UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number: 1-13130 (Liberty Property Trust)
1-13132 (Liberty Property Limited Partnership)
LIBERTY PROPERTY TRUST
LIBERTY PROPERTY LIMITED PARTNERSHIP
(Exact name of registrants as specified in their governing documents)
MARYLAND (Liberty Property Trust) 23-7768996
PENNSYLVANIA (Liberty Property Limited Partnership) 23-2766549
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
65 Valley Stream Parkway, Suite 100, Malvern, Pennsylvania 19355
(Address of Principal Executive Offices) (Zip Code)
Registrants' Telephone Number, Including Area Code (610)648-1700
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve (12) months (or for such shorter
period that the registrants were required to file such reports) and (2)
have been subject to such filing requirements for the past ninety (90)
days. YES X NO
On November 7, 2000, 68,195,876 Common Shares of Beneficial Interest, par
value $.001 per share, of Liberty Property Trust were outstanding.
<PAGE>
LIBERTY PROPERTY TRUST/LIBERTY PROPERTY LIMITED PARTNERSHIP
FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2000
INDEX
-----
Part I. Financial Information
-------------------------------
Item 1. Financial Statements (unaudited) Page
----
Consolidated balance sheets of Liberty Property
Trust at September 30, 2000 and December 31, 1999. 4
Consolidated statements of operations of Liberty
Property Trust for the three months ended September
30, 2000 and September 30, 1999. 5
Consolidated statements of operations of Liberty
Property Trust for the nine months ended September
30, 2000 and September 30, 1999. 6
Consolidated statements of cash flows of Liberty
Property Trust for the nine months ended September
30, 2000 and September 30, 1999. 7
Notes to consolidated financial statements for
Liberty Property Trust. 8
Consolidated balance sheets of Liberty Property
Limited Partnership at September 30, 2000 and
December 31, 1999. 12
Consolidated statements of operations of Liberty
Property Limited Partnership for the three months
ended September 30, 2000 and September 30, 1999. 13
Consolidated statements of operations of Liberty
Property Limited Partnership for the nine months
ended September 30, 2000 and September 30, 1999. 14
Consolidated statements of cash flows of Liberty
Property Limited Partnership for the nine months
ended September 30, 2000 and September 30, 1999. 15
Notes to consolidated financial statements for
Liberty Property Limited Partnership. 16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 18
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 26
Part II. Other Information
---------------------------
Signatures 28
Exhibit Index 29
-2-
<PAGE>
-----------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in
this Quarterly Report on Form 10-Q contains statements that may be
forward-looking. Although Liberty believes that the expectations
reflected in such forward-looking statements are based on reasonable
assumptions, it can give no assurance that its expectations will be
achieved. As forward-looking statements, these statements involve risks,
uncertainties and other factors that could cause actual results to differ
materially from the expected results. These factors include, without
limitation, the ability to enter into new leases or renew leases on
favorable terms, the financial condition of tenants, the uncertainties of
acquisition and disposition activities, the costs and availability of
financing, the effects of local economic and market conditions,
regulatory changes, potential liability relative to environmental matters
and other risks and uncertainties detailed in the Company's filings with
the Securities and Exchange Commission. The Company assumes no
obligation to update or supplement forward-looking statements that become
untrue because of subsequent events.
-3-
<PAGE>
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY TRUST
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Real estate:
Land and land improvements $ 441,279 $ 411,678
Buildings and improvements 2,750,047 2,593,002
Less accumulated depreciation (321,020) (270,174)
---------- ----------
Operating real estate 2,870,306 2,734,506
Development in progress 148,223 138,870
Land held for development 127,728 111,201
---------- ----------
Net real estate 3,146,257 2,984,577
Cash and cash equivalents 5,388 9,064
Accounts receivable 6,859 13,388
Deferred financing and leasing costs,
net of accumulated amortization
(2000, $56,177; 1999, $58,033) 56,367 46,941
Prepaid expenses and other assets 86,288 64,163
---------- ----------
Total assets $3,301,159 $3,118,133
========== ==========
LIABILITIES
Mortgage loans $ 367,305 $ 374,825
Unsecured notes 1,095,000 985,000
Credit facility 92,000 47,000
Convertible debentures 70,916 84,413
Accounts payable 27,916 15,599
Accrued interest 20,332 22,422
Dividend payable 43,177 39,198
Other liabilities 67,368 67,558
---------- ----------
Total liabilities 1,784,014 1,636,015
Minority interest 198,628 187,511
SHAREHOLDERS' EQUITY
8.80% Series A cumulative redeemable preferred
shares, $.001 par value, 5,000,000 shares
authorized, issued and outstanding as of
September 30, 2000 and December 31, 1999 120,814 120,814
Common shares of beneficial interest, $.001
par value, 191,200,000 shares authorized, 68,201,837
(includes 59,100 in treasury) and 67,030,199
(includes 59,100 in treasury) shares issued and
outstanding as of September 30, 2000 and December 31,
1999, respectively 68 67
Additional paid-in capital 1,221,417 1,196,736
Unearned compensation (1,822) (743)
Distributions in excess of net income (20,633) (20,940)
Common shares in treasury, at cost, 59,100 shares as of
September 30, 2000 and December 31, 1999 (1,327) (1,327)
---------- -----------
Total shareholders' equity 1,318,517 1,294,607
---------- -----------
Total liabilities and shareholders' equity $3,301,159 $ 3,118,133
========== ===========
</TABLE>
See accompanying notes.
-4-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
REVENUE
Rental $ 97,152 $ 87,064
Operating expense reimbursement 36,219 31,503
Interest and other 1,523 1,680
--------- ---------
Total revenue 134,894 120,247
--------- ---------
OPERATING EXPENSES
Rental property expenses 24,541 21,617
Real estate taxes 12,946 10,837
Interest expense 27,518 24,760
General and administrative 4,736 3,969
Depreciation and amortization 22,934 21,866
--------- ---------
Total operating expenses 92,675 83,049
--------- ---------
Income before property dispositions
and minority interest 42,219 37,198
Gain (loss) on property dispositions 2,964 (1,270)
--------- ---------
Income before minority interest 45,183 35,928
Minority interest 5,092 3,835
--------- ---------
Net income 40,091 32,093
Preferred distributions 2,750 2,750
--------- ---------
Income available to common shareholders $ 37,341 $ 29,343
========= =========
Income per common share - basic $ 0.55 $ 0.44
========= =========
Income per common share - diluted $ 0.54 $ 0.44
========= =========
Distributions declared per common share $ 0.57 $ 0.52
========= =========
Weighted average number of common shares outstanding
Basic 67,683 66,591
Diluted 68,699 66,975
========= =========
</TABLE>
See accompanying notes.
