<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, VIA EDGAR, ON MAY 21, 1998
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LIBERTY PROPERTY TRUST
(Exact name of Registrant as specified in its charter)
MARYLAND 23-7768996
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
65 VALLEY STREAM PARKWAY, MALVERN, PENNSYLVANIA 19355
(610) 648-1700
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
JAMES J. BOWES, ESQUIRE
65 VALLEY STREAM PARKWAY
MALVERN, PENNSYLVANIA 19355
(610) 648-1700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
PLEASE SEND A COPY OF ALL CORRESPONDENCE TO:
RICHARD A. SILFEN, ESQUIRE
WOLF, BLOCK, SCHORR AND SOLIS-COHEN LLP
TWELFTH FLOOR PACKARD BUILDING
111 SOUTH 15TH STREET
PHILADELPHIA, PENNSYLVANIA 19102
(215) 977-2000
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
<PAGE> 2
From time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [ ] ________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering: [ ] ________
If delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of Shares to be Offering Price Offering Registration
to be Registered Registered Per Unit (1) Price (1) Fee
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of Beneficial
Interest, $0.001 par value(2)... 974,194 $26.5625 $25,877,028 $7,634
========================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee,
pursuant to Rule 457(g) under the Securities Act of 1933, as amended
(the "Securities Act"), and in accordance with Rule 457(c) under the
Securities Act, based on the average of the high and low reported sale
prices of the Common Shares of Beneficial Interest, $0.001 par value
(the "Common Shares") of Liberty Property Trust (the "Trust") on the
New York Stock Exchange on May 15, 1998.
(2) Includes rights to purchase Series A Junior Participating Preferred
Shares of the Trust (the "Rights"). No separate consideration is paid
for the Rights and, as a result, the registration fee therefor is
included in the fee for the Common Shares.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
<PAGE> 3
To appear vertically in left margin of prospectus:
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities law of any such state.
<PAGE> 4
Subject to Completion
Preliminary Prospectus dated May 21, 1998
PROSPECTUS
974,194 SHARES
LIBERTY PROPERTY TRUST
COMMON SHARES OF BENEFICIAL INTEREST
Liberty Property Trust (the "Company") is a self-administered and
self-managed Maryland 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 March 31, 1998, consisted of 496 industrial and office properties totaling
approximately 36.1 million leasable square feet. Such properties are located
principally in the Southeastern, Mid-Atlantic and Midwestern United States. As
of March 31, 1998, the Company also had 47 properties under development and
owned 953 acres of land for future development.
This Prospectus relates to the Company's offer (the "Offering") to
issue from time to time its common shares of beneficial interest, $0.001 par
value (the "Common Shares"), to certain persons (the "Contributors") in exchange
for units of limited partnership interest (the "Units") in Liberty Property
Limited Partnership, a Pennsylvania limited partnership (the "Operating
Partnership"). The Units were issued to the Contributors on May 14, 1997, in
connection with their contribution to the Company of certain properties.
Pursuant to the terms of the Operating Partnership's Second Amended and Restated
Agreement of Limited Partnership (the "Partnership Agreement"), the Contributors
have the right, exercisable beginning on May 14, 1998, to convert their Units
into Common Shares. The Offering is being made to the Contributors in accordance
with the terms of the Partnership Agreement, and the issuance of the Common
Shares offered hereby will be made in conformity with the terms of the Units,
which require that upon conversion by a holder of Units, the Company issue one
Common Share in exchange for each Unit, subject to adjustment as set forth in
the Partnership Agreement and to applicable anti-dilution provisions. See "Plan
of Distribution." The Company is the sole general partner of the Operating
Partnership.
The Company will not receive any of the proceeds from the sale of the
Common Shares offered hereby. The Common Shares are traded on the New York Stock
Exchange (the "NYSE") under the symbol "LRY."
SEE "RISK FACTORS" BEGINNING ON PAGE 2 OF THIS PROSPECTUS 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 NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE> 5
RISK FACTORS
Liberty Property Trust, a Maryland real estate investment trust (the
"Trust"), conducts substantially all of its operations through Liberty Property
Limited Partnership, a Pennsylvania limited partnership (the "Operating
Partnership"). Unless the context otherwise requires, as used in this
Prospectus, (i) the term "Operating Partnership" includes Liberty Property
Limited Partnership and its subsidiaries (and, where the context indicates, its
predecessor entities, Rouse & Associates, a Pennsylvania general partnership,
and certain affiliated entities (collectively, the "Predecessor")) and (ii) the
term "Company" includes the Trust and the Operating Partnership.
