<PAGE>
PROSPECTUS SUPPLEMENT FILED PURSUANT TO
(To Prospectus dated March 7, 1997) RULE 424(b)(5) UNDER
THE SECURITIES ACT OF
1933, AS AMENDED
COMMISSION FILE NO.
333-22211
7,500,000 SHARES
[LOGO OF LIBERTY PROPERTY TRUST APPEARS HERE]
COMMON SHARES OF BENEFICIAL INTEREST
------------------
Liberty Property Trust (the "Company") is one of the largest owners and
operators of suburban industrial and office real estate in the United States.
The Company is a self-administered and self-managed real estate investment
trust (a "REIT"). The Company provides leasing, property management,
acquisition, development, construction management, design management and other
related services for a portfolio which, as of December 31, 1996, consisted of
259 industrial and office properties totaling approximately 20.6 million
leasable square feet. Such properties are located principally in the
Southeastern and Mid-Atlantic United States. As of December 31, 1996, the
Company also had 22 properties under development and held 1,012 acres of land
for future development.
All of the Company's Common Shares of Beneficial Interest, par value $0.001
per share (the "Common Shares"), offered hereby (the "Offering") are being sold
by the Company. The Common Shares are listed on the New York Stock Exchange
(the "NYSE") under the symbol "LRY." On March 18, 1997, the last reported sale
price of the Common Shares on the NYSE was $24 5/8 per share.
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-14 OF THIS PROSPECTUS SUPPLEMENT FOR A
DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE
PURCHASERS OF THE COMMON SHARES OFFERED HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Common Share...................... $24.50 $1.22 $23.28
- --------------------------------------------------------------------------------
Total(3).............................. $183,750,000 $9,150,000 $174,600,000
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses, estimated at $750,000, which are payable by the
Company.
(3) The Company has granted the Underwriters an option to purchase up to
1,125,000 additional Common Shares to cover over-allotments, if any. If all
of such shares are purchased, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $211,312,500,
$10,522,500 and $200,790,000, respectively. See "Underwriting."
------------------
The Common Shares offered by this Prospectus Supplement are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of the
certificates for the Common Shares offered hereby will be made at the offices
of Lehman Brothers Inc., New York, New York on or about March 24, 1997.
------------------
LEHMAN BROTHERS DONALDSON, LUFKIN & JENRETTE
Securities Corporation
ALEX. BROWN & SONS
Incorporated
A.G. EDWARDS & SONS, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
WHEAT FIRST BUTCHER SINGER
March 18, 1997
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus or incorporated herein or therein by reference. Unless
otherwise indicated, the information in this Prospectus Supplement assumes that
the Underwriters' over-allotment option is not exercised. Investors should
carefully consider the information set forth under the heading "Risk Factors."
Liberty Property Trust, a Maryland REIT (the "Company"), conducts substantially
all of its operations through Liberty Property Limited Partnership, a
Pennsylvania limited partnership (the "Operating Partnership"). As used herein,
unless the context indicates otherwise, the term "Company" includes Liberty
Property Trust, Liberty Property Limited Partnership and their subsidiaries
(and, where the context indicates, Rouse & Associates, a Pennsylvania general
partnership, and certain affiliated entities (collectively, the "Predecessor"),
their predecessor entities). This Prospectus Supplement and the accompanying
Prospectus contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company's actual results could differ materially from those set forth in
the forward-looking statements. See "Risk Factors" for a discussion of certain
factors that might cause such a difference.
THE COMPANY
The Company is one of the largest owners and operators of suburban industrial
and office real estate in the United States. Liberty Property Trust is a self-
administered and self-managed real estate investment trust formed in 1994. The
Company provides leasing, property management, acquisition, development,
construction management, design management and other related services for a
portfolio which, as of December 31, 1996, consisted of 173 industrial and 86
office properties totaling approximately 20.6 million leasable square feet
(collectively, the "Operating Properties"). The Operating Properties were
approximately 93% leased to over 800 tenants as of December 31, 1996. As of the
same date, the Company also had 22 properties under development (the
"Development Properties"), which are expected to generate approximately 3.0
million leasable square feet. The Company also owned 1,012 acres of land, which
the Company anticipates is capable of supporting, as and when developed,
approximately 9.3 million leasable square feet. The Properties and such land
are located principally within the Southeastern and Mid-Atlantic United States.
The Operating Properties and the Development Properties are referred to
together as the "Properties."
During 1996, the Company increased its total leasable square footage of
industrial and office space by approximately 23.5% by acquiring 33 properties
totaling approximately 2.4 million leasable square feet and by developing 19
properties totaling approximately 1.6 million leasable square feet. In the same
period, the Company also increased its holdings of land for future development
by 98 acres.
The Company's senior management team consists of 17 senior executives, who
collectively have developed and managed over 35 million square feet of
commercial real estate during the past 25 years and who, on average, have been
affiliated with the Company for 14 years. As of March 17, 1997, the 17 senior
executives beneficially owned 6.2% of the outstanding Common Shares on a fully
diluted basis. The Company was formed to continue and expand the commercial
real estate business of Rouse & Associates and certain affiliated entities.
Founded in 1972, Rouse & Associates and its affiliated entities developed and
managed commercial real estate in the Southeastern and Mid-Atlantic United
States.
================================================================================
Certain persons participating in the Offering may engage in transactions that
stabilize, maintain or otherwise affect the price of the Common Shares. Such
transactions may include the purchase of Common Shares prior to the pricing of
the Offering for the purpose of maintaining the price of the Common Shares, the
purchase of Common Shares following the pricing of the Offering to cover a
syndicate short position in the Common Shares or for the purpose of maintaining
the price of the Common Shares, and the imposition of penalty bids. For a
description of these activities, see "Plan of Distribution" in the accompanying
Prospectus.
FOR UNITED KINGDOM PURCHASERS: The Common Shares offered hereby may not be
offered or sold in the United Kingdom other than to persons whose ordinary
business is to buy or sell securities, whether as principal or agent (except in
circumstances that do not constitute an offer to the public within the meaning
of the Companies Act of 1985), and this Prospectus Supplement and the
accompanying Prospectus may only be issued or passed on to any person in the
United Kingdom if that person is of a kind described in Article 11(3) of the
Financial Services Act of 1986 (Investment Advertisements) (Exemption) Order
1996, as amended.
================================================================================
S-3
<PAGE>
BUSINESS OBJECTIVES AND STRATEGIES FOR GROWTH
The Company's primary objective is to increase Funds from Operations (as
defined below) per share. The operating strategies for achieving this goal are
to deliver outstanding tenant service, emphasize marketing to attract new
tenants and enhance the Company's portfolio through the acquisition and
development of high quality properties in markets affording opportunities for
attractive investments. The Company continually assesses new markets for
expansion opportunities based on demographics, job growth, employment, real
estate fundamentals and competition. As a result of this assessment process,
the Company currently anticipates entering the South Carolina market and the
Minneapolis, Minnesota market. See "Business Objectives and Strategies for
Growth-- Acquiring Office and Industrial Properties--Pending Acquisitions." In
1995, as a result of this assessment process, the Company successfully entered
the Richmond, Virginia market. In pursuing its operating strategies, the
Company seeks to manage its capital structure to fund growth while maintaining
financial liquidity and stability. As a result of these strategies, the Company
has increased its Funds from Operations per share by 10.9% based on a
comparison of the fourth quarter of 1996 with the fourth quarter of 1995. No
assurance can be given that this level of growth will continue. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Calculation of Funds from Operations."
Internal Growth Strategies. Management believes that the Properties offer
significant opportunities for the Company to increase its rental revenues and
cash flow. The Company seeks to increase cash flow by continuing its practice
of negotiating for contractual rental increases that take effect during the
terms of its leases. In addition, the Company seeks to increase rental revenues
through the renewal or replacement of expiring leases at higher rental rates
and by improving the occupancy rates of its portfolio. As a result of these
activities, operating income for "Same Store" properties (those Properties
owned as of January 1, 1995) increased by 5.1% for 1996 as compared to 1995.
Acquisition Strategy. The Company seeks to acquire properties consistent with
its business objectives and strategies for growth. The Company seeks both
single-asset acquisitions and portfolio acquisitions. The Company's single-
asset acquisitions are generally located within the Company's existing markets
and consist of either (i) stabilized acquisitions, which are typically at high
occupancy levels upon acquisition, or (ii) entrepreneurial acquisitions, which
are typically either vacant or at low occupancy levels and can be purchased
substantially below replacement cost, thereby offering the opportunity for
above-average returns when fully leased. The Company also evaluates
opportunities for portfolio acquisitions, which include either groups of
properties or existing real estate companies. These portfolio acquisitions may
include stabilized and entrepreneurial acquisitions, as well as development
properties, which offer opportunities for enhanced operating performance as a
result of the Company's management expertise and financial strength.
Development Strategy. The Company pursues selective development opportunities
focusing on high quality suburban industrial and office properties typically
within its existing markets. The Company's development activities fall into two
categories: build-to-suit projects and projects built for inventory. The
Company develops build-to-suit projects for existing and new tenants. The
buildings in this category typically are substantially pre-leased to one or
more tenants prior to construction. The Company also builds properties for
inventory in high-occupancy markets in which the Company has identified
sufficient demand at market rental rates to justify such construction.
Financing Strategy. The Company intends to continue to maintain a
conservative balance sheet to provide the Company with the flexibility to
choose the optimal source of capital (whether debt or equity) with which to
finance its acquisition and development activities. Upon completion of the
Offering and the anticipated application of the estimated net proceeds as
described herein, the ratio of the Company's debt outstanding as of December
31, 1996 to Total Market Capitalization (as defined below) would be 27.3%
(based on the last reported sale price of $24 5/8 per Common Share on March 18,
1997). See "Business Objectives and Strategies for Growth--Financing
Activities."
S-4
<PAGE>
RECENT ACTIVITIES
ACQUISITION AND DEVELOPMENT ACTIVITIES
During 1996, the Company acquired 33 properties containing approximately 2.4
million leasable square feet for a Total Investment (as defined below) of
$132.9 million. In addition, during 1996, the Company completed the development
of 19 Properties containing approximately 1.6 million leasable square feet for
a Total Investment of $99.3 million. This represents a 23.5% increase in the
Company's total leasable square footage from December 31, 1995. The "Total
Investment" for a property is defined as the property's purchase price plus
closing costs and management's estimate, as determined at the time of
acquisition, of the cost of necessary building improvements in the case of
acquisitions, or land costs and land and building improvement costs in the case
of development projects, and where appropriate, other development costs and
carrying costs required to reach rent commencement.
Pending Acquisitions
As of March 18, 1997, the Company had entered into contracts to purchase 38
additional suburban industrial and office properties which the Company
considered probable of closing (collectively, the "Pending Acquisitions"). The
Pending Acquisitions aggregate approximately 2.6 million leasable square feet,
for an estimated Total Investment of approximately $146.4 million, to be paid
in a combination of cash, assumption of debt and the issuance of limited
partnership interests in the Operating Partnership (the "Units"). The combined
Budgeted Yield (as defined below) of the Pending Acquisitions that have
stabilized is 10.4%. The purchase of all of the Pending Acquisitions is subject
to various contingencies, including, among others, completion of due diligence
and other customary conditions. Accordingly, there can be no assurance that the
Company will acquire any or all of the Pending Acquisitions or that the
acquisitions will be consummated for the estimated Total Investment.
Additionally, there can be no assurance that the Budgeted Yield will be
realized.
The following table and discussion set forth certain information, as of March
18, 1997, regarding the Pending Acquisitions:
PENDING ACQUISITIONS
<TABLE>
<CAPTION>
TOTAL TOTAL
BUILDING LEASABLE INVESTMENT PERCENT
PROPERTY LOCATION TYPE SQUARE FEET (IN MILLIONS) LEASED
-------- -------- ----------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C>
Portfolio Acquisitions
South Carolina and
Minneapolis
Portfolios
Stabilized
Acquisitions......... SC/NC/FL/MN Office/Ind. 1,859,201 $109.3 94%
Development
Properties........... SC/FL Office/Ind. 323,987 15.1 23
Entrepreneurial
Acquisitions......... SC Office/Ind. 215,127 8.1 15
Single Asset
Acquisitions
Stabilized
Acquisitions......... Lehigh Valley, PA Office 118,097 9.1 88
Entrepreneurial
Acquisitions......... Piedmont Triad, NC Office 56,937 4.8 64
--------- ------
Total............... 2,573,349 $146.4
========= ======
</TABLE>
South Carolina Portfolio. The Company has entered into a contract to acquire
from a real estate operating company a portfolio of office and industrial
properties located in Greenville, Columbia and Charleston, South Carolina,
Tampa, Florida and Charlotte, North Carolina totaling approximately 1.4 million
leasable square feet (the "South Carolina Portfolio"). The South Carolina
Portfolio consists of 18 properties, 12 of which are stabilized, four of which
are development and two of which are entrepreneurial.
S-5
<PAGE>
The South Carolina Portfolio also contains approximately 800 acres of land
for commercial development, which the Company anticipates is capable of
supporting, as and when developed, approximately 8.0 million leasable square
feet of office or industrial space. The purchase price of the land is $17.5
million, payable over 10 years, in addition to the purchase price of the office
and industrial properties contained in the portfolio.
Minneapolis Portfolio. The Company has entered into contracts to acquire 17
office and industrial properties located in the Minneapolis, Minnesota
metropolitan area totaling approximately 1.0 million leasable square feet (the
"Minneapolis Portfolio"). All of the properties can be characterized as
stabilized properties.
The Company has also entered into a contract to acquire 25 acres of land for
commercial development, which the Company anticipates is capable of supporting,
as and when developed, approximately 180,000 leasable square feet of office or
industrial space. The purchase price of the land is $2.9 million, in addition
to the purchase price of the office and industrial properties in the portfolio.
See "The Properties--Prospective New Markets."
Completed Acquisitions
Since December 31, 1996, the Company has purchased four office properties
comprising approximately 326,000 leasable square feet and 28 acres of land for
a Total Investment of $35.2 million.
During 1996, the Company completed 33 single-asset acquisitions, consisting
of 27 stabilized properties and six entrepreneurial properties, aggregating
approximately 2.4 million leasable square feet for a Total Investment of $132.9
million.
Stabilized Acquisitions. During 1996, the Company completed stabilized
acquisitions of approximately 1.6 million leasable square feet of industrial
and office space for a Total Investment of $96.3 million. These properties were
96.7% leased as of December 31, 1996. The Current Yield (as defined below) for
these properties is 11.7%. The "Current Yield" for a property or group of
properties is calculated by dividing (i) for a property or properties owned for
the entire fourth quarter of 1996, the operating income generated by such
property or properties based on annualizing the results for such quarter (or
for a property or properties owned for part of such quarter, by annualizing the
results for the period the property was owned) by (ii) the Total Investment for
such property or properties.
Entrepreneurial Acquisitions. During 1996, the Company completed
entrepreneurial acquisitions of approximately 783,000 leasable square feet of
industrial and office space, which was either vacant or partially leased at the
time of acquisition, for a Total Investment of $36.6 million. The Company has
historically achieved higher Current Yields on its entrepreneurial acquisitions
once they have stabilized.
S-6
<PAGE>
The following table sets forth certain information, as of December 31, 1996,
with respect to the Properties acquired in 1996:
1996 COMPLETED ACQUISITIONS
<TABLE>
<CAPTION>
TOTAL TOTAL
LEASABLE PERCENT INVESTMENT
SQUARE FEET LEASED (IN THOUSANDS)
----------- ------- --------------
<S> <C> <C> <C>
Stabilized Acquisitions
Industrial--Distribution..................... 495,484 99.9% $ 15,731
Industrial--Flex............................. 318,300 98.1 16,055
Office....................................... 763,292 94.2 64,493
--------- ---- --------
Total Stabilized Acquisitions.............. 1,577,076 96.7 96,279
--------- ---- --------
Entrepreneurial Acquisitions
Industrial--Distribution..................... 542,390 70.2 18,211
Industrial--Flex............................. 60,200 50.0 2,328
Office....................................... 180,638 76.0 16,077
--------- ---- --------
Total Entrepreneurial Acquisitions......... 783,228 70.0 36,616
--------- ---- --------
Total 1996 Acquisitions...................... 2,360,304 87.9% $132,895
========= ==== ========
</TABLE>
Development Activities
The pace of completion of developments increased during 1996 from $14.5
million for the fourth quarter of 1995 to $55.8 million for the fourth quarter
of 1996. This increase reflects the establishment and build-up of a development
pipeline during 1995 and 1996. With the establishment of a pipeline, increased
levels of completed developments are being delivered. Furthermore, improving
market conditions in many of the Company's markets together with increased
competition for acquisitions make development an attractive source of property
investment.
Completed Property Developments
During 1996, the Company completed four build-to-suit and 15 inventory
development properties. These projects contain approximately 1.6 million
leasable square feet representing a Total Investment of $99.3 million. As of
December 31, 1996, these properties were 91.7% leased with a Current Yield of
11.2%.
The following table lists certain information, as of December 31, 1996, for
all of the Development Properties completed in 1996, presented according to the
calendar quarter in which each came into service:
COMPLETED DEVELOPMENT PROPERTIES
<TABLE>
<CAPTION>
TOTAL TOTAL
INVESTMENT NUMBER OF LEASABLE PERCENT
(IN THOUSANDS) PROPERTIES SQUARE FEET LEASED
-------------- ---------- ----------- -------
<S> <C> <C> <C> <C>
2nd Quarter, 1996
Build-to-Suit................... $17,513 2 184,546 100.0%
Inventory....................... 14,566 4 299,779 100.0
3rd Quarter, 1996
Inventory....................... 11,369 4 218,834 100.0
4th Quarter, 1996
Build-to-Suit................... 14,424 2 95,000 93.6
Inventory....................... 41,401 7 761,050 83.8
1996 Total
Build-to-suit................... 31,937 4 279,546 97.8
Inventory....................... 67,336 15 1,279,663 90.4
------- --- --------- -----
All Properties.................... $99,273 19 1,559,209 91.7%
======= === ========= =====
</TABLE>
S-7
<PAGE>
Current Development Properties
As of December 31, 1996, the Company was developing 22 properties, which upon
completion are expected to generate approximately 3.0 million square feet of
leasable space. Approximately 68.8% of such space was pre-leased as of December
31, 1996. Three of these projects commenced operations in February 1997. The
Company anticipates a 12.2% Budgeted Yield on these three completed projects
which represent an aggregate Total Investment of $42.1 million.
Properties under development at December 31, 1996 represent a Total
Investment of $153.8 million. The Budgeted Yield for these projects is
estimated to be 12.0%. "Budgeted Yield" is calculated by dividing Budgeted
Operating Income (as defined below) by the Total Investment. "Budgeted
Operating Income" represents the Company's estimate of the stabilized annual
operating income of the properties, based upon the net rent payable under
leases signed or projected to be signed at market rates. There can be no
assurance that any of the Development Properties will be completed, that the
above described Budgeted Yield of 12.0% will be realized, that the Company's
budgets or estimates of construction costs, time periods necessary to complete
construction, rentals to be received and other components of Budgeted Yield
will be realized, or that future development projects will realize comparable
investment returns. See "Risk Factors--General Real Estate Investment Risks--
Risks of Acquisition, Development and Construction Activities."
The following table lists certain information, as of December 31, 1996,
regarding the Development Properties, presented according to the calendar year
and quarter in which each is anticipated to come into service:
CURRENT DEVELOPMENT PROPERTIES
<TABLE>
<CAPTION>
TOTAL NUMBER TOTAL
INVESTMENT OF LEASABLE PERCENT
PROPERTY TYPE (IN THOUSANDS) PROPERTIES SQUARE FEET LEASED
------------- -------------- ---------- ----------- -------
<S> <C> <C> <C> <C>
1st Quarter, 1997
Build-to-Suit(1).......... $ 34,286 1 1,190,000 100.0%
Inventory(1).............. 7,826 2 222,000 100.0
-------- --- --------- -----
Total................... 42,122 3 1,412,000 100.0
2nd Quarter, 1997
Build-to-Suit............. 22,662 4 241,200 93.8
Inventory................. 4,553 1 130,000 38.8
-------- --- --------- -----
Total................... 27,215 5 371,200 74.5
3rd Quarter, 1997
Inventory................. 1,955 1 19,680 74.7
-------- --- --------- -----
Total................... 1,955 1 19,680 74.7
4th Quarter, 1997
Build-to-Suit............. 30,851 1 280,000 100.0
Inventory................. 7,091 2 125,215 27.2
-------- --- --------- -----
Total................... 37,942 3 405,215 77.5
1st Quarter, 1998
Inventory................. 12,363 4 309,050 5.7
-------- --- --------- -----
Total................... 12,363 4 309,050 5.7
2nd Quarter, 1998
Inventory................. 23,804 5 443,397 13.3
-------- --- --------- -----
Total................... 23,804 5 443,397 13.3
4th Quarter, 1998
Inventory................. 8,387 1 81,555 0.0
-------- --- --------- -----
Total................... 8,387 1 81,555 0.0
-------- --- --------- -----
All Development
Properties............... $153,778 22 3,042,097 68.8%
======== === ========= =====
</TABLE>
- --------
(1) Development was completed prior to the date of this Prospectus Supplement.
S-8
<PAGE>
LAND
As of December 31, 1995, the Company owned 914 acres of land for future
development, all zoned for commercial use. During 1996, the Company purchased
an additional 315 acres of land for future development, utilized 177 acres in
development projects and sold 40 acres. Substantially all of the remaining
1,012 acres of land are located adjacent to or within existing industrial or
business parks with site improvements, such as public sewers, water and
utilities available for service, and the Company anticipates that the land is
capable of supporting, as and when developed, approximately 9.3 million
leasable square feet. The Company's Total Investment in land held for
development as of December 31, 1996 was $44.1 million. The Company believes
that, because it is a fully integrated real estate firm, its base of
commercially zoned land in existing industrial and business parks provides a
competitive advantage for future development activities, particularly as the
availability of such land within the Company's geographic markets continues to
diminish.
In connection with the acquisition of the South Carolina Portfolio and the
Minneapolis Portfolio, the Company will acquire approximately 825 acres of land
for commercial development which the Company believes is capable of supporting,
as and when developed, approximately 8.2 million leasable square feet of office
and industrial space.
FINANCING ACTIVITIES
In December 1996, the Company closed on an $80.0 million secured line of
credit and, in March 1997, the availability under this line of credit was
increased to $100.0 million (the "$100 Million Line of Credit") to supplement
the Company's existing $250.0 million secured line of credit (the "$250 Million
Line of Credit" and, together with the $100 Million Line of Credit, the "Lines
of Credit"). As of December 31, 1996, $266.7 million was outstanding under the
Lines of Credit and the weighted average interest rate at such date was 7.125%.
The interest rates on the $250 Million Line of Credit and the $100 Million Line
of Credit are 1.75% over the 30-day London Interbank Offered Rate ("LIBOR") and
1.60% over the 90-day LIBOR, respectively. As of December 31, 1996, in addition
to the Lines of Credit, the Company had $240.8 million in principal amount of
indebtedness secured by certain of the Properties. In February 1997, the
Company closed on a $28.0 million mortgage loan secured by a Property. The
Company has entered into a swap agreement, with a notional amount of $114.5
million, to hedge against possible fluctuations in interest rates in
anticipation of a debt issuance with a five-to-seven year term in 1997.
S-9
<PAGE>
THE OPERATING PROPERTIES
The Operating Properties, as of December 31, 1996, consisted of 173
industrial and 86 office properties. The Company's industrial properties are
located principally in suburban mixed-use developments or business parks and
include warehouse/distribution facilities, as well as flex facilities which
accommodate both industrial and office use. The industrial activities in the
Company's flex facilities typically include service, assembly, light
manufacturing and research and development. The Company's office properties are
mid-rise and single story office buildings, located principally in suburban
mixed-use developments or office parks.
The following table sets forth certain information, as of December 31, 1996,
with respect to the Company's industrial and office properties.
<TABLE>
<CAPTION>
INDUSTRIAL
-------------------------------
DISTRIBUTION FLEX OFFICE TOTAL
------------------------------- ------------- --------------
(LEASABLE SQUARE FEET AND ANNUAL BASE RENT IN THOUSANDS)
<S> <C> <C> <C> <C>
Southeastern
Pennsylvania
Number................. 19 16 35 70
Leasable square feet... 2,064 1,049 2,031 5,144
Annual base rent....... $ 9,661 $ 8,858 $21,521 $ 40,040
Percent leased......... 89.7% 95.1% 95.5% 93.1%
New Jersey/Delaware
Number................. 20 13 9 42
Leasable square feet... 1,442 663 634 2,739
Annual base rent....... $ 5,896 $ 5,127 $ 5,853 $ 16,876
Percent leased......... 98.9% 92.3% 85.6% 94.2%
Lehigh Valley
Number................. 15 19 8 42
Leasable square feet... 2,450 882 240 3,572
Annual base rent....... $ 8,255 $ 5,292 $ 2,491 $ 16,038
Percent leased......... 87.4% 93.4% 88.9% 89.0%
Maryland
Number................. 2 4 7 13
Leasable square feet... 159 412 639 1,210
Annual base rent....... $ 850 $ 3,753 $ 5,051 $ 9,654
Percent leased......... 100.0% 88.4% 68.1% 79.2%
Virginia
Number................. 26 6 10 42
Leasable square feet... 3,777 230 151 4,158
Annual base rent....... $12,745 $ 1,674 $ 1,789 $ 16,208
Percent leased......... 99.9% 95.4% 95.6% 99.5%
North Carolina
Number................. 7 -- 3 10
Leasable square feet... 862 -- 170 1,032
Annual base rent....... $ 3,912 -- $ 1,738 $ 5,650
Percent leased......... 98.6% -- 95.6% 98.2%
Jacksonville, Florida
Number................. 6 11 11 28
Leasable square feet... 381 660 966 2,007
Annual base rent....... $ 1,111 $ 3,291 $11,794 $ 16,196
Percent leased......... 86.9% 79.2% 95.1% 88.3%
Tampa, Florida
Number................. 3 5 -- 8
Leasable square feet... 197 420 -- 617
Annual base rent....... $ 527 $ 2,838 -- $ 3,365
Percent leased......... 100.0% 89.1% -- 92.6%
United Kingdom
Number................. -- 1 3 4
Leasable square feet... -- 35 103 138
Annual base rent....... -- $ 451 $ 2,662 $ 3,113
Percent leased......... -- 67.2% 94.1% 87.4%
Total
Number................. 98 75 86 259
Leasable square feet... 11,332 4,351 4,934 20,617
Annual base rent....... $42,957 $31,284 $52,899 $127,140
Percent leased......... 94.7% 90.5% 90.2% 92.8%
</TABLE>
S-10
<PAGE>
THE OFFERING
Common Shares offered....... 7,500,000(1)
Common Shares to be
outstanding after the
Offering................... 39,441,610(1)(2)
Use of Proceeds............. To fund the cash portion of the consideration
payable for the Pending Acquisitions and for
general corporate purposes. See "Use of Proceeds"
and "Capitalization."
NYSE symbol................. "LRY"
- --------
(1) Does not include 1,125,000 Common Shares that may be issued upon exercise
of the Underwriters' over-allotment option. See "Underwriting."
(2) Excludes 4,695,043 Common Shares issuable upon the conversion of Units,
including 120,117 Units that will be issued in December 1997 in exchange
for the remaining interests in partnerships in which controlling interests
(89% of capital and 99% of profits) were acquired by the Company at the
time of its initial public offering and 1,224,082 Common Shares issuable
upon the conversion of Units issued in connection with the purchase of the
Pending Acquisitions. Excludes 8,020,950 Common Shares issuable upon
exchange of the $160.4 million principal amount of the Exchangeable
Subordinated Debentures due 2001 of the Operating Partnership (the
"Debentures") outstanding as of March 14, 1997, subject to adjustment upon
the occurrence of certain events. Also excludes 2,100,000 Common Shares
that may be issued from time to time under the Company's Share Incentive
Plan, including 1,470,100 Common Shares issuable upon the exercise of
options that were outstanding as of December 31, 1996.
S-11
<PAGE>
SUMMARY FINANCIAL DATA
The following table sets forth certain summary operating and other data for
the Company and should be read in conjunction with "Selected Financial Data,"
the unaudited Pro Forma Condensed Consolidated Financial Statements and the
adjustments thereto appearing elsewhere in this Prospectus Supplement,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the financial statements of the Company and related notes
thereto incorporated by reference in the accompanying Prospectus. Pro forma
information is presented as if the Offering and acquisitions completed or
probable of completion on the date hereof, including the Pending Acquisitions,
had been completed at the beginning of the period presented for operating, per
share and other data and on the date of the balance sheet for balance sheet
data. The pro forma financial information is not necessarily indicative of what
the actual financial position and results of operations of the Company would
have been as of and for the periods presented, nor does it purport to represent
the Company's future financial position or results of operations.
LIBERTY PROPERTY TRUST AND PREDECESSOR
<TABLE>
<CAPTION>
LIBERTY PROPERTY
TRUST AND
PREDECESSOR
LIBERTY PROPERTY TRUST COMBINED
--------------------------------- ----------------
PRO FORMA(1) HISTORICAL
------------ --------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1996 1995 1994
------------ --------- --------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
OPERATING DATA
Total Revenue............. $190,708 $ 154,265 $ 117,041 $ 83,022
Rental and Real Estate Tax
Expense.................. 53,472 40,853 29,314 21,750
General and Administrative
Expenses................. 8,673 8,023 5,212 4,712
Depreciation and Amortiza-
tion..................... 34,608 28,203 22,518 14,732
-------- --------- --------- ---------
Operating Income.......... 93,955 77,186 59,997 41,828
Premium on Debenture Con-
versions................. 1,027 1,027 -- --
Interest Expense.......... 41,517 38,528 37,688 34,243
-------- --------- --------- ---------
Income before Minority
Interest and
Extraordinary Item....... 51,411 37,631 22,309 7,585
Minority Interest......... 5,537 3,891 2,843 7,664
Extraordinary Item-Gain on
Extinguishment of Debt... -- -- -- 55,761
-------- --------- --------- ---------
Net Income................ $ 45,874 $ 33,740 $ 19,466 $ 55,682
======== ========= ========= =========
Dividends Paid............ (5) $ 52,569 $ 38,863 $ 10,219(4)
======== ========= ========= =========
PER SHARE DATA
Net Income per Share be-
fore Extraordinary Item.. $ 1.23 $ 1.14 $ 0.89 $ 0.46(4)
Net Income per Share...... 1.23 1.14 0.89 2.67(4)
Dividends Paid per Share.. (5) 1.61 1.60 0.43(4)
Weighted Average Number of
Shares Outstanding(2).... 37,178 29,678 21,838 20,965(4)
OTHER DATA
Cash Provided by Operating
Activities............... (5) $ 59,817 $ 50,452 $ 38,832
Cash Used by Investing Ac-
tivities................. (5) (265,427) (281,862) (156,282)
Cash Provided by Financing
Activities............... (5) 214,593 216,870 142,381
Funds from Operations(3).. $ 86,129 $ 65,944 $ 44,606 $ 22,517
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
LIBERTY PROPERTY TRUST
-------------------------------------------
PRO FORMA(1) HISTORICAL
------------ ------------------------------
DECEMBER 31,
-------------------------------------------
1996 1996 1995 1994
------------ ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Net real estate.................. $1,237,559 $1,059,562 $826,047 $512,281
Total assets..................... 1,330,609 1,152,612 898,102 602,981
Total long-term indebtedness..... 652,866 678,709 473,909 320,857
Shareholders' equity............. 554,000 375,532 335,521 229,667
OTHER DATA
Total leasable square footage of
properties at end of period (in
thousands)...................... 23,517 20,617 16,693 11,090
Number of properties at the end
of period....................... 301 259 208 151
Percentage leased at end of
period.......................... 91% 93% 92% 88%
</TABLE>
- --------
(1) See adjustments to the unaudited Pro Forma Condensed Consolidated Balance
Sheet and Statement of Operations.
(2) Weighted average number of shares outstanding excludes shares issuable upon
conversion of the Debentures and upon conversion of the Units and includes
the dilutive effect of outstanding options.
(3) Industry analysts generally consider Funds from Operations to be an
appropriate measure of the performance of an equity REIT. "Funds from
Operations" is defined as net income or loss (computed in accordance with
generally accepted accounting principles), excluding gains (or losses) from
debt restructuring and sales of property, plus real estate-related
depreciation and amortization. Funds from Operations does not represent
cash generated from operating activities in accordance with generally
accepted accounting principles and is not necessarily indicative of cash
available to fund cash needs. The Company believes that to facilitate a
clear understanding of the Company's operating results, Funds from
Operations should be examined in conjunction with net income, although it
should not be considered as an alternative to net income as an indicator of
the Company's operating performance or as an alternative to cash flow as a
measure of liquidity. Funds from Operations computed by the Company may not
be comparable to other similarly titled measures of other REITs.
(4) Information presented for 1994 is for the period from June 23, 1994
(inception of the Company) through December 31, 1994.
(5) Pro forma information relating to dividends paid and cash flow from
operating, investing and financing activities has not been included because
the Company believes that the information would not be meaningful due to
the number of assumptions required in order to calculate this information.