-5-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
REVENUE
Rental $ 283,949 $ 252,782
Operating expense reimbursement 106,827 90,536
Interest and other 4,123 4,349
--------- ---------
Total revenue 394,899 347,667
--------- ---------
OPERATING EXPENSES
Rental property expenses 72,380 63,451
Real estate taxes 37,922 30,662
Interest expense 79,535 74,335
General and administrative 13,998 11,885
Depreciation and amortization 68,388 62,446
--------- ---------
Total operating expenses 272,223 242,779
--------- ---------
Income before property dispositions
extraordinary item and minority interest 122,676 104,888
Gain on property dispositions 11,712 11,941
--------- ---------
Income before extraordinary item and
minority interest 134,388 116,829
Extraordinary item-loss on extinquishment
of debt 2,103 -
--------- ---------
Income before minority interest 132,285 116,829
Minority interest 14,994 9,056
--------- ---------
Net income 117,291 107,773
Preferred distributions 8,250 8,250
--------- ---------
Income available to common shareholders $ 109,041 $ 99,523
========= =========
Earnings per share
Basic:
Income before extraordinary item $ 1.65 $ 1.50
Extraordinary item (0.03) -
--------- ---------
Income available to common shareholders $ 1.62 $ 1.50
========= =========
Diluted:
Income before extraordinary item $ 1.63 $ 1.49
Extraordinary item (0.03) -
--------- ---------
Income available to common shareholders $ 1.60 $ 1.49
========= =========
Distributions declared per common share $ 1.61 $ 1.42
========= =========
Weighted average number of common shares
Outstanding
Basic 67,253 66,256
Diluted 67,935 66,589
========= =========
</TABLE>
See accompanying notes.
-6-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY TRUST
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 117,291 $ 107,773
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 68,388 62,446
Amortization of deferred financing costs 2,818 4,052
Minority interest in net income 14,994 9,056
Gain on sale (11,712) (11,941)
Noncash compensation 1,807 1,697
Changes in operating assets and liabilities:
Accounts receivable 6,529 2,628
Prepaid expenses and other assets (23,147) (4,024)
Accounts payable 12,317 2,973
Accrued interest (2,090) (753)
Other liabilities (190) (6,985)
---------- ---------
Net cash provided by operating activities 187,005 166,922
---------- ---------
INVESTING ACTIVITIES
Investment in properties (32,989) (60,587)
Proceeds from disposition of properties 63,604 115,135
Investment in development in progress (168,611) (163,220)
Investment in land held for development (72,491) (43,627)
Increase in deferred leasing costs (12,518) (11,824)
---------- --------
Net cash used in investing activities (223,005) (164,123)
---------- --------
FINANCING ACTIVITIES
Net proceeds from issuance of common shares 10,855 3,164
Proceeds from issuance of preferred units 19,470 93,055
Retirement of convertible debentures (10,914) -
Proceeds from issuance of unsecured notes 200,000 385,000
Repayment of unsecured notes (90,000) (45,000)
Repayments of mortgage loans (7,520) (39,818)
Proceeds from credit facility 450,000 125,024
Repayments on credit facility (405,000) (379,024)
Increase in deferred financing costs (6,593) (5,234)
Distributions paid on common shares (104,755) (89,332)
Distributions paid on preferred shares (8,250) (8,250)
Distributions paid on units (14,969) (8,399)
---------- ---------
Net cash provided by financing activities 32,324 31,186
(Decrease) increase in cash and cash equivalents (3,676) 33,985
Cash and cash equivalents at beginning of period 9,064 14,391
---------- ---------
Cash and cash equivalents at end of period $ 5,388 $ 48,376
========== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 21,495 $ 14,432
Acquisition of properties - (3,818)
Assumption of mortgage loans - 3,818
Conversion of convertible debentures 2,561 10,164
========== =========
</TABLE>
See accompanying notes.
-7-
<PAGE>
LIBERTY PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
NOTE 1 - BASIS OF PRESENTATION
------------------------------
The accompanying unaudited consolidated financial statements of Liberty
Property Trust (the "Trust") and its subsidiaries, including Liberty
Property Limited Partnership (the "Operating Partnership") (the Trust,
Operating Partnership and their respective subsidiaries referred to
collectively as, the "Company"), have been prepared in accordance with
accounting principles generally accepted in the United States ("US GAAP")
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by US GAAP for complete financial
statements and should be read in conjunction with the consolidated
financial statements and notes thereto included in the Annual Report on
Form 10-K of the Trust and the Operating Partnership for the year ended
December 31, 1999. In the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the financial statements for these interim periods have
been included. The results of interim periods are not necessarily
indicative of the results to be obtained for a full fiscal year. Certain
amounts from prior periods have been restated to conform to current
period presentation.
The following table sets forth the computation of basic and diluted
income per common share for the three and nine months ended September 30,
2000 and 1999:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2000 ENDED SEPTEMBER 30, 1999
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Net income $ 40,091 $ 32,093
Less: Preferred
distributions 2,750 2,750
------- --------
Basic income per
common share
Income available
to common share-
holders 37,341 67,683 $ 0.55 29,343 66,591 $ 0.44
====== ======
Dilutive shares for
long-term compen-
sation plans - 1,016 - 384
------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $ 37,341 68,699 $ 0.54 $ 29,343 66,975 $ 0.44
======== ======= ====== ======== ======= ======
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2000 ENDED SEPTEMBER 30, 1999
------------------------------------- -------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------- ----------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Net income $117,291 $107,773
Less: preferred
distributions 8,250 8,250
------- --------
Basic income per
common share
Income available
to common share-
holders 109,041 67,253 $ 1.62 99,523 66,256 $ 1.50
====== ======
Dilutive shares for
long-term compen-
sation plans - 682 - 333
-------- ------- -------- -------
Diluted income per
common share
Income available
to common share-
holders and assumed
conversions $109,041 67,935 $ 1.60 $ 99,523 66,589 $ 1.49
======== ======= ====== ======== ======= ======
</TABLE>
NOTE 2 - ORGANIZATION
---------------------
Liberty Property Trust (the "Trust") is a self-administered and self-
managed Maryland real estate investment trust (a "REIT"). Substantially
all of the Trust's assets are owned directly or indirectly, and
substantially all of the Trust's operations are conducted directly or
indirectly, by its subsidiary, Liberty Property Limited Partnership, a
Pennsylvania limited partnership (the "Operating Partnership" and,
together with the Trust, the "Company"). The Trust is the sole general
partner and also a limited partner of the Operating Partnership, with a
combined common equity interest in the Operating Partnership of 93.9% at
September 30, 2000. The Company provides leasing, property management,
development, acquisition, construction management and design management
for a portfolio of industrial and office properties which are located
principally within the Southeastern, Mid-Atlantic and Midwestern United
States.