This Prospectus contains or incorporates by reference 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. For a
discussion of certain factors that might cause such a difference, in addition to
general investment risks and those factors incorporated by reference herein,
prospective investors should consider, among others, 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 its portfolio of properties (the "Operating Properties") and in its
properties currently under development (together with the Operating Properties,
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. 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. 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. 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
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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 Company's $325 million credit
facility (the "Credit Facility"), 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.
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 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.
INDEBTEDNESS
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,
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funds from operations and cash available for distribution to shareholders will
be adversely affected. 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. Further, instruments evidencing
certain of the Company's indebtedness, including the Operating Partnership's
Exchangeable Subordinated Debentures due 2001 (the "Exchangeable Subordinated
Debentures") and the Credit Facility, contain cross-default and/or
cross-acceleration provisions. Depending on the principal amount of the
Exchangeable Subordinated Debentures that are exchanged for Common Shares, the
Company may not have accumulated sufficient cash to repay the principal due on
the Exchangeable Subordinated 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 Credit Facility,
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'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.
DEPENDENCE ON PRIMARY MARKETS
The Properties are located principally in the Southeastern,
Mid-Atlantic and Midwestern United States. The Company's performance is,
therefore, dependent upon economic conditions in these geographic areas. Like
much of the country, the Southeastern, Mid-Atlantic and Midwestern United States
have been subject to periods of economic decline.
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 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, possibly with retroactive effect. 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.
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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 may 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. 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."
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 its outstanding shares of beneficial interest may be owned, directly
or indirectly, by five or fewer individuals. To this end, the Declaration of
Trust, among other things, prohibits any holder from owning more than 5.0% of
its outstanding shares of beneficial interest without the consent of the Board
of Trustees of the Company (the "Board of Trustees"). 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.
Shareholder Rights Plan. Under the Company's Shareholder Rights Plan
(the "Plan"), each Right (as defined in the Plan), which is attached to each
Common Share entitles the holder thereof (other than an Acquiring Person (as
defined in the Plan)) to purchase from the Trust, under certain conditions, one
one-thousandth of a Series A Junior Participating Preferred Share, $0.0001 par
value, of the Trust for $100, subject to adjustment. Each Right may also, under
certain conditions, entitle the holder thereof (other than an Acquiring Person)
to receive Common Shares, or common shares of an entity acquiring the Company,
or other consideration, each having a value equal to twice the exercise price of
each Right ($200). The Trust has designated 200,000 Series A Junior
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Participating Preferred Shares and has reserved such shares for issuance under
the Plan. The Rights are redeemable by the Trust at a price of $0.0001 per
Right. If not exercised or redeemed, all Rights will expire on December 31,
2007. The description and terms of the Rights are set forth in the Rights
Agreement, dated as of December 17, 1997, between the Trust and Bank Boston,
N.A., as Rights Agent.
Staggered Board and Nominating Procedures. The 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 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. The 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.
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 materials filed or to be filed
by the Company with the Commission and incorporated by reference herein contain
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 incorporated by reference herein. 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 prices for the Company's securities.
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THE COMPANY
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 the Operating Properties which, as of March 31,
1998, consisted of 329 industrial and 167 office properties totaling
approximately 36.1 million leasable square feet. The Operating Properties were
approximately 94.9% leased to approximately 1,500 tenants as of March 31, 1998.
As of the same date, the Company also had 47 Development Properties, expected to
generate approximately 4.5 million leasable square feet. As of March 31, 1998,
the Company also owned 953 acres of land, anticipated by the Company to be
capable of supporting, as and when developed, approximately nine million
leasable square feet. The Properties and such land are located principally
within the Southeastern, Mid-Atlantic and Midwestern United States.
During the three months ended March 31, 1998, the Company increased its
total leasable square footage of industrial and office space by approximately
11.4% through the acquisition of 48 properties totaling approximately 3.3
million leasable square feet, the completion of the development of seven
properties totaling approximately 361,000 leasable square feet. In the same
period, the Company also decreased its ownership of land for future development
by four acres as a result of the purchase of 54 acres and the completion of
development of 58 acres.
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 principal markets.
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RECENT ACTIVITIES
RECENT ACQUISITION AND DEVELOPMENT ACTIVITIES
Since April 1, 1998, through May 15, 1998, the Company purchased 25
industrial and office properties comprising approximately 1.9 million leasable
square feet for a Total Investment (as defined below) of $103.8 million. Of
these 25 properties, 22 were industrial properties that contain approximately
1.8 million leasable square feet for a Total Investment of $93.8 million and
three were office properties that contain approximately 94,000 leasable square
feet for a Total Investment of $10.0 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.
As of May 15, 1998, the Company's portfolio consisted of 523
industrial and office properties totaling approximately 38.2 million leasable
square feet. As of May 15, 1998, the Company also had 46 properties under
development and owned 1,011 acres of land for future development.
