SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 5, 1998
LIBERTY PROPERTY TRUST
LIBERTY PROPERTY LIMITED PARTNERSHIP
------------------------------------
(Exact names of registrants as specified in their respective governing
documents)
MARYLAND 1-13130 23-7768996
PENNSYLVANIA 1-13132 23-2766549
- --------------------------- ------------- -------------------
State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
65 VALLEY STREAM PARKWAY, SUITE 100
MALVERN, PENNSYLVANIA 19355
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (610) 648-1700
<PAGE>
ITEM 5: OTHER EVENTS
- ---------------------
Liberty Property Limited Partnership is a Pennsylvania limited
partnership (the "Operating Partnership"). Liberty Property Trust, a
Maryland real estate investment trust (the "Trust"), owns an approximate
91.86% interest in the Operating Partnership (as of December 31, 1997)
(the Trust and the Operating Partnership are collectively referred to as
the "Company").
On March 5, 1998, the Company acquired title to four industrial
properties, comprising 314,365 leaseable square feet, located in
Allentown and Reading, Pennsylvania, (the "First Industrial
Properties"). The Company's Total Investment (as defined below) in these
properties is anticipated to be approximately $16.9 million. 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.
Pursuant to Rule 3-14 of Regulation S-X, audited historical financial
information concerning the First Industrial Properties, is provided in
Item 7 of this Current Report on Form 8-K. Additionally, certain pro
forma information is provided in Item 7.
Factors considered by the Company in determining the price to be paid
for the First Industrial Properties, included their historical and
expected cash flow, the nature of tenants and terms of leases in place,
occupancy rates, opportunities for alternative and new tenancies,
current operating costs and real estate taxes on the properties and
anticipated changes therein under Company ownership, physical condition
and locations of the properties, the anticipated effect to the Company's
financial results (particularly funds from operations), the ability to
sustain and potentially increase its distributions to Company
shareholders, and other factors. The Company took into consideration
the capitalization rates at which it believed other comparable buildings
were recently sold, but determined the price it was willing to pay
primarily on factors discussed above relating to the properties
themselves and their fit into the Company's operations. The Company,
after investigation of the properties, is not aware of any material
fact, other than those enumerated above, that would cause the financial
information reported not to be necessarily indicative of future
operating results.
- -------------------------------
Statements contained in this report contain forward-looking statements
with respect to estimates of Total Investment, pro forma financial
information and their underlying assumptions. As such, these statements
involve risks and uncertainties that could affect future results, and
accordingly, such results may differ from those expressed herein. These
risks and uncertainties include, but are not limited to, uncertainties
affecting real estate businesses generally, risks relating to
acquisition activities and risks relating to leasing and releasing
activities and rates.
<PAGE> -2-
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS
- ------------------------------------------
PAGE
----
(a) Financial Statements of Real Estate Operations Acquired
Historical Summary of Gross Income and
Direct Operating Expenses of the First
Industrial Properties
Report of Independent Auditors........................ 4
Historical Summary of Gross Income and
Direct Operating Expenses for the First Industrial
Properties for the year ended December 31,
1997................................................. 5
Notes to Historical Summary of Gross Income
and Direct Operating Expenses for the First Industrial
Properties for the year ended December 31, 1997...... 6
(b) Pro Forma Financial Information (unaudited)
Liberty Property Trust...................................... 8
Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 1997.................................... 9
Pro Forma Consolidated Statement of Operations for
the year ended December 31, 1997..................... 10
Notes to Pro Forma Consolidated Financial Statements
as of and for the year ended December 31, 1997.... 11
Liberty Property Limited Partnership......................... 12
Pro Forma Condensed Consolidated Balance Sheet as of
December 31, 1997.................................... 13
Pro Forma Consolidated Statement of Operations for
the year ended December 31, 1997..................... 14
Notes to Pro Forma Consolidated Financial Statements
as of and for the year ended December 31, 1997.... 15
Signatures......................................................... 16
(c) Exhibits
23 Consent of Ernst & Young LLP....................... 17
<PAGE> -3-
REPORT OF INDEPENDENT AUDITORS
To the Management of Liberty Property Trust
We have audited the accompanying historical summary of gross income and
direct operating expenses of the First Industrial Properties (the
"Properties") for the year ended December 31, 1997. This statement is
the responsibility of the Properties' management. Our responsibility is
to express an opinion on this historical summary of gross income and
direct operating expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the historical summary of
gross income and direct operating expenses is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the historical summary of
gross income and direct operating expenses. An audit also includes
assessing the basis of accounting used and significant estimates made by
management, as well as evaluating the overall presentation of the
historical summary of gross income and direct operating expenses. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying historical summary of gross income and direct operating
expenses of the Properties was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission
for inclusion in the Current Report on Form 8-K of Liberty Property
Trust as described in Note 1, and is not intended to be a complete
presentation of the Properties' revenue and expenses.