S-13
<PAGE>
RISK FACTORS
An investment in the Common Shares offered hereby involves various risks. In
addition to general investment risks and those factors set forth elsewhere in
this Prospectus Supplement or incorporated by reference in the accompanying
Prospectus, prospective investors should consider, among other things, the
following factors:
GENERAL REAL ESTATE INVESTMENT RISKS
Dependence on Tenants; Renewal of Leases and Reletting of Space. The
Company's cash flow from operations will depend upon its ability to lease
space in the Properties on economically favorable terms. Upon the expiration
of leases, such leases may not be renewed, the space may not be relet or the
terms of renewal or reletting (including rental rates, the cost of leasing
commissions, required renovations and concessions to tenants) may be less
favorable than current lease terms. If any or all of these events occur, the
Company's cash flow from operations and ability to make expected distributions
to shareholders could be adversely affected. Leases representing approximately
13.4% of the Company's total annual base rent as of December 31, 1996 are
scheduled to expire prior to the end of the fiscal year ending December 31,
1997. The Company's cash flow from operations also would be adversely affected
if tenants leasing a significant amount of space fail to pay rent, become
bankrupt or, if for any other reason, such rents could not be collected.
Moreover, to the extent a tenant defaults on a lease, the Company may
experience delays and costs in enforcing its rights as lessor. See "The
Properties--Tenants." Further, the Company may be adversely affected by
various facts and events over which the Company will have no control, such as
a change in the demand in the markets in which the Properties are located, the
possible unavailability of prospective tenants and the possibility of economic
or physical decline of the areas in which the Properties are located or
physical damage to the Properties that would make them less attractive to
tenants.
Risks of Acquisition, Development and Construction Activities. The Company
intends to continue acquisition and development of industrial and office
properties. See "Business Objectives and Strategies for Growth." Acquisitions
of additional properties and development activities entail risks that
investments will fail to perform in accordance with expectations. With respect
to the Company's development activities, such development opportunities may be
abandoned, construction costs of any property may exceed original or budgeted
estimates (possibly making the property uneconomical) and construction and
lease-up may not be completed on schedule, resulting in increased debt service
expense and construction costs. Development activities are also subject to
risks relating to the inability to obtain, or delays in obtaining, all
necessary zoning, land-use, building, occupancy and other required
governmental permits and authorizations.
The Company anticipates that future acquisitions and developments will be
financed, in whole or in part, under the Lines of Credit, through other forms
of secured or unsecured financing or through utilization of access to capital
markets. Such financings may result in the risk that, upon completion of
construction, permanent financing for newly developed commercial properties
may not be available or may be available only on disadvantageous terms. If
financing is not available on acceptable terms for new acquisitions or
developments undertaken without permanent financing, further acquisitions and
development might be curtailed, cash available for distribution might be
adversely affected and foreclosures on newly developed or acquired properties
could occur. Further, if any particular property is not successful, the
Company's losses could exceed its investment in the property.
Competition. There are numerous developers and real estate companies that
compete with the Company in seeking land for development, properties for
acquisition and tenants for properties. The Company may be adversely affected
by the fact that the availability of land for development within the Company's
markets continues to diminish, as does the availability of high quality
properties for acquisition within the Company's markets and elsewhere. There
can be no assurance that the Company will continue to acquire and develop
properties at the pace that the Company has engaged in since the beginning of
1996.
Possible Environmental Liabilities. Under various federal, state and local
laws, ordinances and regulations relating to the protection of the environment
(collectively, "Environmental Laws"), a current or previous owner
S-14
<PAGE>
or operator of real estate may be liable for the cost of removal or
remediation of certain hazardous or toxic substances disposed, stored,
released, generated, manufactured or discharged from, on, at, onto, under or
in such property. Environmental Laws often impose such liability without
regard to whether the owner or operator knew of, or was responsible for, the
presence or release of such hazardous or toxic substances. In addition, the
presence of any such substances, or the failure to properly remediate such
substances when present, released or discharged, may adversely affect the
owner's ability to sell or rent such property or to borrow using such property
as collateral. The cost of any required remediation and the liability of the
owner or operator therefor as to any property is generally not limited under
such Environmental Laws and could exceed the value of the property and/or the
aggregate assets of the owner or operator. In addition to any action required
by federal, state or local authorities, the presence of hazardous or toxic
substances on any of the Properties, or on any properties acquired hereafter,
could result in private plaintiffs bringing claims for personal injury or
other causes of action. In connection with the ownership and operation of the
Properties, and of any properties acquired hereafter, the Company may be
potentially liable for remediation, release or injury. Further, various
Environmental Laws impose on owners or operators the requirement of on-going
compliance with rules and regulations regarding business-related activities
that may affect the environment. Failure to comply with such requirements
could result in difficulty in the lease or sale of any affected Property or
the imposition of monetary penalties and fines in addition to the costs
required to attain compliance.
All of the Operating Properties have been the subject of Phase I
Environmental Assessments ("Phase I Assessments"). The Phase I Assessments did
not reveal, nor is the Company aware of, any non-compliance with Environmental
Laws, environmental liability or other environmental claim that the Company
believes would likely have a material adverse effect on the Company. Although
certain environmental issues have been identified with respect to certain of
the Properties, the Company does not believe that any of these issues is
likely to materially adversely affect the results of the Company's operations
or its financial condition. No assurance can be given that the Phase I
Assessments reveal all potential environmental liabilities, that no prior
owner or operator created any material adverse environmental condition not
known to the Company or that no environmental liabilities have developed since
such Phase I Assessments were prepared. For additional information, see the
Annual Report on Form 10-K for the year ended December 31, 1996 of the Company
and the Operating Partnership, incorporated by reference in the accompanying
Prospectus.
INDEBTEDNESS
The Company historically has followed, and intends to continue following, a
policy of limiting its ratio of total debt (other than the Debentures) to
"Total Market Capitalization" (which is defined as the market value of the
Company's issued and outstanding Common Shares, the Common Shares issuable
upon exchange of the Debentures and Units plus such total debt (excluding the
Debentures), calculated as of the time any such debt is incurred) (the "Debt
Ratio") to 50%. As of December 31, 1996, the Company's Debt Ratio would have
been 32.2% (based on the last reported sale price of $24 5/8 per Common Share
on March 18, 1997) and, after giving effect to the Offering and the
anticipated application of the estimated net proceeds therefrom, the Company's
Debt Ratio would be 27.3%. The amount of indebtedness that the Company may
incur is not limited by its Declaration of Trust or By-Laws and is solely
within the discretion of its trustees. Accordingly, although there is no
current intention to do so, the trustees could alter or eliminate the current
policy limitations established by the Company regarding the amount of
indebtedness incurred by the Company. If these policies were changed or the
Total Market Capitalization declines as a result of a decline in the market
price for the Common Shares, the Company could become more highly leveraged,
resulting in an increased risk of default on its obligations and a related
increase in debt service requirements that could adversely affect the
financial condition and results of operations of the Company and the Company's
ability to make distributions to shareholders.
Required payments on mortgages and other indebtedness generally are not
reduced if the economic performance of any property declines. If such a
decline occurs, the Company's income, Funds from Operations and cash available
for distribution to shareholders will be adversely affected. As of December
31, 1996, the Company had outstanding $507.5 million principal amount of
secured indebtedness and, after giving effect to
S-15
<PAGE>
the Offering and the anticipated application of the estimated net proceeds
therefrom, as of such date, the Company would have had outstanding secured
indebtedness of $481.7 million. If the payments under such indebtedness cannot
be made, the Company could sustain a loss, which may include foreclosures by
or judgments against the Company in favor of mortgagees. The lender under the
$250 Million Line of Credit has recourse against the Company with respect to
50% of the outstanding principal balance of the $250 Million Line of Credit.
The lender under the $100 Million Line of Credit has recourse against the
Company with respect to the $100 Million Line of Credit. Further, instruments
evidencing certain of the Company's indebtedness, including the Debentures and
the Lines of Credit, contain cross-default and/or cross-acceleration
provisions. Depending on the principal amount of the Debentures that are
exchanged for Common Shares, the Company may not have accumulated sufficient
cash to repay the principal due on the Debentures upon their maturity and may
therefore be required to meet its obligations through refinancings.
Additionally, certain of the Company's indebtedness, including indebtedness
under the Lines of Credit, bears interest at variable rates and, therefore,
exposes the Company to the risk of increasing interest rates. There can be no
assurance that the Company will be able to refinance this or any other
indebtedness.
RISK OF ENTRY INTO NEW MARKETS
The Company has entered into agreements to acquire two portfolios of
properties in markets not presently served by the Company. See "Business
Objectives and Strategies for Growth--Acquiring Office and Industrial
Properties--Pending Acquisitions." One of the portfolios is located
principally in South Carolina and the other is located in the Minneapolis,
Minnesota metropolitan area. The Company's business strategy contemplates
expanding the Company's operations into additional new markets. In determining
whether to enter a new market, management considers demographics, job growth,
employment, real estate fundamentals and competition. There can be no
assurance that the Company will be successful in its effort to identify new
markets that will afford it the opportunity for favorable results or that the
Company will be able to achieve such results in those markets. See "The
Properties--Prospective New Markets."
DEPENDENCE ON PRIMARY MARKETS
The Properties are located principally in the Southeastern and Mid-Atlantic
United States. The Company's performance is, therefore, dependent upon
economic conditions in these geographic areas. Like much of the country, the
Southeastern and Mid-Atlantic United States have been subject to periods of
economic decline.
SENIOR EXECUTIVES' CONTROL OF OPERATING PARTNERSHIP SUBSIDIARY
The Company owns 8% of the voting common stock and 100% of the nonvoting
common stock of Liberty Property Development Corp. ("Liberty Development"),
the subsidiary that owns a substantial portion of the Company's undeveloped
land and through which certain of the Company's development operations are
conducted. Although the Company will receive substantially all of the economic
benefit of the operations of Liberty Development, Liberty Development is
controlled by senior executives of the Company. The Company's ability to
influence the day-to-day decisions of Liberty Development is, therefore,
limited. As a result, decisions relating to the day-to-day operations of such
subsidiary may not always reflect the interests of the Company. See "Federal
Income Tax Considerations with Respect to the Trust and the Operating
Partnership--Asset Tests" in the accompanying Prospectus.
TAX RISKS
Adverse Consequences of the Failure to Qualify as a REIT. Although the
Company believes that the Company qualifies as a REIT, no assurance can be
given that the Company in fact has qualified, or will remain qualified, as a
REIT. Qualification as a REIT involves the application of highly technical and
complex provisions
S-16
<PAGE>
of the Internal Revenue Code of 1986, as amended (the "Code"), for which there
are only limited judicial or administrative interpretations. The complexity of
these provisions and of the applicable income tax regulations that have been
promulgated under the Code (the "Treasury Regulations") is greater in the case
of a REIT that holds its assets in partnership form. Moreover, no assurance
can be given that new legislation, regulations, administrative interpretations
or court decisions will not significantly alter the tax laws regarding
qualification as a REIT or the federal income tax consequences of such
qualification. At the present time however, the Company has no reason to
expect a change in such tax laws that would significantly and adversely affect
the Company's ability to qualify and operate as a REIT.
If in any taxable year the Company were to fail to qualify as a REIT, the
Company would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. Moreover, unless entitled to relief
under certain statutory provisions, the Company also would be disqualified
from treatment as a REIT for the four taxable years following the year in
which such qualification was lost, and if the Company subsequently requalified
as a REIT, it might be required to pay a full corporate-level tax on any
unrealized gain in its assets as of the date of requalification and to make
distributions at that time equal to any earnings accumulated during the period
of non-REIT status. As a result, such additional taxes would reduce the funds
available for distribution to shareholders for each of the years involved. In
addition, during the period in which the Company had lost its REIT status, the
Company would no longer be required by the Code to make any distributions to
shareholders. Although the Company intends to continue to operate in a manner
designed to qualify as a REIT, it is possible that future economic, market,
legal, tax or other considerations may cause the Company's trustees, with the
consent of the holders of a majority of the voting interest of all outstanding
Common Shares, to revoke the election for the Company to qualify as a REIT.
See "Federal Income Tax Considerations for Shareholders." For further federal
income tax considerations, including a discussion of the qualification of the
Operating Partnership as a partnership for federal income tax purposes, see
"Federal Income Tax Considerations With Respect to the Trust and the Operating
Partnership--Classification as a Partnership" in the accompanying Prospectus.
Risks Associated with Potential Borrowings Necessary to Make Distributions
to Qualify as a REIT. The Company has made, and intends to continue to make,
distributions to shareholders to comply with the distribution provisions of
the Code in order to maintain qualification as a REIT and to avoid income
taxes and the non-deductible excise tax. The Company's income and cash flow
will consist primarily of its share of distributions from the Operating
Partnership which, in turn, will depend in part upon distributions from the
partnerships in which the Operating Partnership is a partner and dividends
from the Operating Partnership's corporate subsidiaries. Timing of and
fluctuations in the receipt of income and the payment of expenses and the
effect of required debt amortization payments, if any, may require the
Company, through the Operating Partnership, to borrow funds to meet the
distribution requirements necessary to achieve the tax benefits associated
with qualifying as a REIT, even if the Company's management believes that then
prevailing market conditions are not generally favorable for such borrowings
or that such borrowings would not be advisable in the absence of such tax
considerations. See "Federal Income Tax Considerations for Shareholders" and
"Federal Income Tax Considerations with Respect to the Trust and the Operating
Partnership" in the accompanying Prospectus.
Tax Consequences to Certain Officers and Trustees. Certain officers and
trustees of the Company own Units which may be exchanged for Common Shares.
Prior to the exchange of Units for Common Shares, officers and trustees of the
Company who own Units may suffer different and more adverse tax consequences
than holders of Common Shares upon the sale of certain of the Properties, the
refinancing of debt associated with those properties or in connection with a
proposed tender offer or merger involving the Company and, therefore, such
individuals and the Company, as partners in the Operating Partnership, may
have different objectives regarding the appropriate terms of any such
transaction.
LIMITATIONS ON CHANGES IN CONTROL
Ownership Limit. In order to protect its status as a REIT, the Company must
satisfy certain conditions, including the condition that no more than 50% in
value of the outstanding Common Shares may be owned,
S-17
<PAGE>
directly or indirectly, by five or fewer individuals. To this end the
Company's Declaration of Trust, among other things, prohibits (with certain
exceptions applicable to select senior executives of the Company) any holder
from owning more than 7.5% of its outstanding Common Shares without the
consent of the Board of Trustees of the Company which consent will not be
effective without the prior affirmative vote of not less than two-thirds of
the Common Shares outstanding. This limitation may have the effect of
precluding acquisition of control of the Company by a third party without the
consent of the Board of Trustees of the Company.
Staggered Board and Nominating Procedures. The Company's Board of Trustees
has three classes of trustees. The term of office of one class expires each
year. Trustees for each class are elected for three-year terms upon the
expiration of the respective class' term. Any nominee for trustee must have
been selected pursuant to the nominating provisions contained in the Company's
Declaration of Trust and By-Laws. The staggered terms for trustees and such
nominating procedures may affect the shareholders' ability to take control of
the Company, even if a change in control were in the shareholders' interest.
Preferred Shares of Beneficial Interest. The Company's Declaration of Trust
authorizes the Board of Trustees to issue preferred shares and to establish
the preferences and rights of any shares issued. The issuance of preferred
shares could have the effect of delaying or preventing a change of control of
the Company, even if a change in control were in the shareholders' interest.
No such shares will be issued or outstanding as of the closing of the
Offering.
ADVERSE IMPACT OF INCREASING MARKET INTEREST RATES ON MARKET PRICE
One of the factors that may influence the price of the Common Shares in
public markets is the annual yield on the Common Share price paid from
dividend distributions by the Company. Thus, an increase in market interest
rates may lead purchasers of Common Shares to demand a higher annual yield,
which could adversely affect the market price of the Common Shares.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Prospectus Supplement and other materials filed or to be filed by the Company
with the Securities and Exchange Commission (the "Commission") and
incorporated by reference in the accompanying Prospectus contains statements
that are or will be forward-looking, such as statements relating to
acquisitions (including related pro forma financial information) and other
business development activities, future capital expenditures, financing
sources and availability and the effects of regulations (including
environmental regulation) and competition. Such forward-looking information
involves important risks and uncertainties that could significantly affect
anticipated results in the future and, accordingly, such results may differ
from those expressed in any forward-looking statements contained in this
Prospectus Supplement or incorporated by reference in the accompanying
Prospectus. These risks and uncertainties include, but are not limited to,
uncertainties affecting real estate businesses generally (such as entry into
new leases, renewals of leases and dependence on tenants' business
operations), risks relating to acquisition, construction and development
activities, possible environmental liabilities, risks relating to leverage and
debt service (including availability of financing terms acceptable to the
Company and sensitivity of the Company's operations to fluctuations in
interest rates), the potential for the use of borrowings to make distributions
necessary to qualify as a REIT, dependence on the primary markets in which the
Properties are located, the existence of complex regulations relating to
status as a REIT and the adverse consequences of the failure to qualify as a
REIT and the potential adverse impact of market interest rates on the market
price for the Company's securities.
S-18
<PAGE>
THE COMPANY
The Company is one of the largest owners and operators of suburban
industrial and office real estate in the United States. Liberty Property Trust
is a self-administered and self-managed REIT. The Company was formed in 1994
to continue and expand the commercial real estate business of Rouse &
Associates and its affiliates. Founded in 1972, Rouse & Associates and its
affiliates developed and managed commercial real estate in the Southeastern
and Mid-Atlantic United States. Substantially all of the Company's assets are
owned, and substantially all of the Company's operations are conducted,
directly or indirectly by the Operating Partnership.
The Company provides leasing, property management, acquisition, development,
construction management, design management and other related services for a
portfolio which, as of December 31, 1996, consisted of the Operating
Properties totaling approximately 20.6 million leasable square feet. As of
December 31, 1996, the Company also had 22 Development Properties and held
1,012 acres of land for future development. The Development Properties are
expected to generate approximately 3.0 million leasable square feet. The land
is zoned for commercial use and is anticipated by the Company to be capable of
supporting, as and when developed, approximately 9.3 million leasable square
feet. The Properties and such land are located principally within the
Southeastern and Mid-Atlantic United States. As of December 31, 1996, the
Operating Properties were approximately 93% leased to over 800 tenants.
During 1996, through Total Investments aggregating $232.2 million, the
Company increased its total leasable square footage of industrial and office
space by approximately 23.5% by acquiring 33 properties containing
approximately 2.4 million leasable square feet and by developing 19 properties
containing approximately 1.6 million leasable square feet. In the same period,
the Company also increased its holdings of land for future development by 98
acres, all zoned for commercial use.
As of December 31, 1996, the Operating Properties consisted of 173
industrial and 86 office properties. The Company's industrial properties are
located principally in suburban mixed-use developments or business parks and
include warehouse/distribution facilities, as well as flex facilities which
accommodate both industrial and office use. The industrial activities in the
Company's flex facilities typically include service, assembly, light
manufacturing and research and development. The Company's office properties
are mid-rise and single story office buildings, located principally in
suburban mixed-use developments or office parks.
Liberty Property Trust is the sole general partner and also a limited
partner of the Operating Partnership, with a combined equity interest in the
Operating Partnership of 90.05% at December 31, 1996. The Units are
exchangeable on a one-for-one basis (subject to antidilution protections) for
Common Shares, typically after the first anniversary of the issuance of any
such Units. The only limited partners of the Operating Partnership other than
Liberty Property Trust are persons or entities that contributed assets to the
Operating Partnership, principally senior executives of the Company and their
affiliates. The Units held by such limited partners (that is, the minority
interest reflected in the Company's financial statements) were exchangeable
for approximately 3.5 million Common Shares as of December 31, 1996.
The Company's 199 employees (as of March 17, 1997) are under the direction
of 17 senior executives, who collectively have developed and managed over 35
million square feet of commercial real estate during the past 25 years and
who, on average, have been affiliated with the Company for 14 years. As of
March 17, 1997, the 17 senior executives beneficially owned 6.2% of the
outstanding Common Shares on a fully diluted basis. The Company's in-house
leasing, marketing and property management staff operates in eight full-
service local offices in the United States. This structure enables the Company
to better understand the particular characteristics of the local markets in
which it operates, to respond quickly and directly to tenant needs and to
better identify local acquisition and development opportunities.
The Company earns an annual fee of $600,000 (subject to adjustment for
additional services undertaken by the Company) for its management services
provided with respect to a joint venture between Rouse Kent Limited, which is
owned by certain senior executives of the Company, and the County of Kent,
England to develop a
S-19
<PAGE>
650-acre, mixed-use park approximately 25 miles southeast of London. The
Company has an option to purchase Rouse Kent Limited for nominal consideration
and an option to purchase future buildings and land within the park. The
Company's international operations also include four Operating Properties in
the County of Kent. The Company committed to loans in 1996 to two affiliates
(Rouse Kent Development Limited and 1 Tower View Limited) for development
projects. As of December 31, 1996, the balance of these notes receivable was
$7.4 million.
The Company's executive offices are located at 65 Valley Stream Parkway,
Malvern, Pennsylvania 19355. The telephone number is (610) 648-1700. The
Company maintains offices in each of its primary markets.
BUSINESS OBJECTIVES AND STRATEGIES FOR GROWTH
The Company's primary objective is to increase Funds from Operations per
share. The operating strategies for achieving this goal are to deliver
outstanding tenant service, emphasize marketing to attract new tenants and
enhance the Company's portfolio through the acquisition and development of
high quality properties in markets affording opportunities for attractive
investments. The Company continually assesses new markets for expansion
opportunities based on demographics, job growth, employment, real estate
fundamentals and competition. As a result of this assessment process, the
Company currently anticipates entering the South Carolina market and the
Minneapolis, Minnesota market. See "--Acquiring Office and Industrial
Properties--Pending Acquisitions." In 1995, as a result of this assessment
process, the Company successfully entered the Richmond, Virginia market. In
pursuing its operating strategies, the Company seeks to manage its capital
structure to fund growth while maintaining financial liquidity and stability.
As a result of these strategies, the Company has increased its Funds from
Operations per share by 10.9% based on a comparison of the fourth quarter of
1996 over the fourth quarter of 1995. No assurance can be given that this
level of growth will continue. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Calculation of Funds from
Operations."
INTERNAL GROWTH STRATEGIES
Management believes that the Properties offer significant opportunities for
the Company to increase its rental revenues and cash flow. The Company seeks
to increase cash flow by continuing its practice of negotiating for
contractual rental increases that take effect during the terms of its leases.
In addition, the Company seeks to increase rental revenues through the renewal
or replacement of expiring leases at higher rental rates and by improving the
occupancy rates of its portfolio. As a result of these activities, operating
income for "Same Store" properties increased by 5.1% for 1996 as compared to
1995.
New Leases and Lease Renewals. In the early 1990s, rental rates in the
markets in which the Properties are located were flat or decreased as a result
of recessionary market conditions and an oversupply of commercial real estate
in such markets. As these leases expire, the Company expects, although no
assurance can be given, that replacement leases will reflect higher rental
rates as economic conditions continue to improve and the oversupply of
commercial real estate is mitigated by the decreased commercial construction
starts in recent years. In 1996, the Company achieved an 8.2% increase in the
straight-line rents for the 3.0 million square feet of replacement and renewal
leases executed in 1996. Further, the leasing results for the fourth quarter
of 1996 reflect an increase in straight-line rates of 13.2%. See "The
Properties--Occupancy and Rental Rates," "--1996 Leasing" and "--Lease
Expirations."
Contractual Increases. The Company seeks to generate increased cash flow
from the Operating Properties through contractual increases in rental rates
under its leases. The leases in effect with respect to the Operating
Properties as of December 31, 1996 provide for contractual rental increases
that are expected to contribute an additional $1.2 million to the Company's
cash flow for the year ending December 31, 1997. The Company intends to
continue seeking to negotiate contractual rent increases that take effect
during the terms of its leases.
Improving Occupancies. The Company believes that the quality and diversity
of its tenant base has contributed, and will continue to contribute, to the
success of its strategy for increasing rental and occupancy rates. The Company
targets financially stable tenants in an effort to minimize uncertainty
relating to the ability of its tenants to meet their lease obligations. The
Company's success in maintaining its occupancy rates and attracting and
retaining tenants is demonstrated in part by its renewal rate which was 59%
for the year ended
S-20
<PAGE>
December 31, 1996. As of December 31, 1996, the occupancy rates of the "Same
Store" properties increased 1.3 percentage points from 91.1% to 92.4% as
compared to December 31, 1995. See "The Properties--Occupancy and Rental
Rates."
Cost Controls. The Company seeks to monitor and control its operating and
administrative costs by performing many functions in-house rather than by
engaging outside third parties. For example, the Company relies primarily on
its locally based leasing and marketing staff, thereby reducing commissions to
third parties. Similarly, although construction and design services typically
are provided by third parties (including, in certain instances, entities
affiliated with one or more of the Company's senior executives), the Company's
in-house construction and design management staff closely supervises
construction and design activities in an effort to control costs, minimize
cost overruns, ensure timely delivery of tenant space and maximize
productivity and efficiencies. The Company also employs an annual capital
improvement and preventive maintenance program designed to reduce the
operating costs of the Properties and maintain their long-term value.
ACQUIRING OFFICE AND INDUSTRIAL PROPERTIES
Strategy
The Company seeks to acquire properties consistent with its business
objectives and strategies for growth. The Company has identified the following
categories of acquisitions:
Single-Asset Acquisitions:
. Stabilized Acquisitions--Individual properties generally located within
the Company's existing markets, which are typically at high occupancy
levels upon acquisition.
. Entrepreneurial Acquisitions--Individual properties generally located
within the Company's existing markets which are typically either vacant
or at low occupancy levels and can be purchased substantially below
replacement cost, thereby offering the opportunity for above-average
returns when fully leased.
Portfolio Acquisitions:
. Groups of properties or existing real estate companies that may include
both stabilized and entrepreneurial acquisitions, as well as development
properties, which offer opportunities for enhanced operating performance
as a result of the Company's management expertise and financial strength.
Pending Acquisitions
As of March 18, 1997, the Company had entered into contracts to purchase 38
additional suburban industrial and office properties which the Company
considered probable of closing. The Pending Acquisitions aggregate
approximately 2.6 million leasable square feet, for an estimated Total
Investment of approximately $146.4 million, to be paid in a combination of
cash, assumption of debt and the issuance of Units. The combined Budgeted
Yield of the Pending Acquisitions that have stabilized is 10.4%. The purchase
of all of the Pending Acquisitions is subject to various contingencies,
including, among others, completion of due diligence and other customary
conditions. Accordingly, there can be no assurance that the Company will
acquire any or all of the Pending Acquisitions or that the acquisitions will
be consummated for the estimated Total Investment. Additionally, there can be
no assurance that the Budgeted Yield will be realized.
The following table and discussion set forth certain information, as of
March 18, 1997, regarding the Pending Acquisitions:
PENDING ACQUISITIONS
<TABLE>
<CAPTION>
TOTAL TOTAL
BUILDING LEASABLE INVESTMENT PERCENT
PROPERTY LOCATION TYPE SQUARE FEET (IN MILLIONS) LEASED
-------- ------------------ ----------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C>
Portfolio Acquisitions
South Carolina and Min-
neapolis Portfolios
Stabilized Acquisi-
tions................. SC/NC/FL/MN Office/Ind. 1,859,201 $109.3 94%
Development Proper-
ties.................. SC/FL Office/Ind. 323,987 15.1 23
Entrepreneurial Acqui-
sitions............... SC Office/Ind. 215,127 8.1 15
Single-Asset Acquisi-
tions
Stabilized Acquisi-
tions................. Lehigh Valley, PA Office 118,097 9.1 88
Entrepreneurial Acqui-
sitions............... Piedmont Triad, NC Office 56,937 4.8 64
--------- ------
Total................ 2,573,349 $146.4
========= ======
</TABLE>
S-21
<PAGE>
South Carolina Portfolio. The Company has entered into a contract to acquire
from a real estate operating company the South Carolina Portfolio, which
totals approximately 1.4 million leasable square feet of office and industrial
space. The South Carolina Portfolio consists of 18 properties, 12 of which are
stabilized, four of which are development and two of which are
entrepreneurial. As of December 31, 1996, these stabilized, development and
entrepreneurial properties were 96%, 20% and 15% leased, respectively.
The South Carolina Portfolio also contains approximately 800 acres of land
for commercial development, which the Company anticipates is capable of
supporting, as and when developed, approximately 8.0 million leasable square
feet of office or industrial space. The purchase price of the land is $17.5
million in addition to the purchase price of the office and industrial
properties contained in the portfolio. The Company is obligated to pay $2.5
million of the purchase price of the land within 18 months of the closing on
the acquisition of the portfolio and the remainder within 10 years of the
closing. The unpaid portion of the purchase price of the land will accrue
interest at 7.5% per annum.
The properties to be acquired in the South Carolina Portfolio are as
follows:
<TABLE>
<CAPTION>
LEASABLE PERCENT
PROPERTY LOCATION BUILDING TYPE SQUARE FEET LEASED
-------- -------- ------------- ----------- -------
<S> <C> <C> <C> <C>
Alcoa Fujikura.......... Greenville, SC Industrial--Dist. 222,670 100%
Perrigo................. Greenville, SC Industrial--Dist. 72,000 100
Woodfield............... Greenville, SC Industrial--Dist. 103,624 100
Stone Safety............ Greenville, SC Industrial--Dist. 169,000 0
420 Park Avenue......... Greenville, SC Office 46,127 68
Crowfield............... Charleston, SC Industrial--Dist. 103,684 0
3820 Faber Place........ Charleston, SC Industrial--Flex 39,422 84
3860 Faber Place........ Charleston, SC Industrial--Flex 42,500 100
3875 Faber Place........ Charleston, SC Office 64,113 51
4055 Faber Place........ Charleston, SC Office 52,644 98
Northpoint.............. Columbia, SC Industrial--Dist. 103,684 0
440 Knox Abbott Dr. .... Columbia, SC Office 50,209 94
Twin Lakes.............. Charlotte, NC Industrial--Flex 40,000 72
Woodland Buildings ABC.. Tampa, FL Industrial--Flex 89,758 93
Woodland Building D..... Tampa, FL Industrial--Flex 52,526 81
Woodland Building E..... Tampa, FL Industrial--Flex 45,382 85
Woodland Building F..... Tampa, FL Industrial--Flex 39,155 100
Woodland Building G..... Tampa, FL Industrial--Flex 39,155 100
Minneapolis Portfolio. The Company has entered into contracts to acquire the
Minneapolis Portfolio totaling approximately one million leasable square feet.
All of the 17 properties in this portfolio can be characterized as stabilized
properties. The Company's Total Investment in the Minneapolis Portfolio will
be approximately $63.2 million.
The Company has also entered into a contract to acquire 25 acres of land for
commercial development, which the Company anticipates is capable of
supporting, as and when developed, approximately 180,000 leasable square feet
of office or industrial space. The purchase price of the land is $2.9 million,
in addition to the purchase price of the office and industrial properties in
the portfolio.
The properties to be acquired in the Minneapolis Portfolio are as follows:
<CAPTION>
LEASABLE PERCENT
PROPERTY LOCATION BUILDING TYPE SQUARE FEET LEASED
-------- -------- ------------- ----------- -------
<S> <C> <C> <C> <C>
330 Second Avenue
South.................. Minneapolis, MN Office 197,100 85%
Shady Oak Business Cen-
ter.................... Eden Prairie, MN Industrial--Flex 304,073 100
2905 Northwest Blvd. ... Plymouth, MN Industrial--Flex 84,765 80
2800 Campus Drive....... Plymouth, MN Industrial--Flex 64,626 100
2955 Xenium Lane........ Plymouth, MN Industrial--Flex 24,800 100
9401-9443 Science Ctr.
Dr. ................... Eden Prairie, MN Industrial--Flex 73,898 81
6321-6325 Bury Drive.... Eden Prairie, MN Industrial--Flex 72,965 100
7115-7173 Shady Oak
Place.................. Eden Prairie, MN Industrial--Flex 77,925 91
7660-7718 Golden Trian-
gle Dr. ............... Eden Prairie, MN Industrial--Flex 88,302 100
7400 Flying Cloud
Drive.................. Eden Prairie, MN Industrial--Flex 32,137 100
</TABLE>
S-22
<PAGE>
Completed Acquisitions
Since December 31, 1996, the Company has purchased four office properties
comprising approximately 326,000 leasable square feet and 28 acres of land for
a Total Investment of $35.2 million. The Company intends to continue to pursue
its acquisition strategies. The ability of the Company to complete such
acquisitions, however, is dependent upon a number of factors. See "Risk
Factors--General Real Estate Investment Risks--Risks of Acquisition,
Development and Construction Activities," "--Risk of Entry into New Markets"
and "--Competition." The consummation of these or any other future
acquisitions, if any, and the pace at which acquisitions may be made, cannot
be assured.
During 1996, the Company executed its acquisition strategy with respect to
33 single-asset acquisitions, consisting of 27 stabilized properties and six
entrepreneurial properties, aggregating approximately 2.4 million leasable
square feet for a Total Investment of $132.9 million. Such single-asset
acquisitions are described more fully as follows:
Stabilized Acquisitions. During 1996, the Company completed the acquisition
of approximately 1.6 million leasable square feet of stabilized industrial and
office space for a Total Investment of $96.3 million. These properties were
96.7% leased as of December 31, 1996. The Current Yield for these properties
is 11.7%.
Entrepreneurial Acquisitions. During 1996, the Company completed the
acquisition of approximately 783,000 leasable square feet of entrepreneurial
industrial and office space, which was either vacant or partially leased at
the time of acquisition, for a Total Investment of $36.6 million. As of
December 31, 1996, the properties were 70.0% leased. The Company has
historically achieved higher Current Yields on its entrepreneurial
acquisitions once they have stabilized.