PENDING ACQUISITIONS
As of May 15, 1998, the Company had entered into agreements to acquire
13 industrial and office properties (the "Pending Acquisitions) which the
Company considered probable of closing as of the date of this Prospectus. The
Pending Acquisitions aggregate approximately 1.2 million leasable square feet
and the aggregate Total Investment in the properties is estimated to be $89.4
million.
The purchase of each of the properties comprising the Pending
Acquisitions is subject to certain contingencies, including completion of due
diligence satisfactory to the Company and other customary conditions.
Accordingly, there can be no assurance that the Company will acquire any or all
of such properties or that the acquisitions of such properties will be
consummated for the estimated Total Investment.
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TAX TREATMENT OF CONVERSION OF UNITS
The Partnership Agreement provides that the conversion of Units will be
treated by the Company, the Operating Partnership and the limited partner
electing to convert such Units, for tax purposes, as a sale of Units. A
converting limited partner will recognize gain or loss on the conversion of
Units to the extent that the value of the Common Shares received upon conversion
of such Units differs from such limited partner's basis in such Units.
EACH LIMITED PARTNER CONSIDERING THE CONVERSION OF UNITS IS ADVISED TO
CONSULT SUCH LIMITED PARTNER'S OWN TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO SUCH LIMITED PARTNER OF SUCH CONVERSION.
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 the Common Shares is based on current law, is for general information only
and is not intended as tax advice. The tax treatment of a holder of any of the
Common Shares will vary depending on such holder's particular situation, and
this summary is addressed only to holders that hold the Common Shares as capital
assets and does not attempt to address all aspects of federal income taxation
relating to holders of the Common Shares. Nor does it discuss all of the aspects
of federal income taxation that may be relevant to certain types of holders
(including insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) who are subject to special treatment under the
federal income tax laws.
EACH PROSPECTIVE PURCHASER OF COMMON SHARES 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 COMMON SHARES 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
Management of 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
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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 LLP 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 LLP 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 LLP. 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 or excise tax as follows.
First, the Trust will be taxed at regular corporate rates on any 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 and, effective for the Trust's taxable year ending December
31, 1998, dispositions of property that occur due to involuntary conversion),
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 an
amount equal to (i) the gross 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 (ii) 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
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of such 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 Trust 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. 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 and certain other
attribution rules will apply.
The Trust has satisfied and will continue to satisfy conditions (1)
through (6) above. In making the "five or fewer individuals" 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 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 Declaration of Trust, filed as an exhibit to a
report 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 REIT
subsidiary" are treated as assets, liabilities, and such items (as the case may
be) of the REIT. A qualified REIT subsidiary is defined as a corporation 100% of
the stock of which is held by the REIT at all times during the existence of the
corporation. Effective for the Trust's taxable year ending December 31, 1998, a
qualified REIT subsidiary will be defined as any corporation 100% of the stock
of which is held by the REIT, regardless of whether the REIT has held such
corporation's stock at all times during its existence. 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.
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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. Thus, 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, for its
taxable years ending on or before December 31, 1997, 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. However, 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, directly or through the
applicable ownership attribution rules, 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
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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
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, other than services usually and customarily rendered in
connection with the rental of space for occupancy only.
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.
Effective for the Trust's taxable years beginning on or after January
1, 1998, the Trust may render a de minimis amount of impermissible services to
tenants, or in connection with the management of a property (together,
"Impermissible Services"), without having otherwise qualifying rents from the
property being disqualified as "rents from real property." In order to qualify
for this de minimis exception, the amount received by the Trust for
Impermissible Services with respect to any property for any taxable year may not
exceed 1% of all amounts received or accrued by the Trust during such taxable
year with respect to such property. For purposes of the foregoing, the amount
treated as "received" by the Trust for Impermissible Services will not be less
than 150% of the Trust's direct cost in rendering such service. However, the
amount of any income that the Trust receives for Impermissible Services will not
be treated as "rents from real property" for purposes of the gross income tests.
The Operating Partnership may receive fees in consideration of the performance
of management and administrative services with respect to any properties that
are not owned entirely by the Operating Partnership. Although a portion of such
management and administrative fees generally will not constitute "qualifying
income" for purposes of the 75% and 95% gross income tests, the Trust Management
believes that the aggregate amount of such fees, if any (plus any income from
Impermissible Services and other nonqualifying income), in any taxable year will
not cause the Trust to fail the 75% and 95% gross income tests.
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 net 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.
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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.
