UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number: 1-13130 (Liberty Property Trust)
1-13132 (Liberty Property Limited Partnership)
LIBERTY PROPERTY TRUST
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Exact name of registrants as specified in their governing documents)
MARYLAND (Liberty Property Trust) 23-7768996
PENNSYLVANIA (Liberty Property Limited Partnership) 23-2766549
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification Number)
65 Valley Stream Parkway, Suite 100, Malvern, Pennsylvania 19355
(Address of Principal Executive Offices) (Zip Code)
Registrants' Telephone Number, Including Area Code (610)648-1700
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve (12) months (or for such shorter
period that the registrants were required to file such reports) and (2)
have been subject to such filing requirements for the past ninety (90)
days. YES X NO
On November 4, 1998, 65,573,383 Common Shares of Beneficial Interest, par
value $.001 per share, of Liberty Property Trust were outstanding.
<PAGE>
LIBERTY PROPERTY TRUST/LIBERTY PROPERTY LIMITED PARTNERSHIP
FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 1998
INDEX
- -----
Part I. Financial Information
- -------------------------------
Item 1. Financial Statements (unaudited) Page
----
Consolidated balance sheets of Liberty Property
Trust at September 30, 1998 and December 31, 1997. 4
Consolidated statements of operations of Liberty
Property Trust for the three months ended September
30, 1998 and September 30, 1997. 5
Consolidated statements of operations of Liberty
Property Trust for the nine months ended September
30, 1998 and September 30, 1997. 6
Consolidated statements of cash flows of Liberty
Property Trust for the nine months ended September
30, 1998 and September 30, 1997. 7
Notes to consolidated financial statements for
Liberty Property Trust. 8-11
Consolidated balance sheets of Liberty Property
Limited Partnership at September 30, 1998 and
December 31, 1997. 12
Consolidated statements of operations of Liberty
Property Limited Partnership for the three months
ended September 30, 1998 and September 30, 1997. 13
Consolidated statements of operations of Liberty
Property Limited Partnership for the nine months
ended September 30, 1998 and September 30, 1997. 14
Consolidated statements of cash flows of Liberty
Property Limited Partnership for the nine months
ended September 30, 1998 and September 30, 1997. 15
Notes to consolidated financial statements for
Liberty Property Limited Partnership. 16-17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 17-26
Part II. Other Information 27
- ---------------------------
Signatures 28
Exhibit Index 29
<PAGE> 2
- -----------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in
this Quarterly Report on Form 10-Q contain statements that are or will be
forward-looking, such as statements relating to acquisitions and other
business development activities, future capital expenditures, the costs
and risks associated with the Year 2000 issue, financing sources and
availability, and the effects of regulation (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 made by, or
on behalf of, Liberty Property Trust and Liberty Property Limited
Partnership (together, the "Company"). 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 Company's 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, the potential adverse impact of market
interest rates on the market price for the Company's securities and risks
relating to the Year 2000 issue.
<PAGE> 3
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Real estate:
Land and land improvements $ 345,795 $ 238,519
Buildings and improvements 2,255,566 1,649,512
Less accumulated depreciation (191,375) (149,311)
---------- ----------
Operating real estate 2,409,986 1,738,720
Development in progress 226,583 156,093
Land held for development 85,938 61,904
---------- ----------
Net real estate 2,722,507 l,956,717
Cash and cash equivalents 10,610 55,079
Accounts receivable 9,569 6,517
Deferred financing and leasing costs,
net of accumulated amortization (1998,
$47,007; 1997, $40,560) 35,513 32,536
Prepaid expenses and other assets 47,567 43,488
---------- ----------
Total assets $2,825,766 $2,094,337
========== ==========
LIABILITIES
Mortgage loans $ 414,917 $ 363,591
Unsecured notes 625,000 350,000
Credit facility 198,000 135,000
Convertible debentures 104,034 111,543
Accounts payable 21,737 14,544
Accrued interest 8,421 10,960
Dividend payable 33,573 25,927
Other liabilities 54,170 42,499
---------- ----------
Total liabilities 1,459,852 1,054,064
Minority interest 101,487 84,678
SHAREHOLDERS' EQUITY
8.80% Series A cumulative redeemable preferred
shares, $.001 par value, 5,000,000 shares
authorized; 5,000,000 shares issued and
outstanding as of September 30, 1998 and
December 31, 1997 120,814 120,814
Common shares of beneficial interest, $.001
par value, 200,000,000 shares authorized,
65,371,193 and 52,692,940 shares issued
and outstanding as of September 30, 1998
and December 31, 1997, respectively 65 53
Additional paid-in capital 1,162,897 846,949
Unearned compensation (667) (985)
Dividends in excess of net income (18,682) (11,236)
---------- -----------
Total shareholders' equity 1,264,427 955,595
---------- -----------
Total liabilities and shareholders' equity $2,825,766 $2,094,337
========== ===========
</TABLE>
See accompanying notes.
<PAGE> 4
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
REVENUE
Rental $ 74,264 $ 45,241
Operating expense reimbursement 27,674 15,331
Management fees 150 205
Interest and other 1,458 1,654
--------- ---------
Total revenue 103,546 62,431
--------- ---------
OPERATING EXPENSES
Rental property expenses 20,147 11,934
Real estate taxes 9,228 4,815
General and administrative 4,362 2,820
Depreciation and amortization 18,070 11,499
--------- ---------
Total operating expenses 51,807 31,068
--------- ---------
Operating income 51,739 31,363
Premium on debenture conversion - 98
Write off of deferred financing costs - 353
Interest expense 20,836 13,341
--------- ---------
Income before minority interest 30,903 17,571
Minority interest 2,092 1,590
--------- ---------
Net income 28,811 15,981
Preferred dividend 2,750 1,497
--------- ---------
Income available to common shareholders $ 26,061 $ 14,484
========= =========
Income per common share - basic $ 0.41 $ 0.35
========= =========
Income per common share - diluted $ 0.41 $ 0.35
========= =========
Dividends declared per common share $ 0.45 $ 0.42
========= =========
Weighted average number of common shares
outstanding - basic 63,438 41,333
========= =========
Weighted average number of common shares
outstanding - diluted 63,671 41,661
========= =========
</TABLE>
See accompanying notes.
<PAGE> 5
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
REVENUE
Rental $203,297 $119,223
Operating expense reimbursement 71,048 38,121
Management fees 447 516
Interest and other 2,781 2,244
-------- --------
Total revenue 277,573 160,104
-------- --------
OPERATING EXPENSES
Rental property expenses 51,786 29,849
Real estate taxes 23,765 12,297
General and administrative 11,409 7,602
Depreciation and amortization 48,809 28,787
-------- --------
Total operating expenses 135,769 78,535
-------- --------
Operating income 141,804 81,569
Premium on debenture conversion - 98
Write off of deferred financing costs - 2,919
Interest expense 56,255 37,252
-------- --------
Income before minority interest 85,549 41,300
Minority interest 5,962 3,815
-------- --------
Net income 79,587 37,485
Preferred dividend 8,250 1,497
-------- --------
Income available to common shareholders $ 71,337 $ 35,988
======== ========
Income per common share - basic $ 1.20 $ 0.94
======== ========
Income per common share - diluted $ 1.19 $ 0.93
======== ========
Dividends declared per common share $ 1.29 $ 1.24
======== ========
Weighted average number of common shares
outstanding - basic 59,507 38,263
======== ========
Weighted average number of common shares
outstanding - diluted 59,810 38,551
======== ========
</TABLE>
See accompanying notes.
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 79,587 $ 37,485
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 48,809 28,787
Amortization of deferred financing costs 3,119 6,353
Minority interest in net income 5,962 3,815
Loss on sale 1,048 543
Noncash compensation 317 317
Changes in operating assets and liabilities:
Accounts receivable (3,052) (5,505)
Prepaid expenses and other assets (4,878) (4,455)
Accounts payable 7,193 6,294
Accrued interest (2,539) (3,017)
Other liabilities 12,625 20,143
---------- ---------
Net cash provided by operating activities 148,191 90,760
---------- ---------
INVESTING ACTIVITIES
Investment in properties (498,433) (400,310)
Disposition of properties 11,115 27,410
Investment in development in progress (198,718) (144,295)
Investment in land held for development (24,034) (12,785)
Increase in deferred leasing costs (9,356) (6,096)
---------- ---------
Net cash used in investing activities (719,426) (536,076)
---------- ---------
FINANCING ACTIVITIES
Net proceeds from issuance of common shares 297,567 187,592
Proceeds from issuance of preferred shares - 125,000
Proceeds from issuance of unsecured notes 275,000 200,000
Proceeds from mortgage loans - 124,815
Repayments of mortgage loans (21,961) (7,855)
Proceeds from lines of credit 567,000 600,017
Repayments on lines of credit (504,000) (720,709)
Increase in deposits on pending acquisitions (24) (146)
Increase deferred financing costs (745) (7,807)
Common dividends (71,498) (45,208)
Preferred dividends (8,250) (1,497)
Distributions to partners (6,323) (4,401)
---------- ---------
Net cash provided by financing activities 526,766 449,801
(Decrease) increase in cash and cash equivalents (44,469) 4,485
Cash and cash equivalents at beginning of period 55,079 19,612
---------- ---------
Cash and cash equivalents at end of period $ 10,610 $ 24,097
========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 2,595 $ 6,232
Acquisition of properties (100,981) (62,084)
Assumption of mortgage loans 73,287 33,292
Issuance of operating partnership units 27,694 28,792
Noncash compensation 954 686
Conversion of convertible debentures 7,277 54,105
========== =========
</TABLE>
See accompanying notes.
