LIBERTY PROPERTY TRUST
424B3, 1999-04-13
REAL ESTATE INVESTMENT TRUSTS
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<PAGE>   1
                                               Filed Pursuant to Rule 424(b)(3)
                                               under the Securities Act of 1933,
                                               as amended
                                               Commission File No. 333-43267
 
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES,
AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE
THE OFFER OR SALE IS NOT PERMITTED.
 
                   SUBJECT TO COMPLETION, DATED APRIL 8, 1999
 
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 7, 1998)
 
                                 $
                                LIBERTY PROPERTY
                              LIMITED PARTNERSHIP
 
                              % SENIOR NOTES DUE
 
- --------------------------------------------------------------------------------
 
This is an offering of $          of our      % senior notes due      . We will
pay interest on the notes twice a year, on             and             ,
beginning on             , 1999. The notes will mature on             ,      .
 
We may redeem all or part of the notes at any time at the redemption prices
described in this prospectus supplement. The notes are unsecured and
unsubordinated debt securities. We do not intend to list the notes on any
national securities exchange.
 
YOU SHOULD REVIEW THE RISKS OF INVESTING IN THE NOTES AS SET FORTH IN "RISK
FACTORS" BEGINNING ON PAGE 3 OF THE ATTACHED PROSPECTUS.
 
<TABLE>
<CAPTION>
                                                                PER NOTE                  TOTAL
                                                         ----------------------   ----------------------
<S>                                                      <C>                      <C>
Public Offering Price..................................               %                $
Underwriting Discount..................................               %                $
Our Proceeds (before expenses).........................               %                $
</TABLE>
 
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ATTACHED PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
The underwriters for this offering expect to deliver the notes on             ,
1999 through the book-entry facilities of The Depository Trust Company.
 
- --------------------------------------------------------------------------------
 
LEHMAN BROTHERS
         BANC ONE CAPITAL MARKETS, INC.
 
                  DONALDSON, LUFKIN & JENRETTE
 
                            GOLDMAN, SACHS & CO.
 
                                    J.P. MORGAN & CO.
 
                                            SALOMON SMITH BARNEY
 
                                                  WARBURG DILLON READ LLC
 
            , 1999
<PAGE>   2
 
                        ABOUT THIS PROSPECTUS SUPPLEMENT
 
     This prospectus supplement and the attached prospectus contain information
about our company and about the notes. They also refer to information contained
in other documents that we file with the Securities and Exchange Commission.
References to this prospectus supplement or the prospectus also mean the
information contained in such other documents, including our Annual Report on
Form 10-K for the fiscal year ended December 31, 1998. If this prospectus
supplement is inconsistent with the prospectus or the documents that are
incorporated by reference in the prospectus, rely on this prospectus supplement.
 
     You should rely only on the information in this prospectus supplement or
the prospectus or in documents that are incorporated by reference in the
prospectus. Neither we nor the underwriters have authorized anyone to provide
any different or additional information. We are not making an offer of the notes
in any jurisdiction where the offer is not permitted. You should not assume that
information in these documents is correct or complete after the date of this
prospectus supplement.
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
PROSPECTUS SUPPLEMENT
 
About this Prospectus Supplement............................  S-2
Summary.....................................................  S-3
Use of Proceeds.............................................  S-7
Capitalization..............................................  S-7
Our Company.................................................  S-8
Business Objectives and Strategies..........................  S-8
Properties..................................................  S-9
Description of Notes........................................  S-12
Certain Federal Income Tax Considerations...................  S-17
Forward-Looking Statements May Prove Inaccurate.............  S-20
Underwriting................................................  S-22
Legal Matters...............................................  S-23
 
PROSPECTUS
 
Risk Factors................................................  3
The Company.................................................  7
Use of Proceeds.............................................  7
Certain Ratios..............................................  7
Description of Debt Securities..............................  8
Description of Preferred Shares.............................  20
Description of Warrants.....................................  26
Shareholder Rights Plan.....................................  27
Federal Income Tax Considerations with Respect to the Trust
  and the Operating Partnership.............................  28
Plan of Distribution........................................  42
Legal Opinions..............................................  43
Experts.....................................................  43
Available Information.......................................  44
Incorporation of Certain Documents by Reference.............  44
</TABLE>
 
                                       S-2
<PAGE>   3
 
                                    SUMMARY
 
     Liberty Property Limited Partnership is the "operating partnership" of
Liberty Property Trust, a self-administered and self-managed real estate
investment trust. The Trust conducts substantially all of its operations and
owns substantially all of its assets through us. The Trust is the sole general
partner and a limited partner of the Partnership. When we use the terms "we,"
"us," the "Company" and the "Partnership," we are referring to the Partnership
(but not the Trust) and its consolidated subsidiaries.
 
     The summary below describes the principal terms of the notes and certain
other information. It may not include all the information that is important to
you. We urge you to read the entire document, the attached prospectus dated
January 7, 1998 and the documents incorporated by reference in the attached
prospectus. Certain of the terms and conditions described below are subject to
important limitations and exceptions. The "Description of Notes" section of this
prospectus supplement contains a more detailed description of the terms and
conditions of the notes. The capitalized terms used under "The Offering" have
been defined under "Description of Notes" in this prospectus supplement or, if
not defined there, under "Description of Debt Securities" in the attached
prospectus.
 
                                  THE OFFERING
 
Issuer........................   Liberty Property Limited Partnership
 
Securities Offered............   $     in aggregate principal amount of      %
                                 senior notes
                                 due
 
Maturity Date.................               ,
 
Interest Payment Dates........                  and                of each year,
                                 commencing                , 1999
 
Ranking.......................   The notes will be effectively subordinated to
                                 our secured indebtedness. As of December 31,
                                 1998, we had outstanding $413.2 million
                                 aggregate principal amount of secured
                                 indebtedness. The notes will be pari passu with
                                 our indebtedness under our $325 million
                                 unsecured line of credit (the "Credit
                                 Facility") and with all of our other unsecured
                                 unsubordinated indebtedness. As of March 1,
                                 1999, we had outstanding $977.0 million
                                 aggregate principal amount of unsecured
                                 unsubordinated indebtedness, including $197.0
                                 million under the Credit Facility. The notes
                                 will be senior to our unsecured subordinated
                                 indebtedness. As of December 31, 1998, we had
                                 outstanding $101.6 million aggregate principal
                                 amount of unsecured subordinated indebtedness.
 
Optional Redemption...........   We may redeem all or part of the notes at any
                                 time at their principal amount, together with
                                 accrued interest to the redemption date, plus
                                 the Make-Whole Amount, if any. The Make-Whole
                                 Amount is defined under "Description of
                                 Notes -- Optional Redemption."
 
Certain Covenants.............   The Indenture governing the notes contains
                                 certain covenants that will limit, among other
                                 things, for so long as the notes are
                                 outstanding, our ability to incur debt.
 
                                 The Indenture also contains a covenant that
                                 will, for so long as the notes are outstanding,
                                 require us to maintain a specified value of
                                 unencumbered assets in relation to our
                                 outstanding unsecured debt.
 
                                 These covenants contain numerous terms and
                                 definitions. In addition, these covenants are
                                 subject to significant exceptions and
                                 qualifications. See "Description of
                                 Notes -- Certain Covenants."
 
                                       S-3
<PAGE>   4
 
Use of Proceeds...............   The net proceeds we receive from this offering
                                 are estimated to be approximately $
                                 million. We intend to use the net proceeds to
                                 repay indebtedness under the Credit Facility
                                 and for other general corporate purposes.
 
Risk Factors..................   You should consider all of the information
                                 contained in this prospectus supplement and the
                                 attached prospectus before making an investment
                                 in the notes. In particular, you should
                                 consider the risks set forth under the heading
                                 "Risk Factors" in the attached prospectus.
 
                                       S-4
<PAGE>   5
 
                             SUMMARY FINANCIAL DATA
 
     The following tables show certain of our operating, balance sheet and other
financial data and certain historical selected consolidated financial data for
us and our predecessor entity. This data should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the related notes thereto
incorporated by reference in the attached prospectus. Certain amounts from prior
periods have been restated to conform to current year presentations.
 
<TABLE>
<CAPTION>
                                                                                                    LIBERTY
                                                                                                   PROPERTY
                                                                                                    LIMITED
                                                                                                  PARTNERSHIP
                                                                                                    AND ITS
                                                                                                  PREDECESSOR
                                                                                                    ENTITY
                                                      LIBERTY PROPERTY LIMITED PARTNERSHIP        COMBINED(1)
                                                 ----------------------------------------------   -----------
                                                                   YEAR ENDED DECEMBER 31,
                                                 ------------------------------------------------------------
                                                   1998        1997         1996        1995         1994
                                                 ---------   ---------   ----------   ---------   -----------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                              <C>         <C>         <C>          <C>         <C>
OPERATING DATA
Total revenue..................................  $ 387,093   $ 232,517   $ 154,265    $ 117,041    $  83,022
Rental and real estate tax expense.............    108,345      61,079      40,853       29,314       21,750
General and administrative expenses............     15,522      10,650       8,023        5,212        4,712
Depreciation and amortization..................     67,932      40,752      28,203       22,518       14,732
                                                 ---------   ---------   ---------    ---------    ---------
Operating income...............................    195,294     120,036      77,186       59,997       41,828
Premium on debenture conversions...............         --          98       1,027           --           --
Write off of deferred financing costs..........         --       2,919          --           --           --
Interest expense...............................     78,617      50,969      38,528       37,688       34,243
                                                 ---------   ---------   ---------    ---------    ---------
Income before extraordinary item...............    116,677      66,050      37,631       22,309        7,585
                                                 ---------   ---------   ---------    ---------    ---------
Extraordinary item --
  Gain on extinguishment of debt...............         --          --          --           --       55,761
                                                 ---------   ---------   ---------    ---------    ---------
Net income.....................................    116,677      66,050      37,631       22,309       63,346
                                                 ---------   ---------   ---------    ---------    ---------
Net income allocated to general
  partner -- preferred units...................     11,000       4,247          --           --           --
                                                 ---------   ---------   ---------    ---------    ---------
Net income allocated to partners -- common
  interest.....................................  $ 105,677   $  61,803   $  37,631    $  22,309    $  63,346
                                                 =========   =========   =========    =========    =========
OTHER DATA
Cash provided by operating activities..........  $ 219,223   $ 136,596   $  68,643    $  68,186    $  16,132
Cash used by investing activities..............   (839,542)   (864,562)   (267,099)    (281,862)    (156,282)
Cash provided by financing activities..........    579,631     763,433     207,439      199,136      165,111
Funds from operations(2).......................    173,829     102,617      65,944       44,606       22,517
EBITDA(3)......................................    263,226     160,788     105,389       82,515       56,560
Ratio of earnings to fixed charges(4)..........       2.07        1.92        1.66         1.47         1.85
Ratio of EBITDA to interest expense(3).........       3.35        3.15        2.74         2.19         1.65
Ratio of total indebtedness to adjusted total
  assets(5)....................................       45.3%       42.8%       53.4%        47.8%        47.4%
</TABLE>
 
                                       S-5
<PAGE>   6
 
<TABLE>
<CAPTION>
                                                             LIBERTY PROPERTY LIMITED PARTNERSHIP
                                                 -------------------------------------------------------------
                                                                         DECEMBER 31,
                                                 -------------------------------------------------------------
                                                    1998         1997         1996        1995        1994
                                                 ----------   ----------   ----------   --------   -----------
                                                                    (DOLLARS IN THOUSANDS)
<S>                                              <C>          <C>          <C>          <C>        <C>
BALANCE SHEET DATA
Net real estate................................  $2,819,119   $1,956,717   $1,061,234   $826,289    $512,619
Total assets...................................   2,933,371    2,094,337    1,152,612    898,102     602,981
Total indebtedness (including current
  maturities)..................................   1,423,843      960,134      678,709    473,909     320,857
Other liabilities..............................     141,238       93,930       56,876     47,519      22,625
Owners' equity.................................   1,368,290    1,040,273      417,027    376,674     259,499
</TABLE>
 
- -------------------------
 
(1) The Partnership's predecessor is Rouse & Associates, a general partnership,
    and certain of its affiliates (collectively, the "Rouse Group").
 
(2) "Funds from operations" is defined by the National Association of Real
    Estate Investment Trusts as net income or loss after preferred distributions
    (computed in accordance with generally accepted accounting principles
    ("GAAP")), excluding gains (or losses) from debt restructuring and sales of
    property, plus real estate-related depreciation and amortization and
    excluding significant non-recurring events that materially distort the
    comparative measurement of our 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 our 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.
 
(3) EBITDA means operating income before interest, income taxes, depreciation
    and amortization. EBITDA does not represent cash generated from operating
    activities in accordance with GAAP and should not be considered as an
    alternative to operating income or net income as an indicator of performance
    or as an alternative to cash flow from operating activities as an indicator
    of liquidity. We have included information with respect to EBITDA because we
    understand that this information is used by certain investors as one measure
    of operating performance.
 
(4) The ratios of earnings to fixed charges were computed by dividing earnings
    by fixed charges. For this purpose, earnings have been calculated by adding
    fixed charges (excluding capitalized interest) to income before
    extraordinary items. Fixed charges consist of interest costs, whether
    expensed or capitalized, and amortization of deferred financing costs and
    discount or premium related to indebtedness. The ratio of earnings to fixed
    charges for 1994 was calculated for the period from June 23, 1994 to
    December 31, 1994. Prior to completion of the initial public offering of the
    Trust's common shares on June 23, 1994, and the contribution of the proceeds
    from that offering to the Partnership, we conducted our operations through
    our predecessor, the Rouse Group. In connection with completion of the
    initial public offering, we reorganized the Rouse Group and substantially
    deleveraged its asset base. As a result of these factors, we do not consider
    information relating to the ratio of earnings to fixed charges for the
    periods prior to the completion of the initial public offering to be
    meaningful.
 
(5) Adjusted total assets means total assets (as determined in accordance with
    GAAP) plus accumulated depreciation.
 
                                       S-6
<PAGE>   7
 
                                USE OF PROCEEDS
 
     The net proceeds we will receive from the sale of the notes, after payment
of expenses related to this offering and underwriting discounts and commissions,
are estimated to be approximately $          million. We intend to use the net
proceeds to repay indebtedness under the Credit Facility and for other general
corporate purposes. An affiliate of one of the underwriters in this offering is
a lender under the Credit Facility and will receive a portion of the net
proceeds of this offering. See "Underwriting," below. As of March 1, 1999, we
had outstanding indebtedness under the Credit Facility of $197.0 million,
bearing interest at a rate of approximately 6.1% per annum and maturing on May
20, 1999. We can extend the maturity date of the Credit Facility for one year
for a fee of $650,000. The indebtedness outstanding under the Credit Facility
was incurred principally in connection with our acquisition and development
activities.
 
                                 CAPITALIZATION
 
     The following table sets forth our capitalization at December 31, 1998,
and, at the same date, as adjusted to reflect the application of the estimated
net proceeds from the sale of the notes. See "Use of Proceeds," above. The table
should be read in conjunction with our consolidated financial statements and
notes thereto included in the documents that are incorporated by reference in
the attached prospectus. See "Incorporation of Certain Documents by Reference"
in the attached prospectus.
 
<TABLE>
<CAPTION>
                                                                AT DECEMBER 31, 1998
                                                              -------------------------
                                                                ACTUAL      AS ADJUSTED
                                                              ----------    -----------
                                                                   (IN THOUSANDS)
<S>                                                           <C>           <C>
Senior debt(1):
  Mortgage loans............................................  $  413,224      $
  Unsecured notes...........................................     645,000
     % senior notes due              .......................          --
  Credit Facility...........................................     264,000
                                                              ----------      -------
     Total senior debt......................................   1,322,224
Subordinated debentures.....................................     101,619
Owners' equity:
  General partner's equity..................................   1,267,036
  Limited partners' equity..................................     101,254
                                                              ----------      -------
     Total owners' equity...................................   1,368,290
                                                              ----------      -------
     Total capitalization...................................  $2,792,133      $
                                                              ==========      =======
</TABLE>
 
- ---------------
     (1) Senior debt does not reflect indebtedness we incurred on January 15,
         1999 under a $135 million unsecured loan with a term of two years. The
         interest rate for this term loan is 135 basis points over the London
         Interbank Offered Rate. The proceeds from this term loan were used to
         repay indebtedness outstanding under the Credit Facility.
 
                                       S-7
<PAGE>   8
 
                                  OUR COMPANY
 
     We provide leasing, property management, acquisition, development,
construction and design management and other related services for our
properties. As of December 31, 1998, we operated 608 industrial and office
properties totaling approximately 44.2 million leasable square feet. These
properties were approximately 95.0% leased to approximately 1,900 tenants as of
that date. As of the same date, we also had 45 properties under development,
which we expect will total approximately four million leasable square feet when
completed. We also owned 1,113 acres of land on December 31, 1998, which we
anticipate is capable of supporting approximately nine million leasable square
feet. Our properties and land are located principally within the Southeastern,
Mid-Atlantic and Midwestern United States.
 
     We own, either directly or indirectly through our consolidated
subsidiaries, substantially all of the assets of the Trust. We also conduct,
directly or indirectly, substantially all of the Trust's operations. The Trust
is a self-administered and self-managed real estate investment trust that was
formed to continue and expand the commercial real estate business of Rouse &
Associates. Founded in 1972, Rouse & Associates was a developer and manager of
commercial real estate in the Southeastern, Mid-Atlantic and West Coast markets
of the United States.
 
                       BUSINESS OBJECTIVES AND STRATEGIES
 
     Our business objective is to maximize long-term profitability for the
Trust's shareholders and our partners by:
 
     - maintaining and increasing property occupancy and rental rates through
       the effective management of our properties; and
 
     - acquiring and developing high-quality properties.
 
     In accomplishing these objectives we also intend to maintain a conservative
and flexible capital structure.
 
INTERNAL GROWTH STRATEGIES
 
     We believe that our properties offer significant opportunities for us to
increase our rental revenues and cash flow over the long term. We seek to
increase cash flow by:
 
     - continuing our practice of negotiating for annual contractual rental
       increases that take effect during the terms of the leases on our
       properties;
 
     - seeking to increase rental revenues through the renewal or replacement of
       expiring leases at rental rates that are higher than the rates under
       expiring leases; and
 
     - improving the already high occupancy rates of our properties.
 
     We also intend to maximize earnings by controlling costs.
 
ACQUISITIONS
 
     Strategy.  We seek to acquire properties consistent with our business
objectives and strategies. We execute our acquisition strategy by purchasing
properties which we believe will create shareholder value over the long term.
 
     We have identified the following general categories of properties for
acquisition:
 
          - Stabilized Acquisitions -- consist of properties which are typically
            at high occupancy levels upon acquisition.
 
          - Entrepreneurial Acquisitions -- consist of properties which are
            typically either vacant or at low occupancy levels and can be
            purchased substantially below replacement cost, thereby offering the
            opportunity for above-average returns when fully renovated and
            leased.
                                       S-8
<PAGE>   9
 
     Acquisitions Completed During 1998.  During 1998, we acquired 144
properties comprising approximately 8.6 million leasable square feet of
industrial and office space for a total investment of $626.3 million. Of these
properties, 136 properties, aggregating approximately 8.2 million leasable
square feet for a total investment of $587.7 million, were stabilized
acquisitions. By total investment, we mean, for acquisitions, the property's
purchase price, plus any costs associated with the closing of the purchase, and
our estimate, determined at the time of acquisition, of the cost of necessary
building improvements, and, for development properties, land costs and land and
building improvement costs and, where appropriate, other development costs and
costs required to carry the property until we begin to receive rent for the
property.
 
DEVELOPMENT
 
     Strategy.  We pursue selective development opportunities, focusing
primarily on high-quality suburban industrial and office properties within our
existing markets.
 
     Property Developments Completed During 1998.  During 1998, we completed 34
projects, totaling approximately 3.5 million square feet of leasable space and
representing an aggregate total investment of $237.3 million. As of December 31,
1998, these completed development properties were 94.5% leased.
 
     Properties Under Development.  As of December 31, 1998, we had 45
properties under development in 11 markets which, upon completion, are expected
to total approximately four million leasable square feet. Approximately 56.8% of
this leasable space was pre-leased as of December 31, 1998.
 
ACQUISITIONS AND DEVELOPMENTS COMPLETED DURING 1999
 
     Between January 1 and March 12, 1999, we purchased seven industrial and
office properties containing approximately 275,000 leasable square feet. Our
total investment in these properties was $26.3 million. In addition, during the
same period, we completed development of 10 industrial and office properties
containing approximately 519,000 leasable square feet. Our total investment in
these properties was $31.7 million.
 
                                   PROPERTIES
 
     As of December 31, 1998, our properties in operation consisted of 424
industrial and 184 office properties. As of the same date, these properties were
approximately 95.0% leased.
 
     Our industrial properties are located principally in suburban mixed-use
developments or business parks and include warehouse and distribution
facilities, as well as facilities which accommodate both industrial and office
use. The industrial activities in these facilities typically include service,
assembly, light manufacturing and research and development. Our office
properties are mid-rise and single story office buildings, located principally
in suburban mixed-use developments or office parks.
 
                                       S-9
<PAGE>   10
 
LEASE EXPIRATIONS
 
     The following table shows scheduled lease expirations and certain other
information for leases in place for our properties in operation as of December
31, 1998, assuming none of the tenants exercises renewal options or termination
rights, if any:
 
<TABLE>
<CAPTION>
                                                                                  AVERAGE
                                                                                  RENT PER         LEASE
                                   NUMBER    LEASABLE SQUARE                       SQUARE     EXPIRATIONS AS A        LEASE
YEAR OF                              OF       FEET SUBJECT     ANNUALIZED BASE   FOOT UNDER    PERCENTAGE OF     EXPIRATIONS AS A
LEASE                              LEASES      TO EXPIRING       RENT UNDER       EXPIRING      ANNUAL BASE       PERCENTAGE OF
EXPIRATION                        EXPIRING       LEASES        EXPIRING LEASES     LEASES           RENT          SQUARE FOOTAGE
- ----------                        --------   ---------------   ---------------   ----------   ----------------   ----------------
                                             (IN THOUSANDS)    (IN THOUSANDS)
<S>                               <C>        <C>               <C>               <C>          <C>                <C>
1999............................     645          8,215           $ 59,061         $7.19            17.7%              19.6%
2000............................     505          6,236             49,541          7.94            14.9               14.9
2001............................     421          6,646             47,968          7.22            14.4               15.8
2002............................     295          5,294             34,477          6.51            10.3               12.6
2003............................     298          4,511             38,817          8.61            11.7               10.8
2004............................      56          1,145             10,195          8.91             3.1                2.7
Thereafter......................     181          9,921             92,780          9.35            27.9               23.6
                                   -----         ------           --------         -----           -----              -----
Total...........................   2,401         41,968           $332,839         $7.93           100.0%             100.0%
                                   =====         ======           ========         =====           =====              =====
</TABLE>
 
TENANTS
 
     Our properties in operation are leased to over 1,900 tenants. Our tenants
engage in a wide variety of businesses, including pharmaceuticals,
telecommunications, finance and insurance. As of December 31, 1998, no tenant
accounted for more than 3.6% of our total annual base rent.
 
     The following table shows our 10 largest tenants, in terms of annual base
rent, as of December 31, 1998:
 
<TABLE>
<CAPTION>
                                                               NUMBER                        PERCENTAGE OF TOTAL
TENANT                                                        OF LEASES   ANNUAL BASE RENT    ANNUAL BASE RENT
- ------                                                        ---------   ----------------   -------------------
                                                                           (IN THOUSANDS)
<S>                                                           <C>         <C>                <C>
1. The Vanguard Group.......................................      7           $11,382                3.6%
2. AT&T Resource Management, Corp...........................     15             8,223                2.6
3. SmithKline Beecham.......................................      3             5,343                1.7
4. The Government of the United States of America...........     27             4,580                1.5
5. Prudential Insurance Company.............................     16             4,487                1.4
6. DSC Logistics, Inc.......................................      1             4,392                1.4
7. Hewlett-Packard Company..................................      4             3,577                1.2
8. PNC Bank.................................................      3             3,126                1.0
9. Sanofi Winthrop, Inc.....................................      6             3,121                1.0
10. General Electric Company................................      6             2,911                0.9
                                                                 --           -------               ----
                                                                 88           $51,142               16.3%
                                                                 ==           =======               ====
</TABLE>
 
                                      S-10
<PAGE>   11
 
     The following table shows certain information, as of December 31, 1998,
with respect to our industrial and office properties:
 
<TABLE>
<CAPTION>
                                                                      INDUSTRIAL
                                                              ---------------------------
                                                              DISTRIBUTION         FLEX          OFFICE         TOTAL
                                                              -------------       -------       --------       --------
                                                              (LEASABLE SQUARE FEET AND ANNUAL BASE RENT IN THOUSANDS)
<S>                                                           <C>                 <C>           <C>            <C>
Southeastern Pennsylvania
  Number....................................................         19               34             63            116
  Leasable square feet......................................      1,968            1,991          3,830          7,789
  Annual base rent..........................................     10,531           15,580         47,207         73,318
  Percent leased............................................      100.0%            88.6%          96.6%          95.4%
New Jersey/Delaware
  Number....................................................         38               31             12             81
  Leasable square feet......................................      3,203            1,656            754          5,613
  Annual base rent..........................................     13,741           11,785          7,892         33,418
  Percent leased............................................       94.3%            89.4%          93.4%          92.7%
Lehigh Valley
  Number....................................................         20               26             13             59
  Leasable square feet......................................      4,905            1,223            464          6,592
  Annual base rent..........................................     18,128            8,199          5,191         31,518
  Percent leased............................................       93.3%            96.3%          95.6%          94.0%
Maryland
  Number....................................................          4                4             11             19
  Leasable square feet......................................        299              412            530          1,241
  Annual base rent..........................................      1,444            3,794          5,817         11,055
  Percent leased............................................      100.0%            90.2%          99.8%          96.6%
Virginia
  Number....................................................         30               15             18             63
  Leasable square feet......................................      4,399              559            801          5,759
  Annual base rent..........................................     17,580            4,553          9,670         31,803
  Percent leased............................................       96.7%            99.6%          98.1%          97.2%
The Carolinas
  Number....................................................         14                6             17             37
  Leasable square feet......................................      1,768              326          1,616          3,710
  Annual base rent..........................................      7,168            1,882         17,877         26,927
  Percent leased............................................       94.1%            98.0%          92.4%          93.7%
Jacksonville, Florida
  Number....................................................         15               28             17             60
  Leasable square feet......................................      1,090            1,619          1,467          4,176
  Annual base rent..........................................      3,463            9,610         17,748         30,821
  Percent leased............................................       86.6%            95.6%          97.2%          93.8%
Tampa, Florida
  Number....................................................          4               12              1             17
  Leasable square feet......................................        294              808             29          1,131
  Annual base rent..........................................        909            6,387            360          7,656
  Percent leased............................................       94.4%            98.0%         100.0%          97.1%
South Florida
  Number....................................................         11                5             14             30
  Leasable square feet......................................        604              251            759          1,614
  Annual base rent..........................................      3,056            1,715          7,776         12,547
  Percent leased............................................       96.3%            98.8%          92.0%          94.7%
Minnesota
  Number....................................................          2               26              3             31
  Leasable square feet......................................        143            1,711            566          2,420
  Annual base rent..........................................        713           12,167          6,947         19,827
  Percent leased............................................      100.0%            98.5%          93.6%          97.4%
Michigan
  Number....................................................          2               76             12             90
  Leasable square feet......................................        396            2,144          1,409          3,949
  Annual base rent..........................................      1,377           13,964         14,639         29,980
  Percent leased............................................      100.0%            95.6%          95.7%          96.1%
United Kingdom
  Number....................................................         --                2              3              5
  Leasable square feet......................................         --               71            103            174
  Annual base rent..........................................         --            1,185          2,765          3,950
  Percent leased............................................         --             87.4%         100.0%          94.8%
Total
  Number....................................................        159              265            184            608
  Leasable square feet......................................     19,069           12,771         12,328         44,168
  Annual base rent..........................................     78,110           90,821        143,889        312,820
  Percent leased............................................       95.0%            94.4%          95.6%          95.0%
</TABLE>
 
                                      S-11
<PAGE>   12
 
                              DESCRIPTION OF NOTES
 
     The following description of the notes and the Indenture (as defined below)
summarizes certain provisions of the Indenture and is therefore incomplete.
Accordingly, the following description of the notes and the Indenture is subject
to and qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. Except as otherwise indicated,
section references are to sections of the Indenture. If anything described in
this section is inconsistent with the terms described in the attached
prospectus, you should rely on this prospectus supplement.
 
