Liberty Property Trust Valuation – Initial Coverage $LPT

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Liberty Property Trust (LPT) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Liberty Property Trust (the Trust) is a self-administered and self-managed Maryland real estate investment trust (REIT). The Trust’s assets are owned directly or indirectly, and substantially all of the Trust’s operations are conducted directly or indirectly, by its subsidiary, Liberty Property Limited Partnership (the Operating Partnership). The Company’s segments include Carolinas/Richmond; Chicago/Milwaukee; Florida; Houston; Lehigh/Central PA; Minnesota; Philadelphia; Southeastern PA; United Kingdom, and Other, which includes Arizona; Atlanta; Cincinnati/Columbus/Indianapolis; Dallas; DC Metro; New Jersey; Southern California, and other. The Company owns and operates industrial properties nationally and owns and operates office properties in a focused group of office markets. Additionally, the Company owns certain assets in the United Kingdom. As of December 31, 2016, the Company owned and operated 450 industrial and 55 office properties totaling 86.0 million square feet.

LPT Chart

LPT data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of LPT – April 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,968,486,012 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.13 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 53.07% Pass
6. Moderate PEmg Ratio PEmg < 20 25.35 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.97 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.13 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 128.03 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $1.59
MG Growth Estimate 2.71%
MG Value $22.14
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $23.06
MG Value based on 0% Growth $13.52
Market Implied Growth Rate 8.43%
Current Price $40.33
% of Intrinsic Value 182.17%

Liberty Property Trust does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.35 in 2013 to an estimated $1.59 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.43% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Liberty Property Trust revealed the company was trading above its Graham Number of $20.9. The company pays a dividend of $1.9 per share, for a yield of 4.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 25.35, which was below the industry average of 51.63, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-19.13.

Liberty Property Trust scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$19.13
Graham Number $20.90
PEmg 25.36
Current Ratio 1.13
PB Ratio 1.97
Current Dividend $1.90
Dividend Yield 4.71%
Number of Consecutive Years of Dividend Growth 0


Useful Links:

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Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $179,264,000
Total Current Liabilities $159,293,000
Long-Term Debt $2,556,936,000
Total Assets $5,992,813,000
Intangible Assets $0
Total Liabilities $2,989,422,000
Shares Outstanding (Diluted Average) 146,889,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.95
Dec2016 $2.43
Dec2015 $1.61
Dec2014 $1.48
Dec2013 $1.60
Dec2012 $1.17
Dec2011 $1.59
Dec2010 $1.12
Dec2009 $0.52
Dec2008 $1.62
Dec2007 $1.80
Dec2006 $2.95
Dec2005 $2.82
Dec2004 $1.88
Dec2003 $2.05
Dec2002 $1.97
Dec2001 $2.15
Dec2000 $2.17
Dec1999 $1.95
Dec1998 $1.59
Dec1997 $1.38

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.59
Dec2016 $1.83
Dec2015 $1.51
Dec2014 $1.44
Dec2013 $1.35
Dec2012 $1.22
Dec2011 $1.27
Dec2010 $1.27
Dec2009 $1.55
Dec2008 $2.11
Dec2007 $2.34
Dec2006 $2.52
Dec2005 $2.26
Dec2004 $2.00
Dec2003 $2.06
Dec2002 $2.03
Dec2001 $1.99

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.






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