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), 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 (other than 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 Property Development Corp. ("Liberty
Development") and none of the voting common stock and 100% of the non-voting
common stock of Liberty Property Development Corp.-II ("Development-II" and,
together with Liberty Development, the "Development Companies"). By virtue of
its ownership of partnership interests in the Operating Partnership, the Trust
owns its pro rata shares of the common stock of the Development Companies. The
Operating Partnership does not own more than 10% of the voting securities of
either of the Development Companies and, therefore, the Trust will not own more
than 10% of the voting securities of either of the Development Companies. 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 either of the Development Companies because of its substantial economic
positions in the Development Companies and because of the close business
relationships between it and each of the two Development Companies. 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 respective Boards of Directors of the Development Companies, and there is
no understanding or arrangement permitting the Trust to exercise voting power or
control over the voting common stock of either of the Development Companies not
owned by it. Accordingly, Wolf, Block, Schorr and Solis-Cohen LLP and the Trust
do not believe that the Trust will be viewed as owning in excess of 10% of the
voting securities of either of the Development Companies. 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
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Operating Partnership, the Trust has determined that its respective pro rata
shares of the securities of the Development Companies held by the Operating
Partnership do 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 LLP, 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 values of the Development Companies. The 5%-of-value
requirement must be satisfied each time the Trust increases its ownership of
securities of either of the Development Companies (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 either of the Development Companies.
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
To qualify as a REIT, the Trust 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 noncash 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.
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 depreciable
property which exceeds its allocable share of cash attributable to that sale. In
such cases, the Trust may have less cash available for distribution
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than is necessary to meet the annual 95% distribution requirement or to avoid
tax with respect to the 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.
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 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
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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.
would 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 LLP had opined
that, based on the provisions of the respective partnership agreements of the
Operating Partnership and each Property
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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 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 LLP, 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.
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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 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
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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 Treasury Regulations to be issued, the tax rates
applicable to such capital gain will likely vary depending on the precise amount
of time such interest has been held by the Trust and the nature of the Operating
Partnership's property. Based on certain undertakings by limited partners of the
Operating Partnership, the Exchangeable Subordinated 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), and may result in
capital gain distributions to the shareholders. See "--Taxation of Taxable
Domestic Shareholders," below.
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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. 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. Complete assurance cannot be given, however, that the Trust will be
able to avoid owning property that may be characterized as property held
"primarily for sale to customers in the ordinary course of business."
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Trust qualifies as a REIT, distributions made to the
Trust'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 deduction for corporations. Distributions that are
designated as capital gain dividends will be taxed as gain from the sale or
exchange of a capital asset held for more than one year (to the extent they do
not exceed the Trust's actual net capital gain for the taxable year) without
regard to the period for which the shareholder has held its stock. Subject to
certain limitations, the Trust may further designate capital gain dividends as a
"20% rate gain distribution," an "unrecaptured section 1250 gain distribution,"
or a "28% rate gain distribution," in which case such dividends will be taxable
to recipient individual shareholders when received at tax rates of 20%, 25% and
28%, respectively. If no additional designation is made regarding a capital gain
distribution, it will be treated as a 28% rate gain distribution. 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 short-term,
mid-term or long-term capital gain (depending on the length of time the shares
have been held) assuming the shares are a capital asset in the hands of the
shareholder. In addition, any dividend declared by the Trust 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 Trust and
received by the shareholder on December 31 of such year, provided that the
dividend is actually paid by the Trust 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 Trust.
In general, a domestic shareholder will realize capital gain or loss on
the disposition of Common Shares equal to the difference between (i) the amount
of cash and the fair market value of any property received on such disposition,
and (ii) the shareholder's adjusted basis of such Common Shares. Subject to
certain exceptions, the maximum rate of tax on net capital gains of individuals,
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trusts and estates from the sale or exchange of capital assets is 28% in respect
of capital assets held for more than one year but not more than 18 months and is
20% in respect of capital assets held for more than 18 months. 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 Trust required
to be treated by such shareholder as long-term capital gain.
Effective for its taxable years beginning on or after January 1, 1998,
the Trust may elect to retain its net long-term capital gains recognized during
a taxable year ("Retained Gains") and pay a corporate-level tax on such Retained
Gains. Corporations are currently subject to a maximum 35 percent tax on
recognized capital gains. A shareholder owning the Trust's shares of beneficial
interest on December 31 of any taxable year in which the Trust has Retained
Gains would be required to include in gross income such shareholder's
proportionate share of the Retained Gains (as designated by the Trust in a
notice mailed to shareholders within 60 days following the end of the taxable
year). The amount of any corporate-level tax paid by the Trust in respect of the
Retained Gains (the "Trust Tax") would be treated as having been paid by the
shareholders of the Trust and each shareholder would receive a credit for such
shareholder's share of the Trust Tax. A shareholder's basis in his shares of
beneficial interest would increase by the excess of such shareholder's
proportionate share of the Retained Gains over the shareholder's share of the
Trust Tax. Unless the Retained Gains were treated as actually distributed, it is
possible that the Retained Gains might be subject to the Excise Tax.