GENERAL
 
     The notes will be issued under a Senior Indenture dated as of October 24,
1997 (the "Base Indenture") between the Partnership, as obligor, and The First
National Bank of Chicago, as trustee (the "Trustee"), and a Supplemental
Indenture thereto to be dated as of             , 1999, between the Partnership
and the Trustee (the "Supplemental Indenture" and, together with the Base
Indenture, the "Indenture"). The notes will be limited to the aggregate
principal amount of $  million. The terms of the notes include those provisions
contained in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The
notes are subject to all of those terms, and holders of notes should refer to
the Indenture and the Trust Indenture Act for a statement of those terms.
 
     The notes will be our direct, unsecured recourse obligations and will rank
pari passu with all of our other unsecured unsubordinated indebtedness from time
to time outstanding. As of March 1, 1999, we had outstanding $977.0 million
aggregate principal amount of unsecured unsubordinated indebtedness, including
$197.0 million under the Credit Facility. The notes will be effectively
subordinated to the claims of mortgage lenders holding our secured indebtedness,
as to the specific property securing each such lender's mortgage. As of December
31, 1998, we had outstanding $413.2 million aggregate principal amount of
secured indebtedness. The notes will be senior to our unsecured subordinated
indebtedness. As of December 31, 1998, we had outstanding $101.6 million
aggregate principal amount of unsecured subordinated indebtedness. The notes
will be recourse to all of our assets, but will be nonrecourse with respect to
our partners, including the Trust, our sole general partner. Subject to certain
limitations set forth in the Indenture, and as described under "Certain
Covenants" below and in the attached prospectus under "Description of Debt
Securities -- Certain Covenants," the Indenture will permit us to incur
additional secured and unsecured indebtedness.
 
     The notes are not convertible into or exchangeable for our partnership
interests or common shares of the Trust. We will not make any sinking fund
payments with respect to the notes. We do not intend to list the notes on any
national securities exchange.
 
     The notes will mature on                ,   (the "Maturity Date").
 
PRINCIPAL AND INTEREST
 
     The interest rate on the notes will be      % per annum. We will pay
interest in arrears on             and             , beginning             ,
1999. Interest will accrue from             , 1999, or from the most recent
interest payment date to which we have paid or provided for the payment of
interest to the next interest payment date or the scheduled maturity date, as
the case may be. We will pay interest computed on the basis of a 360-day year of
twelve 30-day months. Interest on the notes will be paid to the persons in whose
names the notes are registered at the close of business on the           or
          preceding the respective interest payment date. Unless we redeem the
notes prior to their maturity date, we will redeem the notes at their principal
amount on their maturity date. If an interest payment date is not a Business
Day, we will pay interest on the next succeeding Business Day. A "Business Day"
is any Monday, Tuesday, Wednesday, Thursday or Friday which is not a day on
which banking institutions or trust companies in the City of New York, New York
are authorized or obligated by law to close.
 
     Any interest not punctually paid or duly provided for on any interest
payment date with respect to the notes ("Defaulted Interest") will forthwith
cease to be payable to the holder of the note on the applicable
                                      S-12
<PAGE>   13
 
regular record date and may either be paid to the person in whose name such note
is registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to the holder of such note not less than
ten days prior to such Special Record Date, or may be paid at any time in any
other lawful manner, all as more completely described in the Indenture (Section
307).
 
     The principal of each note payable on its Maturity Date will be paid
against presentation and surrender of such note at the corporate trust office of
the Trustee, located initially at One First National Plaza, Chicago, Illinois
60670-0126, in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts.
 
CERTAIN COVENANTS
 
     The Indenture contains various covenants including the following:
 
     Limitations on Incurrence of Debt.  The Partnership will not, and will not
permit any Subsidiary (as defined below) to, incur any Debt (as defined below),
other than Intercompany Debt (as defined below) that is subordinate in right of
payment to the notes, if, immediately after giving effect to the incurrence of
such Debt and the application of the proceeds thereof, the aggregate principal
amount of all outstanding Debt of the Partnership and its Subsidiaries on a
consolidated basis determined in accordance with GAAP is greater than 60% of the
sum of: (i) the Partnership's Adjusted Total Assets (as defined below) as of the
end of the most recent fiscal quarter prior to the incurrence of such additional
Debt; and (ii) the increase in Adjusted Total Assets since the end of such
quarter (including any increase resulting from the incurrence of additional
Debt) (Section 1004(a)).
 
     In addition to the foregoing limitation on the incurrence of Debt, the
Partnership will not, and will not permit any Subsidiary to, incur any Debt if
the ratio of Consolidated Income Available for Debt Service (as defined below)
to Annual Service Charge (as defined below) on the date on which such additional
Debt is to be incurred, on a pro forma basis, after giving effect to the
incurrence of such Debt and to the application of the proceeds thereof, would
have been less than 1.5 to 1 (Section 1004(b)).
 
     Further, the Partnership will not, and will not permit any Subsidiary to,
incur any Debt secured by any mortgage, lien, charge, pledge, encumbrance or
security interest of any kind upon any of the properties of the Partnership or
any Subsidiary ("Secured Debt"), whether owned at the date of the Indenture or
thereafter acquired, if, immediately after giving effect to the incurrence of
such Secured Debt and the application of the proceeds thereof, the aggregate
principal amount of all outstanding Secured Debt of the Partnership and its
Subsidiaries on a consolidated basis is greater than 40% of the sum of: (i) the
Partnership's Adjusted Total Assets as of the end of the most recent fiscal
quarter prior to the incurrence of such additional Debt; and (ii) the increase
in Adjusted Total Assets since the end of such quarter (including any increase
resulting from the incurrence of additional Debt) (Section 1004(c)).
 
     For purposes of the foregoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Partnership or
a Subsidiary whenever the Partnership or such Subsidiary shall create, assume,
guarantee or otherwise become liable in respect thereof.
 
     Maintenance of Unencumbered Total Asset Value.  The Partnership will at all
times maintain an Unencumbered Total Asset Value (as defined below) in an amount
not less than 150% of the aggregate principal amount of all outstanding
unsecured Debt of the Partnership and its Subsidiaries on a consolidated basis
(Section 1004(d)).
 
     As used herein:
 
     - "Adjusted Total Assets" as of any date means the total of all assets, as
       determined in accordance with GAAP, plus accumulated depreciation.
 
     - "Annual Service Charge" as of any date means the aggregate amount of any
       interest expensed for the four consecutive fiscal quarters most recently
       ended, as determined in accordance with GAAP.
 
                                      S-13
<PAGE>   14
 
     - "Consolidated Income Available for Debt Service" as of any date means
       Consolidated Net Income (as defined below) of the Partnership and its
       Subsidiaries plus amounts that have been deducted for: (i) interest on
       Debt of the Partnership and its Subsidiaries; (ii) provision for taxes of
       the Partnership and its Subsidiaries based on income; (iii) amortization
       of debt discount; (iv) depreciation and amortization; (v) the effect of
       any noncash charge resulting from a change in accounting principles in
       determining Consolidated Net Income; and (vi) amortization of deferred
       charges, for the four consecutive fiscal quarters most recently ended,
       all as determined in accordance with GAAP, and without taking into
       account any provision for gains and losses on properties.
 
     - "Consolidated Net Income" for any period means the amount of net income
       (or loss) of the Partnership and its Subsidiaries for such period, as
       determined on a consolidated basis in accordance with GAAP.
 
     - "Debt" of the Partnership or any Subsidiary means any indebtedness of the
       Partnership or any Subsidiary, whether or not contingent, in respect of:
       (i) borrowed money evidenced by bonds, notes, debentures or similar
       instruments; (ii) indebtedness secured by any mortgage, pledge, lien,
       charge, encumbrance or any security interest existing on property owned
       by the Partnership or any Subsidiary; (iii) reimbursement obligations in
       connection with any letters of credit actually issued or amounts
       representing the balance deferred and unpaid of the purchase price of any
       property except any such balance that constitutes an accrued expense or
       trade payable; or (iv) any lease of property by the Partnership or any
       Subsidiary as lessee which is reflected on the Partnership's consolidated
       balance sheet as a capitalized lease in accordance with GAAP; but in the
       case of items of indebtedness incurred under (i) through (iii) above only
       to the extent that any such items (other than letters of credit) would
       appear as a liability on the Partnership's consolidated balance sheet in
       accordance with GAAP; and also includes, to the extent not otherwise
       included, any obligation of the Partnership or any Subsidiary to be
       liable for, or to pay, as obligor, guarantor or otherwise (other than for
       purposes of collection in the ordinary course of business), indebtedness
       of another person (other than the Partnership or any Subsidiary).
 
     - "Intercompany Debt" means Debt to which the only parties are the Trust,
       any of its subsidiaries, the Partnership and any Subsidiary, or Debt owed
       to the Trust arising from routine cash management practices, but only so
       long as such Debt is held solely by any of the Trust, any of its
       subsidiaries, the Partnership and any Subsidiary.
 
     - "Subsidiary" means a corporation, partnership or limited liability
       company, a majority of the outstanding voting stock, partnership
       interests or membership interests, as the case may be, of which is owned
       or controlled, directly or indirectly, by the Partnership or by one or
       more Subsidiaries of the Partnership. Liberty Property Development Corp.
       and Liberty Property Development Corp.-II are each a Subsidiary for
       purposes of this definition. For the purposes of this definition, "voting
       stock" means stock having the voting power for the election of directors,
       general partners, managers or trustees, as the case may be, whether at
       all times or only so long as no senior class of stock has such voting
       power by reason of any contingency.
 
     - "Undepreciated Real Estate Assets" as of any date means the cost
       (original cost plus capital improvements) of real estate assets of the
       Partnership and its Subsidiaries on such date, before depreciation and
       amortization, as determined on a consolidated basis in accordance with
       GAAP.
 
     - "Unencumbered Total Asset Value" as of any date means the sum of: (i) the
       value of those Undepreciated Real Estate Assets not subject to an
       encumbrance; and (ii) the value of all other assets of the Partnership
       and its Subsidiaries on a consolidated basis not subject to an
       encumbrance, as determined in accordance with GAAP (but excluding
       accounts receivable and intangibles).
 
     Compliance with the covenants described herein and with respect to the
notes generally may not be waived by the Partnership, or by the Trustee unless
the holders of at least a majority in principal amount
 
                                      S-14
<PAGE>   15
 
of all outstanding notes consent to such waiver; provided, however, that the
defeasance and covenant defeasance provisions of the Indenture described under
"Description of Debt Securities -- Discharge, Defeasance and Covenant
Defeasance" in the attached prospectus, will apply to the notes, including with
respect to the covenants described in this prospectus supplement.
 
OPTIONAL REDEMPTION
 
     The notes may be redeemed at any time at our option, in whole or from time
to time in part, at a redemption price equal to the sum of: (i) the principal
amount of the notes being redeemed plus accrued interest thereon to the
redemption date; and (ii) the Make-Whole Amount, if any, with respect to such
notes (the "Redemption Price").
 
     If notice of redemption has been given as provided in the Indenture and
funds for the redemption of any notes called for redemption shall have been made
available on the redemption date referred to in such notice, such notes will
cease to bear interest on the date fixed for such redemption specified in such
notice and the only right of the holders of the notes from and after the
redemption date will be to receive payment of the Redemption Price upon
surrender of such notes in accordance with such notice.
 
     Notice of any optional redemption of any notes will be given to holders at
their addresses, as shown in the security register for the notes, not more than
60 nor less than 30 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and principal
amount of the notes held by such holder to be redeemed.
 
     If all or less than all of the notes of any series are to be redeemed at
our option, we will notify the trustee for the notes at least 45 days prior to
giving notice of redemption (or such shorter period as may be satisfactory to
the trustee) of the aggregate principal amount of notes to be redeemed, if less
than all of the notes are to be redeemed, and their redemption date. The trustee
shall select, in such manner as it shall deem fair and appropriate, no less than
60 days prior to the date of redemption, the notes to be redeemed in whole or in
part.
 
     Neither we nor the trustee shall be required to: (i) issue, register the
transfer of or exchange notes during a period beginning at the opening of
business 15 days before any selection of notes to be redeemed and ending at the
close of business on the day of mailing of the relevant notice of redemption;
(ii) register the transfer of or exchange any note, or portion thereof, called
for redemption, except the unredeemed portion of any note being redeemed in
part; or (iii) issue, register the transfer of or exchange any note that has
been surrendered for repayment at the option of the holder, except the portion,
if any, of such note not to be so repaid (Section 305).
 
     As used herein:
 
     - "Make-Whole Amount" means, in connection with any optional redemption of
       any notes, the excess, if any, of: (i) the aggregate present value as of
       the date of such redemption of each dollar of principal being redeemed
       and the amount of interest (exclusive of interest accrued to the date of
       redemption) that would have been payable in respect of each such dollar
       if such redemption had not been made, determined by discounting, on a
       semi-annual basis, such principal and interest at the Reinvestment Rate
       (as defined below) (determined on the third Business Day preceding the
       date notice of such redemption is given) from the respective dates on
       which such principal and interest would have been payable if such
       redemption had not been made, to the date of redemption, over (ii) the
       aggregate principal amount of the notes being redeemed.
 
     - "Reinvestment Rate" means the yield on Treasury securities at a constant
       maturity corresponding to the remaining life (as of the date of
       redemption, and rounded to the nearest month) to stated maturity of the
       principal being redeemed (the "Treasury Yield"), plus [0.25]%. For
       purposes hereof, the Treasury Yield shall be equal to the arithmetic mean
       of the yields published in the Statistical Release (as defined below)
       under the heading "Week Ending" for "U.S. Government
       Securities -- Treasury Constant Maturities" with a maturity equal to such
       remaining life; provided, that if no published maturity exactly
       corresponds to such remaining life, then the Treasury Yield
                                      S-15
<PAGE>   16
 
       shall be interpolated or extrapolated on a straight-line basis from the
       arithmetic means of the yields for the next shortest and next longest
       published maturities. For purposes of calculating the Reinvestment Rate,
       the most recent Statistical Release published prior to the date of
       determination of the Make-Whole Amount shall be used. If the format or
       content of the Statistical Release changes in a manner that precludes
       determination of the Treasury Yield in the above manner, then the
       Treasury Yield shall be determined in the manner that most closely
       approximates the above manner, as reasonably determined by us.
 
     - "Statistical Release" means the statistical release designated
       "H.15(519)" or any successor publication which is published weekly by the
       Federal Reserve System and which reports yields on actively traded United
       States government securities adjusted to constant maturities, or, if such
       statistical release is not published at the time of any determination
       under the Indenture, then such other reasonably comparable index which
       shall be designated by us.
 
THE TRUSTEE
 
     The First National Bank of Chicago is the Trustee under the Indenture. All
payments of principal of, and interest on, and all registration, transfer,
exchange, authentication, and delivery (including authentication and delivery on
original issuance of the notes) of, the notes will be effected by the Trustee in
Chicago, Illinois, or at an office designated by the Trustee in New York, New
York.
 
     The Indenture contains certain limitations on the right of the Trustee,
should it become our creditor, to obtain payment of claims in certain cases or
to realize on certain property received in respect of any such claim as security
or otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
or resign.
 
     The holders of not less than a majority in principal amount of the then
outstanding notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the notes, provided
that (i) such direction shall not be in conflict with any rule of law or with
the Indenture; (ii) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction; (iii) such direction
would not be unduly prejudicial to the rights of another holder; and (iv) such
direction would not involve the Trustee in personal liability (Section 512). If
an Event of Default (as defined in the attached prospectus) with respect to the
notes occurs and is continuing, the Trustee shall exercise with respect to the
notes such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in their exercise, as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs. Subject to such
provisions, the Trustee will be under no obligation to exercise any of its
rights or powers vested in it by the Indenture at the request of any of the
holders, unless such holders shall have offered to the Trustee security or
indemnity reasonably satisfactory to the Trustee against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction (Section 602).
 
BOOK-ENTRY NOTES
 
     The notes will be issued in book-entry form, as one or more notes
registered in the name of the nominee of The Depository Trust Company, which
will act as Depositary (as defined in the attached prospectus). See "Description
of Debt Securities -- Book-Entry System" in the attached prospectus.
 
SAME-DAY SETTLEMENT AND PAYMENT
 
     The underwriters will make settlement for the notes in immediately
available funds. We will make all payments of principal and interest in respect
of the notes in immediately available funds.
 
     Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing house or next-day funds. In contrast, the notes
will trade in the Depository Trust Company's Same-Day Funds Settlement System
until maturity or until the notes are issued in certificated form.
 
                                      S-16
<PAGE>   17
 
Therefore, the Depository Trust Company will require secondary market trading
activity in the notes to settle in immediately available funds. No assurance can
be given as to the effect, if any, of settlement in immediately available funds
on trading activity in the notes.
 
                   CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
 
     The following summary of material federal income tax considerations to the
purchasers of the notes is based on current law, is for general information only
and is not tax advice. This discussion deals only with notes held as "capital
assets" within the meaning of the Code and does not purport to deal with all
aspects of taxation that may be relevant to particular purchasers in light of
their personal investment or tax circumstances or to certain types of purchasers
(including insurance companies, financial institutions or broker-dealers)
subject to special treatment under the federal income tax law.
 
     PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND DISPOSITION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
 
     For a summary of the material federal income tax considerations to the
Partnership, see "Federal Income Tax Considerations with Respect to the Trust
and the Operating Partnership" in the attached prospectus. The capitalized terms
used under "Certain Federal Income Tax Considerations" have been defined under
"Federal Income Tax Considerations with Respect to the Trust and the Operating
Partnership" in the attached prospectus.
 
U.S. HOLDERS OF THE NOTES
 
     Payments of Interest.  The notes are not currently expected to be issued
with original issue discount ("OID"). Interest on a note without OID generally
will be included in the income of a holder as ordinary income at the time such
interest is received or accrued in accordance with the holder's regular method
of accounting.
 
     Market Discount.  Generally, if a U.S. Holder purchases a note other than
at original issue for an amount that is less than its issue price (or, in the
case of a subsequent purchaser, its stated redemption price at maturity), such
U.S. Holder will be treated as having purchased the note at a "market discount,"
unless the market discount is less than a de minimis amount (generally 1/4 of 1
percent of the stated redemption price of the note at maturity times the number
of complete years to maturity after the U.S. Holder acquires the note).
 
     Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment on a note, or any gain realized on the sale,
exchange, retirement or other disposition of a note, as ordinary income to the
extent of the lesser of: (i) the amount of such payment or realized gain, or
(ii) the market discount which has not previously been included in income and is
treated as having accrued on the note at the time of such payment or
disposition. Market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the note, unless the
U.S. Holder elects to accrue market discount on a constant yield basis. Once
made such an election may be revoked only with the consent of the IRS.
 
     A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a note with market discount until the maturity of the note or
certain earlier dispositions, because a current deduction is only allowed to the
extent that the interest expense exceeds the portion of market discount
allocable to the days during the taxable year in which the note was held by the
taxpayer. A U.S. Holder may elect to include market discount in income currently
as it accrued (on either a ratable or constant yield basis), in which case the
rules described above regarding the treatment as ordinary income of gain upon
the disposition of the note and upon the receipt of certain cash payments and
regarding the deferral of interest deductions will not apply. Generally, such
currently included market discount is treated as ordinary interest for federal
income
                                      S-17
<PAGE>   18
 
tax purposes. Such an election will apply to all debt instruments with market
discount acquired by the U.S. Holder on or after the first day of the taxable
year to which such election applies and may be revoked only with the consent of
the IRS.
 
     Amortizable Bond Premium.  If a U.S. Holder purchases a debt instrument for
an amount that is greater than the sum of all amounts payable on the debt
instrument after the purchase date, other than payments of qualified stated
interest, such U.S. Holder will be considered to have purchased the debt
instrument with "amortizable bond premium," generally equal in amount to such
excess. In the case of a debt instrument that may be optionally redeemed prior
to maturity (such as the notes), recently issued Treasury Regulations (the "Bond
Premium Regulations") provide that the amount of amortizable bond premium is
determined by substituting the first date on which the debt instrument may be
redeemed (the "redemption date") for the maturity date and the applicable
redemption price on the redemption date for the amount payable at maturity, if
the result would increase the holder's yield to maturity (i.e., result in a
smaller amount of amortizable bond premium properly allocable to the period
before the redemption date). If the issuer does not in fact exercise its right
to redeem the debt instrument on the applicable redemption date, the debt
instrument will be treated (solely for purposes of the amortizable bond premium
rules) as having matured and then as having been reissued for the holder's
"adjusted acquisition price," which is an amount equal to the holder's basis in
the debt instrument (as determined under the Bond Premium Regulations), less the
sum of (i) any amortizable bond premium allocable to prior accrual periods, and
(ii) any payments previously made on the debt instrument (other than payments of
qualified stated interest). The debt instrument deemed to have been reissued
will again be subject to the amortizable bond premium rules with respect to the
remaining dates on which the debt instrument is redeemable.
 
     A U.S. Holder may elect to amortize bond premium on a debt instrument. Once
made, the election applies to all taxable debt instruments then owned and
thereafter acquired by the U.S. Holder on or after the first day of the taxable
year to which such election applies, and may be revoked only with the consent of
the IRS. In general, a holder amortizes bond premium by offsetting the qualified
stated interest allocable to an accrual period with the bond premium allocable
to the accrual period, which is determined under a constant yield method
pursuant to the Bond Premium Regulations. If the bond premium allocable to an
accrual period exceeds the qualified stated interest allocable to such period,
the excess is treated by the holder as a bond premium deduction. The bond
premium deduction for each accrual period is limited to the amount by which the
holder's total interest inclusions on the debt instrument in prior accrual
periods exceed the total amount treated by such holder as a bond premium
deduction on the debt instrument in prior accrual periods. Any amounts not
deductible in an accrual period may be carried forward to the next accrual
period and treated as bond premium allocable to that period.
 
     Disposition of the Notes.  Upon the sale, exchange, redemption, retirement
or other disposition of a note, a U.S. Holder generally will recognize taxable
gain or loss equal to the difference between (i) the amount of cash proceeds and
the fair market value of any property received on the disposition (except to the
extent such amount is attributable to accrued but unpaid stated interest, which
is taxable as ordinary income), and (ii) such U.S. Holder's adjusted tax basis
in the note. For purposes of determining taxable gain or loss, a U.S. Holder's
adjusted tax basis in a note generally will equal the cost of the note to such
Holder increased by accrued market discount, if any, that the U.S. Holder has
included such market discount in income and decreased by the amount of any
payments, other than qualified stated interest payments received, and
amortizable bond premium taken, with respect to such note. A portion of the
taxable gain may be treated as ordinary income under the market discount rules
described above. Gain or loss recognized upon the disposition of a note will be
a long-term capital gain or loss if the note was a capital asset in the hands of
the U.S. Holder and was held for more than one year.
 
U.S. ALIEN HOLDERS OF THE NOTES
 
     The rules governing the United States federal income taxation of a U.S.
Alien Holder are complex and no attempt will be made herein to provide more than
a summary of such rules. U.S. ALIEN HOLDERS
 
                                      S-18
<PAGE>   19
 
SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE THE EFFECT OF FEDERAL,
STATE, LOCAL AND FOREIGN TAX LAWS, AS WELL AS TAX TREATIES, WITH REGARD TO AN
INVESTMENT IN THE NOTES.
 
     Payment of Interest.  Generally, payments of principal and interest on a
note to a U.S. Alien Holder will qualify for the "portfolio interest exemption"
and, therefore, will not be subject to United States federal income tax or
withholding, unless the U.S. Alien Holder is (i) a direct or indirect 10% or
greater partner (as defined in Section 871(h)(3) of the Code) in the
Partnership, (ii) a controlled foreign corporation related to the Partnership,
or (iii) a bank receiving interest described in Section 881(c)(3)(A) of the
Code. To qualify for the portfolio interest exemption, the last United States
payor in the chain of payment prior to payment to a U.S. Alien Holder (the
"Withholding Agent") must have received in the year in which a payment of
interest or principal occurs, or in either of the two preceding calendar years,
a statement that (i) is signed by the beneficial owner of the note under
penalties of perjury, (ii) certifies that such owner is a U.S. Alien Holder, and
(iii) provides the name and address of the beneficial owner. The statement may
be made on an IRS Form W-8 or a substantially similar form, and the beneficial
owner must inform the Withholding Agent of any change in the information on the
statement within 30 days of such change. If a note is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide a signed statement to the Withholding Agent. In such
case, the signed statement must be accompanied by a copy of the IRS Form W-8 or
the substitute form provided by the beneficial owner to the organization or
institution.
 