<PAGE> 7
LIBERTY PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited consolidated financial statements of Liberty
Property Trust (the "Trust") and its subsidiaries, including Liberty
Property Limited Partnership (the "Operating Partnership") (the Trust,
Operating Partnership and their respective subsidiaries referred to
collectively as the "Company"), have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements and should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Annual Report on Form 10-K of the Trust and the Operating Partnership for
the year ended December 31, 1997. In the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial statements for these interim
periods have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full fiscal
year. Certain amounts from prior periods have been restated to conform
to current period presentation.
In the fourth quarter of 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share", which replaced the
calculation of primary and fully diluted income per common share with
basic and diluted income per common share. Unlike primary income per
common share, basic income per common share excludes any dilutive effects
of options. Diluted income per common share generally includes the
weighted average common shares, the effect of the outstanding options,
and the conversion of the units of limited partnership interest in the
Operating Partnership and Convertible Debentures into common shares,
unless the inclusion of such common share equivalents are antidilutive
for the period(s) presented.
<PAGE> 8
The following tables set forth the computation of basic and diluted
income per common share for the three and nine month periods ended
September 30, 1998 and 1997:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1998 ENDED SEPTEMBER 30, 1997
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Net income $ 28,811 $ 15,981
Less: Preferred
dividends 2,750 1,497
-------- --------
Basic income per
common share
Income available
to common share-
holders 26,061 63,438 $ 0.41 14,484 41,333 $ 0.35
======= =======
Effect of dilutive
securities
Options - 233 - 328
-------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $ 26,061 63,671 $ 0.41 $ 14,484 41,661 $ 0.35
======== ======= ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 ENDED SEPTEMBER 30, 1997
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Net income $ 79,587 $ 37,485
Less: Preferred
dividends 8,250 1,497
-------- --------
Basic income per
common share
Income available
to common share-
holders 71,337 59,507 $ 1.20 35,988 38,263 $ 0.94
======= =======
Effect of dilutive
securities
Options - 303 - 288
-------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $ 71,337 59,810 $ 1.19 $ 35,988 38,551 $ 0.93
======== ======= ======= ======== ======= =======
</TABLE>
The EITF 97-11 ruling "Accounting for Internal Costs Relating to Real
Estate Property Acquisitions", effective March 19, 1998, requires the
expensing of internal acquisition costs. The Company has adopted this
release as of January 1, 1998 and accordingly, the results of operations
for the quarter and nine months ended September 30, 1998 reflect the
expensing of internal acquisition costs. The adoption of the ruling did
not have a material effect on the results of operations for the quarter
or the nine months ended September 30, 1998, and it is not anticipated
that it will have a material effect on the Company's results of
operations for future periods.
<PAGE> 9
NOTE 2 - ORGANIZATION
- ---------------------
Liberty Property Trust (the "Trust") is a self-administered and self-
managed Maryland real estate investment trust (a "REIT"). Substantially
all of the Trust's assets are owned directly or indirectly, and
substantially all of the Trust's operations are conducted directly or
indirectly, by its subsidiary, Liberty Property Limited Partnership, a
Pennsylvania limited partnership (the "Operating Partnership" and,
together with the Trust, the "Company"). At September 30, 1998, the
Trust owned a 92.56% interest in the Operating Partnership as the sole
general partner and a 0.01% interest as a limited partner. The Company
provides leasing, property management, acquisition, development,
construction management and design management for a portfolio of
industrial and office properties which are located principally within the
Southeastern, Mid-Atlantic and Midwestern United States.
On January 22, 1998, the Company sold $75 million principal amount of
6.375% notes due 2013. Such notes are subject to mandatory repayment of
principal to the holders thereof in 2003 pursuant to a call/put option
relating to such notes. On January 23, 1998, the Company sold $100
million principal amount of 7.50% notes due 2018. On June 5, 1998, the
Company sold $100 million principal amount of 6.6% notes due 2002. The
aggregate net proceeds to the Company from such offerings were
approximately $272.7 million.
On January 21, 1998, the Company consummated a public offering of
2,300,000 common shares. The aggregate net proceeds to the Company from
such offering were approximately $60.4 million.
On February 23, 1998, the Company consummated a public offering of
1,702,128 common shares. The aggregate net proceeds to the Company from
such offering were approximately $42.7 million.
On April 24, 1998, the Company consummated a public offering of 3,750,000
common shares. The aggregate net proceeds to the Company from such
offering were approximately $94.1 million.
On August 4, 1998, the Company consummated a public offering of 3,960,820
common shares. The aggregate net proceeds to the Company from such
offering were approximately $99.2 million.
NOTE 3 - PRO FORMA INFORMATION
- ------------------------------
The following unaudited pro forma information has been prepared assuming
the common and preferred shares offerings which were consummated in 1997
and the first nine months of 1998 and the acquisitions of 170 properties
acquired in 1997 and 132 properties acquired during the first nine months
of 1998, had occurred at January 1, 1997. The 1997 acquisitions were
<PAGE> 10
acquired for a total investment of $727.9 million and the 1998
acquisitions were acquired for a total investment of $554.8 million.
NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Total revenue $295,900 $261,466
Income available to common
shareholders 77,995 65,676
Income per share - basic $ 1.19 $ 1.00
Income per share - diluted $ 1.19 $ 1.00
This pro forma information is not necessarily indicative of what the
actual results of operations of the Company would have been, assuming the
Company had completed the common and preferred shares offerings and the
acquisitions of 1997 and the first nine months of 1998 as of January 1,
1997, nor does it purport to represent the results of operations of the
Company for future periods.
<PAGE> 11
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(IN THOUSANDS)
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Real estate:
Land and land improvements $ 345,795 $ 238,519
Buildings and improvements 2,255,566 1,649,512
Less accumulated depreciation (191,375) (149,311)
---------- ----------
Operating real estate 2,409,986 1,738,720
Development in progress 226,583 156,093
Land held for development 85,938 61,904
---------- ----------
Net real estate 2,722,507 l,956,717
Cash and cash equivalents 10,610 55,079
Accounts receivable 9,569 6,517
Deferred financing and leasing costs,
net of accumulated amortization
(1998, $47,007; 1997, $40,560) 35,513 32,536
Prepaid expenses and other assets 47,567 43,488
---------- ----------
Total assets $2,825,766 $2,094,337
========== ==========
LIABILITIES
Mortgage loans $ 414,917 $ 363,591
Unsecured notes 625,000 350,000
Credit facility 198,000 135,000
Convertible debentures 104,034 111,543
Accounts payable 21,737 14,544
Accrued interest 8,421 10,960
Dividend payable 33,573 25,927
Other liabilities 54,170 42,499
---------- ----------
Total liabilities 1,459,852 1,054,064
OWNERS' EQUITY
General partner's equity 1,264,427 955,595
Limited partners' equity 101,487 84,678
---------- ----------
Total owners' equity 1,365,914 1,040,273
---------- ----------
Total liabilities and owners' equity $2,825,766 $2,094,337
========== ==========
</TABLE>
See accompanying notes.
<PAGE> 12
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
THREE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
REVENUE
Rental $ 74,264 $ 45,241
Operating expense reimbursement 27,674 15,331
Management fees 150 205
Interest and other 1,458 1,654
--------- ---------
Total revenue 103,546 62,431
--------- ---------
OPERATING EXPENSES
Rental property expenses 20,147 11,934
Real estate taxes 9,228 4,815
General and administrative 4,362 2,820
Depreciation and amortization 18,070 11,499
--------- ---------
Total operating expenses 51,807 31,068
--------- ---------
Operating income 51,739 31,363
Premium on debenture conversions - 98
Write off of deferred financing costs - 353
Interest expense 20,836 13,341
--------- ---------
Net income $ 30,903 $ 17,571
========= =========
Net income allocated to general partner $ 28,811 $ 15,981
Net income allocated to limited partners 2,092 1,590
========= =========
</TABLE>
See accompanying notes.