S-23
<PAGE>
The following table sets forth certain information, as of December 31, 1996,
regarding the Properties acquired in 1996:
1996 COMPLETED ACQUISITIONS
<TABLE>
<CAPTION>
TOTAL TOTAL
LEASABLE MONTH PERCENT INVESTMENT
PROPERTY LOCATION SQUARE FEET ACQUIRED LEASED (IN THOUSANDS)
-------- ------------------- ----------- -------- ------- --------------
<S> <C> <C> <C> <C> <C>
STABILIZED ACQUI-
SITIONS
Industrial--Dis-
tribution
510 Sharptown
Road............ Bridgeport, NJ 40,156 3/96 100.0% $ 1,239
512 Sharptown
Road............ Bridgeport, NJ 58,000 3/96 100.0 1,790
263 Quigley Bou-
levard.......... New Castle, DE 43,500 9/96 98.6 1,534
4200 Oakleys
Court........... Richmond, VA 80,000 9/96 100.0 2,976
1821 Battery
Dantzler Road... Chester, VA 129,600 9/96 100.0 3,524
520 Eastpark
Court........... Sandston, VA 144,228 9/96 100.0 4,668
--------- ----- --------
495,484 99.9 15,731
--------- ----- --------
Industrial--Flex
2460 General
Armistead Ave-
nue............. King of Prussia, PA 36,831 6/96 93.0 1,237
2490 General
Armistead Ave-
nue............. King of Prussia, PA 20,811 6/96 82.7 696
3501 Riga Boule-
vard............ Tampa, FL 57,220 8/96 100.0 4,017
34 Blevins
Drive........... New Castle, DE 50,022 9/96 100.0 1,732
5000 Cox Road.... Glen Allen, VA 58,367 9/96 100.0 4,452
510 Eastpark
Court........... Sandston, VA 51,874 9/96 100.0 2,396
2 Lukens Drive... New Castle, DE 43,175 12/96 100.0 1,525
--------- ----- --------
318,300 98.1 16,055
--------- ----- --------
Office
301 Lippincott
Drive........... Marlton, NJ 82,482 1/96 100.0 6,100
303 Lippincott
Drive........... Marlton, NJ 82,541 1/96 99.8 6,100
901 Route 73..... Marlton, NJ 39,434 3/96 96.9 3,170
111-195 Witmer
Road............ Horsham, PA 55,354 5/96 98.2 3,674
440 East
Swedesford
Road............ King of Prussia, PA 71,368 6/96 58.1 5,803
460 East
Swedesford
Road............ King of Prussia, PA 70,205 6/96 97.6 5,803
300 Welsh Road... Horsham, PA 23,461 6/96 100.0 1,677
83 South Commerce
Way............. Bethlehem, PA 18,983 6/96 72.5 1,276
85 South Commerce
Way............. Bethlehem, PA 21,119 6/96 100.0 1,446
87 South Commerce
Way............. Bethlehem, PA 22,653 6/96 100.0 1,531
200 Gibralter
Road............ Horsham, PA 64,452 12/96 93.7 6,584
220 Gibralter
Road............ Horsham, PA 63,587 12/96 100.0 6,497
240 Gibralter
Road............ Horsham, PA 63,587 12/96 100.0 6,497
151 South Warner
Road............ King of Prussia, PA 84,066 12/96 98.4 8,335
--------- ----- --------
763,292 94.2 64,493
--------- ----- --------
Total Stabilized
Acquisitions... 1,577,076 96.7 96,279
--------- ----- --------
ENTREPRENEURIAL
ACQUISITIONS
Industrial--Dis-
tribution
104 Gaither
Drive........... Mount Laurel, NJ 45,390 11/96 100.0 1,478
7248 Industrial
Boulevard....... Allentown, PA 497,000 11/96 67.5 16,733
--------- ----- --------
542,390 70.2 18,211
--------- ----- --------
Industrial--Flex
111 Kelsey Lane.. Tampa, FL 60,200 11/96 50.0 2,328
--------- ----- --------
Office
1500 Route 73
North........... Mount Laurel, NJ 62,069 5/96 65.6 3,884
400 Welsh Road... Horsham, PA 36,723 6/96 96.7 2,623
2 Walnut Grove
Drive........... Horsham, PA 81,846 12/96 74.6 9,570
--------- ----- --------
180,638 76.0 16,077
--------- ----- --------
Total
Entrepreneurial
Acquisitions... 783,228 70.0 36,616
--------- ----- --------
Total 1996 Acqui-
sitions......... 2,360,304 87.9% $132,895
========= ===== ========
</TABLE>
S-24
<PAGE>
DEVELOPMENT ACTIVITIES
Strategy
The Company pursues selective development opportunities focusing on high
quality suburban industrial and office properties typically within its
existing markets. The Company's development activities fall into two
categories: build-to-suit projects and projects built for inventory. The
Company develops build-to-suit projects for existing and new tenants. The
buildings in these projects typically are substantially pre-leased to one or
more tenants prior to construction. The Company also builds properties for
inventory in high-occupancy markets in which the Company has identified
sufficient demand at market rental rates to justify such construction.
Completed Property Developments
During 1996, the Company completed development of four build-to-suit and 15
inventory properties, comprising approximately 1.6 million leasable square
feet and representing a Total Investment of $99.3 million. These properties
were 91.7% leased as of December 31, 1996, with a Current Yield of 11.2%.
The following table lists certain information, as of December 31, 1996, for
all of the Development Properties completed in 1996, presented according to
the calendar quarter in which each came into service:
COMPLETED DEVELOPMENT PROPERTIES
<TABLE>
<CAPTION>
TOTAL TOTAL
INVESTMENT BUILD-TO-SUIT LEASABLE NO.
(IN OR BUILDING SQUARE PERCENT OF MAJOR
PROPERTY LOCATION THOUSANDS) INVENTORY TYPE FEET LEASED TENANTS TENANT
-------- ------------------- ---------- ------------- ---------- --------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2nd Quarter, 1996
100 Witmer Road Horsham, PA $ 13,257 Build-to-Suit Office 139,546 100.0% 1 GMAC Mortgage
3500 Horizon Drive King of Prussia, PA 3,795 Inventory Ind.-Flex 65,579 100.0 1 SmithKline
767 Electronic Drive Horsham, PA 4,256 Build-to-Suit Ind.-Flex 45,000 100.0 1 SmithKline
3100 Horizon Drive King of Prussia, PA 2,797 Inventory Ind.-Flex 41,000 100.0 1 VTel
6520 Stonegate Drive Bethlehem, PA 1,936 Inventory Ind.-Flex 43,200 100.0 4 SubMicron
5601-09 Eastport Blvd Richmond, VA 6,038 Inventory Ind.-Dist. 150,000 100.0 2 General Medical
3rd Quarter, 1996
1640 Valley Center Park- Bethlehem, PA 2,554 Inventory Office 30,850 100.0 1 Cellular One
way
7020 AC Skinner Parkway Jacksonville, FL 2,844 Inventory Ind.-Flex 42,184 100.0 6 ACT
7022 AC Skinner Parkway Jacksonville, FL 4,146 Inventory Ind.-Dist. 88,200 100.0 3 Microtek
4263F Carolina Avenue Richmond, VA 1,825 Inventory Ind.-Dist. 57,600 100.0 3 Heflebower
Transfer
4th Quarter, 1996
3200 Horizon Drive King of Prussia, PA 5,508 Build-to-Suit Ind.-Flex 60,000 100.0 1 Fund/Plan
7144 Daniels Drive Allentown, PA 5,339 Inventory Ind.-Dist. 175,000 100.0 2 Simpson Paper
7339 Industrial Boule-
vard Allentown, PA 7,070 Inventory Ind.-Dist. 215,000 47.9 1 DSC Logistics
4344 Federal Drive High Point, NC 2,860 Inventory Ind.-Dist. 92,425 100.0 4 Mac Papers, Inc.
101 Arlington Boulevard Bridgeport, NJ 4,688 Inventory Ind.-Dist. 154,675 100.0 2 Heinz Bakery
7016 AC Skinner Parkway Jacksonville, FL 2,908 Inventory Ind.-Flex 39,350 100.0 1 Georgia Pacific
25 Kings Hill Avenue West Malling, UK 8,916 Build-to-Suit Office 35,000 82.7 2 Charities Aid
Foundation
2 Kings Hill Avenue West Malling, UK 5,826 Inventory Ind.-Flex 34,600 67.2 3 Broadcast
Surveillance
50 Kings Hill Avenue West Malling, UK 12,710 Inventory Office 50,000 100.0 1 Rhone-Polenc
Rorer
-------- --------- ----- ---
1996 Total $ 99,273 1,559,209 91.7% 40
======== ========= ===== ===
</TABLE>
Current Development Properties
As of December 31, 1996, the Company was developing the 22 Development
Properties, which upon completion are expected to generate approximately 3.0
million square feet of leasable space. Approximately 68.8% of such space was
pre-leased as of December 31, 1996. Three of these projects comprising
approximately 1.4 million leasable square feet, commenced operations in
February 1997. The Company anticipates a 12.2% Current Yield on these three
completed projects which represent a Total Investment of $42.1 million. The
Development Properties represent a Total Investment of $153.8 million. The
Budgeted Yield for these projects is estimated to be 12.0%. There can be no
assurance that any of these Development Properties will be completed, that the
above-described Budgeted Yield of 12.0% will be realized, that the Company's
budgets or estimates of
S-25
<PAGE>
construction costs, time periods necessary to complete construction, rentals
to be received and other components of Budgeted Yield will be realized, or
that future development projects will realize comparable investment returns.
See "Risk Factors--General Real Estate Investment Risks--Risks of Acquisition,
Development and Construction Activities."
The following table sets forth certain information, as of December 31, 1996,
regarding the Development Properties, presented according to the calendar year
and quarter in which they are anticipated to come into service:
CURRENT DEVELOPMENT PROPERTIES
<TABLE>
<CAPTION>
CONSTRUC- TOTAL
BUILD-TO- TOTAL TION LEASABLE
SUIT OR BUILDING INVESTMENT PERCENT SQUARE PERCENT MAJOR
PROPERTY LOCATION INVENTORY TYPE (IN THOUSANDS) COMPLETE (1) FEET LEASED TENANT
-------- ------------------- --------- ---------- -------------- ------------ --------- ------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter, 1997
4380 Federal Drive(2) High Point, NC Inv Ind.-Dist. $ 2,638 84.3% 79,200 100.0% Triad Health
Alliance
5900 Eastport
Boulevard(2) Richmond, VA Inv Ind.-Dist. 5,188 92.0 142,800 100.0
Nestle Way(2) U. Macungie Twp, PA BTS Ind.-Dist. 34,286 90.7 1,190,000 100.0 DSC Logistics, Inc.
-------- ---- --------- -----
42,112 90.5 1,412,000 100.0
-------- ---- --------- -----
2nd Quarter, 1997
231 Lake Drive New Castle, DE Inv Ind.-Dist. 4,553 89.6 130,000 38.8 MAB Paints
1455 Valley Center
Parkway Bethlehem, PA BTS Ind.-Flex 4,101 98.2 55,000 72.7 CIGNA
3000 Horizon
Boulevard King of Prussia, PA BTS Ind.-Flex 3,374 44.0 43,200 100.0 Nanosystems
50 Morehall Road Malvern, PA BTS Office 13,600 25.3 117,000 100.0 Vanguard
402 Lippincott Drive Marlton, NJ BTS Ind.-Flex 1,587 16.0 26,000 100.0 Travelers
-------- ---- --------- -----
27,215 48.8 371,200 74.5
-------- ---- --------- -----
3rd Quarter, 1997
5251 Concourse Drive Roanoke, VA Inv Office 1,955 84.6 19,680 74.7 Acadia
-------- ---- --------- -----
4th Quarter, 1997
8801 Tinicum Philadelphia, PA BTS Office 30,851 44.5 280,000 100.0 PNC Bank
4388 Federal Drive High Point, NC Inv Ind.-Flex 1,326 64.5 32,400 0.0
7018 AC Skinner
Parkway Jacksonville, FL Inv Ind.-Dist. 5,765 53.2 92,815 36.6 Physician
Sales & Service
-------- ---- --------- -----
37,942 46.5 405,215 77.5
-------- ---- --------- -----
1st Quarter, 1998
6532 Judge Adams
Road Rock Creek, NC Inv Ind.-Dist. 4,410 74.3 151,600 0.0
15 Boulden Circle New Castle, DE Inv Ind.-Dist. 3,454 57.2 100,800 0.0
1650 Valley Center
Parkway Bethlehem, PA Inv Office 2,313 96.6 29,150 60.9 Cellular One
1660 Valley Center
Parkway Bethlehem, PA Inv Office 2,186 75.9 27,500 0.0
-------- ---- --------- -----
12,363 74.0 309,050 5.7
-------- ---- --------- -----
2nd Quarter, 1998
501 Liberty Way Chesterfield, VA Inv Ind.-Dist. 3,639 17.6 98,243 0.0
13033 Kingston
Avenue Chesterfield, VA Inv Ind.-Flex 2,507 23.7 40,000 0.0
5701-99 Eastport Blvd Richmond, VA Inv Ind.-Dist. 6,897 11.1 174,720 0.0
404 Lippincott Drive Marlton, NJ Inv Ind.-Flex 1,693 14.7 26,000 53.9 State Farm
4345 Southpoint
Parkway Jacksonville, FL Inv Office 9,068 56.2 104,434 43.1 Physician
Sales & Serv.
-------- ---- --------- -----
23,804 30.9 443,397 13.3
-------- ---- --------- -----
4th Quarter, 1998
100 Centreport Drive Greensboro, NC Inv Office 8,387 14.2 81,555 0.0
-------- ---- --------- -----
Total $153,778 57.5% 3,042,097 68.8%
======== ==== ========= =====
</TABLE>
- --------
(1) Calculated according to the percentage of the project budget incurred as
of December 31, 1996.
(2) Development was completed prior to the date of this Prospectus Supplement.
S-26
<PAGE>
LAND
As of December 31, 1995, the Company owned 914 acres of land for future
development, all zoned for commercial use. During 1996, the Company purchased
an additional 315 acres of land for future development, utilized 177 acres in
development projects and sold 40 acres. Substantially all of the remaining
1,012 acres are located adjacent to or within existing industrial or business
parks with site improvements, such as public sewers, water and utilities,
available for service, and the Company anticipates that the land is capable of
supporting, as and when developed, approximately 9.3 million leasable square
feet. The Company's Total Investment in land held for development as of
December 31, 1996 was $44.1 million. The Company believes that, because it is
a fully integrated real estate firm, its base of commercially zoned land in
existing industrial and business parks provides a competitive advantage for
future development activities, particularly as the availability of land within
the Company's geographic markets continues to diminish.
Set forth in the table below is a listing of the Company's land holdings as
of December 31, 1996:
<TABLE>
<CAPTION>
TOTAL
PROPERTY LOCATION ACRES
-------- ---------------- -----
<S> <C> <C>
Commodore Business Park Logan, NJ 350
Lehigh Valley Corp Center Bethlehem, PA 31
Lehigh Valley West Allentown, PA 46
Rivers Bend Business Park Chesterfield, VA 176
Mendenhall Business Park I High Point, NC 74
Liberty Business Park Jacksonville, FL 30
Silo Bend Tampa, FL 60
Other parcels 245
-----
Total 1,012
=====
</TABLE>
In connection with the acquisition of the South Carolina Portfolio and the
Minneapolis Portfolio the Company will acquire approximately 825 acres of land
for commercial development which the Company believes is capable of
supporting, as and when developed, approximately 8.2 million additional
leasable square feet of office and industrial space.
FINANCING ACTIVITIES
In December 1996, the Company closed on the $100 Million Line of Credit to
supplement the $250 Million Line of Credit. The interest rates on the $250
Million Line of Credit and $100 Million Line of Credit are 1.75% over the 30-
day LIBOR and 1.60% over the 90-day LIBOR, respectively. As of December 31,
1996, $266.7 million was outstanding under the Lines of Credit and the
weighted average interest rate as of such date was 7.125%. As of December 31,
1996, in addition to the Lines of Credit, the Company had $240.8 million in
principal amount of indebtedness secured by certain of the Properties. In
February 1997, the Company closed on a $28.0 million mortgage loan secured by
a Property. The Company has entered into a swap agreement, with a notional
amount of $114.5 million, to hedge against possible fluctuations in interest
rates in anticipation of a debt issuance with a five-to-seven year term in
1997.
The Company historically has followed, and intends to continue following, a
policy of limiting its ratio of total debt (other than the Debentures) to
"Total Market Capitalization" (which is defined as the market value of the
Company's issued and outstanding Common Shares, the Common Shares issuable
upon exchange of the Debentures and Units plus such total debt (excluding the
Debentures), calculated as of the time any such debt is incurred) (the "Debt
Ratio") to 50%. As of December 31, 1996, the Company's Debt Ratio would have
been 32.2% (based on the last reported sale price of $24 5/8 per Common Share
on March 18, 1997) and, after giving effect to the Offering and the
anticipated application of the estimated net proceeds therefrom, the Company's
Debt Ratio would be 27.3%.
S-27
<PAGE>
THE PROPERTIES
The Operating Properties, as of December 31, 1996, consisted of 173
industrial and 86 office properties. Single tenants occupy 94 Operating
Properties. The Company provides a reduced level of service in connection with
the operation or maintenance of these Properties. The remaining 165 of the
Company's Operating Properties are occupied by multiple tenants for which the
Company renders a range of building, operating and maintenance services.
The Company's industrial properties consist of a variety of warehouse,
distribution, service, assembly, light manufacturing and research and
development facilities. Substantially all of the Company's industrial
properties are located in suburban, mixed-use developments or business parks
and all are well-maintained facilities. They include both single-tenant and
multi-tenant facilities, with most designed flexibly to accommodate various
types of tenants, space requirements and industrial uses to increase re-
leasing opportunities and control re-leasing costs. They range in size from
11,600 square feet to 497,000 square feet, with an average building size of
90,652 square feet. As of December 31, 1996, the Company's industrial
properties were approximately 93.5% leased. Major tenants, based upon annual
base rent, include the General Services Administration, SKF USA Inc. and
Vistakon Division of Johnson & Johnson Vision Products, Inc. See "--Tenants."
The Company's office properties are mid-rise and single story office
buildings principally located in suburban, mixed-use developments or office
parks. All of the Company's office properties are well-maintained facilities.
Substantially all are located in prime business locations within established
business communities offering excellent access to interstate highway systems.
As of December 31, 1996, the office properties were approximately 90.2%
leased. The office properties range in size from 4,900 square feet to 220,000
square feet, with an average building size of 57,379 square feet. Major
tenants, based upon annual base rent, include AT&T Resource Management Corp.,
Sanofi Winthrop, Inc. (a division of Elf Aquitaine), Prudential Insurance
Company and Vanguard Group. See "--Tenants."
Set forth as Appendix "A" to this Prospectus Supplement is a table which
provides certain information with respect to the Properties as of December 31,
1996.
OCCUPANCY AND RENTAL RATES
Property level operating income for "Same Store" properties increased by
5.1% for the year ended December 31, 1996 compared to the year ended December
31, 1995. This increase was attributable to increases in both rental rates and
occupancy. "Same Store" figures include results for the 149 (net of two
properties exchanged in connection with acquisitions) properties owned as of
January 1, 1995.
"Same Store" Occupancy. The following table sets forth the historical
occupancy rates on a "Same Store" basis, as of the date indicated.
"SAME STORE" OCCUPANCY RATES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
"Same Store" Properties
Industrial--Distribution.................. 94.3% 93.7% 89.4%
Industrial--Flex.......................... 89.2 91.6 91.4
Office.................................... 92.7 86.5 84.2
---- ---- ----
Total "Same Store" Properties........... 92.4% 91.1% 88.6%
==== ==== ====
</TABLE>
S-28
<PAGE>
"Same Store" Rental Rates. The following table sets forth the average base
rent per square foot for all of the Company's "Same Store" leased space, as of
the dates indicated. The "Same Store" rental rates presented below should not
be viewed as necessarily reflecting a trend in actual short-term rental rate
fluctuations because, in an industrial and office leasing market, the "Same
Store" analysis reflects an uneven rate of expirations and signings of leases
of varying sizes and terms for properties that are not necessarily
representative of the balance of the Company's portfolio.
"SAME STORE" RENTAL RATES
<TABLE>
<CAPTION>
AVERAGE BASE RENT
PER SQUARE FOOT
--------------------
DECEMBER 31,
--------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
"Same Store" Properties
Industrial--Distribution.. $ 4.52 $ 4.26 $ 4.18
Industrial--Flex.......... 8.00 7.73 7.65
Office.................... 12.00 11.72 12.34
------ ------ ------
Total "Same Store"
Properties............. $ 7.59 $ 7.24 $ 7.38
====== ====== ======
</TABLE>
1996 LEASING
The Company achieved an 8.2% increase in the straight-line rents for the 3.0
million square feet of replacement and renewal leases executed in 1996.
Further, leasing results for the fourth quarter of 1996 reflect an increase in
straight-line rents of 13.2% over the leases they replaced. However, these
results should not be viewed as necessarily reflecting a trend in actual
short-term rental rate fluctuations because the properties leased during the
period are not necessarily representative of the balance of the Company's
portfolio and the leases entered into during the period reflect an uneven rate
of expirations and signings of leases of varying sizes and terms. The
following table sets forth a comparison of old and new straight-line rents by
property type for the fourth quarter, 1996:
LEASING RESULTS FOR THE FOURTH QUARTER OF 1996
<TABLE>
<CAPTION>
STRAIGHT-LINE RENTS
TOTAL LEASABLE ------------------- PERCENT
PROPERTY TYPE SQUARE FEET OLD NEW INCREASE
------------- -------------- --------- --------- --------
<S> <C> <C> <C> <C>
Industrial--Distribution........... 256,804 $ 3.65 $ 4.38 19.9%
Industrial--Flex................... 183,347 7.14 8.28 15.8
Office............................. 224,878 10.88 11.91 9.5
------- --------- --------- ----
Total............................ 665,029 $ 7.06 $ 7.99 13.2%
======= ========= ========= ====
</TABLE>
S-29
<PAGE>
LEASE EXPIRATIONS
The following table shows scheduled lease expirations and certain other
information, as of December 31, 1996, for leases in place for the Operating
Properties as of such date, assuming none of the tenants exercises renewal
options or termination rights, if any:
LEASE EXPIRATIONS
<TABLE>
<CAPTION>
ANNUALIZED BASE AVERAGE PERCENT OF PERCENT OF
YEAR OF NUMBER OF LEASEABLE SQUARE RENT UNDER RENT PER SQUARE ANNUAL BASE RENT LEASED SQUARE FEET
LEASE LEASES FEET SUBJECT EXPIRING LEASES FOOT UNDER REPRESENTED BY REPRESENTED BY
EXPIRATION EXPIRING TO EXPIRING LEASES (IN THOUSANDS) EXPIRING LEASES EXPIRING LEASES EXPIRING LEASES
---------- --------- ------------------ --------------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES
Distribution
1997 44 1,567,878 $ 5,792 $ 3.69 12.5% 14.6%
1998 38 1,670,299 5,545 3.32 12.0 15.6
1999 28 1,769,956 7,853 4.44 17.0 16.5
2000 26 1,071,662 5,496 5.13 11.9 10.0
2001 30 1,937,592 7,864 4.06 17.0 18.0
2002 2 81,050 243 3.00 0.5 0.8
Thereafter 27 2,632,259 13,376 5.08 29.1 24.5
----- ---------- -------- ------ ----- -----
Total 195 10,730,696 $ 46,169 $ 4.30 100.0% 100.0%
===== ========== ======== ====== ===== =====
Flex
1997 122 847,641 $ 5,720 $ 6.75 17.2% 21.5%
1998 88 638,510 5,125 8.03 15.4 16.2
1999 60 771,528 6,135 7.95 18.5 19.6
2000 45 553,906 4,999 9.02 15.2 14.0
2001 47 590,834 5,326 9.01 16.0 15.0
2002 6 45,809 346 7.55 1.0 1.2
Thereafter 20 490,414 5,561 11.34 16.7 12.5
----- ---------- -------- ------ ----- -----
Total 388 3,938,642 $ 33,212 $ 8.43 100.0% 100.0%
===== ========== ======== ====== ===== =====
OFFICE PROPERTIES
1997 144 636,354 $ 6,696 $10.52 11.8% 14.3%
1998 86 399,937 4,382 10.96 7.7 9.0
1999 90 724,754 7,800 10.76 13.7 16.3
2000 87 1,286,694 19,017 14.78 33.5 28.9
2001 53 449,475 5,383 11.98 9.5 10.0
2002 8 74,236 900 12.12 1.6 1.7
Thereafter 42 881,725 12,588 14.28 22.2 19.8
----- ---------- -------- ------ ----- -----
Total 510 4,453,175 $ 56,766 $12.75 100.0% 100.0%
===== ========== ======== ====== ===== =====
ALL PROPERTIES
1997 310 3,051,873 $ 18,208 $ 5.97 13.4% 16.0%
1998 212 2,708,746 15,052 5.56 11.0 14.2
1999 178 3,266,238 21,788 6.67 16.0 17.0
2000 158 2,912,262 29,512 10.13 21.7 15.2
2001 130 2,977,901 18,573 6.24 13.6 15.6
2002 16 201,095 1,489 7.40 1.1 1.1
Thereafter 89 4,004,398 31,525 7.87 23.2 20.9
----- ---------- -------- ------ ----- -----
Total 1,093 19,122,513 $136,147 $ 7.12 100.0% 100.0%
===== ========== ======== ====== ===== =====
</TABLE>
TENANTS
The Operating Properties are leased to over 800 tenants, which engage in a
wide variety of businesses including pharmaceuticals, telecommunications,
finance, insurance and electronics. At December 31, 1996, the Company's
largest tenant, AT&T Resource Management Corp., accounted for approximately
5.6% of the Company's total annual base rent. Leases accounting for
approximately 93.8% of this tenant's annual base rent do not expire until 2000
or later. Other than AT&T Resource Management Corp., only seven tenants
accounted for more than 1% each of total annual base rent during 1996. The
following table sets forth the annual base rent at December 31, 1996 derived
from the Company's 10 largest tenants, as of such date:
S-30
<PAGE>
10 LARGEST TENANTS BY ANNUAL BASE RENT
<TABLE>
<CAPTION>
NUMBER OF ANNUAL BASE RENT PERCENTAGE OF TOTAL
TENANT LEASES (IN THOUSANDS) ANNUAL BASE RENT
------ --------- ---------------- -------------------
<S> <C> <C> <C>
1. AT&T Resource Management
Corp.......................... 12 $ 7,095 5.6%
2. Sanofi Winthrop, Inc....... 6 2,916 2.3
3. Prudential Insurance
Company....................... 5 2,654 2.1
4. General Services
Administration................ 9 2,302 1.8
5. Vanguard Group............. 2 2,274 1.8
6. Fluor Daniel, Inc.......... 5 1,825 1.4
7. Rhone-Polenc Rorer......... 1 1,369 1.1
8. GMAC Mortgage Corporation
of PA......................... 1 1,317 1.0
9. SKF USA, Inc............... 5 1,248 1.0
10. Vistakon Division of
Johnson and Johnson........... 4 1,229 1.0
--- ------- ----
Total...................... 50 $24,229 19.1%
=== ======= ====
</TABLE>
PROSPECTIVE NEW MARKETS
The Company continually assesses new markets for expansion opportunities
based on demographics, job growth, employment, real estate fundamentals and
competition. As a result of this assessment process, the Company currently
anticipates entering the South Carolina and Minneapolis, Minnesota markets.
The purchase of the South Carolina Portfolio and the Minneapolis Portfolio are
subject to various contingencies, including, among others, completion of due
diligence and other customary conditions. Accordingly, there can be no
assurance that the Company will acquire either the South Carolina Portfolio or
the Minneapolis Portfolio.
South Carolina. The Company believes that, based on the criteria listed
above, various markets in South Carolina offer attractive expansion
opportunities for the Company. South Carolina has experienced success over the
past several years in encouraging investment and employment in the state. The
success appears to have been the product of a variety of factors, including:
access to markets by road, rail, air and water, and available manufacturing
labor, support for technical training, availability of reasonably priced
utilities and state tax and incentive policies designed to encourage
investment and employment. The completion of the acquisition of the South
Carolina Portfolio will give the Company a substantial presence in the South
Carolina market by providing the Company with a portfolio of approximately one
million leasable square feet of office and industrial space in the three
largest markets of South Carolina: Greenville, Charleston and Columbia. The
Company will also obtain approximately 700 acres located within business parks
in these markets. The Company is acquiring the portfolio from a real estate
operating company located in Greenville, South Carolina. The Company
anticipates opening a regional office in Greenville which will be staffed by
certain personnel formerly employed by the seller of the portfolio. The
Company believes that by acquiring a portfolio developed and managed by an
established real estate operating company, and employing certain of the
personnel of the company, it will be able to capitalize on the positive
reputation of the seller as a developer and operator of properties and
business parks to solidify the portfolio's position in a developing market
place.
Upon completion of the acquisition, the Company will have a significant
presence in the Greenville marketplace. Greenville is within the Greenville-
Spartanburg metropolitan statistical area ("MSA"). Although considered a
medium-sized market, the successful recruiting of manufacturing, distribution
and corporate headquarters, particularly with respect to foreign-based
international firms (e.g., BMW of North America, Inc. and Michelin North
America), has driven the area's economic growth in recent years. Greenville's
location along I-85, which provides access to Charlotte and Raleigh, North
Carolina and Atlanta, Georgia, supports its primarily industrial market place.
The properties which the Company will acquire are located within three
business parks developed by the seller of the portfolio and consist of four
industrial properties and one office property. Additionally, the Company will
acquire land in each of the business parks. According to the National Real
Estate Index, the vacancy rates for the Greenville market, as of December 31,
1995, were as follows: office 7%; and industrial 4%. See "Business Objectives
and Strategies for Growth--Acquiring Office and Industrial Properties--Pending
Acquisitions."
S-31
<PAGE>
The Company will also acquire significant holdings in the Charleston market.
Charleston, the largest city in the state, is supported by a diverse economy
and has generated economic growth by capitalizing on advantages, such as
excellent port facilities and a central Atlantic coast location. The
Charleston office market is estimated to consist of approximately five million
square feet of leasable space. The properties which the Company will acquire
are principally located within a well-situated business park in the lower
North Charleston sector of the Charleston market. The lower North Charleston
sector, with 1.3 million leasable square feet of office space, contains the
largest concentration of office space in the Charleston market. The Company
will acquire one industrial property, two office properties and two
industrial/flex properties. Additionally, the Company will acquire land in the
business park in which the properties are located. According to the Charleston
Chamber of Commerce, the 1996 vacancy rates for office space in the lower
North Charleston section of the Charleston market are approximately 7.4%.
The Company also will acquire one office property and one industrial
property in the Columbia market. Columbia, the capital of South Carolina, has
experienced steady economic growth supported by local government incentive
packages and an influx of new business. The Columbia MSA, with a population of
approximately 500,000, is well situated in the center of South Carolina where
it is traversed by two major interstates (I-70 and I-26) and by I-77, a major
interstate which reaches into the nation's midwest region. Its economy is
supported by activity generated by state government, the University of South
Carolina and Fort Jackson. The Columbia industrial market is relatively small
at an estimated 6.5 million square feet. The Columbia office market is
estimated to contain approximately 9.7 million square feet within the Columbia
MSA. In addition, an estimated 800,000 square feet of office space is under
construction in the Columbia MSA. According to information compiled in a
recent survey conducted by the Central Midlands Regional Planning Council, the
1996 vacancy rates in the Columbia MSA are approximately 12.9% for office
space. According to local broker sources, the 1995 vacancy rates for
industrial space are approximately 9%. Both of these properties are located in
business parks which were developed by the seller of the portfolio. In
connection with the acquisition, the Company is also acquiring land in these
business parks which can be utilized for future development.
Minneapolis Metropolitan Area. The Company also believes that, based on the
criteria listed above, the Minneapolis market offers an attractive expansion
opportunity for the Company. The Minneapolis/St. Paul marketplace is the
twelfth largest MSA in the country with approximately 2.7 million people.
Minneapolis has enjoyed solid demographic growth in recent years, especially
compared to other Midwestern cities. This growth can be attributed to a number
of factors, including state employment, higher education and medical services.
The completion of the acquisition of the Minneapolis Portfolio will give the
Company a substantial presence in the Minneapolis market by providing the
Company with a portfolio of approximately one million leasable square feet of
office and distribution/flex space and approximately 25 acres of land. The
Company believes that in obtaining a well-situated portfolio with sufficient
developable acreage to participate in the build-to-suit market and by
establishing a regional office in the Minneapolis market, staffed by an
experienced Senior Vice President of the Company, it will be able to
capitalize on its initial entry into the Minneapolis market place, a 100% pre-
leased, six-story, 325,000 leasable square foot headquarters building being
developed as a build-to-suit project.
The Minneapolis Portfolio consists of 10 properties containing 17 buildings.
One building, an eight-story, 197,100 leasable square foot office tower, is
located in the central business district of Minneapolis. The remaining
buildings consist of industrial/flex buildings located in Eden Prairie,
Plymouth and New Hope, including one 304,073 leasable square foot business
center consisting of seven buildings. See "Business Objectives and Strategies
for Growth--Acquiring Office and Industrial Properties--Pending Acquisitions."
The Company has also entered into a contract to purchase 25 acres of land
for a purchase price of approximately $2.9 million. The Company estimates that
the land is capable of supporting, as and when developed, approximately
180,000 square feet of leasable space.
S-32
<PAGE>
According to a recent Towle Real Estate Report, 1996 vacancy rates for the
Minneapolis metropolitan market are as follows: suburban office in the
southwest market 4.3%; downtown Class A office 3.4%; office showroom 3.5%;
office warehouse 4.9%; and bulk warehouse in the southwest market 1.3%.