     Except to the extent that an applicable treaty otherwise provides, a U.S.
Alien Holder generally will be taxed in the same manner as a U.S. Holder with
respect to interest if the interest income is effectively connected with a
United States trade or business of the U.S. Alien Holder. Under certain
circumstances, effectively connected interest received by a corporate U.S. Alien
Holder may be subject to an additional "branch profits tax" at a 30% rate (or,
if applicable, a lower tax rate specified by a treaty). Even though such
effectively connected interest is subject to income tax, and may be subject to
the branch profits tax, it is not subject to withholding if the U.S. Alien
Holder delivers a properly executed IRS Form 4224 to the Withholding Agent.
 
     Interest income of a U.S. Alien Holder that is not effectively connected
with a United States trade or business and that does not qualify for the
portfolio interest exemption described above generally is subject to a
withholding tax at a 30% rate (or, if applicable, a lower tax rate specified by
a treaty).
 
     Disposition of the Notes.  A U.S. Alien Holder of a note generally will not
be subject to United States federal income tax or withholding on any gain
realized on the sale, exchange, redemption, retirement or other disposition of a
note unless (i) the gain is effectively connected with a United States trade or
business of the U.S. Alien Holder, (ii) in the case of a U.S. Alien Holder who
is an individual, such U.S. Alien Holder is present in the United States for a
period or periods aggregating 183 days or more during the taxable year of the
disposition, and either such U.S. Alien Holder has a "tax home" in the United
States or the disposition is attributable to an office or other fixed place of
business maintained by such U.S. Alien Holder in the United States, or (iii) the
U.S. Alien Holder is subject to tax pursuant to the provisions of the Code
applicable to certain United States expatriates.
 
     Certain United States Federal Estate Tax Considerations Applicable to a
U.S. Alien Holder.  A note beneficially owned by an individual who is not a
citizen or resident of the United States at the time of death will not be
included in the decedent's gross estate for United States federal estate tax
purposes, unless the individual is a direct or indirect 10% or greater partner
of the Partnership, or, at the time of death, payments with respect to such note
would have been effectively connected with the conduct by such U.S. Alien Holder
of a trade or business within the United States.
 
INFORMATION REPORTING AND BACKUP WITHHOLDING
 
     In general, information reporting requirements and back-up withholding at a
31% rate will apply to payments on a note (including stated interest payments
and payments of the proceeds from the sale, exchange, redemption, retirement or
other disposition of a note), unless the holder of the note (i) is a corporation
or comes within certain other exempt categories and, when required, demonstrates
that fact, or
                                      S-19
<PAGE>   20
 
(ii) provides a correct taxpayer identification number, certifies as to its
exemption from backup withholding and otherwise complies with the applicable
requirements of the backup withholding rules. Certain penalties may be imposed
by the IRS on a holder that is required to supply information but does not do so
in the proper manner.
 
     Information reporting requirements and backup withholding will not apply to
payments on a note to a U.S. Alien Holder if the U.S. Alien Holder provides the
required statement on IRS Form W-8 or a substantially similar form, provided
that the withholding Agent does not have actual knowledge that the Holder is a
United States person. Information reporting requirements and backup withholding
will not apply to any payment of the proceeds of the sale of a note effected
outside the United States by a foreign office of a "broker" (as defined in
applicable Treasury Regulations), unless such broker (i) is a United States
person, (ii) derives 50% or more of its gross income for certain periods from
the conduct of a trade or business in the United States, or (iii) is a
controlled foreign corporation as to the United States. Payment of the proceeds
of any such sale effected outside the United States by a foreign office of any
broker that is described in (i), (ii) or (iii) of the preceding sentence will
not be subject to backup withholding, but will be subject to the information
reporting requirements unless such broker has documentary evidence in its
records that the beneficial owner is a U.S. Alien Holder and certain other
conditions are met, or the beneficial owner otherwise establishes an exemption.
Payment of the proceeds of any such sale to or through the United States office
of a broker is subject to information reporting and backup withholding
requirements, unless the beneficial owner of the note provides the statement
described above or otherwise establishes an exemption.
 
     Any amount withheld from a payment to a holder of a note under the backup
withholding rules is allowable as a credit against such holder's United States
federal income tax liability (which might entitle such holder to a refund),
provided that such holder furnishes the required information to the IRS.
 
NEW WITHHOLDING REGULATIONS
 
     Final regulations dealing with withholding tax on income paid to U.S. Alien
Holders and related matters (the "New Withholding Regulations") were promulgated
recently. In general, the New Withholding Regulations do not alter significantly
the substantive withholding and information return reporting requirements
applicable to U.S. Alien Holders, but attempt to unify current certification
procedures and forms and clarify reliance standards. The New Withholding
Regulations generally are effective for payments made after December 31, 1999,
subject to certain transitional rules. THE DISCUSSION SET FORTH ABOVE DOES NOT
TAKE INTO ACCOUNT THE NEW WITHHOLDING REGULATIONS. PROSPECTIVE INVESTORS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE IMPACT THAT THE NEW
WITHHOLDING REGULATIONS MAY HAVE ON THEIR INDIVIDUAL SITUATION.
 
                FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
 
     We have made statements in this prospectus supplement, in the attached
prospectus and in the documents that are incorporated by reference in the
prospectus that constitute forward-looking statements, as that term is defined
in the Private Securities Litigation Reform Act of 1995. These statements are
subject to risks and uncertainties. Forward-looking statements include
information relating to acquisitions (including related pro forma financial
information) and other business development and 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. These forward-looking statements
generally are accompanied by words, such as "believes," "anticipates,"
"expects," "estimates," "should," "seeks," "intends," "planned," "outlook" and
"goal" or similar expressions. You should understand that forward-looking
statements are not guaranties and that there are inherent difficulties in
predicting future results. Actual results could differ materially from those
expressed or implied in the forward-looking statements.
 
     Risks and uncertainties that may affect the operations, performance and
results of our business include, but are not limited to, the following: (i)
uncertainties affecting real estate businesses generally
                                      S-20
<PAGE>   21
 
(such as entry into new leases, renewals of leases and dependence on tenants'
business operations), (ii) risks relating to acquisition, construction and
development activities, (iii) possible environmental liabilities, (iv) risks
relating to leverage and debt service (including availability of financing terms
acceptable to us and sensitivity of our operations and financing arrangements to
fluctuations in interest rates), (v) the potential for the use of borrowings to
make distributions necessary for the Trust to qualify as a REIT, (vi) dependence
on the primary markets in which our properties are located, (vii) the existence
of complex regulations relating to status as a REIT and the adverse consequences
of the failure to qualify as a REIT, (viii) the potential adverse impact of
market interest rates on the market price for the securities of the Partnership
and the Trust and (ix) risks relating to the Year 2000 issue.
 
     Should one or more of these risks or uncertainties materialize, or should
the underlying assumptions prove incorrect, actual results may vary materially
from those described in, or implied by, the forward-looking statements.
 
                                      S-21
<PAGE>   22
 
                                  UNDERWRITING
 
     Lehman Brothers Inc., Banc One Capital Markets, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, Goldman, Sachs & Co., J.P. Morgan Securities
Inc., Salomon Smith Barney Inc. and Warburg Dillon Read LLC, each have agreed to
purchase from us the principal amount of the notes set forth opposite its name.
 
<TABLE>
<CAPTION>
                                                          PRINCIPAL AMOUNT
UNDERWRITERS                                                  OF NOTES
- ------------                                              ----------------
<S>                                                       <C>
Lehman Brothers Inc.....................................      $
Banc One Capital Markets, Inc. .........................
Donaldson, Lufkin & Jenrette Securities Corporation.....
Goldman, Sachs & Co. ...................................
J.P. Morgan Securities Inc. ............................
Salomon Smith Barney Inc. ..............................
Warburg Dillon Read LLC.................................
                                                              -------
          Total.........................................      $
                                                              =======
</TABLE>
 
     The underwriters will purchase the notes under an Underwriting Agreement
with us. The underwriters will pay us the offering price less the underwriting
discount specified on the cover page of this prospectus supplement. We estimate
our expenses for this offering at $          . Certain conditions contained in
the Underwriting Agreement must be satisfied before the underwriters are
required to purchase the notes. The underwriters will either purchase all of the
notes or none of them.
 
     The underwriters have advised us that they will offer the notes directly to
the public initially at the offering price and to certain dealers at the
offering price less a selling concession not to exceed      % of the principal
amount of the notes. The underwriters may allow and these dealers may reallow a
concession not to exceed      % of the principal amount of the notes to other
dealers. After the initial offering of the notes, the underwriters may change
the offering price, the concession to selected dealers and the reallowance to
other dealers.
 
     The underwriters will offer the notes subject to prior sale, withdrawal,
cancellation or modification of the offer of the notes without notice, and to
their receipt and acceptance of the notes. The underwriters may reject any order
to purchase notes.
 
     We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, and to
contribute to payments which the underwriters may be required to make in respect
thereof.
 
     We have agreed that until the closing of this offering, we will not,
without the prior written consent of Lehman Brothers Inc., sell, offer to sell,
distribute or otherwise dispose of any of our debt securities or register for
sale under the Securities Act of 1933, as amended, any of our debt securities,
except for the notes offered hereby.
 
     There is currently no public market for the notes, and we currently have no
intention to list the notes on any national securities exchange. The
underwriters have advised us that they presently intend to make a market in the
notes as permitted by applicable laws and regulations. The underwriters are not
obligated to make a market in the notes, however, and they may discontinue such
market making at any time in their sole discretion. Accordingly, there may not
be adequate liquidity or adequate trading markets for the notes.
 
     Certain of the underwriters and their affiliates have from time to time
provided, and may in the future provide, investment banking and general
financing and banking services to us and our affiliates. Banc One Capital
Markets, Inc. is an affiliate of The First National Bank of Chicago, which is a
lender under the Credit Facility and the Trustee for the notes. The net proceeds
from the sale of the notes will be used to
 
                                      S-22
<PAGE>   23
 
reduce borrowings under the Credit Facility. Accordingly, this offering is being
conducted pursuant to Rule 2710(c)(8) of the Conduct Rules of the National
Association of Securities Dealers, Inc.
 
     The underwriters may engage in stabilizing and syndicate covering
transactions in accordance with Rule 104 under the Securities Exchange Act of
1934, as amended. Rule 104 permits stabilizing bids to purchase a security so
long as bids do not exceed a specified maximum. Syndicate covering transactions
involve purchases of notes in the open market after the distribution has been
completed in order to cover syndicate short positions. Stabilizing and syndicate
covering transactions may cause the price of the notes to be higher than it
would otherwise be in the absence of such transactions. The underwriters may or
may not engage in such transactions, in their discretion, and, if such
transaction are commenced, they may be discontinued without notice.
 
     For more information, see "Plan of Distribution" in the attached
prospectus.
 
                                 LEGAL MATTERS
 
     The legality of the notes will be passed upon for us by Wolf, Block, Schorr
and Solis-Cohen LLP, Philadelphia, Pennsylvania. Certain legal matters will be
passed upon for the underwriters by Rogers & Wells LLP, New York, New York.
Wolf, Block, Schorr and Solis-Cohen LLP and Rogers & Wells LLP will rely on the
opinions of Saul, Ewing, Remick & Saul LLP (formerly known as Weinberg & Green
LLC), Baltimore, Maryland, as to matters of Maryland law.
 
                                      S-23
<PAGE>   24

 
PROSPECTUS               [LIBERTY PROPERTY TRUST LOGO]
 
                                  $999,795,000
 
                             LIBERTY PROPERTY TRUST
                      COMMON SHARES OF BENEFICIAL INTEREST
                    PREFERRED SHARES OF BENEFICIAL INTEREST
                               DEPOSITARY SHARES
                                    WARRANTS
                                   GUARANTIES
 
                                  $650,208,000
 
                      LIBERTY PROPERTY LIMITED PARTNERSHIP
                                DEBT SECURITIES
 
     Liberty Property Trust, a Maryland real estate investment trust (the
"Trust"), may offer from time to time in one or more series hereunder, together
or separately, at prices and on terms to be determined at the time of offering:
(a) its Common Shares of Beneficial Interest, $0.001 par value ("Common
Shares"); (b) its Preferred Shares of Beneficial Interest, $0.001 par value
("Preferred Shares"), which may be issued in the form of depositary shares
evidenced by depositary receipts ("Depositary Shares") and which may be
convertible into or exchangeable for Common Shares or other Securities (as
defined below); and (c) warrants to purchase Preferred Shares ("Preferred Shares
Warrants") or Common Shares ("Common Shares Warrants"). The Preferred Shares
Warrants and Common Shares Warrants are herein referred to collectively as
"Warrants" and, together with Common Shares, Preferred Shares, Depositary Shares
and Trust Guaranties (as defined below), as "Trust Securities."
 
     Liberty Property Limited Partnership, a Pennsylvania limited partnership
(the "Operating Partnership" and, together with the Trust, the "Company"), may
offer from time to time in one or more series hereunder, together or separately,
at prices and on terms to be determined at the time of offering, its debt
securities ("Debt Securities"), consisting of debentures, notes and/or other
evidences of indebtedness, representing secured or unsecured obligations of the
Operating Partnership, which may be either senior or subordinated, which may
have the benefit of conditional or unconditional guaranties of the Trust
("Guaranties") and which may be convertible into or exchangeable for Common
Shares, Preferred Shares, units of limited partnership interest of the Operating
Partnership ("Units") and other Securities. The Debt Securities and Units are
herein referred to as "Partnership Securities" and, together with Trust
Securities, as "Securities."
 
     The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in an accompanying Prospectus Supplement (the
"Prospectus Supplement") which will describe, without limitation and to the
extent applicable, terms for such Securities, including: (a) in the case of
Common Shares, the aggregate number of shares offered, public offering price and
other terms thereof; (b) in the case of Preferred Shares, the specific
designation and stated value, number of shares or fractional interests therein,
any dividend, liquidation preference, redemption, sinking fund, voting or other
rights, the terms for conversion into or exchange for other Securities, if any,
including terms of any Securities into or for which they are convertible or
exchangeable, the initial public offering price and any securities exchange
listings; (c) in the case of Depositary Shares, the fraction of a Preferred
Share represented by one Depositary Share and terms of the Preferred Shares; (d)
in the case of Warrants, to the extent applicable, the duration, offering price,
 
                                                          (cover page continues)
<PAGE>   25
 
exercise price, terms of the Securities for which they are exercisable, any
securities exchange listings and detachability and other terms thereof; and (e)
in the case of Debt Securities, the specific title, aggregate principal amount,
currency, denomination, maturity, priority, rate of interest (which may be fixed
or variable), time and place of payment of interest, terms for optional
redemption or repayment by the issuer thereof or any holder thereof or for
sinking fund payments, terms for conversion into or exchange for other
Securities, if any, including terms of any Securities into or for which they are
convertible or exchangeable, the initial public offering price, any securities
exchange listings, any special provisions related to denomination in a foreign
currency or issuance as medium term notes, original issue discount or other
special terms, the designation of the Trustee (as defined below), Security
Registrar (as defined below) and Paying Agent (as defined below), and the terms
of any applicable Guaranty. The Prospectus Supplement will also contain
information, where applicable, with regard to certain U.S. federal income tax,
accounting or other considerations relating to the Securities offered thereby.
 
     The offering price to the public of the Securities to be issued by the
Trust and the Operating Partnership will be limited to US $999,795,000 and US
$650,208,000, respectively (or the equivalent based on the applicable exchange
rate at the time of issue, if Securities offered are denominated in one or more
foreign currencies or currency units). The Debt Securities may be denominated in
United States dollars or, at the option of the Operating Partnership, if so
specified in the applicable Prospectus Supplement, in one or more foreign
currencies or currency units. Such Debt Securities may be issued in registered
form or bearer form, or both. If so specified in the applicable Prospectus
Supplement, Debt Securities of a series may be issued in whole or in part in the
form of one or more temporary or permanent global securities.
 
     The Securities may be sold to or through dealers or underwriters, directly
to other purchasers or through agents. If an agent of the Trust or the Operating
Partnership or a dealer or an underwriter is involved in the sale of the
Securities with respect to which this Prospectus is being delivered, such
agent's commission or dealer's purchase price or underwriter's discount will be
set forth in, or may be calculated from, the Prospectus Supplement. Any
underwriters, dealers or agents participating in the offering of Securities may
be deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). See "Plan of Distribution" for possible
indemnification arrangements for any agents, dealers or underwriters.
 
     The Securities may be used as all or part of the consideration to be paid
by the Trust or the Operating Partnership for the acquisition of non-operating
assets, for which financial statements would not be required to be filed with
the Securities and Exchange Commission (the "Commission"), or in exchange for
units of limited partnership interest of the Operating Partnership. In addition,
Common Shares may be offered hereby in exchange for certain debt securities of
the Operating Partnership that are exchangeable for such Common Shares. This
Prospectus may not be used to consummate sales of Securities unless accompanied
by a Prospectus Supplement.
 
     The Common Shares are traded on the New York Stock Exchange (the "NYSE")
under the symbol "LRY."
 
  THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS OR ANY SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY
                             IS A CRIMINAL OFFENSE.
 
                THE DATE OF THIS PROSPECTUS IS JANUARY 7, 1998.
<PAGE>   26
 
                                  RISK FACTORS
 
     Liberty Property Trust, a Maryland real estate investment trust (the
"Trust"), conducts substantially all of its operations through Liberty Property
Limited Partnership, a Pennsylvania limited partnership (the "Operating
Partnership"). Unless the context otherwise requires, as used in this
Prospectus, (i) the term "Operating Partnership" includes Liberty Property
Limited Partnership and its subsidiaries (and, where the context indicates, its
predecessor entities, Rouse & Associates, a Pennsylvania general partnership,
and certain affiliated entities (collectively, the "Predecessor")) and (ii) the
term "Company" includes the Trust and the Operating Partnership.
 
     Except as otherwise indicated, the cross-references in this Prospectus are
to sections hereof. This Prospectus contains or incorporates by reference
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company's
actual results could differ materially from those set forth in the
forward-looking statements. For a discussion of certain factors that might cause
such a difference, in addition to general investment risks and those factors
incorporated by reference herein, prospective investors should consider, among
others, the following factors:
 
GENERAL REAL ESTATE INVESTMENT RISKS
 
     Dependence on Tenants; Renewal of Leases and Reletting of Space.  The
Company's cash flow from operations will depend upon its ability to lease space
in its portfolio of properties (the "Operating Properties") and in it properties
currently under development (together with the Operating Properties, the
"Properties") on economically favorable terms. Upon the expiration of leases,
such leases may not be renewed, the space may not be relet or the terms of
renewal or reletting (including rental rates, the cost of leasing commissions,
required renovations and concessions to tenants) may be less favorable than
current lease terms. If any or all of these events occur, the Company's cash
flow from operations and ability to make expected distributions to shareholders
could be adversely affected. The Company's cash flow from operations also would
be adversely affected if tenants leasing a significant amount of space fail to
pay rent, become bankrupt or, if for any other reason, such rents could not be
collected. Moreover, to the extent a tenant defaults on a lease, the Company may
experience delays and costs in enforcing its rights as lessor. Further, the
Company may be adversely affected by various facts and events over which the
Company will have no control, such as a change in the demand in the markets in
which the Properties are located, the possible unavailability of prospective
tenants and the possibility of economic or physical decline of the areas in
which the Properties are located or physical damage to the Properties that would
make them less attractive to tenants.
 
     Risks of Acquisition, Development and Construction Activities.  The Company
intends to continue acquisition and development of industrial and office
properties. Acquisitions of additional properties and development activities
entail risks that investments will fail to perform in accordance with
expectations. With respect to the Company's development activities, such
development opportunities may be abandoned, construction costs of any property
may exceed original or budgeted estimates (possibly making the property
uneconomical) and construction and lease-up may not be completed on schedule,
resulting in increased debt service expense and construction costs. Development
activities are also subject to risks relating to the inability to obtain, or
delays in obtaining, all necessary zoning, land-use, building, occupancy and
other required governmental permits and authorizations.
 
     The Company anticipates that future acquisitions and developments will be
financed, in whole or in part, under the Company's $325 million credit facility
(the "Credit Facility"), through other forms of secured or unsecured financing
or through utilization of access to capital markets. Such financings may result
in the risk that, upon completion of construction, permanent financing for newly
developed commercial properties may not be available or may be available only on
disadvantageous terms. If financing is not available on acceptable terms for new
acquisitions or developments undertaken without permanent financing, further
acquisitions and development might be curtailed, cash available for distribution
might be adversely affected and foreclosures on newly developed or acquired
properties could occur. Further, if any particular property is not successful,
the Company's losses could exceed its investment in the property.
 
                                        3
<PAGE>   27
 
     Competition.  There are numerous developers and real estate companies that
compete with the Company in seeking land for development, properties for
acquisition and tenants for properties. The Company may be adversely affected by
the fact that the availability of land for development within the Company's
markets continues to diminish, as does the availability of high quality
properties for acquisition within the Company's markets and elsewhere.
 
     Possible Environmental Liabilities.  Under various federal, state and local
laws, ordinances and regulations relating to the protection of the environment
(collectively, "Environmental Laws"), a current or previous owner or operator of
real estate may be liable for the cost of removal or remediation of certain
hazardous or toxic substances disposed, stored, released, generated,
manufactured or discharged from, on, at, onto, under or in such property.
Environmental Laws often impose such liability without regard to whether the
owner or operator knew of, or was responsible for, the presence or release of
such hazardous or toxic substances. In addition, the presence of any such
substances, or the failure to properly remediate such substances when present,
released or discharged, may adversely affect the owner's ability to sell or rent
such property or to borrow using such property as collateral. The cost of any
required remediation and the liability of the owner or operator therefor as to
any property is generally not limited under such Environmental Laws and could
exceed the value of the property and/or the aggregate assets of the owner or
operator. In addition to any action required by federal, state or local
authorities, the presence of hazardous or toxic substances on any of the
Properties, or on any properties acquired hereafter, could result in private
plaintiffs bringing claims for personal injury or other causes of action. In
connection with the ownership and operation of the Properties, and of any
properties acquired hereafter, the Company may be potentially liable for
remediation, release or injury. Further, various Environmental Laws impose on
owners or operators the requirement of on-going compliance with rules and
regulations regarding business-related activities that may affect the
environment. Failure to comply with such requirements could result in difficulty
in the lease or sale of any affected Property or the imposition of monetary
penalties and fines in addition to the costs required to attain compliance.
 
INDEBTEDNESS
 
     Required payments on mortgages and other indebtedness generally are not
reduced if the economic performance of any property declines. If such a decline
occurs, the Company's income, Funds from Operations and cash available for
distribution to shareholders will be adversely affected. If the payments under
such indebtedness cannot be made, the Company could sustain a loss, which may
include foreclosures by or judgments against the Company in favor of mortgagees.
Further, instruments evidencing certain of the Company's indebtedness, including
the Operating Partnership's Exchangeable Subordinated Debentures due 2001 (the
"Exchangeable Subordinated Debentures") and the Credit Facility, contain
cross-default and/or cross-acceleration provisions. Depending on the principal
amount of the Exchangeable Subordinated Debentures that are exchanged for Common
Shares, the Company may not have accumulated sufficient cash to repay the
principal due on the Exchangeable Subordinated Debentures upon their maturity
and may therefore be required to meet its obligations through refinancings.
Additionally, certain of the Company's indebtedness, including indebtedness
under the Credit Facility, bears interest at variable rates and, therefore,
exposes the Company to the risk of increasing interest rates. There can be no
assurance that the Company will be able to refinance this or any other
indebtedness.
 
RISK OF ENTRY INTO NEW MARKETS
 
     The Company's business strategy contemplates expanding the Company's
operations into additional new markets. In determining whether to enter a new
market, management considers demographics, job growth, employment, real estate
fundamentals and competition. There can be no assurance that the Company will be
successful in its effort to identify new markets that will afford it the
opportunity for favorable results or that the Company will be able to achieve
such results in those markets.
 
DEPENDENCE ON PRIMARY MARKETS
 
     The Properties are located principally in the Southeastern, Mid-Atlantic
and Mid-Western United States. The Company's performance is, therefore,
dependent upon economic conditions in these geographic
                                        4
<PAGE>   28
 
areas. Like much of the country, the Southeastern, Mid-Atlantic and Mid-Western
United States have been subject to periods of economic decline.
 
TAX RISKS
 
     Adverse Consequences of the Failure to Qualify as a REIT.  Although the
Company believes that the Company qualifies as a REIT, no assurance can be given
that the Company in fact has qualified, or will remain qualified, as a REIT.
Qualification as a REIT involves the application of highly technical and complex
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), for
which there are only limited judicial or administrative interpretations. The
complexity of these provisions and of the applicable income tax regulations that
have been promulgated under the Code (the "Treasury Regulations") is greater in
the case of a REIT that holds its assets in partnership form. Moreover, no
assurance can be given that new legislation, regulations, administrative
interpretations or court decisions will not significantly alter the tax laws
regarding qualification as a REIT or the federal income tax consequences of such
qualification, possibly with retroactive effect. At the present time however,
the Company has no reason to expect a change in such tax laws that would
significantly and adversely affect the Company's ability to qualify and operate
as a REIT.
 
     If in any taxable year the Company were to fail to qualify as a REIT, the
Company would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to federal income tax on its
taxable income at regular corporate rates. Moreover, unless entitled to relief
under certain statutory provisions, the Company also would be disqualified from
treatment as a REIT for the four taxable years following the year in which such
qualification was lost, and if the Company subsequently requalified as a REIT,
it may be required to pay a full corporate-level tax on any unrealized gain in
its assets as of the date of requalification and to make distributions at that
time equal to any earnings accumulated during the period of non-REIT status. As
a result, such additional taxes would reduce the funds available for
distribution to shareholders for each of the years involved. In addition, during
the period in which the Company had lost its REIT status, the Company would no
longer be required by the Code to make any distributions to shareholders.
Although the Company intends to continue to operate in a manner designed to
qualify as a REIT, it is possible that future economic, market, legal, tax or
other considerations may cause the Company's trustees, with the consent of the
holders of a majority of the voting interest of all outstanding Common Shares,
to revoke the election for the Company to qualify as a REIT. For further federal
income tax considerations, including a discussion of the qualification of the
Operating Partnership as a partnership for federal income tax purposes, see
"Federal Income Tax Considerations with Respect to the Trust and the Operating
Partnership -- Classification as a Partnership."
 
     Tax Consequences to Certain Officers and Trustees.  Certain officers and
trustees of the Company own Units which may be exchanged for Common Shares.
Prior to the exchange of Units for Common Shares, officers and trustees of the
Company who own Units may suffer different and more adverse tax consequences
than holders of Common Shares upon the sale of certain of the Properties, the
refinancing of debt associated with those properties or in connection with a
proposed tender offer or merger involving the Company and, therefore, such
individuals and the Company, as partners in the Operating Partnership, may have
different objectives regarding the appropriate terms of any such transaction.
 