NOTE 3 - SEGMENT INFORMATION
----------------------------
The Company reviews performance of the portfolio on a geographical
basis, as such, the following regions are considered the Company's
reportable segments: Southeastern Pennsylvania; New Jersey; Lehigh
Valley, Pennsylvania; Virginia; the Carolinas; Jacksonville, Florida;
Detroit, Michigan; and all others combined (including Maryland; Tampa,
Florida; South Florida; Minneapolis, Minnesota; and the United Kingdom).
The Company's reportable segments are distinct business units, which are
each managed separately in order to concentrate market knowledge within
a geographical area. Within these reportable segments, the Company
derives its revenues from its two product types: industrial properties
and office properties.
The Company evaluates performance of the reportable segments based on
property-level net operating income, which is calculated as rental
-9-
<PAGE>
revenue and operating expense reimbursement less rental property
expenses and real estate taxes. The accounting policies of the
reportable segments are the same as those for the Company on a
consolidated basis. The operating information by segment is as follows
(in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real-estate
related revenues $37,563 $10,628 $12,918 $10,662 $10,780 $10,496 $14,477 $25,847 $133,371
Rental property
expenses and
real estate taxes 10,331 3,355 2,666 2,325 2,888 2,562 4,909 8,451 37,487
------- ------- ------- ------- ------- ------- ------- ------- --------
Property-level net
operating income 27,232 7,273 10,252 8,337 7,892 7,934 9,568 17,396 95,884
Other income/expenses, net 53,665
--------
Income before property dispositions and minority interest 42,219
Gain on property dispositions 2,964
Minority interest 5,092
Preferred distributions 2,750
--------
Income available to common shareholders $ 37,341
========
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real-estate
related revenues $31,555 $10,095 $11,255 $10,052 $ 9,505 $10,573 $12,843 $22,689 $118,567
Rental property
expenses and
real estate taxes 8,376 3,033 2,477 2,128 2,906 2,587 4,377 6,570 32,454
-------- -------- -------- -------- -------- -------- -------- -------- --------
Property-level net
operating income 23,179 7,062 8,778 7,924 6,599 7,986 8,466 16,119 86,113
Other income/expenses, net 48,915
--------
Income before property dispositions and minority interest 37,198
Loss on property dispositions 1,270
Minority interest 3,835
Preferred distributions 2,750
--------
Income available to common shareholders $29,343
========
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real-estate
related revenues $108,623 $31,510 $37,560 $32,457 $30,504 $31,332 $42,511 $76,279 $390,776
Rental property
expenses and
real estate taxes 30,539 9,841 8,386 7,172 8,430 7,474 14,532 23,928 110,302
-------- ------- ------- ------- ------- ------- ------- ------- --------
Property-level net
operating income 78,084 21,669 29,174 25,285 22,074 23,858 27,979 52,351 280,474
Other income/expenses, net 157,798
--------
Income before property dispositions, extraordinary item and minority interest 122,676
Gain on property dispositions 11,712
Extraordinary item-loss on extinguishment of debt 2,103
Minority interest 14,994
Preferred distributions 8,250
--------
Income available to common shareholders $109,041
========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
Real-estate
related revenues $87,399 $32,421 $32,877 $30,021 $28,361 $30,395 $37,030 $64,814 $343,318
Rental property
expenses and
real estate taxes 24,079 9,636 7,102 6,317 8,307 7,085 12,435 19,152 94,113
-------- -------- -------- -------- -------- -------- -------- -------- --------
Property-level net
operating income 63,320 22,785 25,775 23,704 20,054 23,310 24,595 45,662 249,205
Other income/expenses, net 144,317
--------
Income before property dispositions, extraordinary item and minority interest 104,888
Gain on property dispositions 11,941
Extraordinary item-loss on extinguishment of debt -
Minority interest 9,056
Preferred distributions 8,250
--------
Income available to common shareholders $ 99,523
========
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(IN THOUSANDS)
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Real estate:
Land and land improvements $ 441,279 $ 411,678
Buildings and improvements 2,750,047 2,593,002
Less accumulated depreciation (321,020) (270,174)
---------- ----------
Operating real estate 2,870,306 2,734,506
Development in progress 148,223 138,870
Land held for development 127,728 111,201
---------- ----------
Net real estate 3,146,257 2,984,577
Cash and cash equivalents 5,388 9,064
Accounts receivable 6,859 13,388
Deferred financing and leasing costs,
net of accumulated amortization
(2000, $56,177; 1999, $58,033) 56,367 46,941
Prepaid expenses and other assets 86,288 64,163
---------- ----------
Total assets $3,301,159 $3,118,133
========== ==========
LIABILITIES
Mortgage loans $ 367,305 $ 374,825
Unsecured notes 1,095,000 985,000
Credit facility 92,000 47,000
Convertible debentures 70,916 84,413
Accounts payable 27,916 15,599
Accrued interest 20,332 22,422
Dividend payable 43,177 39,198
Other liabilities 67,368 67,558
---------- ----------
Total liabilities 1,784,014 1,636,015
OWNERS' EQUITY
General partner's equity-preferred units 120,814 120,814
-common units 1,197,703 1,173,793
Limited partners' equity 198,628 187,511
---------- ----------
Total owners' equity 1,517,145 1,482,118
---------- ----------
Total liabilities and owners' equity $3,301,159 $3,118,133
========== ==========
</TABLE>
See accompanying notes.
-12-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
THREE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
REVENUE
Rental $ 97,152 $ 87,064
Operating expense reimbursement 36,219 31,503
Interest and other 1,523 1,680
-------- ----------
Total revenue 134,894 120,247
-------- ----------
OPERATING EXPENSES
Rental property expenses 24,541 21,617
Real estate taxes 12,946 10,837
Interest expense 27,518 24,760
General and administrative 4,736 3,969
Depreciation and amortization 22,934 21,866
-------- ----------
Total operating expenses 92,675 83,049
-------- ----------
Income before property dispositions 42,219 37,198
Gain (loss) on property dispositions 2,964 (1,270)
-------- ----------
Net income $ 45,183 $ 35,928
======== ==========
Net income allocated to general partner $ 40,091 $ 32,093
======== ==========
Net income allocated to limited partners $ 5,092 $ 3,835
======== ==========
</TABLE>
See accompanying notes.