In our opinion, the historical summary of gross income and direct
operating expenses referred to above presents fairly, in all material
respects, the gross income and direct operating expenses described in
Note 1 of the Properties for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
February 12, 1998
Philadelphia, Pennsylvania
<PAGE> -4-
FIRST INDUSTRIAL PROPERTIES
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS)
YEAR ENDED
DECEMBER 31,
1997
------------
Gross income:
Rental income $ 1,653
Operating expense reimbursement 282
-------
1,935
-------
Direct operating expenses:
Real estate taxes 211
Rental property expenses
81
-------
292
-------
Gross income in excess of direct operating expenses $ 1,643
=======
See accompanying notes.
<PAGE> -5-
FIRST INDUSTRIAL PROPERTIES
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING
EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------
ORGANIZATION
The First Industrial Properties (the "Properties") consist of four
individual single and multi-tenant office and industrial buildings
located in Allentown and Reading, Pennsylvania. The Properties are owned
and managed by First Industrial Realty Trust, Inc. which provides
operating services as well as accounting and recordkeeping services for
the Properties. The Properties are expected to be acquired by Liberty
Property Trust.
BASIS OF PRESENTATION
The accompanying historical summary has been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. The
accounts of each of the facilities comprising the Properties are
combined in the historical summary of gross income and direct operating
expenses. There are no interproperty accounts to be eliminated. The
historical summary is not representative of the actual operations for
the periods presented as certain expenses that may not be comparable to
the expenses expected to be incurred in the proposed future operations
of the Properties have been excluded. Expenses excluded consist of
interest, depreciation, amortization, professional fees, management
fees, and other costs not directly related to the future operations of
the Properties.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Rental income is recognized on a straight-line basis over the term of
the lease.
2. PROPERTIES
- -------------
The four properties are as follows:
PROPERTY NAME LOCATION
- -------------------------- --------------------
6923 Schantz Spring Road Allentown, PA
794 Roble Road Allentown, PA
7355 Williams Avenue Allentown, PA
2600 Beltline Avenue Reading, PA
<PAGE> -6-
3. LEASE ACTIVITY
- -----------------
The Properties earn rental income under noncancelable operating leases.
Generally, leases provide for minimum rent and require each tenant to
pay its pro rata share of building operating expenses, except for 794
Roble Road for which the sole tenant pays its own operating expenses.
The following schedule of future minimum rental payments due under
noncancelable operating leases as of December 31, 1997 does not include
any amounts due upon exercise of renewal options under existing leases.
Year ending December 31:
1998 $1,586,000
1999 1,638,000
2000 1,621,000
2001 977,000
2002 594,000
Thereafter 406,000
----------
$6,822,000
==========
In 1997, two tenants combined to contribute approximately 68% of total
gross income. ABX Air, Inc. contributed 28% and Daytimers, Inc.
contributed 40%.