LIMITATIONS ON CHANGES IN CONTROL
 
     Ownership Limit.  In order to protect its status as a REIT, the Company
must satisfy certain conditions, including the condition that no more than 50%
in value of its outstanding shares of beneficial interest may be owned, directly
or indirectly, by five or fewer individuals. To this end, the Company's Amended
and Restated Declaration of Trust (the "Declaration of Trust"), among other
things, prohibits (with certain exceptions applicable to select senior
executives of the Company) any holder from owning more than 5.0% of its
outstanding shares of beneficial interest without the consent of the Board of
Trustees of the Company. This limitation may have the effect of precluding
acquisition of control of the Company by a third party without the consent of
the Board of Trustees of the Company.
 
                                        5
<PAGE>   29
 
     Staggered Board and Nominating Procedures.  The Company's Board of Trustees
has three classes of trustees. The term of office of one class expires each
year. Trustees for each class are elected for three-year terms upon the
expiration of the respective class' term. Any nominee for trustee must have been
selected pursuant to the nominating provisions contained in the Company's
Declaration of Trust and By-Laws. The staggered terms for trustees and such
nominating procedures may affect the shareholders' ability to take control of
the Company, even if a change in control were in the shareholders' interest.
 
     Preferred Shares.  The Company's Declaration of Trust authorizes the Board
of Trustees to issue preferred shares and to establish the preferences and
rights of any shares issued. The issuance of preferred shares could have the
effect of delaying or preventing a change of control of the Company, even if a
change in control were in the shareholders' interest.
 
ADVERSE IMPACT OF INCREASING MARKET INTEREST RATES ON MARKET PRICE
 
     One of the factors that may influence the price of the Common Shares in
public markets is the annual yield on the Common Share price paid from dividend
distributions by the Company. Thus, an increase in market interest rates may
lead purchasers of Common Shares to demand a higher annual yield, which could
adversely affect the market price of the Common Shares.
 
FORWARD-LOOKING STATEMENTS
 
     The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain materials filed or to be filed
by the Company with the Commission and incorporated by reference herein contain
statements that are or will be forward-looking, such as statements relating to
acquisitions (including related pro forma financial information) and other
business development activities, future capital expenditures, financing sources
and availability and the effects of regulations (including environmental
regulation) and competition. Such forward-looking information involves important
risks and uncertainties that could significantly affect anticipated results in
the future and, accordingly, such results may differ from those expressed in any
forward-looking statements incorporated by reference herein. These risks and
uncertainties include, but are not limited to, uncertainties affecting real
estate businesses generally (such as entry into new leases, renewals of leases
and dependence on tenants' business operations), risks relating to acquisition,
construction and development activities, possible environmental liabilities,
risks relating to leverage and debt service (including availability of financing
terms acceptable to the Company and sensitivity of the Company's operations to
fluctuations in interest rates), the potential for the use of borrowings to make
distributions necessary to qualify as a REIT, dependence on the primary markets
in which the Properties are located, the existence of complex regulations
relating to status as a REIT and the adverse consequences of the failure to
qualify as a REIT and the potential adverse impact of market interest rates on
the market prices for the Company's securities.
 
                                        6
<PAGE>   30
 
                                  THE COMPANY
 
     The Trust is a self-administered and self-managed Maryland real estate
investment trust ("REIT") that was formed to continue and expand the commercial
real estate business of Rouse & Associates, a developer and manager of
commercial real estate in the Southeastern, Mid-Atlantic and West Coast markets,
founded in 1972. The Trust provides leasing, property management, acquisition,
development, construction and design management and other related services to
its portfolio of industrial and office properties.
 
     On a consolidated basis, substantially all of the Trust's assets are owned
directly or indirectly by, and all of the Trust's operations are conducted
directly or indirectly by, the Operating Partnership. The Trust is the sole
general partner and also is a limited partner of the Operating Partnership.
 
     The Company's executive offices are located at 65 Valley Stream Parkway,
Malvern, Pennsylvania 19355. The telephone number is (610) 648-1700. The Company
maintains offices in each of its primary markets.
 
                                USE OF PROCEEDS
 
     Unless otherwise provided in the Prospectus Supplement, the net proceeds,
if any, from the sale of the Securities offered hereby will be used for general
corporate purposes, including the acquisition of properties or other assets and
the repayment of indebtedness. Unless otherwise provided in the Prospectus
Supplement, at the date hereof, no specific material proposed purchases have
been identified as probable. The amount of Securities offered from time to time
pursuant to this Prospectus and any Prospectus Supplement, and the precise
amounts and timing of the application of net proceeds from the sale of such
Securities, will depend upon funding requirements of the Company. If the Company
elects at the time of an issuance of Securities to make different or more
specific use of proceeds than set forth herein, such use will be described in
the Prospectus Supplement.
 
                                 CERTAIN RATIOS
 
     The ratios of earnings to fixed charges of the Company for the nine months
ended September 30, 1997, for the years ended December 31, 1996 and 1995 and for
the period from June 23, 1994 to December 31, 1994 were 1.80, 1.66, 1.47 and
1.85, respectively. The ratios of earnings to combined fixed charges and
preferred share dividends of the Company for the nine months ended September 30,
1997, for the years ended December 31, 1996 and 1995 and for the period from
June 23, 1994 to December 31, 1994 were 1.75, 1.66, 1.47 and 1.85, respectively.
 
     The ratios of earnings to fixed charges and the ratios of earnings to
combined fixed charges and preferred share dividends were computed by dividing
earnings by fixed charges and by combined fixed charges and preferred share
dividends, respectively. For the purpose of such computations, earnings have
been calculated by adding fixed charges (excluding capitalized interest) to
income before minority interest and extraordinary items. Fixed charges consist
of interest costs, whether expensed or capitalized, and amortization of deferred
financing costs. For all periods, other than the nine months ended September 30,
1997, the ratios of earnings to fixed charges of the Company are the same as the
ratios of earnings to combined fixed charges and preferred share dividends,
because no preferred shares were outstanding during such periods.
 
     Prior to the completion of the initial public offering of its Common Shares
on June 23, 1994, the operations of the Company were conducted through its
predecessor, Rouse & Associates, and certain of its affiliates (collectively,
the "Rouse Group"). In connection with completion of the initial public
offering, the Company reorganized the Rouse Group and substantially deleveraged
such predecessor's asset base. As a result of these factors, the Company does
not consider information relating to the ratio of earnings to fixed charges, or
the ratio of earnings to combined fixed charges and preferred share dividends,
for the periods prior to the completion of the public offering to be meaningful.
 
                                        7
<PAGE>   31
 
                         DESCRIPTION OF DEBT SECURITIES
 
     The Debt Securities may be issued in one or more series under a senior
indenture (the "Senior Indenture") or a subordinated indenture (the
"Subordinated Indenture" and, together with the Senior Indenture, the
"Indentures"), by and between the Operating Partnership and a Trustee (a
"Trustee"), and in the forms that have been filed as exhibits to the
Registration Statement, subject to the terms of such amendments or supplements
thereto as may be entered into from time to time and filed with the Commission
as exhibits to or incorporated by reference in the Registration Statement. The
following summaries of certain provisions of the Indentures do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Indentures, including the definitions therein of certain
terms. Wherever particular sections or defined terms of the Indentures are
summarized herein or in a Prospectus Supplement, it is intended that such
sections or defined terms (including, unless otherwise indicated herein,
definitions of terms capitalized in such summaries) shall be incorporated herein
or therein by reference. References to sections contained herein are to the
applicable sections of the Indenture. The following sets forth certain general
terms and provisions of the Debt Securities to which any Prospectus Supplement
may relate. The particular terms of the Debt Securities offered by any
Prospectus Supplement and the extent, if any, to which such general provisions
may apply to the Debt Securities so offered, will be described in the Prospectus
Supplement relating to such Debt Securities. The Operating Partnership is
referred to as the "Issuer" for purposes of the following summary.
 
     The Issuer's rights and the rights of its creditors, including the holders
of the Debt Securities offered hereby, to participate in the assets of any
subsidiary upon the latter's liquidation or recapitalization will be subject to
the prior claims of the subsidiary's creditors except, subject to certain
limitations, to the extent that the Issuer may itself be a creditor with
recognized claims against the subsidiary.
 
GENERAL
 
     The Indentures do not limit the aggregate principal amount of Debt
Securities that may be issued thereunder and provide that Debt Securities may be
issued from time to time in one or more series. The Debt Securities will be
direct obligations, secured or unsecured, of the Issuer. The Debt Securities
issued under the Senior Indenture ("Senior Debt Securities") will rank on a
parity with all other unsubordinated indebtedness of the Issuer. The Debt
Securities issued under the Subordinated Indenture ("Subordinated Debt
Securities") will be subordinated and junior in right of payment to all Senior
Indebtedness of the Issuer, to the extent and in the manner set forth in the
Subordinated Indenture. To the extent applicable to any particular series of
Debt Securities, the terms that are capitalized herein, but are not defined
herein, shall have the respective meanings ascribed to them in the Indentures
applicable to such Debt Securities. Whenever defined terms of the Indentures are
summarized herein or in a Prospectus Supplement, it is intended that such
defined terms shall be incorporated herein or therein by reference. See "Special
Terms Relating to Subordinated Debt Securities."
 
     Reference is made to the Prospectus Supplement relating to the particular
series of Debt Securities offered thereby for the following terms, to the extent
applicable: (a) the title and series of such Debt Securities; (b) any limit on
the aggregate principal amount of such Debt Securities; (c) the price or prices
(expressed as a percentage of the aggregate principal amount thereof) at which
such Debt Securities will be issued; (d) the date or dates on which such Debt
Securities will mature, or the method or methods, if any, by which such date or
dates shall be determined; (e) the rate or rates (which may be fixed or
variable) per annum at which such Debt Securities will bear interest, if any, or
the method or methods, if any, by which such rate or rates are to be determined;
(f) the date or dates from which such interest, if any, on such Debt Securities
will accrue or the method or methods, if any, by which such date or dates are to
be determined, the dates on which such interest, if any, will be payable, the
date on which payment of such interest, if any, will commence and the Regular
Record Dates for such Interest Payment Dates, if any; (g) the dates, if any, on
which, and the price or prices at which the Debt Securities will, pursuant to
any mandatory sinking fund provisions, or may, pursuant to any optional sinking
fund or purchase fund provisions, be redeemed by the Issuer or otherwise, and
the other detailed terms and provisions of any such sinking fund or purchase
fund; (h) the period or periods within which, the price or prices at which, the
currency or currencies, currency unit
                                        8
<PAGE>   32
 
or units or composite currency or currencies in which, and other terms and
conditions upon which, the Debt Securities may, pursuant to any optional
redemption provisions, be redeemed at the option of the Issuer, the holder
thereof or otherwise and the other detailed terms and provisions of such
optional redemption; (i) the extent to which any of the Debt Securities will be
issuable in temporary or permanent global form with or without coupons and, if
so, the identity of the depositary for such global Debt Security, and the manner
in which any interest payable on a temporary or permanent global Debt Security
will be paid; (j) the denomination or denominations in which such Debt
Securities are authorized to be issued; (k) whether any of the Debt Securities
will be issued in bearer form and, if so, any limitations on the issuance or
conversion of such bearer Debt Securities (including exchange for registered
Debt Securities of the same series); (l) information with respect to book-entry
procedures; (m) whether any of the Debt Securities will be issued as Original
Issue Discount Securities (as defined below); (n) the place or places where,
subject to the terms of the related Indenture, the principal of and interest on,
and any other applicable amounts, payable in respect of such Debt Securities
shall be payable, and where such Debt Securities may be presented for
registration of transfer, exchange or conversion and where notices or demands to
or upon the Issuer in respect of such Debt Securities may be served; (o) the
currencies or currency units in which such Debt Securities are issued and in
which the principal of, interest on and additional amounts, if any, in respect
of such Debt Securities will be payable; (p) whether the amount of payments of
principal of, and interest and additional amounts, if any, on such Debt
Securities may be determined with reference to an index, formula or other method
(which index, formula or method may, but need not be, based on one or more
currencies, currency units or composite currencies, commodities, equity indices
or other indices) and the manner in which such amounts shall be determined; (q)
whether the Issuer or a holder may elect payment of the principal of or interest
on such Debt Securities in a currency or currencies, currency unit or units or
composite currency or currencies other than that in which such Debt Securities
are denominated or stated to be payable, the period or periods within which, and
the terms and conditions upon which, such election may be made, and the time and
manner of determining the exchange rate between the currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are denominated or stated to be payable and the currency, currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are to be so payable; (r) the identity of the Trustee, and if other
than the applicable Trustee, the identity of each Security Registrar, Paying
Agent and Authenticating Agent and the designation of the initial Exchange Rate
Agent, if any; (s) if applicable, the defeasance of certain obligations by the
Issuer pertaining to Debt Securities of the series; (t) the person to whom any
interest on any registered Debt Security of the series shall be payable, if
other than the person in whose name that Debt Security (or one or more
predecessor Debt Securities) is registered at the close of business on the
Regular Record Date for such interest, the manner in which, or the person to
whom, any interest on any bearer Debt Security of the series shall be payable,
if otherwise than upon presentation and surrender of the coupons appertaining
thereto as they severally mature, and the extent to which, or the manner in
which, any interest payable on a temporary global Debt Security on an Interest
Payment Date will be paid if other than in the manner provided in the related
Indenture; (u) whether and under what circumstances the Issuer will pay
additional amounts (the term "interest," as used in this Prospectus, shall
include such additional amounts) on such Debt Securities to any holder who is
not a United States person (including any modification to the definition of such
term as contained in the related Indenture as originally executed) in respect of
any tax, assessment or governmental charge and, if so, whether the Issuer will
have the option to redeem such Debt Securities rather than pay such additional
amounts (and the terms of any such option); (v) any deletions from,
modifications of or additions to the Events of Default or covenants of the
Issuer with respect to any of such Debt Securities, whether or not such Events
of Default or Covenants are consistent with Events of Default or Covenants set
forth in the Indenture; (w) whether such Debt Securities shall be convertible
into or exchangeable for other Securities and, if so, the terms of any such
conversion or exchange and the terms of such other Securities; (x) any other
terms of the series (which will not be inconsistent with the provisions of the
applicable Indenture); and (y) the terms of any guaranties, which may be
conditional. The Prospectus Supplement relating to any particular guaranty
offered thereby will include any additional terms of such guaranty, including
the rank in priority and any covenants applicable to such guaranty.
 
                                        9
<PAGE>   33
 
     Debt Securities may be issued as "Original Issue Discount Securities" to be
sold at a discount below their principal amount, which discount may be
substantial. In the event of an acceleration of the maturity of any Original
Issue Discount Security, the amount payable to the holder of such Original Issue
Discount Security upon such acceleration will be determined in accordance with
the applicable Prospectus Supplement, the terms of such Debt Security and the
applicable Indenture, but will be an amount less than the amount payable at the
maturity of such Original Issue Discount Security. All material federal income
tax, accounting and other considerations applicable thereto will be described in
the Prospectus Supplement relating thereto.
 
     Except as described below under "Merger, Consolidation or Sale" or as
indicated in the applicable Prospectus Supplement, the Indentures do not contain
any provisions that would limit the ability of the Issuer to incur indebtedness
or that would afford holders of Debt Securities protection in the event of: (i)
a highly leveraged or similar transaction involving the Issuer, the Trust as the
sole general partner of the Issuer or any affiliate of either such party; (ii) a
change of control; or (iii) a reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect the holders of Debt
Securities. However, certain restrictions on the ownership and transfer of the
Common Shares and the Preferred Shares designed to preserve the Trust's status
as a REIT may act to prevent or hinder a change of control. The Issuer and its
management have no present intention of engaging in a transaction which would
result in the Issuer being highly leveraged or that would result in a change of
control.
 
REGISTRATION, TRANSFER, PAYMENT AND PAYING AGENT
 
     Unless otherwise indicated in the applicable Prospectus Supplement, each
series of Debt Securities will be issued in registered form only, without
coupons. The Indentures, however, provide that the Issuer may also issue Debt
Securities in bearer form only, or in both registered and bearer form. Debt
Securities issued in bearer form shall have interest coupons attached, unless
issued as Original Issue Discount Securities. Debt Securities in bearer form
shall not be offered, sold, resold or delivered in connection with their
original issuance in the United States or to any United States person (as
defined below) other than through offices located outside the United States of
certain United States financial institutions. As used herein, "United States
person" means any citizen or resident of the United States, any corporation,
partnership or other entity created or organized in or under the laws of the
United States, or any estate or trust, the income of which is subject to United
States federal income taxation regardless of its source, and "United States"
means the United States of America (including the States and the District of
Columbia), its territories, its possessions and other areas subject to its
jurisdiction. Purchasers of Debt Securities in bearer form will be subject to
certification procedures and may be affected by certain limitations under United
States tax laws. Such procedures and limitations will be described in the
Prospectus Supplement relating to the offering of the Debt Securities in bearer
form.
 
     Unless otherwise indicated in the applicable Prospectus Supplement, Debt
Securities will be issued in denominations of $1,000 or any integral multiple
thereof. No service charge will be made for any transfer, exchange or conversion
of the Debt Securities but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
 
     Unless otherwise described in the Prospectus Supplement relating thereto,
the principal, premium, if any, and interest, if any, of or on the Debt
Securities will be payable, transfer of the Debt Securities will be
registerable, and, if applicable, any Convertible Debt Securities (as defined
below) will be convertible, at the office or agency of the Issuer maintained for
that purpose, as the Issuer may designate from time to time, provided that
payments of interest may be made at the option of the Issuer by check mailed to
the address appearing in the Security Register (as defined below) of the person
in whose name such registered Debt Security is registered at the close of
business on the applicable Regular Record Date(s).
 
     Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of, premium, if any, and interest, if any, on, Debt Securities in
bearer form will be made payable, subject to any applicable laws and
regulations, at such office outside the United States as specified in the
Prospectus Supplement and as the Issuer may designate from time to time, at the
option of the holder, by check or by transfer to an account maintained by the
payee with a bank located outside the United States. Unless otherwise indicated
in the
 
                                       10
<PAGE>   34
 
applicable Prospectus Supplement, payment of interest and certain additional
amounts on Debt Securities in bearer form will be made only against surrender of
the coupon relating to the applicable Interest Payment Date. No payment with
respect to any Debt Security in bearer form will be made at any office or agency
of the Issuer in the United States or by check mailed to any address in the
United States or by transfer to an account maintained with a bank located in the
United States.
 
MERGER, CONSOLIDATION OR SALE
 
     The Issuer may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into any other entity,
provided that in any such case: (i) either the Issuer shall be the continuing
entity, or the successor entity shall be an entity organized and existing under
the laws of the United States or a State thereof and such successor entity shall
expressly assume the due and punctual payment of the principal of (and premium
or Make-Whole Amount, if any) and any interest on all of any series of Debt
Securities, according to their tenor, and the due and punctual performance and
observance of all of the covenants and conditions of the Indentures to be
performed by the Issuer by supplemental indenture, complying with the provisions
of the Indentures relating to supplemental indentures, satisfactory to the
Trustee, executed and delivered to the Trustee by such entity; (ii) immediately
after giving effect to such transaction and treating any indebtedness which
becomes an obligation of the Issuer or any Subsidiary as a result thereof as
having been incurred by the Issuer or such Subsidiary at the time of such
transaction, no Event of Default, and no event which, after notice or the lapse
of time, or both, would become an Event of Default, shall have occurred and be
continuing; and (iii) an officer's certificate and legal opinion covering such
conditions shall be delivered to the Trustee (Sections 801 and 803).
 
CERTAIN COVENANTS
 
     The Indentures contain various covenants including the following:
 
     Existence.  Except as described under "Merger, Consolidation or Sale,"
above, the Issuer will do or cause to be done all things necessary to preserve
and keep in full force and effect its existence, rights (by partnership
agreement and statute) and franchises; provided, however, that the Issuer shall
not be required to preserve any right or franchise if it determines that the
preservation thereof is no longer desirable in the conduct of its business and
that the loss thereof is not disadvantageous in any material respect to the
Holders of Debt Securities (Section 1005).
 
     Maintenance of Properties.  The Issuer will cause all of its material
properties used or useful in the conduct of its business or the business of any
Subsidiary (as defined below) to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and will
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Issuer may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that the Issuer and
its Subsidiaries shall not be prevented from selling or otherwise disposing of
for value their respective properties in the ordinary course of business
(Section 1006).
 
     Insurance.  The Issuer will, and will cause each of its Subsidiaries to,
keep all of its insurable properties insured against loss or damage at least
equal to their then full insurable value with insurers of recognized
responsibility and having an A.M. Best policy holder's rating of not less than
A-V (Section 1007).
 
     Payment of Taxes and Other Claims.  The Issuer will pay or discharge or
cause to be paid or discharged, before the same shall become delinquent: (i) all
taxes, assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the Issuer or any
Subsidiary; and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Issuer or any
Subsidiary; provided, however, that the Issuer shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings or for which the Issuer has set apart and maintains
an adequate reserve (Section 1008).
 
                                       11
<PAGE>   35
 
     Provision of Financial Information.  Whether or not the Issuer is subject
to Section 13 or 15(d) of the Exchange Act, the Issuer will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Issuer would have been required
to file with the Commission pursuant to such Sections 13 or 15(d) if the Issuer
were so subject (the "Financial Information"), such documents to be filed with
the Commission on or prior to the respective dates (the "Required Filing Dates")
by which the Issuer would have been required so to file such documents if the
Issuer were so subject. The Issuer also will in any event (x) within 15 days of
each Required Filing Date: (i) transmit by mail to all Holders of Debt
Securities, as their names and addresses appear in the Security Register,
without cost to such Holders, copies of the Financial Information; and (ii) file
with the Trustee copies of the Financial Information, and (y) if filing such
documents by the Issuer with the Commission is not permitted under the Exchange
Act, promptly upon written request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any prospective
Holder (Section 1009).
 
     As used in the Indentures and the description thereof herein:
 
     "Security Register" means a register maintained at a place of payment for
the registration and transfer of the Debt Securities.
 
     "Subsidiary" means a corporation, partnership or limited liability company,
a majority of the outstanding voting stock, partnership interests or membership
interests, as the case may be, of which is owned or controlled, directly or
indirectly, by the Company or by one or more Subsidiaries of the Company.
Liberty Property Development Corp. and Liberty Property Development Corp.-II are
Subsidiaries for purposes of this definition. For the purposes of this
definition, "voting stock" means stock having the voting power for the election
of directors, general partners, managers or trustees, as the case may be,
whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
 
ADDITIONAL COVENANTS AND/OR MODIFICATION TO THE COVENANTS DESCRIBED ABOVE
 
     Any additional covenants of the Issuer and/or modifications to the
covenants described above with respect to any Debt Securities or series thereof,
including any covenants relating to limitations on incurrence of indebtedness or
other financial covenants, will be set forth in the applicable Indenture or an
indenture supplemental thereto and described in the Prospectus Supplement
relating thereto.
 
EVENTS OF DEFAULT, NOTICE AND WAIVER
 
     The term "Event of Default," when used in the Indenture, means any one of
the following events (whatever the reason for such Event of Default and whether
or not it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body): (i) default in the
payment of any interest upon any ser Debt Securities issued thereunder when such
interest becomes due and payable, and continuance of such default for a period
of 30 days; (ii) default in the payment of the principal of (or premium or
Make-Whole Amount, if any, on) any Debt Security when it becomes due and payable
at its Maturity Date or by declaration of acceleration, notice of redemption or
otherwise; (iii) default in the performance, or breach, of any covenant or
warranty of the Issuer in the Indentures with respect to any Debt Security
(other than a covenant or warranty a default in whose performance or whose
breach is elsewhere in the relevant section of the Indentures specifically dealt
with), and continuance of such default or breach for a period of 60 days after
there has been given, by registered or certified mail, to the Issuer by the
Trustee, or to the Issuer and the Trustee by the Holders of at least 25% in
principal amount of the Debt Securities of such series, a written notice
specifying such default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default" under the Indenture; (iv) a default
under any bond, debenture, note or other evidence of indebtedness of the Issuer,
or under any mortgage, indenture or other instrument of the Issuer under which
there may be issued or by which there may be secured any indebtedness of the
Issuer (or by any Subsidiary of the Issuer, the repayment of which the Issuer
has guaranteed or for which the Issuer is directly responsible or liable as
obligor or guarantor on a full recourse basis), whether such indebtedness now
exists or shall hereafter be created, which default shall constitute a failure
to pay an aggregate principal amount exceeding
 
                                       12
<PAGE>   36
 
$10,000,000 of such indebtedness when due and payable after the expiration of
any applicable grace period with respect thereto and shall have resulted in such
indebtedness in an aggregate principal amount exceeding $10,000,000 becoming or
being declared due and payable prior to the date on which it would otherwise
have become due and payable, without such indebtedness having been discharged,
or such acceleration having been rescinded or annulled, within a period of 10
days after there shall have been given, by registered or certified mail, to the
Issuer by the Trustee, or to the Issuer and the Trustee by the Holders of at
least 10% in principal amount of the outstanding Debt Securities, a written
notice specifying such default and requiring the Issuer to cause such
indebtedness to be discharged or cause such acceleration to be rescinded or
annulled and stating that such notice is a "Notice of Default" under the
Indenture; or (v) certain events of bankruptcy, insolvency or reorganization
(Section 501).
 
     If an Event of Default under the Indentures with respect to any series of
Debt Securities at the time outstanding occurs and is continuing (other than
Events of Default arising in connection with certain events of bankruptcy,
insolvency or reorganization), then in every such case the Trustee or the
Holders of not less than 25% of the principal amount of the outstanding Debt
Securities of such series may declare the principal amount and premium (if any)
and accrued interest on all the Debt Securities of such series to be due and
payable immediately by written notice thereof to the Issuer (and to the Trustee
if given by the Holders). However, at any time after such a declaration of
acceleration with respect to the Debt Securities has been made, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of not less than a majority in principal amount of the
outstanding Debt Securities of such series may rescind and annul such
declaration and its consequences if (a) the Issuer shall have deposited with the
Trustee all required payments of the principal of (and premium or Make-Whole
Amount, if any) and interest on the Debt Securities of such series, plus certain
fees, expenses, disbursements and advances of the Trustee and (b) all Events of
Default with respect to the Debt Securities of such series, other than the
non-payment of principal of (or premium or Make-Whole Amount, if any) or
interest on the Debt Securities of such series which has become due solely by
such declaration of acceleration, have been cured or waived as provided in the
Indenture. In the event of a declaration of acceleration because an Event of
Default as described in clause (iv) of the preceding paragraph has occurred and
is continuing, such declaration shall be automatically rescinded and annulled if
the default triggering such Event of Default (along with any other defaults
caused thereby) shall be remedied or cured by the Issuer or its relevant
Subsidiary or waived by the holders of such indebtedness within 60 days after
such declaration of acceleration. Upon the occurrence of an Event of Default
arising in connection with certain events of bankruptcy, insolvency or
reorganization, the principal of, premium, if any, and accrued interest on all
Debt Securities of such series then outstanding shall immediately become due and
payable without any declaration or other act on the part of the Trustee or any
Holder (Section 502).
 