<PAGE> 13
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
<TABLE>
<CAPTION>
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
REVENUE
Rental $203,297 $ 119,223
Operating expense reimbursement 71,048 38,121
Management fees 447 516
Interest and other 2,781 2,244
-------- ---------
Total revenue 277,573 160,104
-------- ---------
OPERATING EXPENSES
Rental property expenses 51,786 29,849
Real estate taxes 23,765 12,297
General and administrative 11,409 7,602
Depreciation and amortization 48,809 28,787
-------- ---------
Total operating expenses 135,769 78,535
-------- ---------
Operating income 141,804 81,569
Premium on debenture conversion - 98
Write off of deferred financing costs - 2,919
Interest expense 56,255 37,252
-------- ---------
Net income $ 85,549 $ 41,300
======== =========
Net income allocated to general partner $ 79,587 $ 37,485
Net income allocated to limited partner 5,962 3,815
======== =========
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 85,549 $ 41,300
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 48,809 28,787
Amortization of deferred financing costs 3,119 6,353
Loss on sale 1,048 543
Noncash compensation 317 317
Changes in operating assets and liabilities:
Accounts receivable (3,052) (5,505)
Prepaid expenses and other assets (4,878) (4,455)
Accounts payable 7,193 6,294
Accrued interest (2,539) (3,017)
Other liabilities 12,625 20,143
---------- ---------
Net cash provided by operating activities 148,191 90,760
---------- ---------
INVESTING ACTIVITIES
Investment in properties (498,433) (400,310)
Disposition of properties 11,115 27,410
Investment in development in progress (198,718) (144,295)
Investment in land held for development (24,034) (12,785)
Increase in deferred leasing costs (9,356) (6,096)
---------- ---------
Net cash used in investing activities (719,426) (536,076)
---------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of unsecured notes 275,000 200,000
Proceeds from mortgage loans - 124,815
Repayments of mortgage loans (21,961) (7,855)
Proceeds from lines of credit 567,000 600,017
Repayments on lines of credit (504,000) (720,709)
Increase in deposits on pending acquisitions (24) (146)
Increase in deferred financing costs (745) (7,807)
Capital contributions 297,567 312,592
Distributions to partners (86,071) (51,106)
---------- ---------
Net cash provided by financing activities 526,766 449,801
(Decrease) increase in cash and cash equivalents (44,469) 4,485
Cash and cash equivalents at beginning of period 55,079 19,612
---------- ---------
Cash and cash equivalents at end of period $ 10,610 $ 24,097
========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 2,595 $ 6,232
Acquisition of properties (100,981) (62,084)
Assumption of mortgage loans 73,287 33,292
Issuance of operating partnership units 27,694 28,792
Noncash compensation 954 686
Conversion of convertible debentures 7,277 54,105
========= =========
</TABLE>
See accompanying notes.
<PAGE> 15
LIBERTY PROPERTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited consolidated financial statements of Liberty
Property Limited Partnership (the "Operating Partnership") and its direct
and indirect subsidiaries have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Annual Report on Form 10-K of the Trust and the Operating Partnership for
the year ended December 31, 1997. In the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial statements for these interim
periods have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full fiscal
year. Certain amounts from prior periods have been restated to conform
to current period presentations.
The EITF 97-11 ruling "Accounting for Internal Costs Relating to Real
Estate Property Acquisitions", effective March 19, 1998, requires the
expensing of internal acquisition costs. The Company has adopted this
release as of January 1, 1998 and accordingly, the results of operations
for the quarter and nine months ended September 30, 1998 reflect the
expensing of internal acquisition costs. The adoption of the ruling did
not have a material effect on the results of operations for the quarter
or the nine months ended September 30, 1998 and it is not anticipated
that it will have a material effect on the Company's results of
operations for future periods.
NOTE 2 - ORGANIZATION
- ---------------------
Liberty Property Trust (the "Trust") is a self-administered and self-
managed Maryland real estate investment trust (a "REIT"). Substantially
all of the Trust's assets are owned directly or indirectly, and
substantially all of the Trust's operations are conducted directly or
indirectly, by its subsidiary, Liberty Property Limited Partnership, a
Pennsylvania limited partnership (the "Operating Partnership" and,
together with the Trust, the "Company"). At September 30, 1998, the
Trust owned a 92.56% interest in the Operating Partnership as the sole
general partner and a 0.01% interest as a limited partner. The Company
provides leasing, property management, acquisition, development,
construction management and design management for a portfolio of
industrial and office properties which are located principally within the
Southeastern, Mid-Atlantic and Midwestern United States.
On January 22, 1998, the Company sold $75 million principal amount of
6.375% notes due 2013. Such notes are subject to mandatory repayment of
principal to the holders thereof in 2003 pursuant to a call/put option
relating to such notes. On January 23, 1998, the Company sold $100
million principal amount of 7.50% notes due 2018. On June 5, 1998, the
<PAGE> 16
Company sold $100 million principal amount of 6.60% notes due 2002. The
aggregate net proceeds to the Company from such offerings were
approximately $272.7 million.
On January 21, 1998, the Company consummated a public offering of
2,300,000 common shares. The aggregate net proceeds to the Company from
such offering were approximately $60.4 million.
On February 23, 1998, the Company consummated a public offering of
1,702,128 common shares. The aggregate net proceeds to the Company from
such offering were approximately $42.7 million.
On April 24, 1998, the Company consummated a public offering of 3,750,000
common shares. The aggregate net proceeds to the Company from such
offering were approximately $94.1 million.
On August 4, 1998, the Company consummated a public offering of 3,960,820
common shares. The aggregate net proceeds to the Company from such
offering were approximately $99.2 million.
NOTE 3 - PRO FORMA INFORMATION
- ------------------------------
The following unaudited pro forma information has been prepared assuming
the common and preferred shares offerings which were consummated in 1997
and the first nine months of 1998 and the acquisitions of 170 properties
acquired in 1997 and 132 properties acquired during the first nine months
of 1998, had occurred at January 1, 1997. The 1997 acquisitions were
acquired for a total investment of $727.9 million and the 1998
acquisitions were acquired for a total investment of $554.8 million.
NINE MONTHS ENDED
--------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
(IN THOUSANDS)
Total revenue $295,900 $261,466
Net income 92,505 79,197
This pro forma information is not necessarily indicative of what the
actual results of operations of the Company would have been, assuming the
Company had completed the common and preferred shares offerings and the
acquisitions of 1997 and the nine months of 1998 as of January 1, 1997,
nor does it purport to represent the results of operations of the Company
for future periods.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- -----------------------------------------------------------------------
The following discussion compares the activities of the Company for the
three and nine months ended September 30, 1998 (unaudited) with the
activities of the Company for the three and nine months ended September
30, 1997 (unaudited). As a result of the significant level of
acquisition and development activities by the Company in 1998 and 1997,
the overall operating results of the Company during such periods are not
directly comparable. However, certain data, including the "Same Store"
comparison, do lend themselves to direct comparison. As used herein, the
term "Company" includes the Trust, the Operating Partnership and their
subsidiaries.
<PAGE> 17
This information should be read in conjunction with the accompanying
consolidated financial statements and notes included elsewhere in this
report.
The composition of the Company's in-service portfolio of rental
properties as of September 30, 1998 and 1997 is as follows (in
thousands):
<TABLE>
<CAPTION>
TOTAL PERCENT OF TOTAL
SQUARE FEET SQUARE FEET PERCENT OCCUPIED
----------------- ---------------- -----------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
TYPE 1998 1997 1998 1997 1998 1997
- ------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Industrial - Distribution 17,852 13,947 42.4% 48.8% 95.4% 93.8%
Industrial - Flex 12,334 7,598 29.3% 26.6% 93.3% 94.0%
Office 11,905 7,043 28.3% 24.6% 95.8% 92.5%
------ ------ ------- ------- ------- -------
Total 42,091 28,588 100.0% 100.0% 94.9% 93.5%
====== ====== ====== ====== ====== ======
</TABLE>
The expiring square feet and annual base rent by year for the above in-
service portfolio of rental properties as of September 30, 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
INDUSTRIAL-
DISTRIBUTION INDUSTRIAL-FLEX OFFICE TOTAL
------------------ ------------------ ------------------ ------------------
SQUARE ANNUAL SQUARE ANNUAL SQUARE ANNUAL SQUARE ANNUAL
YEAR FEET BASE RENT FEET BASE RENT FEET BASE RENT FEET BASE RENT
- ---------- ------ --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 1,103 $ 4,415 1,138 $ 7,902 1,079 $ 11,304 3,320 $ 23,621
1999 2,443 10,852 2,067 14,636 1,665 17,696 6,175 43,184
2000 1,793 8,155 2,051 14,897 2,306 30,567 6,150 53,619
2001 2,917 13,335 2,096 15,232 1,369 16,896 6,382 45,463
2002 2,350 9,985 1,184 9,452 1,031 12,386 4,565 31,823
2003 1,505 7,444 1,195 10,461 851 10,833 3,551 28,738
Thereafter 4,918 24,374 1,773 17,710 3,104 44,381 9,795 86,465
------ -------- ------ -------- ------ -------- ------ --------
Total 17,029 $78,560 11,504 $90,290 11,405 $144,063 39,938 $312,913
====== ======= ====== ======= ====== ======== ====== ========
</TABLE>
The scheduled deliveries of the 4.5 million square feet of properties
under development as of September 30, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
SQUARE FEET
-----------------------------
SCHEDULED IND- IND- PERCENT LEASED
IN-SERVICE DATE DIST. FLEX OFFICE TOTAL SEPTEMBER 30, 1998 TOTAL INVESTMENT
- ---------------- ------ ------ ------- ------ ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
4th Quarter 1998 1,118 43 494 1,655 85.1% $ 100,119
1st Quarter 1999 152 215 75 442 14.1% 27,226
2nd Quarter 1999 290 125 334 749 70.3% 66,548
3rd Quarter 1999 123 156 - 279 36.9% 13,148
Thereafter 170 - 1,168 1,338 36.3% 182,816
------ ------ ------- ------ ------ ----------
Total 1,853 539 2,071 4,463 58.0% $ 389,857
===== ===== ====== ===== ====== ==========
</TABLE>
<PAGE> 18
YEAR 2000
Background
In the past, many computer software programs were written using two
digits rather than four to define the applicable year. As a result,
date-sensitive computer software may recognize a date using "00" as the
year 1900 rather than the year 2000. This is generally referred to as
the Year 2000 issue. If this situation occurs, the potential exists for
computer system failures or miscalculations by computer programs, which
could disrupt operations.