-13-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ -------------------
<S> <C> <C>
REVENUE
Rental $283,949 $ 252,782
Operating expense reimbursement 106,827 90,536
Interest and other 4,123 4,349
-------- ---------
Total revenue 394,899 347,667
-------- ---------
OPERATING EXPENSES
Rental property expenses 72,380 63,451
Real estate taxes 37,922 30,662
Interest expense 79,535 74,335
General and administrative 13,998 11,885
Depreciation and amortization 68,388 62,446
-------- ---------
Total operating expenses 272,223 242,779
-------- ---------
Income before property dispositions
and extraordinary item 122,676 104,888
Gain on property dispositions 11,712 11,941
-------- ---------
Income before extraordinary item 134,388 116,829
Extraordinary item-loss on extinguishment
of debt 2,103 -
-------- ---------
Net income $132,285 $ 116,829
======== =========
Net income allocated to general partner $117,291 $ 107,773
======== =========
Net income allocated to limited partners $ 14,994 $ 9,056
======== =========
</TABLE>
See accompanying notes.
-14-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS OF LIBERTY PROPERTY LIMITED PARTNERSHIP
(UNAUDITED AND IN THOUSANDS)
NINE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 132,285 $ 116,829
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 68,388 62,446
Amortization of deferred financing costs 2,818 4,052
Gain on sale (11,712) (11,941)
Noncash compensation 1,807 1,697
Changes in operating assets and liabilities:
Accounts receivable 6,529 2,628
Prepaid expenses and other assets (23,147) (4,024)
Accounts payable 12,317 2,973
Accrued interest (2,090) (753)
Other liabilities (190) (6,985)
---------- ----------
Net cash provided by operating activities 187,005 166,922
---------- ----------
INVESTING ACTIVITIES
Investment in properties (32,989) (60,587)
Proceeds from disposition of properties 63,604 115,135
Investment in development in progress (168,611) (163,220)
Investment in land held for development (72,491) (43,627)
Increase in deferred leasing costs (12,518) (11,824)
---------- ----------
Net cash used in investing activities (223,005) (164,123)
---------- ----------
FINANCING ACTIVITIES
Retirement of Convertible Debentures (10,914) -
Proceeds from issuance of unsecured notes 200,000 385,000
Repayments of unsecured notes (90,000) (45,000)
Repayments of mortgage loans (7,520) (39,818)
Proceeds from credit facility 450,000 125,024
Repayments on credit facility (405,000) (379,024)
Increase in deferred financing costs (6,593) (5,234)
Capital contributions 30,325 96,219
Distributions to partners (127,974) (105,981)
---------- ----------
Net cash provided by financing activities 32,324 31,186
(Decrease) increase in cash and cash equivalent (3,676) 33,985
Cash and cash equivalents at beginning of period 9,064 14,391
---------- ----------
Cash and cash equivalents at end of period $ 5,388 $ 48,376
========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Write-off of fully depreciated property and
deferred costs $ 21,495 $ 14,432
Acquisition of properties - (3,818)
Assumption of mortgage loans - 3,818
Conversion of convertible debentures 2,561 10,164
========== ==========
</TABLE>
See accompanying notes.
-15-
<PAGE>
LIBERTY PROPERTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
NOTE 1 - BASIS OF PRESENTATION
------------------------------
The accompanying unaudited consolidated financial statements of Liberty
Property Limited Partnership (the "Operating Partnership") and its direct
and indirect subsidiaries have been prepared in accordance with
accounting principles generally accepted in the United States ("US GAAP")
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by US GAAP for complete financial
statements and should be read in conjunction with the consolidated
financial statements and notes thereto included in the Annual Report on
Form 10-K of the Trust and the Operating Partnership for the year ended
December 31, 1999. In the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the financial statements for these interim periods have
been included. The results of interim periods are not necessarily
indicative of the results to be obtained for a full fiscal year. Certain
amounts from prior periods have been restated to conform to current
period presentation.
NOTE 2 - ORGANIZATION
---------------------
Liberty Property Trust (the "Trust") is a self-administered and self-
managed Maryland real estate investment trust (a "REIT"). Substantially
all of the Trust's assets are owned directly or indirectly, and
substantially all of the Trust's operations are conducted directly or
indirectly, by its subsidiary, Liberty Property Limited Partnership, a
Pennsylvania limited partnership (the "Operating Partnership" and,
together with the Trust and its consolidated subsidiaries, the
"Company"). The Trust is the sole general partner and also a limited
partner of the Operating Partnership, with a combined common equity
interest in the Operating Partnership of 93.9% at September 30, 2000.
The Company provides leasing, property management, acquisition,
development, construction management and design management for a
portfolio of industrial and office properties which are located
principally within the Southeastern, Mid-Atlantic and Midwestern United
States.
NOTE 3 - SEGMENT INFORMATION
----------------------------
The Company reviews performance of the portfolio on a geographical
basis, as such, the following regions are considered the Company's
reportable segments: Southeastern Pennsylvania; New Jersey; Lehigh
Valley, Pennsylvania; Virginia; the Carolinas; Jacksonville, Florida;
Detroit, Michigan; and all others combined (including Maryland, Tampa,
Florida; South Florida; Minneapolis, Minnesota; and the United Kingdom).
The Company's reportable segments are distinct business units, which are
each managed separately in order to concentrate market knowledge within
a geographical area. Within these reportable segments, the Company
derives its revenues from its two product types: industrial and office
properties.