     The Trustee will be required to give notice to the Holders of the Debt
Securities of such series within 90 days of the occurrence of a default under
the Indentures unless such default shall have been cured or waived; provided,
however, that the Trustee may withhold notice to the Holders of the Debt
Securities of such series of any default (except a default in the payment of the
principal of (or premium or Make-Whole Amount, if any) or interest on the Debt
Securities of such series) if and so long as specified responsible officers of
the Trustee determine in good faith that the withholding of such notice is in
the interest of such Holders; provided, that in the case of any default or
breach of a covenant or warranty under the Indentures as described in clause
(iii) of the first paragraph of this section "Events of Default, Notice and
Waiver," no such notice to Holders shall be given until at least 60 days after
the occurrence thereof. For purposes of this paragraph, the term "default" means
any event which is, or after notice or lapse of time or both would become, an
Event of Default under the Indentures with respect to the Debt Securities of
such series (Section 601).
 
     The Indentures provide that no Holder of Debt Securities may institute any
proceedings, judicial or otherwise, with respect to the Indentures or for any
remedy thereunder, except in the case of failure of the Trustee, for 60 days, to
act after it has received a written request to institute proceedings in respect
of an Event of Default from the Holders of not less than 25% in principal amount
of the outstanding Debt Securities of any series, as well as an offer of
indemnity reasonably satisfactory to it (Section 507). Such provision will not
 
                                       13
<PAGE>   37
 
prevent, however, any Holder of Debt Securities from instituting suit for the
payment of the principal of (and premium or Make-Whole Amount, if any) and
interest on the Debt Securities of such series on the respective due dates
thereof (Section 508).
 
     Defaults (except a default in the payment of principal of (or premium or
Make-Whole Amount, if any) or interest on the Debt Securities of any series or
default with respect to a covenant or provision which cannot be modified under
the terms of the Indentures without the consent of each Holder affected) may be
waived by the Holders of not less than a majority of principal amount of the
then outstanding Debt Securities of such series, upon the conditions provided in
the Indentures (Section 513).
 
     Subject to provisions in the Indentures relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indentures at the request or direction of any Holders of any
series of Debt Securities then outstanding under the Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
(Section 602). The Holders of not less than a majority in principal amount of
the outstanding Debt Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred upon such Trustee.
However, the Trustee may refuse to follow any direction which is in conflict
with any law or the Indenture, which may involve the Trustee in personal
liability or which may be unduly prejudicial to the Holders of the Debt
Securities of such series not joining therein and the Trustee may take any other
action it deems proper not inconsistent with such direction (Section 512).
 
     Within 120 days after the close of each fiscal year, the Issuer will be
required to deliver to the Trustee a certificate, signed by one of several
specified officers of the Issuer, stating whether or not such officer has
knowledge of any default under the Indentures and, if so, specifying each such
default and the nature and status thereof (Section 1010).
 
MODIFICATION OF THE INDENTURE
 
     Modifications and amendments of the Indentures may be made only with the
consent of the Holders of not less than a majority in principal amount of all of
the Debt Securities issued under the Indenture; provided, however, that no such
modification or amendment may, without the consent of the Holder of each Debt
Security affected thereby, (a) change the stated maturity of the principal of
(or premium or Make-Whole Amount, if any, on), or any installment of interest
on, any such Debt Security; (b) reduce the principal amount of, or the rate or
amount of interest on, or any premium payable on redemption of Debt Securities,
or adversely affect any right of repayment of the Holder of any Debt Securities;
(c) change the place of payment, or the coin or currency, for payment of
principal or premium, if any, or interest on the Debt Securities; (d) impair the
right to institute suit for the enforcement of any payment on or with respect to
the Debt Securities on or after the stated maturity of any such Debt Security;
(e) reduce the above-stated percentage in principal amount of outstanding Debt
Securities the consent of whose Holders is necessary to modify or amend the
Indenture, for any waiver with respect to the Debt Securities, or to waive
compliance with certain provisions of the Indentures or certain defaults and
consequences thereunder or to reduce the quorum or voting requirements set forth
in the Indenture; or (f) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action or to provide
that certain other provisions of the Indentures may not be modified or waived
without the consent of the Holder of each Debt Security (Section 902).
 
     The Holders of not less than a majority in principal amount of the Debt
Security have the right to waive compliance by the Issuer with certain covenants
in the Indentures (Section 1012).
 
     Modifications and amendments of the Indentures may be permitted to be made
by the Issuer and the Trustee without the consent of any Holder for any of the
following purposes: (i) to evidence the succession of another person to the
Issuer as obligor under the Indenture; (ii) to add to the covenants of the
Issuer for the benefit of the Holders of Debt Securities or to surrender any
right or power conferred upon the Issuer in the Indenture; (iii) to add Events
of Default for the benefit of the Holders of Debt Securities; (iv) to add or
change any provisions of the Indentures to facilitate the issuance of, or to
liberalize certain terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form,
                                       14
<PAGE>   38
 
provided that such action shall not adversely affect the interests of the
Holders of Debt Securities in any material respect; (v) to change or eliminate
any provisions of the Indenture, provided that any such change or elimination
shall become effective only when the outstanding Debt Securities are not
entitled to the benefit of such provision; (vi) to secure the Debt Securities;
(vii) to establish the form or terms of the Debt Securities and any related
coupons as permitted by the Indenture; (viii) to evidence and provide for the
acceptance of appointment under the Indentures by a successor Trustee with
respect to the Debt Securities or facilitate the administration of the trust
under the Indentures by more than one Trustee; (ix) to cure any ambiguity,
defect or inconsistency in the Indenture, provided that such action is not
inconsistent with the provisions of the Indentures and shall not adversely
affect the interests of Holders of Debt Securities in any material respect; or
(x) to supplement any of the provisions of the Indentures to the extent
necessary to permit or facilitate defeasance and discharge of Debt Securities,
provided that such action shall not adversely affect the interests of the
Holders of Debt Securities in any material respect (Section 901).
 
     The Indentures contain provisions for convening meetings of the Holders of
the Debt Securities of any series (Section 1501). A meeting will be permitted to
be called at any time by the Trustee, and also, upon request, by the Issuer or
the Holders of at least 10% in principal amount of the outstanding Debt
Securities of such series, in any such case upon notice given as provided in the
Indenture. Except for any consent that must be given by the Holder of each Debt
Security of such series affected by certain modifications and amendments of the
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the Holders of a majority in principal amount of the outstanding Debt
Securities of such series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
Holders of a specific percentage, which is less than a majority, in principal
amount of the outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened and at which a quorum is present by
the affirmative vote of the Holders of such specified percentage in principal
amount of the outstanding Debt Securities of that series. Any resolution passed
or decision taken at any meeting of Holders of the Debt Securities of any series
duly held in accordance with the Indentures will be binding on all Holders of
Debt Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons entitled to vote a
majority in principal amount of the outstanding Debt Securities of a series;
provided, however, that if any action is to be taken at such meeting with
respect to a consent or waiver which may be given by the Holders of not less
than a specified percentage in principal amount of the outstanding Debt
Securities of a series, the persons entitled to vote such specified percentage
in principal amount of the outstanding Debt Securities of such series will
constitute a quorum (Section 1504).
 
     Notwithstanding the foregoing provisions, the Indentures provide that if
any action is to be taken at a meeting of Holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that the Indentures expressly provide may be
made, given or taken by the Holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or the Holders of
such series and the other series: (i) there shall be no minimum quorum
requirement for such meeting; and (ii) the principal amount of the outstanding
Debt Securities of such series that vote in favor of such request, demand,
authorization, direction, notice, consent, waiver or other action shall be taken
into account in determining whether such request, demand, authorization,
direction, notice, consent, waiver or other action has been made, given or taken
under the Indenture.
 
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
 
     The Issuer will be permitted under the Indentures to discharge certain
obligations to the Holders of any series of Debt Securities that have not
already been delivered to the Trustee for cancellation by irrevocably depositing
with the Trustee, in trust, funds in the currency in which the Debt Securities
of such series are payable in an amount sufficient to pay the entire
indebtedness on such Debt Securities in respect of principal (and premium or
Make-Whole Amount, if any) and interest to the date of such deposit (if such
Debt Securities have become due and payable) or to the stated Maturity Date or
redemption date, as the case may be.
 
                                       15
<PAGE>   39
 
     The Indentures will also provide that the Issuer may elect either (a) to
defease and be discharged from any and all obligations with respect to such Debt
Securities other than the obligations to register the transfer or exchange of
such Debt Securities, to replace temporary or mutilated, destroyed, lost or
stolen Debt Securities, to maintain an office or agency in respect of such Debt
Securities and to hold moneys for payment in trust ("defeasance") (Section 1402)
or (b) to be released from its obligations with respect to such Debt Securities
under certain sections of Article Ten of the Indentures relating to limitations
on the incurrence of Debt, maintenance of Unencumbered Total Asset Value,
existence of the Issuer, maintenance of the Issuer's properties, insurance,
payment of taxes and other claims and provision of financial information and any
omission to comply with such obligations shall not constitute an Event of
Default with respect to such Debt Securities ("covenant defeasance") (Section
1403), in either case upon the irrevocable deposit by the Issuer with the
Trustee, in trust, of an amount, in the currency in which such Debt Securities
are payable at stated maturity, or Government Obligations (as defined below), or
both, applicable to such Debt Securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient without reinvestment to pay the principal of (and premium or
Make-Whole Amount, if any) and interest on such Debt Securities or analogous
payments thereon, on the scheduled due dates therefor.
 
     Such a trust may only be established if, among other things, the Issuer has
delivered to the Trustee an opinion of counsel (as specified in the Indenture)
to the effect that the Holders of such Debt Securities will not recognize
income, gain or loss for federal income tax purposes as a result of such
defeasance or covenant defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such defeasance or covenant defeasance had not occurred, and such
opinion of counsel, in the case of defeasance, will be required to refer to and
be based upon a ruling of the Internal Revenue Service or a change in applicable
federal income tax law occurring after the date of the Indentures (Section
1404).
 
     "Government Obligations" means securities which are: (i) direct obligations
of the United States of America for the payment of which its full faith and
credit is pledged; or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust Issuer as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
 
     In the event the Issuer effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (iii) under "Events of Default, Notice and Waiver" with respect to
certain specified sections of Article Ten of the Indentures (which sections
would no longer be applicable to such Debt Securities as a result of such
covenant defeasance) the amount in such currency in which such Debt Securities
are payable, and Government Obligations on deposit with the Trustee, will be
sufficient to pay amounts due on such Debt Securities at the time of their
stated maturity but may not be sufficient to pay amounts due on such Debt
Securities at the time of the acceleration resulting from such Default. However,
the Issuer would remain liable to make payment of such amounts due at the time
of acceleration.
 
OUTSTANDING DEBT SECURITIES
 
     Unless otherwise indicated in the applicable Prospectus Supplement, in
determining whether the holders of the requisite principal amount of Outstanding
Debt Securities have given any request, demand, authorization, direction,
notice, consent or waiver under the Indentures: (a) the portion of the principal
amount of an Original Issue Discount Security that shall be deemed to be
Outstanding for such purposes shall be that portion of the principal amount
thereof that could be declared to be due and payable pursuant to the terms of
                                       16
<PAGE>   40
 
such Original Issue Discount Security as of the date of such determination; (b)
the principal amount of any Indexed Security shall be the principal face amount
of such Indexed Security determined on the date of its original issuance; and
(c) any Debt Security owned by the Issuer or any obligor on such Debt Security,
or any Affiliate of the Issuer or such other obligor, shall be deemed not to be
outstanding.
 
MODIFICATION AND WAIVER
 
     The Issuer may amend the Indentures with the written consent of the holders
of a majority in principal amount of the respective Debt Securities outstanding
thereunder. However, without the consent of each Holder affected, an amendment
may not: (a) reduce the amount of Debt Securities whose holders must consent to
an amendment; (b) reduce the rate or change the time of payment of interest on
any Debt Securities; (c) reduce the principal of or change the fixed maturity of
Debt Securities; (d) make any Debt Securities payable in money other than that
stated in the definitive notes representing such Debt Securities; (e) change the
provisions of the respective Indenture regarding the right of a majority of the
Holders to waive defaults under such Indenture or impair the right of any Holder
to institute suit for the enforcement of any payment of principal and interest
on the Debt Securities on and after their respective due dates; (f) make any
change that adversely affects the right to convert or exchange any Convertible
Debt Securities; or (g) make any change to the provisions of the respective
Indenture regarding subordination and seniority of the Debt Securities that
adversely affects the rights of any Holders.
 
SPECIAL TERMS RELATING TO SUBORDINATED DEBT SECURITIES
 
     Upon any distribution of assets of the Issuer resulting from any
dissolution, winding up, liquidation or reorganization, payments on Subordinated
Debt Securities are to be subordinated, to the extent provided in the
Subordinated Indenture, in right of payment to the prior payment in full of all
Senior Indebtedness, but the obligation of the Issuer to make payments on the
Subordinated Debt Securities will not otherwise be affected. No payment on
Subordinated Debt Securities may be made at any time when there is a default in
the payment of any principal, premium, interest, Additional Amounts or sinking
fund of or on any Senior Indebtedness. Holders of Subordinated Debt Securities
will be subrogated to the rights of holders of Senior Indebtedness to the extent
of payments made on Senior Indebtedness upon any distribution of assets in any
such proceedings out of the distributive shares of Subordinated Debt Securities.
By reason of such subordination, in the event of a distribution of assets upon
insolvency, certain creditors of the Issuer may recover more, ratably, than
holders of Subordinated Debt Securities.
 
     The Prospectus Supplement relating to any Subordinated Debt Securities will
set forth the aggregate amount of Senior Indebtedness outstanding as of the most
recent date practicable and any limitations on the issuance of additional Senior
Indebtedness. As of the date of this Prospectus, there is no limitation on the
amount of Senior Indebtedness that may be issued by the Trust or the Operating
Partnership.
 
CONVERSION OR EXCHANGE
 
     The holders of Debt Securities of a specified series that are convertible
into or exchangeable for other Securities ("Convertible Debt Securities") will
be entitled at certain times specified in the Prospectus Supplement relating to
such Convertible Debt Securities, subject to prior redemption, exchange,
repayment or repurchase, to convert or exchange any Convertible Debt Securities
of such series into such other Securities, at the conversion price set forth in
such Prospectus Supplement, subject to adjustment and to such other terms as are
set forth in such Prospectus Supplement. Any such conversion or exchange of
Convertible Debt Securities will be further subject to the applicable terms and
conditions set forth in the Indentures, as supplemented or amended from time to
time.
 
OPTIONAL REDEMPTION
 
     The Debt Securities of any series may be redeemed at any time at the option
of the Issuer, in whole or from time to time in part, at a redemption price
equal to the sum of: (i) the principal amount of the Debt
 
                                       17
<PAGE>   41
 
Securities being redeemed plus accrued interest thereon to the redemption date;
and (ii) the Make-Whole Amount (as defined below), if any, with respect to such
Debt Securities (the "Redemption Price").
 
     If notice of redemption has been given as provided in the Indentures and
funds for the redemption of any Debt Securities called for redemption shall have
been made available on the redemption date referred to in such notice, such Debt
Securities will cease to bear interest on the date fixed for such redemption
specified in such notice and the only right of the Holders of the Debt
Securities from and after the redemption date will be to receive payment of the
Redemption Price upon surrender of such Debt Securities in accordance with such
notice.
 
     Notice of any optional redemption of any Debt Securities will be given to
Holders at their addresses, as shown in the security register for the Debt
Securities, not more than 60 nor less than 30 days prior to the date fixed for
redemption. The notice of redemption will specify, among other items, the
Redemption Price and principal amount of the Debt Securities held by such Holder
to be redeemed.
 
     If all or less than all of the Debt Securities of any series are to be
redeemed at the option of the Issuer, the Issuer will notify the Trustee at
least 45 days prior to giving notice of redemption (or such shorter period as
may be satisfactory to the Trustee) of the aggregate principal amount of Debt
Securities to be redeemed, if less than all of the Debt Securities of any series
are to be redeemed, and their redemption date. The Trustee shall select, in such
manner as it shall deem fair and appropriate, no less than 60 days prior to the
date of redemption, the Debt Securities to be redeemed in whole or in part.
 
     Neither the Issuer nor the Trustee shall be required to: (i) issue,
register the transfer of or exchange Debt Securities during a period beginning
at the opening of business 15 days before any selection of Debt Securities to be
redeemed and ending at the close of business on the day of mailing of the
relevant notice of redemption; (ii) register the transfer of or exchange any
Debt Securities, or portion thereof, called for redemption, except the
unredeemed portion of any Debt Securities being redeemed in part; or (iii)
issue, register the transfer of or exchange any Debt Securities that has been
surrendered for repayment at the option of the Holder, except the portion, if
any, of such Debt Securities not to be so repaid (Section 305).
 
     As used herein:
 
     "Make-Whole Amount" means, in connection with any optional redemption of
any Debt Securities, the excess, if any, of: (i) the aggregate present value as
of the date of such redemption of each dollar of principal being redeemed and
the amount of interest (exclusive of interest accrued to the date of redemption)
that would have been payable in respect of each such dollar if such redemption
had not been made, determined by discounting, on a semi-annual basis, such
principal and interest at the Reinvestment Rate (as defined below) (determined
on the third Business Day preceding the date notice of such redemption is given)
from the respective dates on which such principal and interest would have been
payable if such redemption had not been made, to the date of redemption, over
(ii) the aggregate principal amount of the Debt Securities being redeemed.
 
     "Reinvestment Rate" means the yield on Treasury securities at a constant
maturity corresponding to the remaining life (as of the date of redemption, and
rounded to the nearest month) to stated maturity of the principal being redeemed
(the "Treasury Yield"), plus 0.25%, unless such percentage is otherwise provided
in the applicable Pricing Supplement. For purposes hereof, the Treasury Yield
shall be equal to the arithmetic mean of the yields published in the Statistical
Release (as defined below) under the heading "Week Ending" for "U.S. Government
Securities -- Treasury Constant Maturities" with a maturity equal to such
remaining life; provided, that if no published maturity exactly corresponds to
such remaining life, then the Treasury Yield shall be interpolated or
extrapolated on a straight-line basis from the arithmetic means of the yields
for the next shortest and next longest published maturities. For purposes of
calculating the Reinvestment Rate, the most recent Statistical Release published
prior to the date of determination of the Make-Whole Amount shall be used. If
the format or content of the Statistical Release changes in a manner that
precludes determination of the Treasury Yield in the above manner, then the
Treasury Yield shall be determined in the manner that most closely approximates
the above manner, as reasonably determined by the Issuer.
 
                                       18
<PAGE>   42
 
     "Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which reports yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index which shall be designated by the Issuer.
 
GLOBAL DEBT SECURITIES
 
     The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Debt Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the Prospectus Supplement relating to such series. Global Debt Securities may be
issued in either registered or bearer form and in either temporary or permanent
form. Unless and until it is exchanged in whole or in part for individual
certificates evidencing Debt Securities in definitive form represented thereby,
a Global Debt Security may not be transferred except as a whole by the
Depositary for such Global Debt Security to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor of such
Depositary or a nominee of such successor.
 
     The specific terms of the depositary arrangement with respect to a series
of Global Debt Securities, and certain limitations and restrictions relating to
a series of bearer Global Debt Securities, will be described in the Prospectus
Supplement relating to such series.
 
BOOK-ENTRY SYSTEM
 
     Certain series of Debt Securities may be represented by a single fully
registered note in book-entry form (each, a "Global Note") registered in the
name of a nominee of The Depository Trust Company ("DTC"). The following are
summaries of certain rules and operating procedures of DTC that affect the
payment of principal and interest and transfers in the Global Notes. Upon
issuance, each series of Debt Securities that is represented by a Global Note
will be issued only in the form of a Global Note which will be deposited with,
or on behalf of, DTC and registered in the name of Cede & Co., as nominee of
DTC. Unless and until it is exchanged in whole or in part for Debt Securities of
such series in definitive form under the limited circumstances described below,
a Global Note may not be transferred except as a whole: (i) by DTC to a nominee
of DTC; (ii) by a nominee of DTC to DTC or another nominee of DTC; or (iii) by
DTC or any such nominee to a successor or a nominee of such successor.
 
     Ownership of beneficial interests in a Global Note will be limited to
persons that have accounts with DTC for such Global Note ("participants") or
persons that may hold interests through participants. Upon the issuance of a
Global Note, DTC will credit, on its book-entry registration and transfer
system, the participants' accounts with the respective principal amounts of the
Debt Securities represented by such Global Note beneficially owned by such
participants. Ownership of beneficial interests in such Global Notes will be
shown on, and the transfer of such ownership interests will be effected only
through, records maintained by DTC (with respect to interests of participants)
and on the records of participants (with respect to interests of persons holding
through participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such laws may limit or impair the ability to own, transfer or pledge
beneficial interests in the Global Notes.
 
     So long as DTC or its nominee is the registered owner of a Global Note, DTC
or its nominee, as the case may be, will be considered the sole owner or Holder
of the Debt Securities represented by such Global Note for all purposes under
the Indenture. Except as set forth below, owners of beneficial interests in a
Global Note will not be entitled to have Debt Securities represented by such
Global Note registered in their names, will not receive or be entitled to
receive physical delivery of such Debt Securities in certified form and will not
be considered the registered owners or Holders thereof under the Indenture.
Accordingly, each person owning a beneficial interest in a Global Note must rely
on the procedures of DTC and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise any rights of a Holder under the Indenture. The Issuer understands that
under existing industry practices, if the
 
                                       19
<PAGE>   43
 
Issuer requests any action of Holders or if an owner of a beneficial interest in
a Global Note desires to give or take any action that a Holder is entitled to
give or take under the Indenture, DTC would authorize the participants holding
the relevant beneficial interests to give or take such action, and such
participants would authorize beneficial owners owning through such participants
to give or take such action or would otherwise act upon the instructions of
beneficial owners holding through them.
 
     Principal and interest payments on interests represented by a Global Note
will be made to DTC or its nominee, as the case may be, as the registered owner
of such Global Note. None of the Issuer, the Trustee or any agent of the Trustee
will have any responsibility or liability for any aspect of the records relating
to or payment made on account of beneficial ownership interests in the Global
Notes or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
 
     The Issuer expects that DTC, upon receipt of any payment of principal or
interest in respect of a Global Note, will immediately credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in such Global Note as shown on the records of DTC. The Issuer also
expects that payments by participants to owners of beneficial interests in the
Global Notes held through such participants will be governed by standing
customer instructions and customary practice, as is now the case with securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such participants.
 
     If DTC is at any time unwilling or unable to continue as depository for
Debt Securities represented by a Global Note and the Issuer fails to appoint a
successor depository registered as a clearing agency under the Exchange Act
within 90 days, the Issuer will issue such Debt Securities in definitive from in
exchange for the Global Notes. Any Debt Securities issued in definitive form in
exchange for the Global Notes will be registered in such name or names, and will
be issued in denominations of $1,000 and such integral multiples thereof, as DTC
shall instruct the Trustee. It is expected that such instructions will be based
upon directions received by DTC from participants with respect to ownership of
beneficial interests in the Global Notes.
 
     DTC has advised the Issuer of the following information regarding DTC. DTC
is a limited-purpose trust company organized under the Banking Law of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities of its participants and to facilitate
the clearance and settlement of transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
which (and/or their representatives) own DTC. Access to the DTC book-entry
system is also available to others, such as banks, brokers and dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
 
                        DESCRIPTION OF PREFERRED SHARES
 
GENERAL
 
     The rights, preferences, privileges and restrictions of the Preferred
Shares in respect of which this Prospectus is delivered shall be described in
the Prospectus Supplement relating to such Preferred Shares. Among the terms of
the Preferred Shares which may be specified in the related Prospectus Supplement
are the following: (a) the annual dividend rate, if any, or the means by which
such dividend rate may be calculated (including without limitation the
possibility that the rate of such dividends may bear an inverse relationship to
some index or standard) and the date or dates from which such dividends shall
accrue and the date or dates on which such dividends shall be paid and whether
such dividends shall be cumulative; (b) the price at which and the terms and
conditions on which the shares of such series of Preferred Shares may be
redeemed, including the period of time during which such shares may be redeemed,
any premium to be paid over and above the par value of such Preferred Shares,
whether and to what extent accumulated dividends on such Preferred Shares will
be paid upon the redemption of such shares; (c) the liquidation preference, if
any,
                                       20
<PAGE>   44
 
over and above the par value of such Preferred Shares and whether and to what
extent the holders of such shares shall be entitled to accumulated dividends in
the event of the voluntary or involuntary liquidation, dissolution or winding-up
of the affairs of the Company; (d) whether the Preferred Shares shall be subject
to the operation of a retirement or sinking fund and, if so, a description of
the operation of such retirement or sinking fund; (e) the terms and conditions,
if any, on which the Preferred Shares may be convertible into, or exchangeable
for, shares of any other class or classes of equity interests in the Trust,
including the price or rate of conversion or exchange and the method for
effecting such conversion or exchange, provided that no Preferred Shares will be
convertible into shares of a class that has superior rights or preferences as to
dividends or distribution of assets of the Company upon the voluntary or
involuntary dissolution or liquidation of the Company; (f) a description of the
voting rights, if any, of the Preferred Shares; and (g) other preferences,
rights, qualifications or restrictions or material terms of such Preferred
Shares.
 
     The Maryland Real Estate Investment Trust Law and the Company's Declaration
of Trust provide that no shareholder shall be personally liable for any
obligation of the Company. The Company's Declaration of Trust and By-laws
further provide that the Company shall indemnify each shareholder against any
claim or liability to which such holder may become subject by reason of such
person being or having been a shareholder, and that the Company shall reimburse
each shareholder for all legal or other expenses reasonably incurred by such
person in connection with any such claim or liability. It should be noted,
however, that with respect to tort claims, claims for taxes and certain
statutory liabilities, shareholders may, in some jurisdictions, be personally
liable to the extent that such claims are not satisfied by the Company. Because
the Company will carry public liability insurance in amounts that it considers
adequate, any risk of personal liability to shareholders will be limited to
situations in which the Company's assets, together with its insurance coverage,
would be insufficient to satisfy the claims against the Company and the
shareholders, or in which the claim is not covered by the Company's liability
insurance policies.
 