<PAGE> -7-
LIBERTY PROPERTY TRUST
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The unaudited, pro forma condensed consolidated balance sheet as of
December 31, 1997 reflects the incremental effect of the First
Industrial Properties described in Item 5 as if the acquisitions had
occurred on December 31, 1997. The accompanying unaudited, pro forma
consolidated statement of operations for the year ended December 31,
1997 reflects the incremental effect of the First Industrial Properties,
as if such acquisitions had occurred on January 1, 1997. These
statements should be read in conjunction with the respective
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1997. In the opinion of management, the unaudited, pro forma
consolidated financial information provides for all adjustments
necessary to reflect the effects of the First Industrial Properties.
These pro forma statements may not necessarily be indicative of the
results that would have actually occurred if the acquisition of the
First Industrial Properties had been in effect on the dates indicated,
nor does it purport to represent the financial position, results of
operations or cash flows for future periods.
<PAGE> -8-
LIBERTY PROPERTY TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
LIBERTY
THE FIRST PROPERTY
HISTORICAL INDUSTRIAL TRUST
<F1> PROPERTIES CONSOLIDATED
---------- ------------- ------------
<S> <C> <C> <C>
ASSETS:
Investment in real estate, net $1,947,026 $ 16,914 <F2> $1,963,940
Cash and cash equivalents 55,079 - 55,079
Deferred financing and
leasing costs, net 32,536 - 32,536
Other assets 59,696 - 59,696
---------- ----------- -----------
Total assets $2,094,337 $ 16,914 $2,111,251
========== =========== ===========
LIABILITIES:
Mortgage loans $ 363,591 $ - $ 363,591
Unsecured notes 350,000 - 350,000
Credit facility 135,000 16,914 <F3> 151,914
Convertible debentures 111,543 - 111,543
Other liabilities 93,930 - 93,930
---------- ----------- -----------
Total liabilities 1,054,064 16,914 1,070,978
---------- ----------- -----------
MINORITY INTEREST 84,678 - 84,678
SHAREHOLDERS' EQUITY:
Series A preferred shares 120,814 - 120,814
Common shares 53 - 53
Additional paid-in capital 846,949 - 846,949
Unearned compensation (985) - (985)
Dividends in excess of net income (11,236) - (11,236)
---------- ----------- -----------
Total shareholders' equity 955,595 - 955,595
---------- ----------- -----------
Total liabilities and
shareholders' equity $2,094,337 $ 16,914 $2,111,251
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this unaudited, pro forma
condensed consolidated financial statement.
<PAGE> -9-
LIBERTY PROPERTY TRUST
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
THE FIRST LIBERTY
INDUSTRIAL PRO PROPERTY
HISTORICAL PROPERTIES FORMA TRUST
<F1> <F4> ADJUSTMENTS CONSOLIDATED
---------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Rental $ 169,859 $ 1,653 $171,512
Operating expense reim-
bursement 55,502 282 55,784
Management fees 673 - 673
Interest and other 6,483 - 6,483
---------- --------- -----------
Total revenue 232,517 1,935 234,452
---------- --------- -----------
OPERATING EXPENSES
Rental property expenses 43,118 211 43,329
Real estate taxes 17,961 81 18,042
General and administrative 10,650 - 10,650
Depreciation and amorti-
zation 40,752 - $ 423 <F5> 41,175
---------- --------- --------- -----------
Total operating expenses 112,481 292 423 113,196
---------- --------- --------- -----------
Operating income 120,036 1,643 (423) 121,256
Premium on debenture
conversion 98 - - 98
Interest expense 53,888 - 1,148 <F6> 55,036
---------- --------- --------- -----------
Income (loss) before
minority interest 66,050 1,643 (1,571) 66,122
Minority interest 5,606 149 (143) <F7> 5,612
---------- --------- --------- -----------
Net income (loss) 60,444 1,494 (1,428) 60,510 <F8>
Preferred dividends 4,247 - - 4,247
---------- --------- --------- -----------
Income available to
common shareholders $ 56,197 $ 1,494 $(1,428) $ 56,263
========== ========= ========== ===========
Income per common
share - basic $ 1.39 $ 1.39
========== ===========
Income per common
share - diluted $ 1.38 $ 1.38
========== ===========
Weighted average number
of common shares out-
standing - basic 40,493 40,493
========== ===========
Weighted average number
of common shares out-
standing - diluted 40,806 40,806
========== ===========
</TABLE>
The accompanying notes are an integral part of this unaudited, proforma
consolidated financial statement.