Approach
The Company has established a group to coordinate the Company's response
to the Year 2000 issue. This group, which reports to the President and
Chief Operating Officer, includes the Company's MIS Director, a Vice-
President-Property Management and its General Counsel, as well as
support staff. The Company is in the process of implementing a Year
2000 compliance program at the Company's offices and properties
consisting of the following phases:
PHASE 1 Compilation of an inventory of information technology
(IT) and non-IT systems that may be sensitive to the Year 2000 problem.
PHASE 2 Identification and prioritization of the critical systems
from the systems inventory compiled in Phase 1 and inquiries of third
parties with whom the Company does significant business (i.e., vendors,
service providers and tenants) as to the state of their Year 2000
readiness.
PHASE 3 Analysis of critical systems to determine which systems
are not Year 2000 compliant and evaluation of the costs to repair or
replace those systems.
PHASE 4 Repair or replace noncompliant systems and testing of
critical systems.
Status
The Company's property management and accounting system uses four digit
year fields and consequently is believed to be Year 2000 compliant.
The Company has been reviewing and will continue to review its building
operating systems on a building by building basis in conjunction with
its annual maintenance program. The Company anticipates that this
review will be completed by the end of 1998.
Phases 1 and 2 are substantially complete but for the process of making
inquiries of significant third parties as to their Year 2000 readiness,
which is currently ongoing.
Phases 3 and 4 are ongoing and will continue through the first half of
calendar 1999. It is the Company's goal to have this project completed
by mid-1999. Based upon the analysis conducted to date, the Company
believes the major critical systems at the Company's properties are
currently compliant or will be compliant by mid-1999. The only
significant aspect of Year 2000 compliance of the Company that has been
identified to date is the need to replace energy management systems at
certain properties. These energy management systems where in any event
scheduled for replacement for other reasons in 1999.
<PAGE> 19
Costs
The total cost to the Company of making its systems Year 2000 compliant
is currently estimated to be in the range of $200,000-$300,000. The
majority of this cost relates to repairing certain software, testing
systems and retrofiting or replacing energy management systems at
certain of the properties. The cost for the replacement of the
equipment and the software will be capitalized and depreciated over
their expected useful life. To the extent existing hardware or software
is replaced, the Company will write-off the cost incurred. This write-
off is included in the above cost estimate. Furthermore, all costs
related to software modification, as well as all costs associated with
the Company's administration of its Year 2000 project, are being
expensed as incurred and are likewise included in the cost estimate
above.
Risks Associated with the Year 2000 Problem
The Company utilizes computer systems in many aspects of its business.
As noted, the Company's property management and accounting systems use
four digit year fields and are believed to be Year 2000 compliant.
Additionally, with respect to the hardware and software systems utilized
by the Company in its management information systems, the Company's
assessment to date indicates that these systems are Year 2000 compliant
or can readily be made Year 2000 compliant on a stand-alone basis.
Testing of this preliminary assessment and of the operation of these
systems together is ongoing.
The Company's also utilizes microprocessors which are imbedded in
systems which are part of the building operations (e.g., a
microprocessors contained within the buildings' energy management
systems or fire and life safety systems.) In particular, Year 2000
problems in the HVAC, elevator, security or other such systems at the
properties could disrupt operations at the affected properties. The
properties generally consist of suburban office and industrial
properties. The properties are also principally single-story and low-
rise buildings. The Company has been reviewing and will continue to
review its building operating systems on a building by building basis in
conjunction with its annual maintenance program. The Company
anticipates that this assessment will be complete by the end of 1998.
At this point, based on the status of its assessment the Company does
not believe a material number of these systems will be non-compliant.
Additionally, many of these systems, which operate automatically, can be
operated manually and consequently in the event these systems experience
a failure as a result of the Year 2000 problem, the disruption caused by
such failure should not be material to the Company's operations.
The Company is also exposed to the risk that one or more of its vendors
or service providers could experience Year 2000 problems that impact the
ability of such vendor or service provider to provide goods and
services. Though this is not considered as significant a risk with
respect to the suppliers of goods, due to the availability of
alternative suppliers, the disruption of certain services, such as
utilities, could, depending upon the extent of the disruption, have a
material adverse impact on the Company's operations. To date, the
Company is not aware of any vendor or service provider Year 2000 issue
that management believes would have a material adverse impact on the
Company's operations. However, the Company has no means of ensuring
that its vendors or service providers will be Year 2000 ready. The
inability of vendors or service providers to complete their Year 2000
resolution process in a timely fashion could have a adverse impact on
<PAGE> 20
the Company. The effect of non-compliance by vendors or service
providers is not determinable at this time.
In addition, the Company is exposed to the risk that one or more of its
tenants could experience Year 2000 problems that impact the ability of
such tenant to pay its rent to the Company in a timely fashion. The
Company does not believe that such a problem is likely to affect enough
tenants to pose a material problem for the Company. To date, the
Company is not aware of any tenant Year 2000 issue that would have a
material adverse impact on the Company's operations. However, the
Company has no means of ensuring that their tenants will be Year 2000
ready. The inability of tenants to complete their Year 2000 resolution
process in a timely fashion could have an adverse impact on the Company.
The effect of non-compliance by tenants is not determinable at this
time.
Widespread disruptions in the national or international economy,
including disruptions affecting the financial markets, resulting from
Year 2000 issues, or in certain industries, such as commercial or
investment banks, could also have an adverse impact on the Company. The
likelihood and effect of such disruptions is not determinable at this
time.
Readers are cautioned that forward-looking statements contained in the
Year 2000 discussion should be read in conjunction with the Company's
disclosures regarding forward-looking statements on page 3.
RESULTS OF OPERATIONS
- ---------------------
For the three and nine months ended September 30, 1998 compared to the
three and nine months ended September 30, 1997.
- -----------------------------------------------------------------------
Rental revenues increased from $45.2 million to $74.3 million, or by 64%,
for the three months ended September 30, 1997 to 1998 and increased from
$119.2 million to $203.3 million, or by 71%, for the nine months ended
September 30, 1997 to 1998. These increases are primarily due to the
increase in the number of properties in operation ("Operating
Properties") during the respective periods. As of September 30, 1997,
the Company had 380 Operating Properties and, as of September 30, 1998,
the Company had 598 Operating Properties. From January 1, 1997 through
June 30, 1997, and from July 1, 1997 through September 30, 1997, the
Company acquired or completed the development on 72 properties and 56
properties, respectively, for Total Investments (as defined below) of
approximately $418.4 million and $137.5 million, respectively. From
January 1, 1998 through June 30, 1998, and from July 1, 1998 through
September 30, 1998, the Company acquired or completed the development on
103 properties and 59 properties, respectively, for Total Investments of
approximately $526.4 million and $200.4 million, respectively. 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.
Operating expense reimbursement increased from $15.3 million to $27.7
million for the three months ended September 30, 1997 to 1998 and from
$38.1 million to $71.0 million for the nine months ended September 30,
1997 to 1998. These increases are a result of the reimbursement from
<PAGE> 21
tenants for increases in rental property expenses and real estate taxes.
The operating expense recovery percentage (the ratio of operating expense
reimbursement to rental property expenses and real estate taxes)
increased from 91.5% for the three months ended September 30, 1997 to
94.2% for the three months ended September 30, 1998, and from 90.4% for
the nine months ended September 30, 1997 to 94.0% for the nine months
ended September 30, 1998, due to the increase in occupancy.
Rental property and real estate tax expenses increased from $16.7 million
to $29.4 million for the three months ended September 30, 1997 to 1998
and from $42.1 million to $75.6 million for the nine months ended
September 30, 1997 to 1998. These increases are due to the increase in
the number of properties owned during the respective periods.
Property level operating income for the "Same Store" properties
(properties owned as of January 1, 1997) increased from $92.9 million to
$97.2 million for the nine months ended September 30, 1997 to 1998, an
increase of 4.7%. This increase is due to increases in the rental rates
for the properties and increases in occupancy.
Set forth below is a schedule comparing the property level operating
income for the Same Store properties for the nine month periods ended
September 30, 1998 and 1997.
NINE MONTHS ENDED
(IN THOUSANDS)
--------------------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
Rental revenue $ 99,011 $ 96,074
Operating expense reimbursement 30,821 29,831
-------- --------
129,832 125,905
Rental property expenses 23,217 24,077
Real estate taxes 9,373 8,903
-------- --------
Property level operating income $ 97,242 $ 92,925
======== ========
General and administrative expenses increased from $2.8 million for the
three months ended September 30, 1997 to $4.4 million for the three
months ended September 30, 1998, and from $7.6 million for the nine
months ended September 30, 1997 to $11.4 million for the nine months
ended September 30, 1998, due to the increase in personnel and other
related overhead costs necessitated by the increase in the number of
properties owned during the respective periods. Additionally, the three
and nine month periods ended September 30, 1998 reflect the expensing of
internal acquisition costs as of January 1, 1998 in compliance with EITF
97-11, whereas these costs were previously capitalized. These increases
are somewhat mitigated by the benefit of certain economies of scale
experienced by the Company in owning and operating the increased number
of properties.