     The description of the foregoing provisions of the Preferred Shares as set
forth in the related Prospectus Supplement is only a summary, does not purport
to be complete and is subject to, and is qualified in its entirety by, reference
to the definitive Certificate of Amendment to the Company's Declaration of Trust
relating to such series of Preferred Shares. In connection with any offering of
Preferred Shares, such Certificate of Amendment will be filed with the
Commission as an exhibit to or incorporated by reference in the Registration
Statement.
 
RANK
 
     Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Shares of the Company, and to all equity securities ranking
junior to such Preferred Shares; (ii) on a parity with all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Shares; and (iii) junior to all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank senior to the Preferred Shares. The term
"equity securities" does not include convertible debt securities for this
purpose.
 
DIVIDENDS
 
     Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Trustees of the Company, out of assets
of the Company legally available for payment, cash dividends (or dividends in
kind or in other property if expressly permitted and described in the applicable
Prospectus Supplement) at such rates and on such dates as will be set forth in
the applicable Prospectus Supplement. Each such dividend shall be payable to
holders of record as they appear in the shareholder records of the Company at
the close of business on such record dates as shall be fixed by the Board of
Trustees of the Company.
 
     Dividends on any series of Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set
 
                                       21
<PAGE>   45
 
forth in the applicable Prospectus Supplement. If the Board of Trustees of the
Company fails to declare a dividend payable on a dividend payment date on any
series of the Preferred Shares for which dividends are non-cumulative, then the
holders of such series of the Preferred Shares will have no right to receive a
dividend in respect of the dividend period ending on such dividend payment date,
and the Company will have no obligation to pay the dividend accrued for such
period, whether or not dividends on such series are declared payable on any
future dividend payment date.
 
     Unless otherwise specified in the Prospectus Supplement, if any Preferred
Shares of any series are outstanding, no full dividends shall be declared or
paid or set apart for payment on any capital shares of the Company of any other
series ranking, as to dividends, on a parity with or junior to the Preferred
Shares of such series for any period unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Preferred Shares of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Shares does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Preferred Shares of such
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon Preferred Shares of any series and the shares
of any other series of Preferred Shares ranking on a parity as to dividends with
the Preferred Shares of such series, all dividends declared upon Preferred
Shares of such series and any other series of Preferred Shares ranking on a
parity as to dividends with such Preferred Shares shall be declared pro rata so
that the amount of dividends declared per share of Preferred Shares of such
series and such other series of Preferred Shares shall in all cases bear to each
other the same ratio that accrued dividends per share on the Preferred Shares of
such series (which shall not include any accumulation in respect of unpaid
dividends for prior dividend periods if such Preferred Shares do not have a
cumulative dividend) and such other series of Preferred Shares bear to each
other. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on Preferred Shares of such series
which may be in arrears.
 
     Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in Common Shares or other capital shares
ranking junior to the Preferred Shares of such series as to dividends and upon
liquidation) shall be declared or paid or set aside for payment or other
distribution upon the Common Shares, or any other capital shares of the Company
ranking junior to or on a parity with the Preferred Shares of such series as to
dividends or upon liquidation, nor shall any Common Shares, or any other capital
shares of the Company ranking junior to or on a parity with the Preferred Shares
of such series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Company (except by conversion into or exchange for other capital shares of the
Company ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation).
 
REDEMPTION
 
     If so provided in the applicable Prospectus Supplement, the Preferred
Shares will be subject to mandatory redemption or redemption at the option of
the Company, in whole or in part, in each case upon the terms, at the times and
at the redemption prices set forth in such Prospectus Supplement.
 
     The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of such Preferred Shares
that shall be redeemed by the Company in each year commencing after a date to be
specified, at a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid dividends thereon (which shall not, if
such Preferred Shares do not
                                       22
<PAGE>   46
 
have a cumulative dividend, include any accumulation in respect of unpaid
dividends for prior dividend periods) to the date of redemption. The redemption
price may be payable in cash or other property, as specified in the applicable
Prospectus Supplement. If the redemption price for Preferred Shares of any
series is payable only from the net proceeds of the issuance of capital shares
of the Company, the terms of such Preferred Shares may provide that, if no such
capital shares shall have been issued or to the extent the net proceeds from any
issuance are insufficient to pay in full the aggregate redemption price then
due, such Preferred Shares shall automatically and mandatorily be converted into
the applicable capital shares of the Company pursuant to conversion provisions
specified in the applicable Prospectus Supplement.
 
     Notwithstanding the foregoing, unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends on all Preferred
Shares of any series shall have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the current dividend period and (ii) if such
series of Preferred Shares does not have a cumulative dividend, full dividends
of the Preferred Shares of any series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, no Preferred Shares of
any series shall be redeemed unless all outstanding Preferred Shares of such
series are simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of Preferred Shares of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Shares of
such series. In addition, unless (i) if such series of Preferred Shares has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
series of Preferred Shares have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividends periods and the then current dividend period, and (ii) if
such series of Preferred Shares does not have a cumulative dividend, full
dividends on the Preferred Shares of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Company shall
not purchase or otherwise acquire directly or indirectly any Preferred Shares of
such series (except by conversion into or exchange for capital shares of the
Company ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation); provided, however, that the foregoing shall not prevent
the purchase or acquisition of Preferred Shares of such series to preserve the
REIT status of the Company or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding Preferred Shares of such series.
 
     If fewer than all of the outstanding Preferred Shares of any series are to
be redeemed, the number of shares to be redeemed will be determined by the
Company and such shares may be redeemed pro rata from the holders of record of
such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption of
fractional shares) or by lot in a manner determined by the Company.
 
     Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
and series of Preferred Shares to be redeemed; (iii) the redemption to be
surrendered for payment of the redemption price; (iv) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (v) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all of the Preferred Shares of any series are to be
redeemed, the notice mailed to each such holder thereof shall also specify the
number of Preferred Shares to be redeemed from each such holder. If notice of
redemption of any Preferred Shares has been given and if the funds necessary for
such redemption have been set aside by the Company in trust for the benefit of
the holders of any Preferred Shares so called for redemption, then from and
after the redemption date dividends will cease to accrue on such Preferred
Shares, and all rights of the holders of such shares will terminate, except the
right to receive the redemption price.
 
LIQUIDATION PREFERENCE
 
     Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Shares or any other
                                       23
<PAGE>   47
 
class or series of capital shares of the Company ranking junior to the Preferred
Shares in the distribution of assets upon any liquidation, dissolution or
winding up of the Company, the holders of each series of Preferred Shares shall
be entitled to receive out of assets of the Company legally available for
distribution to shareholders liquidating distributions in the amount of the
liquidation preference per share (set forth in the applicable Prospectus
Supplement), plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if such Preferred Shares do not have a cumulative
dividend). After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Preferred Shares will have no right or
claim to any of the remaining assets of the Company. In the event that, upon any
such voluntary or involuntary liquidation, dissolution or winding up, the
available assets of the Company are insufficient to pay the amount of the
liquidating distributions on all outstanding Preferred Shares and the
corresponding amounts payable on all shares of other classes or series of
capital shares of the Company ranking on a parity with the Preferred Shares in
the distribution of assets, then the holders of the Preferred Shares and all
other such classes or series of capital shares shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
 
     If liquidating distributions shall have been made in full to all holders of
Preferred Shares, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of capital shares ranking junior to
the Preferred Shares upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, or the sale,
lease or conveyance of all or substantially all of the property or business of
the Company, shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
 
VOTING RIGHTS
 
     Holders of Preferred Shares will not have any voting rights except as
indicated in the applicable Prospectus Supplement.
 
CONVERSION RIGHTS
 
     The terms and conditions, if any, upon which any series of Preferred Shares
is convertible into Common Shares will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of Common Shares
into which the Preferred Shares are convertible, the conversion price (or manner
of calculation thereof), the conversion period, provisions as to whether
conversion will be at the option of the holders of the Preferred Shares or the
Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such series of
Preferred Shares.
 
SHAREHOLDER LIABILITY
 
     As discussed above under "Description of Preferred Shares -- General,"
applicable Maryland law provides that no shareholder, including holders of
Preferred Shares, shall be personally liable for the acts and obligations of the
Company and that the funds and property of the Company shall be the only
recourse for such acts or obligations.
 
RESTRICTIONS ON OWNERSHIP
 
     For the Company to qualify as a REIT under the Code, the issued and
outstanding Common Shares and Preferred Shares (together, the "Shares"), taken
as a whole, must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months (other than the first year) or during a
proportionate part of a shorter taxable year. In addition, not more than 50% of
the value of the issued and outstanding Shares may be owned, directly or
indirectly, by five or fewer individuals (defined in the Code to include as one
individual certain entities) during the last half of a taxable year (other than
the first year) or during a proportionate part of a shorter taxable year.
 
                                       24
<PAGE>   48
 
     Because the Board of Trustees believes it is essential for the Company to
continue to qualify as a REIT, the Company's Declaration of Trust, subject to
certain exceptions, provides that no holder may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than 5.0% (the "Ownership
Limit") of the number or value of the issued and outstanding Shares. The
Company's Board of Trustees, upon receipt of a ruling from the Internal Revenue
Service (the "IRS"), an opinion of counsel, or other evidence satisfactory to
the Board of Trustees, and upon such other conditions as the Board of Trustees
may direct, may also exempt a proposed transferee from the Ownership Limit. As a
condition of such exemption, the intended transferee must give written notice to
the Company of the proposed transfer no later than the fifteenth day prior to
any transfer which, if consummated, would result in the intended transferee
owning Shares in excess of the Ownership Limit. The Board of Trustees of the
Company may require such opinions of counsel, affidavits, undertakings or
agreements as it may deem necessary or advisable in order to determine or ensure
the Company's status as a REIT. Any transfer of Shares that would (i) create a
direct or indirect ownership of Shares in excess of the Ownership Limit, (ii)
result in the Shares being owned by fewer than 100 persons or (iii) result in
the Company being "closely held" within the meaning of Section 856(h) of the
Code, shall be null and void, and the intended transferee will acquire no rights
to the Shares. The foregoing restrictions on transferability and ownership will
not apply if the Board of Trustees determines that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as a
REIT.
 
     Any purported transfer of Shares that would (i) result in a person owning
Shares in excess of the Ownership Limit, (ii) cause the Company to become
"closely held" under Section 856(h) of the Code or (iii) cause the Shares to be
owned by fewer than 100 persons and is not otherwise permitted as provided above
will result in those of the transferred Shares which cause any of the events in
clauses (i) through (iii) above to occur to become excess shares ("Excess
Shares"), which will be transferred by operation of law to the Company as
trustee for the exclusive benefit of one or more organizations described in
Sections 170(b)(1)(A) and 170(c) of the Code ("Charitable Beneficiary"). While
these Excess Shares are held in trust, the trustee of the trust will be deemed
to have an irrevocable proxy to vote the Excess Shares for the benefit of the
Charitable Beneficiary and will hold any dividends payable with respect to the
Excess Shares in trust for the Charitable Beneficiary. Subject to the Ownership
Limit, the Excess Shares may be retransferred by the trustee of the trust to any
person (if the Excess Shares would not be Excess Shares in the hands of such
person). If such a transfer is made, the interest of the Charitable Beneficiary
would terminate and proceeds of the sale would be payable to the intended
transferee and to the Charitable Beneficiary. The intended transferee would
receive the lesser of (1) the price paid by the intended transferee or, if the
intended transferee did not give value for such Excess Shares (e.g., a transfer
by gift or devise), the fair market value (as described below) at the time of
the purported transfer that resulted in the Excess Shares and (2) the price per
share received by the trustee from the sale or other disposition of the Excess
Shares held in trust. Any proceeds in excess of the amount payable to the
intended transferee will be payable to the Charitable Beneficiary. In addition,
such Excess Shares held in trust are subject to purchase by the Company at a
purchase price equal to the lesser of the price paid for the Shares by the
intended transferee (or, in the case of a devise or gift, the fair market value
at the time of such devise or gift) and the fair market value of the Shares on
the date the Company exercises its right to purchase. Fair market value shall be
the last reported sales price reported on the NYSE on the trading day
immediately preceding the relevant date, or if not then traded on the NYSE, the
last reported sales price of such Shares on the trading day immediately
preceding the relevant date as reported on any exchange or quotation system over
which such Shares may be traded, or if not then traded over any exchange or
quotation system, then the fair market value of such Shares on the relevant date
as determined in good faith by the Board of Trustees of the Company. The
Company's right to purchase may be exercised during the 90 day period beginning
immediately after the later of the date of the purported transfer which resulted
in the Excess Shares and the date the Board of Trustees determines in good faith
that such a transfer has occurred. From and after the intended transfer to the
intended transferee of the Excess Shares, the intended transferee shall cease to
be entitled to distributions, voting rights and other benefits with respect to
such Shares except the right to payment of the purchase price for the Shares on
the retransfer of Shares as provided above and except for certain distributions
upon liquidation. Any dividends or distribution paid to a proposed transferee on
Excess Shares prior to the discovery by the Company that such Shares have been
transferred in violation of the provisions of the Company's Declaration of Trust
shall be repaid to the
 
                                       25
<PAGE>   49
 
Company upon demand. Any dividends so disgorged will then be paid over to the
trustee and held in trust for the Charitable Beneficiary. If the foregoing
transfer restrictions are determined to be void or invalid by virtue of any
legal decision, statute, rule or regulation, then the intended transferee of any
Excess Shares may be deemed, at the option of the Company, to have acted as an
agent on behalf of the Company in acquiring such Excess Shares and to hold such
Excess Shares on behalf of the Company.
 
     All certificates representing Shares will bear a legend referring to the
restrictions described above.
 
     All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5.0% (or such other percentage between 0.5% and 5.0%, as
provided in the rules and regulations promulgated under the Code) of the number
or value of the outstanding Shares must give a written notice to the Company by
January 31 of each year. In addition, each shareholder shall be required upon
demand to disclose to the Company in writing such information with respect to
the direct, indirect and constructive ownership of Shares as the Board of
Trustees deems reasonably necessary to comply with the provisions of the Code
applicable to a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.
 
REGISTRAR AND TRANSFER AGENT
 
     The Registrar and Transfer Agent for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
 
DEPOSITARY SHARES
 
     The Trust may, at its option, elect to offer fractional Preferred Shares,
rather than full Preferred Shares. In the event such option is exercised, the
Trust will issue receipts for Depositary Shares, each of which will represent a
fraction (to be set forth in the Prospectus Supplement relating to the Preferred
Shares) of a share of such Preferred Shares.
 
     The Preferred Shares represented by Depositary Shares will be deposited
under a Deposit Agreement (the "Deposit Agreement") between the Trust and a bank
or trust company selected by the Trust having its principal office in the United
States and having a combined capital and surplus of at least $50,000,000 (the
"Depositary Shares Depositary"). Subject to the terms of the Deposit Agreement,
each owner of a Depositary Share will be entitled, in proportion to the
applicable fraction of a Preferred Share represented by such Depositary Share,
to all the rights and preferences of the Preferred Share, represented thereby
(including dividend, voting, redemption, conversion and liquidation rights).
 
     The above description of the Depositary Shares is only a summary, is not
complete and is subject to, and is qualified in its entirety by, the description
in the related Prospectus Supplement and the provisions of the Deposit Agreement
(which will contain the form of Depositary Receipt), a copy of which will be
filed with the Commission as an exhibit to or incorporated by reference in the
Registration Statement.
 
                            DESCRIPTION OF WARRANTS
 
     The Trust may issue separately, or together with any Preferred Shares or
Common Shares offered by any Prospectus Supplement, Warrants for the purchase of
other Preferred Shares or Common Shares (collectively, "Warrants"). The Warrants
may be issued under warrant agreements (each, a "Warrant Agreement") to be
entered into between the Trust and a bank or trust company, as warrant agent
(the "Warrant Agent"), or may be represented by certificates evidencing the
Warrants (the "Warrant Certificates"), all as set forth in the Prospectus
Supplement relating to the particular series of Warrants. The following
summaries of certain provisions of the Warrants do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all the
provisions of any related Warrant Agreement and Warrant Certificate,
respectively, including the definitions therein of certain terms. Wherever
defined terms of the Warrant Agreement are summarized herein or in a Prospectus
Supplement, it is intended that such defined terms shall be incorporated herein
or therein by reference. In connection with any offering of Warrants, any such
Warrant Agreement or a
 
                                       26
<PAGE>   50
 
form of any such Warrant Certificate will be filed with the Commission as an
exhibit to or incorporated by reference in the Registration Statement.
 
GENERAL
 
     The Prospectus Supplement relating to the particular series of Warrants
offered thereby will describe the terms of the offered Warrants, any related
Warrant Agreement and Warrant Certificate, including the following, to the
extent applicable: (a) if the Warrants are offered for separate consideration,
the offering price and the currency for which Warrants may be purchased; (b) if
applicable, the designation, number, stated value and terms (including, without
limitation, liquidation, dividend, conversion and voting rights) of the
Preferred Shares purchasable upon exercise of Preferred Shares Warrants and the
price at which such number of Preferred Shares may be purchased upon such
exercise; (c) if applicable, the number of shares of Common Shares purchasable
upon exercise of Common Shares Warrants and the price at which such number of
Common Shares may be purchased upon such exercise; (d) the date, if any, on and
after which the offered Warrants and the related Preferred Shares and/or Common
Shares will be separately transferable; (e) the date on which the right to
exercise the offered Warrants shall commence and the date on which such right
shall expire ("Expiration Date"); (f) a discussion of the specific U.S. federal
income tax, accounting and other considerations applicable to the Warrants or to
any Securities purchasable upon the exercise of such Warrants; (g) whether the
offered Warrants represented by Warrant Certificates will be issued in
registered or bearer form, and if registered, where they may be transferred and
registered; (h) any applicable anti-dilution provisions; (i) any applicable
redemption or call provisions; (j) any applicable book-entry provisions; and (k)
any other terms of the offered Warrants.
 
     Warrant Certificates will be exchangeable on the terms specified in the
related Prospectus Supplement for new Warrant Certificates of different
denominations and Warrants may be exercised at the corporate trust office of the
Warrant Agent or any other office indicated in the Prospectus Supplement
relating thereto. Prior to the exercise of their Warrants, holders of Warrants
will not have any of the rights of holders of the Preferred Shares or Common
Shares purchasable upon such exercise, including the right to receive payments
of dividends or distributions of any kind, if any, on the Preferred Shares or
Common Shares, respectively, purchasable upon exercise or to exercise any
applicable right to vote.
 
EXERCISE OF WARRANTS
 
     Each Warrant will entitle the holder thereof to purchase such number of
Preferred Shares or Common Shares, as the case may be, at such exercise price as
shall in each case be set forth in, or be determinable from, the Prospectus
Supplement relating to such Warrant, by payment of such exercise price in full
in the currency and in the manner specified in such Prospectus Supplement.
Warrants may be exercised at any time up to the close of business on the
Expiration Date (or such later date to which such Expiration Date may be
extended by the Trust); unexercised Warrants will become null and void.
 
     Upon receipt at the corporate trust office of the Warrant Agent or any
other office indicated in the related Prospectus Supplement of (a) payment of
the exercise price and (b) the Warrant Certificate properly completed and duly
executed, the Trust will, as soon as practicable, forward the Preferred Shares
or Common Shares purchasable upon such exercise to the holder of such Warrant.
If less than all of the Warrants represented by such Warrant Certificate are
exercised, a new Warrant Certificate will be issued for the remaining number of
Warrants.
 
                            SHAREHOLDER RIGHTS PLAN
 
     On December 17, 1997, the Board of Trustees adopted a shareholder rights
plan (the "Shareholder Rights Plan"). Under the Shareholder Rights Plan, one
Right (as defined in the Shareholder Rights Plan) will be attached to each
outstanding Common Share at the close of business on December 31, 1997, and one
Right will be attached to each Common Share issued thereafter. Each Right
entitles the holder thereof to purchase from the Trust, under certain
conditions, a unit (a "Unit") consisting of one one-thousandth of a Series A
Junior Participating Preferred Share, $0.0001 par value, of the Trust for $100
per Unit, subject to
                                       27
<PAGE>   51
 
adjustment. The Rights may also, under certain conditions, entitle the holders
thereof to receive Common Shares, or common shares of an entity acquiring the
Company, or other consideration, each having a value equal to twice the exercise
price of each Right ($200). The Trust has designated 200,000 Series A Junior
Participating Preferred Shares and has reserved such shares for issuance under
the Shareholder Rights Plan. The Rights are redeemable by the Trust at a price
of $0.0001 per Right. If not exercised or redeemed, all Rights expire on
December 31, 2007. The description and terms of the Rights are set forth in the
Rights Agreement, dated as of December 17, 1997, between the Trust and Bank
Boston, N.A., as Rights Agent.
 
                       FEDERAL INCOME TAX CONSIDERATIONS
            WITH RESPECT TO THE TRUST AND THE OPERATING PARTNERSHIP
 
     The following summary of the material federal income tax considerations
with respect to the Trust and the Operating Partnership regarding the offering
of Securities is based on current law, is for general information only and is
not intended as tax advice. The tax treatment of a holder of any of the
Securities will vary depending on the terms of the specific Securities acquired
or held by such holder as well as such holder's particular situation, and this
summary is addressed only to holders that hold Securities as capital assets and
does not attempt to address all aspects of federal income taxation relating to
holders of the Securities. Nor does it discuss all of the aspects of federal
income taxation that may be relevant to certain types of holders (including
insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) who are subject to special treatment under the
federal income tax laws.
 
     EACH PROSPECTIVE PURCHASER OF SECURITIES IS ADVISED TO CONSULT HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF THE SECURITIES AND OF THE TRUST'S ELECTION TO BE
TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND
ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
 
TAXATION OF THE TRUST
 
     Management of the Trust believes that, commencing with the Trust's taxable
year ended December 31, 1994, the Trust has been organized and operated in such
a manner as to qualify as a REIT under Sections 856 through 860 of the Code. The
Trust intends to continue to operate in such a manner as to qualify for taxation
as a REIT in the future, but no assurance can be given that it has or will
remain qualified.
 
     The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following sets forth the material aspects
of the Code sections that govern the federal income taxation of a REIT. This
summary is qualified in its entirety by the applicable Code provisions, rules
and regulations promulgated thereunder, and administrative and judicial
interpretations thereof.
 
     Wolf, Block, Schorr and Solis-Cohen LLP has opined that, commencing with
the Trust's taxable year ended December 31, 1994, the Trust has been organized
and operated in conformity with the requirements for qualification and taxation
as a REIT under the Code, and its proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT under
the Code for future taxable periods. It must be emphasized that the opinion of
Wolf, Block, Schorr and Solis-Cohen LLP is based on certain assumptions and
representations made by the Trust and the Operating Partnership as to factual
matters. Moreover, such qualification and taxation as a REIT depend upon the
Trust's future ability to meet, through actual annual operating results, certain
distribution levels, the diversity of stock ownership requirements and the
various other qualification tests imposed under the Code discussed below, the
results of which may not be reviewed by Wolf, Block, Schorr and Solis-Cohen LLP.
Accordingly, no assurance can be given that the actual results of the Trust's
operation for any particular taxable year will satisfy such requirements. For a
discussion of the tax consequences of failure to qualify as a REIT, see
"-- Failure to Qualify."
 
                                       28
<PAGE>   52
 
     As a REIT, the Trust generally is not subject to federal corporate income
taxes on its net income that it currently distributes to shareholders. This
treatment substantially eliminates the "double taxation" (at the corporate and
shareholder levels) that generally results from investment in a corporation.
However, the Trust will be subject to federal income or excise tax as follows.
First, the Trust will be taxed at regular corporate rates on any undistributed
real estate investment trust taxable income, including undistributed net capital
gains. Second, under certain circumstances, the Trust may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if the Trust
has (i) net income from the sale or other disposition of "foreclosure property"
(generally property acquired by a REIT upon the default by a debtor with respect
to indebtedness secured by the property or upon the default by a lessee where
the REIT was the lessor) which is held primarily for sale to customers in the
ordinary course of business or (ii) other nonqualifying income from foreclosure
property, it will be subject to tax at the highest corporate tax rate on such
income. Fourth, if the Trust has net income from "prohibited transactions"
(which are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business, other than
foreclosure property and, effective for the Trust's taxable year ending December
31, 1998, dispositions of property that occur due to involuntary conversion),
such income will be subject to a 100% tax. Fifth, if the Trust should fail to
satisfy the 75% gross income test or the 95% gross income test (discussed
below), but has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on an
amount equal to (i) the gross income attributable to the greater of the amount
by which the Trust fails the 75% test or the 95% test in the taxable year,
multiplied by (ii) a fraction generally intended to reflect the Trust's
profitability. Sixth, if the Trust should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Trust would be subject to a
4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Trust acquires any asset from a C
corporation (i.e., generally a corporation subject to full corporate-level tax)
in a transaction in which the basis of the asset in the Trust's hands is
determined by reference to the basis of the asset (or any other property) in the
hands of such C corporation, and the Trust recognizes gain on the disposition of
such asset during the 10-year period following acquisition of the asset, then,
pursuant to guidelines issued by the Internal Revenue Service (the "IRS"), to
the extent of the "built-in gain" (the excess of the fair market value of the
asset on the date acquired over its adjusted tax basis at that date), such gain
will be subject to tax at the highest regular corporate rate. The result
described above with respect to the recognition of built-in gain assumes the
Trust is eligible to make, and makes, an election pursuant to IRS Notice 88-19.
 
REQUIREMENTS FOR QUALIFICATION
 
     The Code defines a REIT as a corporation, trust or association (1) that is
managed by one or more trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (3) that would be taxable as a domestic corporation, but
for Sections 856 through 860 of the Code; (4) that is neither a financial
institution nor an insurance Trust subject to certain provisions of the Code;
(5) the beneficial ownership of which is held by 100 or more persons; (6) during
the last half of each taxable year not more than 50% in value of the outstanding
stock of which is owned, directly or indirectly, by five or fewer individuals
(as defined in the Code to include certain entities as "individuals" for these
purposes); and (7) which meets certain other tests, described below, regarding
the nature of its income and assets. The Code provides that conditions (1) to
(4), inclusive, must be met during the entire taxable year and that condition
(5) must be met during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months. For
purposes of determining stock ownership under the rule limiting ownership by
five or fewer individuals, REIT shares held by a pension fund generally are
treated as held proportionately by its beneficiaries and certain other
attribution rules will apply.
 