<PAGE> -10-
LIBERTY PROPERTY TRUST
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS)
<F1> Reflects historical financial information of the Company as of
December 31, 1997 and for the year ended December 31, 1997.
<F2> Reflects the Total Investment in the First Industrial Properties.
<F3> Reflects the use of $16,914 from the credit facility to finance
the Total Investment in the First Industrial Properties.
<F4> Reflects incremental addition of revenues and certain expenses of
the First Industrial Properties in order to reflect a full year of
operations for these acquisitions.
<F5> Reflects incremental depreciation of the First Industrial
Properties based on asset lives of 40 years.
<F6> Reflects an incremental increase in interest expense from the
assumed borrowings of $16,914 on the credit facility to fund the
purchase of the First Industrial Properties.
<F7> Reflects the allocation of the pro forma adjustment to minority
interest based upon pro forma minority interest in the Operating
Partnership of approximately 9.07%.
<F8> The Company's pro forma taxable income for the year ended December
31, 1997 is approximately $47,171 which has been calculated as pro forma
income from operations of approximately $60,510 plus GAAP depreciation
and amortization of $41,175 less tax basis depreciation and amortization
and other tax differences of approximately $54,514.
<PAGE> -11-
LIBERTY PROPERTY LIMITED PARTNERSHIP
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The unaudited, pro forma condensed consolidated balance sheet as of
December 31, 1997 reflects the incremental effect of the First
Industrial Properties described in Item 5 as if the acquisitions had
occurred on December 31, 1997. The accompanying unaudited, pro forma
consolidated statement of operations for the year ended December 31,
1997 reflects the incremental effect of the First Industrial Properties,
as if such acquisitions had occurred on January 1, 1997. These
statements should be read in conjunction with the respective
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31,
1997. In the opinion of management, the unaudited, pro forma
consolidated financial information provides for all adjustments
necessary to reflect the effects of the First Industrial Properties.
These pro forma statements may not necessarily be indicative of the
results that would have actually occurred if the acquisition of the
First Industrial Properties had been in effect on the dates indicated,
nor does it purport to represent the financial position, results of
operations or cash flows for future periods.
<PAGE> -12-
LIBERTY PROPERTY LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
LIBERTY
PROPERTY
THE FIRST LIMITED
HISTORICAL INDUSTRIAL PARTNERSHIP
<F1> PROPERTIES CONSOLIDATED
---------- ------------- ------------
<S> <C> <C> <C>
ASSETS:
Investment in real estate, net $1,947,026 $ 16,914 <F2> $1,963,940
Cash and cash equivalents 55,079 - 55,079
Deferred financing and
leasing costs, net 32,536 - 32,536
Other assets 59,696 - 59,696
---------- ----------- -----------
Total assets $2,094,337 $ 16,914 $2,111,251
========== =========== ===========
LIABILITIES:
Mortgage loans $ 363,591 $ - $ 363,591
Unsecured notes 350,000 - 350,000
Credit facility 135,000 16,914 <F3> 151,914
Convertible debentures 111,543 - 111,543
Other liabilities 93,930 - 93,930
---------- ----------- -----------
Total liabilities 1,054,064 16,914 1,070,978
---------- ----------- -----------
OWNERS' EQUITY:
General partner's equity 955,595 - 955,595
Limited partners' equity 84,678 - 84,678
---------- ----------- -----------
Total owners' equity 1,040,273 - 1,040,273
---------- ----------- -----------
Total liabilities and
owners' equity $2,094,337 $ 16,914 $2,111,251
========== =========== ===========
</TABLE>
<PAGE> -13-
LIBERTY PROPERTY LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