-16-
<PAGE>
The Company evaluates performance of the reportable segments based on
property-level net operating income, which is calculated as rental
revenue and operating expense reimbursement less rental property
expenses and real estate taxes. The accounting policies of the
reportable segments are the same as those for the Company on a
consolidated basis. The operating information by segment is as follows
(in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real-estate
related revenues $ 37,563 $ 10,628 $ 12,918 $ 10,662 $ 10,780 $ 10,496 $ 14,477 $ 25,847 $133,371
Rental property
expenses and
real estate taxes 10,331 3,355 2,666 2,325 2,888 2,562 4,909 8,451 37,487
-------- -------- -------- -------- -------- -------- -------- --------- --------
Property-level net
operating income 27,232 7,273 10,252 8,337 7,892 7,934 9,568 17,396 95,884
Other income/expenses, net 53,665
--------
Income before property dispositions 42,219
Gain on property dispositions 2,964
--------
Net income $ 45,183
========
Net income allocated to general partners $ 40,091
========
Net income allocated to limited partners $ 5,092
========
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real-estate
related revenues $ 31,555 $ 10,095 $ 11,255 $ 10,052 $ 9,505 $ 10,573 $ 12,843 $ 22,689 $118,567
Rental property
expenses and
real estate taxes 8,376 3,033 2,477 2,128 2,906 2,587 4,377 6,570 32,454
-------- -------- -------- -------- -------- -------- -------- -------- --------
Property-level net
operating income 23,179 7,062 8,778 7,924 6,599 7,986 8,466 16,119 86,113
Other income/expenses, net 48,915
--------
Income before property dispositions 37,198
Loss on property dispositions 1,270
--------
Net income $ 35,928
========
Net income allocated to general partner $ 32,093
========
Net income allocated to limited partners $ 3,835
========
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
-----------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real-estate
related revenues $108,623 $ 31,510 $ 37,560 $ 32,457 $ 30,504 $ 31,332 $ 42,511 $ 76,279 $390,776
Rental property
expenses and
real estate taxes 30,539 9,841 8,386 7,172 8,430 7,474 14,532 23,928 110,302
-------- -------- -------- -------- -------- -------- -------- -------- --------
Property-level net
operating income 78,084 21,669 29,174 25,285 22,074 23,858 27,979 52,351 280,474
Other income/expenses, net 157,798
--------
Income before property dispositions and extraordinary item 122,676
Gain on property dispositions 11,712
Extraordinary item-loss on extinguishment of debt 2,103
--------
Net income $132,285
========
Net income allocated to general partners $117,291
========
Net income allocated to limited partners $ 14,994
========
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------------------------------------
SE New Lehigh The
Pennsyl. Jersey Valley Virginia Carolinas Jacksonville Michigan All Others Total
-------- -------- -------- -------- --------- ------------ -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real-estate
related revenues $ 87,399 $ 32,421 $ 32,877 $ 30,021 $ 28,361 $ 30,395 $ 37,030 $ 64,814 $343,318
Rental property
expenses and
real estate taxes 24,079 9,636 7,102 6,317 8,307 7,085 12,435 19,152 94,113
-------- -------- -------- -------- -------- -------- -------- -------- --------
Property-level net
operating income 63,320 22,785 25,775 23,704 20,054 23,310 24,595 45,662 249,205
Other income/expenses, net 144,317
--------
Income before property dispositions and extraordinary item 104,888
Gain on property dispositions 11,941
Extraordinary item-loss on extinguishment of debt -
--------
Net income $116,829
========
Net income allocated to general partner $107,773
========
Net income allocated to limited partners $ 9,056
========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
-----------------------------------------------------------------------
OVERVIEW
The following discussion and analysis is based on a consolidated view of
the Company. Geographic segment data for the three and nine months ended
September 30, 2000 and 1999 is included in Note 3 of the Notes to the
Liberty Property Trust and Liberty Property Limited Partnership Financial
Statements.
In 2000, the Company has continued to pursue development and acquisition
opportunities and has continued to focus on increasing the cash flow from
its properties in operation by increasing property occupancy and
increasing rental rates.
-18-
<PAGE>
The composition of the Company's properties in operation as of September
30, 2000 and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
TOTAL PERCENT OF TOTAL
SQUARE FEET SQUARE FEET PERCENT OCCUPIED
---------------- ---------------- ----------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
TYPE 2000 1999 2000 1999 2000 1999
------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Industrial - Distribution 20,164 19,372 41.7% 42.6% 96.3% 93.8%
Industrial - Flex 12,886 12,811 26.7% 28.2% 94.3% 93.9%
Office 15,289 13,284 31.6% 29.2% 95.1% 94.4%
------- ------- ------- ------- ------- -------
Total 48,339 45,467 100.0% 100.0% 95.4% 94.0%
======= ======= ======= ======= ======= =======
</TABLE>
The expiring square feet and annual base rent by year for the properties
in operation as of September 30, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
INDUSTRIAL-
DISTRIBUTION INDUSTRIAL-FLEX OFFICE TOTAL
------------------ ------------------ ------------------ ------------------
SQUARE ANNUAL SQUARE ANNUAL SQUARE ANNUAL SQUARE ANNUAL
YEAR FEET BASE RENT FEET BASE RENT FEET BASE RENT FEET BASE RENT
---------- ------ --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2000 494 $ 2,077 740 $ 5,288 765 $ 9,510 1,999 $ 16,875
2001 3,266 14,163 2,053 15,673 1,789 22,504 7,108 52,340
2002 3,268 13,289 1,977 15,777 1,427 18,016 6,672 47,082
2003 1,831 8,832 2,133 19,137 1,625 21,819 5,589 49,788
2004 2,136 10,565 1,548 14,256 1,509 22,954 5,193 47,775
2005 2,241 11,359 1,306 12,377 2,543 35,953 6,090 59,689
Thereafter 6,182 31,853 2,394 25,439 4,879 79,965 13,455 137,257
------ ------- ------ -------- ------ -------- ------ --------
Total 19,418 $92,138 12,151 $107,947 14,537 $210,721 46,106 $410,806
====== ======= ====== ======== ====== ======== ====== ========
</TABLE>
The scheduled deliveries of the 4.2 million square feet of properties
under development as of September 30, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
SQUARE FEET
-----------------------------
SCHEDULED IND- IND- PERCENT PRE-LEASED
IN-SERVICE DATE DIST. FLEX OFFICE TOTAL SEPTEMBER 30, 2000 TOTAL INVESTMENT
---------------- ------ ------ ------- ------ ------------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
4th Quarter 2000 - 128 200 328 92.3% $ 31,388
1st Quarter 2001 276 - 15 291 100.0% 15,479
2nd Quarter 2001 1,015 56 96 1,167 95.6% 68,416
3rd Quarter 2001 855 126 31 1,012 36.2% 42,490
Thereafter 249 328 822 1,399 22.2% 150,915
----- ----- ----- ----- ------ --------
Total 2,395 638 1,164 4,197 56.8% $308,688
===== ===== ===== ===== ====== ========
</TABLE>
RESULTS OF OPERATIONS
The following discussion is based on the consolidated financial
statements of the Company. It compares the results of operations of the
Company for the three and nine months ended September 30, 2000
(unaudited) with the results of operations of the Company for the three
and nine months ended September 30, 1999 (unaudited). As a result of the
development, acquisition and disposition activities by the Company in
2000 and 1999, the overall operating results of the Company during such
periods are not directly comparable. However, certain data, including
-19-
<PAGE>
the "Same Store" comparison, do lend themselves to direct comparison. As
used herein, the term "Company" includes the Trust, the Operating
Partnership and their subsidiaries.