Depreciation and amortization expense increased from $11.5 million for
the three months ended September 30, 1997 to $18.1 million for the three
months ended September 30, 1998, and from $28.8 million for the nine
months ended September 30, 1997 to $48.8 million for the nine months
ended September 30, 1998. These increases are due to an increase in the
number of properties owned during the respective periods.
<PAGE> 22
Interest expense increased from $13.3 million for the three months ended
September 30, 1997 to $20.8 million for the three months ended September
30, 1998, and from $37.3 million for the nine months ended September 30,
1997 to $56.3 million for the nine months ended September 30, 1998.
These increases are due to increases in the average debt outstanding for
the third quarter of 1997 compared to the third quarter of 1998, from
$841.4 million to $1,311.8 million, and for the nine months ended
September 30, 1997 to September 30, 1998, from $744.6 million to $1,185.7
million. Such increases were partially offset by reduced interest rates.
The reduction in interest rates was partially the result of the Company
receiving investment grade ratings from both Standard & Poor's Ratings
Group ("S&P") and Moody's Investors Service, Inc. ("Moody's") during mid-
1997 which enabled the Company to access public debt markets and other
borrowings more economically.
As a result of the foregoing, the Company's operating income increased
from $31.4 million for the three months ended September 30, 1997 to $51.7
million for the three months ended September 30, 1998, and from $81.6
million for the nine months ended September 30, 1997 to $141.8 million
for the nine months ended September 30, 1998. In addition, income before
minority interest for the three months increased from $17.6 million for
the three months ended September 30, 1997 to $30.9 million for the three
months ended September 30, 1998, and from $41.3 million for the nine
months ended September 30, 1997 to $85.5 million for the nine months
ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had cash and cash equivalents of
$10.6 million.
Net cash flow provided by operating activities increased from $90.8
million for the nine months ended September 30, 1997 to $148.2 million
for the nine months ended September 30, 1998. This $57.4 million increase
was primarily due to the cash provided by the additional Operating
Properties in service during the latter period.
Net cash used in investing activities increased from $536.1 million for
the nine months ended September 30, 1997 to $719.4 million for the nine
months ended September 30, 1998. This increase primarily resulted from
increased acquisition activity in the first nine months of 1998 as
compared to the first nine months of 1997.
Net cash provided by financing activities increased from $449.8 million
for the nine months ended September 30, 1997 to $526.8 million for the
nine months ended September 30, 1998. This increase was attributable to
the issuance of $275 million principal amount of unsecured notes and the
issuance of 11,712,948 common shares which generated net proceeds of
$296.4 million during the nine months ended September 30, 1998.
The Company believes that its undistributed cash flow from operations is
adequate to fund its short-term liquidity requirements.
The Company funds its long-term liquidity requirements such as property
acquisition and development activities primarily through its $325.0
million unsecured line of credit (the "Credit Facility"), which Credit
Facility matures May, 1999, and can be extended for one year. The
interest rate on borrowings under the Credit Facility fluctuates based
upon the Company's leverage levels or ratings from Moody's and S&P. On
June 23, 1997, Moody's raised its prospective senior debt rating of the
Company to Baa3 from Ba2 and on July 22, 1997, S&P assigned a BBB-
<PAGE> 23
prospective senior debt rating to the Company. At these ratings, the
interest rate for borrowings under the Credit Facility is 110 basis
points over the Eurodollar Rate.
Periodically, the Company pays down borrowings on the Credit Facility
with funds from long-term capital sources. In the first nine months of
1998, the Company used approximately $504.0 million of the proceeds from
the common share offerings and from unsecured note issuances to paydown
the Credit Facility.
As of September 30, 1998, $414.9 million in mortgage loans were
outstanding with maturities ranging from 1999 to 2013. The interest rates
on $398.2 million of mortgage loans are fixed and range from 6.0% to
9.1%. Interest rates on $16.7 million of mortgage loans float with LIBOR
or prime, of which $10.1 million is subject to certain caps. The weighted
average interest rate for the mortgage loans is 7.6%, and the weighted
average remaining term is 7.4 years.
General
The Company believes that its existing sources of capital will provide
sufficient funds to finance its continued acquisition and development
activities. The Company's need for capital has been somewhat reduced by
a decline in acquisition activity throughout the year, resulting from a
general marketplace decline in initial returns on acquisitions. The
Company's existing sources of capital include the public debt and equity
markets, proceeds from property dispositions and net cash provided from
its operating activities. Additionally, the Company expects to incur
variable rate debt, including borrowings under the Credit Facility, from
time to time. Although the public equity and debt markets have recently
experienced a period of turmoil, the Company does not believe that this
turmoil will have an adverse impact on the ability of the Company to
fund its activities.
In July 1995, the Company filed a shelf registration with the Securities
and Exchange Commission that enabled the Company to offer up to an
aggregate of $350.0 million of securities, including common shares of
beneficial interest, preferred shares of beneficial interest and debt
(the "Initial Shelf Registration").
On February 21, 1997, the Company filed a shelf registration with the
Securities and Exchange Commission that enabled the Company to offer up
to an aggregate of $850.0 million of securities, including common shares
of beneficial interest, preferred shares of beneficial interest and debt
(the "Second Shelf Registration").
On December 24, 1997 the Company filed a shelf registration statement
with the Securities and Exchange Commission that enables the Company to
offer up to an aggregate of $1.5 billion of securities, including common
shares of beneficial interest, preferred shares of beneficial interest
and debt (the "Third Shelf Registration"). The Third Shelf Registration
Statement became effective on January 4, 1998. Collectively, the Initial
Shelf Registration, the Second Shelf Registration and the Third Shelf
Registration are referred to as the "Shelf Registration Statement."
On January 12, 1998, the Company augmented its medium-term note program
to enable the Company to offer, in the aggregate, up to $450 million of
the Operating Partnership's medium-term notes. Under the program, on
January 22, 1998, the Company sold $75 million principal amount of 6.375%
notes due 2013. Such notes are subject to mandatory repayment of
principal to the holders thereof in 2003 pursuant to a call/put option
<PAGE> 24
relating to such notes. Also under the program, on January 23, 1998, the
Company sold $100 million principal amount of 7.50% notes due 2018. On
June 5, 1998, the Company sold $100 million principal amount of 6.6%
notes due 2002. The aggregate net proceeds to the Company from such
offerings were approximately $272.7 million.
On January 21, 1998, the Company consummated a public offering of
2,300,000 Common Shares. The aggregate net proceeds to the Company from
such offering were approximately $60.4 million.
On February 23, 1998, the Company consummated a public offering of
1,702,128 Common Shares. The aggregate net proceeds to the Company from
such offering were approximately $42.7 million.
On April 24, 1998, the Company consummated a public offering of 3,750,000
common shares. The aggregate net proceeds to the Company from such
offering were approximately $94.1 million.
On August 4, 1998, the Company consummated a public offering of 3,960,820
common shares. The aggregate net proceeds to the Company from such
offering were approximately $99.2 million.
Presently, the Company has the capacity pursuant to the Shelf
Registration Statement to issue $696.8 million in equity securities and
the Operating Partnership has the capacity to issue $375.7 million in
debt securities (including the $175.5 million of medium-term notes
available under the medium-term note program).
Calculation of Funds from Operations
Management generally considers Funds from Operations (as defined below) a
useful financial performance measure of the operating performance of an
equity REIT, because, together with net income and cash flows, Funds from
Operations provides investors with an additional basis to evaluate the
ability of a REIT to incur and service debt and to fund acquisitions and
capital expenditures. Funds from Operations is defined by NAREIT as net
income or loss after preferred dividends (computed in accordance with
generally accepted accounting principals ("GAAP")), excluding gains (or
losses) from debt restructuring and sales of property, plus real-estate
related depreciation and amortization and minority interest and excluding
significant non-recurring events that materially distort the comparative
measurement of the Company's performance over time. Funds from
Operations does not represent net income or cash flows from operations as
defined by GAAP and does not necessarily indicate that cash flows will be
sufficient to fund cash needs. It should not be considered as an
alternative to net income as an indicator of the Company's operating
performance or to cash flows as a measure of liquidity. Funds from
Operations also does not represent cash flows generated from operating,
investing or financing activities as defined by GAAP. Funds from
<PAGE> 25
Operations for the three and nine months ended September 30, 1998 and
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS) (IN THOUSANDS)
---------------------- ---------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
1998 1997 1998 1997
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Income available to common shareholders $ 26,061 $ 14,484 $ 71,337 $ 35,988
Addback:
Minority interest 2,092 1,590 5,962 3,815
Depreciation and amortization 17,707 11,374 47,986 28,442
(Gain) loss on sale - (600) 1,048 543
Premium on debenture conversion - 98 - 98
Write off of deferred financing costs - 353 - 2,919
======== ======== ========= =========
Funds from operations $ 45,860 $ 27,299 $ 126,333 $ 71,805
======== ======== ========= =========
</TABLE>
INFLATION
- ---------
Inflation has remained relatively low during the last three years, and as
a result, it has not had a significant impact on the Company during this
period. The Credit Facility bears interest at a variable rate; therefore,
the amount of interest payable under the Credit Facility will be
influenced by changes in short-term interest rates, which tend to be
sensitive to inflation. To the extent an increase in inflation would
result in increased operating costs, such as in insurance, real estate
taxes and utilities, substantially all of the tenants' leases require the
tenants to absorb these costs as part of their rental obligations. In
addition, inflation also may have the effect of increasing market rental
rates.