BACKUP WITHHOLDING
The Trust 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 Trust 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 Trust may be required to
withhold a portion of capital gain distributions to shareholders who fail to
certify their non-foreign status to the Trust. The United States Treasury has
recently issued final regulations (the "Final Regulations") which affect the
procedures regarding the withholding and information reporting rules discussed
above. In general, the Final Regulations do not alter the substantive
withholding and information reporting requirements but unify current
certification procedures and forms and clarify and modify reliance standards.
The Final Regulations are generally effective for payments made on or after
January 1, 1999, subject to certain transition rules. Prospective investors
should consult their own tax advisors concerning the adoption of the Final
Regulations and the potential effect on their ownership of Common Shares. See
"-- Taxation of Foreign Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
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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
Trust 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% 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% in value
of the real estate investment trust or (B) one or more pension funds (holding at
least 10% in value of the real estate investment trust each) own, in the
aggregate, more than 50% 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 trust in the taxable year in which the
distributions are made. The ownership limitations in the Declaration of Trust
(assuming no waiver by the Board of Trustees) would prevent the Trust 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, as well as the tax treatment of such an investment under their
home country laws. 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. Prospective investors whose
investment in Common Shares may be "effectively connected" with the conduct of a
United States trade or business should consult their own tax advisors as to the
tax consequences thereof.
Distributions by the Trust that are not attributable to gain from sales
or exchanges by the Trust of United States real property interests and not
designated by the Trust 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 Trust. Such distributions, ordinarily,
will be subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an
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applicable tax treaty reduces or eliminates that tax. Distributions in excess of
current and accumulated earnings and profits of the Trust 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 Trust, as described below. The Trust 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 Trust 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 Trust. 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 Trust is obligated to withhold 10% of the amount of any
distribution in excess of the Trust'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 Trust and the amount withheld exceeded the Non-U.S.
Shareholders' United States tax liability, if any.
For any year in which the Trust qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Trust 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), without regard to whether such distributions are designated by the
Trust as capital gain dividends. 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 Trust is required by
applicable income tax regulations that have been promulgated under the Code (the
"Treasury Regulations") to withhold 35% of any distribution that could be
designated by the Trust as a capital gains dividend. This amount is creditable
against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of shares
generally will not be taxed under FIRPTA if the Trust 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 Trust 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, because the Common Shares will be publicly traded, no
assurance can be given that the Trust will continue to so qualify.
Notwithstanding the foregoing, any gain not otherwise 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
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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. The Final Regulations, issued by the
United States Treasury on October 6, 1997, affect the rules applicable to
payments to foreign persons. In general, the Final Regulations do not alter the
substantive withholding and information reporting requirements but unify current
certification procedures and forms and clarify and modify reliance standards.
The Final Regulations also address certain issues relating to intermediary
certification procedures designed to simplify compliance by withholding agents.
The Final Regulations are generally effective for payments made on or after
January 1, 1999, subject to certain transition rules. Prospective investors
should consult their own tax advisors concerning the adoption of the Final
Regulations and the potential effect on their ownership of the Common Shares.
PLAN OF DISTRIBUTION
This Prospectus relates to the Company's offer to issue from time to
time its Common Shares to the Contributors in exchange for Units. The
Contributors may exercise their right to cause such conversion by delivering the
notice prescribed by the Partnership Agreement (a copy of which is available
from the Company) and attached as Schedule 1 to Exhibit D thereto (the
"Conversion Notice") to the Company. Upon delivering such Conversion Notice, the
applicable limited partner will receive, in accordance with the provisions of
the Partnership Agreement, a number of Common Shares equal to the number of
Units tendered by such limited partner for conversion, multiplied by the
Conversion Factor (as defined by the Partnership Agreement), which is currently
one share per Unit.
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Upon the consummation of any such conversion, the Company will acquire
the Units being converted and will become the owner of the Units. Such an
acquisition by the Company will be treated as a sale of the Units to the Company
for Federal income tax purposes. See "Tax Treatment of Conversion of Units." The
Company will not realize any cash proceeds from the conversion of Units into
Common Shares. Each conversion will, however, increase the Company's ownership
interest in the Operating Partnership and its allocable share of the Operating
Partnership's income. The Company intends to pay all expenses of registering the
Conversion Shares. Upon such a conversion, such limited partner's right to
receive distributions with respect to the Units converted will cease. However,
the limited partner will then have rights as a shareholder of the Company from
the time of his or her acquisition of Common Shares, including the payment of
dividends.