PRINCIPAL MARKETS
The Company operates primarily in eight markets in the Southeastern and Mid-
Atlantic United States. The material presented below is a brief description of
these markets. The following market data has been compiled from sources which
the Company believes to be reliable, but no assurance can be given as to the
accuracy of such market data:
Southeastern Pennsylvania. Southeastern Pennsylvania's suburban market
covers the four counties that immediately surround Philadelphia, namely,
Bucks, Chester, Delaware, and Montgomery Counties. According to information
obtained from a recent CB Commercial report, the Philadelphia suburban market
follows the national trends in declining vacancy rates, strong tenant demand,
and a virtual absence of newly built speculative buildings. According to the
same report, the fourth quarter of 1996 is the third consecutive quarter in
which vacancy rates have been below 10%, marking a continuous trend of
improving vacancy rates since the fourth quarter of 1992 when the suburban
vacancy index was 17.2%. Of the various submarkets comprising the Southeastern
Pennsylvania suburban market, the Company's operations have focused on two
particular submarkets: the Route 202 Corridor in Chester and Montgomery
Counties (King of Prussia/Conshohocken to West Chester), and the Horsham
submarket in Montgomery and Bucks Counties.
Route 202 Corridor. The highest concentration of properties in the
Company's portfolio is in this submarket, in which the Company owns over
4.4 million square feet. Metropolitan Philadelphia ranks in the national
top five for concentration of high-technology companies. Many of these
companies are located in or around the "Route 202 High-Tech Corridor."
Great Valley Corporate Center in Malvern, Pennsylvania, is in a key
location on this Corridor and is a premier business location in suburban
Philadelphia. The Company and its Predecessor were responsible for the
development of Great Valley and today the Company owns 59 properties in
Chester County, totaling nearly 4.4 million square feet of office,
distribution, and research and development space. The Route 202 High-Tech
Corridor encompasses the towns of King of Prussia, Valley Forge, Wayne,
Berwyn, Malvern, Exton and West Chester. At King of Prussia, the
Pennsylvania Turnpike intersects Route 202 and the I-76 Expressway, the
major east-west road linking the western suburbs with Philadelphia. The
proximity of this interchange has led to commercial growth in the area.
Lack of construction of office and industrial space, corporate growth and
lack of substantial buildable land have contributed to the current low
vacancy rate and increasing rental rates.
Horsham. North of the city of Philadelphia, Montgomery and Bucks Counties
are home to affluent bedroom communities and distribution facilities
utilizing I-95 and the Pennsylvania Turnpike. Growth continues to be strong
in these well-located counties, where the Company owns approximately
732,000 square feet of office and industrial properties.
New Jersey. The Company owns over 2.1 million leasable square feet in the
Southern New Jersey market. The Southern New Jersey market encompasses the
three counties of New Jersey that border Philadelphia: Burlington, Camden, and
Gloucester. The Gloucester County distribution submarket and the Route
73/Burlington/Camden Counties office submarket are the focal points for the
Company's New Jersey activity.
Gloucester County. Although industrial facilities can be found in all
three counties, the focus differs: Gloucester County, by virtue of its
advantageous location, has become a super-regional distribution hub for the
east coast. The area is bisected by three major north-south routes (I-295,
the New Jersey Turnpike, and Route 130) and is also served by three bridges
offering easy access to I-95. The market is served by the ports of
Philadelphia, Camden and Wilmington and is located just across the Delaware
River from Philadelphia International Airport. According to information
obtained from a recent CB Commercial report,
S-33
<PAGE>
this submarket encompasses approximately 14 million square feet. According
to the same report, since 1993, vacancies have dropped from 7% to 2% and
market rents have risen from $3.50 to $4.25 per square foot.
Route 73/Burlington/Camden Counties. Almost all high-finish office space
in Southern New Jersey is located in southern Burlington and northern
Camden counties. The majority of the Company's office product in the market
is concentrated in Mount Laurel, on Route 73 near the intersection of the
New Jersey Turnpike and I-295, and is all class A office space. This sub-
market has experienced single digit vacancy and increasing rental rates.
According to a Cushman & Wakefield report, the Southern New Jersey market
has a relatively high (12.8%), but decreasing, vacancy rate as a result of
poor class B and class C markets, and both Burlington and Camden counties
are actually experiencing a lack of available class A office space.
SOUTHERN NEW JERSEY OFFICE VACANCY RATE(1)
1993--24.0%
1994--20.4
1995--18.3
1996--12.8
- --------
(1) Information obtained from a CB Commercial report.
Delaware. The Company owns approximately 600,000 square feet in the New
Castle County, Delaware market, the focus of the Company's Delaware
properties. This market has, in addition to its strong industrial base, both a
large office market, serving Wilmington's financial services industry, and a
very active distribution market. The convergence of the major north-south
arteries of I-95 and I-295 create a natural distribution center. The size of
the New Castle County distribution market is roughly 5,600,000 square feet,
concentrated in eight industrial parks located between Wilmington and Newark,
along I-95. As of September 15, 1996, the vacancy rate was approximately 6%.
According to a recent Jackson-Cross report, New Castle County's industrial
sales and leasing activity continues to strengthen, with industrial activity
exceeding 1.2 million square feet in 1996, well above the five-year average
and 38.1% higher than a year earlier.
Lehigh Valley, Pennsylvania. The Lehigh Valley market includes the cities of
Allentown and Bethlehem and is centrally located on major transportation
routes I-78 and the Northeast Extension of the Pennsylvania Turnpike,
convenient to both New York and Philadelphia. This superior location has
created strength in the office and industrial markets. Located within a 250-
mile radius of 25% of the nation's population, the Lehigh Valley has become a
major distribution hub for the Northeastern United States, increasing the
demand for industrial warehouse space. In addition, the low-cost employment
environment has attracted many back-office operations, a factor that has
decreased vacancies within the industrial flex market. The Lehigh Valley
distribution market includes approximately 15 million square feet of
distribution space, five million square feet of flex space and four million
square feet of office space. According to a recent Jackson-Cross report, at
year end 1996, distribution vacancy was approximately 2%, flex vacancy was
approximately 2% and office vacancy was approximately 8%. The Company is
currently the largest owner of commercial real estate in the Lehigh Valley,
with properties totaling approximately 3.6 million square feet comprising
primarily industrial warehouse and flex space.
Richmond, Virginia. Richmond, the capital of Virginia, is supported by a
diverse and growing economy. The Richmond MSA has a population of nearly one
million, and serves as the headquarters for eight Fortune 500 companies. The
past three years have seen significant growth in the region's economy. The
factors contributing to this growth are: improvement in the national economy
and increasing exports, a well educated work force, low housing costs, wages
and taxes and minimal governmental regulation. Its location at the
intersection of I-64 and I-95 with over 70% of the US population within a one-
day drive makes it a natural distribution location. Of the 100 largest
metropolitan areas, Richmond ranks as the second-least expensive city in which
to do business. According to Morton G. Thalhimer/Oncor International, the 1996
vacancy rate for office space in the suburban Richmond market was
approximately 6%. Richmond's strong manufacturing sector
S-34
<PAGE>
includes such important producers as Philip Morris Incorporated, Reynolds
Metals Co., DuPont & Co. and James River Corporation. The Company currently
owns approximately 4.2 million square feet of primarily industrial space,
located principally in the Richmond market area.
Baltimore/Washington Corridor. The Baltimore/Washington corridor is a
vibrant market, where the Company operates in several submarkets, including
the "new city" of Columbia, Maryland, located on I-95 and convenient to both
Baltimore and Washington, and the Annapolis submarket, which due to the
opening of Route 50 and the completion of I-97 has benefited from improved
access to the Capitol Beltway, Baltimore, BWI Airport and Columbia. According
to a report by Grubb & Ellis, the Maryland and Washington, DC suburbs have
embarked on a convincing turnaround. Three years of corporate downsizing,
consolidation and departure appear to be over and recent leasing activity and
net absorption indicators are the highest in years. As a result, the vacancy
rate has declined substantially to its lowest level in the 1990s. The recent
openings of the 1.2 million square foot IRS National Headquarters and the
construction of the Range Rover National Headquarters, both in close proximity
to the Company's office portfolio, have added further stability to the market.
The Company owns approximately 1.2 million leasable square feet in this
market.
Piedmont Triad, North Carolina. Including the Greensboro, Winston-Salem and
High Point regions, this area reflects low unemployment and strong population
and job growth. Traditional industries such as home furnishing and textile
manufacturing have been joined by a new high technology base. The area is
consistently ranked among Site Selection magazine's top ten metropolitan areas
for new corporate facilities and expansions. The Triad continues to enjoy
record low office and industrial vacancies, especially in the airport
submarkets where the majority of the Company's product is located, and office
and industrial rents have moved progressively higher as a result. The Company
owns approximately one million square feet in this market.
Jacksonville. Jacksonville is an expanding market in an area with a strong
population growth rate and a relatively low cost of living. The population of
Jacksonville is now over one million, an increase of over 35% since 1980.
Fueled by corporate expansions and relocations, Jacksonville's suburban office
and industrial markets have continued to experience favorably low vacancy
rates. The Company owns approximately two million square feet in the
Jacksonville area. The Company's operations are concentrated in the two sub-
markets, the Southside, which includes both office and a new industrial
market, and the Westside industrial markets.
Jacksonville's Southside area is home to most of the city's suburban office
and flex space. The majority of the Company's office product is heavily
concentrated in the Southpoint and Baymeadows areas, both of which are
adjacent to I-95. Nearly all new development, residential and commercial, in
the Jacksonville area is taking place on the south side of Jacksonville, which
has recently experienced falling vacancy rates, increased rents and increases
in build-to-suit activity.
Jacksonville's Westside is the traditional industrial base of the region,
characterized by larger manufacturing and distribution users. The
attractiveness of this area is due to the outstanding intermodal
transportation system, including a deep water port, three interstate highways
and three rail lines. Relatively low labor rates, utility costs and real
estate costs offer competitive advantages to companies located in this area.
JACKSONVILLE INDUSTRIAL MARKET STATISTICS(1)
<TABLE>
<CAPTION>
TOTAL VACANT SQUARE
SUBMARKET SQUARE FEET FEET PERCENT VACANT
--------- ----------- ------------- --------------
<S> <C> <C> <C>
Southside(2)..................... 517,076 0 0%
Westside(2)...................... 16,586,766 710,304 4.3
CBD.............................. 1,720,841 11,966 0.7
</TABLE>
- --------
(1) Information obtained from a CB Commercial report.
(2) The Company owns and operates properties in these submarkets.
S-35
<PAGE>
Tampa, Florida. The Tampa area includes the cities of Tampa, St. Petersburg
and Clearwater and is currently experiencing significant growth in population
and employment. The area has 2.2 million people, and is the fourteenth fastest
growing metropolitan area in the United States based upon employment growth.
The Tampa Bay area is projected to lead the state in the number of jobs by the
year 2005, surpassing the Miami MSA. The Company's Tampa portfolio consists of
industrial distribution and flex space. According to a Cushman & Wakefield
report, the overall industrial vacancy is 7.2%. Warehouse and distribution
facilities account for 72% of the total space, and vacancies in this segment
are 6.4%. The Company currently owns approximately 617,000 leasable square
feet of office and industrial space in this area, and expects to acquire an
additional 266,000 square feet in connection with the acquisition of the South
Carolina Portfolio. See "The Company--Pending Acquisitions."
The following table sets forth, as of December 31, 1996, certain data for
the Company's industrial properties (including distribution and flex
facilities) and office properties:
INDUSTRIAL AND OFFICE PROPERTIES
<TABLE>
<CAPTION>
INDUSTRIAL
--------------------
DISTRIBUTION FLEX OFFICE TOTAL
------------ ------- ------- --------
(LEASABLE SQUARE FEET
AND ANNUAL BASE RENT IN THOUSANDS)
<S> <C> <C> <C> <C>
Southeastern Pennsylvania
Number........................... 19 16 35 70
Leasable square feet............. 2,064 1,049 2,031 5,144
Annual base rent................. $ 9,661 $ 8,858 $21,521 $ 40,040
Percent leased................... 89.7% 95.1% 95.5% 93.1%
New Jersey/Delaware
Number........................... 20 13 9 42
Leasable square feet............. 1,442 663 634 2,739
Annual base rent................. $ 5,896 $ 5,127 $ 5,853 $ 16,876
Percent leased................... 98.9% 92.3% 85.6% 94.2%
Lehigh Valley
Number........................... 15 19 8 42
Leasable square feet............. 2,450 882 240 3,572
Annual base rent................. $ 8,255 $ 5,292 $ 2,491 $ 16,038
Percent leased................... 87.4% 93.4% 88.9% 89.0%
Maryland
Number........................... 2 4 7 13
Leasable square feet............. 159 412 639 1,210
Annual base rent................. $ 850 $ 3,753 $ 5,051 $ 9,654
Percent leased................... 100.0% 88.4% 68.1% 79.2%
Virginia
Number........................... 26 6 10 42
Leasable square feet............. 3,777 230 151 4,158
Annual base rent................. $12,745 $ 1,674 $ 1,789 $ 16,208
Percent leased................... 99.9% 95.4% 95.6% 99.5%
North Carolina
Number........................... 7 -- 3 10
Leasable square feet............. 862 -- 170 1,032
Annual base rent................. $ 3,912 -- $ 1,738 $ 5,650
Percent leased................... 98.6% -- 95.6% 98.2%
Jacksonville, Florida
Number........................... 6 11 11 28
Leasable square feet............. 381 660 966 2,007
Annual base rent................. $ 1,111 $ 3,291 $11,794 $ 16,196
Percent leased................... 86.9% 79.2% 95.1% 88.3%
Tampa, Florida
Number........................... 3 5 -- 8
Leasable square feet............. 197 420 -- 617
Annual base rent................. $ 527 $ 2,838 -- $ 3,365
Percent leased................... 100.0% 89.1% -- 92.6%
United Kingdom
Number........................... -- 1 3 4
Leasable square feet............. -- 35 103 138
Annual base rent................. -- $ 451 $ 2,662 $ 3,113
Percent leased................... -- 67.2% 94.1% 87.4%
Total
Number........................... 98 75 86 259
Leasable square feet............. 11,332 4,351 4,934 20,617
Annual base rent................. $42,957 $31,284 $52,899 $127,140
Percent leased................... 94.7% 90.5% 90.2% 92.8%
</TABLE>
S-36
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Shares offered
hereby, after deduction of the estimated expenses of the Offering, are
estimated to be approximately $173.9 million ($200.0 million if the
Underwriters' over-allotment option is exercised in full).
The Company intends to use the net proceeds of the Offering to fund cash
portion of the consideration payable for the Pending Acquisitions and for
general corporate purposes. The Company may also use amounts available under
the Lines of Credit and from other sources of financing to help fund the
Pending Acquisitions.
PRICE RANGE OF COMMON SHARES AND DIVIDENDS
The Common Shares have been traded on the NYSE under the symbol "LRY" since
June 16, 1994. The following table sets forth, for the calendar quarters
indicated, the high and low closing prices of the Common Shares on the NYSE,
and the dividends declared by the Company per Common Share for such calendar
quarter.
<TABLE>
<CAPTION>
DIVIDENDS PER
HIGH LOW COMMON SHARE
------ ------ -------------
<S> <C> <C> <C>
1994
Second Quarter (since June 16, 1994)............. 20 3/8 19 5/8 0.03
Third Quarter.................................... 20 1/8 19 0.40
Fourth Quarter................................... 20 1/8 17 3/8 0.40
1995
First Quarter.................................... 20 3/4 18 3/4 0.40
Second Quarter................................... 20 1/8 18 3/8 0.40
Third Quarter.................................... 21 3/4 19 1/2 0.40
Fourth Quarter................................... 21 3/8 19 0.40
1996
First Quarter.................................... 22 1/8 20 1/4 0.40
Second Quarter................................... 21 19 1/2 0.40
Third Quarter.................................... 21 3/4 19 3/8 0.41
Fourth Quarter................................... 25 7/8 21 1/8 0.41
1997
First Quarter (through March 18, 1997)........... 26 1/8 23 3/4 N/A
</TABLE>
For a recent closing price per share of the Common Shares on the NYSE, see
the cover page of this Prospectus Supplement. As of February 26, 1997, the
Common Shares were held by 406 holders of record. Since its initial public
offering, the Company has paid regular and uninterrupted dividends.
On December 18, 1996, the Company announced a cash dividend of $0.41 per
Common Share for the quarter ended December 31, 1996, which was paid on
January 15, 1997 to holders of record as of the close of business on January
1, 1997. Although the Company currently anticipates that comparable cash
dividends will continue to be paid in the future, the payment of future
dividends by the Company will be at the discretion of the Board of Trustees
and will depend on numerous factors, including the Company's cash flow, its
financial condition, capital requirements, annual distribution requirements
under the REIT provisions of the Code and such other factors as the Board of
Trustees deems relevant.
S-37
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited capitalization of the Company,
on a consolidated basis, as of December 31, 1996, and as of such date, as
adjusted, to give effect to the sale of the Common Shares offered hereby and
the application of the estimated net proceeds from the Offering. See "Use of
Proceeds." The information set forth in the following table should be read in
conjunction with the summary and selected financial information presented
elsewhere in this Prospectus Supplement, the consolidated financial statements
and notes thereto incorporated by reference in the accompanying Prospectus and
the discussion set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
---------------------------
ACTUAL AS ADJUSTED
----------- --------------
(IN THOUSANDS)
<S> <C> <C>
Senior debt:
Lines of Credit.................................... $ 266,692 $ 197,214
Mortgage Loans..................................... 240,803 284,438
----------- -----------
Total Senior Debt................................ 507,495 481,652
Debentures........................................... 171,214 171,214
Minority Interest.................................... 41,495 66,867
Shareholders' Equity:
Common Shares, 200,000,000 authorized, 31,400,361
issued and outstanding and 38,900,361 as
adjusted(1)....................................... 31 39
Additional Paid-in Capital......................... 370,813 549,273
Unearned Compensation.............................. (1,408) (1,408)
Retained Earnings.................................. 6,096 6,096
----------- -----------
Total Shareholders' Equity....................... 375,532 554,000
----------- -----------
Total Capitalization............................. $ 1,095,736 $1,273,733
=========== ===========
</TABLE>
- --------
(1) Excludes 4,695,043 Common Shares issuable upon the conversion of Units,
including 120,117 Units that will be issued in December 1997 in exchange
for the remaining interests in partnerships in which controlling interests
(89% of capital and 99% of profits) were acquired by the Company at the
time of its initial public offering and 1,224,082 Common Shares issuable
upon the conversion of Units issued in connection with the purchase of the
Pending Acquisitions. Excludes 8,560,700 Common Shares issuable upon
exchange of the $171.2 million principal amount of the Debentures
outstanding as of December 31, 1996, subject to adjustment upon the
occurrence of certain events. Also excludes 2,100,000 Common Shares that
may be issued from time to time under the Company's Share Incentive Plan,
including 1,470,100 Common Shares issuable upon the exercise of options
that were outstanding as of December 31, 1996.
S-38
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth certain operating and other financial data
for the Company and certain historical selected consolidated financial data
for the Company and the Predecessor. The following data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements of the Company and
related notes thereto incorporated by reference in the accompanying
Prospectus. Certain amounts from prior periods have been restated to conform
to current year presentations. Pro forma information is presented as if the
Offering and acquisitions completed or probable of completion on the date
hereof, including the Pending Acquisitions, had been completed at the
beginning of the period presented for operating, per share and other data and
on the date of the balance sheet for balance sheet data. The pro forma
financial information is not necessarily indicative of what the actual
financial position and results of operations of the Company would have been as
of and for the periods presented, nor does it purport to represent the
Company's future financial position or results of operations.
LIBERTY PROPERTY TRUST AND PREDECESSOR
<TABLE>
<CAPTION>
LIBERTY PROPERTY
TRUST AND
PREDECESSOR
LIBERTY PROPERTY TRUST COMBINED
--------------------------------- ----------------
PRO FORMA(1) HISTORICAL
------------ --------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1996 1996 1995 1994
------------ --------- --------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Operating Data
Total Revenue............. $190,708 $ 154,265 $ 117,041 $ 83,022
Rental and Real Estate Tax
Expense.................. 53,472 40,853 29,314 21,750
General and Administrative
Expenses................. 8,673 8,023 5,212 4,712
Depreciation and
Amortization............. 34,608 28,203 22,518 14,732
-------- --------- --------- ---------
Operating Income.......... 93,955 77,186 59,997 41,828
Premium on Debenture
Conversions.............. 1,027 1,027 -- --
Interest Expense.......... 41,517 38,528 37,688 34,243
-------- --------- --------- ---------
Income before Minority
Interest and
Extraordinary Item....... 51,411 37,631 22,309 7,585
Minority Interest......... 5,537 3,891 2,843 7,664
Extraordinary Item-Gain on
Extinguishment of Debt... -- -- -- 55,761
-------- --------- --------- ---------
Net Income................ $ 45,874 $ 33,740 $ 19,466 $ 55,682
======== ========= ========= =========
Dividends Paid............ (5) $ 52,569 $ 38,863 $ 10,219(4)
======== ========= ========= =========
Per Share Data
Net Income per Share
before Extraordinary
Item..................... $ 1.23 $ 1.14 $ 0.89 $ 0.46(4)
Net Income per Share...... 1.23 1.14 0.89 2.67(4)
Dividends Paid per Share.. (5) 1.61 1.60 0.43(4)
Weighted Average Number of
Shares Outstanding(2).... 37,178 29,678 21,838 20,965(4)
Other Data
Cash Provided by Operating
Activities............... (5) $ 59,817 $ 50,452 $ 38,832
Cash Used by Investing
Activities............... (5) (265,427) (281,862) (156,282)
Cash Provided by Financing
Activities............... (5) 214,593 216,870 142,381
Funds from Operations(3).. $ 86,129 65,944 44,606 22,517
</TABLE>
S-39
<PAGE>
<TABLE>
<CAPTION>
LIBERTY PROPERTY TRUST
-------------------------------------------
PRO FORMA(1) HISTORICAL
------------ ------------------------------
DECEMBER 31,
-------------------------------------------
1996 1996 1995 1994
------------ ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance Sheet Data
Net real estate.................. $1,237,559 $1,059,562 $826,047 $512,281
Total assets..................... 1,330,609 1,152,612 898,102 602,981
Total long term indebtedness..... 652,866 678,709 473,909 320,857
Shareholders' equity............. 554,000 375,532 335,521 229,667
Other Data
Total leasable square footage of
properties at end of period (in
thousands)...................... 23,517 20,617 16,693 11,090
Number of properties at the end
of period....................... 301 259 208 151
Percentage leased at end of
period.......................... 91% 93% 92% 88%
</TABLE>
- --------
(1) See adjustments to the unaudited Pro Forma Condensed Consolidated Balance
Sheet and Statement of Operations.
(2) Weighted average number of shares outstanding excludes shares issuable
upon conversion of the Debentures and upon conversion of the Units and
includes the dilutive effect of outstanding options.
(3) Industry analysts generally consider Funds from Operations to be an
appropriate measure of the performance of an equity REIT. "Funds from
Operations" is defined as net income or loss (computed in accordance with
generally accepted accounting principles), excluding gains (or losses)
from debt restructuring and sales of property, plus real estate-related
depreciation and amortization. Funds from Operations does not represent
cash generated from operating activities in accordance with generally
accepted accounting principles and is not necessarily indicative of cash
available to fund cash needs. The Company believes that to facilitate a
clear understanding of the Company's operating results, Funds from
Operations should be examined in conjunction with net income, although it
should not be considered as an alternative to net income as an indicator
of the Company's operating performance or as an alternative to cash flow
as a measure of liquidity. Funds from Operations computed by the Company
may not be comparable to other similarly titled measures of other REITs.
(4) Information presented for 1994 is for the period from June 23, 1994
(inception of the Company) through December 31, 1994.
(5) Pro forma information relating to dividends paid and cash flow from
operating, investing and financing activities has not been included
because the Company believes that the information would not be meaningful
due to the number of assumptions required in order to calculate this
information.
S-40
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
LIBERTY PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Balance Sheet is
presented as if the Offering had been consummated on December 31, 1996 and
assuming acquisitions completed or probable of completion on the date hereof,
including the Pending Acquisitions, had been completed as of such date. Such
pro forma information is based upon the historical balance sheet of the
Company and the application of the proceeds of the Offering as set forth under
the caption "Use of Proceeds." In management's opinion, all adjustments
necessary to reflect the effects of these transactions have been made. It
should be read in conjunction with the Summary and Selected Financial Data and
the consolidated financial statements and notes thereto incorporated by
reference in the accompanying Prospectus.
This unaudited pro forma Condensed Consolidated Balance Sheet is not
necessarily indicative of what the Company's actual financial position would
have been assuming such transactions had been completed at December 31, 1996,
nor does it purport to represent the future financial position of the Company.
<TABLE>
<CAPTION>
LIBERTY LIBERTY
PROPERTY PROCEEDS PROPERTY TRUST
TRUST(A) OF OFFERING(B) ACQUISITIONS(C) PRO FORMA
---------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Assets
Net Real Estate......... $1,059,562 $177,997 $1,237,559
Cash and Cash
Equivalents............ 19,612 $ 173,850 (173,850) 19,612
Deferred Financing and
Leasing Costs, Net..... 27,013 27,013
Other Assets............ 46,425 46,425
---------- --------- -------- ----------
$1,152,612 $ 173,850 $ 4,147 $1,330,609
========== ========= ======== ==========
Liabilities
Mortgage Loans.......... $ 240,803 $ 43,635 $ 284,438
Debentures.............. 171,214 171,214
Lines of Credit......... 266,692 (69,478) 197,214
Other Liabilities....... 56,876 56,876
---------- --------- -------- ----------
735,585 (25,843) 709,742
Minority Interest....... 41,495 $ 6,898 18,474 66,867
Shareholders' Equity
Common Shares........... 31 8 39
Additional Paid-in
Capital................ 370,813 166,944 11,516 549,273
Unearned Compensation... (1,408) (1,408)
Retained Earnings....... 6,096 6,096
---------- --------- -------- ----------
375,532 166,952 11,516 554,000
---------- --------- -------- ----------
$1,152,612 $ 173,850 $ 4,147 $1,330,609
========== ========= ======== ==========
</TABLE>
- --------
(A) Reflects the Company's historical consolidated balance sheet as of
December 31, 1996.
(B) Reflects the issuance of 7,500 Common Shares in connection with the
Offering and the use of the anticipated net proceeds of $173,850. See "Use
of Proceeds." The estimated costs of the Offering, totaling $9,900 and the
accretion to minority interest holders have been reflected as a reduction
of additional paid in capital.
(C) Reflects the acquisition of properties through assumption of mortgage
loans ($43,635), issuance of Units ($29,990) and the use of cash
($104,372). Also reflects the use of cash to pay down $69,478 in Line of
Credit indebtedness. Accretion to shareholders of $11,516 has been
reflected as an increase in additional paid-in capital and a corresponding
reduction in minority interest.
S-41
<PAGE>
LIBERTY PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations are presented as if the Offering had been consummated on January 1,
1996 and assuming acquisitions completed after January 1, 1996 or probable of
completion on the date hereof, including the Pending Acquisitions, had been
completed as of such date. Such pro forma information is based upon the
historical statements of operations of the Company and the application of the
proceeds of the Offering as set forth under the caption "Use of Proceeds." In
management's opinion, all adjustments necessary to reflect the effects of
these transactions have been made. The following should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the consolidated financial statements and notes thereto
incorporated by reference in the accompanying Prospectus.
These unaudited Pro Forma Condensed Consolidated Statements of Operations
are not necessarily indicative of what actual results of operations of the
Company would have been assuming such transactions had been completed as of
January 1, 1996, nor do they purport to represent the results of operations
for future periods.
<TABLE>
<CAPTION>
LIBERTY LIBERTY
PROPERTY PRO FORMA PROPERTY TRUST
TRUST(A) ACQUISITIONS(B) ADJUSTMENTS PRO FORMA
-------- --------------- ----------- --------------
<S> <C> <C> <C> <C>
Revenue
Rental.................. $112,841 $24,071 $ 1,165 (C) $138,077
Operating Expense
Reimbursement.......... 35,886 10,856 351 (C) 47,093
Management Fees......... 1,340 -- -- 1,340
Interest and Other...... 4,198 -- -- 4,198
-------- ------- -------- --------
Total Revenue........... 154,265 34,927 1,516 190,708
Operating Expenses
Rental.................. 29,624 7,500 -- 37,124
Real Estate Taxes....... 11,229 5,119 -- 16,348
General and
Administrative......... 8,023 -- 650 (D) 8,673
Depreciation and
Amortization........... 28,203 -- 6,405 (E) 34,608
-------- ------- -------- --------
Total Operating
Expenses............... 77,079 12,619 7,055 96,753
-------- ------- -------- --------
Operating Income........ 77,186 22,308 (5,539) 93,955
Interest Expense........ 38,528 -- 2,989 (F) 41,517
Premium on Debenture
Conversion............. 1,027 -- -- 1,027
-------- ------- -------- --------
Income Before Minority
Interest............... 37,631 22,308 (8,528) 51,411
Minority Interest....... 3,891 -- 1,646 (G) 5,537
-------- ------- -------- --------
Net Income.............. $ 33,740 $22,308 $(10,174) $ 45,874
======== ======= ======== ========
Net Income Per Common
Share.................. $ 1.23
========
Weighted Average Number
of Common Shares
Outstanding............ 37,178
========
</TABLE>
- --------
(A) Reflects the historical operations of the Company for the year ended
December 31, 1996.
(B) Reflects the addition of revenues and certain expenses of all properties
acquired subsequent to December 31, 1996 or probable of acquisition as of
the date hereof, including the Pending Acquisitions, and the addition of
incremental revenues and expenses for the 1996 Acquisitions, as required
in order to reflect operations for these acquisitions for a full year as
follows:
S-42
<PAGE>
<TABLE>
<CAPTION>
PENDING
ACQUISITIONS
AND
COMPLETED
1996 ACQUISITIONS
ACQUISITIONS IN 1997 TOTAL
------------ ------------ -------
<S> <C> <C> <C>
Revenue
Rental..................................... $8,204 $15,867 $24,071
Operating Expense Reimbursement............ 3,392 7,464 10,856
------ ------- -------
Total Revenue.............................. 11,596 23,331 34,927
====== ======= =======
Operating Expenses
Rental..................................... 2,200 5,300 7,500
Real Estate Taxes.......................... 1,340 3,779 5,119
------ ------- -------
Total Operating Expenses................... 3,540 9,079 12,619
------ ------- -------
Operating Income........................... $8,056 $14,252 $22,308
====== ======= =======
</TABLE>
(C) Reflects incremental income and operating expense reimbursement for
significant leases signed subsequent to acquisition for the following
properties:
<TABLE>
<CAPTION>
OPERATING
RENTAL EXPENSE
PROPERTY INCOME REIMBURSEMENT
-------- ------ -------------
(IN THOUSANDS)
<S> <C> <C>
One Walnut Grove.................................... $ 774 $351
Portions of South Carolina Portfolio
Woodfield.......................................... 100 0
Woodland Building G................................ 291 0
------ ----
$1,165 $351
====== ====
</TABLE>
(D) Reflects adjustments necessary to reflect the estimated incremental
general and administrative expense for the South Carolina Portfolio and
Minneapolis Portfolio.
(E) Reflects the depreciation on the acquisitions described in Note (B).
(F) Reflects the incremental interest computed as follows:
<TABLE>
<S> <C>
Assumption of $43,635 in mortgage loan at an interest rate of
7.9%......................................................... $ 3,447
Pay down of Lines of Credit with offering proceeds of $69,478
at 7.297%.................................................... (5,070)
Incremental historical interest to reflect a full year on 1996
acquisitions................................................. 6,151
Capitalization of interest on development and entrepreneurial
acquisitions................................................. (1,539)
-------
$ 2,989
=======
</TABLE>
(G) Represents the adjustment necessary to reflect annualized minority
interest in income associated with the ownership by certain senior
executives of the Company and property contributors of an aggregate 10.77%
limited partnership interest in the Operating Partnership.
S-43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion is based on the consolidated financial statements
of the Company and the combined financial statements of the Predecessor. The
combined financial statements of the Predecessor reflect the combination of
data from the balance sheets and the statements of operations of the
partnerships that owned the properties, and the management, development and
leasing operations of the Predecessor that were contributed to the Company in
connection with its formation, which was consummated concurrently with its
initial public offering. The combined financial statements of the Predecessor
are presented for comparative purposes only.
The following discussion compares the results of operations of the Company
for the year ended December 31, 1996 with the results of operations of the
Company for the year ended December 31, 1995, and the results of operations of
the Company, for the year ended December 31, 1995 with the results of
operations of the Company and Predecessor, on a combined basis, for the year
ended December 31, 1994. As used herein, the term "Company" includes the
Trust, the Operating Partnership and their subsidiaries (and, where the
context indicates, the Predecessor).
RESULTS OF OPERATIONS
Comparison of year ended December 31, 1996 to year ended December 31,
1995. Total revenues (principally rental revenues and operating expense
reimbursement) increased from $117.0 million for the year ended December 31,
1995 to $154.3 million for the year ended December 31, 1996. This increase was
primarily due to the increase in the number of Operating Properties owned
during the respective periods. As of January 1, 1995, the Company owned 151
properties and, through December 31, 1995, acquired 52 additional properties
(net of two properties exchanged in connection with such acquisitions) and
completed development of five properties for a Total Investment of $223.1
million. As of January 1, 1996, the Company owned 208 properties and, through
December 31, 1996, acquired 33 additional properties and completed the
development on 19 properties for a Total Investment of $232.2 million.
