property Trust (LPT) has never been a REIT that surprised investors with its generosity. The distribution languished at $1.90/share between 2009 and 2016, and the recent cut, blamed on asset dispositions and cash flow, seemed unnecessary given funds from operations (“FFO”) projections. At the end of the day, investors are forced to weigh two polarizing themes: a company exposed to a currently very attractive asset class (industrial real estate), versus a management team that has historically not been what anyone would call shareholder friendly. Given the recent news stream, what should investors do: buy in, or simply stay away?
Company Repositioning, Industrial Property Fundamentals
Liberty Property Trust has shifted from an REIT focused on suburban and metro office real estate to one that is slowly working toward being a near pure play on industrial distribution. Unbeknownst to many REIT investors, this is actually the most common commercial property type here domestically, and is actually rather underrepresented within the publicly traded space. I think that it is clear, given the rally (both in valuations and in occupancy/rental rates) in industrial assets over the past several years that there is an upcycle taking place, so it seems the timing of Liberty Property Trust’s strategic plan to move more into these assets was well timed. Still, the move came at a cost: acquisition costs of industrial real estate came at more expensive cap rates than the dispositions that were made, which has led to relatively flat performance from the company when it comes to reported FFO. So while I do not necessarily agree with management that a cut was necessary, there really hasn’t been an opportunity to expand the distribution either.