This information should be read in conjunction with the accompanying
consolidated financial statements and notes included elsewhere in this
report.
For the three and nine months ended September 30, 2000 compared to the
three and nine months ended September 30, 1999.
-----------------------------------------------------------------------
Total revenue (principally rental revenue and operating expense
reimbursement) increased to $134.9 million from $120.2 million for the
three months ended September 30, 2000 compared to the same period in
1999, and increased to $394.9 million from $347.7 million for the nine
months ended September 30, 2000 as compared to the same period in 1999.
These increases are primarily due to the increase in the number of
properties in operation during the respective periods. As of September
30, 2000, the Company had 651 properties in operation compared to 626
properties at September 30, 1999. The following is a summary of the
Company's acquisition, development and disposition activity for the three
and nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
------------------------ ------------------------
TOTAL TOTAL
NO. OF INVESTMENT NO. OF INVESTMENT
BLDGS OR PROCEEDS (1) BLDGS OR PROCEEDS (1)
------ --------------- ------ ---------------
<S> <C> <C> <C> <C>
Properties owned as of:
Beginning January 1, 634 608
Acquisitions 9 $ 55.4 9 $ 38.4
Completed developments 12 128.3 26 152.8
Dispositions 6 40.7 16 60.0
------ ------
June 30, 649 627
Acquisitions 3 21.2 1 4.8
Completed developments 6 40.5 9 42.2
Dispositions 7 15.6 11 44.4
------ ------
Ending September 30, 651 626
====== ======
(1) The "Total Investment" for a property is defined as the property's purchase price plus
closing costs and management's estimate, as determined at the time of acquisition, of the
cost of necessary building improvements in the case of acquisitions, or land costs and land
and building improvement costs in the case of development projects, and where appropriate,
other development costs and carrying costs required to reach rent commencement.
</TABLE>
Additionally, during the period from January 1, 2000 through June 30,
2000, the Company sold three parcels of land for approximately $9.3
million. During the period July 1, 2000 through September 30, 2000, the
Company sold three parcels of land for approximately $3.1 million. From
July 1, 1999 through September 30, 1999, the Company sold one parcel of
land for approximately $1.0 million. There were no land sales during the
six months ending June 30, 1999.
Rental property and real estate tax expenses increased to $37.5 million
from $32.5 million for the three months ended September 30, 2000 compared
-20-
<PAGE>
to the same period in 1999, and to $110.3 million from $94.1 million for
the nine months ended September 30, 2000 compared to the same period in
1999. This increase is due to the increase in the number of properties
owned during the respective periods.
Property-level operating income for the "Same Store" properties
(properties owned as of January 1, 1999) increased to $78.9 million for
the three months ended September 30, 2000 from $76.6 million for the
three months ended September 30, 1999, with straightlining (which
recognizes rental revenue evenly over the life of the lease), and
increased to $77.2 million for the three months ended September 30, 2000
from $74.9 million for the three months ended September 30, 1999, without
straightlining. These increases of 2.9% and 3.0%, respectively, are due
to increases in rental rates for the properties.
Property-level operating income for the "Same Store" properties increased
to $234.3 million for the nine months ended September 30, 2000 from
$227.6 million for the nine months ended September 30, 1999, with
straightlining and increased to $229.5 million for the nine months ended
September 30, 2000 from $222.9 million for the nine months ended
September 30, 1999, without straightlining. These increases of 3.0% are
due to increases in the rental rates for the properties.
Set forth below is a schedule comparing the property-level operating
income for the "Same Store" properties for the three and nine months
ended September 30, 2000 and 1999 (in thousands).
<TABLE>
<CAPTION>
WITH STRAIGHTLINING WITHOUT STRAIGHTLINING
--------------------- ----------------------
QUARTER ENDED QUARTER ENDED
--------------------- ----------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2000 1999 2000 1999
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Rental Revenue $ 80,026 $ 77,163 $ 78,372 $ 75,489
--------- --------- --------- ---------
Operating expenses:
Rental property expense 20,467 19,080 20,467 19,080
Real estate taxes 10,602 9,680 10,602 9,680
Operating expense recovery (29,903) (28,215) (29,903) (28,215)
--------- --------- --------- ---------
Unrecovered operating expenses 1,166 545 1,166 545
--------- --------- --------- ---------
Property level operating income $ 78,860 $ 76,618 $ 77,206 $ 74,944
========= ========= ========= =========
WITH STRAIGHTLINING WITHOUT STRAIGHTLINING
--------------------- ----------------------
NINE MONTHS ENDED NINE MONTHS ENDED
--------------------- ----------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2000 1999 2000 1999
--------- --------- --------- ----------
Rental Revenue $237,463 $229,887 $232,667 $225,126
--------- --------- --------- ---------
Operating expenses:
Rental property expense 61,297 57,407 61,297 57,407
Real estate taxes 31,406 27,527 31,406 27,527
Operating expense recovery (89,585) (82,662) (89,585) (82,662)
--------- --------- --------- ---------
Unrecovered operating expenses 3,118 2,272 3,118 2,272
--------- --------- --------- --------
Property level operating income $234,345 $227,615 $229,549 $222,854
========= ========= ========= ========
</TABLE>
-21-
<PAGE>
General and administrative expenses increased to $4.7 million for the
three months ended September 30, 2000 from $4.0 million for the three
months ended September 30, 1999, and to $14.0 million for the nine months
ended September 30, 2000 from $11.9 million for the nine months ended
September 30, 1999. This increase is due to the increase in personnel
and other related overhead costs necessitated by the increase in the
number of properties in operation during the respective periods.
Depreciation and amortization expense increased to $22.9 million for the
three months ended September 30, 2000 from $21.9 million for the three
months ended September 30, 1999, and to $68.4 million for the nine months
ended September 30, 2000, from $62.4 million for the nine months ended
September 30, 1999. This increase is due to an increase in the number of
properties owned during the respective periods.