Rental property and real estate tax expenses increased from $29.3 million
for the year ended December 31, 1995 to $40.9 million for the year ended
December 31, 1996. This increase is due to the increase in the number of
properties owned, and because of significant snow removal and other seasonal
operating costs incurred as a result of the severe 1996 winter.
Property level operating income for the "Same Store" properties (properties
owned since January 1, 1995) increased from $68.0 million for the year ended
December 31, 1995 to $71.5 million for the year ended December 31, 1996. This
increase of 5.1% is due to increases in rental rates for the properties and
increases in occupancy.
Set forth below is a schedule comparing the operating income for the Same
Store properties for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Rental revenue.......................................... $ 75,823 $72,808
Operating expense reimbursement......................... 24,553 21,463
-------- -------
100,376 94,271
Rental property expenses................................ 21,023 18,191
Real estate taxes....................................... 7,878 8,086
-------- -------
Property level operating income......................... $ 71,475 $67,994
======== =======
</TABLE>
S-44
<PAGE>
General and administrative expenses increased from $5.2 million for the year
ended December 31, 1995 to $8.0 million for the year ended December 31, 1996.
This $2.8 million increase is due to the increase in personnel and other
related overhead costs necessitated by the increase in the number of
properties owned during the respective periods. Included in the general and
administrative expenses for the year ended December 31, 1996 is a $704,000
non-cash charge resulting from the amortization of a stock award over its
vesting period. There is no corresponding charge for the year ended December
31, 1995.
Depreciation and amortization expenses increased from $22.5 million in 1995
to $28.2 million in 1996. This increase is due to the increase in the number
of properties owned during the respective periods.
Interest expense increased from $37.7 million for the year ended December
31, 1995 to $38.5 million for the year ended December 31, 1996. This increase
is due to an increase in the average debt outstanding for the respective
periods which was $397.4 million for 1995 and $576.3 million for 1996. This
increase is partly offset by the lower interest rate on the outstanding debt,
because of the 1% reduction in the interest rate on the $250 Million Line of
Credit borrowings which became effective May 1, 1995, and because of a
decrease in the outstanding Debentures due to the conversion of $58.7 million
of Debentures in 1996.
As a result of the foregoing, the Company's operating income increased from
$60.0 million for the year ended December 31, 1995 to $77.2 million for the
year ended December 31, 1996. In addition, income before minority interest for
the periods increased from $22.3 million for the year ended December 31, 1995
to $37.6 million for the year ended December 31, 1996.
Comparison of year ended December 31, 1995 to year ended December 31,
1994. Total revenues (principally rental revenues and operating expense
reimbursement) increased from $83.0 million for the year ended December 31,
1994 to $117.0 million for the year ended December 31, 1995. This increase was
primarily due to the increase in the number of Properties owned during the
respective periods. From January 1, 1994 through June 22, 1994, the
Predecessor owned 113 properties. Concurrent with the initial public offering,
the Company purchased 18 properties for a Total Investment of $57.0 million.
From the consummation of its initial public offering through December 31,
1994, the Company purchased 20 additional properties for $79.5 million. As of
January 1, 1995, the Company owned 151 properties and, through December 31,
1995, acquired 52 additional properties (net of two properties exchanged in
connection with such acquisitions) and completed the development of five
properties for a Total Investment of $223.1 million.
Rental property and real estate tax expenses increased from $21.8 million
for the year ended December 31, 1994 to $29.3 million for the year ended
December 31, 1995. This increase is due to the increase in the number of
properties owned.
Property level operating income for the "Same Store" properties (properties
owned since January 1, 1994) increased from $52.4 million for the year ended
December 31, 1994 to $53.3 million for the year ended December 31, 1995. This
increase of 1.7% was attributable primarily to an increase in the occupancy in
the industrial distribution and office properties.
Set forth below is a schedule comparing the property level operating income
for the Same Store properties for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Rental revenue........................................... $57,054 $57,323
Operating expense reimbursement.......................... 14,993 15,543
------- -------
72,047 72,866
Rental property expense.................................. 13,040 14,605
Real estate taxes........................................ 5,661 5,844
------- -------
Property level operating income.......................... $53,346 $52,417
======= =======
</TABLE>
S-45
<PAGE>
General and administrative expenses increased from $4.7 million for the year
ended December 31, 1994 to $5.2 million for the year ended December 31, 1995.
This $500,000 increase is due to an increase in the number of properties owned
during the respective periods and as a result of costs incurred to operate as
a public company during the entire period of 1995. The Predecessor did not
incur similar costs from January 1, 1994 through June 22, 1994.
Depreciation and amortization expenses increased from $14.7 million for the
year ended December 31, 1994 to $22.5 million for the year ended December 31,
1995. This increase is due to the increase in the number of properties owned
during the respective periods.
Interest expense increased from $34.2 million for the year ended December
31, 1994 to $37.7 million for the year ended December 31, 1995. Interest
expense for 1994 reflects, (1) interest on $525.0 million of mortgage loans
for the Rouse Group, which loans were satisfied from the proceeds of the
initial public offerings, and (2) interest on the Debentures for the period
from issuance at June 23, 1994 through December 31, 1994. Interest expense for
1995 reflects, (1) interest on the $250 Million Line of Credit borrowings and
mortgage loans incurred to fund property acquisitions and development, and (2)
interest on the Debentures for the full 1995 year.
During the year ended December 31, 1994, the Company recognized $55.8
million in extraordinary income from the extinguishment of debt. There was no
similar item in 1995.
As a result of the foregoing, income before the effect of minority interest
and extraordinary items increased from $7.6 million in 1994 to $22.3 million
in 1995. In addition, the Company's operating income increased from $41.8
million in 1994 to $60.0 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had cash and cash equivalents of $19.6
million. Working capital at December 31, 1996 was $14.6 million.
Net cash flow provided by operating activities increased from $50.5 million
for the year ended December 31, 1995 to $59.8 million for the year ended
December 31, 1996. This $9.3 million increase was primarily due to the
additional cash flow generated by the greater number of properties in service
during the latter period.
Net cash used in investing activities decreased from $281.9 million for the
year ended December 31, 1995 to $265.4 million for the year ended December 31,
1996. This decrease was a result of the $125.0 million investment made in
March 1995 in connection with the acquisition of the Lingerfelt portfolio
while there was no similar portfolio acquisition made in 1996. This decrease
was partly offset by the increase in acquisition, development and property
investment from $156.9 for the year ended December 31, 1995 to $265.4 million
for the year ended December 31, 1996.
Net cash provided by financing activities decreased from $216.9 million for
the year ended December 31, 1995 to $214.6 million for the year ended December
31, 1996. This decrease is consistent with the decrease in investing
activities.
The Company believes that its undistributed cash flow from operations are
adequate to fund its short-term liquidity requirements.
The Company has funded its long-term liquidity requirements such as property
acquisition and development activities primarily through its $250 Million Line
of Credit. This line matures on June 15, 1998, subject to the Company's option
to extend the maturity of the loan as described below. As of December 31,
1996, $241.7 million was outstanding under the $250 Million Line of Credit.
The $250 Million Line of Credit is recourse to the Company only with respect
to 50% of the outstanding principal amount thereof. Funds borrowed under the
$250 Million Line of Credit bear interest at an annual rate of 175 basis
points over LIBOR. Subject to certain
S-46
<PAGE>
conditions and the payment of a fee equal to 0.5% of the then outstanding loan
balance, the Company may exercise a one-time option to convert the loan
balance into a two-year term loan upon the maturity of the $250 Million Line
of Credit. Following such conversion, the interest rate on the term loan would
be LIBOR plus 4%.
In December 1996, the Company closed on an $80.0 million secured line of
credit and, in March 1997, increased the availability under such line to
$100.0 million. The $100 Million Line of Credit matures on December 13, 1998;
however, at any time prior to December 13, 1998, maturity may be extended for
one year subject to certain conditions and the payment of an extension fee
equal to 1/4% of the total commitment (as defined). As of December 31, 1996,
collateral had been approved to enable the Company to borrow up to $56.0
million, of which $25.0 million was outstanding. The interest rate on the $100
Million Line of Credit is 1.60% over LIBOR.
Periodically, the Company pays down borrowings on the Lines of Credit with
funds from long-term capital sources. During 1996, the Company utilized the
funds from $77.6 million of mortgage loans it placed in 1996 to pay down the
Lines of Credit. The Company has entered into a swap agreement, with a
notional amount of $114.5 million, to hedge against possible fluctuations in
interest rates in anticipation of a debt issuance in 1997 for a five to seven
year term.
As of December 31, 1996, $240.8 million in mortgage loans were outstanding
with maturities ranging from 1997 to 2013. The interest rates on $230.4
million of mortgage loans are fixed and range from 6% to 10%. Interest rates
on $10.4 million of mortgage loans float with LIBOR or prime and are subject
to certain caps. The weighted average interest rate for the mortgage loans is
7.7% and the weighted average life is eight years.
General
The Company expects to incur variable rate debt, including borrowings under
the Lines of Credit, from time to time. The Company believes that its existing
sources of capital will provide sufficient funds to finance its continued
acquisition and development activities. In this regard, the Company continues
to evaluate its long term capital sources which generally include the
availability of debt financing and access to equity.
In July 1995, the Company filed a shelf registration with the Securities and
Exchange Commission that enabled the Company to offer up to an aggregate of
$350 million of securities, including common stock, preferred stock and debt.
On November 27, 1995, the Company completed a follow-on public offering of
7,200,000 common shares resulting in proceeds of $140.4 million. The remaining
$209.6 million shelf registration is available for future offerings.
On February 8, 1996, Moody's Investors Service assigned a prospective rating
of Ba2 for senior unsecured debt issued by the Operating Partnership under the
shelf registration.
On October 15, 1996, the Company filed a Registration Statement of 1,000,000
shares to be issued through a Dividend Reinvestment and Stock Purchase Plan.
On February 21, 1997, the Company filed a shelf registration with the
Securities and Exchange Commission that enabled the Company to offer up to an
aggregate of $850 million of securities, including common stock, preferred
stock and debt.
CALCULATION OF FUNDS FROM OPERATIONS
Management considers Funds from Operations an appropriate measure of the
performance of an equity REIT. Funds from Operations is defined by NAREIT as
net income or loss (computed in accordance with generally accepted accounting
principles), excluding gains or losses from debt restructuring and sales of
property, plus real estate-related depreciation and amortization. Funds from
Operations should not be considered as an alternative to net income as an
indicator of the Company's operating performance, as an alternative to cash
flow or as a measure of liquidity. Funds from Operations for the years ended
December 31, 1996 and 1995 are as follows:
S-47
<PAGE>
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net income.............................................. $33,740 $19,466
Addback:
Minority interest..................................... 3,891 2,843
Depreciation and amortization......................... 27,863 22,297
Premium on Debenture conversion......................... 1,027 --
Gain on sale............................................ (577) --
------- -------
Funds from Operations(1)................................ $65,944 $44,606
======= =======
</TABLE>
- --------
(1) See "Selected Financial Data" for definition of this term.
INFLATION
Inflation has remained relatively low during the last three years, and as a
result, has not had a significant impact on the Predecessor or the Company
during this period. The Lines of Credit bear interest at variable rates;
therefore, the amount of interest payable under the Lines of Credit will be
influenced by changes in short-term interest rates, which tend to be sensitive
to inflation. To the extent an increase in inflation would result in increased
operating costs, such as in insurance, real estate taxes or utilities,
substantially all of the tenant's leases require the tenants to absorb these
costs as part of their rental obligations. In addition, inflation also may
have the effect of increasing market rental rates.
S-48
<PAGE>
MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
The Company's Board of Trustees consists of nine members, six of whom are not
employed by or otherwise affiliated with the Company (the "Independent
Trustees"). The following table sets forth certain information with respect to
the trustees and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Willard G. Rouse III...... 54 Chairman of the Board of Trustees and Chief
Executive Officer
Joseph P. Denny........... 50 President, Chief Operating Officer and Trustee
George J. Alburger, Jr. .. 49 Chief Financial Officer and Treasurer
George F. Congdon......... 54 Executive Vice President and Trustee
Robert E. Fenza........... 39 Executive Vice President
David C. Hammers.......... 59 Executive Vice President
James J. Bowes............ 43 Corporate Secretary and General Counsel
Frederick F. Buchholz..... 51 Independent Trustee; Executive Vice President
of Equitable Real Estate
J. Anthony Hayden......... 52 Independent Trustee; President of Hayden Real
Estate, Inc.; former Executive Director and a
member of the Board of Directors of Cushman &
Wakefield, Inc.
M. Leanne Lachman......... 53 Independent Trustee; Managing Director,
Schroder Real Estate Associates and a director
of Lincoln National Corporation and Chicago
Title & Trust Company
David L. Lingerfelt....... 44 Independent Trustee; Partner, Shewmake,
Baronian & Parkinson; former Director of
Property Administration and Counsel for Best
Products Co., Inc.
John A. Miller, CLU....... 69 Independent Trustee; Retired Chairman and Chief
Executive Officer of Provident Mutual Life
Insurance Company of Philadelphia
Stephen B. Siegel......... 52 Independent Trustee; President of the
Insignia/Edward S. Gordon Co., Inc.; former
Chief Executive Officer of Cushman & Wakefield,
Inc.
</TABLE>
FEDERAL INCOME TAX CONSIDERATIONS FOR SHAREHOLDERS
The following summary of material federal income tax considerations to the
shareholders is based on current law, is for general information only and is
not tax advice. This discussion does not purport to deal with all aspects of
taxation that may be relevant to particular shareholders in light of their
personal investment or tax circumstances, or, except to the extent discussed
under the headings "Taxation of Tax-Exempt Shareholders" and "Taxation of
Foreign Shareholders," to certain types of shareholders (including insurance
companies, financial institutions or broker-dealers) subject to special
treatment under the federal income tax law.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP AND
SALE OF THE COMMON SHARES OFFERED HEREBY, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
For a summary of the material federal income tax considerations to the
Company, see "Federal Income Tax Considerations with Respect to the Trust and
the Operating Partnership" in the accompanying Prospectus.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by such U.S. shareholders as ordinary income and will not be eligible
for the dividends received
S-49
<PAGE>
deduction for corporations. Distributions that are designated as capital gain
dividends will be taxed as long-term capital gains (to the extent they do not
exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which the shareholder has held its stock. Corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and
accumulated earnings and profits will not be taxable to a shareholder to the
extent that they do not exceed the adjusted basis of the shareholder's shares,
but rather will reduce the adjusted basis of such shares. To the extent that
such distributions exceed the adjusted basis of a shareholder's shares, they
will be included in income as long-term capital gain (or short-term capital
gain if the shares have been held for one year or less) assuming the shares
are a capital asset in the hands of the shareholder. In addition, any dividend
declared by the Company in October, November or December of any year payable
to a shareholder of record on a specified date in any such month shall be
treated as both paid by the Company and received by the shareholder on
December 31 of such year, provided that the dividend is actually paid by the
Company during January of the following calendar year. Shareholders may not
include in their individual income tax returns any net operating losses or
capital losses of the Company.
In general, any loss upon a sale or exchange of shares by a shareholder who
has held such shares for six months or less (after applying certain holding-
period rules) will be treated as a long-term capital loss to the extent of
distributions from the Company required to be treated by such shareholder as
long-term capital gain.
BACKUP WITHHOLDING
The Company will report to its U.S. shareholders and the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld,
if any. Under the backup withholding rules, a shareholder may be subject to
backup withholding at the rate of 31% with respect to distributions paid
unless such shareholder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A shareholder that does not provide the Company with
his correct taxpayer identification number may also be subject to penalties
imposed by the IRS. Any amount paid as backup withholding will be creditable
against the shareholder's income tax liability. In addition, the Company may
be required to withhold a portion of capital gain distributions to any
shareholders who fail to certify their non-foreign status to the Company. See
"--Taxation of Foreign Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Generally, distributions to a tax-exempt entity from a real estate
investment trust do not constitute unrelated business taxable income, as
defined in Section 512(a) of the Code ("UBTI"), provided that the tax-exempt
entity has not financed its acquisition of its shares with "acquisition
indebtedness" within the meaning of the Code and the shares are not otherwise
used in an unrelated trade or business of the tax-exempt entity. Thus,
distributions by the Company to shareholders that are tax-exempt should not be
taxable as UBTI, provided that no acquisition indebtedness was incurred with
respect to such shares.
Some or all of the distributions by a real estate investment trust to a tax-
exempt employee's pension fund that owns more than 10 percent in value of the
real estate investment trust are treated as UBTI if the real estate investment
trust constitutes a "pension-held REIT" and if other conditions are met. In
order to constitute a "pension-held REIT" the real estate investment trust
must meet the test for classification as a real estate investment trust only
because tax-exempt pension funds are not treated as a single individual for
purposes of the "five-or-fewer" rule (see "Risk Factors--Limitations on
Changes in Control--Ownership Limit") and either (A) one pension fund owns
more than 25 percent in value of the real estate investment trust or (B) one
or more pension funds (holding at least 10 percent in value of the real estate
investment trust each) own, in the aggregate, more than 50 percent of the
value of the real estate investment trust. In addition, the gross income of
the real estate investment trust derived from activities that would constitute
unrelated trades or businesses, computed as if the REIT was a "qualified
trust," must be at least five percent of the gross income of the real estate
investment
S-50
<PAGE>
trust in the taxable year in which the distributions are made. The ownership
limitations in the Company's Declaration of Trust (assuming no waiver by the
Board of Trustees) would prevent the Company from being classified as a
"pension-held REIT."
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other
foreign shareholders (collectively, "Non-U.S. Shareholders") are complex, and
no attempt will be made herein to provide more than a summary of the rules.
Prospective Non-U.S. Shareholders should consult with their own tax advisors
to determine the impact of federal, state and local income tax laws with
regard to an investment in the Common Shares offered hereby, including any
reporting requirements. If income from the investment in the Common Shares
offered hereby is treated as "effectively connected" with the Non-U.S.
Shareholder's conduct of a United States trade or business, the Non-U.S.
Shareholder generally will be subject to a tax at graduated rates, in the same
manner as U.S. shareholders are taxed with respect to the dividends (and may
also be subject to the 30% "branch profits" tax in the case of a shareholder
that is a foreign corporation). The remainder of this discussion assumes that
the distributions do not constitute "effectively connected" income.
Distributions by the Company that are not attributable to gain from sales or
exchanges by the Company of United States real property interests and not
designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current
or accumulated earnings and profits of the Company. Such distributions,
ordinarily, will be subject to a withholding tax equal to 30% of the gross
amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. Distributions in excess of current and accumulated
earnings and profits of the Company will not be taxable to a shareholder to
the extent that such distributions do not exceed the adjusted basis of the
shareholder's shares, but rather will reduce the adjusted basis of such
shares. To the extent that distributions in excess of current accumulated
earnings and profits exceed the adjusted basis of a Non-U.S. Shareholder's
shares, such distributions will give rise to tax liability if the Non-U.S.
Shareholder would otherwise be subject to tax on any gain from the sale or
disposition of his shares in the Company, as described below. The Company
expects to withhold United States income tax at the rate of 30% on the gross
amount of any distributions made to a Non-U.S. Shareholder unless (i) a lower
treaty rate applies and the Non-U.S. Shareholder files all necessary forms
required to establish eligibility for the lower rate and provides
certification as to such eligibility, if necessary, or (ii) the Non-U.S.
Shareholder files an IRS Form 4224 with the Company certifying that the
investment to which the distribution relates is "effectively connected" to a
United States trade or business of such Non-U.S. Shareholder. Lower treaty
rates generally applicable to dividend income may not necessarily apply to
distributions from a REIT, such as the Company. If it cannot be determined at
the time a distribution is made whether or not such distribution will be in
excess of current and accumulated earnings and profits, the distributions will
be subject to withholding at the same rate as dividends. Pursuant to recently
enacted legislation, effective for distributions made after August 20, 1996,
the Company is obligated to withhold 10% of the amount of any distribution in
excess of the Company's current and accumulated earnings and profits. However,
amounts withheld are refundable if it is subsequently determined that the
distribution was in excess of current and accumulated earnings and profits of
the Company and the amount withheld exceeded the Non-U.S. Shareholders' United
States tax liability, if any.
For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of United
States real property interests will be taxed to a Non-U.S. Shareholder under
the provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions are taxed to a Non-U.S.
Shareholder as if the gain were "effectively connected" with a United States
business. Non-U.S. Shareholders would be taxed at the normal capital gain
rates applicable to domestic shareholders (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). Also, distributions subject to FIRPTA may be subject to a
30% "branch profits" tax in the hands of a foreign corporate shareholder not
entitled to treaty exemption. The Company is required by applicable Treasury
Regulations to withhold 35% of any distribution that could be designated by
the Company as a capital gains dividend. This amount is creditable against the
Non-U.S. Shareholder's FIRPTA tax liability.
S-51
<PAGE>
Gain recognized by a Non-U.S. Shareholder upon a sale of shares generally
will not be taxed under FIRPTA if the Company is a "domestically controlled
REIT," defined generally as a REIT in which at all times during a specified
testing period less than 50% in value of the stock was held directly or
indirectly by foreign persons. The Company currently is a "domestically
controlled REIT," and anticipates continuing to be so classified, and
therefore the sale of the Common Shares offered hereby should not be subject
to taxation under FIRPTA. However, gain not subject to FIRPTA will be taxable
to a Non-U.S. Shareholder if (i) investment in the shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business, in
which case the Non- U.S. Shareholder will be subject to the same treatment as
U.S. shareholders with respect to the gain (a shareholder that is a foreign
corporation may also be subject to the 30% "branch profits" tax), or (ii) the
Non-U.S. Shareholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year and has a "tax
home" in the United States, in which case the nonresident alien individual
will be subject to a 30% tax on the individual's capital gains. If the gain on
the sale of shares were to be subject to taxation under FIRPTA, the Non-U.S.
Shareholder will be subject to the same treatment as U.S. shareholders with
respect to the gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals
and, in the case of foreign corporations, subject to the possible application
of the 30% "branch profits" tax).
If the proceeds of a disposition of Common Shares are paid by or through a
United States office of a broker, the payment is subject to information
reporting requirements and to backup withholding unless the disposing Non-U.S.
Shareholder certifies as to his name, address, and non-United States status or
otherwise establishes an exemption. Generally, United States information
reporting and backup withholding will not apply to the payment of disposition
proceeds if the payment is made outside the United States through a non-United
States broker. United States information reporting (but not backup
withholding) will apply, however, to a payment of disposition proceeds outside
the United States if (i) the payment is made through an office outside the
United States that is either (a) a United States person, (b) a foreign person
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States or (c) a "controlled
foreign corporation" for United States federal income tax purposes, and (ii)
the broker fails to obtain documentary evidence that the Shareholder is a Non-
U.S. Shareholder and that certain conditions are met or that the Non-U.S.
Shareholder is otherwise entitled to an exemption. In 1996, the IRS proposed
changes to the rules applicable to payments to foreign persons. Generally,
these changes are proposed to be efective for payments made after December 31,
1997, although special transitional rules will be applicable in the case of
certain dividend distributions. Among the changes in the regulations are new
intermediary certification options designed to simplify compliance by
withholding agents.
OTHER TAX CONSEQUENCES
The Company's shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which they transact
business or reside. The state and local tax treatment of the Company's
shareholders may not conform to the federal income tax consequences discussed
above. Consequently, prospective shareholders should consult their own tax
advisors regarding the effect of state and local tax laws on an investment in
the Company.
S-52
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to the
underwriters named below (the "Underwriters"), and each of the Underwriters
has severally agreed to purchase, the respective number of Common Shares set
forth below opposite their respective names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Lehman Brothers Inc............................................. 1,250,000
Donaldson, Lufkin & Jenrette Securities Corporation............. 1,250,000
Alex. Brown & Sons Incorporated................................. 1,250,000
A.G. Edwards & Sons, Inc........................................ 1,250,000
The Robinson-Humphrey Company, Inc.............................. 1,250,000
Wheat, First Securities, Inc.................................... 1,250,000
---------
Total....................................................... 7,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the Common Shares are subject to certain conditions precedent and
that if any of the foregoing Common Shares are purchased by the Underwriters
pursuant to the Underwriting Agreement, all such Common Shares must be so
purchased.
The Company has been advised by the Underwriters that they propose to offer
the Common Shares directly to the public at the initial public offering price
set forth on the cover page of this Prospectus Supplement and to certain
dealers at such public offering price less a concession not in excess of $0.74
per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0.10 per share to certain other underwriters or
to certain other brokers or dealers. After the initial public offering, the
public offering price, the concession to selected dealers and the reallowance
to the other dealers may be changed by the Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
additional 1,125,000 Common Shares at the initial public offering price less
underwriting discounts and commissions, solely to cover overallotments, if
any. The Underwriters may exercise this option at any time up to 30 days after
the date of this Prospectus Supplement. To the extent that the Underwriters
exercise this option, each of the Underwriters will be obligated, subject to
certain conditions, to purchase a number of additional Common Shares
proportionate to such Underwriter's initial commitment reflected in the
foregoing table.
The Company and certain key executives of the Company who own Units or
Common Shares have agreed that they will not, without the prior written
consent of Lehman Brothers Inc., offer for sale, contract to sell, sell or
otherwise dispose of, directly or indirectly, any Common Shares or securities
convertible into or exercisable or exchangeable for Common Shares in an
underwritten offering to the public, in the case of the Company (other than
Common Shares offered hereby and any Units or Common Shares that may be issued
in connection with any acquisition of a property), or sell or grant options,
rights or warrants with respect to any Common Shares (except pursuant to
customary compensation arrangements and employee benefit plans) for a period
of 90 days after the consummation of the Offering.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriters may be required to make
in respect thereof.
Certain of the Underwriters and their affiliates have from time to time
performed, and may continue to perform in the future, various investment
banking services for the Company, for which customary compensation has been
received.
The Common Shares are listed on the New York Stock Exchange, Inc. under the
symbol "LRY."
S-53
<PAGE>
LEGAL MATTERS
Weinberg & Green LLC, Baltimore, Maryland, will render an opinion that the
Common Shares offered hereby, when issued and paid for by the purchasers
thereof, will be validly issued, fully paid and non-assessable. The statements
in this Prospectus Supplement under the caption "Federal Income Tax
Considerations with Respect to Shareholders" will be passed upon for the
Company by Wolf, Block, Schorr and Solis-Cohen, Philadelphia, Pennsylvania,
although Wolf, Block, Schorr and Solis-Cohen has rendered no opinion on
matters involving the imposition of non-U.S. taxes on the operations of, and
distributions or payments from, the Company's United Kingdom affiliates.
Rogers & Wells, New York, New York, will pass upon certain legal matters for
the Underwriters. Wolf, Block, Schorr and Solis-Cohen and Rogers & Wells will
rely on Weinberg & Green LLC as to matters of Maryland law. Michael M. Dean, a
partner in Wolf, Block, Schorr and Solis-Cohen, is the sole trustee of
irrevocable trusts established by three of the Company's senior executives for
the benefit of such executives' children. Each of such trusts received Units
in the transactions consummated at the time of the Company's initial public
offering in exchange for interests in the Predecessor owned by such trusts.
S-54
<PAGE>
APPENDIX "A"
LIBERTY PROPERTY TRUST
PROPERTY LIST
<TABLE>
<CAPTION>
PERCENT
LEASED AT
BUILDING YEAR LEASABLE DEC. 31, NO. OF
PROJECT NAME TYPE DEVE. SQ. FT.(1) 1996(2) LEASES MAJOR TENANT
- ------------ ---------- ----- ---------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
SOUTHEASTERN PENNSYLVA-
NIA
10, 20 Liberty Boule-
vard................... Ofc. 1988 62,237 90.3% 24 Great Valley Health Club, Inc.
420 Lapp Road........... Ind.-Flex 1989 92,250 85.8 8 Akzo Coatings, Inc.
1 Chelsea Parkway....... Ind.-Flex 1988 43,267 99.0 6 Valtek Incorporated
3 Chelsea Parkway....... Ind.-Flex 1988 43,240 55.5 3 United Engineers & Constructors
747 Dresher Road........ Ofc. 1988 53,200 100.0 2 Axon Communications, Inc.
45-67 Great Valley Park-
way.................... Ind.-Dist. 1974 128,001 100.0 8 Taylor Publishing Co.
1180 Church Road........ Ind.-Dist. 1986 452,323 56.3 3 Safeguard Business Systems, Inc.
40 Valley Stream Park-
way.................... Ofc. 1987 31,092 100.0 1 Sanchez Computer Associates
50 Valley Stream Park-
way.................... Ofc. 1987 31,000 100.0 3 Fisher Scientific Company
20 Valley Stream Park-
way.................... Ofc. 1987 58,834 100.0 12 Shared Medical Systems
800 Town Center Drive... Ind.-Flex 1987 141,714 100.0 18 ICT Group, Inc.
1610 Medical Drive...... Ofc. 1986 38,100 54.4 5 Employers Mutual Casualty Co.
11, 15 Great Valley
Parkway................ Ofc. 1986 156,800 100.0 2 Sanofi Winthrop, Inc.
257-275 Great Valley
Parkway................ Ind.-Flex 1983 71,285 100.0 7 Business Mail Express, Inc.
300 Technology Drive.... Ind.-Dist. 1985 22,500 100.0 1 Nilfisk of America, Inc.
277-293 Great Valley
Parkway................ Ind.-Flex 1984 28,800 100.0 7 Alpha Scientific Corporation
311 Technology Drive.... Ofc. 1984 29,350 100.0 3 Sherwin-Williams Co.
325 Technology Drive.... Ofc. 1984 25,000 100.0 1 Premier Solutions Ltd.
7 Great Valley Parkway.. Ofc. 1985 59,021 100.0 14 Rabbit Software Corporation
55 Valley Stream Park-
way.................... Ofc. 1983 40,057 100.0 5 Meridian Properties, Inc.
65 Valley Stream Park-
way.................... Ofc. 1983 58,219 100.0 7 Liberty Property Limited Ptsp.
508 Lapp Road........... Ind.-Dist. 1984 50,200 100.0 1 Numar Corporation
10 Valley Stream Park-
way.................... Ofc. 1984 33,027 100.0 8 West Chester Administrative
333 Phoenixville Pike... Ind.-Dist. 1985 84,000 100.0 1 Veterans Life Insurance Co.
1566 Medical Drive...... Ofc. 1985 28,540 88.1 5 General Physics Corporation
30 Great Valley Park-
way.................... Ind.-Dist. 1975 12,000 100.0 1 Sanofi Winthrop, Inc.
75 Great Valley Park-
way.................... Ind.-Dist. 1977 11,600 100.0 1 York International Corp.
27-43 Great Valley Park-
way.................... Ind.-Flex 1977 60,623 100.0 5 Sanofi Winthrop, Inc.
77-123 Great Valley
Parkway................ Ind.-Flex 1978 104,095 99.3 20 Durant Medical, Inc.
260 Great Valley Park-
way.................... Ind.-Dist. 1979 50,000 100.0 1 American Parts Systems
256 Great Valley Park-
way.................... Ind.-Dist. 1980 56,160 100.0 1 Centocor, Inc.
205 Great Valley Park-
way.................... Ind.-Dist. 1981 184,500 92.3 3 General Electric Company
12,14,16 Great Valley
Parkway................ Ofc. 1982 20,546 100.0 3 Sanofi Winthrop, Inc.
155 Great Valley Park-
way.................... Ind.-Dist. 1981 71,200 100.0 1 Ensoniq Corporation
333 Technology Drive.... Ofc. 1987 39,769 100.0 1 Premier Solutions, Ltd.
510 Lapp Road........... Ind.-Dist. 1983 27,167 100.0 1 Trugreen
181 Wheeler Court....... Ind.-Dist. 1979 100,000 100.0 3 Executive Warehouse, Inc.
1100 Wheeler Way........ Ind.-Dist. 1979 40,915 100.0 1 National Business Services, Inc.
60 Morehall Road........ Ofc. 1989 114,430 100.0 3 Vanguard Group
905 Airport Road........ Ind.-Dist. 1988 128,588 100.0 6 Arco Chemical Company
16 Cabot Boulevard...... Ind.-Dist. 1972 299,192 100.0 1 White Consolidated Industries
1 Country View Road..... Ofc. 1982 48,900 100.0 1 Systems & Computer Technology
2151 Cabot Boulevard.... Ind.-Dist. 1982 114,760 100.0 1 Schwarz Paper Company
170 S Warner Road....... Ofc. 1980 87,685 93.8 5 AT&T Resource Management Corp.
190 S Warner Road....... Ofc. 1980 87,500 100.0 1 Electronic Data Systems Corp.
507 Prudential Road..... Ind.-Flex 1988 105,500 100.0 1 Prudential Insurance Company
100 Witmer Road......... Ofc. 1995 139,546 100.0 1 GMAC Mortgage Corporation
3100 Horizon Boulevard.. Ind.-Flex 1995 41,000 100.0 1 Vtel Corporation
3300 Horizon Boulevard.. Ind.-Dist. 1996 92,000 100.0 1 Central National-Gottesman, Inc.
3500 Horizon Boulevard.. Ind.-Flex 1996 65,579 100.0 1 SmithKline Beecham Clinical
200 Chester Field Park-
way.................... Ofc. 1989 28,919 100.0 3 Waverly, Inc.
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
PERCENT
LEASED AT
BUILDING YEAR LEASABLE DEC. 31, NO. OF
PROJECT NAME TYPE DEVE. SQ. FT.(1) 1996(2) LEASES MAJOR TENANT
- ------------ ---------- ----- ---------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
767 Electronic Drive.... Ind.-Flex 1996 45,000 100.0 1 Diversified Pharmaceutical Svc.
5 Country View Road..... Ofc. 1985 63,170 100.0 2 HBO & Company of Georgia
3200 Horizon Boulevard.. Ind.-Flex 1996 60,000 100.0 1 Fund/Plan Services, Inc.
111-195 Witmer Road..... Ofc. 1996 55,354 98.2 15 Kulicke & Soffa Industries, Inc.