A limited partner must notify the Company, as general partner of the
Operating Partnership, of such partner's desire to require the Company to
convert Units into Common Shares by sending the Conversion Notice to the
Company. A limited partner must request the conversion of at least 1,000 Units
(or all of the Units held by such holder, if less). Closing on the issuance of
Common Shares offered hereby to a Contributor exercising such Contributor's
right to convert Units shall, unless otherwise mutually agreed, occur 70 days
after receipt by the Company of the Conversion Notice.
The Common Shares are listed on the NYSE.
LEGAL MATTERS
Weinberg & Green LLC, Baltimore, Maryland, has rendered an opinion with
respect to the legality of the Common Shares offered hereby. 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 LLP,
Philadelphia, Pennsylvania, 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 LLP, is the sole trustee of
irrevocable trusts established by three individuals who were senior executives
of the Company at the time of its formation 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.
EXPERTS
The consolidated financial statements of the Trust and the Operating
Partnership appearing in the Annual Reports (Form 10-K) of the Trust and the
Operating Partnership for the year ended December 31, 1997 and the historical
summary of gross income and direct operating expenses of the First Industrial
Properties for the year ended December 31, 1997 appearing in the Current Report
(Form 8-K) of the Trust and the Operating Partnership, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. Such financial statements
and historical summary of gross income and direct 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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The statements of operating revenues and certain operating expenses of
(i) the Acquisition Properties and (ii) the Pureland Properties, each of such
capitalized terms as defined in the respective Current Reports (Form 8-K) of the
Trust and the Operating Partnership relating thereto, all of such statements for
the year ended December 31, 1997 and appearing in the respective Current Reports
(Form 8-K) of the Trust and the Operating Partnership, filed on March 12, 1998
and April 17, 1998, respectively, have been audited by Fegley & Associates,
independent auditors, as set forth in their reports thereon included in the
respective Current Reports (Form 8-K) 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.
AVAILABLE INFORMATION
The Trust and the Operating Partnership are subject to the
informational requirements of 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 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 Commission's
Electronic Data Gathering, Analysis and Retrieval System ("EDGAR") are publicly
available through the Commission's Web site (http://www.sec.gov). The Common
Shares are listed on the NYSE, and 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 the
Registration Statement. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus or in any document incorporated by reference in
this Prospectus as to the contents of any contract or other document referred to
in this Prospectus 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.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission under the Exchange
Act are hereby incorporated by reference herein 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, 1997;
(b) The Quarterly Report on Form 10-Q of the Trust and
the Operating Partnership for the fiscal quarter
ended March 31, 1998;
(c) The Current Reports on Form 8-K of the Trust and the
Operating Partnership filed March 5, 1998, March 12,
1998 and April 17, 1998; and
(d) The description of the Common Shares contained in the
Registration Statement on Form 8-A of the Trust
registering 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 and this Prospectus to the
extent that a statement contained herein 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.
The Company will provide without charge to each person to whom a copy
of this Prospectus 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 the Company at 65 Valley Stream Parkway, Malvern, Pennsylvania
19355, Attention: Investor Relations; telephone (610) 648-1700.
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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. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON SHARES OFFERED
HEREBY 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 NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE ITS DATE.
TABLE OF CONTENTS
PROSPECTUS
PAGE
Risk Factors............................................................... 2
The Company................................................................ 7
Recent Activities.......................................................... 8
Tax Treatment of Conversion of Units....................................... 9
Federal Income Tax Considerations with Respect
to the Trust and the Operating Partnership.............................. 9
Plan of Distribution....................................................... 25
Legal Matters.............................................................. 26
Experts.................................................................... 26
Available Information...................................................... 27
Incorporation of Certain Documents by Reference............................ 28
================================================================================
974,194 SHARES
LIBERTY
PROPERTY TRUST
COMMON SHARES
OF BENEFICIAL INTEREST
--------------
PROSPECTUS
, 1998
--------------
================================================================================
<PAGE> 33
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses of the sale and
distribution of the Securities being registered, all of which are being borne by
the Trust.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............ $ 7,634
Legal fees and expenses........................................ 10,000
Accounting fees and expenses................................... 4,000
Miscellaneous.................................................. 5,000
-------
Total $26,634
=======
</TABLE>
All expenses except the Securities and Exchange Commission registration
fee are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 8-301(15) and 2-418 of the Maryland General Corporation
Law, as amended, the Trust has the power to indemnify trustees and officers
under certain prescribed circumstances (including when authorized by a majority
vote of a quorum of disinterested trustees, by a majority vote of a committee of
two or more disinterested trustees, by independent legal counsel, or by
shareholders) and, subject to certain limitations (including, unless otherwise
determined by the proper court, when such trustee or officer is adjudged liable
to the Trust), against certain costs and expenses, including attorneys' fees
actually and reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
any of them is a party by reason of his or her being a trustee or officer of the
Trust if it is determined that he or she acted in accordance with the applicable
standard of conduct set forth in such statutory provisions including when such
trustee or officer acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the Trust's best interests, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful.
