In a strategic bid to shift its portfolio to the industrial property sector and away from suburban office, Liberty Property Trust (NYSE: LRY
) announced it has agreed to buy the operating partnership of Cabot Industrial Value Fund III for $1.475 billion.
The transaction, which is expected to close in October of of this year, will add approximately 23 million square feet and 177 properties to the Malvern, PA-based REIT's industrial holdings. Approximately 13 million square feet of the space is located in Liberty’s existing markets, while the REIT will enter 10 new markets as a result of the deal, including Atlanta, Dallas/Fort Worth and Southern California, which together comprise 21% of the portfolio. As of May 31, 2013, the Cabot Industrial portfolio was 93.3% leased to 436 tenants.
"This acquisition is a compelling opportunity to increase both the size of Liberty's industrial platform and its scope," said William P. Hankowsky, chairman and CEO of Liberty. "With one transaction, we significantly deepen our current industrial presence while extending our footprint to a national level."
Under the agreement, Liberty will assume approximately $230 million of outstanding mortgage debt. The REIT has obtained a commitment for a $1.27 billion senior unsecured bridge loan to swing the deal, with plans to arrange permanent financing through a combination of debt and equity financing. Liberty also said it plans to sell off certain properties to generate another $150 million.
The acquisition, which has a $1.5 billion all-in price tag, will accelerate Liberty's shift away from the under-performing suburban office sector, and restructure its portfolio so that industrial property will account for more than half of its holdings. REIT analysts generally supported the deal for strategically repositioning the REIT to the industrial property sector using attractive current financing.
"While a number of deals have recently commanded 'portfolio premiums,' this deal allows Liberty to meaningfully increase industrial exposure at a time when fundamentals are strengthening and values have been rising," noted Citi Research REIT analyst Michael Bilerman in a note to investors. "Investors are bullish on the US industrial sector, and there are relatively few ways to play this in the public REIT market in size. The question is, is there still enough runway in the industrial cycle for LRY to make money on this investment?"
Bilerman sees opportunity for the REIT to improve NOI through its local market management approach (the portfolio is currently managed by a third party), but he said the impact from directly managing the properties will take time and the portfolio is 93% occupied.
Citigroup and Goldman Sachs served as Liberty's exclusive financial advisors on the acquisition.
The assets to be acquired are in the following markets:
Existing Liberty Industrial Markets
|2. South Florida||1,488,000|
|4. New Jersey||1,429,000|
|6. United Kingdom||1,381,000|
|7. Central Pennsylvania||1,148,000|
|8. North & South Carolina||439,000|
|13. Orlando|| 130,000|
|14. SE PA/Philadelphia||75,000|
New Liberty Industrial Markets
|2. Dallas/Ft. Worth||1,860,000|
|6. Southern California||671,000|
SOURCE: LIBERTY PROPERTY TRUST