2460 General Armistead
Avenue................. Ind.-Flex 1985 36,831 93.0 8 Midlantic Distribution Co.
2490 General Armistead
Avenue................. Ind.-Flex 1985 20,811 82.7 6 Barefoot Grass Lawn Service
300 Welsh Road.......... Ofc. 1983 23,461 100.0 4 Delta Information Systems Inc.
400 Welsh Road.......... Ofc. 1983 36,723 96.7 5 National Fraud Investigations
440 E. Swedesford Road.. Ofc. 1988 71,368 58.1 11 Affiliated Distributors
460 E. Swedesford Road.. Ofc. 1988 70,205 97.6 7 Johnson-Matthey Investments
2 Walnut Grove Drive.... Ofc. 1989 81,846 74.6 11 Toyota Motor Credit Corp.
200 Gibralter Road...... Ofc. 1990 64,452 93.7 10 Great West Life Assurance
220 Gibralter Road...... Ofc. 1990 63,587 100.0 1 Prudential Insurance Company
240 Gibralter Road...... Ofc. 1990 63,587 100.0 1 Prudential Insurance Company
151 E Warner Road....... Ofc. 1980 84,066 98.4 11 Paging Network of Philadelphia
931 South Matlack
Street................. Ind.-Dist. 1985 139,500 100.0 1 Electronics Boutique, Inc.
14 Lee Boulevard........ Ind.-Flex 1988 89,026 86.9 5 Vanguard Group
500 Chester Field Park-
way.................... Ofc. 1988 30,815 100.0 2 Becket, Watkins and Associates
300-400 Chester Field
Parkway................ Ofc. 1988 50,383 100.0 3 Amerisource Corporation
--------- -----
Total Southeastern
Pennsylvania.......... 5,144,416 93.1%
========= =====
NEW JERSEY/DELAWARE
1805 Underwood Boule-
vard................... Ind.-Dist. 1973 14,383 100.0% 1 Uniscore, Inc.
150 Mid-Atlantic Park-
way.................... Ind.-Dist. 1973 30,873 100.0 1 Reynolds Metals Company
18 Boulden Circle....... Ind.-Flex 1989 76,000 76.8 10 Custom Computer Services, Inc.
501 Delran Parkway...... Ind.-Dist. 1988 49,500 68.1 2 Gandalf Systems Corporation
600 Delran Parkway...... Ind.-Dist. 1988 119,290 100.0 2 Computer & Comm Info
1607 Imperial Way....... Ind.-Dist. 1973 80,000 100.0 1 Dunkin' Donuts
1 Boulden Circle........ Ind.-Dist. 1986 43,200 100.0 1 Norel Paper Corporation
31-55 Read's Way........ Ind.-Flex 1986 78,009 100.0 3 Cigna Corporation
3 Boulden Circle........ Ind.-Dist. 1987 60,812 100.0 1 Livingston Healthcare Services
5 Boulden Circle........ Ind.-Dist. 1987 119,653 100.0 1 Brundage Distribution Corp.
601 Delran Parkway...... Ind.-Dist. 1988 57,930 100.0 1 Keymar Warehouse, Inc.
51 Haddonfield Road..... Ofc. 1986 93,000 89.0 19 Lehigh Press, Inc.
57 Read's Way........... Ind.-Flex 1985 53,600 100.0 2 Wachovia Bank of Georgia
1370 Imperial Way....... Ind.-Dist. 1978 179,785 100.0 1 National Distribution Centers
8 Stow Road............. Ind.-Flex 1988 34,911 84.1 4 AT&T Resource Management Corp.
10 Stow Road............ Ind.-Flex 1988 29,722 68.5 1 Trans World Airlines, Inc.
12 Stow Road............ Ind.-Flex 1988 21,200 100.0 5 Future Electronics Corp.
14 Stow Road............ Ind.-Flex 1988 18,821 100.0 2 Wiltel Communications Sys, Inc.
1300 Metropolitan Ave-
nue.................... Ind.-Dist. 1972 76,196 100.0 1 Phoenix Display & Packaging
701A Route 73 South..... Ofc. 1987 97,200 81.2 8 Ohio Casualty Insurance
701C Route 73 South..... Ofc. 1987 27,813 80.9 4 Prudential Property & Casualty
1008 Astoria Boulevard.. Ind.-Flex 1973 37,400 87.6 6 ACSIS, Inc.
1475 Imperial Way....... Ind.-Dist. 1976 60,000 100.0 1 Knauf Fiberglass, Inc.
3000 Atrium Way......... Ofc. 1987 110,115 68.3 11 Atrium Executive Center, Inc.
750 Cardinal Drive...... Ind.-Dist. 1989 81,348 100.0 1 Leslie's Poolmart
11000, 15000, 17000
Commerce Parkway....... Ind.-Flex 1985 100,170 97.8 8 PHH Mortgage Services Corp.
12000, 14000 Commerce
Parkway................ Ind.-Flex 1985 68,000 87.8 6 Simirex, Inc.
16000, 18000 Commerce
Parkway................ Ind.-Flex 1985 52,000 93.8 7 CSX Intermodal, Inc.
406 Lippincott Drive.... Ofc. 1990 40,000 100.0 5 Travelers Insurance Co
234 High Hill Road...... Ind.-Dist. 1987 60,000 100.0 1 Skyway Freight Systems, Inc.
101 Arlington Boule-
vard................... Ind.-Dist. 1996 154,675 100.0 2 Heinz Bakery Products
100 Berkeley Drive...... Ind.-Dist. 1990 67,000 100.0 1 MCR Direct Mail, Inc.
301 Lippincott Drive.... Ofc. 1988 82,482 100.0 4 Fluor Daniel, Inc.
303 Lippincott Drive.... Ofc. 1988 82,541 99.8 4 Fluor Daniel, Inc.
510 Sharptown Road...... Ind.-Dist. 1984 40,156 100.0 1 Day Products, Inc.
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PERCENT
LEASED AT
BUILDING YEAR LEASABLE DEC. 31, NO. OF
PROJECT NAME TYPE DEVE. SQ. FT.(1) 1996(2) LEASES MAJOR TENANT
- ------------ ---------- ----- ---------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
901 Route 73............ Ofc. 1985 39,434 96.9 4 Teknion, Inc.
1500 Route 73 North..... Ofc. 1988 62,069 65.6 9 Prudential Securities, Inc.
512 Sharptown Road...... Ind.-Dist. 1984 58,000 100.0 1 Trek Bicycle Corporation
263 Quigley Boulevard... Ind.-Dist. 1987 43,525 98.5 8 Small Systems Management Corp.
34 Blevins Drive........ Ind.-Flex 1987 50,022 100.0 7 Panelmatic
104 Gaither Drive....... Ind.-Dist. 1975 45,390 100.0 1 Eptech Corporation
2 Lukens Drive.......... Ind.-Flex 1988 43,175 100.0 3 Ameristar Technologies
--------- -----
Total New
Jersey/Delaware....... 2,739,400 94.2%
========= =====
LEHIGH VALLEY
1655 Valley Center Park-
way.................... Ofc. 1993 28,300 62.3% 1 Allstate Insurance Company
6560 Stonegate Drive.... Ind.-Dist. 1989 80,000 100.0 2 Vitra Seating, Inc.
6370 Hedgewood Drive.... Ind.-Dist. 1990 110,000 69.1 2 ODL, Inc.
6390 Hedgewood Drive.... Ind.-Dist. 1990 69,000 100.0 2 Behr Processing Corporation
1495 Valley Center Park-
way.................... Ofc. 1990 43,770 100.0 2 Ingersoll-Rand Company
6350 Hedgewood Drive.... Ind.-Dist. 1989 121,000 100.0 2 Organon, Inc.
6330 Hedgewood Drive.... Ind.-Flex 1988 89,700 100.0 7 Submicron Systems, Inc.
1550 Valley Center Park-
way.................... Ind.-Flex 1988 43,400 100.0 7 Employee Benefit Plans, Inc.
1560 Valley Center Park-
way.................... Ind.-Flex 1988 51,400 100.0 1 TIG Insurance Company
6580 Snowdrift Road..... Ind.-Dist. 1988 104,000 100.0 1 Dana Corporation
1510 Valley Center Park-
way.................... Ind.-Flex 1988 48,208 90.9 6 Visiting Nurses Association
1530 Valley Center Park-
way.................... Ind.-Flex 1988 46,400 100.0 1 SKF USA, Inc.
6540 Stonegate Drive.... Ind.-Dist. 1988 120,000 100.0 1 SKF USA, Inc.
974 Marcon Boulevard.... Ind.-Flex 1987 39,200 29.3 3 Norwood Industrial Construction
964 Marcon Boulevard.... Ind.-Flex 1985 39,200 100.0 6 Health Spectrum Medical
764 Roble Road.......... Ind.-Flex 1985 21,860 100.0 1 ChemLawn Corp Center
3174 Airport Road....... Ind.-Flex 1979 42,000 64.3 1 Allentech, Inc.
2196 Avenue C........... Ind.-Flex 1980 31,140 100.0 1 Lehigh University
2202 Hangar Place....... Ind.-Flex 1981 66,495 100.0 4 Lofts Seed, Inc.
2201 Hangar Place....... Ind.-Flex 1981 52,300 100.0 6 Pacesetter Enterprises, Inc.
954 Marcon Boulevard.... Ind.-Dist. 1981 24,000 100.0 1 Merck & Co., Inc.
57 South Commerce Way... Ind.-Flex 1986 76,400 100.0 7 SKF USA, Inc.
754 Roble Road.......... Ind.-Flex 1986 46,800 79.5 5 Computer Designs, Inc.
894 Marcon Boulevard.... Ind.-Flex 1986 28,800 100.0 10 Spalding Company, Inc.
744 Roble Road.......... Ind.-Flex 1986 46,800 97.7 8 Fluoro-Seal
944 Marcon Boulevard.... Ind.-Flex 1986 38,400 100.0 13 Integrated Solutions, Inc.
1685 Valley Center Park-
way.................... Ofc. 1996 27,200 100.0 2 General Accident Insurance Co.
6520 Stonegate Drive.... Ind.-Flex 1996 43,200 100.0 5 Submicron Systems Inc.
7437 Industrial Boule-
vard................... Ind.-Dist. 1976 191,330 100.0 2 Stuart Medical, Inc.
2041 Avenue C........... Ind.-Flex 1990 30,400 100.0 3 Dorst America, Inc.
2124 Avenue C........... Ind.-Dist. 1990 36,000 100.0 1 Graybar Electric Co., Inc.
7339 Industrial Boule-
vard................... Ind.-Dist. 1996 215,000 47.9 1 DSC Logistics, Inc.
7384 Penn Drive......... Ind.-Dist. 1988 112,000 100.0 1 Osram Sylvania, Inc.
7144 Daniels Drive...... Ind.-Dist. 1975 300,312 100.0 2 Simpson Paper Company
7620 Cetronia Road...... Ind.-Dist. 1990 155,060 100.0 3 Lehigh Group
939 Marcon Boulevard.... Ind.-Dist. 1980 315,000 100.0 1 Fieldcrest Cannon Sure Fit, Inc.
100 Brodhead Road....... Ofc. 1990 47,056 77.1 6 First Valley Bank
1640 Valley Center Park-
way.................... Ofc. 1996 30,850 100.0 1 Pennsylvania Cellular
83 South Commerce Way... Ofc. 1989 18,983 72.5 3 Nationwide Insurance
85 South Commerce Way... Ofc. 1989 21,119 100.0 2 Penn Del Directory Co.
87 South Commerce Way... Ofc. 1989 22,653 100.0 4 Versyss, Inc.
7248 Industrial Boule-
vard................... Ind.-Dist. 1988 497,000 67.5 3 S.D. Warren Company
--------- -----
Total Lehigh Valley.... 3,571,736 89.0%
========= =====
MARYLAND................
180 Admiral Cochrane
Drive.................. Ofc. 1989 128,236 96.0% 9 Columbia Medical Plan, Inc.
12000,001,040 Indian
Creek Court............ Ind.-Flex 1986 185,776 100.0 7 Biospherics, Inc.
190 Admiral Cochrane
Drive.................. Ofc. 1988 72,085 95.5 12 Telespectrum
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
PERCENT
LEASED AT
BUILDING YEAR LEASABLE DEC. 31, NO. OF
PROJECT NAME TYPE DEVE. SQ. FT.(1) 1996(2) LEASES MAJOR TENANT
- ------------ ---------- ----- ---------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
8280 Patuxent Range
Drive.................. Ind.-Dist. 1978 60,079 100.0 2 Alcore, Inc.
8300 Professional
Place.................. Ofc. 1978 60,058 97.7 9 TRW, Inc.
8100 Professional
Place.................. Ofc. 1987 54,613 62.9 11 Ben Dyer Associates, Inc.
8100,8200,8300 Corporate
Drive.................. Ofc. 1981 119,227 69.9 14 Kaiser-Georgetown Community
7178--7180 Columbia
Gateway................ Ind.-Flex 1987 88,895 92.4 4 Nationsbank, N.A.
8200--8240 Professional
Place.................. Ofc. 1979 56,464 56.8 11 F.M.E. Corporation
8400 Corporate Drive.... Ofc. 1984 147,800 23.2 5 Digital Equipment Corp.
8730 Bollman Place...... Ind.-Dist. 1984 98,745 100.0 1 Kraft Foodservice, Inc.
9101,9111,9115 Guilford
Road................... Ind.-Flex 1984 51,751 81.1 4 Sienna Biotech, Inc.
9125,9135,9145 Guilford
Road................... Ind.-Flex 1983 85,804 63.6 5 Federal Express Corporation
--------- -----
Total Maryland......... 1,209,533 79.2%
========= =====
VIRGINIA
10 South Third Street... Ofc. 1930 4,900 100.0% 1 Scribner, Messer, Brady & Wade
1751 Bluehills Drive.... Ind.-Dist. 1991 265,082 100.0 1 Conopco, Inc.
4300 Carolina Avenue.... Ind.-Dist. 1985 218,554 100.0 1 United States of America
301 Hill Carter Park-
way.................... Ind.-Dist. 1989 80,000 100.0 1 Philip Morris Incorporated
4001 Carolina Avenue.... Ind.-Dist. 1935 35,200 91.8 6 Charles H. Snead, Jr.
5600-5626 Eastport Bou-
levard................. Ind.-Flex 1989 71,227 93.2 5 American Honda Motor Co., Inc.
5650-5674 Eastport Bou-
levard................. Ind.-Dist. 1990 150,867 100.0 4 Sterilization Services of VA
5700 Eastport Boule-
vard................... Ind.-Dist. 1990 100,336 100.0 1 Merisel, Inc.
11020 Hull Street Road.. Ofc. 1987 5,172 100.0 1 Patient First Corporation
3432 Holland Road....... Ofc. 1989 5,688 100.0 1 Patient First Corporation
3001 Hungary Springs
Road................... Ofc. 1984 11,235 100.0 2 Broughton Systems, Inc.
7760 Shrader Road....... Ofc. 1987 18,247 100.0 2 Signet Bank
7740 Shrader Road....... Ofc. 1989 10,167 71.5 3 Rector & Visitors of UVA
4880 Cox Road........... Ofc. 1995 59,948 93.7 2 Saxon Mortgage, Inc.
5162 Valleypointe Park-
way.................... Ofc. 1993 25,000 100.0 1 United States of America
4101-4127 Carolina Ave-
nue.................... Ind.-Dist. 1973 126,000 100.0 1 Hamilton Hybar, Inc.
4201-4261 Carolina Ave-
nue.................... Ind.-Dist. 1975 288,000 99.8 8 Crestar Bank
4263-4299 Carolina Ave-
nue.................... Ind.-Dist. 1976 180,000 100.0 1 Open Plan Systems, Inc.
4301-4335 Carolina Ave-
nue.................... Ind.-Dist. 1978 162,000 100.0 1 Stone Container Corporation
4337-4379 Carolina Ave-
nue.................... Ind.-Dist. 1979 198,000 100.0 2 The Goldberg Company, Inc.
4501-4549 Carolina Ave-
nue.................... Ind.-Dist. 1981 150,000 100.0 2 Foxmeyer Drug Company
4551-4593 Carolina Ave-
nue.................... Ind.-Dist. 1982 151,800 100.0 3 A.H. Robins Company, Inc.
4601-4643 Carolina Ave-
nue.................... Ind.-Dist. 1985 151,800 100.0 2 T.E.U. Incorporated
4545-4583 Carolina Ave-
nue.................... Ind.-Dist. 1985 120,000 100.0 1 Owens & Minor Medical, Inc.
4447-4491 Carolina Ave-
nue.................... Ind.-Dist. 1987 158,700 100.0 1 Shelcore, Inc.
4401-4445 Carolina Ave-
nue.................... Ind.-Dist. 1988 158,700 100.0 2 Media Post Marketing
12 S. Third Street...... Ofc. 1900 5,735 100.0 1 Liberty Property Limited Ptnsp.
9601 Cosner Drive....... Ind.-Dist. 1995 128,500 100.0 1 Simmons Company
315 Cardiff Valley
Road................... Ind.-Dist. 1994 151,200 100.0 1 Caterpillar Inc.
2300 East Parham Road... Ofc. 1988 5,172 100.0 1 Patient First Corporation
1347 Diamond Springs
Road................... Ind.-Dist. 1980 99,260 100.0 2 Nu-Home TV & Furniture, Inc.
5221 Valleypark Drive-
Bldg A................. Ind.-Flex 1988 17,007 100.0 1 RBX Holdings, Inc.
5228 Valleypointe Park-
way-Bldg B............. Ind.-Flex 1988 14,477 61.4 3 Allen-Bradley Company
5238 Valleypark Drive-
Bldg C................. Ind.-Flex 1989 17,062 98.5 6 MCI Telecommunications
5601-5609 Eastport Bou-
levard................. Ind.-Dist. 1996 150,000 100.0 2 General Medical Corporation
4717-4729 Eubank Road... Ind.-Dist. 1978 141,313 100.0 3 Whithall-Robins
4263F Carolina Avenue... Ind.-Dist. 1975 57,600 100.0 3 Heflebower Transfer & Storage
4200 Oakleys Court...... Ind.-Dist. 1990 80,000 100.0 1 Multiton Mic Corp.
1821 Battery Dantzler
Road................... Ind.-Dist. 1990 129,600 100.0 3 Richmond Cold Storage Co.
5000 Cox Road........... Ind.-Flex 1990 58,367 100.0 6 Patient First Corporation
510 Eastpark Court...... Ind.-Flex 1989 51,874 100.0 5 Power Distribution, Inc.
520 Eastpark Court...... Ind.-Dist. 1989 144,228 100.0 5 Bunzl-Richmond, Inc.
--------- -----
Total Virginia......... 4,158,018 99.5%
========= =====
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
PERCENT
LEASED AT
BUILDING YEAR LEASABLE DEC. 31, NO. OF
PROJECT NAME TYPE DEVE. SQ. FT.(1) 1996(2) LEASES MAJOR TENANT
- ------------ ---------- ----- ---------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
NORTH CAROLINA
4523 Green Point Drive.. Ind.-Dist. 1988 85,830 100.0% 1 Dry Storage Corporation
4501 Green Point Drive.. Ind.-Dist. 1989 90,049 100.0 4 New Breed Leasing Corporation
4500 Green Point Drive.. Ind.-Dist. 1989 71,040 100.0 6 Corporate Express of the South, Inc.
2427 Penny Road......... Ind.-Dist. 1990 270,000 100.0 1 Masco Corporation
4524 Green Point Drive.. Ind.-Dist. 1988 74,587 84.4 3 Standard Register Co.
4328, 4336 Federal
Drive.................. Ind.-Dist. 1995 177,600 100.0 2 United Parcel Service, Inc.
200 Centreport Drive.... Ofc. 1986 47,190 100.0 18 MCI Telecommunications Corp.
4344 Federal Drive...... Ind.-Dist. 1996 92,425 100.0 4 MAC Papers, Inc.
202 Centreport Drive.... Ofc. 1990 62,664 95.0 5 Key Risk Management Services
4000 Piedmont Parkway... Ofc. 1989 60,383 92.9 20 New Breed Leasing Corporation
--------- -----
Total North Carolina... 1,031,768 98.2%
========= =====
JACKSONVILLE, FLORIDA
1730 Stebbins Drive..... Ind.-Dist. 1973 40,000 100.0% 1 Atlas Bag, Inc.
5911-5925 Richard
Street................. Ind.-Flex 1977 40,000 100.0 1 Vistakon Div.--Johnson & Johnson
8383-8385 Baycenter
Road................... Ind.-Dist. 1973 40,000 100.0 1 Parts House, Inc.
8775 Baypine Road....... Ofc. 1989 50,000 100.0 1 AT&T Resource Management Corp.
8539 Western Way........ Ind.-Flex 1987 72,030 0.0 --
6255 Lake Grey Boule-
vard................... Ind.-Flex 1987 94,174 100.0 7 U.S. Telecom, Inc.--Sprint Serv.
6600-6660 Suemac Place.. Ind.-Dist. 1973 103,404 100.0 5 American Flat Glass
6800-6850 Suemac Place.. Ind.-Dist. 1973 60,000 100.0 1 R&G Sloane Manufacturing Co.
8665, 8667, 8669 Baypine
Road................... Ofc. 1987 63,118 100.0 5 Blue Cross and Blue Shield
8540 Baycenter Road..... Ind.-Flex 1984 30,028 100.0 1 Reichhold Chemicals
1200 Gulf Life Drive.... Ofc. 1984 179,274 92.9 20 Stein Mart, Inc.
8400 Baymeadows Way..... Ind.-Flex 1987 43,547 100.0 8 Productivity Solutions, Inc.
8614 Baymeadows Way..... Ofc. 1986 16,000 100.0 1 Allstate Insurance Company
5941-5975 Richard
Street................. Ind.-Flex 1978 86,660 100.0 1 Vistakon Div.--Johnson & Johnson
7970 Bayberry Road...... Ind.-Flex 1978 55,000 0.0 --
6000-6030 Bowdendale Av-
enue................... Ind.-Flex 1979 83,330 88.0 4 Vistakon Div.--Johnson & Johnson
7898 Baymeadows Way..... Ofc. 1979 42,149 100.0 2 American Transtech, Inc. (AT&T)
5977-6607 Richard
Street................. Ind.-Flex 1980 73,333 100.0 1 Vistakon Div.--Johnson & Johnson
7910 & 7948 Baymeadows
Way.................... Ofc. 1980 52,505 100.0 3 American Transtech, Inc. (AT&T)
7954 & 7960 Baymeadows
Way.................... Ofc. 1982 52,608 100.0 2 American Transtech, Inc. (AT&T)
8787 Baypine Road....... Ofc. 1990 220,000 100.0 1 AT&T Resource Management Corp.
7077 Bonneval Road...... Ofc. 1988 102,942 95.1 26 Florida Windstorm Underwriting
4190 Belfort Road....... Ofc. 1986 105,664 94.6 24 Enterprise National Bank
8011, 8021, 8031 Phil-
lips Highway........... Ofc. 1987 81,962 71.2 9 Southwest Signal Engineering
7020 AC Skinner Park-
way.................... Ind.-Flex 1996 42,184 100.0 6 Intermedia Communications, Inc.
7022 AC Skinner Park-
way.................... Ind.-Dist. 1996 88,200 100.0 2 Microtek Medical, Inc.
11777 Central Highway... Ind.-Dist. 1985 50,000 0.0 --
7016 AC Skinner Park-
way.................... Ind.-Flex 1996 39,350 100.0 1 Georgia-Pacific Corporation
--------- -----
Total Jacksonville,
Florida............... 2,007,462 88.3%
========= =====
TAMPA, FLORIDA
4001, 4051, 4101 Fowler
Avenue................. Ind.-Flex 1987 101,198 90.5% 20 Musculoskeletal Institute
5501 Pioneer Park Boule-
vard................... Ind.-Dist. 1981 61,416 100.0 5 Premdor Corporation
5502 Pioneer Park Boule-
vard................... Ind.-Dist. 1981 48,375 100.0 3 Premdor Corporation
5690-5694 Crenshaw
Street................. Ind.-Dist. 1979 87,095 100.0 3 Florida Flooring Products, Inc.
3102, 3104, 3110 Cherry
Palm Drive............. Ind.-Flex 1986 74,339 100.0 12 Groundwater Technology, Inc.
8401-8408 Benjamin
Road................... Ind.-Flex 1986 127,566 95.4 18 National RX Services, Inc.
3501 Riga Boulevard..... Ind.-Flex 1987 57,220 100.0 2 Customer Communications Center
111 Kelsey Lane......... Ind.-Flex 1990 60,200 50.0 1 Westinghouse Electric Corp.
--------- -----
Total Tampa, Florida... 617,409 92.6%
========= =====
</TABLE>
A-5
<PAGE>
<TABLE>
<CAPTION>
PERCENT
LEASED AT
BUILDING YEAR LEASABLE DEC. 31, NO. OF
PROJECT NAME TYPE DEVE. SQ. FT.(1) 1996(2) LEASES MAJOR TENANT
- ------------ --------- ----- ---------- --------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
UNITED KINGDOM
50 Gibson Drive......... Ofc. 1991 18,000 100.0% 1 Genzyme Biochemicals
25 Kings Hill Avenue.... Ofc. 1996 35,000 82.7 2 Charities Aid Foundation
2 Kings Hill Avenue..... Ind.-Flex 1996 34,600 67.2 2 Broadcast Surveillance Systems
50 Kings Hill Avenue.... Ofc. 1996 50,000 100.0 1 Rhone-Polenc Rorer
---------- -----
Total United Kingdom... 137,600 87.4%
---------- -----
TOTAL COMPANY.......... 20,617,342 92.8%
========== =====
</TABLE>
- --------
(1) Based on current net leasable building area. Some buildings have been
expanded since their original acquisition or development.
(2) Percent leased is based on rent commencement date.
A-6
<PAGE>
PROSPECTUS
[LOGO OF LIBERTY PROPERTY TRUST APPEARS HERE]
$681,520,000
LIBERTY PROPERTY TRUST
COMMON SHARES OF BENEFICIAL INTEREST
PREFERRED SHARES OF BENEFICIAL INTEREST
DEPOSITARY SHARES
DEBT SECURITIES
WARRANTS
GUARANTIES
$400,000,000
LIBERTY PROPERTY LIMITED PARTNERSHIP
DEBT SECURITIES
GUARANTIES
Liberty Property Trust, a Maryland real estate investment trust (the
"Trust"), may offer from time to time in one or more series hereunder,
together or separately, at prices and on terms to be determined at the time of
offering: (a) its debt securities ("Trust Debt Securities"), consisting of
debentures, notes and/or other evidences of indebtedness, representing secured
or unsecured obligations of the Trust, which may be either senior or
subordinated, which may have the benefit of conditional or unconditional
guaranties ("Partnership Guaranties") of the Operating Partnership (as defined
below) and which may be convertible into or exchangeable for Common Shares (as
defined below), Preferred Shares (as defined below) or other Securities (as
defined below); (b) its Preferred Shares of Beneficial Interest, $0.001 par
value ("Preferred Shares"), which may be issued in the form of depositary
shares evidenced by depositary receipts ("Depositary Shares") and which may be
convertible into or exchangeable for Common Shares or other Securities; (c)
its Common Shares of Beneficial Interest, $0.001 par value ("Common Shares");
and (d) warrants to purchase Trust Debt Securities ("Debt Warrants"),
Preferred Shares ("Preferred Shares Warrants") or Common Shares ("Common
Shares Warrants"). The Debt Warrants, Preferred Shares Warrants and Common
Shares Warrants are herein referred to collectively as "Warrants" and,
together with Trust Debt Securities, Trust Guaranties (as defined below),
Preferred Shares, Depositary Shares, Common Shares, as "Trust Securities."
Liberty Property Limited Partnership, a Pennsylvania limited partnership
(the "Operating Partnership" and, together with the Trust, the "Company"), may
offer from time to time in one or more series hereunder, together or
separately, at prices and on terms to be determined at the time of offering,
its debt securities ("Partnership Debt Securities"), consisting of debentures,
notes and/or other evidences of indebtedness, representing secured or
unsecured obligations of the Operating Partnership, which may be either senior
or subordinated, which may have the benefit of conditional or unconditional
guaranties of the Trust ("Trust Guaranties" and, together with Partnership
Guaranties, "Guaranties") and which may be convertible into or exchangeable
for Common Shares, Preferred Shares, Trust Debt Securities, units of limited
partnership interest ("Units") of the Operating Partnership and other
Securities. The Partnership Debt Securities, Partnership Guaranties and Units
are herein referred to as "Partnership Securities" and, together with Trust
Securities, as "Securities."
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in an accompanying Prospectus Supplement
(the "Prospectus Supplement") which will describe, without limitation and to
the extent applicable, terms for such Securities, including: (a) in the case
of Trust Debt Securities or Partnership Debt Securities, the specific title,
aggregate principal amount, currency, denomination, maturity, priority, rate
of interest (which may be fixed or variable), time and place of payment of
interest, terms for optional redemption or repayment by the issuer thereof or
any holder thereof or for sinking fund payments,
(cover page continues)
<PAGE>
terms for conversion into or exchange for other Securities, if any, including
terms of any Securities into or for which they are convertible or
exchangeable, the initial public offering price, any securities exchange
listings, any special provisions related to denomination in a foreign currency
or issuance as medium term notes, original issue discount or other special
terms, the designation of the Trustee (as defined below), Security Registrar
and Paying Agent (as defined below), and the terms of any applicable Guaranty;
(b) in the case of Preferred Shares, the specific designation and stated
value, number of shares or fractional interests therein, any dividend,
liquidation preference, redemption, sinking fund, voting or other rights, the
terms for conversion into or exchange for other Securities, if any, including
terms of any Securities into or for which they are convertible or
exchangeable, the initial public offering price and any securities exchange
listings; (c) in the case of Depositary Shares, the fraction of a Preferred
Share represented by one Depositary Share and terms of the Preferred Shares;
(d) in the case of Common Shares, the aggregate number of shares offered,
public offering price and other terms thereof; and (e) in the case of
Warrants, to the extent applicable, the duration, offering price, exercise
price, terms of the Securities for which they are exercisable, any securities
exchange listings and detachability and other terms thereof. The Prospectus
Supplement will also contain information, where applicable, with regard to
certain U.S. federal income tax, accounting or other considerations relating
to the Securities offered thereby.
The offering price to the public of the Securities to be issued by the Trust
and the Operating Partnership will be limited to US $681,520,000 and US
$400,000,000, respectively (or the equivalent based on the applicable exchange
rate at the time of issue, if Securities offered are denominated in one or
more foreign currencies or currency units). The Trust Debt Securities and
Partnership Debt Securities may be denominated in United States dollars or, at
the option of the issuer thereof, if so specified in the applicable Prospectus
Supplement, in one or more foreign currencies or currency units. Such Debt
Securities may be issued in registered form or bearer form, or both. If so
specified in the applicable Prospectus Supplement, such Debt Securities of a
series may be issued in whole or in part in the form of one or more temporary
or permanent global securities.
The Securities may be sold to or through dealers or underwriters, directly
to other purchasers or through agents. If an agent of the Trust or the
Operating Partnership or a dealer or an underwriter is involved in the sale of
the Securities with respect to which this Prospectus is being delivered, such
agent's commission or dealer's purchase price or underwriter's discount will
be set forth in, or may be calculated from, the Prospectus Supplement. Any
underwriters, dealers or agents participating in the offering of Securities
may be deemed "underwriters" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"). See "Plan of Distribution" for possible
indemnification arrangements for any agents, dealers or underwriters.
The Securities may be used as all or part of the consideration to be paid by
the Trust or the Operating Partnership for the acquisition of non-operating
assets, for which financial statements would not be required to be filed with
the Securities and Exchange Commission (the "Commission"), or in exchange for
units of limited partnership interest of the Operating Partnership. In
addition, Common Shares may be offered hereby in exchange for certain debt
securities of the Operating Partnership that are exchangeable for such Common
Shares. This Prospectus may not be used to consummate sales of Securities
unless accompanied by a Prospectus Supplement.
The Common Shares are traded on the New York Stock Exchange (the "NYSE")
under the symbol "LRY." On March 6, 1997, the last reported sale price, as
reported on the NYSE Composite Tape, was $25 per Common Share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR ANY SUPPLEMENT HERETO. ANY
REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 7, 1997.
<PAGE>
AVAILABLE INFORMATION
The Trust and the Operating Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, file reports and other information with
the Commission, including proxy statements in the case of the Trust. Such
reports and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the Commission's regional offices at
Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such material also may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at
prescribed rates. Electronic filings made through the Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR") are publicly available
through the Commission's Web site (http://www.sec.gov). Reports, proxy
statements and other information regarding the Trust and the Operating
Partnership may also be inspected at the offices of the NYSE at 20 Broad
Street, New York, New York 10005.
The Trust and the Operating Partnership have filed with the Commission a
registration statement on Form S-3 (together with any amendments thereto, the
"Registration Statement") under the Securities Act with respect to the
Securities offered hereby. This Prospectus constitutes a part of such
Registration Statement. As permitted by the rules and regulations of the
Commission, this Prospectus and the Prospectus Supplement do not contain all
of the information set forth in the Registration Statement and the exhibits
thereto. Statements contained in this Prospectus, the Prospectus Supplement or
in any document incorporated by reference in this Prospectus or the Prospectus
Supplement as to the contents of any contract or other document referred to
herein or therein are not necessarily complete, and in each instance where
such contract or document has been filed as an exhibit to the Registration
Statement or other document incorporated by reference, reference is made to
the copy of such contract or other document, each such statement being
qualified in all respects by such reference. The Registration Statement,
together with exhibits thereto, may be inspected at the Commission's public
reference facilities in Washington, D.C., and copies of all or any part
thereof may be obtained from the Commission upon the payment of prescribed
fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission under the Exchange Act,
are hereby incorporated herein by reference as of their respective dates:
(a) The Annual Report on Form 10-K of the Trust and the Operating
Partnership for the fiscal year ended December 31, 1996;
(b) The Current Reports on Form 8-K of the Trust and the Operating
Partnership, filed February 13, 1997 and March 6, 1997; and
(c) The description of the Common Shares contained in the Registration
Statement on Form 8-A filed by the Trust to register such securities
under Section 12 of the Exchange Act.