Article XII of the Trust's By-laws provides that the Trust has the
power to indemnify trustees, officers and shareholders of the Trust against
expenses (including legal fees) reasonably incurred by any of them in connection
with the successful defense of a proceeding to which such person was made a
party by reason of such status, whether the success of such defense was on the
merits or otherwise, to the maximum extent permitted by law. The trustees,
officers and shareholders of the Trust also have the right, in certain
circumstances, to be paid in advance for expenses incurred in connection with
any such proceedings.
II-1
<PAGE> 34
ITEM 16. EXHIBITS.
Item Description
---- -----------
4 Rights Agreement, dated as of December 17, 1997, by and
between the Trust and the Rights Agent (including as
Exhibit A thereto the Form of Articles Supplementary
Relating to Designation, Preferences, and Rights of
Series A Junior Participating Preferred Shares of Liberty
Property Trust, as Exhibit B thereto the Form of Rights
Certificate and as Exhibit C thereto the Summary of
Rights to Purchase Series A Junior Participating
Preferred Shares). (Incorporated by reference to Exhibit
1 to the Trust's Registration Statement on Form 8-A filed
with Commission on December 23, 1997).
5 Opinion of Weinberg & Green LLC.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Fegley & Associates.
23.3 Consent of Weinberg & Green LLC (included in Exhibit 5).
24 Powers of Attorney (included on signature pages included
in this Registration Statement).
II-2
<PAGE> 35
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration
Statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) of this paragraph do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the Registrant
pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to trustees, officers or controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the
II-3
<PAGE> 36
payment by the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE> 37
SIGNATURES AND POWERS OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
the undersigned Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Malvern, Commonwealth of Pennsylvania,
on the 15th day of May, 1998.
LIBERTY PROPERTY TRUST
By: /s/ Willard G. Rouse III
--------------------------------
Willard G. Rouse III
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Willard G. Rouse III, Joseph P.
Denny and George J. Alburger, Jr., his or her true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement, and any additional related
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (including post-effective amendments to the Registration
Statement and any such related registration statements), and to file the same,
with all exhibits thereto, and any other documents in connection therewith,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities with the above Registrant and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Willard G. Rouse III Chairman of the Board of Trustees May 15, 1998
Willard G. Rouse III and Chief Executive Officer
(Principal Executive Officer)
/s/ George J. Alburger, Jr. Chief Financial Officer May 15, 1998
George J. Alburger, Jr. (Principal Financial and
Accounting Officer)
<PAGE> 38
Signature Title Date
- --------- ----- ----
/s/ Frederick F. Buchholz Trustee May 15, 1998
Frederick F. Buchholz
/s/ Joseph P. Denny Trustee May 15, 1998
Joseph P. Denny
/s/ J. Anthony Hayden Trustee May 15, 1998
J. Anthony Hayden
/s/ M. Leanne Lachman Trustee May 15, 1998
M. Leanne Lachman
/s/ David L. Lingerfelt Trustee May 15, 1998
David L. Lingerfelt
/s/ John A. Miller Trustee May 15, 1998
John A. Miller
/s/ Stephen B. Seigel Trustee May 15, 1998
Stephen B. Siegel
<PAGE> 1
Exhibit 5
Weinberg & Green LLC
Attorneys at Law
100 South Charles Street
Baltimore, Maryland 21201-2773
410/332 8600
File Number
42430
May 20, 1998
Liberty Property Trust
65 Valley Stream Parkway, Suite 100
Malvern, Pennsylvania 19355
Re: Liberty Property Trust
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as Maryland counsel for Liberty Property Trust, a
Maryland real estate investment trust (the "Company"), in connection with
certain matters of Maryland law arising out of the registration of up to 974,194
common shares of beneficial interest of the Company, $0.001 par value (the
"Shares"), proposed to be offered by the Company from time to time, together or
separately, at prices and on terms to be determined at the time of offering
pursuant to a registration statement on Form S-3 (the "S-3 Registration
Statement") and the prospectus contained in the S-3 Registration Statement (the
"S-3 Prospectus").
In connection with our representation of the Company and as a basis for
the opinions hereinafter set forth, we have examined originals or photostatic
copies of the following documents (hereinafter collectively referred to as the
"Documents"):
a. The S-3 Registration Statement, in the form filed by the Company
with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933 (the "Act");
<PAGE> 2
b. The S-3 Prospectus;
c. The Amended and Restated Declaration of Trust of the Company
recorded on May 29, 1997 (the "Declaration of Trust");
d. Articles Supplementary of the Company recorded on August 7, 1997 and
Articles Supplementary of the Company recorded on December 23, 1997
(the "Articles Supplementary");
e. The Bylaws of the Company;
f. Resolutions adopted by the Board of Trustees of the Company dated
May 1, 1998; and
g. Such other documents and matters as we have deemed necessary and
appropriate to express the opinions set forth in this letter, subject
to the limitations, assumptions and qualifications noted below.