     The Trust has satisfied and will continue to satisfy conditions (1) through
(6) above. In making the "five or fewer individuals" determination, if treating
interests in the Operating Partnership that can be converted into shares of the
Trust as converted into outstanding shares would cause the Trust to fail that
test, the interests are deemed to have been converted. In addition, the Trust's
Declaration of Trust provides for restrictions regarding transfer of its shares,
in order to assist the Trust in continuing to satisfy the share
                                       29
<PAGE>   53
 
ownership requirements described in (5) and (6) above. Such transfer
restrictions are included in the Trust's Declaration of Trust, filed as an
exhibit to a report incorporated by reference herein. See "Incorporation of
Certain Documents by Reference."
 
     Code Section 856(i) provides that a corporation which is a "qualified REIT
subsidiary" is not to be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a "qualified REIT
subsidiary" are treated as assets, liabilities, and such items (as the case may
be) of the REIT. A qualified REIT subsidiary is defined as a corporation 100% of
the stock of which is held by the REIT at all times during the existence of the
corporation. Effective for the Trust's taxable year ending December 31, 1998, a
qualified REIT subsidiary will be defined as any corporation 100% of the stock
of which is held by the REIT, regardless of whether the REIT has held such
corporation's stock at all times during its existence. Thus, in applying the
requirements described herein, the Trust's "qualified REIT subsidiaries" are
ignored, and all assets, liabilities, and items of income, deduction, and credit
of such subsidiaries will be treated as assets, liabilities and items of the
Trust.
 
     In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership retain the same character in the
hands of the REIT for purposes of Section 856 of the Code, including satisfying
the gross income tests and the asset tests described below. Thus, the Trust's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership and the other partnerships through which the Trust's
properties are owned (the "Property Partnerships") will be treated as assets,
liabilities and items of income of the Trust for purposes of applying the
requirements described herein. The references to the gross income or assets of
the Trust, as discussed immediately below in "Income Tests" and "Assets Tests,"
include the Trust's proportionate share of the gross income or assets, as the
case may be, of the Operating Partnership and the Property Partnerships.
 
INCOME TESTS
 
     For the Trust to maintain its qualification as a REIT, the Trust must
satisfy three separate tests based on the nature of the underlying gross income.
These requirements must be satisfied annually. First, at least 75% of the
Trust's gross income (excluding gross income from prohibited transactions) for
each taxable year must consist of income derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or certain
types of "qualified temporary investment income." Second, at least 95% of the
Trust's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived from such real property investments, and from
dividends, other types of interest, and gain from the sale or disposition of
stock or securities or from any combination of the foregoing. Third, for its
taxable years ending on or before December 31, 1997, short-term gain from the
sale or other disposition of stock or securities, gain from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the Trust's gross income
(including gross income from prohibited transactions) for each taxable year.
 
     Rents received by the Trust will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above provided
that several conditions are met. First, the amount of rent must not be based in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally is not excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Special rules apply where the tenant is a sublessor with
respect to property which permits a REIT to receive rent determined by reference
to the income or profits of the tenant in some cases. Second, the Code provides
that rents received from a tenant do not qualify as "rents from real property"
in satisfying the gross income tests if the REIT, directly or through the
applicable ownership attribution rules, owns 10% or more of such tenant (a
"Related Party Tenant"). Although the Trust may lease portions of its properties
to tenants that may constitute Related Party Tenants, the Trust does not believe
that the rents attributable to such leases would cause the Trust to fail to
satisfy the 75% or 95% gross income tests. Third, if rent attributable to
personal property leased in connection with a lease of real property
                                       30
<PAGE>   54
 
is greater than 15% of the total rent received under the lease, the portion of
rent attributable to such personal property will not qualify as "rents from real
property." The Trust does not anticipate that the rent attributable to the
personal property leased in connection with the real property will be greater
than 15% of the total rent received under the lease or, if it was as to any
particular lease or group of leases, that the rent attributable to the personal
property would cause the Trust to fail to satisfy the 75% or 95% gross income
tests. Finally, in order for rents received to qualify as "rents from real
property," the REIT generally must not operate or manage the property or furnish
or render services to the tenants of such property, other than through an
independent contractor that is adequately compensated and from whom the REIT
derives no revenue; provided, however, that the Trust may directly perform
services "usually and customarily" rendered in connection with the rental of
space for occupancy only and that are not otherwise considered "rendered to the
occupant" of the property. The Trust has represented that it does not and will
not knowingly (i) charge rent for any property that is based in whole or in part
on the income or profits of any person or (ii) directly perform services
considered to be rendered to the occupant of property, other than services
usually and customarily rendered in connection with the rental of space for
occupancy only.
 
     The Trust is a self-managed REIT; i.e., the Operating Partnership performs
all of the management and leasing functions with respect to the properties it
owns, provided that the services called for do not cause the rents received with
respect to those leases to fail to qualify as "rents from real property." To the
extent that the services provided are not "usual and customary" under the
foregoing rules, the Trust will employ a qualifying independent contractor to
render the services. The Trust may provide property management and leasing
services to third parties and will provide services to an affiliated entity for
a fee.
 
     Effective for the Trust's taxable years beginning on or after January 1,
1998, the Trust may render a de minimis amount of impermissible services to
tenants, or in connection with the management of a property (together,
"Impermissible Services"), without having otherwise qualifying rents from the
property being disqualified as "rents from real property." In order to qualify
for this de minimis exception, the amount received by the Trust for
Impermissible Services with respect to any property for any taxable year may not
exceed 1% of all amounts received or accrued by the Trust during such taxable
year with respect to such property. For purposes of the foregoing, the amount
treated as "received" by the Trust for Impermissible Services will not be less
than 150% of the Trust's direct cost in rendering such service. However, the
amount of any income that the Trust receives for Impermissible Services will not
be treated as "rents from real property" for purposes of the gross income tests.
The Operating Partnership may receive fees in consideration of the performance
of management and administrative services with respect to any properties that
are not owned entirely by the Operating Partnership. Although a portion of such
management and administrative fees generally will not constitute "qualifying
income" for purposes of the 75% and 95% gross income tests, the Trust Management
believes that the aggregate amount of such fees, if any (plus any income from
Impermissible Services and other nonqualifying income), in any taxable year will
not cause the Trust to fail the 75% and 95% gross income tests.
 
     For purposes of the gross income test, the term "interest" generally does
not include any amount received or accrued (directly or indirectly) if the
determination of such amount depends in whole or in part on the net income or
profits of any person. However, an amount received or accrued generally will not
be excluded from the term "interest" solely by reason of being based on a fixed
percentage or percentages of receipts or sales.
 
     Generally, the failure to satisfy either or both of the 75% and 95% gross
income tests will cause the REIT status of the Trust to terminate with the
taxable year in which the failure occurs. Relief from the adverse consequences
of such failure is available if the Trust's failure to meet such tests was due
to reasonable cause and not willful neglect, the Trust attaches a schedule of
the nature and the sources of its gross income to its income tax return, and any
incorrect information set forth on the schedule is not due to fraud with intent
to evade tax. It is not possible to state whether, in all circumstances, the
Trust would be entitled to the benefit of these relief provisions. As discussed
above in "Taxation of the Trust," even if these relief provisions apply, a tax
would be imposed with respect to the excess of 75% or 95% of the Trust's gross
income over the Trust's qualifying income in the relevant category, whichever is
greater.
 
                                       31
<PAGE>   55
 
ASSET TESTS
 
     The Trust, at the close of each quarter of its taxable year, must also
satisfy three tests relating to the nature of its assets. First, at least 75% of
the value of the Trust's total assets must be represented by real estate assets
(including (i) its allocable share of real estate assets held by partnerships in
which the Trust owns an interest or held by "qualified REIT subsidiaries" of the
Trust and (ii) stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Trust), cash, cash items and governmental
securities. Second, not more than 25% of the Trust's total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Trust may not exceed 5% of the value of the Trust's
total assets and the Trust may not own more than 10% of any one issuer's
outstanding voting securities (other than the stock of a qualified REIT
subsidiary, of which the REIT is required to own all of the stock, or of another
real estate investment trust).
 
     The Operating Partnership owns 8.0% of the voting common stock and 100% of
the non-voting common stock of Liberty Property Development Corp. ("Liberty
Development") and none of the voting common stock and 100% of the non-voting
common stock of Liberty Property Development Corp.-II ("Development-II" and,
together with Liberty Development, the "Development Companies"). By virtue of
its ownership of partnership interests in the Operating Partnership, the Trust
owns its pro rata shares of the common stock of the Development Companies. The
Operating Partnership does not own more than 10% of the voting securities of
either of the Development Companies and, therefore, the Trust will not own more
than 10% of the voting securities of either of the Development Companies. The
IRS could contend that the Trust, through its interest in the Operating
Partnership, should be viewed as owning more than 10% of the voting securities
of either of the Development Companies because of its substantial economic
positions in the Development Companies and because of the close business
relationships between it and each of the two Development Companies. If such
contention were sustained, the Trust would not qualify as a REIT. The Operating
Partnership does not possess the requisite power to elect or designate a member
of the respective Boards of Directors of the Development Companies, and there is
no understanding or arrangement permitting the Trust to exercise voting power or
control over the voting common stock of either of the Development Companies not
owned by it. Accordingly, Wolf, Block, Schorr and Solis-Cohen LLP and the Trust
do not believe that the Trust will be viewed as owning in excess of 10% of the
voting securities of either of the Development Companies. Based on its analysis
of the estimated value of the securities of the subsidiaries to be owned by the
Operating Partnership relative to the estimated value of the other assets to be
owned by the Operating Partnership, the Trust has determined that its respective
pro rata shares of the securities of the Development Companies held by the
Operating Partnership do not exceed 5% of the total value of the Trust's assets.
No independent appraisals will be obtained to support this conclusion and Wolf,
Block, Schorr and Solis-Cohen LLP, in rendering its opinion as to the
qualification of the Trust as a REIT, is relying solely on the representations
of the Trust regarding the values of the Development Companies. The 5%-of-value
requirement must be satisfied each time the Trust increases its ownership of
securities of either of the Development Companies (including as a result of
increasing its interest in the Operating Partnership as its limited partners
exercise their conversion rights). Although the Trust plans to take steps to
insure that it satisfies the 5% value test for any quarter with respect to which
retesting is to occur, there can be no assurance that such steps will always be
successful or will not require a reduction in the Operating Partnership's
overall interest in either of the Development Companies.
 
     After initially meeting the asset tests at the close of any quarter, the
Trust will not lose its status as a REIT for failure to satisfy the asset tests
at the end of a later quarter solely by reason of changes in asset values. If
the failure to satisfy the asset tests results from an acquisition of securities
or other property during a quarter, the failure can be cured by disposition of
sufficient non-qualifying assets within 30 days after the close of any quarter
as may be required to cure any non-compliance.
 
ANNUAL DISTRIBUTION REQUIREMENTS
 
     To qualify as a REIT, the Trust is required to distribute dividends (other
than capital gain dividends) to its stockholders in an amount at least equal to
(A) the sum of (i) 95% of the "REIT taxable income" of the
                                       32
<PAGE>   56
 
Trust (computed without regard to the dividends paid deduction and the Trust's
net capital gain) and (ii) 95% of the net taxable income (after tax), if any,
from foreclosure property, minus (B) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Trust timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent the Trust does not distribute all of the
net capital gain or distributes at least 95%, but less than 100%, of its "REIT
taxable income," as adjusted, it will be subject to tax on the undistributed
amount at the regular corporate tax rates applicable to such income.
Furthermore, if the Trust should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain income for such year, and (iii) any undistributed taxable
income from prior periods, the Trust would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
 
     The Trust has made, and intends to make, timely distributions to its
shareholders in amounts sufficient to satisfy the annual distribution
requirements. The Operating Partnership, as the general partner of each Property
Partnership, is authorized under the various partnership agreements to cause
distributions to be made to their respective partners of all available cash to
permit the Trust to meet the annual distribution requirement. It is possible
that, from time to time, the Trust may experience timing differences between (i)
the actual receipt of income and actual payment of deductible expenses and (ii)
the inclusion of such income and deduction of such expenses in arriving at REIT
taxable income. Further, it is possible that, from time to time, the Trust may
be allocated a share of net capital gain attributable to the sale of depreciable
property which exceeds its allocable share of cash attributable to that sale. In
such cases, the Trust may have less cash available for distribution than is
necessary to meet the annual 95% distribution requirement or to avoid tax with
respect to the capital gain or the excise tax imposed on certain undistributed
income. To meet the 95% distribution requirement necessary to qualify as a real
estate investment trust or to avoid tax with respect to capital gain or the
excise tax imposed on certain undistributed income, the Trust may find it
appropriate to arrange for short-term (or possibly long-term) borrowings or to
pay distributions in the form of taxable stock dividends. Any such borrowings
for the purpose of making distributions to shareholders of the Trust are
required to be arranged through the Operating Partnership.
 
     Under certain circumstances, the Trust may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in the Trust's deduction for
dividends paid for the earlier year. Thus, the Trust may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, the Trust will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
 
FAILURE TO QUALIFY
 
     If the Trust fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Trust would be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders of the Trust in any year
in which the Trust failed to qualify would not be deductible by the Trust nor
would there be a requirement to make distributions. In such event, to the extent
of current and accumulated earnings and profits, all distributions to
shareholders of the Trust would be taxable as ordinary income, and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Trust would also be disqualified from taxation as a REIT for the
four taxable years following the year in which qualification was lost. It is not
possible to state whether in all circumstances the Trust would be entitled to
such statutory relief.
 
OTHER TAX CONSIDERATIONS
 
     The Trust may be subject to state or local taxation in various state or
local jurisdictions, including those in which it transacts business. The state
and local tax treatment of the Trust may not conform to the federal income tax
consequences discussed above. Consequently, prospective investors should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the Trust.
 
                                       33
<PAGE>   57
 
     To the extent that the Trust engages in real estate development activities
in foreign countries or invests in real estate located in foreign countries, the
Trust's profits from such activities or investments will generally be subject to
tax in the countries where such activities are conducted or such properties are
located. The precise nature and amount of such taxation will depend on the laws
of the countries where the activities are conducted or the properties are
located. Although the Trust will attempt to minimize the amount of such foreign
taxation, there can be no assurance as to whether or the extent to which
measures taken to minimize such taxes will be successful. If the Trust satisfies
the annual distribution requirements for qualification as a REIT and is,
therefore, not subject to federal corporate income tax on that portion of its
ordinary income and capital gain that is currently distributed to its
shareholders, the Trust will generally not be able to recover the cost of any
foreign tax imposed on such profits from its foreign activities or investments
by claiming foreign tax credits against its federal income tax liability on such
profits. Moreover, the Trust will not be able to pass foreign tax credits
through to its shareholders. As a result, to the extent that the Trust is
required to pay taxes in foreign countries, the cash available for distribution
to its shareholders will be reduced accordingly.
 
     The Operating Partnership will receive fees from an affiliated entity as
consideration for services that the Operating Partnership will provide to such
entity in connection with the development and management of the Kings Hill
project in the United Kingdom ("U.K."). The amount of this fee income will not
be qualifying income for purposes of the 75% or 95% gross income tests, although
the Trust does not expect that the revenue derived from such services would
cause it to fail the 75% or 95% gross income tests. The Trust may be subject to
Corporation Tax in the U.K. at the rate of 33% on its share of such fee income
if the Trust is deemed to have a branch or agency in the U.K. as a result of
services that may be performed for such entity in the U.K. In addition, rental
income received by the Trust with respect to leases of real property in the U.K.
would be subject to U.K. withholding tax at the rate of 25%. It is possible that
such rental income (together with any gain arising from the sale or other
disposition of such properties) could instead be subject to Corporation Tax in
the U.K. at the rate of 33% if the U.K. Inland Revenue did not regard the Trust
as holding the properties for purposes of long term investment or if such income
or gain were deemed attributable to a branch or agency of the Trust in the U.K.
Such U.K. taxes will reduce the amount of cash available for distribution by the
Trust to its shareholders out of such income.
 
TAX ASPECTS OF THE TRUST'S INVESTMENTS IN PARTNERSHIPS
 
     The following discussion summarizes certain federal income tax
considerations applicable solely to the Trust's investment in the Operating
Partnership and the Property Partnerships (collectively, the "Partnerships").
 
CLASSIFICATION AS A PARTNERSHIP
 
     The Trust will be required to include in its income its distributive share
of the Operating Partnership's income and to deduct its distributive share of
the Operating Partnership's losses, and the Trust and the Operating Partnership
will be required to include in computing their income their respective
distributive shares of the income and losses of the Property Partnerships only
if the Operating Partnership and each of the Property Partnerships is
classified, for federal income tax purposes, as a partnership rather than as an
association taxable as a corporation.
 
     For taxable periods prior to January 1, 1997, an organization formed as a
partnership was treated as a partnership rather than as a corporation for
federal income tax purposes only if it possessed no more than two of the four
corporate characteristics that the Treasury Regulations used to distinguish a
partnership from a corporation. These four characteristics were continuity of
life, centralization of management, limited liability, and free transferability
of interests. Although neither the Operating Partnership nor the Property
Partnerships requested a ruling from the IRS that they would be classified as
partnerships for Federal income tax purposes, rather than as associations
taxable as corporations, Wolf, Block, Schorr and Solis-Cohen LLP had opined
that, based on the provisions of the respective Partnership Agreements of the
Operating Partnership and each Property Partnership, and certain factual
assumptions and representations as to each of them, the Operating Partnership
and each Property Partnership will be treated as partnerships for federal income
tax purposes and not as associations taxable as corporations. Effective January
1, 1997, newly promulgated Treasury Regula-
                                       34
<PAGE>   58
 
tions eliminated the four-factor test described above and, instead, permit
partnerships and other non-corporate entities to be taxed as partnerships for
federal income tax purposes without regard to the number of corporate
characteristics possessed by such entity. Under those Regulations, both the
Operating Partnership and each of the Property Partnerships will be classified
as partnerships for federal income tax purposes unless an affirmative election
is made by the entity to be taxed as a corporation. The Trust has represented
that no such election has been made, or is anticipated to be made, on behalf of
the Operating Partnership or any of the Property Partnerships. Under a special
transitional rule in the Regulations, the IRS will not challenge the
classification of an existing entity such as the Operating Partnership or a
Property Partnership for periods prior to January 1, 1997 if: (i) the entity has
a "reasonable basis" for its classification; (ii) the entity and each of its
members recognized the federal income tax consequences of any change in
classification of the entity made within the 60 months prior to January 1, 1997;
and (iii) neither the entity nor any of its members had been notified in writing
on or before May 8, 1996 that its classification was under examination by the
IRS. Neither the Partnership nor any of the Property Partnerships changed their
classification within the 60 month period preceding May 8, 1996, nor was any one
of them notified that their classification as a partnership for federal income
tax purposes was under examination by the IRS. Therefore, in reliance on the
opinion previously rendered by Wolf, Block, Schorr and Solis-Cohen LLP, the
Operating Partnership and each of the Property Partnerships should continue to
be taxed as partnerships for federal tax purposes.
 
     If for any reason the Operating Partnership or a Property Partnership were
taxable as a corporation rather than as a partnership for federal income tax
purposes, the Trust would not be able to satisfy the income and asset
requirements for status as a REIT. In addition, any change in the Operating
Partnership's status or that of a Property Partnership for tax purposes might be
treated as a taxable event, in which case the Trust might incur a tax liability
without any related cash distribution. See "-- Taxation of the Trust," above.
Further, items of income and deduction for the Operating Partnership or a
Property Partnership would not pass through to the respective partners, and the
partners would be treated as stockholders for tax purposes. Each Partnership
would be required to pay income tax at regular corporate tax rates on its net
income and distributions to partners would constitute dividends that would not
be deductible in computing the Partnership's taxable income.
 
INCOME TAXATION OF THE PARTNERSHIPS
 
  Partners, Not the Operating Partnership or Property Partnerships, Subject to
Tax
 
     A partnership is not a taxable entity for federal income tax purposes.
Rather, the Trust will be required to take into account its allocable share of
the income, gains, losses, deductions and credits of each of the Operating
Partnership and the Property Partnerships for any taxable year of such
Partnerships ending within or with the taxable year of the Trust, without regard
to whether the Trust has received or will receive any cash distributions. The
same will be true for the Operating Partnership with respect to its allocable
share of the income, gains, losses, deductions and credits of each of the
Property Partnerships.
 
  Partnership Allocations
 
     Although a partnership agreement generally will determine the allocation of
income and losses among partners, the allocations provided in the partnership
agreement will be disregarded for tax purposes if they do not comply with the
provisions of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.
 
     If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocations of taxable income and
loss of each of the Operating Partnership and the Property Partnerships are
intended to comply with the requirements of Section 704(b) of the Code and the
Treasury Regulations promulgated thereunder.
 
                                       35
<PAGE>   59
 
  Tax Allocations With Respect to Pre-Contribution Gain
 
     Pursuant to Section 704(c) of the Code, income, gain, loss, and deduction
attributable to appreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal income
tax purposes in a manner such that the contributor is charged with the
unrealized gain associated with the property at the time of the contribution.
The amount of such unrealized gain is generally equal to the difference between
the fair market value of the contributed property at the time of contribution
and the adjusted tax basis of such property at the time of contribution (the
"Book-Tax Difference"). In general, the fair market value of the properties
owned (directly or indirectly) by the Trust and interests in Property
Partnerships contributed to the Operating Partnership has been substantially in
excess of their respective adjusted tax bases. The Partnership Agreements of
each of the Operating Partnership and the Property Partnerships require that
allocations attributable to each item of contributed property be made so as to
allocate the tax depreciation available with respect to such property first to
the partners other than the partner that contributed the property, to the extent
of, and in proportion to, their book depreciation, and then, if any tax
depreciation remains, to the partner that contributed the property. Upon the
disposition of any item of contributed property, any gain attributable to the
"built-in" gain of the property at the time of contribution would be allocated
for tax purposes to the contributing partner. These allocations are intended to
be consistent with the Treasury Regulations under Section 704(c) of the Code.
 
     In general, participants in the formation of the Trust (and the
Partnerships) have been allocated disproportionately lower amounts of
depreciation deductions for tax purposes relative to their percentage interests
in the Operating Partnership, and disproportionately greater shares relative to
their percentage interests in the Operating Partnership of the gain on the sale
by the Partnerships of one or more of the contributed properties. These tax
allocations will tend to reduce or eliminate the Book-Tax Difference over the
life of the Partnerships. Because the Partnership Agreements of the Partnerships
adopt the "traditional method" in obtaining items allocable under Section 704(c)
of the Code, the amounts of the special allocations of depreciation and gain
under the special allocation rules of Section 704(c) of the Code may be limited
by the so-called "ceiling rule" and may not always eliminate the Book-Tax
Difference on an annual basis or with respect to a specific transaction such as
a sale. Thus, the carryover basis of the contributed assets in the hands of the
Partnerships may cause the Trust to be allocated less depreciation than would be
available for newly purchased properties.
 
     The foregoing principles also apply in determining the earnings and profits
of the Trust. The application of these rules may result in a larger share of the
distributions from the Trust being taxable to shareholders as dividends.
 
  Basis in Operating Partnership Interest
 
     The Trust's adjusted tax basis in its partnership interest in the Operating
Partnership generally (i) will be equal to the amount of cash and the basis of
any other property contributed to the Operating Partnership by the Trust plus
the fair market value of the Shares it issues or cash it pays upon conversion of
interests in the Operating Partnership, (ii) has been, and will be, increased by
(a) its allocable share of the Operating Partnership's income and (b) its
allocable share of indebtedness of the Operating Partnership and of the Property
Partnerships and (iii) has been, and will be, reduced (but not below zero) by
the Trust's allocable share of (a) the Operating Partnership's loss and (b) the
amount of cash distributed to the Trust, and by constructive distributions
resulting from a reduction in the Trust's share of indebtedness of the Operating
Partnership and the Property Partnerships.
 
     If the allocation of the Trust's distributive share of the Operating
Partnership's loss would reduce the adjusted tax basis of the Trust's
partnership interest in the Operating Partnership below zero, the loss is
deferred until such time as the recognition of such loss would not reduce the
Trust's adjusted tax basis below zero. To the extent that the Operating
Partnership's distributions, or any decrease in the Trust's share of the
indebtedness of the Operating Partnership or a Property Partnership (each such
decrease being considered a constructive cash distribution to the partners),
would reduce the Trust's adjusted tax basis below zero, such distributions
(including such constructive distributions) would be includible as taxable
income to the Trust in
 
                                       36
<PAGE>   60
 
the amount of such excess. Such distributions and constructive distributions
would normally be characterized as capital gain, and if the Trust's partnership
interest in the Operating Partnership has been held for longer than the
long-term capital gain holding period (currently, one year), the distributions
and constructive distributions would constitute long-term capital gain. Based on
Treasury Regulations to be issued, the tax rates applicable to such capital gain
will likely vary depending on the precise amount of time such interest has been
held by the Trust and the nature of the Operating Partnership's property. Based
on certain undertakings by limited partners of the Operating Partnership, the
Exchangeable Subordinated Debentures issued by the Operating Partnership are
allocated for purposes of Section 752 of the Code disproportionately in favor of
certain limited partners.
 
SALE OF THE PARTNERSHIPS' PROPERTY
 
     Generally, any gain realized by the Operating Partnership or a Property
Partnership on the sale of property held by the Operating Partnership or a
Property Partnership, or on the sale of partnership interests in the Property
Partnerships, if the property or partnership interests are held for more than
one year, will be long-term capital gain (except for any portion of such gain
that is treated as depreciation or cost recovery recapture), and may result in
capital gain distributions to the shareholders. See "-- Taxation of Taxable
Domestic Shareholders," below.
 
     The Trust's share of any gain realized on the sale of any property held by
the Operating Partnership or a Property Partnership as inventory or other
property held primarily for sale to customers in the ordinary course of the
trade or business of any of the Operating Partnership or the Property
Partnerships will, however, be treated as income from a prohibited transaction
that is subject to a 100% penalty tax. Under existing law, whether property is
held as inventory or primarily for sale to customers in the ordinary course of a
trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Operating
Partnership and the Property Partnerships intend to hold their properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning and operating their properties and to make such
occasional sales of such properties, including peripheral land, as are
consistent with the investment objectives of the Trust and the Operating
Partnership. Complete assurance cannot be given, however, that the Trust will be
able to avoid owning property that may be characterized as property held
"primarily for sale to customers in the ordinary course of business."
 
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
 
     As long as the Trust qualifies as a REIT, distributions made to the Trust's
taxable U.S. shareholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will be taken into account by
such U.S. shareholders as ordinary income and will not be eligible for the
dividends received deduction for corporations. Distributions that are designated
as capital gain dividends will be taxed as gain from the sale or exchange of a
capital asset held for more than one year (to the extent they do not exceed the
Trust's actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held its stock. Subject to certain
limitations, the Trust may further designate capital gain dividends as a "20%
rate gain distribution," an "unrecaptured section 1250 gain distribution," or a
"28% rate gain distribution," in which case such dividends will be taxable to
recipient individual shareholders when received at tax rates of 20%, 25% and
28%, respectively. If no additional designation is made regarding a capital gain
distribution, it will be treated as a 28% rate gain distribution. Corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income.
 