All documents and reports filed by the Trust or the Operating Partnership
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus and prior to termination of the offering described
herein shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the respective dates of filing of such documents or
reports, except as to any portion of any future annual or quarterly report to
the holders of securities of the Trust or the Operating Partnership or any
proxy or information statement which is not deemed to be filed under such
provisions.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement, this Prospectus
3
<PAGE>
and the Prospectus Supplement to the extent that a statement contained herein,
in the Prospectus Supplement or in any other subsequently filed document which
also is or is deemed to be incorporated by reference in the Registration
Statement or this Prospectus modifies or supersedes such statement. Any such
statement so modified or superseded, except as so modified or superseded,
shall not be deemed to constitute a part of this Prospectus or the Prospectus
Supplement.
The Company will provide without charge to each person to whom a copy of
this Prospectus or the Prospectus Supplement has been delivered, upon written
or oral request of such person, a copy of any or all of the documents
incorporated herein by reference, other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into such documents.
Requests for such copies should be directed to: Investor Relations, Liberty
Property Trust, 65 Valley Stream Parkway, Malvern, Pennsylvania 19355;
telephone (610) 648-1700.
THE COMPANY
Liberty Property Trust is one of the largest owners and operators of
suburban industrial and office real estate in the United States. The Trust is
a self-administered and self-managed Maryland real estate investment trust
("REIT") that was formed to continue and expand the commercial real estate
business of Rouse & Associates, a developer and manager of commercial real
estate in the Mid-Atlantic and Southeastern states, founded in 1972. The Trust
provides leasing, property management, acquisition, development, construction
and design management and other related services to a portfolio which, as of
December 31, 1996, consisted of 259 industrial and office properties.
On a consolidated basis, substantially all of the Trust's assets are owned
directly or indirectly by, and all of the Trust's operations are conducted
directly or indirectly by, Liberty Property Limited Partnership, a
Pennsylvania limited partnership. As used herein, unless the context otherwise
requires, such partnership, together with its direct and indirect
subsidiaries, is referred to as the "Operating Partnership" and the Operating
Partnership, together with the Trust (and, where the context requires, the
predecessor entity), is referred to as the "Company." The Trust is the sole
general partner and also is a limited partner of the Operating Partnership,
with a combined equity interest in the Operating Partnership of 90.05% at
December 31, 1996.
The Company's primary objective is to increase funds from operations per
share. See "Selected Financial Data" in the Prospectus Supplement for the
definition of this term. The strategies for achieving this goal are to deliver
outstanding tenant service, emphasize marketing to attract new tenants and
enhance the Company's portfolio through the acquisition and development of
high quality projects in markets affording opportunities for attractive
yields. In pursuing these strategies, the Company seeks to manage its capital
structure to fund growth while maintaining the strength of its balance sheet.
The Company owned 259 properties as of December 31, 1996, including 173
industrial and 86 office properties, which at that date were approximately
92.8% leased to over 800 tenants. As of December 31, 1996, the Company also
had 22 properties under development and held 1,012 acres of land for future
development.
The Company's executive offices are located at 65 Valley Stream Parkway,
Malvern, Pennsylvania 19355. The telephone number is (610) 648-1700. The
Company maintains offices in each of its primary markets.
USE OF PROCEEDS
Unless otherwise provided in the Prospectus Supplement, the net proceeds, if
any, from the sale of the Securities offered hereby will be used for general
business purposes, including the acquisition of properties or
4
<PAGE>
other assets. At the date hereof, no specific material proposed purchases have
been identified as probable. The amount of Securities offered from time to
time pursuant to this Prospectus and any Prospectus Supplement, and the
precise amounts and timing of the application of net proceeds from the sale of
such Securities, will depend upon funding requirements of the Company. If the
Company elects at the time of an issuance of Securities to make different or
more specific use of proceeds than set forth herein, such use will be
described in the Prospectus Supplement.
RATIOS OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges of the Company for the years ended
December 31, 1996 and 1995 and for the period from June 23, 1994 to December
31, 1994 were 1.83, 1.65 and 2.04, respectively. The ratios of earnings to
fixed charges were computed by dividing earnings by fixed charges. For this
purpose, earnings have been calculated by adding fixed charges (excluding
capitalized interest) to income (loss) before minority interest and
extraordinary items. Fixed charges consist of interest costs, whether expensed
or capitalized, and amortization of deferred financing costs.
Prior to the completion of the initial public offering of its Common Shares
on June 23, 1994, the operations of the Company were conducted through its
predecessor, Rouse & Associates and certain of its affiliates (collectively,
the "Rouse Group"). In connection with completion of the initial public
offering, the Company reorganized the Rouse Group and substantially
deleveraged the predecessor's asset base. As a result of these factors, the
Company does not consider information relating to the ratio of earnings to
fixed charges for the periods prior to the completion of the initial public
offering to be meaningful.
DESCRIPTION OF DEBT SECURITIES
The Trust Debt Securities and Partnership Debt Securities (together, "Debt
Securities") may each be issued in one or more series under a senior indenture
(the "Senior Indenture") or a subordinated indenture (the "Subordinated
Indenture" and, together with the Senior Indenture, the "Indenture"), in each
case between the Trust or the Operating Partnership and a Trustee (a
"Trustee"), which may be the same Trustee, and in the forms that have been
filed as exhibits to the Registration Statement, subject to the terms of such
amendments or supplements thereto as may be entered into from time to time and
filed with the Commission as exhibits to or incorporated by reference in the
Registration Statement. The following summaries of certain provisions of the
Indentures do not purport to be complete and are subject to, and qualified in
their entirety by reference to, all provisions of the Indentures, including
the definitions therein of certain terms. Wherever particular sections or
defined terms of the Indentures are summarized herein or in a Prospectus
Supplement, it is intended that such sections or defined terms (including,
unless otherwise indicated herein, definitions of terms capitalized in such
summaries) shall be incorporated herein or therein by reference. The following
sets forth certain general terms and provisions of the Debt Securities to
which any Prospectus Supplement may relate. The particular terms of the Debt
Securities offered by any Prospectus Supplement and the extent, if any, to
which such general provisions may apply to the Debt Securities so offered,
will be described in the Prospectus Supplement relating to such Debt
Securities. The Trust and the Operating Partnership are each referred to as an
"Issuer" for purposes of the following summary.
The Issuer's rights and the rights of its creditors, including the holders
of the Debt Securities offered hereby, to participate in the assets of any
subsidiary upon the latter's liquidation or recapitalization will be subject
to the prior claims of the subsidiary's creditors except, subject to certain
limitations, to the extent that the Issuer may itself be a creditor with
recognized claims against the subsidiary.
5
<PAGE>
GENERAL
The Indentures do not limit the aggregate principal amount of Debt
Securities that may be issued thereunder and provide that Debt Securities may
be issued from time to time in one or more series. The Debt Securities will be
direct obligations, secured or unsecured, of the Issuer. The Debt Securities
issued under the Senior Indenture will rank on a parity with all other
unsubordinated indebtedness of the Issuer. The Debt Securities issued under
the Subordinated Indenture will be subordinate and junior in right of payment
to all Senior Indebtedness of the Issuer, to the extent and in the manner set
forth in the Subordinated Indenture. See "Special Terms Relating to
Subordinated Debt Securities."
Reference is made to the Prospectus Supplement relating to the particular
series of Debt Securities offered thereby for the following terms, to the
extent applicable: (a) the title and series of such Debt Securities; (b) any
limit on the aggregate principal amount of such Debt Securities; (c) the price
or prices (expressed as a percentage of the aggregate principal amount
thereof) at which such Debt Securities will be issued; (d) the date or dates
on which such Debt Securities will mature, or the method or methods, if any,
by which such date or dates shall be determined; (e) the rate or rates (which
may be fixed or variable) per annum at which such Debt Securities will bear
interest, if any, or the method or methods, if any, by which such rate or
rates are to be determined; (f) the date or dates from which such interest, if
any, on such Debt Securities will accrue or the method or methods, if any, by
which such date or dates are to be determined, the dates on which such
Interest, if any, will be payable, the date on which payment of such interest,
if any, will commence and the Regular Record Dates for such Interest Payment
Dates, if any; (g) the dates, if any, on which and the price or prices at
which the Debt Securities will, pursuant to any mandatory sinking fund
provisions, or may, pursuant to any optional sinking fund or purchase fund
provisions, be redeemed by the Company, and the other detailed terms and
provisions of any such sinking fund or purchase fund; (h) the date, if any,
after which and the price or prices at which the Debt Securities may, pursuant
to any optional redemption provisions, be redeemed at the option of the
Company or of the holder thereof and the other detailed terms and provisions
of such optional redemption; (i) the extent to which any of the Debt
Securities will be issuable in temporary or permanent global form and, if so,
the identity of the depositary for such global Debt Security, and the manner
in which any interest payable on a temporary or permanent global Debt Security
will be paid; (j) the denomination or denominations in which such Debt
Securities are authorized to be issued; (k) whether any of the Debt Securities
will be issued in bearer form and, if so, any limitations on issuance or
conversion of such bearer Debt Securities (including exchange for registered
Debt Securities of the same series); (l) information with respect to book-
entry procedures; (m) whether any of the Debt Securities will be issued as
Original Issue Discount Securities; (n) each office or agency where, subject
to the terms of the related Indenture, such Debt Securities may be presented
for registration of transfer or exchange; (o) the currencies or currency units
in which such Debt Securities are issued and in which the principal of,
interest on and additional amounts, if any, in respect of such Debt Securities
will be payable; (p) whether the amount of payments of principal of, and
interest and additional amounts, if any, on such Debt Securities may be
determined with reference to an index, formula or other method (which index,
formula or method may, but need not be, based on one or more currencies,
currency units or composite currencies, commodities, equity indices or other
indices) and the manner in which such amounts shall be determined; (q) whether
the Issuer or a holder may elect payment of the principal of or interest on
such Debt Securities in a currency, currencies, currency unit or units or
composite currency or currencies other than that in which such Debt Securities
are denominated or stated to be payable, the period or periods within which,
and the terms and conditions upon which, such election may be made, and the
time and manner of determining the exchange rate between the currency,
currencies, currency unit or units, or composite currency or currencies in
which such Debt Securities are denominated or stated to be payable and the
currency, currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are to be so payable; (r) the
identity of the Trustee, and if other than the applicable Trustee, the
identity of each Security Registrar, Paying Agent and Authenticating Agent and
the designation of the initial Exchange Rate Agent, if any; (s) if applicable,
the defeasance of certain obligations by the Issuer pertaining to Debt
Securities of the series; (t) the person to whom any interest on any
registered Debt Security of the series shall be payable, if other than the
person in whose name that Debt Security (or one or more predecessor Debt
Securities) is registered at the close of business on the Regular Record Date
for such interest, the manner
6
<PAGE>
in which, or the person to whom, any interest on any bearer Debt Security of
the series shall be payable, if otherwise than upon presentation and surrender
of the coupons appertaining thereto as they severally mature, and the extent
to which, or the manner in which, any interest payable on a temporary global
Debt Security on an Interest Payment Date will be paid if other than in the
manner provided in the related Indenture; (u) whether and under what
circumstances the Issuer will pay additional amounts (the term "interest," as
used in this Prospectus, shall include such additional amounts) on such Debt
Securities to any holder who is not a United States person (including any
modification to the definition of such term as contained in the related
Indenture as originally executed) in respect of any tax, assessment or
governmental charge and, if so, whether the Issuer will have the option to
redeem such Debt Securities rather than pay such additional amounts (and the
terms of any such option); (v) any deletions from, modifications of or
additions to the Events of Default or covenants of the Issuer with respect to
any of such Debt Securities; (w) whether such Debt Securities shall be
convertible into or exchangeable for other Securities and, if so, the terms of
any such conversion or exchange and the terms of such other Securities; (x)
any other terms of the series (which will not be inconsistent with the
provisions of the applicable Indenture); and (y) the terms of any guarantees,
which may be conditional. The Prospectus Supplement relating to any particular
guaranty offered thereby will include any additional terms of such guaranty,
including the rank in priority and any covenants applicable to such guaranty.
Debt Securities may be issued as Original Issue Discount Securities to be
sold at a discount below their principal amount, which discount may be
substantial. In the event of an acceleration of the maturity of any Original
Issue Discount Security, the amount payable to the holder of such Original
Issue Discount Security upon such acceleration will be determined in
accordance with the applicable Prospectus Supplement, the terms of such Debt
Security and the applicable Indenture, but will be an amount less than the
amount payable at the maturity of such Original Issue Discount Security. All
material federal income tax, accounting and other considerations applicable
thereto will be described in the Prospectus Supplement relating thereto.
Debt Securities may also be issued under the Indentures upon exercise of
Debt Warrants. See "Description of Warrants."
REGISTRATION, TRANSFER, PAYMENT AND PAYING AGENT
Unless otherwise indicated in the applicable Prospectus Supplement, each
series of Debt Securities will be issued in registered form only, without
coupons. The Indentures, however, provide that the Issuer may also issue Debt
Securities in bearer form only, or in both registered and bearer form. Debt
Securities issued in bearer form shall have interest coupons attached, unless
issued as Original Issue Discount Securities. Debt Securities in bearer form
shall not be offered, sold, resold or delivered in connection with their
original issuance in the United States or to any United States person (as
defined below) other than through offices located outside the United States of
certain United States financial institutions. As used herein, "United States
person" means any citizen or resident of the United States, any corporation,
partnership or other entity created or organized in or under the laws of the
United States, or any estate or trust, the income of which is subject to
United States federal income taxation regardless of its source, and "United
States" means the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction. Purchasers of Debt Securities in bearer form will
be subject to certification procedures and may be affected by certain
limitations under United States tax laws. Such procedures and limitations will
be described in the Prospectus Supplement relating to the offering of the Debt
Securities in bearer form.
Unless otherwise indicated in the applicable Prospectus Supplement, Debt
Securities will be issued in denominations of $1,000 or any integral multiple
thereof. No service charge will be made for any transfer, exchange or
conversion of the Debt Securities but the Issuer may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Unless otherwise described in the Prospectus Supplement relating thereto,
the principal, premium, if any, and interest, if any, of or on the Debt
Securities will be payable, transfer of the Debt Securities will be
7
<PAGE>
registerable, and, if applicable, any Convertible Debt Securities (as
hereinafter defined) will be convertible, at the office or agency of the
Issuer maintained for that purpose, as the Issuer may designate from time to
time, provided that payments of interest may be made at the option of the
Issuer by check mailed to the address appearing in the Security Register of
the person in whose name such registered Debt Security is registered at the
close of business on the applicable Regular Record Date(s).
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of, premium, if any, and interest, if any, on Debt Securities in
bearer form will be made payable, subject to any applicable laws and
regulations, at such office outside the United States as specified in the
Prospectus Supplement and as the Issuer may designate from time to time, at
the option of the holder, by check or by transfer to an account maintained by
the payee with a bank located outside the United States. Unless otherwise
indicated in the applicable Prospectus Supplement, payment of interest and
certain additional amounts on Debt Securities in bearer form will be made only
against surrender of the coupon relating to the applicable Interest Payment
Date. No payment with respect to any Debt Security in bearer form will be made
at any office or agency of the Issuer in the United States or by check mailed
to any address in the United States or by transfer to an account maintained
with a bank located in the United States.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Debt Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the Prospectus Supplement relating to such series. Global Debt Securities may
be issued in either registered or bearer form and in either temporary or
permanent form. Unless and until it is exchanged in whole or in part for
individual certificates evidencing Debt Securities in definitive form
represented thereby, a Global Debt Security may not be transferred except as a
whole by the Depositary for such Global Debt Security to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor of such Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to a series of
Global Debt Securities, and certain limitations and restrictions relating to a
series of bearer Global Debt Securities, will be described in the Prospectus
Supplement relating to such series.
RESTRICTIVE COVENANTS
The Indentures do not contain restrictive covenants, but the indenture
supplement or amendment entered into at the time of the issuance of any Debt
Securities may contain such restrictions on the Issuer and its operations. The
applicable Prospectus Supplement will describe any restrictive covenants
applicable to the Debt Securities that are issued thereunder.
OUTSTANDING DEBT SECURITIES
Unless otherwise indicated in the applicable Prospectus Supplement, in
determining whether the holders of the requisite principal amount of
Outstanding Debt Securities have given any request, demand, authorization,
direction, notice, consent or waiver under the Indentures: (a) the portion of
the principal amount of an Original Issue Discount Security that shall be
deemed to be Outstanding for such purposes shall be that portion of the
principal amount thereof that could be declared to be due and payable pursuant
to the terms of such Original Issue Discount Security as of the date of such
determination; (b) the principal amount of any Indexed Security shall be the
principal face amount of such Indexed Security determined on the date of its
original issuance; and (c) any Debt Security owned by the Issuer or any
obligor on such Debt Security or any Affiliate of the Issuer or such other
obligor, shall be deemed not to be outstanding.
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MODIFICATION AND WAIVER
The Issuer may amend the Indentures with the written consent of the holders
of a majority in principal amount of the respective Debt Securities
outstanding thereunder. However, without the consent of each Holder affected,
an amendment may not: (a) reduce the amount of Debt Securities whose holders
must consent to an amendment; (b) reduce the rate or change the time of
payment of interest on any Debt Securities; (c) reduce the principal of or
change the fixed maturity of Debt Securities; (d) make any Debt Securities
payable in money other than that stated in the definitive notes representing
such Debt Securities; (e) change the provisions of the respective Indenture
regarding the right of a majority of the Holders to waive defaults under such
Indenture or impair the right of any Holder to institute suit for the
enforcement of any payment of principal and interest on the Debt Securities on
and after their respective due dates; (f) make any change that adversely
affects the right to convert or exchange any Convertible Debt Securities; or
(g) make any change to the provisions of the respective Indenture regarding
subordination and seniority of the Debt Securities that adversely affects the
rights of any Holders.
SPECIAL TERMS RELATING TO SUBORDINATED DEBT SECURITIES
Upon any distribution of assets of the Issuer resulting from any
dissolution, winding up, liquidation or reorganization, payments on
Subordinated Debt Securities are to be subordinated, to the extent provided in
the Subordinated Indenture, in right of payment to the prior payment in full
of all Senior Indebtedness, but the obligation of the Issuer to make payments
on the Subordinated Debt Securities will not otherwise be affected. No payment
on Subordinated Debt Securities may be made at any time when there is a
default in the payment of any principal, premium, interest, Additional Amounts
or sinking fund of or on any Senior Indebtedness. Holders of Subordinated Debt
Securities will be subrogated to the rights of holders of Senior Indebtedness
to the extent of payments made on Senior Indebtedness upon any distribution of
assets in any such proceedings out of the distributive shares of Subordinated
Debt Securities. By reason of such subordination, in the event of a
distribution of assets upon insolvency, certain creditors of the Issuer may
recover more, ratably, than holders of Subordinated Debt Securities.
The Prospectus Supplement relating to any Subordinated Debt Securities will
set forth the aggregate amount of Senior Indebtedness outstanding as of the
most recent date practicable and any limitations on the issuance of additional
Senior Indebtedness. As of the date of this Prospectus, there is no limitation
on the amount of Senior Indebtedness that may be issued by the Trust or the
Operating Partnership.
CONVERSION OR EXCHANGE
The holders of Debt Securities of a specified series that are convertible
into or exchangeable for other Securities ("Convertible Debt Securities") will
be entitled at certain times specified in the Prospectus Supplement relating
to such Convertible Debt Securities, subject to prior redemption, exchange,
repayment or repurchase, to convert or exchange any Convertible Debt
Securities of such series into such other Securities, at the conversion price
set forth in such Prospectus Supplement, subject to adjustment and to such
other terms as are set forth in such Prospectus Supplement. Any such
conversion or exchange of Convertible Debt Securities will be further subject
to the applicable terms and conditions set forth in the Indentures, as
supplemented or amended from time to time.
DESCRIPTION OF PREFERRED SHARES
GENERAL
The rights, preferences, privileges and restrictions of the Preferred Shares
in respect of which this Prospectus is delivered shall be described in the
Prospectus Supplement relating to such Preferred Shares. Among the terms of
the Preferred Shares which may be specified in the related Prospectus
Supplement are the following: (a) the annual dividend rate, if any, or the
means by which such dividend rate may be calculated (including
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without limitation the possibility that the rate of such dividends may bear an
inverse relationship to some index or standard) and the date or dates from
which such dividends shall accrue and the date or dates on which such
dividends shall be paid and whether such dividends shall be cumulative; (b)
the price at which and the terms and conditions on which the shares of such
series of Preferred Shares may be redeemed, including the period of time
during which such shares may be redeemed, any premium to be paid over and
above the par value of such Preferred Shares, whether and to what extent
accumulated dividends on such Preferred Shares will be paid upon the
redemption of such shares; (c) the liquidation preference, if any, over and
above the par value of such Preferred Shares and whether and to what extent
the holders of such shares shall be entitled to accumulated dividends in the
event of the voluntary or involuntary liquidation, dissolution or winding-up
of the affairs of the Company; (d) whether the Preferred Shares shall be
subject to the operation of a retirement or sinking fund and, if so, a
description of the operation of such retirement or sinking fund; (e) the terms
and conditions, if any, on which the Preferred Shares may be convertible into,
or exchangeable for, shares of any other class or classes of equity interests
in the Trust, including the price or rate of conversion or exchange and the
method for effecting such conversion or exchange, provided that no Preferred
Shares will be convertible into shares of a class that has superior rights or
preferences as to dividends or distribution of assets of the Company upon the
voluntary or involuntary dissolution or liquidation of the Company; (f) a
description of the voting rights, if any, of the Preferred Shares; and (g)
other preferences, rights, qualifications or restrictions or material terms of
such Preferred Shares.
The description of the foregoing provisions of the Preferred Shares as set
forth in the related Prospectus Supplement is only a summary, does not purport
to be complete and is subject to, and is qualified in its entirety by,
reference to the definitive Certificate of Amendment to the Trust's
Declaration of Trust relating to such series of Preferred Shares. In
connection with any offering of Preferred Shares, such Certificate of
Amendment will be filed with the Commission as an exhibit to or incorporated
by reference in the Registration Statement.
DEPOSITARY SHARES
The Trust may, at its option, elect to offer fractional Preferred Shares,
rather than full Preferred Shares. In the event such option is exercised, the
Trust will issue receipts for Depositary Shares, each of which will represent
a fraction (to be set forth in the Prospectus Supplement relating to the
Preferred Shares) of a share of such Preferred Shares.
The Preferred Shares represented by Depositary Shares will be deposited
under a Deposit Agreement (the "Deposit Agreement") between the Trust and a
bank or trust company selected by the Trust having its principal office in the
United States and having a combined capital and surplus of at least
$50,000,000 (the "Depositary Shares Depositary"). Subject to the terms of the
Deposit Agreement, each owner of a Depositary Share will be entitled, in
proportion to the applicable fraction of a Preferred Share represented by such
Depositary Share, to all the rights and preferences of the Preferred Share,
represented thereby (including dividend, voting, redemption, conversion and
liquidation rights).
The above description of the Depositary Shares is only a summary, is not
complete and is subject to, and is qualified in its entirety by, the
description in the related Prospectus Supplement and the provisions of the
Deposit Agreement (which will contain the form of Depositary Receipt), a copy
of which will be filed with the Commission as an exhibit to or incorporated by
reference in the Registration Statement.
DESCRIPTION OF WARRANTS
The Trust may issue separately, or together with any Debt Securities or
Preferred or Common Shares offered by any Prospectus Supplement, Warrants for
the purchase of other Debt Securities or Preferred or Common Shares
(collectively, "Warrants"). The Warrants may be issued under warrant
agreements (each, a "Warrant Agreement") to be entered into between the Trust
and a bank or trust company, as warrant agent (the "Warrant Agent"), or may be
represented by certificates evidencing the Warrants (the "Warrant
Certificates"), all as set
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forth in the Prospectus Supplement relating to the particular series of
Warrants. The following summaries of certain provisions of the Warrants do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all the provisions of any related Warrant Agreement and
Warrant Certificate, respectively, including the definitions therein of
certain terms. Wherever defined terms of the Warrant Agreement are summarized
herein or in a Prospectus Supplement, it is intended that such defined terms
shall be incorporated herein or therein by reference. In connection with any
offering of Warrants, any such Warrant Agreement or a form of any such Warrant
Certificate will be filed with the Commission as an exhibit to or incorporated
by reference in the Registration Statement.
GENERAL
The Prospectus Supplement relating to the particular series of Warrants
offered thereby will describe the terms of the offered Warrants, any related
Warrant Agreement and Warrant Certificate, including the following, to the
extent applicable: (a) if the Warrants are offered for separate consideration,
the offering price and the currency for which Warrants may be purchased; (b)
if applicable, the designation, aggregate principal amount, purchase price,
currency and terms of the series of Debt Securities purchasable upon exercise
of the offered Debt Warrants; (c) if applicable, the designation, number,
stated value and terms (including, without limitation, liquidation, dividend,
conversion and voting rights) of the Preferred Shares purchasable upon
exercise of Preferred Shares Warrants and the price at which such number of
Preferred Shares may be purchased upon such exercise; (d) if applicable, the
number of shares of Common Shares purchasable upon exercise of Common Shares
Warrants and the price at which such number of Common Shares may be purchased
upon such exercise; (e) the date, if any, on and after which the offered
Warrants and the related Debt Securities and/or Preferred Shares and/or Common
Shares will be separately transferable; (f) the date on which the right to
exercise the offered Warrants shall commence and the date on which such right
shall expire ("Expiration Date"); (g) a discussion of the specific U.S.
federal income tax, accounting and other considerations applicable to the
Warrants or to any Securities (including Original Issue Discount Debt
Securities) purchasable upon the exercise of such Warrants; (h) whether the
offered Warrants represented by Warrant Certificates will be issued in
registered or bearer form, and if registered, where they may be transferred
and registered; (i) any applicable anti-dilution provisions; (j) any
applicable redemption or call provisions; (k) any applicable book entry
provisions; and (l) any other terms of the offered Warrants.
Warrant Certificates will be exchangeable on the terms specified in the
related Prospectus Supplement for new Warrant Certificates of different
denominations and Warrants may be exercised at the corporate trust office of
the Warrant Agent or any other office indicated in the Prospectus Supplement
relating thereto. Prior to the exercise of their Warrants, holders of Warrants
will not have any of the rights of holders of the Debt Securities or Preferred
Shares or Common Shares purchasable upon such exercise, including the right in
the case of Debt Warrants to payments of principal of or any premium or
interest, if any, on the Debt Securities purchasable upon such exercise, or to
enforce covenants in the applicable Indenture, and in the case of Preferred
Shares Warrants and Common Shares Warrants, the right to receive payments of
dividends or distributions of any kind, if any, on the Preferred Shares or
Common Shares, respectively, purchasable upon exercise or to exercise any
applicable right to vote.
EXERCISE OF WARRANTS
Each Warrant will entitle the holder thereof to purchase such principal
amount of Debt Securities or such number of Preferred Shares or Common Shares,
as the case may be, at such exercise price as shall in each case be set forth
in, or be determinable from, the Prospectus Supplement relating to such
Warrant, by payment of such exercise price in full in the currency and in the
manner specified in such Prospectus Supplement. Warrants may be exercised at
any time up to the close of business on the Expiration Date (or such later
date to which such Expiration Date may be extended by the Trust); unexercised
Warrants will become null and void.
Upon receipt at the corporate trust office of the Warrant Agent or any other
office indicated in the related Prospectus Supplement of (a) payment of the
exercise price and (b) the Warrant Certificate properly completed
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and duly executed, the Trust will, as soon as practicable, forward the Debt
Securities or Preferred Shares or Common Shares purchasable upon such exercise
to the holder of such Warrant. If less than all of the Warrants represented by
such Warrant Certificate are exercised, a new Warrant Certificate will be
issued for the remaining number of Warrants.
FEDERAL INCOME TAX CONSIDERATIONS
WITH RESPECT TO THE TRUST AND THE OPERATING PARTNERSHIP
The following summary of the material federal income tax considerations with
respect to the Trust and the Operating Partnership regarding the offering of
Securities is based on current law, is for general information only and is not
tax advice. The tax treatment of a holder of any of the Securities will vary
depending on the terms of the specific Securities acquired or held by such
holder as well as such holder's particular situation, and this summary does
not attempt to address any aspects of federal income taxation relating to
holders of the Securities. Certain federal income tax consideration relevant
to holders of Securities will be provided on the applicable Prospectus
Supplement relating thereto.
EACH PROSPECTIVE PURCHASER OF SECURITIES IS ADVISED TO CONSULT HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF THE SECURITIES AND OF THE TRUST'S ELECTION TO
BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE
AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE TRUST
The Trust believes that, commencing with the Trust's taxable year ended
December 31, 1994, the Trust has been organized and operated in such a manner
as to qualify as a REIT under Sections 856 through 860 of the Code. The Trust
intends to continue to operate in such a manner as to qualify for taxation as
a REIT in the future, but no assurance can be given that it has or will remain
qualified.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following sets forth the material
aspects of the Code sections that govern the federal income taxation of a
REIT. This summary is qualified in its entirety by the applicable Code
provisions, rules and regulations promulgated thereunder, and administrative
and judicial interpretations thereof.
Wolf, Block, Schorr and Solis-Cohen has opined that, commencing with the
Trust's taxable year ended December 31, 1994, the Trust has been organized and
operated in conformity with the requirements for qualification and taxation as
a REIT under the Code, and its proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT
under the Code for future taxable periods. It must be emphasized that the
opinion of Wolf, Block, Schorr and Solis-Cohen is based on certain assumptions
and representations made by the Trust and the Operating Partnership as to
factual matters. Moreover, such qualification and taxation as a REIT depend
upon the Trust's future ability to meet, through actual annual operating
results, certain distribution levels, the diversity of stock ownership
requirements and the various other qualification tests imposed under the Code
discussed below, the results of which may not be reviewed by Wolf, Block,
Schorr and Solis-Cohen. Accordingly, no assurance can be given that the actual
results of the Trust's operation for any particular taxable year will satisfy
such requirements. For a discussion of the tax consequences of failure to
qualify as a REIT, see "--Failure to Qualify."
As a REIT, the Trust generally is not subject to federal corporate income
taxes on its net income that it currently distributes to shareholders. This
treatment substantially eliminates the "double taxation" (at the corporate and
shareholder levels) that generally results from investment in a corporation.
However, the Trust will be subject to federal income tax as follows. First,
the Trust will be taxed at regular corporate rates on any
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undistributed real estate investment trust taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Trust may be subject to the "alternative minimum tax" on its items of tax
preference. Third, if the Trust has (i) net income from the sale or other
disposition of "foreclosure property" (generally property acquired by a REIT
upon the default by a debtor with respect to indebtedness secured by the
property or upon the default by a lessee where the REIT was the lessor) which
is held primarily for sale to customers in the ordinary course of business or
(ii) other nonqualifying income from foreclosure property, it will be subject
to tax at the highest corporate tax rate on such income. Fourth, if the Trust
has net income from "prohibited transactions" (which are, in general, certain
sales or other dispositions of property held primarily for sale to customers
in the ordinary course of business other than foreclosure property), such
income will be subject to a 100% tax. Fifth, if the Trust should fail to
satisfy the 75% gross income test or the 95% gross income test (discussed
below), but has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on
the net income attributable to the greater of the amount by which the Trust
fails the 75% test or the 95% test in the taxable year, multiplied by a
fraction generally intended to reflect the Trust's profitability. Sixth, if
the Trust should fail to distribute during each calendar year at least the sum
of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain net income for such year, and (iii) any undistributed taxable
income from prior periods, the Trust would be subject to a 4% excise tax on
the excess of such required distribution over the amounts actually
distributed. Seventh, if the Trust acquires any asset from a C corporation
(i.e., generally a corporation subject to full corporate-level tax) in a
transaction in which the basis of the asset in the Trust's hands is determined
by reference to the basis of the asset (or any other property) in the hands of
the C corporation, and the Trust recognizes gain on the disposition of such
asset during the 10-year period following acquisition of the asset, then,
pursuant to guidelines issued by the Internal Revenue Service (the "IRS"), to
the extent of the "built-in gain," the excess of the fair market value of the
asset on the date acquired over its adjusted tax basis at that date, such gain
will be subject to tax at the highest regular corporate rate. The result
described above with respect to the recognition of built-in gain assumes the
Trust is eligible to make, and makes, an election pursuant to IRS Notice 88-
19.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (1) that is
managed by one or more trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (3) that would be taxable as a domestic corporation, but
for Sections 856 through 860 of the Code; (4) that is neither a financial
institution nor an insurance company subject to certain provisions of the
Code; (5) the beneficial ownership of which is held by 100 or more persons;
(6) during the last half of each taxable year not more than 50% in value of
the outstanding stock of which is owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities as
"individuals" for these purposes); and (7) which meets certain other tests,
described below, regarding the nature of its income and assets. The Code
provides that conditions (1) to (4), inclusive, must be met during the entire
taxable year and that condition (5) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. Conditions (5) and (6) do not apply until after the first
taxable year for which an election is made by the Trust to be taxed as a REIT.