<PAGE> 26
PART II: OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10 Senior Management Change of Control Severance Plan
27 Financial Data Schedule (EDGAR VERSION ONLY)
b. Reports on Form 8-K
During the quarter ended September 30, 1998, the
Registrants filed one current reports on Form 8-K:
(i) report dated July 13, 1998 reporting Items 5 and 7 and
containing the Statement of Operating Revenues and Certain Operating
Expenses for the Acquisition Properties (as defined therein) and certain
pro forma financial information.
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIBERTY PROPERTY TRUST
/s/ JOSEPH P. DENNY November 5, 1998
- ------------------------------ --------------------------------
Joseph P. Denny Date
President
/s/ GEORGE J. ALBURGER, JR. November 5, 1998
- ------------------------------ --------------------------------
George J. Alburger, Jr. Date
Chief Financial Officer
LIBERTY PROPERTY LIMITED PARTNERSHIP
By: LIBERTY PROPERTY TRUST, GENERAL PARTNER
/s/ JOSEPH P. DENNY November 5, 1998
- ------------------------------ --------------------------------
Joseph P. Denny Date
President
/s/ GEORGE J. ALBURGER, JR. November 5, 1998
- ------------------------------ --------------------------------
George J. Alburger, Jr. Date
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------
10 Senior Management Change of Control Severance Plan
27 Financial Data Schedule (EDGAR VERSION ONLY)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at September 30, 1998 (unaudited) and the
Consolidated Statement of Operations for the Nine Months Ended September 30,
1998 (unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000921112
<NAME> LIBERTY PROPERTY TRUST
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 10,610
<SECURITIES> 0
<RECEIVABLES> 9,569
<ALLOWANCES> 2,010
<INVENTORY> 0
<CURRENT-ASSETS> 20,179
<PP&E> 2,920,179
<DEPRECIATION> 195,253
<TOTAL-ASSETS> 2,825,766
<CURRENT-LIABILITIES> 30,158
<BONDS> 1,341,951
0
120,814
<COMMON> 65
<OTHER-SE> 1,143,548
<TOTAL-LIABILITY-AND-EQUITY> 2,825,766
<SALES> 0
<TOTAL-REVENUES> 277,573
<CGS> 0
<TOTAL-COSTS> 75,551
<OTHER-EXPENSES> 60,218
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,255
<INCOME-PRETAX> 85,549
<INCOME-TAX> 0
<INCOME-CONTINUING> 85,549
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,337
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.19
</TABLE>
EXHIBIT 10
SENIOR MANAGEMENT CHANGE OF CONTROL SEVERANCE PLAN
Section 1. Purpose.
The Company considers it essential to its best interests to foster
the optimum performance of its senior management. The Company recognizes
that the possibility of a Change in Control of the Company or one or
more Subsidiaries may exist, or that the Company may engage in certain
other transactions which may affect its senior management, and that such
possibility, and the uncertainty and questions which it may raise, may
result in the distraction of management or professional personnel to the
detriment of the Company.
In order to encourage senior management to maintain their continued
attention and dedication to their duties and responsibilities, the
Company has adopted this Senior Management Change of Control Severance
Plan.
Section 2. Definitions.
As hereinafter used:
2.1 The "Board of Trustees" means the Board of Trustees of
Liberty Property Trust.
2.2 A "Change of Control" shall be deemed to have occurred upon
the earliest to occur of the following events:
(i) the date on which the shareholders of the Company (or
the Board of Trustees, if shareholder action is not required) approve a
plan or other arrangement pursuant to which the Company will be
dissolved or liquidated, or
(ii) the date on which the shareholders of the Company (or
the Board of Trustees, if shareholder action is not required) approve a
definitive agreement to sell or otherwise dispose of substantially all
of the assets of the Company, other than a transaction in which the
holders of the Common Shares immediately prior to the transaction will
have at least eighty percent (80%) of the voting power of the acquiring
entity's voting securities immediately after such transaction (without
regard such holders' ownership of such acquiring entity's voting
securities immediately before or contemporaneously with such
transaction), which voting securities are to be held by such holders
immediately following such transaction in substantially the same
proportion among themselves as such holders' ownership of the Common
Shares immediately before such transaction, or
(iii) the date on which the shareholders of the Company (or
the Board of Trustees, if shareholder action is not required) and the
shareholders of the other constituent entity (or its board of
directors/trustees if shareholder action is not required) have approved
a definitive agreement to merge or consolidate the Company with or into
such other entity, other than, in either case, a merger or consolidation
of the Company in which the holders of the Common Shares immediately
prior to the merger or consolidation will have at least eighty percent
(80%) of the voting power of the surviving entity's voting securities
immediately after such merger or consolidation (without regard such
holders' ownership of such acquiring entity's voting securities
immediately before or contemporaneously with such merger or
consolidation), which voting securities are to be held by such holders
immediately following such merger or consolidation in substantially the
same proportion among themselves as such holders' ownership of the
Common Shares immediately before such merger or consolidation, or
(iv) the date on which any entity, person or group, within
the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities
Exchange Act of 1934, as amended (other than the Company or any
Subsidiary or any employee benefit plan sponsored or maintained by the
Company or any Subsidiary), shall have become the beneficial owner of,
or shall have obtained voting control over, more than twenty percent
(20%) of the outstanding Common Shares (without regard to any
contractual or other restriction on the conversion or other exchange of
securities into or for Common Shares), or
(v) the first day after the date on which the Plan is
effective when a majority of the members of the Board of Trustees shall
have been members of the Board of Trustees for less than two (2) years,
unless the nomination for election of each new trustee who was not a
trustee at the beginning of such two (2)-year period was approved by a
vote of at least two-thirds of the trustees then still in office who
were trustees at the beginning of such period,
(vi) the first day after the date on which Liberty Property
Trust, alone or together with one or more direct or indirect wholly
owned subsidiaries of Liberty Property Trust, is not or are not the sole
general partner or partners of Liberty Property Limited Partnership.
2.3 "Claimant" has the meaning set forth in Section 6.3.
2.4 "Common Shares" means the Common Shares of Beneficial
Interest, $0.001 par value, of the Company and any other securities
evidencing the common equity beneficial interest in the Company.
2.5 "Company" means Liberty Property Trust and/or Liberty
Property Limited Partnership, and any successor in interest thereto.
2.6 "Compensation Committee" means a committee composed of John
A. Miller, Frederick F. Buchholz and M. Leanne Lachman, and/or any other
individuals appointed to such committee or substituted for the
individuals named above by the Board of Trustees prior to any Change of
Control. Any two (2) such individuals shall constitute a quorum. All
members of the Compensation Committee must be members of such committee
prior to the time a Change of Control occurs.
2.7 "Effective Date" of the Plan is September 29, 1998.
2.8 "Disability" has the meaning set forth in Section 3.2.
2.9 An "Employee" means a person:
(a) whose name is listed in Exhibit "A" hereto, as such
Exhibit may be amended or supplemented from time to time, or who has
been designated in writing by the Company's Compensation Committee to
participate in the Plan (even if such person's name is listed in Exhibit
"A" hereto); and
(b) who is employed by the Company at the time of a change
of a Change of Control.
The term "Employee" specifically excludes any person (a) who
is receiving severance pay or (b) who signed an agreement pursuant to
which his or her employment will terminate in the future on a date
certain.
2.10 "Eligible Bonus" means the largest annual incentive bonus
earned by an eligible Employee over the five (5)-year period preceding a
Change of Control, excluding all commissions and all bonuses awarded by
the Company other than on an annual basis (such as one-time grants of
restricted stock).
2.11 "Extended Leave of Absence" has the meaning set forth in
Section 3.2.
2.12 "Good Reason" has the meaning set forth in Section 3.4.
2.13 "Liberty Property Limited Partnership" means Liberty
Property Limited Partnership, a Pennsylvania limited partnership.
2.14 "Liberty Property Trust" means Liberty Property Trust, a
Maryland real estate investment trust.
2.15 "Notice of Termination" has the meaning set forth in Section
3.5.
2.16 "Paid Time Off" means time when, in accordance with the
regular payroll practices and procedures applicable immediately
preceding the Change of Control, the Employee is entitled to receive
remuneration without reporting for work.
2.17 "Pay" means the base salary of an eligible Employee at his
or her stated weekly, monthly or annual rate as of the Employee's
Termination Date, or, if a higher amount, as of the date of the Change
of Control. "Pay" does not include overtime pay, bonuses of any kind,
commissions, incentive pay or any other remuneration. A "Year of Pay"
shall be calculated in accordance with the regular payroll practices and
procedures applicable immediately preceding the Change of Control.
2.18 "Plan" means this Senior Management Change of Control
Severance Pay Plan as set forth herein, as amended from time to time.