     Distributions in excess of current and accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares, but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a shareholder's shares, they will be included in income as short-term,
mid-term or long-term capital gain (depending on the length of time the shares
have been held) assuming the shares are a capital asset in the hands of the
shareholder. In addition, any dividend declared by the Trust in October,
November or December of any year payable to a shareholder of record on a
specified date in any such month shall be treated as both paid by the Trust and
received by the shareholder on December 31 of such year, provided that the
dividend is
                                       37
<PAGE>   61
 
actually paid by the Trust during January of the following calendar year.
Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Trust.
 
     In general, a domestic shareholder will realize capital gain or loss on the
disposition of Common Shares equal to the difference between (i) the amount of
cash and the fair market value of any property received on such disposition, and
(ii) the shareholder's adjusted basis of such Common Shares. Subject to certain
exceptions, the maximum rate of tax on net capital gains of individuals, trusts
and estates from the sale or exchange of capital assets is 28% in respect of
capital assets held for more than one year but not more than 18 months and is
20% in respect of capital assets held for more than 18 months. Any loss upon a
sale or exchange of shares by a shareholder who has held such shares for six
months or less (after applying certain holding-period rules) will be treated as
a long-term capital loss to the extent of distributions from the Trust required
to be treated by such shareholder as long-term capital gain.
 
     Effective for its taxable years beginning on or after January 1, 1998, the
Trust may elect to retain its net long-term capital gains recognized during a
taxable year ("Retained Gains") and pay a corporate-level tax on such Retained
Gains. Corporations are currently subject to a maximum 35 percent tax on
recognized capital gains. A shareholder owning the Trust's shares of beneficial
interest on December 31 of any taxable year in which the Trust has Retained
Gains would be required to include in gross income such shareholder's
proportionate share of the Retained Gains (as designated by the Trust in a
notice mailed to shareholders within 60 days following the end of the taxable
year). The amount of any corporate-level tax paid by the Trust in respect of the
Retained Gains (the "Trust Tax") would be treated as having been paid by the
shareholders of the Trust and each shareholder would receive a credit for such
shareholder's share of the Trust Tax. A shareholder's basis in his shares of
beneficial interest would increase by the excess of such shareholder's
proportionate share of the Retained Gains over the shareholder's share of the
Trust Tax. Unless the Retained Gains were treated as actually distributed, it is
possible that the Retained Gains might be subject to the Excise Tax.
 
BACKUP WITHHOLDING
 
     The Trust will report to its U.S. shareholders and the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
shareholder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide the Trust with his
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, the Trust may be required to
withhold a portion of capital gain distributions to shareholders who fail to
certify their non-foreign status to the Trust. The United States Treasury has
recently issued final regulations (the "Final Regulations") which affect the
procedures regarding the withholding and information reporting rules discussed
above. In general, the Final Regulations do not alter the substantive
withholding and information reporting requirements but unify current
certification procedures and forms and clarify and modify reliance standards.
The Final Regulations are generally effective for payments made on or after
January 1, 1999, subject to certain transition rules. Prospective investors
should consult their own tax advisors concerning the adoption of the Final
Regulations and the potential effect on their ownership of Common Shares. See
"-- Taxation of Foreign Shareholders."
 
TAXATION OF TAX-EXEMPT SHAREHOLDERS
 
     Generally, distributions to a tax-exempt entity from a real estate
investment trust do not constitute unrelated business taxable income, as defined
in Section 512(a) of the Code ("UBTI"), provided that the tax-exempt entity has
not financed its acquisition of its shares with "acquisition indebtedness"
within the meaning of the Code and the shares are not otherwise used in an
unrelated trade or business of the tax-exempt entity. Thus, distributions by the
Trust to shareholders that are tax-exempt should not be taxable as UBTI,
provided that no acquisition indebtedness was incurred with respect to such
shares.
                                       38
<PAGE>   62
 
     Some or all of the distributions by a real estate investment trust to a
tax-exempt employee's pension fund that owns more than 10% in value of the real
estate investment trust are treated as UBTI if the real estate investment trust
constitutes a "pension-held REIT" and if other conditions are met. In order to
constitute a "pension-held REIT" the real estate investment trust must meet the
test for classification as a real estate investment trust only because
tax-exempt pension funds are not treated as a single individual for purposes of
the "five-or-fewer" rule (see "Risk Factors -- Limitations on Changes in
Control -- Ownership Limit") and either (A) one pension fund owns more than 25%
in value of the real estate investment trust or (B) one or more pension funds
(holding at least 10% in value of the real estate investment trust each) own, in
the aggregate, more than 50% of the value of the real estate investment trust.
In addition, the gross income of the real estate investment trust derived from
activities that would constitute unrelated trades or businesses, computed as if
the REIT was a "qualified trust," must be at least five percent of the gross
income of the real estate investment trust in the taxable year in which the
distributions are made. The ownership limitations in the Trust's Declaration of
Trust (assuming no waiver by the Board of Trustees) would prevent the Trust from
being classified as a "pension-held REIT."
 
TAXATION OF FOREIGN SHAREHOLDERS
 
     The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex, and no attempt
will be made herein to provide more than a summary of the rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in the Common Shares offered hereby, including any reporting
requirements, as well as the tax treatment of such an investment under their
home country laws. If income from the investment in the Common Shares offered
hereby is treated as "effectively connected" with the Non-U.S. Shareholder's
conduct of a United States trade or business, the Non-U.S. Shareholder generally
will be subject to a tax at graduated rates, in the same manner as U.S.
shareholders are taxed with respect to the dividends (and may also be subject to
the 30% "branch profits" tax in the case of a shareholder that is a foreign
corporation). The remainder of this discussion assumes that the distributions do
not constitute "effectively connected" income. Prospective investors whose
investment in Common Shares may be "effectively connected" with the conduct of a
United States trade or business should consult their own tax advisors as to the
tax consequences thereof.
 
     Distributions by the Trust that are not attributable to gain from sales or
exchanges by the Trust of United States real property interests and not
designated by the Trust as capital gains dividends will be treated as dividends
of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Trust. Such distributions, ordinarily,
will be subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces or eliminates that tax.
Distributions in excess of current and accumulated earnings and profits of the
Trust will not be taxable to a shareholder to the extent that such distributions
do not exceed the adjusted basis of the shareholder's shares, but rather will
reduce the adjusted basis of such shares. To the extent that distributions in
excess of current accumulated earnings and profits exceed the adjusted basis of
a Non-U.S. Shareholder's shares, such distributions will give rise to tax
liability if the Non-U.S. Shareholder would otherwise be subject to tax on any
gain from the sale or disposition of his shares in the Trust, as described
below. The Trust expects to withhold United States income tax at the rate of 30%
on the gross amount of any distributions made to a Non-U.S. Shareholder unless
(i) a lower treaty rate applies and the Non-U.S. Shareholder files all necessary
forms required to establish eligibility for the lower rate and provides
certification as to such eligibility, if necessary, or (ii) the Non-U.S.
Shareholder files an IRS Form 4224 with the Trust certifying that the investment
to which the distribution relates is "effectively connected" to a United States
trade or business of such Non-U.S. Shareholder. Lower treaty rates generally
applicable to dividend income may not necessarily apply to distributions from a
REIT, such as the Trust. If it cannot be determined at the time a distribution
is made whether or not such distribution will be in excess of current and
accumulated earnings and profits, the distributions will be subject to
withholding at the same rate as dividends. Pursuant to recently enacted
legislation, effective for distributions made after August 20, 1996, the Trust
is obligated to withhold 10% of the amount of any distribution in excess of the
Trust's current and accumulated earnings and profits. However, amounts withheld
                                       39
<PAGE>   63
 
are refundable if it is subsequently determined that the distribution was in
excess of current and accumulated earnings and profits of the Trust and the
amount withheld exceeded the Non-U.S. Shareholders' United States tax liability,
if any.
 
     For any year in which the Trust qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by the Trust of United States real
property interests will be taxed to a Non-U.S. Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, these distributions are taxed to a Non-U.S. Shareholder as if the gain
were "effectively connected" with a United States business. Non-U.S.
Shareholders would be taxed at the normal capital gain rates applicable to
domestic shareholders (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals),
without regard to whether such distributions are designated by the Trust as
capital gain dividends. Also, distributions subject to FIRPTA may be subject to
a 30% "branch profits" tax in the hands of a foreign corporate shareholder not
entitled to treaty exemption. The Trust is required by applicable income tax
regulations that have been promulgated under the Code (the "Treasury
Regulations") to withhold 35% of any distribution that could be designated by
the Trust as a capital gains dividend. This amount is creditable against the
Non-U.S. Shareholder's FIRPTA tax liability.
 
     Gain recognized by a Non-U.S. Shareholder upon a sale of shares generally
will not be taxed under FIRPTA if the Trust is a "domestically controlled REIT,"
defined generally as a REIT in which at all times during a specified testing
period less than 50% in value of the stock was held directly or indirectly by
foreign persons. The Trust currently is a "domestically controlled REIT," and
anticipates continuing to be so classified, and therefore the sale of the Common
Shares offered hereby should not be subject to taxation under FIRPTA. However,
because the Common Shares will be publicly traded, no assurance can be given
that the Trust will continue to so qualify. Notwithstanding the foregoing, any
gain not otherwise subject to FIRPTA will be taxable to a Non-U.S. Shareholder
if (i) investment in the shares is effectively connected with the Non-U.S.
Shareholder's United States trade or business, in which case the Non-U.S.
Shareholder will be subject to the same treatment as U.S. shareholders with
respect to the gain (a shareholder that is a foreign corporation may also be
subject to the 30% "branch profits" tax), or (ii) the Non-U.S. Shareholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, in
which case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains. If the gain on the sale of shares were to be subject
to taxation under FIRPTA, the Non-U.S. Shareholder will be subject to the same
treatment as U.S. shareholders with respect to the gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals and, in the case of foreign corporations, subject
to the possible application of the 30% "branch profits" tax).
 
     If the proceeds of a disposition of Common Shares are paid by or through a
United States office of a broker, the payment is subject to information
reporting requirements and to backup withholding unless the disposing Non-U.S.
Shareholder certifies as to his name, address, and non-United States status or
otherwise establishes an exemption. Generally, United States information
reporting and backup withholding will not apply to the payment of disposition
proceeds if the payment is made outside the United States through a non-United
States broker. United States information reporting (but not backup withholding)
will apply, however, to a payment of disposition proceeds outside the United
States if (i) the payment is made through an office outside the United States
that is either (a) a United States person, (b) a foreign person that derives 50%
or more of its gross income for certain periods from the conduct of a trade or
business in the United States or (c) a "controlled foreign corporation" for
United States federal income tax purposes, and (ii) the broker fails to obtain
documentary evidence that the Shareholder is a Non-U.S. Shareholder and that
certain conditions are met or that the Non-U.S. Shareholder is otherwise
entitled to an exemption. The Final Regulations, issued by the United States
Treasury on October 6, 1997, affect the rules applicable to payments to foreign
persons. In general, the Final Regulations do not alter the substantive
withholding and information reporting requirements but unify current
certification procedures and forms and clarify and modify reliance standards.
The Final Regulations also address certain issues relating to intermediary
certification procedures designed to simplify compliance by withholding agents.
The Final Regulations are generally effective for payments made on or after
January 1, 1999, subject to certain transition rules. Prospective investors
should consult their own
 
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<PAGE>   64
 
tax advisors concerning the adoption of the Final Regulations and the potential
effect on their ownership of Common Shares.
 
TAXATION OF HOLDERS OF DEBT SECURITIES
 
     As used herein, the term "U.S. Holder" means a holder of a Debt Security
who (for United States Federal income tax purposes) is (i) a citizen or resident
of the United States, (ii) a domestic corporation, (iii) an estate, the income
of which is subject to United States federal income tax without regard to its
source, (iv) a Trust if a court within the United States is able to exercise
primary supervision over the administration of the Trust and one or more United
States persons have the authority to control all substantial decisions of the
Trust, or (v) any other person who is subject to United States Federal income
taxation on a net income basis with respect to a Debt Security and "U.S. Alien
Holder" means a holder of a Debt Security who is not a U.S. Holder. In the case
of a holder of a Debt Security that is a partnership for United States tax
purposes, and each partner will take into account its allocable share of income
or loss from the Debt Security, and will take such income or loss into account
under the rules of taxation applicable to such partner, taking into account the
partnership and the partner.
 
U.S. HOLDERS
 
  Payments of Interest
 
     Interest on a Debt Security will be taxable to a U.S. Holder as ordinary
income at the time it is received or accrued, depending on the U.S. Holder's
method of accounting for tax purposes.
 
  Purchase, Sale and Retirement of the Debt Securities
 
     A U.S. Holder's tax basis in a Debt Security will generally be its U.S.
dollar cost.
 
     A U.S. Holder will generally recognize gain or loss on the sale or
retirement of a Debt Security equal to the difference between the amount
realized on the sale or retirement and the U.S. Holder's tax basis in the Debt
Security. Except to the extent attributable to accrued but unpaid interest, gain
or loss recognized on the sale or retirement of a Debt Security will be capital
gain or loss, will be a long-term capital gain or loss if the Debt Security was
held for more than one year and may be eligible for a reduced rate of tax if the
Debt Security was held for more than 18 months and in certain other
circumstances.
 
U.S. ALIEN HOLDERS
 
     This discussion assumes that the Debt Security is not subject to the rules
of Section 871(h)(4)(A) of the Code (relating to interest payments that are
determined by reference to the income, profits, changes in the value of property
or other attributes of the debtor or a related party).
 
     Under present United States Federal income and estate tax law, and subject
to the discussion of backup withholding above:
 
          (i) payments of principal, premium (if any) and interest by the
     Operating Partnership or any of its paying agents to any holder of a Debt
     Security that is a U.S. Alien Holder will not be subject to United States
     Federal withholding tax if, in the case of interest (a) the beneficial
     owner of the Debt Security does not actually or constructively own 10% or
     more of the capital or profits interest in the Operating Partnership, (b)
     the beneficial owner of the Debt Security is not a controlled foreign
     corporation that is related to the Operating Partnership through stock
     ownership, and (c) either (A) the beneficial owner of the Debt Security
     certifies to the Operating Partnership or its agent, under penalties of
     perjury, that it is not a U.S. person and provides its name and address or
     (B) a securities clearing organization, bank or other financial institution
     that holds customers' securities in the ordinary course of its trade or
     business (a "financial institution") and holds the Debt Security certifies
     to the Operating Partnership or its agent under penalties of perjury that
     such statement has been received from the beneficial owner by it or by a
     financial institution between it and the beneficial owner and furnishes the
     payor with a copy thereof;
 
                                       41
<PAGE>   65
 
          (ii) a U.S. Alien Holder of a Debt Security will not be subject to
     United States Federal withholding tax on any gain realized on the sale or
     exchange of a Debt Security; and
 
          (iii) a Debt Security held by an individual who at death is not a
     citizen or resident of the United States will not be includible in the
     individual's gross estate for purposes of the United States Federal estate
     tax as a result of the individual's death if (a) the individual did not
     actually or constructively own 10% or more of the capital or profits
     interest in the Operating Partnership, and (b) the income on the Debt
     Security would not have been effectively connected with a United States
     trade or business of the individual at the time of the individual's death.
 
     Special rules may apply in the case of U.S. Alien Holders (i) that are
engaged in a United States trade or business, (ii) that are former citizens or
long term residents of the United States, "controlled foreign corporations,"
"foreign personal holding companies," corporations which accumulate earnings to
avoid United States Federal income tax, and certain foreign charitable
organizations, each within the meaning of the Code, or (iii) certain
non-resident alien individuals who are present in the United States for 183 days
of more during a taxable year. Such persons are urged to consult their own tax
advisors before purchasing a Debt Security.
 
                              PLAN OF DISTRIBUTION
 
     The Trust and/or the Operating Partnership, as the case may be, may sell
the Securities being offered hereby: (a) directly to purchasers; (b) through
agents; (c) through underwriters; (d) through dealers; or (e) through a
combination of any such methods of sale. The Securities may also be used as all
or part of the consideration to be paid by the Trust or the Operating
Partnership for the acquisition of non-operating assets for which financial
statements would not be required to be filed with the Commission, or in exchange
for units of limited partnership interest of the Operating Partnership. In
addition, Common Shares may be offered hereby in exchange for certain debt
securities of the Operating Partnership that are exchangeable for such Common
Shares.
 
     The distribution of the Securities may be effected from time to time in one
or more transactions: (a) at a fixed price or at final prices, which may be
changed; (b) at market prices prevailing at the time of sale; (c) at prices
related to such prevailing market prices; or (d) at negotiated prices. Offers to
purchase Securities may be solicited directly by the Trust or the Operating
Partnership, as the case may be, or by agents designated by the Trust or the
Operating Partnership, as the case may be, from time to time. Any such agent,
which may be deemed to be an underwriter as that term is defined in the
Securities Act, involved in the offer or sale of the Securities in respect of
which this Prospectus is delivered will be named, and any commissions payable by
the Trust or the Operating Partnership, as the case may be, to such agent will
be set forth, in the applicable Prospectus Supplement.
 
     If an underwriter is, or underwriters are, utilized in the offer and sale
of Securities in respect of which this Prospectus and the accompanying
Prospectus Supplement are delivered, the Trust and/or the Operating Partnership
will execute an underwriting agreement with such underwriter(s) for the sale to
it or them and the name(s) of the underwriter(s) and the terms of the
transaction will be set forth in such Prospectus Supplement, which will be used
by the underwriter(s) to make resales of the Securities in respect of which this
Prospectus and such Prospectus Supplement are delivered to the public.
 
     If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Trust and/or the Operating Partnership will
sell such Securities to the dealer, as principal. The dealer may then resell
such Securities to the public at varying prices to be determined by such dealer
at the time of resale.
 
     Certain of the underwriters, dealers or agents utilized by the Trust and/or
the Operating Partnership in any offering hereby may be customers of, including
borrowers from, engage in transactions with, and perform services for, the Trust
and/or the Operating Partnership or one or more of their respective affiliates
in the ordinary course of business. Underwriters, dealers, agents and other
persons may be entitled, under agreements which may be entered into with the
Trust or the Operating Partnership, as the case may be, to indemnification
against certain civil liabilities, including liabilities under the Securities
Act.
 
     Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the underwriters and certain selling group
members, if any, to bid for and purchase the Securities. As an exception
 
                                       42
<PAGE>   66
 
to these rules, the representatives of the underwriters, if any, are permitted
to engage in certain transactions that stabilize the price of the Securities.
Such transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Securities.
 
     If underwriters create a short position in the Securities in connection
with the offering thereof, (i.e., if they sell more Securities than are set
forth on the cover page of the applicable Prospectus Supplement), the
representatives of such underwriters may reduce that short position by
purchasing Securities in the open market. Any such representatives also may
elect to reduce any short position by exercising all or part of the
over-allotment option described in the applicable Prospectus Supplement.
 
     Any such representatives also may impose a penalty bid on certain
underwriters and selling group members. This means that if the representatives
purchase Securities in the open market to reduce the underwriters' short
position or to stabilize the price of the Securities, they may reclaim the
amount of the selling concession from the underwriters and selling group members
who sold those shares as part of the offering thereof.
 
     In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the offering.
 
     Neither the Company nor any of the underwriters, if any, makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Securities. In
addition, neither the Company nor any of the underwriters, if any, makes any
representation that the representatives of the underwriters, if any, will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
 
                                 LEGAL OPINIONS
 
     Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia, Pennsylvania, has
rendered an opinion with respect to the legality of the Securities to be issued
by the Operating Partnership. Weinberg & Green LLC, Baltimore, Maryland, has
rendered an opinion with respect to the legality of the Securities to be issued
by the Trust. The statements in this Prospectus under the caption "Federal
Income Tax Considerations with Respect to the Trust and the Operating
Partnership" and the other statements herein relating to the Trust's
qualification as a real estate investment trust will be passed upon for the
Trust by Wolf, Block, Schorr and Solis-Cohen LLP, although such firm has
rendered no opinion as to matters involving the imposition of non-U.S. taxes on
the operations of, and distributions of payments from, its United Kingdom
affiliate. Michael M. Dean, a partner of Wolf, Block, Schorr and Solis-Cohen
LLP, is the sole trustee of irrevocable trusts established by three of the
Trust's senior executives for the benefit of their respective children. Each of
such trusts received limited partnership interests in the Operating Partnership
in connection with the Company's formation in exchange for interests in the
Rouse Group owned by such trusts.
 
                                    EXPERTS
 
     The consolidated financial statements of the Trust and the Operating
Partnership for the years ended December 31, 1996 and 1995 and the period from
June 23, 1994 through December 31, 1994 and the combined financial statements of
the Rouse Group for the period January 1, 1994 through June 22, 1994, appearing
in the Annual Reports (Form 10-K) of the Trust and the Operating Partnership for
the year ended December 31, 1996, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
 
     The statements of operating revenues and certain operating expenses of (i)
650-660 E. Swedesford Road, (ii) the Minnesota Properties, (iii) the South
Carolina Properties, (iv) the Detroit Properties, (v) 4198 Cox Road, (vi) 4510
Cox Road, (vii) the Patuxent Woods Properties, (viii) the Horsham Properties and
(ix) the Greenville Properties, each of such capitalized terms as defined in the
respective Current Reports (Form 8-K)
 
                                       43
<PAGE>   67
 
of the Company and the Operating Partnership relating thereto, all of such
statements for the year ended December 31, 1996 and appearing in the respective
Current Reports (Form 8-K) of the Company and the Operating Partnership, filed
on February 13, 1997, March 5, 1997, March 5, 1997, June 25, 1997, November 4,
1997, November 4, 1997, November 13, 1997, November 19, 1997 and December 11,
1997, respectively, have been audited by Fegley & Associates, independent
auditors, as set forth in their reports thereon included in the respective
Current Reports (Form 8-K) and incorporated herein by reference. Such statements
of operating revenues and certain operating expenses are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
 
                             AVAILABLE INFORMATION
 
     The Trust and the Operating Partnership are subject to the informational
requirements of the Exchange Act, and, in accordance therewith, file reports and
other information with the Commission, including proxy statements in the case of
the Trust. Such reports and other information can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the Commission's regional
offices at Seven World Trade Center, Suite 1300, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material also may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at
prescribed rates. Electronic filings made through the Commission's Electronic
Data Gathering, Analysis and Retrieval System ("EDGAR") are publicly available
through the Commission's Web site (http://www.sec.gov). The Common Shares are
listed on the NYSE, and reports, proxy statements and other information
regarding the Trust and the Operating Partnership may also be inspected at the
offices of the NYSE at 20 Broad Street, New York, New York 10005.
 
     The Trust and the Operating Partnership have filed with the Commission a
Registration Statement on Form S-3 (together with any amendments thereto, the
"Registration Statement") under the Securities Act with respect to the
Securities offered hereby. This Prospectus constitutes a part of the
Registration Statement. As permitted by the rules and regulations of the
Commission, this Prospectus and the applicable Prospectus Supplement do not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus, the
applicable Prospectus Supplement or in any document incorporated by reference in
this Prospectus as to the contents of any contract or other document referred to
in this Prospectus or the applicable Prospectus Supplement are not necessarily
complete and, in each instance where such contract or document has been filed as
an exhibit to the Registration Statement or other document incorporated by
reference, reference is made to the copy of such contract or other document,
each such statement being qualified in all respects by such reference. The
Registration Statement, together with exhibits thereto, may be inspected at the
Commission's public reference facilities in Washington, D.C., and copies of all
or any part thereof may be obtained from the Commission upon the payment of
prescribed fees.
 
                INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
 
     The following documents filed with the Commission under the Exchange Act
are hereby incorporated by reference herein as of their respective dates:
 
     (a)  The Annual Report on Form 10-K of the Trust and the Operating
          Partnership for the fiscal year ended December 31, 1996;
 
     (b)  The Quarterly Reports on Form 10-Q of the Trust and the Operating
          Partnership for the fiscal quarters ended March 31, 1997, June 30,
          1997 and September 30, 1997;
 
     (c)  The Current Reports on Form 8-K of the Trust and the Operating
          Partnership filed February 13, 1997, March 5, 1997, March 21, 1997,
          June 25, 1997, July 7, 1997, August 6, 1997, August 11, 1997, August
          16, 1997, November 4, 1997, November 13, 1997, November 19, 1997,
          November 20, 1997, December 11, 1997, December 15, 1997 and December
          18, 1997 (as amended on December 23, 1997); and
                                       44
<PAGE>   68
 
     (d)  The description of the Common Shares contained in the Registration
          Statement on Form 8-A of the Trust registering such securities under
          Section 12 of the Exchange Act.
 
     All documents and reports filed by the Trust or the Operating Partnership
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus and prior to termination of the offering described
herein shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the respective dates of filing of such documents or
reports, except as to any portion of any future annual or quarterly report to
the holders of securities of the Trust or the Operating Partnership or any proxy
or information statement which is not deemed to be filed under such provisions.
 
     Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement, this Prospectus and the applicable
Prospectus Supplement to the extent that a statement contained herein, in the
applicable Prospectus Supplement or in any other subsequently filed document
which also is or is deemed to be incorporated by reference in the Registration
Statement or this Prospectus modifies or supersedes such statement. Any such
statement so modified or superseded, except as so modified or superseded, shall
not be deemed to constitute a part of this Prospectus or the applicable
Prospectus Supplement.
 
     The Company will provide without charge to each person to whom a copy of
this Prospectus or the applicable Prospectus Supplement has been delivered, upon
written or oral request of such person, a copy of any or all of the documents
incorporated herein by reference, other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into such documents.
Requests for such copies should be directed to the Company at 65 Valley Stream
Parkway, Malvern, Pennsylvania 19355, Attention: Investor Relations; telephone
(610) 648-1700.
 
                                       45
<PAGE>   69
 
                                 $
 
                                LIBERTY PROPERTY
                              LIMITED PARTNERSHIP
 
                               % Senior Notes Due
 
                           -------------------------
 
                             PROSPECTUS SUPPLEMENT
                                           , 1999
 
                           -------------------------
 
                                LEHMAN BROTHERS
                         BANC ONE CAPITAL MARKETS, INC.
                          DONALDSON, LUFKIN & JENRETTE
                              GOLDMAN, SACHS & CO.
                               J.P. MORGAN & CO.
                              SALOMON SMITH BARNEY
                            WARBURG DILLON READ LLC
 
                           [GLOBE BACKGROUND GRAPHIC]


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