For purposes of determining stock ownership under the rule limiting ownership
by five or fewer individuals, REIT shares held by a pension fund generally are
treated as held proportionately by its beneficiaries.
The Trust has satisfied conditions (5) and (6) above. In making the "five or
fewer individual" determination, if treating interests in the Operating
Partnership that can be converted into shares of the Trust as converted into
outstanding shares would cause the Trust to fail that test, the interests are
deemed to have been converted. In addition, the Trust's Declaration of Trust
provides for restrictions regarding transfer of its shares, in order to assist
the Trust in continuing to satisfy the share ownership requirements described
in (5) and (6) above. Such transfer restrictions are included in the Trust's
Registration Statement on Form 8-A, which is incorporated by reference herein.
See "Incorporation of Certain Documents by Reference."
Code Section 856(i) provides that a corporation which is a "qualified REIT
subsidiary" is not to be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a "qualified
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REIT subsidiary" are treated as assets, liabilities, and such items (as the
case may be) of the REIT. A qualified REIT subsidiary is a corporation 100% of
the stock of which is held by the REIT at all times during the existence of
the corporation. Thus, in applying the requirements described herein, the
Trust's "qualified REIT subsidiaries" are ignored, and all assets,
liabilities, and items of income, deduction, and credit of such subsidiaries
will be treated as assets, liabilities and items of the Trust.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to
the income of the partnership attributable to such share. In addition, the
character of the assets and gross income of the partnership retain the same
character in the hands of the REIT for purposes of Section 856 of the Code,
including satisfying the gross income tests and the asset tests described
below. The Trust's proportionate share of the assets, liabilities and items of
income of the Operating Partnership and the other partnerships through which
the Trust's properties are owned (the "Property Partnerships") will be treated
as assets, liabilities and items of income of the Trust for purposes of
applying the requirements described herein. The references to the gross income
or assets of the Trust, as discussed immediately below in "Income Tests" and
"Assets Tests," include the Trust's proportionate share of the gross income or
assets, as the case may be, of the Operating Partnership and the Property
Partnerships.
INCOME TESTS
For the Trust to maintain its qualification as a REIT, the Trust must
satisfy three separate tests based on the nature of the underlying gross
income. These requirements must be satisfied annually. First, at least 75% of
the Trust's gross income (excluding gross income from prohibited transactions)
for each taxable year must consist of income derived directly or indirectly
from investments relating to real property or mortgages on real property
(including "rents from real property" and, in certain circumstances, interest)
or certain types of "qualified temporary investment income." Second, at least
95% of the Trust's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property
investments, and from dividends, other types of interest, and gain from the
sale or disposition of stock or securities or from any combination of the
foregoing. Third, short-term gain from the sale or other disposition of stock
or securities, gain from prohibited transactions and gain on the sale or other
disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Trust's gross income (including gross income from prohibited
transactions) for each taxable year.
Rents received by the Trust will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above provided
that several conditions are met. First, the amount of rent must not be based
in whole or in part on the income or profits of any person. An amount received
or accrued generally is not excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales. Special rules apply where the tenant is a sublessor with
respect to property which permits a REIT to receive rent determined by
reference to the income or profits of the tenant in some cases. Second, the
Code provides that rents received from a tenant do not qualify as "rents from
real property" in satisfying the gross income tests if the REIT, or a direct
or indirect owner of 10% or more of the REIT, directly or constructively, owns
10% or more of such tenant (a "Related Party Tenant"). Although the Trust may
lease portions of its properties to tenants that may constitute Related Party
Tenants, the Trust does not believe that the rents attributable to such leases
would cause the Trust to fail to satisfy the 75% or 95% gross income tests.
Third, if rent attributable to personal property leased in connection with a
lease of real property is greater than 15% of the total rent received under
the lease, the portion of rent attributable to such personal property will not
qualify as "rents from real property." The Trust does not anticipate that the
rent attributable to the personal property leased in connection with the real
property will be greater than 15% of the total rent received under the lease
or, if it was as to any particular lease or group of leases, that the rent
attributable to the personal property would cause the Trust to fail to satisfy
the 75% or 95% gross income tests. Finally, in order for rents received to
qualify as "rents from real property," the REIT generally must not operate or
manage the property or furnish or render services to the tenants of such
property, other than through an independent contractor that is adequately
compensated and from whom the REIT derives no revenue; provided, however, that
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the Trust may directly perform services "usually and customarily" rendered in
connection with the rental of space for occupancy only and that are not
otherwise considered "rendered to the occupant" of the property. The Trust has
represented that it does not and will not knowingly (i) charge rent for any
property that is based in whole or in part on the income or profits of any
person or (ii) directly perform services considered to be rendered to the
occupant of property.
The Trust is a self-managed REIT; i.e., the Operating Partnership performs
all of the management and leasing functions with respect to the properties it
owns; provided that the services called for do not cause the rents received
with respect to those leases to fail to qualify as "rents from real property."
To the extent that the services provided are not "usual and customary" under
the foregoing rules, the Trust will employ a qualifying independent contractor
to render the services. The Trust may provide property management and leasing
services to third parties and will provide services to an affiliated entity
for a fee. Although such income will not be qualifying income under the 75%
and 95% gross income tests, the Trust does not expect that the revenue derived
from such services would cause it to fail to qualify as a REIT.
For purposes of the gross income test, the term "interest" generally does
not include any amount received or accrued (directly or indirectly) if the
determination of such amount depends in whole or in part on the income or
profits of any person. However, an amount received or accrued generally will
not be excluded from the term "interest" solely by reason of being based on a
fixed percentage or percentages of receipts or sales.
Any gross income derived from a prohibited transaction is taken into account
in applying the 30% income test necessary to maintain the Trust's
qualification as a REIT (and the net income from that transaction is subject
to a 100% tax). The Operating Partnership and the Trust believe that no asset
owned by the Operating Partnership, the Property Partnerships or the Trust is
inventory property or property held for sale to customers or in the ordinary
course of business of the Operating Partnership, the relevant Property
Partnerships or the Trust. Whether property is held "primarily for sale to
customers in the ordinary course of a trade or business" depends, however, on
the facts and circumstances in effect from time to time, including those
related to a particular property. The Trust, the Operating Partnership and the
Property Partnerships will attempt to comply with the terms of safe-harbor
provisions in the Code prescribing when asset sales will not be characterized
as prohibited transactions. Complete assurance cannot be given, however, that
the Trust can comply with the safe-harbor provisions of the Code or avoid
owning property that may be characterized as property held "primarily for sale
to customers in the ordinary course of business." Assets owned by Liberty
Development may constitute property held for sale, although the Trust owns an
interest solely as a shareholder in such entity.
Generally, the failure to satisfy either or both of the 75% and 95% gross
income tests will cause the REIT status of the Trust to terminate with the
taxable year in which the failure occurs. Relief from the adverse consequences
of such failure is available if the Trust's failure to meet such tests was due
to reasonable cause and not willful neglect, the Trust attaches a schedule of
the nature and the sources of its gross income to its income tax return, and
any incorrect information set forth on the schedule is not due to fraud with
intent to evade tax. It is not possible to state whether, in all
circumstances, the Trust would be entitled to the benefit of these relief
provisions. As discussed above in "Taxation of the Trust," even if these
relief provisions apply, a tax would be imposed with respect to the excess of
75% or 95% of the Trust's gross income over the Trust's qualifying income in
the relevant category, whichever is greater. This statutory relief is
available only for failures to satisfy the 75% and 95% gross income tests and
no such relief is available for a failure to satisfy the 30% gross income
test. In such case, the Trust would cease to qualify as a REIT.
ASSET TESTS
The Trust, at the close of each quarter of its taxable year, must also
satisfy three tests relating to the nature of its assets. First, at least 75%
of the value of the Trust's total assets must be represented by real estate
assets (including (i) its allocable share of real estate assets held by
partnerships in which the Trust owns an interest or held by "qualified REIT
subsidiaries" of the Trust and (ii) stock or debt instruments held for not
more than one year purchased with the proceeds of a stock offering or long-
term (at least five years) debt offering of the Trust),
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cash, cash items and governmental securities. Second, not more than 25% of the
Trust's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class,
the value of any one issuer's securities owned by the Trust may not exceed 5%
of the value of the Trust's total assets and the Trust may not own more than
10% of any one issuer's outstanding voting securities (excluding the stock of
a qualified REIT subsidiary, of which the REIT is required to own all of the
stock, or of another real estate investment trust).
The Operating Partnership owns 8.0% of the voting common stock and 100% of
the non-voting common stock of Liberty Development. By virtue of its ownership
of partnership interests in the Operating Partnership, the Trust owns its pro
rata share of the common stock of Liberty Development. The Operating
Partnership does not own more than 10% of the voting securities of Liberty
Development and, therefore, the Trust will not own more than 10% of the voting
securities of Liberty Development. The IRS could contend that the Trust,
through its interest in the Operating Partnership, should be viewed as owning
more than 10% of the voting securities of Liberty Development because of its
substantial economic position in Liberty Development and the close business
relationship between the two entities. If such contention were sustained, the
Trust would not qualify as a REIT. The Operating Partnership does not possess
the requisite power to elect or designate a member of the Board of Directors
of Liberty Development, and there is no understanding or arrangement
permitting the Trust to exercise voting power or control over the voting
common stock of Liberty Development not owned by it. Accordingly, Wolf, Block,
Schorr and Solis-Cohen and the Trust do not believe that the Trust will be
viewed as owning in excess of 10% of the voting securities of Liberty
Development.
Based on its analysis of the estimated value of the securities of the
subsidiaries to be owned by the Operating Partnership relative to the
estimated value of the other assets to be owned by the Operating Partnership,
the Trust has determined that its pro rata share of the securities of Liberty
Development held by the Operating Partnership does not exceed 5% of the total
value of the Trust's assets. No independent appraisals will be obtained to
support this conclusion and Wolf, Block, Schorr and Solis-Cohen, in rendering
its opinion as to the qualification of the Trust as a REIT, is relying solely
on the representations of the Trust regarding the value of Liberty
Development. The 5%-of-value requirement must be satisfied each time the Trust
increases its ownership of securities of Liberty Development (including as a
result of increasing its interest in the Operating Partnership as its limited
partners exercise their conversion rights). Although the Trust plans to take
steps to insure that it satisfies the 5% value test for any quarter with
respect to which retesting is to occur, there can be no assurance that such
steps will always be successful or will not require a reduction in the
Operating Partnership's overall interest in Liberty Development.
After initially meeting the asset tests at the close of any quarter, the
Trust will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset
values. If the failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the close
of any quarter as may be required to cure any non-compliance.
ANNUAL DISTRIBUTION REQUIREMENTS
The Trust, to qualify as a REIT is required to distribute dividends (other
than capital gain dividends) to its stockholders in an amount at least equal
to (A) the sum of (i) 95% of the "REIT taxable income" of the Trust (computed
without regard to the dividends paid deduction and the Trust's net capital
gain) and (ii) 95% of the net taxable income (after tax), if any, from
foreclosure property, minus (B) the sum of certain items of non-cash income.
Such distributions must be paid in the taxable year to which they relate, or
in the following taxable year if declared before the Trust timely files its
tax return for such year and if paid on or before the first regular dividend
payment after such declaration. To the extent the Trust does not distribute
all of the net capital gain or distributes at least 95%, but less than 100%,
of its "REIT taxable income," as adjusted, it will be subject to tax on the
undistributed amount at the regular corporate tax rates applicable to such
income. Furthermore, if the Trust should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain income for such year, and (iii) any
undistributed taxable income from prior periods, the Trust would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed.
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The Trust has made, and intends to make, timely distributions to its
shareholders in amounts sufficient to satisfy the annual distribution
requirements. The Operating Partnership, as the general partner of each
Property Partnership, is authorized under the various partnership agreements
to cause distributions to be made to their respective partners of all
available cash to permit the Trust to meet the annual distribution
requirement. It is possible that, from time to time, the Trust may experience
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at REIT taxable income. Further, it is possible
that, from time to time, the Trust may be allocated a share of net capital
gain attributable to the sale of depreciated property which exceeds its
allocable share of cash attributable to that sale. In such cases, the Trust
may have less cash available for distribution than is necessary to meet the
annual 95% distribution requirement or to avoid tax with respect to capital
gain or the excise tax imposed on certain undistributed income. To meet the
95% distribution requirement necessary to qualify as a real estate investment
trust or to avoid tax with respect to capital gain or the excise tax imposed
on certain undistributed income, the Trust may find it appropriate to arrange
for short-term (or possibly long-term) borrowings or to pay distributions in
the form of taxable stock dividends. Any such borrowings for the purpose of
making distributions to shareholders of the Trust are required to be arranged
through the Operating Partnership.
Under certain circumstances, the Trust may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Trust's
deduction for dividends paid for the earlier year. Thus, the Trust may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Trust will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.
Pursuant to applicable Treasury Regulations, in order to qualify as a REIT,
the Trust must maintain certain records and timely request certain information
from its shareholders designed to disclose the actual ownership of its stock.
The Trust believes it has complied, and intends to continue to comply, with
such requirements.
FAILURE TO QUALIFY
If the Trust fails to qualify for taxation as a REIT in any taxable year and
the relief provisions do not apply, the Trust would be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders of the Trust in any
year in which the Trust failed to qualify would not be deductible by the Trust
nor would there be a requirement to make distributions. In such event, to the
extent of current and accumulated earnings and profits, all distributions to
shareholders of the Trust would be taxable as ordinary income, and, subject to
certain limitations of the Code, corporate distributees may be eligible for
the dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Trust would also be disqualified from taxation as a
REIT for the four taxable years following the year in which qualification was
lost. It is not possible to state whether in all circumstances the Trust would
be entitled to such statutory relief.
OTHER TAX CONSIDERATIONS
The Trust may be subject to state or local taxation in various state or
local jurisdictions, including those in which it transacts business. The state
and local tax treatment of the Trust may not conform to the federal income tax
consequences discussed above. Consequently, prospective investors should
consult their own tax advisors regarding the effect of state and local tax
laws on an investment in the Trust.
To the extent that the Trust engages in real estate development activities
in foreign countries or invests in real estate located in foreign countries,
the Trust's profits from such activities or investments will generally be
subject to tax in the countries where such activities are conducted or such
properties are located. The precise nature and amount of such taxation will
depend on the laws of the countries where the activities are conducted or the
properties are located. Although the Trust will attempt to minimize the amount
of such foreign taxation, there can be no assurance as to whether or the
extent to which measures taken to minimize such taxes will be
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successful. If the Trust satisfies the annual distribution requirements for
qualification as a REIT and is, therefore, not subject to federal corporate
income tax on that portion of its ordinary income and capital gain that is
currently distributed to its shareholders, the Trust will generally not be
able to recover the cost of any foreign tax imposed on such profits from its
foreign activities or investments by claiming foreign tax credits against its
federal income tax liability on such profits. Moreover, the Trust will not be
able to pass foreign tax credits through to its shareholders. As a result, to
the extent that the Trust is required to pay taxes in foreign countries, the
cash available for distribution to its shareholders will be reduced
accordingly.
The Operating Partnership will receive fees from an affiliated entity as
consideration for services that the Operating Partnership will provide to such
entity in connection with the development and management of the Kings Hill
project in the United Kingdom ("U.K."). The amount of this fee income will not
be qualifying income for purposes of the 75% or 95% gross income tests,
although the Trust does not expect that the revenue derived from such services
would cause it to fail the 75% or 95% gross income tests. The Trust may be
subject to Corporation Tax in the U.K. at the rate of 33% on its share of such
fee income if the Trust is deemed to have a branch or agency in the U.K. as a
result of services that may be performed for such entity in the U.K. In
addition, rental income received by the Trust with respect to leases of real
property in the U.K. will be subject to U.K. withholding tax at the rate of
25%. It is possible that such rental income (together with any gain arising
from the sale or other disposition of such properties) could instead be
subject to Corporation Tax in the U.K. at the rate of 33% if the U.K. Inland
Revenue did not regard the Trust as holding the properties for purposes of
long term investment or if such income or gain were deemed attributable to a
branch or agency of the Trust in the U.K. Such U.K. taxes will reduce the
amount of cash available for distribution by the Trust to its shareholders out
of such income.
TAX ASPECTS OF THE TRUST'S INVESTMENTS IN PARTNERSHIPS
The following discussion summarizes certain federal income tax
considerations applicable solely to the Trust's investment in the Operating
Partnership and the Property Partnerships (collectively, the "Partnerships").
CLASSIFICATION AS A PARTNERSHIP
The Trust will be required to include in its income its distributive share
of the Operating Partnership's income and to deduct its distributive share of
the Operating Partnership's losses, and the Trust and the Operating
Partnership will be required to include in computing their income their
respective distributive shares of the income and losses of the Property
Partnerships only if the Operating Partnership and each of the Property
Partnerships is classified, for federal income tax purposes, as a partnership
rather than as an association taxable as a corporation.
For taxable periods prior to January 1, 1997, an organization formed as a
partnership was treated as a partnership rather than as a corporation for
federal income tax purposes only if it possessed no more than two of the four
corporate characteristics that the Treasury Regulations used to distinguish a
partnership from a corporation. These four characteristics were continuity of
life, centralization of management, limited liability, and free
transferability of interests. Although neither the Operating Partnership nor
the Property Partnerships requested a ruling from the IRS that they would be
classified as partnerships for Federal income tax purposes, rather than as
associations taxable as corporations, Wolf, Block, Schorr and Solis-Cohen had
opined that, based on the provisions of the respective Partnership Agreements
of the Operating Partnership and each Property Partnership, and certain
factual assumptions and representations as to each of them, the Operating
Partnership and each Property Partnership will be treated as partnerships for
federal income tax purposes and not as associations taxable as corporations.
Effective January 1, 1997, newly promulgated Treasury Regulations eliminated
the four-factor test described above and, instead, permit partnerships and
other non-corporate entities to be taxed as partnerships for federal income
tax purposes without regard to the number of corporate characteristics
possessed by such entity. Under those Regulations, both the Operating
Partnership and each of the Property Partnerships will be classified as
partnerships for federal income tax purposes unless an affirmative election is
made by the entity to be taxed as a corporation. The Trust has represented
that no such election has
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been made, or is anticipated to be made, on behalf of the Operating
Partnership or any of the Property Partnerships. Under a special transitional
rule in the Regulations, the IRS will not challenge the classification of an
existing entity such as the Operating Partnership or a Property Partnership
for periods prior to January 1, 1997 if: (i) the entity has a "reasonable
basis" for its classification; (ii) the entity and each of its members
recognized the federal income tax consequences of any change in classification
of the entity made within the 60 months prior to January 1, 1997; and (iii)
neither the entity nor any of its members had been notified in writing on or
before May 8, 1996 that its classification was under examination by the IRS.
Neither the Partnership nor any of the Property Partnerships changed their
classification within the 60-month period preceding May 8, 1996, nor was any
one of them notified that their classification as a partnership for federal
income tax purposes was under examination by the IRS. Therefore, in reliance
on the opinion previously rendered by Wolf, Block, Schorr and Solis-Cohen, the
Operating Partnership and each of the Property Partnerships should continue to
be taxed as partnerships for federal tax purposes.
If for any reason the Operating Partnership or a Property Partnership were
taxable as a corporation rather than as a partnership for federal income tax
purposes, the Trust would not be able to satisfy the income and asset
requirements for status as a REIT. In addition, any change in the Operating
Partnership's status or that of a Property Partnership for tax purposes might
be treated as a taxable event, in which case the Trust might incur a tax
liability without any related cash distribution. See "--Taxation of the
Trust," above. Further, items of income and deduction for the Operating
Partnership or a Property Partnership would not pass through to the respective
partners, and the partners would be treated as stockholders for tax purposes.
Each Partnership would be required to pay income tax at regular corporate tax
rates on its net income and distributions to partners would constitute
dividends that would not be deductible in computing the Partnership's taxable
income.
INCOME TAXATION OF THE PARTNERSHIPS
Partners, Not the Operating Partnership or Property Partnerships, Subject to
Tax
A partnership is not a taxable entity for federal income tax purposes.
Rather, the Trust will be required to take into account its allocable share of
the income, gains, losses, deductions and credits of each of the Operating
Partnership and the Property Partnerships for any taxable year of such
Partnerships ending within or with the taxable year of the Trust, without
regard to whether the Trust has received or will receive any cash
distributions. The same will be true for the Operating Partnership with
respect to its allocable share of the income, gains, losses, deductions and
credits of each of the Property Partnerships.
Partnership Allocations
Although a partnership agreement generally will determine the allocation of
income and losses among partners, the allocations provided in the partnership
agreement will be disregarded for tax purposes if they do not comply with the
provisions of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.
If an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partners'
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. The allocations of taxable income and loss
of each of the Operating Partnership and the Property Partnerships are
intended to comply with the requirements of Section 704(b) of the Code and the
Treasury Regulations promulgated thereunder.
Tax Allocations With Respect to Pre-Contribution Gain
Pursuant to Section 704(c) of the Code, income, gain, loss, and deduction
attributable to appreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal
income tax purposes in a manner such that the contributor is charged with the
unrealized gain associated
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with the property at the time of the contribution. The amount of such
unrealized gain is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution (the "Book-Tax
Difference"). In general, the fair market value of the properties owned
(directly or indirectly) by the Trust and interests in Property Partnerships
contributed to the Operating Partnership has been substantially in excess of
their respective adjusted tax bases. The Partnership Agreements of each of the
Operating Partnership and the Property Partnerships require that allocations
attributable to each item of contributed property be made so as to allocate
the tax depreciation available with respect to such property first to the
partners other than the partner that contributed the property, to the extent
of, and in proportion to, their book depreciation, and then, if any tax
depreciation remains, to the partner that contributed the property. Upon the
disposition of any item of contributed property, any gain attributable to the
"built-in" gain of the property at the time of contribution would be allocated
for tax purposes to the contributing partner. These allocations are intended
to be consistent with the Treasury Regulations under Section 704(c) of the
Code.
In general, participants in the formation of the Trust (and the
Partnerships) have been allocated disproportionately lower amounts of
depreciation deductions for tax purposes relative to their percentage
interests in the Operating Partnership, and disproportionately greater shares
relative to their percentage interests in the Operating Partnership of the
gain on the sale by the Partnerships of one or more of the contributed
properties. These tax allocations will tend to reduce or eliminate the Book-
Tax Difference over the life of the Partnerships. Because the Partnership
Agreements of the Partnerships adopt the "traditional method" in obtaining
items allocable under Section 704(c) of the Code, the amounts of the special
allocations of depreciation and gain under the special allocation rules of
Section 704(c) of the Code may be limited by the so-called "ceiling rule" and
may not always eliminate the Book-Tax Difference on an annual basis or with
respect to a specific transaction such as a sale. Thus, the carryover basis of
the contributed assets in the hands of the Partnerships may cause the Trust to
be allocated less depreciation than would be available for newly purchased
properties.
The foregoing principles also apply in determining the earnings and profits
of the Trust. The application of these rules may result in a larger share of
the distributions from the Trust being taxable to shareholders as dividends.
Basis in Operating Partnership Interest
The Trust's adjusted tax basis in its partnership interest in the Operating
Partnership generally (i) will be equal to the amount of cash and the basis of
any other property contributed to the Operating Partnership by the Trust plus
the fair market value of the Shares it issues or cash it pays upon conversion
of interests in the Operating Partnership, (ii) has been, and will be,
increased by (a) its allocable share of the Operating Partnership's income and
(b) its allocable share of indebtedness of the Operating Partnership and of
the Property Partnerships and (iii) has been, and will be, reduced (but not
below zero) by the Trust's allocable share of (a) the Operating Partnership's
loss and (b) the amount of cash distributed to the Trust, and by constructive
distributions resulting from a reduction in the Trust's share of indebtedness
of the Operating Partnership and the Property Partnerships.
If the allocation of the Trust's distributive share of the Operating
Partnership's loss would reduce the adjusted tax basis of the Trust's
partnership interest in the Operating Partnership below zero, the loss is
deferred until such time as the recognition of such loss would not reduce the
Trust's adjusted tax basis below zero. To the extent that the Operating
Partnership's distributions, or any decrease in the Trust's share of the
indebtedness of the Operating Partnership or a Property Partnership (each such
decrease being considered a constructive cash distribution to the partners),
would reduce the Trust's adjusted tax basis below zero, such distributions
(including such constructive distributions) would be includible as taxable
income to the Trust in the amount of such excess. Such distributions and
constructive distributions would normally be characterized as capital gain,
and if the Trust's partnership interest in the Operating Partnership has been
held for longer than the long-term capital gain holding period (currently, one
year), the distributions and constructive distributions would constitute long-
term capital gain. Based on certain undertakings by limited partners of the
Operating Partnership, the Subordinated
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Debentures issued by the Operating Partnership are allocated for purposes of
Section 752 of the Code disproportionately in favor of certain limited
partners.
SALE OF THE PARTNERSHIPS' PROPERTY
Generally, any gain realized by the Operating Partnership or a Property
Partnership on the sale of property held by the Operating Partnership or a
Property Partnership, or on the sale of partnership interests in the Property
Partnerships, if the property or partnership interests are held for more than
one year, will be long-term capital gain, except for any portion of such gain
that is treated as depreciation or cost recovery recapture.
The Trust's share of any gain realized on the sale of any property held by
the Operating Partnership or a Property Partnership as inventory or other
property held primarily for sale to customers in the ordinary course of the
trade or business of any of the Operating Partnership or the Property
Partnerships will, however, be treated as income from a prohibited transaction
that is subject to a 100% penalty tax. See "--Requirements for Qualification"
and "--Income Tests." Such prohibited transaction income may also have an
adverse effect upon the Trust's ability to satisfy the income tests for REIT
status. See "--Requirements for Qualification" and "--Income Tests," above.
Under existing law, whether property is held as inventory or primarily for
sale to customers in the ordinary course of a trade or business is a question
of fact that depends on all the facts and circumstances with respect to the
particular transaction. The Operating Partnership and the Property
Partnerships intend to hold their properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, developing,
owning and operating their properties and to make such occasional sales of
such properties, including peripheral land, as are consistent with the
investment objectives of the Trust and the Operating Partnership.
PLAN OF DISTRIBUTION
The Trust or the Operating Partnership, as the case may be, may sell the
Securities being offered hereby: (a) directly to purchasers; (b) through
agents; (c) through underwriters; (d) through dealers; or (e) through a
combination of any such methods of sale. The Securities may also be used as
all or part of the consideration to be paid by the Trust or the Operating
Partnership for the acquisition of non-operating assets for which financial
statements would not be required to be filed with the Commission, or in
exchange for units of limited partnership interest of the Operating
Partnership. In addition, Common Shares may be offered hereby in exchange for
certain debt securities of the Operating Partnership that are exchangeable for
such Common Shares.
The distribution of the Securities may be effected from time to time in one
or more transactions: (a) at a fixed price or at final prices, which may be
changed; (b) at market prices prevailing at the time of sale; (c) at prices
related to such prevailing market prices; or (d) at negotiated prices. Offers
to purchase Securities may be solicited directly by the Trust or the Operating
Partnership, as the case may be, or by agents designated by the Trust or the
Operating Partnership, as the case may be, from time to time. Any such agent,
which may be deemed to be an underwriter as that term is defined in the
Securities Act, involved in the offer or sale of the Securities in respect of
which this Prospectus is delivered will be named, and any commissions payable
by the Trust or the Operating Partnership, as the case may be, to such agent
will be set forth, in the applicable Prospectus Supplement.
If underwriters are utilized in the offer and sale of Securities in respect
of which this Prospectus and the accompanying Prospectus Supplement are
delivered, the Trust and/or the Operating Partnership will execute an
underwriting agreement with such underwriters for the sale to them and the
names of the underwriters and the terms of the transaction will be set forth
in such Prospectus Supplement, which will be used by the underwriters to make
resales of the Securities in respect of which this Prospectus and such
Prospectus Supplement are delivered to the public.
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If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Trust and/or the Operating Partnership will
sell such Securities to the dealer, as principal. The dealer may then resell
such Securities to the public at varying prices to be determined by such
dealer at the time of resale.
Certain of the underwriters, dealers or agents utilized by the Trust and/or
the Operating Partnership in any offering hereby may be customers of,
including borrowers from, engage in transactions with, and perform services
for, the Trust and/or the Operating Partnership or one or more of their
respective affiliates in the ordinary course of business. Underwriters,
dealers, agents and other persons may be entitled, under agreements which may
be entered into with the Trust or the Operating Partnership, as the case may
be, to indemnification against certain civil liabilities, including
liabilities under the Securities Act.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the underwriters and certain selling group
members, if any, to bid for and purchase the Securities. As an exception to
these rules, the representatives of the underwriters, if any, are permitted to
engage in certain transactions that stabilize the price of the Securities.
Such transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Securities.
If underwriters create a short position in the Securities in connection with
the offering thereof, (i.e., if they sell more Securities than are set forth
on the cover page of the applicable Prospectus Supplement), the
representatives of such underwriters may reduce that short position by
purchasing Securities in the open market. Any such representatives also may
elect to reduce any short position by exercising all or part of the over-
allotment option described in the applicable Prospectus Supplement.
Any such representatives also may impose a penalty bid on certain
underwriters and selling group members. This means that if the representatives
purchase Securities in the open market to reduce the underwriters' short
position or to stabilize the price of the Securities, they may reclaim the
amount of the selling concession from the underwriters and selling group
members who sold those shares as part of the offering thereof.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the offering.
Neither the Company nor any of the underwriters, if any, makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the Securities.
In addition, neither the Company nor any of the underwriters, if any, makes
any representation that the representatives of the underwriters, if any, will
engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
LEGAL OPINIONS
Wolf, Block, Schorr and Solis-Cohen, Philadelphia, Pennsylvania, has
rendered an opinion with respect to the legality of the Securities to be
issued by the Operating Partnership. Weinberg & Green LLC, Baltimore,
Maryland, has rendered an opinion with respect to the legality of the
Securities to be issued by the Trust. The statements in this Prospectus under
the caption "Federal Income Tax Considerations with Respect to the Trust and
the Operating Partnership" and the other statements herein relating to the
Trust's qualification as a real estate investment trust will be passed upon
for the Trust by Wolf, Block, Schorr and Solis-Cohen, although such firm has
rendered no opinion as to matters involving the imposition of non-U.S. taxes
on the operations of, and distributions of payments from, its United Kingdom
affiliate. Michael M. Dean, a partner of Wolf, Block, Schorr and Solis-Cohen,
is the sole trustee of irrevocable trusts established by three of the Trust's
senior executives for the benefit of their respective children. Each of such
trusts received limited partnership interests in the Operating Partnership in
connection with the Company's formation in exchange for interests in the Rouse
Group owned by such trusts.
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EXPERTS
The consolidated financial statements of the Trust and the Operating
Partnership for the years ended December 31, 1996 and 1995 and the period from
June 23, 1994 through December 31, 1994 and the combined financial statements
of the Rouse Group for the period January 1, 1994 through June 22, 1994,
appearing in the Annual Reports (Form 10-K) of the Trust and the Operating
Partnership for the year ended December 31, 1996, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon
such reports given upon the authority of such firm as experts in accounting
and auditing.
The statement of operating revenues and certain operating expenses of 650-
660 E. Swedesford Road for the years ended December 31, 1996 and 1995
appearing in the Current Reports (Form 8-K) of the Trust and the Operating
Partnership, filed February 13, 1997, have been audited by Fegley &
Associates, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. Such statement of
operating revenues and certain operating expenses is incorporated herein by
reference in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The statement of operating revenues and certain operating expenses of the
South Carolina Properties (as defined therein) for the year ended December 31,
1996 and the statement of operating revenues and certain operating expenses of
the Minnesota Properties (as defined therein) for the year ended December 31,
1996 appearing in the Current Reports (Form 8-K) of the Trust and the
Operating Partnership, filed March 6, 1997, have been audited by Fegley &
Associates, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. Such statements of
operating revenues and certain operating expenses are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
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NO DEALER, SALES PERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, THE COMMON SHARES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUN-
DER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT
BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR THE AC-
COMPANYING PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
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PAGE
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Summary.................................................................. S-3
Risk Factors............................................................. S-14
The Company.............................................................. S-19
Business Objectives and Strategies for Growth............................ S-20
The Properties........................................................... S-28
Use of Proceeds.......................................................... S-37
Price Range of Common Shares and Dividends............................... S-37
Capitalization........................................................... S-38
Selected Financial Data.................................................. S-39
Unaudited Pro Forma Condensed Consolidated Financial Statements.......... S-41
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-44
Management............................................................... S-49
Federal Income Tax Considerations for Shareholders....................... S-49
Underwriting............................................................. S-53
Legal Matters............................................................ S-54
Appendix "A"............................................................. A-1
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PROSPECTUS
<TABLE>
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Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 3
The Company............................................................... 4
Use of Proceeds........................................................... 4
Ratios of Earnings to Fixed Charges....................................... 5
Description of Debt Securities............................................ 5
Description of Preferred Shares........................................... 9
Description of Warrants................................................... 10
Federal Income Tax Considerations with Respect to the Trust and the
Operating Partnership.................................................... 12
Plan of Distribution...................................................... 21
Legal Opinions............................................................ 22
Experts................................................................... 23
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7,500,000 SHARES
[LOGO OF LIBERTY PROPERTY TRUST APPEARS HERE]
COMMON SHARES
OF BENEFICIAL INTEREST
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PROSPECTUS SUPPLEMENT
March 18, 1997
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LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
ALEX. BROWN & SONS
Incorporated
A.G. EDWARDS & SONS, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
WHEAT FIRST BUTCHER SINGER
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