Interest expense increased to $27.5 million for the three months ended
September 30, 2000 from $24.8 million for the three months ended
September 30, 1999, and to $79.5 million for the nine months ended
September 30, 2000 from $74.3 million for the nine months ended September
30, 1999. These increases are due to an increase in the average debt
outstanding for the respective periods which was $1,594.4 million for the
three months ended September 30, 2000 compared to $1,488.2 million for
the three months ended September 30, 1999, and $1,561.3 million for the
nine months ended September 30, 2000 compared to $1,470.4 million for the
nine months ended September 30, 1999. In addition, the weighted average
interest rates for the respective periods have increased from 7.41% for
the three months ended September 30, 1999 to 7.63% for the three months
ended September 30, 2000, and from 7.29% for the nine months ended
September 30, 1999 to 7.55% for the nine months ended September 30, 2000.
In the third quarter of 2000, the Company realized a gain on sale of $3.0
million, due to the sale of seven properties and three parcels of land
for $18.7 million, and during the nine months ended September 30, 2000
the Company realized a gain on sale of $11.7 million, due to the sale of
13 properties and six parcels of land for $68.7 million. In the third
quarter of 1999, the Company realized a loss on sale of $1.3 million, due
to the sale of 11 properties and one parcel of land for $45.4 million,
and during the nine months ended September 30, 1999 the Company realized
a gain on sale of $11.9 million, due to the sale of 27 properties and one
parcel of land for $105.4 million.
During the nine months ended September 30, 2000, the Company repurchased
$10.9 million principal amount of the Exchangeable Subordinated
Debentures due 2001 of the Operating Partnership (the "Convertible
Debentures"). This resulted in the recognition of an extraordinary loss
in the nine months ended September 30, 2000 totaling $2.1 million. This
loss represents the redemption premium and the write-off of related
deferred financing costs. There were no extraordinary items during the
third quarter of 2000 or during the nine months ended September 30, 1999.
As a result of the foregoing, the Company's income before minority
interest increased to $45.2 million for the three months ended
September 30, 2000 from $35.9 million for the three months ended
September 30, 1999, and increased to $132.3 million for the nine months
ended September 30, 2000 from $116.8 million for the nine months ended
September 30, 1999. In addition, net income increased to $40.1 million
for the three months ended September 30, 2000 from $32.1 million for the
three months ended September 30, 1999, and increased to $117.3 million
for the nine months ended September 30, 2000 from $107.8 million for the
nine months ended September 30, 1999.
-22-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company had cash and cash equivalents of
$5.4 million.
Net cash flow provided by operating activities increased to $187.0
million for the nine months ended September 30, 2000 from $166.9 million
for the nine months ended September 30, 1999. This $20.1 million
increase was primarily due the increase in net income and to the
fluctuations in accounts payable, prepaid expenses and other assets and
other liabilities during the respective periods.
Net cash used in investing activities increased to $223.0 million for the
nine months ended September 30, 2000 from $164.1 million for the nine
months ended September 30, 1999. This increase primarily resulted from
an increase in land held for development and decreased disposition
activity in 2000.
Net cash provided by financing activities increased to $32.3 million for
the nine months ended September 30, 2000 from $31.2 million for the nine
months ended September 30, 1999. This increase is due to an increase in
the Company's financing requirements consistent with its increase in
investing activities, partially offset by a decrease in capital
contributions.
The Company believes that its undistributed cash flow from operations is
adequate to fund its short-term liquidity requirements.
The Company funds its acquisitions and completed development with long-
term capital sources. In the nine months ended September 30, 2000, these
activities were funded through a $450.0 million unsecured line of credit
(the "$450 Million Credit Facility"). This facility was obtained in
April 2000, replacing a $325 million unsecured line of credit and a $90
million term loan due January 2001.
The interest rate on borrowings under the $450 Million Credit Facility
fluctuates based upon the Company's leverage levels or ratings from
Moody's Investors Services, Inc. ("Moody's") and Standard & Poor's
Ratings Group ("Standard & Poor's"). Moody's and Standard & Poor's
currently assign senior debt ratings to the Company of Baa3 and BBB-,
respectively. At these ratings, as of October 31, 2000, the interest
rate for borrowings under the $450 Million Credit Facility is 115 basis
points over LIBOR.
As of September 30, 2000, $367.3 million in mortgage loans and $1,095.0
million in unsecured notes were outstanding. The interest rates on
$1,456.0 million of mortgage loans and unsecured notes are fixed and
range from 6.0% to 9.1%. The interest rates on $6.3 million of mortgage
loans float with LIBOR or a municipal bond index, none of which is
subject to a cap. The weighted average remaining term for the mortgage
loans and the unsecured notes is 7.7 years. The scheduled maturities of
principal amortization of the Company's mortgage loans and the unsecured
-23-
<PAGE>
notes outstanding and the related weighted average interest rates as of
September 30, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
MORTGAGES WEIGHTED
-------------------------- UNSECURED AVERAGE
AMORTIZATION MATURITIES NOTES TOTAL INTEREST RATE
------------ ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
2000 $ 2,461 $ 5,162 $ - $ 7,623 8.3%
2001 9,246 20,122 - 29,368 7.1%
2002 8,147 - 100,000 108,147 6.7%
2003 8,127 26,606 50,000 84,733 7.3%
2004 8,206 16,340 100,000 124,546 7.0%
2005 7,132 115,051 - 122,183 7.6%
2006 5,046 30,079 100,000 135,125 7.2%
2007 4,592 - 100,000 104,592 7.3%
2008 4,280 28,835 - 33,115 7.2%
2009 2,163 42,069 270,000 314,232 7.8%
2010 1,367 - 200,000 201,367 8.5%
2011 1,105 3,302 - 4,407 7.7%
2012 193 17,674 - 17,867 7.7%
2013 - - 75,000 (1) 75,000 6.4%
2018 - - 100,000 100,000 7.5%
------- -------- ---------- ---------- ------
$62,065 $305,240 $1,095,000 $1,462,305 7.5%
======= ======== ========== ========== ======
</TABLE>
(1) Callable 2003.
GENERAL
The Company believes that its existing sources of capital will provide
sufficient funds to finance its continued development and acquisition
activities. The Company's existing sources of capital include the public
debt and equity markets, proceeds from property dispositions and net
cash provided from its operating activities. Additionally, the Company
expects to incur variable rate debt, including borrowings under the $450
Million Credit Facility, from time to time.