2.19 "Severance Pay" is a payment made to an eligible Employee
pursuant to Section 3.1. All Severance Pay due to an eligible Employee
must be paid to the eligible Employee within two (2) years after the
date that the first Severance Pay is paid to such Employee.
2.20 "Subsidiary" means Liberty Property Limited Partnership and
each other subsidiary of Liberty Property Trust.
2.21 "Termination Date" means the date upon which the Employee's
employment ceases with the Company or any Subsidiary, as the case may
be.
2.22 "Willful Misconduct" has the meaning set forth in Section
3.3.
2.23 "Year of Pay" has the meaning set forth in Section 2.17.
Section 3. Eligibility.
3.1 An Employee shall be eligible to receive Severance Pay if and
only if all of the following conditions are met (and the Employee is not
disqualified from eligibility pursuant to Section 3.2):
(a) The Employee is an Employee of the Company or any
Subsidiary after the Effective Date of the Plan;
(b) The Employee is employed by the Company at the time a
Change of Control occurs; and
(c) The Employee is terminated from employment within two
(2) years after the Change of Control described in Section 3.1(b)
occurs, unless such termination is: (i) as a result of such Employee's
death, or such Employee's Disability or Extended Leave of Absence in
accordance with Section 3.2, (ii) as a result of such Employee's Willful
Misconduct or (iii) by the Employee other than for Good Reason. In the
event an individual's employment is terminated for any reason prior to
the occurrence of a Change of Control, such individual shall not be
entitled to any benefits under the Plan by virtue of such Change of
Control.
3.2 Disability or Extended Leave of Absence. If, as a result of
an Employee's incapacity due to physical or mental illness (a
"Disability"), or as a result of any other leave of absence (an
"Extended Leave of Absence"), the Employee shall have been absent from
the full-time performance of his or her duties for twelve (12)
consecutive months, the Employee may be terminated and shall not be
entitled to any benefits under the Plan.
3.3 Willful Misconduct. Termination of the Employee's employment
for "Willful Misconduct" shall mean termination:
(a) Upon the willful and continued failure by the Employee
to substantially perform his or her duties, which failure the Employee
fails to cure (other than any such failure resulting from incapacity due
to physical or mental illness, Disability or an Extended Leave of
Absence or the Employee's termination of his or her employment for Good
Reason) within ten (10) days after a written demand for substantial
performance is delivered to the Employee by the Company or the
Subsidiary by which he or she is employed, which demand specifically
identifies the manner in which the Company or such Subsidiary believes
that the Employee has not substantially performed his or her duties; or
(b) The willful engaging by the Employee in conduct which is
clearly and materially injurious to the Company and/or any Subsidiary,
monetarily or otherwise. For purposes of this Section 3.3, no act, or
failure to act, on the Employee's part shall be deemed "willful" unless
done, or omitted to be done, by the Employee in bad faith and without
reasonable belief that his or her action or omission was in or not
opposed to the best interest of the Company and/or any Subsidiary.
(c) Notwithstanding the foregoing, the Employee shall not be
deemed to have been terminated for Willful Misconduct unless and until
there shall have been delivered to the Employee a copy of a written
determination of the Compensation Committee issued pursuant to a meeting
of the Compensation Committee (after reasonable notice to the Employee
and an opportunity for the Employee, together with his or her counsel,
to be heard before the Compensation Committee) finding that in the good
faith opinion of the Compensation Committee the Employee was guilty of
conduct constituting Willful Misconduct, as set forth in this Section
3.3, and specifying the particulars thereof in detail.
3.4 Good Reason. The Employee shall be entitled to terminate his
or her employment for Good Reason and receive Severance Pay, if the
Employee provides written notice to the Compensation Committee no later
than two (2) weeks after the Employee's termination date of the
Employee's election to resign and the circumstances constituting the
Good Reason to resign. The Employee's right to terminate his or her own
employment pursuant to this Section 3.4 shall not be affected by his or
her incapacity due to physical or mental illness or Disability. The
Employee's continued employment shall not constitute consent to, or a
waiver of rights with respect to, any circumstance constituting Good
Reason. "Good Reason" shall mean, without the Employee's express
written consent, the occurrence after a Change in Control of any of the
following circumstances:
(a) The Employee is demoted to a materially lower position;
(b) The Employee is assigned any material duties
inconsistent with the status of the position that the Employee held
immediately prior to the Change of Control or an adverse material
alteration in the nature or status of the Employee's responsibilities or
an adverse material alteration in the quality or amount of office
accommodations or assistance provided to the Employee, from those in
effect immediately prior to such Change of Control, which shall
constitute a constructive demotion;
(c) A reduction in the Employee's annual base salary as in
effect on the date immediately prior to the Change of Control, or as the
same may be increased from time to time thereafter;
(d) A requirement that the Employee's site of principal
employment be more than 50 miles from the offices at which the Employee
was principally employed immediately prior to the date of the Change of
Control, except for required travel on the Company's business to an
extent substantially consistent with the Employee's business travel
obligations immediately prior to such Change of Control;
(e) The failure of the Employee to receive payment of any
portion of his or her compensation or compensation under any deferred
compensation program of the Company within fifteen (15) days after the
date on which the Employee notifies the Company of such failure;
(f) The failure to continue in effect any compensation or
benefit plan or perquisites in which the Employee participated
immediately prior to the Change of Control, which compensation or
benefit plan or perquisites, or any thereof, are, or any thereof is,
material to his or her total compensation, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan or
perquisite) has been made with respect to such plan or perquisites, or
the failure by the Company which experienced the Change in Control (or
its successor) to continue the Employee's participation therein (or in
such substitute or alternative plan or perquisite) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of the Employee's participation relative to other
participants, than existed immediately prior to the Change of Control;
(g) The failure to continue to provide the Employee with
benefits substantially similar to those enjoyed by him or her under any
of the Company's life insurance, medical, accident or disability plans
in which the Employee was participating at the time of the Change of
Control (unless an equitable arrangement has been made with respect to
such benefits), the taking of any action by the Company which would
directly or indirectly materially reduce any of such benefits (unless an
equitable arrangement has been made with respect to such reduction), or
the failure to provide the Employee with the number of paid vacation
days or other Paid Time Off days to which the Employee is entitled on
the basis of his or her years of service and position with the Company
in accordance with the vacation or Paid Time Off policy applicable and
in effect at the time of the Change of Control;
(h) The failure of the Company to obtain the unqualified
agreement from any successor to assume or adopt the Plan; or
(i) Any termination of the Employee's employment that is not
effected pursuant to a Notice of Termination satisfying the requirements
of Section 3.3(c).
3.5 Any purported termination of the Employee's employment by the
Company or by the Employee shall be communicated by written Notice of
Termination to the other party. "Notice of Termination" shall mean a
notice that shall indicate the specific termination provision in the
Plan relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Employee's
employment under the provision so indicated. Any Notice of Termination
to the Company shall be directed to the Compensation Committee. All
Notices of Termination shall be sent (i) by certified or registered mail
and shall be deemed received three (3) business days after the date of
mailing; (ii) by Federal Express or similar overnight courier and shall
be deemed received one (1) business day after delivery to Federal
Express or similar overnight courier; or (iii) by personal service and
shall be deemed received on the same day as service.
3.6 An Employee may not receive Severance Pay if any of the
following disqualifying events occur:
(a) The Employee is receiving severance pay at the time the
Change of Control occurs;
(b) The Employee has signed an agreement pursuant to which
his or her employment will terminate in the future on a date certain;
(c) The Company does not undergo a Change of Control prior
to termination of his or her employment; or
(d) Except in the case of a Change of Control, the Employee
voluntarily terminates his or her employment with the Company.
Section 4. Severance Benefit Amount.
4.1 Except as otherwise provided in this Section 4, the Severance
Pay to be paid to an eligible Employee shall be an amount equal to the
sum of (A) the product of 2.99 multiplied by the sum of one (1) Year of
Pay for such Employee plus such Employee's Eligible Bonus, plus (B) the
pro rata portion, through the Termination Date, of any unpaid
performance bonus earned by such Employee for the year in which the
Change of Control occurs. In addition, except as otherwise provided in
this Section 4:
(a) all of such Employee's options or other rights to
acquire Common Shares or partnership interests in Liberty Property
Limited Partnership and all unvested amounts contributed by the Company
to the Company-sponsored tax-qualified defined contribution plan with a
cash or deferred arrangement, commonly known as a "401(k) plan," for the
benefit of such Employee shall vest immediately upon the Termination
Date,
(b) for the year in which the Change of Control occurs and
each of the two successive years, the Company shall contribute to the
Company-sponsored tax-qualified defined contribution plan with a cash or
deferred arrangement, commonly known as a "401(k) plan," for the benefit
of such Employee an amount equal to the maximum amount for such year
permitted to be so contributed under applicable laws, and
(c) for three (3) years after the Termination Date, the
Company shall continue to provide such Employee with benefits
substantially similar to those enjoyed by such Employee under the
Company's life insurance, medical, accident or disability plans in which
the Employee was participating at the time of the Change of Control.
4.2 The Company, in its sole discretion, may increase the
Severance Pay to an amount in excess of that specified in Section 4.1,
subject to the limitations of Section 4.6. Any increase in severance
pay must be expressly authorized in writing by the Compensation
Committee.