In expressing the opinion set forth below, we have assumed, and so far
as is known to us there are no facts inconsistent with, the following:
1. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding and are enforceable in accordance with all stated
terms except as limited (a) by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other laws relating to or affecting the
enforcement of creditors' rights or (b) by general equitable principles;
2. Each individual executing any of the Documents on behalf of a party
is duly authorized and legally competent to do so;
3. All Documents submitted to us as originals are authentic. All
Documents submitted to us as certified or photostatic copies conformed to the
original documents. All signatures on all such documents are genuine. All public
records reviewed or relied upon by us or on our behalf are true and complete.
All statements and information contained in the Documents are true and complete;
4. There will be no changes in applicable law between the date of this
opinion and any date of issuance or delivery of the Shares;
5. At the time of delivery of the Shares, all contemplated additional
actions shall have been taken and the authorization of the issuance of the
Shares will not have been modified or rescinded;
<PAGE> 3
6. The issuance, execution and delivery of the Shares, and the
compliance by the Company with the terms of the Shares, will not violate any
then-applicable law or result in a default under, breach of, or violation of any
provision of any instrument or agreement then binding on the Company, or any
restriction imposed by any court or governmental body having jurisdiction over
the Company;
7. The consideration received or proposed to be received for the
issuance and sale of the Shares as contemplated by each of the S-3 Registration
Statement and the S-3 Prospectus is not less than the par value per share; and
8. The aggregate number of shares of the Company which would be
outstanding after the issuance of any of the Shares and any other
contemporaneously issued or reserved common shares or preferred shares, together
with the number of common shares and preferred shares previously issued and
outstanding and the number of common shares and preferred shares previously
reserved for issuance upon the conversion or exchange of other securities issued
by the Company or Liberty Property Limited Partnership, a Pennsylvania limited
partnership of whom the Company is the sole general partner, does not exceed the
number of then-authorized shares of the Company.
On the basis of the foregoing, and subject to the qualifications and
limitations stated herein, it is our opinion that:
When and if (a) the definitive terms of any offering of the Shares have
been duly established, in accordance with resolutions of the Board of Trustees
authorizing the issuance and sale of the Shares, and (b) those Shares so offered
have been duly issued and delivered in the manner and for the consideration
contemplated by each of the S-3 Registration Statement and the S-3 Prospectus,
those Shares will be validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the laws of the State of Maryland
and we do not express any opinion herein concerning any other law. We assume no
obligation to supplement this opinion if any applicable law changes after the
date hereof or if we become aware of any facts that might change the opinions
expressed herein after the date hereof.
We hereby consent to the filing of this opinion as an exhibit to the
S-3 Registration Statement and to the use of the name of our firm therein. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required by Section 7 of the Securities Act of 1933.
Very truly yours,
WEINBERG & GREEN LLC
By: /s/ Robert A. Snyder, Jr.
----------------------------
Robert A. Snyder, Jr.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in this
Registration Statement (Form S-3 No. 333-00000) and related Prospectus of
Liberty Property Trust and to the incorporation by reference therein of our
reports dated February 13, 1998 (except for Note 13 for Liberty Property Trust
and Note 10 for Liberty Property Limited Partnership, as to which the date is
February 23, 1998), with respect to the consolidated financial statements and
schedule of Liberty Property Trust and Liberty Property Limited Partnership
included in the Annual Reports (Form 10-K) of Liberty Property Trust and Liberty
Property Limited Partnership for the year ended December 31, 1997, and to the
incorporation by reference therein 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 the Current Report (Form 8-K)
dated March 5, 1998, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
May 14, 1998
Philadelphia, Pennsylvania
<PAGE> 1
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3, No. 333-00000) and related Prospectus of
Liberty Property Trust and to the incorporation by reference therein of (i) our
report dated February 27, 1998 with respect to the Statement of Operating
Revenues and Certain Operating Expenses for the Acquisition Properties, included
in the Current Report on Form 8-K of Liberty Property Trust and Liberty Property
Limited Partnership filed with the Securities and Exchange Commission (the
"Commission") on March 12, 1998 and (ii) our report dated April 16, 1998 with
respect to the Statement of Operating Revenues and Certain Operating Expenses
for the Pureland Properties, included in the Current Report on Form 8-K of
Liberty Property Trust and Liberty Property Limited Partnership filed with the
Commission on April 17, 1998.
/s/ Fegley & Associates
Plymouth Meeting, Pennsylvania
May 20, 1998