In 1999, the Company received approximately $93.0 million in aggregate
net proceeds from the issuance of 9.25% Series B Cumulative Redeemable
Preferred Units, $135.0 million from the closing of a two-year unsecured
term loan, and approximately $246.0 million in aggregate net proceeds
from the issuance of unsecured notes. In 2000, the Company received
approximately $19.5 million in aggregate net proceeds from the issuance
of 9.125% Series C Cumulative Redeemable Preferred Units, and
approximately $197.1 million in aggregate net proceeds from the issuance
of unsecured notes. The Company used the aggregate net proceeds from
issuance of the preferred units, term loan and unsecured notes to fund
the Company's activities, including paying down the credit facility,
which funds development and acquisition activity.
In October 1999, the Board of Trustees authorized a share repurchase
program. Pursuant to the Plan, as amended, the Company may purchase up
to $100 million of the Company's Common Shares, Convertible Debentures or
Preferred Shares. Through October 31, 2000, the Company purchased 59,100
Common Shares and purchased Convertible Debentures exchangeable into
877,950 Common Shares. The total cost for the purchase of the Common
Shares and Convertible Debentures was approximately $21.9 million.
The Company has an effective S-3 shelf registration statement on file
with the Securities and Exchange Commission. As of October 31, 2000, the
Company had the capacity pursuant to this shelf registration statement to
-24-
<PAGE>
issue $688.4 million in equity securities and the Operating Partnership
had the capacity to issue $508.0 million in debt securities.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. In June 1999, the FASB issued SFAS No. 137, amending SFAS No. 133
by extending the required date of adoption to the years beginning after
June 15, 2000. The impact of SFAS No. 133 will be dependent upon the
extent of derivative instruments held by the Company and the market for
such instruments as of January 1, 2001 and each measurement date
thereafter.
CALCULATION OF FUNDS FROM OPERATIONS
Management generally considers Funds from operations (as defined below) a
useful financial performance measure of the operating performance of an
equity REIT, because, together with net income and cash flows, Funds from
operations provides investors with an additional basis to evaluate the
ability of a REIT to incur and service debt and to fund development,
acquisitions and capital expenditures. Funds from operations is defined
by NAREIT as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from sales of
property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Funds from operations
does not represent net income or cash flows from operations as defined by
generally accepted accounting principles and does not necessarily
indicate that cash flows will be sufficient to fund cash needs. It
should not be considered as an alternative to net income as an indicator
of the Company's operating performance or to cash flows as a measure of
liquidity. Funds from operations also does not represent cash flows
generated from operating, investing or financing activities as defined by
generally accepted accounting principles. Funds from operations for the
three and nine months ended September 30, 2000 and September 30, 1999 are
as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS) (IN THOUSANDS)
--------------------- ---------------------
SEPT. 30, SEPT. 30, SEPT. 30, SEPT. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Income available to common shareholders $ 37,341 $ 29,343 $109,041 $ 99,523
Addback:
Minority interest less preferred unit
distributions 2,439 2,273 7,577 7,494
Depreciation and amortization 22,598 21,385 67,310 61,283
Extraordinary item-loss on extin-
guishment of debt - - 2,103 -
Loss (gain) on sale of property (2,964) 1,270 (11,712) (11,941)
========= ========= ========= =========
Funds from operations $ 59,414 $ 54,271 $174,319 $156,359
========= ========= ========= =========
</TABLE>
-25-
<PAGE>
INFLATION
---------
Inflation has remained relatively low during the last three years, and as
a result, it has not had a significant impact on the Company during this
period. The $450 Million Credit Facility bears interest at a variable
rate; therefore, the amount of interest payable under the $450 Million
Credit Facility will be influenced by changes in short-term interest
rates, which tend to be sensitive to inflation. To the extent an increase
in inflation would result in increased operating costs, such as in
insurance, real estate taxes and utilities, substantially all of the
tenants' leases require the tenants to absorb these costs as part of
their rental obligations. In addition, inflation also may have the effect
of increasing market rental rates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------
There have been no material changes to the Company's exposure to market
risk since its Annual Report on Form 10-K for the year ended December 31,
1999.
-26-
<PAGE>
PART II: OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
In September 2000, Walton Street Real Estate Fund II, L.P. and
Walton Street Managers II, L.P. acquired a total of 314,709
common shares of beneficial interest of Liberty Property Trust
in exchange for the same number of units of limited partnership
interest in Liberty Property Limited Partnership. Such person
acquired these units of limited partnership interest in
connection with their contribution to the Operating Partnership
of certain assets on July 16, 1998. The exchange of the common
shares of beneficial interest for the units of limited
partnership interest is exempt from the registration
requirement of the Securities Act of 1933, as amended, pursuant
to Section 4(2) thereunder.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the 2000 Annual Meeting of Shareholders of the Trust,
management's nominees, Joseph P. Denny, David L. Lingerfelt and
John A. Miller, were elected to fill the three available
positions as Class III trustees. Voting (expressed in number of
shares) was as follows: Mr. Denny: 53,857,699 for, 326,885
against or withheld and no abstentions or broker non-votes; Mr.
Lingerfelt: 53,857,115 for, 327,469 against or withheld and no
abstentions or broker non-votes; and Mr. Miller: 53,830,509 for,
354,075 against or withheld and no abstentions or broker non-
votes.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27 Financial Data Schedule (EDGAR Version Only)
b. Reports on Form 8-K
During the quarter ended September 30, 2000, the Registrants
filed one Current Report on Form 8-K dated July 31, 2000
reporting Items 5 and 7 and containing as an Exhibit the
Underwriting Agreement dated July 26, 2000 among the
Registrants and the Underwriters (as defined therein)
-27-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIBERTY PROPERTY TRUST
/s/ WILLARD G. ROUSE III November 13, 2000
------------------------------------- --------------------------
Willard G. Rouse III Date
Chairman of the Board of Trustees,
President and Chief Executive Officer
/s/ GEORGE J. ALBURGER, JR. November 13, 2000
------------------------------------- --------------------------
George J. Alburger, Jr. Date
Chief Financial Officer
LIBERTY PROPERTY LIMITED PARTNERSHIP
By: LIBERTY PROPERTY TRUST, GENERAL PARTNER
/s/ WILLARD G. ROUSE III November 13, 2000
------------------------------------- --------------------------
Willard G. Rouse III Date
Chairman of the Board of Trustees,
President and Chief Executive Officer
/s/ GEORGE J. ALBURGER, JR. November 13, 2000
------------------------------------- --------------------------
George J. Alburger, Jr. Date
Chief Financial Officer
-28-
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -------------------------------------------------------
27 Financial Data Schedule (EDGAR version only)
-29-