4.3 If an Employee applies for and receives unemployment
compensation payments for any period of time during or for which
Severance Pay is being paid, any Severance Pay remaining to be paid
shall not be reduced by the amount of any such unemployment compensation
payments.
4.4 If an Employee due to sickness or injury receives short-term
disability payments, worker's compensation or long-term disability
payments after the Employee's Termination Date, the Employee shall not
receive any Severance Pay until the cessation of said payments. Once
such payments cease, the amount of Severance Pay to which the Employee
is entitled shall be reduced by the amount of any such short-term
disability, worker's compensation or long-term disability payments.
4.5 The severance benefit provided for in the Plan is the maximum
benefit that the Company will pay for severance. To the extent that a
federal, state or local law might require the Company to make a payment
to an Employee because of that Employee's involuntary termination, the
benefit payable under the Plan shall be correspondingly reduced. To the
extent that an Employee receives severance pay in connection with the
cessation of his or her employment other than pursuant to the Plan
(whether pursuant to a contract or other severance plan or policy), the
benefit payable under the Plan shall be correspondingly reduced. Any
overpayments made under the Plan shall be promptly repaid after written
request. Severance pay that will be offset does not include payments
received by an Employee due to his or her participation in any other
benefit plan which is not a severance plan, or payments made to an
Employee for his or her accrued, but unused vacation or Paid Time Off
days.
4.6 If, at the time the Change of Control occurs, Section 280G(b)
of the Internal Revenue Code of 1986, as amended (the "Code"), is
applicable to the Employee and to the Company with respect to the
events associated with the Change of Control, then notwithstanding any
other provision of the Plan, if the aggregate present value of the
"parachute payments" to the Employee, determined under Section 280G(b)
is at least three times the "base amount" determined under Section 280G,
then the compensation otherwise payable under the Plan (and any other
amount payable hereunder or any other severance plan, program, policy or
obligation of the Company, Subsidiary or any other affiliate thereof)
shall be reduced so that the aggregate present value of the parachute
payments to the Employee determined under Section 280G, does not exceed
2.99 times the base amount. In no event, however, shall any benefit
provided hereunder be reduced to the extent such benefit is specifically
excluded by Section 280G(b) of the Code as a "parachute payment" or as
an "excess parachute payment." Any decisions regarding the requirement
or implementation of such reductions shall be made by the tax counsel
and accounting firm retained by the Company at the time the Plan is
adopted.
4.7 The Company shall have the right to take such action as it
deems necessary or appropriate to satisfy any requirements under
federal, state or other laws to withhold or to make deductions from any
benefits payable under the Plan.
Section 5. Distribution of Benefits.
5.1 The Company shall pay Severance Pay to each eligible Employee
it employed directly out of the general assets of the Company. Payments
will be made in a single lump sum payment or in installments in
accordance with normal payroll practices, as elected by the Employee.
Such payments shall commence as soon as practicable following the
Employee's Termination Date and continue until the benefit due is paid.
5.2 Severance Pay shall be paid to the estate of any eligible
Employee who dies before the entire amount due hereunder is paid.
Section 6. Plan Administration.
6.1 The Plan shall be administered by the Compensation Committee,
which shall have complete authority to prescribe, amend and rescind
rules and regulations relating to the Plan.
6.2 The determinations by the Compensation Committee prior to a
Change of Control on the matters referred to such Committee shall be
conclusive. Prior to a Change of Control, the Compensation Committee
shall have full discretionary authority, the maximum discretion allowed
by law, to administer, interpret and apply the terms of the Plan, and to
determine any and all questions or disputes hereunder, including but not
limited to eligibility for benefits and the amount of benefits due.
Subsequent to a Change of Control the Compensation Committee shall not
have full discretionary authority; rather, its determinations shall be
made strictly in accordance with the terms of the Plan and shall be
subject to de novo review by a court of competent jurisdiction.
6.3 In the event of a claim by any person, including but not
limited to any Employee (the "Claimant"), as to whether such person is
entitled to any benefit under the Plan, the amount of any distribution
or its method of payment, such Claimant shall present the reason for his
or her claim in writing to the Compensation Committee. Such claim must
be filed within forty-five (45) days following the date upon which the
Claimant first learns of his or her claim. All claims shall be in
writing, signed and dated and shall briefly explain the basis for the
claim. The claim shall be mailed to the Compensation Committee by
certified mail at the following address:
Liberty Property Trust
65 Valley Stream Parkway
Malvern, PA 19355
Attention: General Counsel's Office
Compensation Committee for the
Senior Management Change of Control Severance Plan
Telephone:(610) 648-1700
Telecopy:(610) 644-2175 (fax)
The Compensation Committee shall, within ninety (90) days after receipt
of such written claim, decide the claim and send written notification to
the Claimant as to its disposition; provided that the Compensation
Committee may elect to extend such period for an additional ninety (90)
days if special circumstances so warrant and the Claimant is so notified
in writing prior to the expiration of the original ninety (90)-day
period. In the event the claim is wholly or partially denied, such
written notification shall (a) state the specific reason or reasons for
the denial; (b) make specific reference to pertinent Plan provisions on
which the denial is based; (c) provide a description of any additional
material or information necessary for the Claimant to perfect the claim
and an explanation of why such material or information is necessary; and
(d) set forth the procedure by which the Claimant may appeal the denial
of his or her claim. The Claimant may request a review of such denial
by making application in writing to the Compensation Committee within
sixty (60) days after receipt of such denial. Such application must be
via certified mail. Such Claimant (or his or her duly authorized
representative) may, upon written request to the Compensation Committee,
review any documents pertinent to his or her claim, and submit in
writing issues and comments in support of his or her claim or position.
Within sixty (60) days after receipt of a written appeal, the
Compensation Committee shall decide the appeal and notify the Claimant
of the final decision; provided that the Compensation Committee may
elect to extend such sixty (60)-day period to up to one hundred twenty
(120) days after receipt of the written appeal. The final decision
shall be in writing and shall include specific reasons for the decision,
written in a manner calculated to be understood by the Claimant, and
specific references to the pertinent Plan provisions on which the
decision is based.
Section 7. Plan Modification or Termination.
7.1 The Plan shall terminate automatically on the day following
the annual meeting of the Company's shareholders to be held in 2002.
Unless the Company's Board of Trustees determines, prior to such
termination, that the duration of the Plan shall not be extended, then,
on the date of each annual meeting of the Company's shareholders
(beginning with the meeting to be held in 2002), the Plan shall be
extended automatically until the day following the next annual meeting
of the Company's shareholders.
7.2 Prior to a Change of Control, the Plan may be modified or
amended by the Compensation Committee unless such amendment or
modification, in the reasonable judgment of the Compensation Committee
(which judgment shall be conclusive), does not have a material adverse
effect on the rights of any eligible Employee under the Plan. If a
Change of Control occurs, the Plan may not be modified, amended or
terminated until two (2) years after the Change of Control occurs,
except for such modifications or amendments which do not adversely
affect the rights of any eligible Employee under the Plan.
7.3 All claims for benefits hereunder, even if raised after
termination of the Plan, shall be determined pursuant to Section 6.3,
and when acting pursuant thereto, the Compensation Committee shall
retain the authority provided in Section 6. Notwithstanding any
termination of the Plan, if a Change of Control has occurred, all
Employees who are eligible before the date of termination to receive
Severance Pay pursuant to the Plan shall remain entitled to receive said
benefit under the terms and conditions of the Plan.
Section 8. General Provisions.
8.1 Nothing herein contained shall be deemed to give any Employee
the right to be retained in the employ of the Company or to interfere
with the right of the Company to discharge him or her at any time, with
or without cause.
8.2 If any of the positions on the Compensation Committee becomes
vacant, either the Chairman of the Board or President of the Company may
appoint such person or persons as he or she determines, to carry out the
responsibilities assigned to such position under the Plan, so long as,
if a Change of Control has occurred within two (2) years prior to such
appointment, such person was employed by the Company or was a member of
the Board of Trustees prior to any such Change of Control.
8.3 Except as otherwise provided by law, no right or interest of
any Employee under the Plan shall be assignable or transferable, in
whole or in part, either directly or by operation of law or otherwise,
including without limitation by execution, levy, garnishment,
attachment, pledge or in any other manner, but excluding adjudication of
incompetency; no attempted assignment or transfer thereof shall be
effective; and no right or interest of any Employee under the Plan shall
be liable for, or subject to, any obligation or liability of such
Employee, except to the extent specifically provided for herein.
8.4 The Plan is unfunded. All benefits payable under the Plan
shall be paid out of the general assets of the entity which employed the
Employee at the time the Change of Control pursuant to which he or she
is eligible for benefits hereunder.
8.5 The Plan shall be governed by and construed in accordance
with the Employee Retirement Income Security Act of 1974, as amended,
and to the extent not preempted, the laws of the Commonwealth of
Pennsylvania.
8.6 The Plan is intended to constitute a "welfare plan" under the
Employee Retirement Income Security Act of 1974, as amended, and any
ambiguities in the Plan shall be construed to effect that intent.
Exhibit "A"
Employees
Referenced in Section 2.9(a)
11