LIBERTY
THE FIRST PROPERTY
INDUSTRIAL PRO LIMITED
HISTORICAL PROPERTIES FORMA PARTNERSHIP
<F1> <F4> ADJUSTMENTS CONSOLIDATED
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE
Rental $ 169,859 $ 1,653 $ 171,512
Operating expense reim-
bursement 55,502 282 55,784
Management fees 673 - 673
Interest and other 6,483 - 6,483
---------- --------- ------------
Total revenue 232,517 1,935 234,452
---------- --------- ------------
OPERATING EXPENSES
Rental property expenses 43,118 211 43,329
Real estate taxes 17,961 81 18,042
General and administrative 10,650 - 10,650
Depreciation and amorti-
zation 40,752 - $ 423 <F5> 41,175
---------- --------- ---------- ------------
Total operating expenses 112,481 292 423 113,196
---------- --------- ---------- ------------
Operating income 120,036 1,643 (423) 121,256
Premium on debenture
conversion 98 - - 98
Interest expense 53,888 - 1,148 <F6> 55,036
---------- --------- ---------- ------------
Net income (loss) $ 66,050 $ 1,643 $ (1,571) $ 66,122
========== ========= ========== ============
Net income (loss)
allocated to general
partner $ 60,444 $ 1,494 $ (1,428) $ 60,510
Net income (loss)
allocated to limited
partners 5,606 149 (143) <F7> 5,612
========== ========= ========== ============
</TABLE>
The accompanying notes are an integral part of this unaudited, proforma
consolidated financial statement.
<PAGE> -14-
LIBERTY PROPERTY LIMITED PARTNERSHIP
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS)
<F1> Reflects historical financial information of the Company as of
December 31, 1997 and for the year ended December 31, 1997.
<F2> Reflects the Total Investment in the First Industrial Properties.
<F3> Reflects the use of $16,914 from the credit facility to finance
the Total Investment in the First Industrial Properties.
<F4> Reflects the incremental addition of revenues and certain expenses
of the First Industrial Properties in order to reflect a full year of
operations for these acquisitions.
<F5> Reflects incremental depreciation of the First Industrial
Properties based on asset lives of 40 years.
<F6> Reflects an incremental increase in interest expense from the
assumed borrowings of $16,914 on the credit facility to fund the
purchase of the First Industrial Properties.
<F7> Reflects the allocation of the pro forma adjustment to the net
income allocated to the limited partners based upon pro forma ownership
in the Operating Partnership of approximately 9.07%.
<PAGE> -15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
each Registrant has duly caused this Report to be signed on its behalf
by the undersigned hereunto duly authorized.
LIBERTY PROPERTY TRUST
Dated: February 27, 1998 BY: /s/ WILLARD G. ROUSE III
----------------------------------------
NAME: Willard G. Rouse III
TITLE: Chief Executive Officer
LIBERTY PROPERTY LIMITED PARTNERSHIP
BY: LIBERTY PROPERTY TRUST,
SOLE GENERAL PARTNER
Dated: February 27, 1998 BY: /s/ WILLARD G. ROUSE III
----------------------------------------
NAME: Willard G. Rouse III
TITLE: Chief Executive Officer
<PAGE> -16-
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 333-43267), the Registration Statement (Form S-3
No. 33-94782), the Registration Statement (Form S-3 No. 333-14139), the
Registration Statement (Form S-3 No. 333-22211), the Registration
Statement (Form S-8 No. 33-94036) and the Registration Statement (Form
S-8 No. 333-44149) of Liberty Property Trust and Liberty Property
Limited Partnership and in the related Prospectus of our report dated
February 12, 1998, with respect to the Historical Summary of Gross
Income and Direct Operating Expenses of the First Industrial Properties
included in this Current Report (Form 8-K) for the year ended December
31, 1997.
March 2, 1998 /s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania ERNST & YOUNG LLP
<PAGE> -17-
